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<CIK>0001071739
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<STREET1>7711 CARONDELET AVE
<CITY>ST LOUIS
<STATE>MO
<ZIP>63105
<PHONE>3147254477
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<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------

                                   Form 10-K

<Table>
<C>          <S>
 (MARK ONE)
    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934



             For the fiscal year ended December 31, 2002



                                   or




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934



             For the transition period from           to
</Table>

                       COMMISSION FILE NUMBER: 000-33395
                             ---------------------

                              CENTENE CORPORATION
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      04-1406317
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                     Identification Number)

      7711 CARONDELET AVENUE, SUITE 800                            63105
             ST. LOUIS, MISSOURI                                 (Zip Code)
   (Address of principal executive offices)
</Table>

              Registrant's telephone number, including area code:
                                 (314) 725-4477

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)
                             ---------------------
     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [X]     No [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the last reported sale price of the common stock on
the Nasdaq National Market on February 20, 2003, was $244,209,190.

     As of February 20, 2003, the registrant had 10,932,442 shares of common
stock outstanding.
                             ---------------------
                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the registrant's 2003 annual meeting of
stockholders are incorporated by reference in Part II, Item 5 and Part III,
Items 10, 11, 12 and 13.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<S>       <C>                                                           <C>
                                  PART I

Item 1.   Business....................................................    3

Item 2.   Properties..................................................   14

Item 3.   Legal Proceedings...........................................   14

Item 4.   Submission of Matters to a Vote of Security Holders.........   15

                                  PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   15

Item 6.   Selected Financial Data.....................................   16

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   17

Item 7a.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   34

Item 8.   Financial Statements and Supplementary Data.................   34

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   35

                                 PART III

Item 10.  Directors and Executive Officers of the Registrant..........   35

Item 11.  Executive Compensation......................................   38

Item 12.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters..................   38

Item 13.  Certain Relationships and Related Transactions..............   38

Item 14.  Controls and Procedures.....................................   38

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   39

Signatures............................................................   71
</Table>

"CENTENE," "NURSEWISE" and "START SMART FOR YOUR BABY" are our registered
service marks, and "CONNECTIONS" is our trademark. This report also contains
trademarks, service marks and trade names of other companies.

                                        2
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

                                    OVERVIEW

     We provide managed care programs and related services to individuals
receiving benefits under Medicaid, including Supplemental Security Income, or
SSI, and the State Children's Health Insurance Program, or SCHIP. We have health
plans in Wisconsin, Texas, Indiana and New Jersey. We believe our local approach
to managing our health plans, including provider and member services, enables us
to provide accessible, high quality, culturally-sensitive healthcare services to
our members. Our disease management, educational and other initiatives are
designed to help members best utilize the healthcare system to ensure they
receive appropriate, medically necessary services and effective management of
routine health problems, as well as more severe acute and chronic conditions. We
combine our decentralized local approach with centralized finance, information
systems, claims processing and medical management support functions.

     We were organized in Wisconsin in 1993 as Coordinated Care Corporation. We
initially were formed to serve as a holding company for a Medicaid managed care
line of business that has been operating in Wisconsin since 1984. We changed our
corporate name to Centene Corporation in 1997 and reincorporated in Delaware in
November 2001.

     We maintain a website with the address www.centene.com. We are not
including the information contained on our website as part of, or incorporating
it by reference into, this report. We make available free of charge through our
website our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and any amendments to these reports, as soon as
reasonably practicable after we electronically file such material with, or
furnish such material to, the SEC.

                                  OUR APPROACH

     Our approach to managed care is based on the following key attributes:

     - Medicaid Expertise.  Over the last 19 years, we have developed a
       specialized Medicaid expertise that has helped us establish and maintain
       strong relationships with our constituent communities of members,
       providers and state governments. We have implemented programs developed
       to achieve savings for state governments and improve medical outcomes for
       members by reducing inappropriate emergency room use, inpatient days and
       high cost interventions, as well as by managing care of chronic
       illnesses. We do this primarily by providing nurse case managers who
       support our physicians in implementing disease management programs and by
       providing incentives for our physicians to provide preventive care on a
       regular basis. We recruit and train staff and providers who are attentive
       to the needs of our members and who are experienced in working with
       culturally diverse, low-income Medicaid populations. Our experience in
       working with state regulators helps us to implement and deliver our
       programs and services efficiently and affords us opportunities to provide
       input on Medicaid industry practices and policies in the states in which
       we operate.

     - Localized Services, Support and Branding.  We provide access to
       healthcare services through local networks of providers and staff that
       focus on the cultural norms of their individual communities. Our systems
       and procedures have been designed to address these community-specific
       challenges through outreach, education, transportation and other member
       support activities. For example, our community outreach program employs
       several former Medicaid recipients to work with our members and their
       communities to promote health, and to promote self-improvement through
       employment and education. We use locally recognized plan names, and we
       tailor our materials and processes to meet the needs of the communities
       and the state programs we serve. Our approach to community-based service
       results in local accountability and solidifies our decentralized
       management and operational structure.

                                        3
<PAGE>

     - State Budget Deficits.  Our approach in these difficult economic times
       for states is to work with state agencies on redefining benefit levels,
       eligibility requirements and provider fee schedules in order to maximize
       the number of uninsured individuals covered through Medicaid and SCHIP
       while maintaining adequate levels of provider compensation.

     - Physician-Driven Approach.  We have implemented a physician-driven
       approach in which our physicians are actively engaged in developing and
       implementing our healthcare delivery policies and strategies. Our local
       boards of directors, which help shape the character and quality of our
       organization, have significant provider representation in each of our
       principal geographic markets. This approach is designed to eliminate
       unnecessary costs, improve service to our members and simplify the
       administrative burdens on our providers. It has enabled us to strengthen
       our provider networks through improved physician recruitment and
       retention that, in turn, have helped to increase our membership base.

     - Efficiency of Business Model.  We have designed our business model to
       allow us to readily add new members in our existing markets and expand
       into new regions in which we may choose to operate. The combination of
       our decentralized local approach to operating our health plans and our
       centralized finance, information systems, claims processing and medical
       management support functions allows us to quickly and economically
       integrate new business opportunities. Because of our business model, we
       believe we would be able to quickly recover from a disaster in one of our
       plan locations by moving member and physician services to one of our
       other locations.

     - Specialized Systems and Technology.  Through our specialized information
       systems, we are able to strengthen our relationships with providers and
       states, which help us to grow our membership base. These systems also
       help us identify needs for new healthcare programs. Physicians can use
       our claims, utilization and membership data to manage their practices
       more efficiently, and they benefit from our timely and accurate payments.
       State agencies can use data from our information systems to demonstrate
       that their Medicaid populations are receiving quality healthcare in an
       efficient manner.

     - Complementary Business Lines.  We have begun to broaden our service
       offerings to address areas that we believe have been traditionally
       underserved by Medicaid managed care organizations. We believe other
       business lines, such as our NurseWise triage program, will allow us to
       expand our services and diversify our sources of revenue.

                                  OUR STRATEGY

     Our objective is to become the leading national Medicaid managed care
organization. We intend to achieve this objective by implementing the following
key components of our strategy:

     - Increase Penetration of Existing State Markets.  We intend to continue to
       increase our membership in states in which we currently operate through
       alliances with key providers, outreach efforts, development and
       implementation of community-specific products and acquisitions. For
       example, in Indiana, where the state assigns members to physicians, we
       increased our membership in 2002 by recruiting additional physicians. We
       may also increase membership by acquiring Medicaid businesses, contracts
       and other related assets from our competitors in our existing markets,
       such as our purchase of Texas Universities Health Plan's SCHIP contracts
       in 2002.

     - Develop and Acquire Additional State Markets.  We continue to leverage
       our experience in identifying and developing new markets by seeking both
       to acquire existing businesses and to build our own operations. We expect
       to focus our expansion on states where Medicaid recipients are mandated
       to enroll in managed care organizations. For example, we entered the New
       Jersey market by acquiring 80% of the equity of University Health Plans,
       Inc., or UHP, on December 1, 2002.

     - Address Emerging State Needs.  We are working to assist the states in
       which we operate in addressing the financial and other challenges they
       face in these difficult economic times. We seek to assist the states in
       balancing premium rates, benefit levels, member eligibility, policies and
       practices, and provider compensation. By helping states structure an
       appropriate level and range of Medicaid and
                                        4
<PAGE>

       SCHIP services, we seek to ensure that we are able to continue to provide
       those services on terms that protect our targeted gross margins and
       provide an acceptable return to our stockholders.

     - Diversify Our Business Lines.  We seek to broaden our business lines into
       areas that complement our business to enable us to grow our revenue
       stream and decrease our dependence on Medicaid reimbursement. In addition
       to NurseWise, we are considering services such as behavioral health,
       disease management and other Medicaid related, fee-for-service lines of
       business that would complement our core business. We believe we may have
       opportunities to offer these services to other managed care organizations
       and states.

     - Leverage Our Information Technologies to Enhance Operating
       Efficiencies.  We intend to continue to invest in our centralized
       information systems to further streamline our processes and drive
       efficiencies in our operations and to add functionality to improve the
       service we provide to our members. Our information systems enable us to
       add members and markets quickly and economically. For example, we began
       paying claims for UHP out of our centralized claims facility within the
       first week after we acquired an 80% equity interest in the New Jersey
       health plan.

                               MEDICAID AND SCHIP

     Medicaid is a health insurance program for low-income families and
individuals with disabilities. Each state establishes its own eligibility
standards, benefit packages, payment rates and program administration within
federal standards. As a result, there are 56 Medicaid programs -- one for each
state, each territory and the District of Columbia. Medicaid eligibility is
based on a combination of income and asset requirements subject to federal
guidelines. Financial requirements are most often determined by an income level
relative to the federal poverty level. Historically, children have represented
the largest eligibility group for Medicaid.

     SSI covers low-income aged, blind and disabled persons. SSI beneficiaries
represent a growing portion of all Medicaid recipients, and SSI recipients
typically utilize more services because of their more critical health issues.

     SCHIP was established to provide coverage for low-income children not
otherwise covered by Medicaid or other insurance programs. All states have
adopted SCHIP.

     Since the early 1980s, increasing healthcare costs combined with
significant growth in the number of Medicaid recipients have led many states to
establish Medicaid managed care initiatives. State premium payments to managed
care plans are financed in part by the federal government. In recent years, a
growing number of states, including each of the states in which we operate, have
mandated that their Medicaid recipients enroll in managed care plans.

                          MEMBER PROGRAMS AND SERVICES

     We recognize the importance of member-focused services in the delivery of
quality managed care services. Our locally based staff assists members in
accessing care, coordinating referrals to related health and social services,
and addressing member concerns and questions. While covered healthcare benefits
vary from state to state, our health plans generally provide the following
services:

     - primary and specialty physician care;

     - inpatient and outpatient hospital care;

     - emergency and urgent care;

     - prenatal care;

     - laboratory and x-ray services;

     - home health and durable medical equipment;

     - behavioral health and substance abuse services;
                                        5
<PAGE>

     - after hours nurse advice line;

     - transportation assistance;

     - health status calls to coordinate care;

     - vision care;

     - dental care;

     - immunizations; and

     - prescriptions and limited over-the-counter drugs.

     We also provide the following education and outreach programs to inform and
assist members in accessing quality, appropriate healthcare services in an
efficient manner:

     - CONNECTIONS is designed to create a link between the member and the
       provider and help identify potential challenges or risk elements to a
       member's health, such as abuse risks, nutritional challenges and health
       education shortcomings. CONNECTIONS representatives, some of whom are
       former Medicaid enrollees, also contact new members by phone or mail to
       discuss managed care, the Medicaid program and our services. They make
       home visits, conduct educational programs and represent the plan at
       community events such as health fairs.

     - NurseWise provides a toll-free nurse triage line 24 hours per day, 7 days
       per week, 52 weeks per year. Our members call one number and reach
       customer service representatives and bilingual nursing staff who provide
       health education, triage advice and offer continuous access to
       health-plan functions. Additionally, our representatives verify
       eligibility, confirm primary care provider assignments and provide
       benefit and network referral coordination for members and providers after
       business hours. Our staff can arrange for urgent pharmacy refills,
       transportation and contact qualified behavioral health professionals for
       crisis stabilization assessments. Currently, NurseWise is receiving over
       18,000 inbound calls and making over 3,000 outbound calls per month.

     - Start Smart For Your Baby is a prenatal and infant health program
       designed to increase the percentage of pregnant women receiving early
       prenatal care, reduce the incidence of low birth weight babies, identify
       high risk pregnancies, increase participation in the federal Women,
       Infant, and Children program, and increase well-child visits. The program
       includes risk assessments, education through face-to-face meetings and
       materials, behavior modification plans and assistance in selecting a
       provider for the infant and scheduling newborn follow-up visits.

     - EPSDT Case Management is a preventive care program designed to educate
       our members on the benefits of Early and Periodic Screening, Diagnosis
       and Treatment, or EPSDT, services. We have a systematic program of
       communication, tracking, outreach, reporting, and follow-through that
       promotes state EPSDT programs.

     - Disease Management Programs are designed to help members understand their
       disease and treatment plan, and improve or maintain their quality of
       life. These programs address medical conditions that are common within
       the Medicaid population such as asthma, diabetes and prenatal care.

                                   PROVIDERS

     For each of our service areas, we establish a provider network consisting
of primary and specialty care physicians, hospitals and ancillary providers. As
of January 31, 2003, our health plans had the following numbers of physicians
and hospitals:

<Table>
<Caption>
                                          WISCONSIN   TEXAS   INDIANA   NEW JERSEY   TOTAL
                                          ---------   -----   -------   ----------   ------
<S>                                       <C>         <C>     <C>       <C>          <C>
Primary Care Physicians.................    2,510     1,065     425       2,192       6,192
Specialty Care Physicians...............    3,079     2,290     496       6,604      12,469
Hospitals...............................       51        45      14          91         201
</Table>

                                        6
<PAGE>

     The primary care physician is a critical component in care delivery, and
also in the management of costs and the attraction and retention of new members.
Primary care physicians include family and general practitioners, pediatricians,
internal medicine physicians and OB/GYNs. Specialty care physicians provide
medical care to members generally upon referral by the primary care physicians.

     We work with physicians to help them operate efficiently by providing
financial and utilization information, physician and patient educational
programs and disease and medical management programs, as well as adhering to a
prompt payment policy. Our programs are also designed to help the physicians
coordinate care outside of their offices.

     We believe our collaborative approach with physicians gives us a
competitive advantage in entering new markets. Our physicians serve on local
committees that assist us in implementing preventive care programs, managing
costs and improving the overall quality of care delivered to our members, while
assuming responsibility for medical policy decision making. The following are
among the services we provide to support physicians:

     - Customized Utilization Reports provide our contracted physicians with
       information that enables them to run their practices more efficiently and
       focuses them on specific patient needs. For example, quarterly fund
       detail reports update physicians on their status within their risk pools.
       Equivalency reports provide physicians with financial comparisons of
       capitated versus fee-for-service arrangements.

     - Case Management Support helps the physician coordinate specialty care and
       ancillary services for patients with complex conditions and direct
       members to appropriate community resources to address both their health
       and socio-economic needs.

     - Web-based Claims and Eligibility Resources have been implemented in
       selected markets to provide physicians with on-line access to perform
       claims and eligibility inquiries.

     Our physicians also benefit from several of the services offered to our
members, including the CONNECTIONS, EPSDT case management and disease management
programs. For example, the CONNECTIONS staff facilitate doctor/patient
relationships by connecting members with physicians, the EPSDT programs
encourage routine checkups for children with their physicians and the disease
management programs assist physicians in managing their patients with chronic
disease.

     We provide access to healthcare services for our members primarily through
non-exclusive contracts with our providers. Our contracts with primary and
specialty care physicians and hospitals usually are for one to two-year periods
and renew automatically for successive one-year terms, but generally are subject
to termination by either party upon 90 to 120 days' prior written notice. In the
absence of a contract, we typically pay providers at state Medicaid
reimbursement levels. We pay physicians under a capitated or fee-for-service
arrangement.

     - Under our capitated contract, primary care physicians are paid a monthly
       capitation rate for each of our members assigned to his or her practice
       and are at risk for all costs related to primary and specialty physician
       and emergency room services. In return for this payment, these physicians
       provide all primary care and preventive services, including primary care
       office visits and EPSDT services. If these physicians also provide
       non-capitated services to their assigned members, they may bill and be
       paid under fee-for-service arrangements at Medicaid rates.

     - Under our fee-for-service contracts with physicians, particularly
       specialty care physicians, we pay the physicians a negotiated fee for
       covered services. This model is characterized as having no financial risk
       for the physician.

     We also contract with ancillary providers on a negotiated fee arrangement
for physical therapy, mental health and chemical dependency care, home
healthcare, vision care, diagnostic laboratory tests, x-ray examinations,
ambulance services and durable medical equipment. Additionally, we contract with
dental vendors in markets where routine dental care is a covered benefit. In
Wisconsin and Indiana, where prescription and limited over-the-counter drugs are
a covered benefit, we have a capitated arrangement with a national pharmacy
vendor that provides a pharmacy network.
                                        7
<PAGE>

                                  HEALTH PLANS

     We have four health plan subsidiaries offering healthcare services in
Wisconsin, Texas, Indiana and New Jersey. We have never been denied a contract
renewal from a state in which we do business. The table below provides summary
data for the markets we currently serve.

<Table>
<Caption>
                             WISCONSIN       TEXAS           INDIANA         NEW JERSEY
                           --------------  ----------  -------------------  ------------
<S>                        <C>             <C>         <C>                  <C>
Local Health Plan Name...  Managed Health   Superior    Coordinated Care     University
                              Services     HealthPlan  Corporation Indiana  Health Plans
First Year of
  Operations.............       1984          1999            1995              1994
Counties Licensed........        21            17              92                15
Membership at December
  31, 2002...............     133,000       118,000          105,700           52,900
</Table>

     We acquired 80% of the equity of University Health Plans on December 1,
2002, and we will acquire the remaining equity of UHP by no later than December
1, 2005, as described below under "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Overview." For additional
information about UHP, see Note 21 to our consolidated financial statements.

                                     STATES

     Our ability to establish and maintain our position as a leader in the
markets we serve results primarily from our demonstrated success in providing
quality care while reducing and managing costs for, and our customer-focused
approach to working with, state governments. Among the benefits we are able to
provide to the states with which we contract are:

     - expertise in Medicaid managed care;

     - improved medical outcomes;

     - timely payment of provider claims;

     - timely and accurate reporting;

     - cost saving outreach and disease management programs; and

     - responsible collection and dissemination of encounter data.

                               QUALITY MANAGEMENT

     Our medical management program focuses on improving quality of care in
areas that have the greatest impact on our members. We employ strategies
including disease management and complex case management that are fine-tuned for
implementation in our individual markets by a system of physician committees
chaired by local physician leaders. This process promotes physician
participation and support, both critical factors in the success of any clinical
quality improvement program.

     We have implemented specialized information systems to support our medical
quality management activities. Information is drawn from our data warehouse, the
clinical databases and AMISYS as sources to identify opportunities to improve
care and to track the outcomes of the interventions implemented to achieve those
improvements. Some examples of these intervention programs include:

     - a prenatal case management program to help women with high-risk
       pregnancies deliver full-term, healthy infants;

     - a program to reduce the number of inappropriate emergency room visits;
       and

     - a disease management program to decrease the need for emergency room
       visits and hospitalizations for asthma patients.

                                        8
<PAGE>

     Additionally, we provide reporting on a regular basis using our data
warehouse. State and Health Employer Data and Information Set, or HEDIS,
reporting constitutes the core of the information base that drives our clinical
quality performance efforts. This reporting is monitored by Plan Quality
Improvement Committees and our corporate medical management team.

     In order to ensure the quality of our provider networks, we verify the
credentials and background of our providers using standards that are supported
by the National Committee for Quality Assurance.

                         MANAGEMENT INFORMATION SYSTEMS

     The ability to access data and translate them into meaningful information
is essential to operating across a multi-state service area in a cost-effective
manner. Our centralized information systems located in Saint Louis, Missouri,
support our core processing functions under a set of integrated databases and
are designed to be both replicable and scalable to accommodate internal growth
and growth from acquisitions. We have the ability to leverage the platform we
have developed for one state for configuration into new states or health plan
acquisitions. This integrated approach helps to assure that consistent sources
of claim and member information are provided across all of our health plans. The
system is currently configured and is supporting claims automatic adjudication
rates of approximately 84% in all markets. Our AMISYS production system is
capable of supporting over one million members.

     We have a disaster recovery and business resumption plan developed and
implemented in conjunction with a third party. This plan allows us complete
access to the business resumption centers and hot-site facilities provided by
it. We have contracted with the third party to provide us with annual plan
updates through 2005.

                              CORPORATE COMPLIANCE

     Our Corporate Ethics and Compliance Programs were first established in 1998
and provide methods by which we further enhance operations, safeguard against
fraud and abuse, improve access to quality care, and help assure that our values
are reflected in everything we do.

     The two primary standards by which corporate compliance programs in the
health care industry are measured are the 1991 Federal Organizational Sentencing
Guidelines and the "Compliance Program Guidance" issued by the Office of the
Inspector General, or OIG, of the Department of Health and Human Services.

     Our program contains each of the seven elements suggested by the Sentencing
Guidelines and the OIG Guidance. These key components are:

     - written standards of conduct;

     - designation of a corporate compliance officer and compliance committee;

     - effective training and education;

     - effective lines for reporting and communication;

     - enforcement of standards through disciplinary guidelines and actions;

     - internal monitoring and auditing; and

     - prompt response to detected offenses and development of corrective action
       plans.

     Our internal Corporate Compliance website, accessible by all employees,
contains our Business Ethics and Conduct Policy; our Mission, Values and
Philosophies and Compliance Programs, a company-wide policy and procedure
database and our toll-free hotline to allow employees or other persons to report
anonymously suspected incidents of fraud, abuse or other violations of our
corporate compliance program.

                                        9
<PAGE>

                                  COMPETITION

     In the Medicaid business, our principal competitors for state contracts,
members and providers consist of the following types of organizations:

     - Primary Care Case Management Programs are programs established by the
       states through contracts with primary care providers. Under these
       programs, physicians provide primary care services to Medicaid
       recipients, as well as limited medical management oversight.

     - National and Regional Commercial Managed Care Organizations have Medicaid
       and Medicare members in addition to members in private commercial plans.

     - Medicaid Managed Care Organizations focus solely on providing healthcare
       services to Medicaid recipients, the vast majority of which operate in
       one city or state. Providers, especially hospitals, own many of these
       plans. Their membership is small relative to the infrastructure that is
       required for them to do business. There are a few multi-state
       Medicaid-only organizations that tend to be larger in size and therefore
       are able to leverage their infrastructure over larger memberships.

     We will continue to face varying levels of competition as we expand in our
existing service areas or enter new markets as federal regulations require at
least two competitors in each service area. Healthcare reform proposals may
cause a number of commercial managed care organizations already in our service
areas to decide to enter or exit the Medicaid market. However, the licensing
requirements and bidding and contracting procedures in some states present
barriers to entry into the Medicaid managed healthcare industry.

     We compete with other managed care organizations for state contracts. In
order to win a bid for or be awarded a state contract, state governments
consider many factors, which include providing quality care, satisfying
financial requirements, demonstrating an ability to deliver services, and
establishing provider networks and infrastructure. Some of the factors may be
outside our control.

     We also compete to enroll new members and retain existing members. People
who wish to enroll in a managed healthcare plan or to change healthcare plans
typically choose a plan based on the quality of care and service offered, ease
of access to services, a specific provider being part of the network and the
availability of supplemental benefits.

     We also compete with other managed care organizations to enter into
contracts with physicians, physician groups and other providers. We believe the
factors that providers consider in deciding whether to contract with us include
existing and potential member volume, reimbursement rates, medical management
programs, timeliness of reimbursement and administrative service capabilities.

                                   REGULATION

     Our healthcare operations are regulated at both state and federal levels.
Government regulation of the provision of healthcare products and services is a
changing area of law that varies from jurisdiction to jurisdiction. Regulatory
agencies generally have discretion to issue regulations and interpret and
enforce laws and rules. Changes in applicable laws and rules also may occur
periodically.

MANAGED CARE ORGANIZATIONS

     Our four health plan subsidiaries are licensed to operate as health
maintenance organizations in each of Wisconsin, Texas, Indiana, and New Jersey.
In each of the jurisdictions in which we operate, we are regulated by the
relevant health, insurance and/or human services departments that oversee the
activities of managed care organizations providing or arranging to provide
services to Medicaid enrollees.

     The process for obtaining authorization to operate as a managed care
organization is lengthy and involved and requires demonstration to the
regulators of the adequacy of the health plan's organizational structure,
financial resources, utilization review, quality assurance programs and
complaint procedures. Under both state managed care organization statutes and
state insurance laws, our health plan subsidiaries must comply with minimum
statutory capital requirements and other financial requirements, such as minimum
capital, deposit
                                        10
<PAGE>

and reserve requirements. Insurance regulations may also require the prior state
approval of acquisitions of other managed care organizations' businesses and the
payment of dividends, as well as notice requirements for loans or the transfer
of funds. Our subsidiaries are also subject to periodic reporting requirements.
In addition, each health plan must meet numerous criteria to secure the approval
of state regulatory authorities before implementing operational changes,
including the development of new product offerings and, in some states, the
expansion of service areas.

MEDICAID

     In order to be a Medicaid managed care organization in each of the states
in which we operate, we must operate under a contract with the state's Medicaid
agency. States generally use either a formal proposal process, reviewing a
number of bidders, or award individual contracts to qualified applicants that
apply for entry to the program.

     We have entered into a contract with the Wisconsin Department of Health and
Family Services to provide Medicaid services. The contract commenced January 1,
2002 and has a scheduled termination of December 31, 2003. We expect to renew
this contract for an additional two-year term prior to its expiration. The
contract can be terminated if a change in state or federal laws, rules or
regulations materially affects either party's rights or responsibilities under
the contract. We receive monthly payments under the contract based on specified
capitation rates calculated on an actuarial basis.

     We have also entered into an agreement with Network Health Plan of
Wisconsin, Inc. pursuant to which Network Health Plan subcontracts to us their
Medicaid services under their contract with the State of Wisconsin. The
agreement commenced January 1, 2001 and has a scheduled termination of December
31, 2006. The agreement renews automatically for successive five-year terms and
can be terminated by either party upon two years notice prior to the end of the
then current term. The agreement may also be terminated if a change in state or
federal laws, rules or regulations materially affects either party's rights or
responsibilities under the contract, or if Network Health Plan's contract with
the State of Wisconsin is terminated. We receive a monthly payment based on a
percentage of all premium and supplemental payments and other compensation
received by Network Health Plan from the State of Wisconsin.

     We presently are party to several contracts with the Texas Health and Human
Services Commission to provide Medicaid and SCHIP managed care services in our
Texas markets through our Superior HealthPlan, Inc. subsidiary. Our Texas
Medicaid contracts commenced September 1, 2001 and have scheduled termination
dates of August 31, 2003. Each Medicaid contract is renewable for an additional
one-year period. The SCHIP contracts began on October 1, 2002 and are scheduled
to end on August 31, 2003. The contracts generally may be terminated upon any
event of default or in the event state or federal funding for Medicaid programs
is no longer available. We receive monthly payments under each of our Texas
contracts based on specified capitation rates calculated on an actuarial basis.

     We have entered into a contract with the State of Indiana to provide
Indiana Medicaid and Indiana Children's Health Insurance Program services. The
contract commenced January 1, 2003 and has a scheduled termination of December
31, 2004. This contract may be terminated by the state without cause upon sixty
days prior written notice. We are paid based on specified capitation rates for
our services.

     As part of the acquisition of UHP, we obtained a contract with the State of
New Jersey Department of Human Services to provide Medicaid and SCHIP services.
The contract commenced on July 1, 2002 and has a scheduled termination date of
June 30, 2003. The agreement is renewable annually for successive twelve-month
periods. The contract may be terminated by the state for event of default or
significant change in circumstances. We receive monthly payments based on
specified capitation rates for our services.

     Our contracts with the states and regulatory provisions applicable to us
generally set forth in great detail the requirements for operating in the
Medicaid sector, including provisions relating to:

     - eligibility, enrollment and disenrollment processes;

     - covered services;

                                        11
<PAGE>

     - eligible providers;

     - subcontractors;

     - record-keeping and record retention;

     - periodic financial and informational reporting;

     - quality assurance;

     - marketing;

     - financial standards;

     - timeliness of claims payment;

     - health education and wellness and prevention programs;

     - safeguarding of member information;

     - fraud and abuse detection and reporting;

     - grievance procedures; and

     - organization and administrative systems.

     A health plan's compliance with these requirements is subject to monitoring
by state regulators and by the federal government's Centers for Medicare and
Medicaid Services, or CMS. A health plan is also subject to periodic
comprehensive quality assurance evaluations by a third party reviewing
organization and generally by the insurance department of the jurisdiction that
licenses the health plan. A health plan must also submit many reports to various
regulatory agencies, including quarterly and annual statutory financial
statements and utilization reports.

HIPAA

     In 1996, Congress enacted the Health Insurance Portability and
Accountability Act of 1996, or HIPAA. The Act is designed to improve the
portability and continuity of health insurance coverage and simplify the
administration of health insurance claims. One of the main requirements of HIPAA
is the implementation of standards for the processing of health insurance claims
and for the security and privacy of individually identifiable health
information.

     In August 2000, the Department of Health and Human Services, or HHS, issued
new standards for submitting electronic claims and other administrative
healthcare transactions. The new standards were designed to streamline the
processing of claims, reduce the volume of paperwork and provide better service.
The administrative and financial healthcare transactions covered include:

     - health claims and equivalent encounter information;

     - enrollment and disenrollment in a health plan;

     - eligibility for a health plan;

     - healthcare payment and remittance advice;

     - health plan premium payments;

     - coordination of benefits;

     - healthcare claim status; and

     - referral certification and authorization.

     Health plans other than certain smaller health plans were required to
comply with the new standards by October 2002, but the deadline was extended to
October 2003 for health plans that submitted a written compliance plan to CMS by
October 2002. The regulation's requirements apply to transactions conducted

                                        12
<PAGE>

using "electronic media." Because "electronic media" is defined broadly to
include "transmissions that are physically moved from one location to another
using magnetic tape, disk or compact disk media," many communications will be
considered electronically transmitted. In addition, health plans will be
required to have the capacity to accept and send all standard transactions in a
standardized electronic format. The regulation sets forth other rules that apply
specifically to health plans as follows:

     - a plan may not delay processing of a standard transaction (that is, it
       must complete transactions using the new standards at least as quickly as
       it had prior to implementation of the new standards);

     - there should be "no degradation in the transmission of, receipt of,
       processing of, and response to" a standard transaction as compared to the
       handling of a non-standard transaction;

     - if a plan uses a healthcare clearinghouse to process a standard request,
       the other party to the transaction may not be charged more or otherwise
       disadvantaged as a result of using the clearinghouse;

     - a plan may not reject a standard transaction on the grounds that it
       contains data that is not needed or used by the plan;

     - a plan may not adversely affect (or attempt to adversely affect) the
       other party to a transaction for requesting a standard transaction; and

     - if a plan coordinates benefits with another plan, then upon receiving a
       standard transaction, it must store the coordination of benefits data
       required to forward the transaction to the other plan.

In addition, on August 14, 2002, HSS published modifications to the final
privacy regulations which addressed the implementation concerns of the
healthcare industry.

     On December 28, 2000, HHS published a final regulation setting forth new
standards for protecting the privacy of individually identifiable health
information in any medium. Compliance with these rules will be required by April
2003, except for certain small health plans which will have until April 2004.
The new regulation is designed to protect medical records and other personal
health information maintained and used by healthcare providers, hospitals,
health plans and health insurers, and healthcare clearinghouses. Among numerous
other requirements, the new standards:

     - limit certain non-consensual uses and disclosures of private health
       information, and require patient authorizations for such uses and
       disclosures of private health information;

     - give patients new rights to access their medical records and to know who
       else has accessed them;

     - limit most disclosure of health information to the minimum needed for the
       intended purpose;

     - establish procedures to ensure the protection of private health
       information;

     - establish new requirements for access to records by researchers and
       others; and

     - establish new criminal and civil sanctions for improper use or disclosure
       of health information.

     The preemption provisions of HIPAA provide that the federal standards will
not preempt state laws that are more stringent than the related federal
requirements. The Secretary of HHS may grant exceptions allowing state laws to
prevail if one or more of a number of conditions are met, including but not
limited to the following:

     - the state law is necessary to prevent fraud and abuse related to the
       provision of and payment for healthcare;

     - the state law is necessary to ensure appropriate state regulation of
       insurance and health plans;

     - the state law is necessary for state reporting on healthcare delivery or
       costs; or

     - the state law addresses controlled substances.

     In addition, on August 12, 1998, HHS published proposed regulations
relating to the security of individually identifiable health information. These
rules would require healthcare providers, health plans and

                                        13
<PAGE>

healthcare clearinghouses to ensure the privacy and confidentiality of such
information when it is electronically stored, maintained or transmitted through
such devices as user authentication mechanisms and system activity audits. The
final security regulations were released on February 20, 2003. The compliance
deadline for the security regulations is April 20, 2005. The security
regulations require health plans, health care clearinghouses and certain
providers to implement administrative physical and technical safeguards to
protect electronic protected health information.

PATIENTS' RIGHTS LEGISLATION

     The United States Senate and House of Representatives passed different
versions of patients' rights legislation in June and August 2001, respectively.
Both versions included provisions that specifically apply protections to
participants in federal healthcare programs, including Medicaid beneficiaries.
This type of legislation could expand our potential exposure to lawsuits and
increase our regulatory compliance costs. Depending on the final form of any
patients' rights legislation, such legislation could, among other things, expose
us to liability for economic and punitive damages for making determinations that
deny benefits or delay beneficiaries' receipt of benefits as a result of our
medical necessity or other coverage determinations. The differences include such
matters as the amount of allowable damages, whether cases would be governed by
federal or state law, and whether such actions could be brought in federal or
state courts. We cannot predict when or whether patients' rights legislation
will be enacted into law or, if enacted, what final form such legislation might
take.

OTHER FRAUD AND ABUSE LAWS

     Investigating and prosecuting healthcare fraud and abuse became a top
priority for law enforcement entities in the last decade. The focus of these
efforts has been directed at participants in public government healthcare
programs such as Medicaid. The laws and regulations relating to Medicaid fraud
and abuse and the contractual requirements applicable to plans participating in
these programs are complex and changing and will require substantial resources.

                                   EMPLOYEES

     As of January 31, 2003, we had 593 employees, of whom 241 were employed at
our St. Louis headquarters and Farmington claims center, 2 in our Washington,
D.C. office, 72 by our Indiana plan, 99 by our Wisconsin plan, 102 by our Texas
plan and 77 by our New Jersey plan. Our employees are not represented by a
union. We believe our relationships with our employees are good.

ITEM 2.  PROPERTIES

     Our headquarters occupy approximately 40,000 square feet of office space in
St. Louis, Missouri under a lease expiring in 2010. Our claims center currently
occupies 13,000 square feet of office space in Farmington, Missouri. During
2002, we entered into a new lease agreement for a ten-year period to support the
expansion of our claims facility. This lease adds an additional 25,000 square
feet to our existing facility. We also lease space in Wisconsin, Texas, Indiana,
and New Jersey where our health plans are located, as well as Washington, D.C.
We are required by various insurance and Medicaid regulatory authorities to have
offices in the service areas where we provide Medicaid benefits. We believe our
current facilities are adequate to meet our operational needs for the
foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

     In the normal course of our business, we may be a party to legal
proceedings. We are not currently a party to any material legal proceedings.

                                        14
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK; DIVIDENDS

     Our common stock has been traded and quoted on the Nasdaq National Market
under the symbol "CNTE" since December 13, 2001. The reported high and low last
sale prices for our common stock on the Nasdaq National Market between January
1, 2002 and December 31, 2002 were $35.48 and $18.10, respectively. On February
20, 2003, the last reported sale price for our common stock was $23.64. As of
February 20, 2003, there were 28 holders of record of our common stock.

     We have never declared or paid any cash dividends on our capital stock, and
currently anticipate that we will retain any future earnings for the
development, operation and expansion of our business.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     Information concerning our equity compensation plans will appear in our
Proxy Statement for our 2003 annual meeting of stockholders under "Equity
Compensation Plan Information." This portion of the proxy statement is
incorporated herein by reference.

USE OF PROCEEDS OF INITIAL PUBLIC OFFERING

     In our initial public offering, we sold an aggregate of 3,250,000 shares of
our common stock at a price of $14.00 per share on December 13, 2001. Our net
proceeds after deduction of underwriting discounts and commissions of $3.2
million and expenses of $1.3 million, were $41.0 million. In December 2001, we
used $4.0 million of our net proceeds to repay the entire principal amount of
our outstanding subordinated notes. In December 2002, we used $10.6 million to
purchase 80% of the equity of University Health Plans. The balance of our net
proceeds has been added to our working capital.

                                        15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
connection with, and are qualified by reference to, the consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
report. The data for the years ended December 31, 2002, 2001 and 2000 and as of
December 31, 2002 and 2001 are derived from consolidated financial statements
included elsewhere in this filing. The data for the years ended December 31,
1999 and 1998 and as of December 31, 2000, 1999 and 1998 are derived from
audited consolidated financial statements not included in this filing. The pro
forma share information included in the consolidated statement of earnings data
assumes that as of the first day of the period, (1) our initial public offering
was completed, (2) all classes of our preferred and common stock were converted
into a single class of common stock, (3) our subordinated notes of $4.0 million
were repaid with a portion of the net proceeds of $41.0 million from our initial
public offering and (4) the balance of the net proceeds were invested in short-
term instruments bearing interest of 3.5%.

<Table>
<Caption>
                                                                                YEAR ENDED DECEMBER 31,
                                                              -----------------------------------------------------------
                                                                1998        1999        2000         2001         2002
                                                              ---------   --------   ----------   ----------   ----------
                                                                           (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                           <C>         <C>        <C>          <C>          <C>
STATEMENT OF EARNINGS DATA:
Revenues:
  Premiums..................................................  $ 149,577   $200,549   $  216,414   $  326,184   $  461,030
  Administrative services fees..............................        861        880        4,936          385          457
                                                              ---------   --------   ----------   ----------   ----------
    Total revenues..........................................    150,438    201,429      221,350      326,569      461,487
                                                              ---------   --------   ----------   ----------   ----------
Operating expenses:
  Medical services costs....................................    132,199    178,285      182,495      270,151      379,468
  General and administrative expenses.......................     25,066     29,756       32,335       37,946       50,413
                                                              ---------   --------   ----------   ----------   ----------
    Total operating expenses................................    157,265    208,041      214,830      308,097      429,881
                                                              ---------   --------   ----------   ----------   ----------
    Earnings (losses) from operations.......................     (6,827)    (6,612)       6,520       18,472       31,606
Other income (expense):
  Investment and other income, net..........................      1,794      1,623        1,784        3,916        9,575
  Interest expense..........................................       (771)      (498)        (611)        (362)         (45)
  Equity in earnings (losses) from joint ventures...........       (477)         3         (508)          --           --
                                                              ---------   --------   ----------   ----------   ----------
    Earnings (losses) from continuing operations before
      income taxes..........................................     (6,281)    (5,484)       7,185       22,026       41,136
Income tax expense (benefit)................................     (1,542)        --         (543)       9,131       15,631
Minority interest...........................................         --         --           --           --          116
                                                              ---------   --------   ----------   ----------   ----------
    Earnings (losses) from continuing operations............     (4,739)    (5,484)       7,728       12,895       25,621
Loss from discontinued operations, net......................     (2,223)    (3,927)          --           --           --
                                                              ---------   --------   ----------   ----------   ----------
    Net earnings (losses)...................................     (6,962)    (9,411)       7,728       12,895       25,621
Accretion of redeemable preferred stock.....................       (122)      (492)        (492)        (467)          --
                                                              ---------   --------   ----------   ----------   ----------
    Net earnings (losses) attributable to common
      stockholders..........................................  $  (7,084)  $ (9,903)  $    7,236   $   12,428   $   25,621
                                                              =========   ========   ==========   ==========   ==========
Net earnings (losses) from continuing operations per common
  share:
  Basic.....................................................  $   (4.65)  $  (6.63)  $     8.03   $     8.97   $     2.45
  Diluted...................................................  $   (4.65)  $  (6.63)  $     1.13   $     1.61   $     2.20
Net earnings (losses) per common share:
  Basic.....................................................  $   (6.78)  $ (10.99)  $     8.03   $     8.97   $     2.45
  Diluted...................................................  $   (6.78)  $ (10.99)  $     1.13   $     1.61   $     2.20
Weighted average common shares outstanding:
  Basic.....................................................  1,044,434    900,944      901,526    1,385,399   10,477,360
  Diluted...................................................  1,044,434    900,944    6,819,595    8,019,497   11,644,077
Pro forma net earnings per common share:
  Basic.....................................................                         $      .52   $     1.38
  Diluted...................................................                         $      .52   $     1.25
Pro forma weighted average common shares outstanding:
  Basic.....................................................                         10,025,885   10,049,085
  Diluted...................................................                         10,069,595   11,100,319
</Table>

<Table>
<Caption>
                                                                                 DECEMBER 31,
                                                              --------------------------------------------------
                                                               1998       1999      2000       2001       2002
                                                              -------   --------   -------   --------   --------
                                                                                (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>       <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........  $21,525   $ 23,663   $26,423   $ 90,036   $ 69,227
Total assets................................................   45,727     52,207    66,017    131,366    210,327
Long-term debt, net of current portion......................    4,000      4,000     4,000         --         --
Redeemable convertible preferred stock......................   17,700     18,386    18,878         --         --
Total stockholders' equity (deficit)........................   (6,196)   (16,367)   (8,834)    64,089    102,183
</Table>

                                        16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

     We provide managed care programs and related services to individuals
receiving benefits under Medicaid, including Supplemental Security Income, or
SSI, and the State Children's Health Insurance Program, or SCHIP. We have health
plans in Wisconsin, Texas, Indiana and New Jersey.

     On December 1, 2002, we acquired 80% of the outstanding capital stock of
University Health Plans, or UHP, from University of Medicine and Dentistry of
New Jersey, or UMDNJ, which continues to own the remaining capital stock of UHP.
UHP is a managed health plan operating in 15 counties in New Jersey. We paid an
aggregate purchase price of approximately $10.6 million for our interest in UHP.
We entered into an investor rights agreement with UMDNJ providing that, among
other things:

     - We have the right, exercisable at any time prior to September, 1, 2003,
       to purchase the remaining shares of UHP held by UMDNJ for a cash purchase
       price of $2.6 million.

     - If we do not exercise the right described above, the remaining shares of
       UHP held by UMDNJ will be exchanged on December 1, 2005 for a purchase
       price payable in either, at our election, shares of our common stock or
       cash. The purchase price would equal the greater of (a) $2.6 million or
       (b) the product of (1) the enterprise value of UHP as of December 1, 2005
       and (2) the percentage of the outstanding UHP common stock (on a fully
       diluted basis) then represented by the shares owned by UMDNJ.

     In June 2002, Superior HealthPlan entered into an agreement with Texas
Universities Health Plan Inc. to purchase the SCHIP contracts in three Texas
service areas. Effective September 1, October 1 and November 1, 2002, the state
of Texas approved the contract sales between Superior and Texas Universities
Health Plan, thereby adding approximately 24,000 members to our Texas health
plan. As a result of this transaction, $595 was recorded as an intangible asset,
purchased contract rights. We are amortizing the contract rights on a
straight-line basis over five years, the period expected to be benefited.

REVENUES

     We generate revenues primarily from premiums we receive from the states in
which we operate to provide health benefits to our members. We receive a fixed
premium per member per month pursuant to our state contracts. We generally
receive premiums during the month we provide services and recognize premium
revenue during the period in which we are obligated to provide services to our
members. We also generate administrative services fees for providing services to
SSI members on a non-risk basis.

     Premiums collected in advance are recorded as unearned premiums. Premiums
due to us are recorded as premium and related receivables and are recorded net
of an allowance based on historical trends and our management's judgement on the
collectibility of these accounts. As we generally receive premiums during the
month in which services are provided, the allowance is typically not significant
in comparison to total premium revenue and does not have a material impact on
the presentation of our financial condition, changes in financial position or
results of operations. From 1998 to 2000, however, we provided Medicaid services
in certain regions of Indiana as a subcontractor with Maxicare Indiana, Inc. In
June 2001, the Insurance Commissioner of the Indiana Department of Insurance
declared Maxicare insolvent and ordered Maxicare into liquidation. As a result,
we recorded an allowance for uncollectible receivables in the amount of $2.7
million to fully reserve for all receivables from Maxicare as of December 31,
2001. In 2002, subsequent to a release and settlement agreement with Maxicare
and the Indiana Insurance Commissioner which requires no payment by either
Maxicare or us, we wrote off the entire balance of the receivable from Maxicare
as uncollectible and reduced the related allowance for doubtful accounts.

                                        17
<PAGE>

     The primary driver of our increasing revenues has been membership growth.
We have increased our membership through both internal growth and acquisitions.
From December 31, 2000 to December 31, 2002, we increased our membership by
111%. The following table sets forth our membership by state:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                          ---------------------------
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Wisconsin...............................................  133,000   114,300    60,200
Texas...................................................  118,000    54,900    26,000
Indiana.................................................  105,700    65,900   108,000
New Jersey..............................................   52,900        --        --
                                                          -------   -------   -------
     Total..............................................  409,600   235,100   194,200
                                                          =======   =======   =======
</Table>

     The following table sets forth our membership by line of business:

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                          ---------------------------
                                                           2002      2001      2000
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Medicaid (excluding SSI)................................  336,100   210,900   183,500
SCHIP...................................................   65,900    21,800     9,800
SSI.....................................................    7,600     2,400       900
                                                          -------   -------   -------
     Total..............................................  409,600   235,100   194,200
                                                          =======   =======   =======
</Table>

     In 2002, our membership increased by 24,000 members in Texas due to the
purchase of SCHIP contract rights from Texas University Health Plan. In
addition, two smaller plans exited the Austin, Texas market. As a result, our
Texas plan increased its membership by 28,000 lives. This increase includes
12,000 lives that we are managing for the state of Texas on an interim basis and
that will become part of a reprocurement process scheduled for mid 2003. We
entered the New Jersey market through our acquisition of 80% of the equity of
UHP. Membership increases in our Wisconsin and Indiana markets resulted from
additions to our provider network and growth in the number of Medicaid
beneficiaries.

     In 2001, our membership in Indiana declined due to a subcontracting
provider organization terminating a percent-of-premium arrangement, which was
our only contract of that type. Separately, we entered into agreements with
Humana that resulted in the transfer to us of 35,000 members in Wisconsin and
30,000 members in Texas.

     In 2000, a competitor in our Wisconsin market terminated its participation
in the Medicaid program benefiting our enrollment growth. Our membership growth
in the northern and central regions of Indiana was offset by our decision to
reduce our participation in the southern region. Our El Paso health plan
achieved sizable growth because we were named the default health plan in this
area and enrolled a majority of the members who failed to select a specific
plan.

OPERATING EXPENSES

     Our operating expenses include medical services costs and general and
administrative expenses.

     Our medical services costs include payments to physicians, hospitals, and
other providers for healthcare and specialty product claims. Medical service
costs also include estimates of medical expenses incurred but not yet reported,
or IBNR. Monthly, we estimate our IBNR based on a number of factors, including
inpatient hospital utilization data and prior claims experience. As part of this
review, we also consider the costs to process medical claims and estimates of
amounts to cover uncertainties related to fluctuations in physician billing
patterns, membership, products and inpatient hospital trends. These estimates
are adjusted as more information becomes available. We utilize the services of
consultants who are contracted to review our estimates quarterly. While we
believe that our process for estimating IBNR is actuarially sound, we cannot
assure you that healthcare claim costs will not exceed our estimates.

                                        18
<PAGE>

     Our results of operations depend on our ability to manage expenses related
to health benefits and to predict accurately costs incurred. The table below
depicts our health benefits ratio, which represents medical services costs as a
percentage of premium revenues and reflects the direct relationship between the
premium received and the medical services provided. Our stabilization in the
ratio primarily reflects improved provider contract terms, premium rate
increases in our markets served and member reductions in our southern Indiana
market.

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              2002     2001     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Health benefits ratio.......................................  82.3%    82.8%    84.3%
</Table>

     Our general and administrative expenses primarily reflect wages and
benefits and other administrative costs related to our employee base, including
those fees incurred to provide services to our members. Some of these services
are provided locally, while others are delivered to our health plans from a
centralized location. This approach provides the opportunity to control both
direct and indirect costs. The major centralized functions are claims
processing, information systems, finance, medical management support and
administration. The following table sets forth the general and administrative
expense ratio, which represents general and administrative expenses as a percent
of total revenues and reflects the relationship between revenues earned and the
costs necessary to drive those revenues.

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              2002     2001     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
General and administrative expenses ratio...................  10.9%    11.6%    14.6%
</Table>

     The improvement in the general and administrative expenses ratio reflects
growth in membership and leveraging of our overall infrastructure. For example,
the decrease in our general and administrative ratio over the past two years in
part reflects our efforts to increase claims processing efficiencies through our
centralized support functions. As a result, our days in claims payable, which is
a calculation of medical claims liabilities at the end of the quarter divided by
average claims expense per calendar day for such quarter, decreased from 73.4
days at December 31, 2001 to 71.8 at December 31, 2002. Net of the effects of
our acquisition of 80% of the capital stock of UHP on December 1, 2002, our days
in claims payable at December 31, 2002 would have been 64.5 days.

OTHER INCOME (EXPENSE)

     Other income (expense) consists principally of investment and other income,
interest expense and equity in earnings (losses) from joint ventures.

     - Investment income is derived from our cash, cash equivalents and
       investments. Information about our investments is presented below under
       "Liquidity and Capital Resources."

     - Interest expense reported in 2002 represents commitment fees paid to a
       bank in conjunction with our undrawn credit facility. Interest expense
       reported in 2001 and 2000 primarily reflected interest paid on our
       subordinated notes, which we repaid in full in December 2001.

     - Equity in earnings (losses) from joint ventures principally represented
       our share of operating results from Superior HealthPlan, which we formed
       with Community Health Centers Network in 1997. From 1998 through 2000, we
       owned 39% of Superior, and therefore accounted for the investment under
       the equity method of accounting. Effective January 1, 2001, we entered
       into an agreement to purchase an additional 51% of Superior. We also
       agreed to purchase from TACHC GP, Inc. a term note pursuant to which
       Superior owed TACHC $160,000. As a result of entering into this
       agreement, we began accounting for our investment in Superior using
       consolidation accounting. We therefore no longer reflect any operations
       of Superior in equity in earnings (losses) from joint ventures and we
       eliminate in consolidation all administrative fees from Superior. In
       addition, in December 2001 we acquired the remaining 10% equity interest
       in Superior in exchange for 7,143 shares of our common stock.

                                        19
<PAGE>

                          CRITICAL ACCOUNTING POLICIES

     Our significant accounting policies are more fully described in Note 3 to
our consolidated financial statements. Two of our accounting policies are
particularly important to the portrayal of our financial position and results of
operations and require the application of significant judgment by our
management; as a result they are subject to an inherent degree of uncertainty.

MEDICAL CLAIMS LIABILITIES

     Our medical services costs include estimates for claims received but not
yet adjudicated, estimates for claims incurred but not yet received and
estimates for the costs necessary to process unpaid claims. We, together with
our independent actuaries, estimate medical claims liabilities using actuarial
methods based upon historical data for payment patterns, cost trends, product
mix, seasonality, utilization of healthcare services and other relevant factors.
These estimates are continually reviewed and adjustments, if necessary, are
reflected in the period known.

     In applying this policy, our management uses its judgment to determine the
assumptions to be used in the determination of the required estimates. While we
believe these estimates are appropriate, it is possible future events could
require us to make significant adjustments for revisions to these estimates. The
estimates are based on our historical experience, terms of existing contracts,
our observance of trends in the industry, information provided by our customers
and information available from other outside sources, as appropriate.

     The change in medical claims liabilities is summarized as follows:

<Table>
<Caption>
                                                     2002            2001            2000
                                                   --------        --------        --------
<S>                                                <C>             <C>             <C>
Balance, January 1...............................  $ 59,565        $ 45,805        $ 37,339
Acquisitions.....................................    16,230           5,074              --
Incurred related to:
  Current year...................................   399,141         289,133         188,034
  Prior years....................................   (19,673)        (18,982)         (5,539)
                                                   --------        --------        --------
     Total incurred..............................   379,468         270,151         182,495
                                                   --------        --------        --------
Paid related to:
  Current year...................................   326,636         230,216         146,360
  Prior years....................................    37,446          31,249          27,669
                                                   --------        --------        --------
     Total paid..................................   364,082         261,465         174,029
                                                   --------        --------        --------
Balance, December 31.............................  $ 91,181        $ 59,565        $ 45,805
                                                   ========        ========        ========
</Table>

Acquisitions in 2002 include reserves acquired in connection with our
acquisition of 80% of the outstanding capital stock of UHP. Acquisitions in 2001
include reserves acquired in connection with our acquisition of the remaining
shares of Superior HealthPlan.

     Changes in estimates of incurred claims for prior years recognized during
2002, 2001 and 2000 were attributable to favorable development in all of our
markets, including lower than anticipated utilization of medical services.

INTANGIBLE ASSETS

     We have made several acquisitions over the past two years that collectively
have resulted in our recording of a significant amount of intangible assets.
These intangible assets represent the excess of cost over the fair market value
of net assets acquired in purchase transactions and consist of purchased
contract rights, provider contracts and goodwill. Purchased contract rights are
amortized using the straight-line method over periods ranging from 60 to 120
months. Provider contracts are amortized using the straight-line method over 120
months.

                                        20
<PAGE>

     Our management evaluates whether events or circumstances have occurred that
may affect the estimated useful life or the recoverability of the remaining
balance of goodwill and other identifiable intangible assets. Impairment of an
intangible asset is triggered when the estimated future undiscounted cash flows
(excluding interest charges) do not exceed the carrying amount of the intangible
asset and related goodwill. If the events or circumstances indicate that the
remaining balance of the intangible asset and goodwill may be permanently
impaired, the potential impairment will be measured based upon the difference
between the carrying amount of the intangible asset and goodwill and the fair
value of such asset determined using the estimated future discounted cash flows
(excluding interest charges) generated from the use and ultimate disposition of
the respective acquired entity. Our management must make assumptions and
estimates, such as the discount factor, in determining the estimated fair
values. While we believe these assumptions and estimates are appropriate, other
assumptions and estimates could be applied and might produce significantly
different results.

     Effective January 1, 2002, we ceased to amortize goodwill in accordance
with SFAS No. 142, "Goodwill and Other Intangible Assets." Goodwill is reviewed
at least annually for impairment. In addition, we will perform an impairment
analysis of intangible assets more frequently based on other factors. These
factors would include significant changes in membership, state funding, medical
contracts and provider networks and contracts. We did not recognize any
impairment losses during 2000, 2001 or 2002.

                             RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

  REVENUES

     Premiums for the year ended December 31, 2002 increased $134.8 million, or
41.3%, to $461.0 million from $326.2 million in 2001. This increase was due to
organic growth in our existing markets, the purchase of the Texas SCHIP
contracts and the inclusion of one month of revenues of UHP. In addition, we
received premium rate increases ranging from 1.5% to 10.7%, or 5.1% on composite
basis across our markets.

     Administrative services fees for the year ended December 31, 2002 increased
$72,000, or 18.7%, to $457,000 from $385,000 in 2001. This increase resulted
from increases in our non-risk SSI membership in our Texas market.

  OPERATING EXPENSES

     Medical services costs for the year ended December 31, 2002 increased
$109.3 million, or 40.5%, to $379.5 million from $270.2 million in 2001. This
increase reflected the growth in our membership.

     General and administrative expenses for the year ended December 31, 2002
increased $12.5 million, or 32.9%, to $50.4 million from $37.9 million in 2001.
This increase reflected a higher level of wages and related expenses for
additional staff to support our membership growth.

  OTHER INCOME

     Other income for the year ended December 31, 2002 increased $6.0 million,
or 168.1%, to $9.5 million from $3.6 million in 2001. A majority of the increase
is due to the receipt of a one-time dividend of $5.1 million from a captive
insurance company in which we maintained an investment. In addition, investment
income increased due to a larger amount of dollars invested, and interest
expense decreased year over year due to the repayment of our subordinated debt
in December 2001.

  INCOME TAX EXPENSE

     For the year ended December 31, 2002 we recorded income tax expense of
$15.6 million, or an effective tax rate of 38.0%. This compares to $9.1 million,
or an effective tax rate of 41.5%, for the year ended December 31, 2001. Our
effective tax rate decreased year over year due to our investment in
tax-advantaged securities and our implementation of state tax saving strategies
during 2002.
                                        21
<PAGE>

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

  REVENUES

     Premiums for the year ended December 31, 2001 increased $109.8 million, or
50.7%, to $326.2 million from $216.4 million in 2000. This increase was due to
the Humana contract purchases, the consolidation of our El Paso market and
membership growth, net of the termination of our Indiana sub-contract
arrangement.

     Administrative services fees for the year ended December 31, 2001 decreased
$4.6 million, or 92.2%, to $385,000 from $4.9 million in 2000 as a result of our
acquisition of a majority share of Superior HealthPlan, as described above.

  OPERATING EXPENSES

     Medical services costs for the year ended December 31, 2001 increased $87.7
million, or 48.0%, to $270.2 million from $182.5 million in 2000. This increase
was due to the Humana contract purchases, the consolidation of our El Paso
market and membership growth, net of the termination of our Indiana sub-
contract arrangement.

     General and administrative expenses for the year ended December 31, 2001
increased $5.6 million, or 17.4%, to $37.9 million from $32.3 million in 2000.
This increase primarily was due to a higher level of wages and related expenses
for additional staff to support our membership growth.

  OTHER INCOME

     Other income for the year ended December 31, 2001 increased $2.9 million,
or 434.4%, to $3.6 million from $665,000 in 2000. This primarily reflected a
significant increase in investment income due to an increase in cash, cash
equivalents and investments. The increase also reflected the consolidation of
our El Paso market due to our increased ownership.

  INCOME TAX EXPENSE

     For the year ended December 31, 2001, we recorded income tax expense of
$9.1 million based on a 41.5% effective tax rate. For the year ended December
31, 2000, we recorded an income tax benefit of $543,000 primarily as a result of
the reversal of our valuation allowance related to deferred tax assets.

                        LIQUIDITY AND CAPITAL RESOURCES

     On May 22, 2002, we closed a follow-on public offering of 5,000,000 shares
of common stock at $24.75 per share. Of the 5,000,000 shares, 4,600,000 shares
were offered by selling stockholders and 400,000 by us. On June 5, 2002, the
underwriters of our follow-on public offering exercised their over-allotment
option to purchase 679,505 additional shares from selling stockholders and
70,495 shares from us. We received net proceeds of $10.3 million from the two
closings of the follow-on offering.

     On December 18, 2001, we closed our initial public offering of 3,250,000
shares of common stock at $14.00 per share. We received net proceeds of $41.0
million. Prior to this offering, we financed our operations and growth through
private equity and debt financings and internally generated funds, raising $22.4
million between 1993 and 1998. This consisted of $18.4 million through the
issuance of equity securities and $4.0 million through subordinated debt
financing.

     Our operating activities provided cash of $13.5 million in 2000, $30.2
million in 2001 and $39.7 million in 2002. The increases in 2001 and 2002 were
due to further improved profitability, an increase in membership and the timing
of capitation payments.

     Our investing activities used cash of $14.6 million in 2000, provided cash
of $2.7 million in 2001 and used cash of $79.7 million in 2002. Our investment
policies are designed to provide liquidity, preserve capital and maximize total
return on invested assets within our investment guidelines. Net cash provided by
and used in
                                        22
<PAGE>

investing activities will fluctuate from year to year due to the timing of
investment purchases, sales and maturities. As of December 31, 2002, our
investment portfolio consisted primarily of fixed-income securities with an
average duration of 3.3 years. Cash is invested in investment vehicles such as
municipal bonds, commercial paper, U.S. government-backed agencies and U.S.
Treasury instruments. The states in which we operate prescribe the types of
instruments in which our subsidiaries may invest their cash. The average
portfolio yield was 5.6% as of December 31, 2001 and 6.9% as of December 31,
2002, exclusive of a one-time dividend of $5.1 million from a captive insurance
company in which we maintained an investment.

     Our financing activities used cash of $2.4 million in 2000 and provided
cash of $37.0 million in 2001 and $10.8 million in 2002. During 2000, financing
cash flows consisted of borrowings and repayments under a credit facility and
issuances of preferred stock. During 2001, financing cash flows primarily
consisted of the issuance of common stock through our initial public offering
net of the repayment of subordinated notes with $4.0 million of our proceeds.
During 2002, financing cash flows primarily consisted of the issuance of common
stock through our follow-on offering, the exercise of the over-allotment and
proceeds received from the exercise of stock options.

     We may use our existing funds, including proceeds from our two public
offerings, to make strategic acquisitions including Medicaid and SCHIP
businesses, contract rights and related assets to increase our membership and to
expand our business into new service areas. In 2002, we purchased the capital
stock of Bankers Reserve Life Insurance Company of Wisconsin for $479,000, net
of assets and liabilities acquired, and the rights to Texas Universities Health
Plan's SCHIP contracts for $595,000. In addition, we purchased 80% of the
outstanding capital stock of UHP for $10.6 million. In 2001, we purchased the
rights to the Humana Medicaid contracts with the states of Texas and Wisconsin
for $1.2 million. In 2002, we spent $3.9 million on capital assets consisting
primarily of new software, software and hardware upgrades, furniture, equipment
and leasehold improvements related to office and market expansions. In 2001, we
purchased $3.6 million of furniture, equipment and leasehold improvements due to
the addition of the Austin and San Antonio markets and the expansion of the
Wisconsin market. We anticipate spending $7.3 million on additional capital
expenditures in 2003 related to office and market expansions and system
upgrades.

     Our principal contractual obligations at December 31, 2002 consisted of
obligations under operating leases. The significant annual noncancelable lease
payments over the next five years and beyond are as follows (in thousands):

<Table>
<Caption>
                                                                PAYMENT
                                                                  DUE
                                                                -------
<S>                                                             <C>
2003........................................................    $ 3,241
2004........................................................      3,124
2005........................................................      3,026
2006........................................................      2,661
2007........................................................      2,396
Thereafter..................................................      7,624
                                                                -------
                                                                $22,072
                                                                =======
</Table>

     In addition, we will acquire the remaining equity of UHP by no later than
December 1, 2005, as described under "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Overview."

     In May 2002, we entered into a $25 million revolving line of credit
facility with LaSalle Bank N.A. The line of credit has a term of one year and
has interest rates based on prime, floating and LIBOR rates. We granted a
security interest in the common stock of our subsidiaries. The facility includes
financial covenants, including requirements of minimum EBITDA and minimum
tangible net worth. We are required to obtain LaSalle's consent of any proposed
acquisition that would result in a violation of any of the covenants contained
in the line of credit. As of December 31, 2002, we were in compliance with all
covenants and no funds had been drawn on the facility.

                                        23
<PAGE>

     At December 31, 2002, we had working capital of $(8.8) million as compared
to $35.7 million at December 31, 2001 and $(5.3) million at December 31, 2000.
Our working capital is negative at times due to our efforts to increase
investment returns through purchases of long-term investments, which have
maturities of greater than one year and, therefore, are classified as long-term.
Our investment policies are also designed to provide liquidity and preserve
capital. We manage our short-term and long-term investments to ensure that a
sufficient portion is held in investments that are highly liquid and can be sold
to fund working capital as needed.

     Cash, cash equivalents and short-term investments were $69.2 million at
December 31, 2002 and $90.0 million at December 31, 2001. Long-term investments
were $95.4 million at December 31, 2002 and $22.3 million at December 31, 2001,
including restricted deposits of $15.8 million and $1.2 million, respectively.
Cash and investments held by our unregulated entities totaled $52.0 million at
December 31, 2002. Based on our operating plan, we expect that our cash, cash
equivalents and investments, cash from our operations and cash available under
our credit facility will be sufficient to finance our operations and capital
expenditures for at least 12 months from the date of this report.

                  REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS

     Our operations are conducted through our subsidiaries, most of which are
subject to state regulations that, among other things, require the maintenance
of minimum levels of statutory capital, as defined by each state, additional
regulations and restrict the timing, payment and amount of dividends and other
distributions that may be paid to us.

     Our subsidiaries are required to maintain minimum capital requirements
prescribed by various regulatory authorities in each of the states in which we
operate. As of December 31, 2002, our subsidiaries had aggregate statutory
capital and surplus of $36.9 million, compared with the required minimum
aggregate statutory capital and surplus of $22.0 million.

     The National Association of Insurance Commissioners adopted guidelines
which set minimum risk-based capital requirements for insurance companies,
managed care organizations and other entities bearing risk for healthcare
coverage. Wisconsin and Texas adopted various forms of the rules as of December
31, 1999. As of December 31, 2002 our Wisconsin and Texas health plans were in
compliance with risk-based capital requirements. The managed care organization
rules, if adopted by Indiana and New Jersey, may increase the minimum capital
required for these subsidiaries. We continue to monitor these requirements and
do not expect that they will have a material impact on earnings or cash flows.

                        RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was
issued which requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested at least annually for
impairment. We have adopted SFAS No. 142 effective January 1, 2002, and goodwill
amortization was discontinued. For the year ended December 31, 2001, this
adjustment would have added $471,000 in net earnings, or $0.06 per diluted share
and $0.34 per basic share. For the year ended December 31, 2000, this adjustment
would have added $224,000 in net earnings, or $0.03 per diluted share and $0.25
per basic share. Goodwill is reviewed at least annually for impairment. In
addition, we will perform an impairment analysis of intangible assets more
frequently based on other factors. Such factors would include, but would not be
limited to, significant changes in membership, state funding, Medicaid contracts
and provider networks and contracts. We did not recognize any impairment losses
for the periods presented.

     In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued. SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets. It also expands the scope of a discontinued
operation to include a component of an entity. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those years. The adoption of the provisions of SFAS
No. 144 did not have a material impact on our results of operations, financial
position or cash flows.
                                        24
<PAGE>

     In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections as of April
2002," was issued. As a result of the rescission of SFAS No. 4, gains and losses
related to the extinguishment of debt should be classified as extraordinary only
if they meet the criteria outlined under APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-
Fund Requirements," was an amendment to SFAS No. 4 and is no longer necessary.
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers," defined
accounting requirements for the effects of the transition to the Motor Carrier
Act of 1980. The transitions are complete and SFAS No. 44 is no longer
necessary. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," requiring
that any capital lease that is modified resulting in an operating lease should
be accounted for under the sale-leaseback provisions of SFAS No. 98 or SFAS No.
28, as applicable. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002. The adoption of the provisions of SFAS No. 145 is not expected to
have a material impact on our results of operations, financial position or cash
flows.

     In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued. It requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity (including Certain Costs Incurred in a Restructuring),"
which required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on our
results of operations, financial position or cash flows.

     In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," was issued. This Statement amends
FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 and
APB Opinion No. 28, "Interim Financial Reporting," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal years ending
after December 15, 2002 and for interim periods beginning after December 15,
2002. The adoption of the provisions of SFAS No. 148 did not have a material
impact on our results of operations, financial position or cash flows.

     In November 2002, FIN No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of SFAS No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34," was issued. FIN 45 clarifies the requirements of SFAS
No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees.

     We have adopted the disclosure requirements of FIN 45 as required for
fiscal years ending after December 15, 2002 and will adopt the provisions for
initial recognition and measurement for all guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 related to initial recognition and
measurement of guarantees is not expected to have a significant impact on our
net income or equity. We have completed an inventory of potential contingencies
and noted one potential guarantee that would require the following disclosure in
our financial statement footnotes per FIN 45:

     "Within the Company's Medicaid contract with the state of Wisconsin, the
     Company is required to pay a fee if its contracted physicians do not
     provide an adequate number of healthy examinations to certain member
     groups. This agreement constitutes a performance guarantee. At the end of
     each fiscal year, the Company performs an analysis to estimate the amount
     owed to the state of Wisconsin, if any, under the performance guarantees.
     The state of Wisconsin, however, does not calculate or request payment for
     the amount owed until at least thirteen months subsequent to each year end.
     As such, the Company has recorded a current payable for any portions owed
     within one year and a long-term liability for portions

                                        25
<PAGE>

     owed for a period greater than one year from the balance sheet date. As of
     December 31, 2002 and 2001, the Company recorded $2.0 million and $829,000,
     respectively, of accounts payable and other accrued expenses for the
     current portions of the fees owed and $1.0 million at both year ends of
     other long-term liabilities for the long-term portions."

     On January 17, 2003, FIN 46, "Consolidation of Variable Interest Entities,
an interpretation of ARB 51," was issued. The primary objectives of FIN 46 are
to provide guidance on the identification and consolidation of variable interest
entities, or VIE, which are entities for which control is achieved through means
other than through voting rights. Our management has completed an analysis of
FIN 46 and has determined that we do not have any VIEs.

                           FORWARD-LOOKING STATEMENTS

     This report contains forward-looking statements that relate to future
events or our future financial performance. We have attempted to identify these
statements by terminology including "believe," "anticipate," "plan," "expect,"
"estimate," "intend," "seek," "goal," "may," "will," "should," "can," "continue"
or the negative of these terms or other comparable terminology. These statements
include statements about our market opportunity, our growth strategy,
competition, expected activities and future acquisitions and investments, and
the adequacy of our available cash resources. These statements may be found in
the sections of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Readers are
cautioned that matters subject to forward-looking statements involve known and
unknown risks and uncertainties, including economic, regulatory, competitive and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions.

     Actual results may differ from projections or estimates due to a variety of
important factors. Our results of operations and projections of future earnings
depend in large part on accurately predicting and effectively managing health
benefits and other operating expenses. A variety of factors, including
competition, changes in health care practices, changes in federal or state laws
and regulations or their interpretations, inflation, provider contract changes,
new technologies, government-imposed surcharges, taxes or assessments, reduction
in provider payments by governmental payers, major epidemics, disasters and
numerous other factors affecting the delivery and cost of healthcare, such as
major healthcare providers' inability to maintain their operations, may in the
future affect our ability to control our medical costs and other operating
expenses. Governmental action or business conditions could result in premium
revenues not increasing to offset any increase in medical costs and other
operating expenses. Once set, premiums are generally fixed for one year periods
and, accordingly, unanticipated costs during such periods cannot be recovered
through higher premiums. The expiration, cancellation or suspension of our
Medicaid managed care contracts by the state governments would also negatively
impact us. Due to these factors and risks, we cannot give assurances with
respect to our future premium levels or our ability to control our future
medical costs.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

RISKS RELATED TO BEING A REGULATED ENTITY

  REDUCTIONS IN MEDICAID FUNDING COULD SUBSTANTIALLY REDUCE OUR PROFITABILITY.

     Nearly all of our revenues come from Medicaid premiums. The base premium
rate paid by each state differs, depending on a combination of factors such as
defined upper payment limits, a member's health status, age, gender, county or
region, benefit mix and member eligibility categories. Future levels of Medicaid
premium rates may be affected by continued government efforts to contain medical
costs and may further be affected by state and federal budgetary constraints.
Changes to Medicaid programs could reduce the number of persons enrolled or
eligible, reduce the amount of reimbursement or payment levels, or increase our

                                        26
<PAGE>

administrative or healthcare costs under those programs. States periodically
consider reducing or reallocating the amount of money they spend for Medicaid.
We believe that additional reductions in Medicaid payments could substantially
reduce our profitability. Further, our contracts with the states are subject to
cancellation by the state immediately or after a short notice period in the
event of unavailability of state funds.

  IF OUR MEDICAID AND SCHIP CONTRACTS ARE TERMINATED OR ARE NOT RENEWED, OUR
  BUSINESS WILL SUFFER.

     We provide managed care programs and select services to individuals
receiving benefits under Medicaid, including SSI and SCHIP. We provide these
healthcare services under contracts with regulatory entities in the areas in
which we operate. The contracts expire on various dates between June 30, 2003
and December 31, 2003. Our contracts with the states of Indiana and Wisconsin
accounted for 73% of our revenues for the year ended December 31, 2002. Our
contracts may be terminated if we fail to perform up to the standards set by
state regulatory agencies. In addition, the Indiana contract under which we
operate can be terminated by the state without cause. Our contracts are
generally intended to run for two years and may be extended for one or two
additional years if the state or its contractor elects to do so. When our
contracts expire, they may be opened for bidding by competing healthcare
providers. There is no guarantee that our contracts will be renewed or extended.
If any of our contracts is terminated, not renewed, or renewed on less favorable
terms, our business will suffer, and our operating results may be materially
affected.

  CHANGES IN GOVERNMENT REGULATIONS DESIGNED TO PROTECT PROVIDERS AND MEMBERS
  RATHER THAN OUR STOCKHOLDERS COULD FORCE US TO CHANGE HOW WE OPERATE AND COULD
  HARM OUR BUSINESS.

     Our business is extensively regulated by the states in which we operate and
by the federal government. The applicable laws and regulations are subject to
frequent change and generally are intended to benefit and protect health plan
providers and members rather than stockholders. Changes in existing laws and
rules, the enactment of new laws and rules, and changing interpretations of
these laws and rules could, among other things:

     - force us to restructure our relationships with providers within our
       network;

     - require us to implement additional or different programs and systems;

     - mandate minimum medical expense levels as a percentage of premiums
       revenues;

     - restrict revenue and enrollment growth;

     - require us to develop plans to guard against the financial insolvency of
       our providers;

     - increase our healthcare and administrative costs; impose additional
       capital and reserve requirements; and

     - increase or change our liability to members in the event of malpractice
       by our providers.

     For example, Congress has considered various forms of patient protection
legislation commonly known as Patients' Bills of Rights. We cannot predict the
impact of this legislation, if adopted, on our business.

  REGULATIONS MAY DECREASE THE PROFITABILITY OF OUR HEALTH PLANS.

     Our Texas plans are required to pay a rebate to the state in the event
profits exceed established levels. To date no rebates have been required. This
regulatory requirement, changes in this requirement or the adoption of similar
requirements by our other regulators may limit our ability to increase our
overall profits as a percentage of revenues. The State of Texas has implemented
and is enforcing a penalty provision for failure to pay claims in a timely
manner. Failure to meet this requirement can result in financial fines and
penalties. In addition, states may attempt to reduce their contract premium
rates if regulators perceive our medical loss ratio as too low. Any of these
regulatory actions could harm our operating results.

     Also, on January 18, 2002, CMS published a final rule that removed an
exception contained in the federal Medicaid reimbursement regulations permitting
states to reimburse non-state government-owned or operated hospitals for
inpatient and outpatient hospital services at amounts up to 150 percent of a
reasonable estimate
                                        27
<PAGE>

of the amount that would be paid for the services furnished by these hospitals
under Medicaid payment principles. This development in federal law could
decrease the profitability of our health plans.

  FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD SUBJECT US TO CIVIL AND
  CRIMINAL PENALTIES.

     Federal and state governments have enacted fraud and abuse laws and other
laws to protect patients' privacy and access to healthcare. Violation of these
and other laws or regulations governing our operations or the operations of our
providers could result in the imposition of civil or criminal penalties, the
cancellation of our contracts to provide services, the suspension or revocation
of our licenses or our exclusion from participating in the Medicaid, SSI and
SCHIP programs. Because of these potential sanctions, we seek to monitor our
compliance and that of our providers with federal and state fraud and abuse and
other healthcare laws on an ongoing basis. These penalties or exclusions, were
they to occur as the result of our actions or omissions, or our inability to
monitor the compliance of our providers, would negatively impact our ability to
operate our business. For example, failure to pay our providers promptly could
result in the imposition of fines and other penalties. In some states, we may be
subject to regulation by more than one governmental authority, which may impose
overlapping or inconsistent regulations.

     HIPAA broadened the scope of fraud and abuse laws applicable to healthcare
companies. HIPAA created civil penalties for, among other things, billing for
medically unnecessary goods or services. HIPAA established new enforcement
mechanisms to combat fraud and abuse, including a whistle blower program.
Further, HIPAA imposes civil and, in some instances, criminal penalties for
failure to comply with specific standards relating to the privacy, security and
electronic transmission of individually-identifiable health information.
Congress may enact additional legislation to increase penalties and to create a
private right of action under HIPAA, which would entitle patients to seek
monetary damages for violations of the privacy rules.

  COMPLIANCE WITH NEW GOVERNMENT REGULATIONS MAY REQUIRE US TO MAKE SIGNIFICANT
  EXPENDITURES.

     In August 2000, HHS issued a new regulation under HIPAA requiring the use
of uniform electronic data transmission standards for healthcare claims and
payment transactions submitted or received electronically. We are required to
comply with the new regulation by October 2003, and Texas has indicated that it
may impose an earlier compliance deadline. In August 1998, HHS proposed a
regulation that would require healthcare participants to implement
organizational and technical practices to protect the security of electronically
maintained or transmitted health-related information. In December 2000, HHS
issued a new regulation mandating heightened privacy and confidentiality
protections under HIPAA that became effective on April 14, 2001. Compliance with
this regulation will be required by April 14, 2003.

     The Bush Administration's issuance of new regulations and its review of
existing regulations, the states' ability to promulgate stricter rules, and
uncertainty regarding many aspects of the regulations may make compliance with
the relatively new regulatory landscape difficult. Our existing programs and
systems may not enable us to comply in all respects with these new regulations.
In order to comply with the regulatory requirements, we will be required to
employ additional or different programs and systems, the costs of which are not
expected to exceed $500,000 in 2003. Further, compliance with these regulations
would require changes to many of the procedures we currently use to conduct our
business, which may lead to additional costs that we have not yet identified. We
do not know whether, or the extent to which, we will be able to recover our
costs of complying with these new regulations from the states. The new
regulations and the related compliance costs could have a material adverse
effect on our business.

  CHANGES IN HEALTHCARE LAW MAY REDUCE OUR PROFITABILITY.

     Numerous proposals relating to changes in healthcare law have been
introduced, some of which have been passed by Congress and the states in which
we operate or may operate in the future. Changes in applicable laws and
regulations are continually being considered, and interpretations of existing
laws and rules may also change from time to time. We are unable to predict what
regulatory changes may occur or what effect any particular change may have on
our business. These changes could reduce the number of persons

                                        28
<PAGE>

enrolled or eligible for Medicaid and reduce the reimbursement or payment levels
for medical services. More generally, we are unable to predict whether new laws
or proposals will favor or hinder the growth of managed healthcare.

     We cannot predict the outcome of these legislative or regulatory proposals
or the effect that they will have on us. Legislation or regulations that require
us to change our current manner of operation, provide additional benefits or
change our contract arrangements may seriously harm our operations and financial
results.

  CHANGES IN FEDERAL FUNDING MECHANISMS MAY REDUCE OUR PROFITABILITY.

     In February 2003, the Bush Administration proposed a major long-term change
in the way Medicaid and SCHIP are funded. The proposal, if adopted, would allow
states to elect to receive combined Medicaid-SCHIP "allotments" for acute and
long-term health care for low-income, uninsured persons. Participating states
would be given flexibility in designing their own health insurance programs,
subject to federally-mandated minimum coverage requirements. It is uncertain
whether this proposal will be enacted, or if so, how it may change from the
initial proposal. Accordingly, it is unknown whether or how many states might
elect to participate or how their participation may affect the net amount of
funding available for Medicaid and SCHIP programs. If such a proposal is adopted
and decreases the number of persons enrolled in Medicaid or SCHIP in the states
in which we operate or reduces the volume of health care services provided, our
growth, operations and financial performance could be adversely affected.

  IF WE ARE UNABLE TO PARTICIPATE IN SCHIP PROGRAMS, OUR GROWTH RATE MAY BE
  LIMITED.

     SCHIP is a relatively new federal initiative designed to provide coverage
for low-income children not otherwise covered by Medicaid or other insurance
programs. The programs vary significantly from state to state. Participation in
SCHIP programs is an important part of our growth strategy. If states do not
allow us to participate or if we fail to win bids to participate, our growth
strategy may be materially and adversely affected.

  IF STATE REGULATORS DO NOT APPROVE PAYMENTS OF DIVIDENDS AND DISTRIBUTIONS BY
  OUR SUBSIDIARIES TO US, WE MAY NOT HAVE SUFFICIENT FUNDS TO IMPLEMENT OUR
  BUSINESS STRATEGY.

     We principally operate through our health plan subsidiaries. If funds
normally available to us become limited in the future, we may need to rely on
dividends and distributions from our subsidiaries to fund our operations. These
subsidiaries are subject to regulations that limit the amount of dividends and
distributions that can be paid to us without prior approval of, or notification
to, state regulators. If these regulators were to deny our subsidiaries' request
to pay dividends to us, the funds available to our company as a whole would be
limited. This could harm our ability to implement our business strategy.

RISKS RELATED TO OUR BUSINESS

  RECEIPT OF INADEQUATE PREMIUMS WOULD NEGATIVELY AFFECT OUR REVENUES AND
  PROFITABILITY.

     Nearly all of our revenues are generated by premiums consisting of fixed
monthly payments per member. These premiums are fixed by contract, and we are
obligated during the contract periods to provide healthcare services as
established by the state governments. We use a large portion of our revenues to
pay the costs of healthcare services delivered to our customers. If premiums do
not increase when expenses related to medical services rise, our earnings would
be affected negatively. In addition, our actual medical services costs may
exceed our estimates, which would cause our health benefits ratio, or our
expenses related to medical services as a percentage of premium revenues, to
increase and our profits to decline. In addition, it is possible for a state to
increase the rates payable to the hospitals without granting a corresponding
increase in premiums to us. If this were to occur in one or more of the states
in which we operate, our profitability would be harmed.

                                        29
<PAGE>

  FAILURE TO EFFECTIVELY MANAGE OUR MEDICAL COSTS OR RELATED ADMINISTRATIVE
  COSTS WOULD REDUCE OUR PROFITABILITY.

     Our profitability depends, to a significant degree, on our ability to
predict and effectively manage expenses related to health benefits. We have less
control over the costs related to medical services than we do over our general
and administrative expenses. Historically, our health benefits ratio has varied.
For example, our health benefits ratio was 82.3% for 2002, 82.8% for 2001 and
84.3% for 2000, but was 88.9% for 1999 and 88.4% for 1998. Because of the narrow
margins of our health plan business, relatively small changes in our health
benefits ratio can create significant changes in our financial results. Changes
in healthcare regulations and practices, the level of use of healthcare
services, hospital costs, pharmaceutical costs, major epidemics, new medical
technologies and other external factors, including general economic conditions
such as inflation levels, are beyond our control and could reduce our ability to
predict and effectively control the costs of providing health benefits. We may
not be able to manage costs effectively in the future. If our costs related to
health benefits increase, our profits could be reduced or we may not remain
profitable.

  FAILURE TO ACCURATELY PREDICT OUR MEDICAL EXPENSES COULD NEGATIVELY AFFECT OUR
  REPORTED RESULTS.

     Our medical expenses include estimates of IBNR. We estimate our IBNR
medical expenses monthly based on a number of factors. Adjustments, if
necessary, are made to medical expenses in the period during which the actual
claim costs are ultimately determined or when criteria used to estimate IBNR
change. We cannot be sure that our IBNR estimates are adequate or that
adjustments to those estimates will not harm our results of operations. From
time to time in the past, our actual results have varied from our estimates,
particularly in times of significant changes in the number of our members. Our
failure to accurately estimate IBNR may also affect our ability to take timely
corrective actions, further harming our results.

  DIFFICULTIES IN EXECUTING OUR ACQUISITION STRATEGY COULD ADVERSELY AFFECT OUR
  BUSINESS.

     Historically, the acquisition of Medicaid businesses, contract rights and
related assets of other health plans both in our existing service areas and in
new markets, has accounted for a significant amount of our growth. For example,
our acquisition of 80% of the equity of UHP on December 1, 2002, accounted for
30.3% of the increase in our membership for the year ended December 31, 2002
compared to 2001. Many of the other potential purchasers of Medicaid assets have
greater financial resources than we have. In addition, many of the sellers are
interested either in (1) selling, along with their Medicaid assets, other assets
in which we do not have an interest or (2) selling their companies, including
their liabilities, as opposed to the assets of their ongoing businesses.

     We generally are required to obtain regulatory approval from one or more
state agencies when making acquisitions. In the case of an acquisition of a
business located in a state in which we do not currently operate, we would be
required to obtain the necessary licenses to operate in that state. In addition,
even if we may already operate in a state in which we acquire a new business, we
would be required to obtain additional regulatory approval if the acquisition
would result in our operating in an area of the state in which we did not
operate previously. We cannot assure you that we would be able to comply with
these regulatory requirements for an acquisition in a timely manner, or at all.
In deciding whether to approve a proposed acquisition, state regulators may
consider a number of factors outside our control, including giving preference to
competing offers made by locally owned entities or by not-for-profit entities.
Furthermore, our credit facility may prohibit some acquisitions without the
consent of our bank lender.

     In addition to the difficulties we may face in identifying and consummating
acquisitions, we will also be required to integrate and consolidate any acquired
business or assets with our existing operations. This may include the
integration of:

     - additional personnel who are not familiar with our operations and
       corporate culture;

     - existing provider networks, which may operate on different terms than our
       existing networks;

                                        30
<PAGE>

     - existing members, who may decide to switch to another healthcare plan;
       and

     - disparate administrative, accounting and finance, and information
       systems.

     Accordingly, we may be unable to successfully identify, consummate and
integrate future acquisitions or operate acquired businesses profitably. We also
may be unable to obtain sufficient additional capital resources for future
acquisitions. If we are unable to effectively execute our acquisition strategy,
our future growth will suffer and our results of operations could be harmed.

  FAILURE TO ACHIEVE TIMELY PROFITABILITY IN ANY BUSINESS WOULD NEGATIVELY
  AFFECT OUR RESULTS OF OPERATIONS.

     Start-up costs associated with a new business can be substantial. For
example, in order to obtain a certificate of authority in most jurisdictions, we
must first establish a provider network, have systems in place and demonstrate
our ability to obtain a state contract and process claims. If we were
unsuccessful in obtaining the necessary license, winning the bid to provide
service or attracting members in numbers sufficient to cover our costs, any new
business of ours would fail. We also could be obligated by the state to continue
to provide services for some period of time without sufficient revenue to cover
our ongoing costs or recover start-up costs. In addition, we may not be able to
effectively commercialize any new programs or services we seek to market to
third parties. The expenses associated with starting up a new business could
have a significant impact on our results of operations if we are unable to
achieve profitable operations in a timely fashion.

  WE DERIVE ALL OF OUR REVENUES FROM OPERATIONS IN FOUR STATES, AND OUR
  OPERATING RESULTS WOULD BE MATERIALLY AFFECTED BY A DECREASE IN REVENUES OR
  PROFITABILITY IN ANY ONE OF THOSE STATES.

     Operations in Wisconsin, Indiana, Texas and New Jersey account for all of
our revenues. If we were unable to continue to operate in each of those states
or if our current operations in any portion of one of those states were
significantly curtailed, our revenues would decrease materially. In the first
half of 2001, our membership in Indiana declined by approximately 46,000 due to
a subcontracting provider organization terminating a percent-of-premium
arrangement. In 2000, we reduced our service area in Wisconsin from 36 to 18
counties. Our reliance on operations in a limited number of states could cause
our revenue and profitability to change suddenly and unexpectedly, depending on
legislative actions, economic conditions and similar factors in those states.
Our inability to continue to operate in any of the states in which we operate
would harm our business.

  COMPETITION MAY LIMIT OUR ABILITY TO INCREASE PENETRATION OF THE MARKETS THAT
  WE SERVE.

     We compete for members principally on the basis of size and quality of
provider network, benefits provided and quality of service. We compete with
numerous types of competitors, including other health plans and traditional
state Medicaid programs that reimburse providers as care is provided. Subject to
limited exceptions by federally approved state applications, the federal
government requires that there be choices for Medicaid recipients among managed
care programs. Voluntary programs and mandated competition may limit our ability
to increase our market share.

     Some of the health plans with which we compete have greater financial and
other resources and offer a broader scope of products than we do. In addition,
significant merger and acquisition activity has occurred in the managed care
industry, as well as in industries that act as suppliers to us, such as the
hospital, physician, pharmaceutical, medical device and health information
systems industries. To the extent that competition intensifies in any market
that we serve, our ability to retain or increase members and providers, or
maintain or increase our revenue growth, pricing flexibility and control over
medical cost trends may be adversely affected.

     In addition, in order to increase our membership in the markets we
currently serve, we believe that we must continue to develop and implement
community-specific products, alliances with key providers and localized outreach
and educational programs. If we are unable to develop and implement these
initiatives, or

                                        31
<PAGE>

if our competitors are more successful than we are in doing so, we may not be
able to further penetrate our existing markets.

  IF WE ARE UNABLE TO MAINTAIN SATISFACTORY RELATIONSHIPS WITH OUR PROVIDER
  NETWORKS, OUR PROFITABILITY WILL BE HARMED.

     Our profitability depends, in large part, upon our ability to contract
favorably with hospitals, physicians and other healthcare providers. Our
provider arrangements with our primary care physicians, specialists and
hospitals generally may be cancelled by either party without cause upon 90 to
120 days' prior written notice. We cannot guarantee that we will be able to
continue to renew our existing contracts or enter into new contracts enabling us
to service our members profitably.

     From time to time providers assert or threaten to assert claims seeking to
terminate noncancelable agreements due to alleged actions or inactions by us.
Even if these allegations represent attempts to avoid or renegotiate contractual
terms that have become economically disadvantageous to the providers, it is
possible that in the future a provider may pursue such a claim successfully.
Regardless of whether any claims brought against us are successful or have
merit, they will still be time-consuming and costly and could distract our
management's attention. As a result, we may incur significant expenses and may
be unable to operate our business effectively.

     We will be required to establish acceptable provider networks prior to
entering new markets. We may be unable to enter into agreements with providers
in new markets on a timely basis or under favorable terms. If we are unable to
retain our current provider contracts or enter into new provider contracts
timely or on favorable terms, our profitability will be harmed.

  WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL.

     We are highly dependent on our ability to attract and retain qualified
personnel to operate and expand our Medicaid managed care business. If we lose
one or more members of our senior management team, including our chief executive
officer, Michael F. Neidorff, who has been instrumental in developing our
mission and forging our business relationships, our business and operating
results could be harmed. We do not have an employment agreement with Mr.
Neidorff, and we cannot assure you that we will be able to retain his services.
Our ability to replace any departed members of our senior management or other
key employees may be difficult and may take an extended period of time because
of the limited number of individuals in the Medicaid managed care industry with
the breadth of skills and experience required to operate and expand successfully
a business such as ours. Competition to hire from this limited pool is intense,
and we may be unable to hire, train, retain or motivate these personnel.

  NEGATIVE PUBLICITY REGARDING THE MANAGED CARE INDUSTRY MAY HARM OUR BUSINESS
  AND OPERATING RESULTS.

     Recently, the managed care industry has received negative publicity. This
publicity has led to increased legislation, regulation, review of industry
practices and private litigation in the commercial sector. These factors may
adversely affect our ability to market our services, require us to change our
services, and increase the regulatory burdens under which we operate. Any of
these factors may increase the costs of doing business and adversely affect our
operating results.

  CLAIMS RELATING TO MEDICAL MALPRACTICE COULD CAUSE US TO INCUR SIGNIFICANT
  EXPENSES.

     Our providers and employees involved in medical care decisions may be
subject to medical malpractice claims. Some states, including Texas, have
adopted legislation that permits managed care organizations to be held liable
for negligent treatment decisions or benefits coverage determinations. In
addition, plaintiffs in cases pending in federal courts are seeking to hold
managed care organizations liable for denying medically necessary treatment and
denying or delaying payments for services performed. Claims of this nature, if
successful, could result in substantial damage awards against us and our
providers that could exceed the limits of any applicable insurance coverage.
Therefore, successful malpractice or tort claims asserted against us, our
                                        32
<PAGE>

providers or our employees could adversely affect our financial condition and
profitability. Even if any claims brought against us are unsuccessful or without
merit, they would still be time-consuming and costly and could distract our
management's attention. As a result, we may incur significant expenses and may
be unable to operate our business effectively.

  GROWTH IN THE NUMBER OF MEDICAID-ELIGIBLE PERSONS DURING ECONOMIC DOWNTURNS
  COULD CAUSE OUR OPERATING RESULTS AND STOCK PRICES TO SUFFER IF STATE AND
  FEDERAL BUDGETS DECREASE OR DO NOT INCREASE.

     Less favorable economic conditions may cause our membership to increase as
more people become eligible to receive Medicaid benefits. During such economic
downturns, however, state and federal budgets could decrease, causing states to
attempt to cut healthcare programs, benefits and rates. In particular, we cannot
predict the impact of acts of terrorism or related military action on federal or
state funding of healthcare programs or on the size of the Medicaid-eligible
population. If federal funding were decreased or unchanged while our membership
was increasing, our results of operations would suffer.

  GROWTH IN THE NUMBER OF MEDICAID-ELIGIBLE PERSONS MAY BE COUNTERCYCLICAL,
  WHICH COULD CAUSE OUR OPERATING RESULTS TO SUFFER WHEN GENERAL ECONOMIC
  CONDITIONS ARE IMPROVING.

     Historically, the number of persons eligible to receive Medicaid benefits
has increased more rapidly during periods of rising unemployment, corresponding
to less favorable general economic conditions. Conversely, this number may grow
more slowly or even decline if economic conditions improve. Therefore,
improvements in general economic conditions may cause our membership levels to
decrease, thereby causing our operating results to suffer, which could lead to
decreases in our stock price during periods in which stock prices in general are
increasing.

  WE INTEND TO EXPAND PRIMARILY INTO MARKETS WHERE MEDICAID RECIPIENTS ARE
  REQUIRED TO ENROLL IN MANAGED CARE PLANS.

     We expect to continue to focus our business in states in which Medicaid
enrollment in managed care is mandatory. Currently, approximately two-thirds of
the states require health plan enrollment for Medicaid eligible participants in
all or a portion of their counties. The programs are voluntary in other states.
Because we concentrate on markets with mandatory enrollment, we expect the
geographic expansion of our business to be limited to those states.

  IF WE ARE UNABLE TO INTEGRATE AND MANAGE OUR INFORMATION SYSTEMS EFFECTIVELY,
  OUR OPERATIONS COULD BE DISRUPTED.

     Our operations depend significantly on effective information systems. The
information gathered and processed by our information systems assists us in,
among other things, monitoring utilization and other cost factors, processing
provider claims, and providing data to our regulators. Our providers also depend
upon our information systems for membership verifications, claims status and
other information.

     Our information systems and applications require continual maintenance,
upgrading and enhancement to meet our operational needs. Moreover, our
acquisition activity requires frequent transitions to or from, and the
integration of, various information systems. We regularly upgrade and expand our
information systems capabilities. If we experience difficulties with the
transition to or from information systems or are unable to properly maintain or
expand our information systems, we could suffer, among other things, from
operational disruptions, loss of existing members and difficulty in attracting
new members, regulatory problems and increases in administrative expenses. In
addition, our ability to integrate and manage our information systems may be
impaired as the result of events outside our control, including acts of nature,
such as earthquakes or fires, or acts of terrorists.

  WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN ADEQUATE INSURANCE.

     We maintain liability insurance, subject to limits and deductibles, for
claims that could result from providing or failing to provide managed care and
related services. These claims could be substantial. We
                                        33
<PAGE>

believe that our present insurance coverage and reserves are adequate to cover
currently estimated exposures. We cannot assure you that we will be able to
obtain adequate insurance coverage in the future at acceptable costs or that we
will not incur significant liabilities in excess of policy limits.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                                  INVESTMENTS

     As of December 31, 2002, we had short-term investments of $9.6 million and
long-term investments of $95.4 million, including restricted deposits of $15.8
million. The short-term investments consist of highly liquid securities with
maturities between three and 12 months. The long-term investments consist of
municipal bonds, U.S. government-backed agencies and U.S. Treasury investments,
and have original maturities greater than one year. Restricted deposits consist
of investments required by various state statutes to be deposited or pledged to
state agencies. These investments are classified as long-term regardless of the
contractual maturity date due to the nature of the state's requirements. These
investments are subject to interest rate risk and will decrease in value if
market rates increase. We have the ability to hold these short-term investments
to maturity, and as a result, we would not expect the value of these investments
to decline significantly as a result of a sudden change in market interest
rates. Assuming a hypothetical and immediate 1% increase in market interest
rates at December 31, 2002, the fair value of our fixed income investments would
decrease by approximately $2.6 million. Similarly, a 1% decrease in market
interest rates at December 31, 2002 would result in an increase of the fair
value of our investments of approximately $2.6 million. Declines in interest
rates over time will reduce our investment income.

                                   INFLATION

     Although the general rate of inflation has remained relatively stable and
healthcare cost inflation has stabilized in recent years, the national
healthcare cost inflation rate still exceeds the general inflation rate. We use
various strategies to mitigate the negative effects of healthcare cost
inflation. Specifically, our health plans try to control medical and hospital
costs through contracts with independent providers of healthcare services.
Through these contracted care providers, our health plans emphasize preventive
healthcare and appropriate use of specialty and hospital services.

     While we currently believe our strategies to mitigate healthcare cost
inflation will continue to be successful, competitive pressures, new healthcare
and pharmaceutical product introductions, demands from healthcare providers and
customers, applicable regulations or other factors may affect our ability to
control the impact of healthcare cost increases.

                                COMPLIANCE COSTS

     Federal and state regulations governing standards for electronic
transactions, data security and confidentiality of patient information have been
issued recently. Due to the uncertainty surrounding the regulatory requirements,
we cannot be sure that the systems and programs that we have implemented will
comply adequately with the regulations that are ultimately adopted.
Implementation of additional systems and programs will be required, the cost of
which we estimate not to exceed $500,000 in 2003. Further, compliance with these
regulations would require changes to many of the procedures we currently use to
conduct our business, which may lead to additional costs that we have not yet
identified. We do not know whether, or the extent to which, we will be able to
recover our costs of complying with these new regulations from the states.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements and related notes thereto required by
this item are set forth on the pages indicated in Item 15.

                                        34
<PAGE>

                              CENTENE CORPORATION

                    QUARTERLY SELECTED FINANCIAL INFORMATION
             (IN THOUSANDS, EXCEPT SHARE DATA AND MEMBERSHIP DATA)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                FOR THE QUARTER ENDED
                                                 ---------------------------------------------------
                                                 MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                                   2001        2001         2001            2001
                                                 ---------   --------   -------------   ------------
<S>                                              <C>         <C>        <C>             <C>
Total revenues.................................  $ 70,304    $ 80,560     $ 85,414        $ 90,291
Earnings from operations.......................     2,906       4,513        5,355           5,698
Earnings before income taxes...................     3,777       5,343        6,175           6,731
Net earnings...................................  $  2,182    $  3,230     $  3,563        $  3,920
Net earnings attributable to common
  stockholders.................................  $  2,059    $  3,107     $  3,440        $  3,822
Per share data:
  Earnings per common share, basic.............  $   2.27    $   3.41     $   3.78        $   1.37
  Earnings per common share, diluted...........  $   0.29    $   0.42     $   0.45        $   0.45
Period end membership..........................   205,000     213,200      224,800         235,100
</Table>

<Table>
<Caption>
                                                                FOR THE QUARTER ENDED
                                                 ---------------------------------------------------
                                                 MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                                   2002        2002         2002            2002
                                                 ---------   --------   -------------   ------------
<S>                                              <C>         <C>        <C>             <C>
Total revenues.................................  $ 95,753    $107,610     $116,398        $141,726
Earnings from operations.......................     6,262       7,718        8,028           9,598
Earnings before income taxes...................     7,177       8,683       14,780          10,496
Net earnings...................................  $  4,300    $  5,234     $  9,273        $  6,814
Net earnings attributable to common
  stockholders.................................  $  4,300    $  5,234     $  9,273        $  6,814
Per share data:
  Earnings per common share, basic.............  $   0.43    $   0.51     $   0.87        $   0.63
  Earnings per common share, diluted...........  $   0.38    $   0.45     $   0.78        $   0.57
Period end membership..........................   249,300     278,600      296,100         409,600
</Table>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) DIRECTORS

     Information concerning our directors will appear in our Proxy Statement for
our 2003 annual meeting of stockholders under "Election of Directors." This
portion of the Proxy Statement is incorporated herein by reference.

                                        35
<PAGE>

(b) EXECUTIVE OFFICERS AND KEY EMPLOYEES

     The following table sets forth information regarding our executive officers
and key employees, including their ages at January 31, 2003:

<Table>
<Caption>
                NAME                   AGE                          POSITION
-------------------------------------  ---   -------------------------------------------------------
<S>                                    <C>   <C>
Executive Officers
Michael F. Neidorff..................  60    President, Chief Executive Officer and Director
Joseph P. Drozda, Jr., M.D. .........  57    Senior Vice President, Medical Affairs
Carol E. Goldman.....................  45    Senior Vice President, Chief Administration Officer
Catherine M. Halverson...............  53    Senior Vice President, Business Development
Daniel R. Paquin.....................  39    Senior Vice President, Health Plan Business Group
Brian G. Spanel......................  47    Senior Vice President and Chief Information Officer
John D. Tadich.......................  50    Senior Vice President, Specialty Companies
Karey L. Witty.......................  38    Senior Vice President, Chief Financial Officer,
                                             Secretary and Treasurer
Key Employees
Christopher D. Bowers................  47    President and Chief Executive Officer, Superior
                                             HealthPlan
Kathleen R. Crampton.................  58    President and Chief Executive Officer, Managed Health
                                             Services Wisconsin
Rita Johnson-Mills...................  43    President and Chief Executive Officer, Coordinated Care
                                             Corporation Indiana
Alexander H. McLean..................  32    President and Chief Executive Officer, University
                                             Health Plans
</Table>

     Michael F. Neidorff  has served as our President, Chief Executive Officer
and as a member of our board of directors since May 1996. From May 1996 to
November 2001, Mr. Neidorff also served as our Treasurer. From 1995 to 1996, Mr.
Neidorff served as a Regional Vice President of Coventry Corporation, a publicly
traded managed care organization, and as the President and Chief Executive
Officer of one of its subsidiaries, Group Health Plan, Inc. From 1985 to 1995,
Mr. Neidorff served as the President and Chief Executive Officer of Physicians
Health Plan of Greater St. Louis, a subsidiary of United Healthcare Corp., a
publicly traded managed care organization now known as UnitedHealth Group
Incorporated.

     Joseph P. Drozda, Jr., M.D.  has served as our Senior Vice President,
Medical Affairs since November 2000 and served as our part-time Medical Director
from January 2000 through October 2000. From June 1999 to October 2000, Dr.
Drozda was self-employed as a consultant to managed care organizations,
physician groups, hospital networks and employer groups on a variety of managed
care delivery and financing issues. From 1996 to April 1999, Dr. Drozda served
as the Vice President of Medical Management of SSM Health Care, a health
services network. From 1994 to 1996, Dr. Drozda was the Vice President and Chief
Medical Officer of PHP, Inc., a health maintenance organization based in North
Carolina. From 1987 until 1994, Dr. Drozda served as Medical Director of
Physicians Health Plan of Greater St. Louis, a health plan that he co-founded.

     Carol E. Goldman  has served as Senior Vice President, Chief Administration
Officer since July 2002. From September 2001 to June 2002, Ms. Goldman served as
our Plan Director of Human Resources. From July 1998 to August 2001, Ms. Goldman
was Human Resources Manager at Mallinckrodt Inc., a medical device and
pharmaceutical company. From June 1996 to June 1998, Ms. Goldman served as
Compensation Analyst for Mallinckrodt.

     Catherine M. Halverson  has served as our Senior Vice President, Business
Development since September 2001. From March 2001 to September 2001, Ms.
Halverson was self-employed as a consultant to a pharmaceutical benefit
management company and Medicaid managed care plans. From 1993 to March 2001, Ms.
Halverson was the Vice President and Director of Medicaid Programs of
UnitedHealth Group Incorporated.

                                        36
<PAGE>

     Daniel R. Paquin  has served as our Senior Vice President, Health Plan
Business Group since January 2003. From January 2002 to December 2002, Mr.
Paquin served as Regional President, Midwest/Medicaid for UnitedHealth Group.
From February 1999 to January 2002, Mr. Paquin served as Senior Vice President,
Operations at AmeriChoice Health Services, a managed care organization. From
April 1997 to February 1999, Mr. Paquin was the Regional Vice President,
Northeast Region of Comprehensive Care Corporation, a managed care organization.

     Brian G. Spanel has served as our Senior Vice President and Chief
Information Officer since December 1996. From 1988 to 1996, Mr. Spanel served as
President of GBS Consultants, a healthcare consulting and help desk software
developer. From 1987 to 1988, Mr. Spanel was Director of Information Services
for CompCare, a managed care organization. From 1984 to 1987, Mr. Spanel was
Director of Information Services for Peak Health Care, a managed care
organization.

     John D. Tadich has served as our Senior Vice President, Specialty Companies
since November 2002. From September 1997 to October 2002, Mr. Tadich was a
private investor and consultant in the healthcare industry. From January 1992 to
September 1997, Mr. Tadich served as President of United Behavioral Health, a
specialty company within UnitedHealth Group.

     Karey L. Witty has served as our Senior Vice President and Chief Financial
Officer since August 2000, as our Secretary since February 2000 and as our
Treasurer since November 2001. From March 1999 to August 2000, Mr. Witty served
as our Vice President of Health Plan Accounting. From 1996 to March 1999, Mr.
Witty was Controller of Heritage Health Systems, Inc., a healthcare company in
Nashville, Tennessee. From 1994 to 1996, Mr. Witty served as Director of
Accounting for Healthwise of America, Inc., a publicly traded managed care
organization. Mr. Witty is a Certified Public Accountant.

     Christopher D. Bowers has served as the President and Chief Executive
Officer of Superior HealthPlan, our health plan in Texas, since April 2002. From
October 2000 to March 2002, Mr. Bowers was the Vice President of Operations for
Physicians Health Plan of Southwest Michigan, Inc. (PHP) and IBA Health & Life
Assurance Company, which are wholly owned subsidiaries of the Bronson Healthcare
Group. From 1996 to September 2000, Mr. Bowers served as the Director of
Government Programs, Kalamazoo, Michigan, for UnitedHealth Group. While directly
working for Bronson Healthcare Group, Mr. Bowers served as the Assistant Vice
President of Community Relations and the Assistant Vice President of Strategic
Planning and Development.

     Kathleen R. Crampton has served as the President and Chief Executive
Officer of Managed Health Services Insurance Corp., our health plan in
Wisconsin, since June 2000. From November 1999 to May 2000, Ms. Crampton was a
Senior Consultant for PricewaterhouseCoopers LLC. From June 1996 to October
1999, Ms. Crampton served as Vice President of the Patterson Group, a private
consulting firm serving health maintenance organizations and their service
providers and medical manufacturers. From 1993 to 1996, Ms. Crampton served as
Vice President of Marketing for Healthtech Services Corporation, a home care
robotics and telemedicine information systems company.

     Rita Johnson-Mills has served as the President and Chief Executive Officer
of Coordinated Care Corporation, our health plan in Indiana, since April 2001.
From March 2000 to April 2001, Ms. Johnson-Mills served as the Chief Operating
Officer of Coordinated Care Corporation. From July 1999 to March 2000, Ms.
Johnson-Mills was a Senior Vice President and the Chief Operating Officer of
Coordinated Care Corporation. From 1995 to March 1999, Ms. Johnson-Mills served
as Senior Vice President and Chief Operating Officer of DC Chartered Health
Plan, Inc., a health maintenance organization.

     Alexander H. McLean has served as the President and Chief Executive Officer
of University Health Plans, a health plan in New Jersey of which we acquired
control in December 2002, since May 1999. From October 1997 to May 1999, Mr.
McLean served as the Chief Operating Officer of UHP. From February 1995 to
October 1997, Mr. McLean was employed by Ernst & Young LLP as a Senior
Consultant in Ernst & Young's healthcare practices.

     Information concerning our executive officers' compliance with Section
16(a) of the Securities Exchange Act will appear in our Proxy Statement for our
2003 annual meeting of stockholders under "Section 16(a)
                                        37
<PAGE>

Beneficial Ownership Reporting Compliance." This portion of our Proxy Statement
is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information concerning executive compensation will appear in our Proxy
Statement for our 2003 annual meeting of stockholders under "Executive
Compensation" and "Employment Agreements." This portion of the Proxy Statement
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

     Information concerning the security ownership of certain beneficial owners
and management and our equity compensation plans will appear in our Proxy
Statement for our 2003 annual meeting of stockholders under "Principal
Stockholders "and "Equity Plan Information." These portions of the Proxy
Statement are incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and related transactions will
appear in our Proxy Statement for our 2003 annual meeting of stockholders under
"Transactions with Management." This portion of our Proxy Statement is
incorporated herein by reference.

ITEM 14.  CONTROLS AND PROCEDURES

     Evaluation of disclosure controls and procedures.  Based on their
evaluations as of a date within 90 days of the filing date of this report, our
principal executive officer and principal financial officer, with the
participation of our full management team, have concluded that our disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC.

     Changes in internal controls.  There were no significant changes in our
internal controls or in other factors that could significantly affect these
internal controls subsequent to the date of their most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

                                        38
<PAGE>

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report:

          1.  CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                           PAGE
                                                                           ----
        <C>  <S>                                                           <C>
             Report of Independent Public Accountants....................   40
             Consolidated Balance Sheets as of December 31, 2002 and
               2001......................................................   42
             Consolidated Statements of Earnings for the Years Ended
               December 31, 2002, 2001 and 2000..........................   43
             Consolidated Statements of Stockholders' Equity for the
               Years Ended December 31, 2002, 2001 and 2000..............   44
             Consolidated Statements of Cash Flows for the Years Ended
               December 31, 2002, 2001 and 2000..........................   45
             Notes to Consolidated Financial Statements..................   46

         2.  FINANCIAL STATEMENT SCHEDULES
             Report of Independent Public Accountants....................   66
             Schedule II -- Valuation and Qualifying Accounts............   67
</Table>

          3.  EXHIBITS

         The exhibits listed in the accompanying Index to Exhibits are filed or
        incorporated by reference as part of this report.

     (b) Reports on Form 8-K.

         On June 20, 2002, we filed a current report on Form 8-K with respect to
        our engagement of PricewaterhouseCoopers LLP as our independent accounts
        succeeding Arthur Andersen LLP.

         On August 30, 2002, we filed a current report on Form 8-K with respect
        to our adoption of a Shareholder Rights Plan.

         On December 1, 2002, we filed a current report on Form 8-K with respect
        to our acquisition of 80% of the outstanding capital stock of UHP.

                                        39
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Centene Corporation:

     In our opinion, the accompanying consolidated balance sheet as of December
31, 2002, and the related consolidated statement of earnings, stockholders'
equity and cash flows present fairly, in all material respects, the financial
position of Centene Corporation and its subsidiaries (the "Company") at December
31, 2002, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the Company as of December 31, 2001, and for each of the two years in the period
ended December 31, 2001, were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an unqualified
opinion on those financial statements in their report dated February 1, 2002.

     As discussed in Note 3 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill to conform with
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets."

                                          /S/ PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
February 14, 2003

                                        40
<PAGE>

THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Centene Corporation:

     We have audited the accompanying consolidated balance sheets of Centene
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Centene
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

                                          /S/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
February 1, 2002

                                        41
<PAGE>

                      CENTENE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2002        2001
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>         <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 59,656    $ 88,867
  Premium and related receivables, net of allowances of $219
    and $3,879, respectively................................    16,773       7,032
  Short-term investments, at fair value (amortized cost
    $9,687 and $1,166, respectively)........................     9,571       1,169
  Deferred income taxes.....................................     2,846       2,515
  Other current assets......................................     4,243       2,464
                                                              --------    --------
    Total current assets....................................    93,089     102,047
Long-term investments, at fair value (amortized cost $78,025
  and $20,923, respectively)................................    79,666      21,119
Restricted deposits, at fair value (amortized cost $15,561
  and $1,204, respectively).................................    15,762       1,220
Property and equipment, net.................................     6,295       3,796
Other assets................................................     4,348          --
Intangible assets, net......................................    10,695       2,396
Deferred income taxes.......................................       472         788
                                                              --------    --------
    Total assets............................................  $210,327    $131,366
                                                              ========    ========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Medical claims liabilities................................  $ 91,181    $ 59,565
  Accounts payable and accrued expenses.....................    10,748       6,712
                                                              --------    --------
    Total current liabilities...............................   101,929      66,277
Other liabilities...........................................     5,334       1,000
                                                              --------    --------
    Total liabilities.......................................   107,263      67,277
Minority interest...........................................       881          --
Stockholders' equity:
  Common stock, $.001 par value; authorized 40,000,000
    shares; 10,829,099 and 10,085,112 shares issued and
    outstanding.............................................        11          10
  Additional paid-in capital................................    72,377      60,857
Accumulated other comprehensive income:
  Net unrealized gain on investments, net of tax............     1,087         135
Retained earnings...........................................    28,708       3,087
                                                              --------    --------
  Total stockholders' equity................................   102,183      64,089
                                                              --------    --------
  Total liabilities and stockholders' equity................  $210,327    $131,366
                                                              ========    ========
</Table>

      The accompanying notes are an integral part of these balance sheets.

                                        42
<PAGE>

                      CENTENE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF EARNINGS

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                          -------------------------------------
                                                             2002          2001         2000
                                                          -----------   ----------   ----------
                                                            (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                       <C>           <C>          <C>
REVENUES:
  Premiums..............................................  $   461,030   $  326,184   $  216,414
  Administrative services fees..........................          457          385        4,936
                                                          -----------   ----------   ----------
     Total revenues.....................................      461,487      326,569      221,350
                                                          -----------   ----------   ----------
EXPENSES:
  Medical services costs................................      379,468      270,151      182,495
  General and administrative expenses...................       50,413       37,946       32,335
                                                          -----------   ----------   ----------
     Total operating expenses...........................      429,881      308,097      214,830
                                                          -----------   ----------   ----------
     Earnings from operations...........................       31,606       18,472        6,520
OTHER INCOME (EXPENSE):
  Investment and other income, net......................        9,575        3,916        1,784
  Interest expense......................................          (45)        (362)        (611)
  Equity in losses from joint ventures..................           --           --         (508)
                                                          -----------   ----------   ----------
     Earnings from operations before income taxes.......       41,136       22,026        7,185
INCOME TAX EXPENSE (BENEFIT)............................       15,631        9,131         (543)
Minority interest.......................................          116           --           --
                                                          -----------   ----------   ----------
     Net earnings.......................................       25,621       12,895        7,728
Accretion of redeemable preferred stock.................           --         (467)        (492)
                                                          -----------   ----------   ----------
     Net earnings attributable to common stockholders...  $    25,621   $   12,428   $    7,236
                                                          ===========   ==========   ==========
EARNINGS PER COMMON SHARE, BASIC:
  Net earnings per common share.........................  $      2.45   $     8.97   $     8.03
EARNINGS PER COMMON SHARE, DILUTED:
  Net earnings per common share.........................  $      2.20   $     1.61   $     1.13
SHARES USED IN COMPUTING PER SHARE AMOUNTS:
  Basic.................................................   10,477,360    1,385,399      901,526
  Diluted...............................................   11,644,077    8,019,497    6,819,595
</Table>

        The accompanying notes are an integral part of these statements.

                                        43
<PAGE>

                      CENTENE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
                                                                    PREFERRED STOCK                            COMMON STOCK
                                                 -----------------------------------------------------   -------------------------

                                                 SERIES A           SERIES B           SERIES C          SERIES A         SERIES B
                                                  SHARES     AMT     SHARES     AMT     SHARES    AMT     SHARES    AMT    SHARES
                                                 --------   -----   --------   -----   --------   ----   --------   ---   --------
<S>                                              <C>        <C>     <C>        <C>     <C>        <C>    <C>        <C>   <C>
BALANCE, December 31, 1999.....................   733,850   $ 123    864,640   $ 144    557,850   $ 93    277,247   $1     624,279
  Net earnings.................................        --      --         --      --         --     --         --   --          --
  Net unrealized investment gains, net of $136
    tax........................................        --      --         --      --         --     --         --   --          --
      Comprehensive earnings...................
  Series D preferred stock accretion...........        --      --         --      --         --     --         --   --          --
                                                 --------   -----   --------   -----   --------   ----   --------   ---   --------
BALANCE, December 31, 2000.....................   733,850   $ 123    864,640   $ 144    557,850   $ 93    277,247   $1     624,279
  Net earnings.................................        --      --         --      --         --     --         --   --          --
  Net unrealized investment gains, net of $32
    tax........................................        --      --         --      --         --     --         --   --          --
      Comprehensive earnings...................
  Issuance of common stock upon exercise of
    options....................................        --      --         --      --         --     --     19,100   --          --
  Purchase of stock............................        --      --         --      --         --     --    (11,000)  --          --
  Stock compensation expense...................        --      --         --      --         --     --         --   --          --
  Series D preferred stock accretion...........        --      --         --      --         --     --         --   --          --
  Exercise of warrants to purchase common
    stock......................................        --      --         --      --         --     --         --   --      46,003
  Conversion of Series A, B, C and D preferred
    stock to common stock......................  (733,850)   (123)  (864,640)   (144)  (557,850)   (93)        --   --          --
  Conversion of Series A and B common stock to
    $.001 par value common stock...............        --      --         --      --         --     --   (285,347)  (1)   (670,282)
  Issuance of 3,250,000 shares of common stock,
    net........................................        --      --         --      --         --     --         --   --          --
  Issuance of common stock for purchase of
    joint venture interest.....................        --      --         --      --         --     --         --   --          --
                                                 --------   -----   --------   -----   --------   ----   --------   ---   --------
BALANCE, December 31, 2001.....................        --   $  --         --   $  --         --   $ --         --   $--         --
  Net earnings.................................        --      --         --      --         --     --         --   --          --
  Net unrealized investment gains, net of $559
    tax........................................        --      --         --      --         --     --         --   --          --
      Comprehensive earnings...................
  Issuance of common stock in relation to stock
    options and employee stock purchase plan...        --      --         --      --         --     --         --   --          --
  Issuance of 470,495 shares of common stock,
    net........................................        --      --         --      --         --     --         --   --          --
  Stock compensation expense...................        --      --         --      --         --     --         --   --          --
  Tax benefit of disqualifying dispositions....        --      --         --      --         --     --         --   --          --
                                                 --------   -----   --------   -----   --------   ----   --------   ---   --------
BALANCE, December 31, 2002.....................        --   $  --         --   $  --         --   $ --         --   $--         --
                                                 ========   =====   ========   =====   ========   ====   ========   ===   ========

<Caption>
                                                      COMMON STOCK
                                                 ----------------------                    NET
                                                                                       UNREALIZED
                                                       $.001 PAR          ADDITIONAL   GAIN (LOSS)   RETAINED
                                                         VALUE             PAID-IN         ON        EARNINGS
                                                 AMT     SHARES     AMT    CAPITAL     INVESTMENTS   (DEFICIT)     TOTAL
                                                 ---   ----------   ---   ----------   -----------   ---------     -----
<S>                                              <C>   <C>          <C>   <C>          <C>           <C>         <C>
BALANCE, December 31, 1999.....................  $2            --   $--    $     7       $ (216)     $(16,521)   $(16,367)
  Net earnings.................................  --            --   --          --           --         7,728       7,728
  Net unrealized investment gains, net of $136
    tax........................................  --            --   --          --          297            --         297
                                                                                                                 --------
      Comprehensive earnings...................                                                                     8,025
  Series D preferred stock accretion...........  --            --   --          --           --          (492)       (492)
                                                 ---   ----------   ---    -------       ------      --------    --------
BALANCE, December 31, 2000.....................  $2            --   $--    $     7       $   81      $ (9,285)   $ (8,834)
  Net earnings.................................  --            --   --          --           --        12,895      12,895
  Net unrealized investment gains, net of $32
    tax........................................  --            --   --          --           54            --          54
                                                                                                                 --------
      Comprehensive earnings...................                                                                    12,949
  Issuance of common stock upon exercise of
    options....................................  --            --   --          32           --            --          32
  Purchase of stock............................  --            --   --         (30)                       (56)        (86)
  Stock compensation expense...................  --            --   --           6           --            --           6
  Series D preferred stock accretion...........  --            --   --          --           --          (467)       (467)
  Exercise of warrants to purchase common
    stock......................................  --            --   --          18           --            --          18
  Conversion of Series A, B, C and D preferred
    stock to common stock......................  --     5,872,340    6      19,683           --            --      19,329
  Conversion of Series A and B common stock to
    $.001 par value common stock...............  (2)      955,629    1           2           --            --          --
  Issuance of 3,250,000 shares of common stock,
    net........................................  --     3,250,000    3      41,039           --            --      41,042
  Issuance of common stock for purchase of
    joint venture interest.....................  --         7,143   --         100           --            --         100
                                                 ---   ----------   ---    -------       ------      --------    --------
BALANCE, December 31, 2001.....................  $--   10,085,112   $10    $60,857       $  135      $  3,087    $ 64,089
  Net earnings.................................  --            --   --          --           --        25,621      25,621
  Net unrealized investment gains, net of $559
    tax........................................  --            --   --          --          952            --         952
                                                                                                                 --------
      Comprehensive earnings...................                                                                    26,573
  Issuance of common stock in relation to stock
    options and employee stock purchase plan...  --       273,492   --         491           --            --         491
  Issuance of 470,495 shares of common stock,
    net........................................  --       470,495    1      10,317           --            --      10,318
  Stock compensation expense...................  --            --   --         270           --            --         270
  Tax benefit of disqualifying dispositions....  --            --   --         442           --            --         442
                                                 ---   ----------   ---    -------       ------      --------    --------
BALANCE, December 31, 2002.....................  $--   10,829,099   $11    $72,377       $1,087      $ 28,708    $102,183
                                                 ===   ==========   ===    =======       ======      ========    ========
</Table>

        The accompanying notes are an integral part of these statements.

                                        44
<PAGE>

                      CENTENE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2002        2001       2000
                                                              ---------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings..............................................  $  25,621   $ 12,895   $  7,728
  Adjustments to reconcile net earnings to net cash provided
     by operating activities --
     Depreciation and amortization..........................      2,565      1,847      1,034
     Stock compensation expense.............................        270          6         --
     Minority interest......................................       (116)        --         --
     (Gain) loss on sale of investments.....................       (649)      (390)        40
     Equity in losses from joint ventures...................         --         --        508
  Changes in assets and liabilities --
     (Increase) decrease in premium and related
       receivables..........................................     (2,449)     9,406     (4,087)
     (Increase) decrease in other current assets............     (1,463)      (238)       684
     Increase in deferred income taxes......................       (574)       (37)      (584)
     Decrease in other assets...............................        857         --         --
     Increase in medical claims liabilities.................     15,386      8,686      8,466
     Decrease in unearned premiums..........................       (827)        --     (3,601)
     Increase (decrease) in accounts payable and accrued
       expenses.............................................      1,910     (1,987)     3,270
     Decrease in other liabilities..........................       (872)        --         --
                                                              ---------   --------   --------
          Net cash provided by operating activities.........     39,659     30,188     13,458
                                                              ---------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment........................     (3,918)    (3,635)      (642)
  Purchase of investments...................................   (192,371)   (25,481)   (20,260)
  Sales and maturities of investments.......................    127,706     25,037      7,382
  Contract acquisitions.....................................       (595)    (1,250)        --
  Investments in subsidiaries...............................    (10,501)     7,995     (1,097)
                                                              ---------   --------   --------
          Net cash (used in) provided by investing
            activities......................................    (79,679)     2,666    (14,617)
                                                              ---------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of note payable...................................         --         --     (2,350)
  Payment of subordinated debt..............................         --     (4,000)        --
  Proceeds from exercise of stock options...................        491         32         --
  Net proceeds from issuance of common stock................     10,318     41,042         --
  Purchase of stock.........................................         --       (102)        --
  Proceeds from exercise of warrants........................         --         18         --
                                                              ---------   --------   --------
          Net cash provided by (used in) financing
            activities......................................     10,809     36,990     (2,350)
                                                              ---------   --------   --------
          Net (decrease) increase in cash and cash
            equivalents.....................................    (29,211)    69,844     (3,509)
                                                              ---------   --------   --------
CASH AND CASH EQUIVALENTS, beginning of period..............     88,867     19,023     22,532
                                                              ---------   --------   --------
CASH AND CASH EQUIVALENTS, end of period....................  $  59,656   $ 88,867   $ 19,023
                                                              =========   ========   ========
  Interest paid.............................................  $      28   $    920   $    531
  Income taxes paid.........................................  $  16,433   $  9,460   $    310
</Table>

        The accompanying notes are an integral part of these statements.

                                        45
<PAGE>

                      CENTENE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1.  ORGANIZATION AND OPERATIONS

     Centene Corporation (Centene or the Company) provides managed care programs
and related services to individuals receiving benefits under Medicaid, including
Supplemental Security Income (SSI), and State Children's Health Insurance
Program (SCHIP). Centene operates under its own state licenses in Wisconsin,
Indiana, Texas and New Jersey, and contracts with other managed care
organizations to provide risk and nonrisk management services.

     Centene's managed care organization (MCO) subsidiaries include Managed
Health Services Insurance Corp. (MHSIC), a wholly owned Wisconsin corporation;
Coordinated Care Corporation Indiana, Inc. (CCCI), a wholly owned Indiana
corporation; Superior HealthPlan, Inc. (Superior), a wholly owned Texas
corporation (39% before January 1, 2001); and University Health Plans, Inc.
(UHP), an 80% owned New Jersey corporation.

     Centene's other subsidiaries include Bankers Reserve Life Insurance Company
of Wisconsin (Bankers Reserve), a wholly owned Wisconsin corporation that the
Company purchased on March 14, 2002, and NurseWise, Inc., a wholly owned
Delaware corporation that was incorporated in August of 2002.

     The Company is currently operated as one business segment, which includes
both its underwritten and administrative only services provided to individuals
receiving benefits under Medicaid, including SSI, and SCHIP.

2.  INITIAL PUBLIC OFFERING AND FOLLOW-ON

     On December 13, 2001, the Company completed an initial public offering
(IPO) of 3,250,000 shares of its common stock at $14.00 per share. The net
proceeds, after paying the underwriting discount and expenses associated with
the offering, were $41,000. In conjunction with the IPO all outstanding shares
of preferred stock were converted into shares of common stock in accordance with
their terms.

     On May 22, 2002, the Company closed a follow-on public offering of
5,000,000 shares of common stock at $24.75 per share. Of the 5,000,000 shares,
4,600,000 shares were offered by selling stockholders and 400,000 by the
Company. On June 5, 2002, the underwriters of the follow-on public offering
exercised their over-allotment option to purchase 679,505 additional shares from
selling stockholders and 70,495 additional shares from the Company. Centene
received net proceeds of $10,300 from the two closings of the follow-on
offering.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying consolidated financial statements include the accounts of
Centene Corporation and all majority owned subsidiaries. All material
intercompany balances and transactions have been eliminated.

  CASH AND CASH EQUIVALENTS

     Investments with original maturities of three months or less at the date of
acquisition are considered to be cash equivalents. Cash equivalents consist of
commercial paper, money market funds and bank savings accounts.

  INVESTMENTS

     Short-term investments include securities with original maturities between
three months and one year. Long-term investments include securities with
original maturities greater than one year.

                                        46
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Short-term and long-term investments are classified as available for sale
and are carried at fair value based on quoted market prices. Unrealized gains
and losses on investments available for sale are excluded from earnings and
reported as a separate component of stockholders' equity, net of income tax
effects. Premiums and discounts are amortized or accreted over the life of the
related security using the effective interest method. The Company monitors the
difference between the cost and fair value of investments. Investments that
experience a decline in value that is judged to be other than temporary are
written down to fair value and a realized loss is recorded in investment and
other income. To calculate realized gains and losses on the sale of investments,
the Company uses the specific amortized cost of each investment sold. Realized
gains and losses are recorded in investment and other income.

     As part of the Company's acquisition of UHP, certain call and put option
rights were received and granted (See Note 21). The Company is in the process of
obtaining third party valuations related to the fair value of the call and put
options, which may result in an increase or decrease in the portion of the
purchase price allocated to goodwill. The fair value of the call option, once
determined, will be evaluated for impairment. To the extent that impairment
would be determined, adjustments would be recorded as a charge to investment
income. The fair value of the put option, once determined, will be evaluated on
a quarterly basis, with adjustments in the fair values being recorded as a
charge or credit to investment income.

     The Company did not own any unaffiliated equity investments as of December
31, 2002. During 2002 and 2001, the Company maintained an equity investment in
an unaffiliated reinsurance company. The estimated fair value of this
investment, which approximated the original cost, was not significant and was
included within other long-term investments as of December 31, 2001. This
investment was sold in July 2002.

  RESTRICTED DEPOSITS

     Restricted deposits consist of investments required by various state
statutes to be deposited or pledged to state agencies. These investments are
classified as long-term, regardless of the contractual maturity date due to the
nature of the states' requirements.

     Under the State of New Jersey Department of Banking and Insurance (DOBI)
regulations, UHP is required to maintain certain insolvency deposits in a
custodial account for the protection of enrollees. UHP is entitled to receive
interest income on these deposits; however, the principal may not be withdrawn
without the written consent of the Commissioner of the DOBI. The minimum deposit
requirement is calculated on December 31 of each year and must be funded by June
30 of the following year. The restricted amounts are invested in money market
funds. The minimum deposit requirement based on the December 31, 2002
calculation is $15,422. The total unfunded balance at December 31, 2002 is
$3,237. The Company intends to fund the minimum deposit requirement from
unrestricted cash and cash equivalents.

     All other restricted deposit requirements were fully funded on December 31,
2002.

  PROPERTY AND EQUIPMENT

     Furniture, equipment and leasehold improvements are carried at cost less
accumulated depreciation. Depreciation for furniture and equipment, other than
computer equipment, is calculated based on the estimated useful lives of the
assets ranging between five and seven years. Depreciation for computer equipment
is calculated using the straight-line method based on a three-year life.
Software is stated at cost and is amortized over its estimated useful life of
three years using the straight-line method. Depreciation for leasehold
improvements is calculated using the straight-line method based on the shorter
of the estimated useful lives of the asset or the term of the respective leases,
ranging between three and ten years.

                                        47
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  INTANGIBLE ASSETS

     Intangible assets represent the excess of cost over the fair market value
of net assets acquired in purchase transactions and consist of purchased
contract rights, provider contracts and goodwill. Purchased contract rights are
amortized using the straight-line method over periods ranging from 60 to 120
months. Provider contracts are amortized using the straight-line method over 120
months.

     Effective January 1, 2002, the Company ceased to amortize goodwill in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." Goodwill
is reviewed at least annually for impairment. In addition, the Company will
perform an impairment analysis of intangible assets more frequently based on
other factors. Such factors would include, but are not limited to, significant
changes in membership, state funding, medical contracts and provider networks
and contracts. An impairment loss is recognized if the carrying value of
goodwill exceeds the implied fair value. The Company did not recognize any
impairment losses for the periods presented.

  MEDICAL CLAIMS LIABILITIES

     Medical services costs include claims paid, claims adjudicated but not yet
paid, estimates for claims received but not yet adjudicated, estimates for
claims incurred but not yet received and estimates for the costs necessary to
process unpaid claims.

     The estimates of medical claims liabilities are developed using standard
actuarial methods based upon historical data for payment patterns, cost trends,
product mix, seasonality, utilization of healthcare services and other relevant
factors including product changes. These estimates are continually reviewed and
adjustments, if necessary, are reflected in the period known.

  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses include accrued wages and related
payroll taxes, federal and state tax payables and payments owed to vendors for
services performed in the normal course of business.

  OTHER ASSETS AND LIABILITIES

     Other assets and liabilities consist principally of Separate Account assets
of $4,298 and related Separate Account liabilities of $4,298 as of December 31,
2002 (See Note 24). In addition, other liabilities include certain payments due
to various states related to minimum performance guarantees.

  PREMIUM REVENUE AND RELATED RECEIVABLES

     The majority of the Company's premium revenue is received monthly based on
fixed rates per member as determined by the state contracts. Some contracts
allow for additional premium related to certain supplemental services provided
such as maternity deliveries. The revenue is recognized as earned over the
covered period of services. Premiums collected in advance are recorded as
unearned premiums. Premiums due to the Company are recorded as premium and
related receivables and are recorded net of an allowance based on historical
trends and management's judgement on the collectibility of these accounts.

     As the Company generally receives premiums during the month in which
services are provided, the allowance is typically not significant in comparison
to total premium revenue. From 1998 to 2000, however, Centene provided Medicaid
services in certain regions of Indiana as a subcontractor with Maxicare Indiana,
Inc. In June 2001, the Insurance Commissioner of the Indiana Department of
Insurance declared Maxicare insolvent and ordered Maxicare into liquidation. As
a result, Centene recorded an allowance for uncollectible receivables in the
amount of $2,700 to fully reserve for all receivables from Maxicare as of
December 31, 2001. In 2002, subsequent to a release and settlement agreement
with Maxicare and the Indiana Insurance

                                        48
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Commissioner which requires no payment by either Maxicare or Centene, Centene
wrote off the entire balance of the receivable from Maxicare as uncollectible
and reduced the related allowance for doubtful accounts. There are no
contractual allowances related to Centene's premium revenue.

  SIGNIFICANT CUSTOMERS

     Centene receives the majority of its revenues under contracts or
subcontracts with state Medicaid managed care programs. The contracts, which
expire on various dates between June 30, 2003 and December 31, 2003, are
expected to be renewed. Our contracts with the states of Wisconsin, Indiana and
Texas accounted for 44%, 30% and 24%, respectively, of the Company's revenues
for the year ended December 31, 2002.

  REINSURANCE

     Centene's MCO subsidiaries have purchased reinsurance from third parties to
cover eligible healthcare services. The current reinsurance agreements generally
cover 90% of inpatient healthcare expenses in excess of annual deductibles of
$75 to $150 per member, up to a lifetime maximum of $2,000. The subsidiaries are
responsible for inpatient charges in excess of an average daily per diem.

     Reinsurance recoveries were approximately $1,542, $3,958 and $1,454 in
2002, 2001 and 2000, respectively. Reinsurance expenses were approximately
$3,981, $10,252 and $3,391 in 2002, 2001 and 2000, respectively. Reinsurance
recoveries, net of expenses, are included in medical services costs.

  OTHER INCOME (EXPENSE)

     Other income (expense) consists principally of investment and other income
and interest expense. Investment income is derived from the Company's cash, cash
equivalents and investments. For the year ended December 31, 2002, investment
income included a $5,100 one-time dividend from a captive insurance company in
which the Company maintained an investment. For the year ended December 31,
2000, other income included equity in losses from a joint venture. Interest
expense for the year ended December 31, 2002, included commitment fees paid to a
bank in conjunction with the Company's revolving line of credit. Interest
expense for the years ended December 31, 2001 and 2000, reflected interest paid
on the Company's subordinated notes, which were paid in full in December 2001.

  INCOME TAXES

     Centene recognizes deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date of the tax rate change.

  ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                                        49
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  RECLASSIFICATIONS

     Certain 2001 amounts in the consolidated financial statements have been
reclassified to conform to the 2002 presentation. These reclassifications have
no effect on net earnings or shareholders' equity as previously reported.

  RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," was issued which requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested at least annually for impairment. The Company has adopted SFAS
No. 142 effective January 1, 2002 and goodwill amortization was discontinued.
Goodwill is reviewed at least annually for impairment. In addition, the Company
will perform an impairment analysis of intangible assets more frequently based
on other factors. Such factors would include, but are not limited to,
significant changes in membership, state funding, medical contracts and provider
networks and contracts. The Company did not recognize any impairment losses for
the periods presented.

     The effect of this adjustment on net earnings as well as basic and diluted
earnings per share for the years ended December 31, 2001 and 2000, follows:

<Table>
<Caption>
                                                               2001      2000
                                                              -------   ------
<S>                                                           <C>       <C>
Net earnings, as reported...................................  $12,428   $7,236
Goodwill amortization.......................................      471      224
                                                              -------   ------
Adjusted net earnings.......................................  $12,899   $7,460
                                                              =======   ======
</Table>

<Table>
<Caption>
                                                               2001      2000
                                                              -------   ------
<S>                                                           <C>       <C>
EARNINGS PER COMMON SHARE, BASIC:
Net earnings, as reported...................................  $  8.97   $ 8.03
Goodwill amortization.......................................     0.34     0.25
                                                              -------   ------
Adjusted net earnings.......................................  $  9.31   $ 8.28
                                                              =======   ======
</Table>

<Table>
<Caption>
                                                               2001      2000
                                                              -------   ------
<S>                                                           <C>       <C>
EARNINGS PER COMMON SHARE, DILUTED:
Net earnings, as reported...................................  $  1.61   $ 1.13
Goodwill amortization.......................................     0.06     0.03
                                                              -------   ------
Adjusted net earnings.......................................  $  1.67   $ 1.16
                                                              =======   ======
</Table>

     In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued. SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets. It also expands the scope of a discontinued
operation to include a component of an entity. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those years. The adoption of the provisions of SFAS
No. 144 did not have a material impact on the Company's results of operations,
financial position or cash flows.

     In May 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections as of April
2002," was issued. As a result of the rescission of SFAS No. 4, gains and losses
related to the extinguishment of debt should be classified as extraordinary only
if they meet the criteria outlined under APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently

                                        50
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Occurring Events and Transactions." SFAS No. 64, "Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements," was an amendment to SFAS No. 4 and is no
longer necessary. SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers," defined accounting requirements for the effects of the transition to
the Motor Carrier Act of 1980. The transitions are complete and SFAS No. 44 is
no longer necessary. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases,"
requiring that any capital lease that is modified resulting in an operating
lease should be accounted for under the sale-leaseback provisions of SFAS No. 98
or SFAS No. 28, as applicable. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The adoption of the provisions of SFAS No. 145 is
not expected to have a material impact on the Company's results of operations,
financial position or cash flows.

     In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," was issued. It requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity (including Certain Costs Incurred in a Restructuring),"
which required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on the
Company's results of operations, financial position or cash flows.

     In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," was issued. This Statement amends
FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 and
APB Opinion No. 28, "Interim Financial Reporting," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal years ending
after December 15, 2002 and for interim periods beginning after December 15,
2002. The adoption of the provisions of SFAS No. 148 did not have a material
impact on the Company's results of operations, financial position or cash flows.

     In November 2002, FIN No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of SFAS No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34," was issued. FIN 45 clarifies the requirements of SFAS
No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees.

     Centene has adopted the disclosure requirements of FIN 45 as required for
fiscal years ending after December 15, 2002 and will adopt the provisions for
initial recognition and measurement for all guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 related to initial recognition and
measurement of guarantees is not expected have a significant impact on the net
income or equity of the Company. The Company has completed an inventory of
potential contingencies and noted one potential guarantee that would require the
following disclosure per FIN 45:

     "Within the Company's Medicaid contract with the state of Wisconsin, the
     Company is required to pay a fee if its contracted physicians do not
     provide an adequate number of healthy examinations to certain member
     groups. This agreement constitutes a performance guarantee. At the end of
     each fiscal year, the Company performs an analysis to estimate the amount
     owed to the state of Wisconsin, if any, under the performance guarantees.
     The state of Wisconsin, however, does not calculate or request payment for
     the amount owed until at least thirteen months subsequent to each year end.
     As such, the Company has recorded a current payable for any portions owed
     within one year and a long-term liability for portions owed for a period
     greater than one year from the balance sheet date. As of December 31, 2002
     and 2001, the Company recorded $2,004 and $829, respectively, of accounts
     payable and other accrued
                                        51
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     expenses for the current portions of the fees owed and $1,036 and $1,000,
     respectively, of other long-term liabilities for the long-term portions."

     On January 17, 2003, FIN 46, "Consolidation of Variable Interest Entities,
an interpretation of ARB 51," was issued. The primary objectives of FIN 46 are
to provide guidance on the identification and consolidation of variable interest
entities, or VIE's, which are entities for which control is achieved through
means other than through voting rights. The Company has completed an analysis of
FIN 46 and has determined that it does not have any VIEs.

4.  SHORT-TERM AND LONG-TERM INVESTMENTS AND RESTRICTED DEPOSITS

     Short-term and long-term investments and restricted deposits available for
sale by investment type consist of the following:

<Table>
<Caption>
                                                            DECEMBER 31, 2002
                                             -----------------------------------------------
                                                           GROSS        GROSS      ESTIMATED
                                             AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                               COST        GAINS        LOSSES       VALUE
                                             ---------   ----------   ----------   ---------
<S>                                          <C>         <C>          <C>          <C>
U.S. Treasury securities and obligations of
  U.S. government corporations and
  agencies.................................  $  2,797      $  204       $  (3)     $  2,998
Commercial paper...........................    13,278          --          --        13,278
State/municipal securities and other.......    87,198       1,669        (144)       88,723
                                             --------      ------       -----      --------
Total......................................  $103,273      $1,873       $(147)     $104,999
                                             ========      ======       =====      ========
</Table>

<Table>
<Caption>
                                                             DECEMBER 31, 2001
                                              -----------------------------------------------
                                                            GROSS        GROSS      ESTIMATED
                                              AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                                COST        GAINS        LOSSES       VALUE
                                              ---------   ----------   ----------   ---------
<S>                                           <C>         <C>          <C>          <C>
U.S. Treasury securities and obligations of
  U.S. government corporations and
  agencies..................................   $17,998       $216         $ (3)      $18,211
Commercial paper............................       462          3           --           465
State/municipal securities and other........     4,833          8           (9)        4,832
                                               -------       ----         ----       -------
Total.......................................   $23,293       $227         $(12)      $23,508
                                               =======       ====         ====       =======
</Table>

     The contractual maturity of short-term and long-term investments and
restricted deposits as of December 31, 2002, are as follows:

<Table>
<Caption>
                                                    INVESTMENTS         RESTRICTED DEPOSITS
                                               ---------------------   ---------------------
                                                           ESTIMATED               ESTIMATED
                                               AMORTIZED    MARKET     AMORTIZED    MARKET
                                                 COST        VALUE       COST        VALUE
                                               ---------   ---------   ---------   ---------
<S>                                            <C>         <C>         <C>         <C>
One year or less.............................   $ 9,687     $ 9,571     $12,764     $12,764
One year through five years..................    34,065      34,637       1,882       1,985
Five years through ten years.................    35,544      36,611         915       1,013
After ten years..............................     8,416       8,418          --          --
                                                -------     -------     -------     -------
Total........................................   $87,712     $89,237     $15,561     $15,762
                                                =======     =======     =======     =======
</Table>

     Actual maturities may differ from contractual maturities due to call or
prepayment options.

                                        52
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company recorded realized gains and losses on the sale of investments
for the years ended December 31 as follows:

<Table>
<Caption>
                                                              2002   2001   2001
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Gross realized gains........................................  $698   $424   $ 57
Gross realized losses.......................................   (49)   (34)   (97)
                                                              ----   ----   ----
  Net realized gains/(losses)...............................  $649   $390   $(40)
                                                              ====   ====   ====
</Table>

     Various state statutes require MCOs to deposit or pledge minimum amounts of
investments to state agencies. Securities with an amortized cost of $15,561 and
$1,204 were deposited or pledged to state agencies by Centene's MCO subsidiaries
at December 31, 2002 and 2001, respectively. These investments are classified as
long-term restricted deposits in the consolidated financial statements due to
the nature of the states' requirements.

5.  PROPERTY AND EQUIPMENT

     Property and equipment consist of the following as of December 31:

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
<S>                                                           <C>       <C>
Furniture and office equipment..............................  $ 6,461   $ 4,349
Computer software...........................................    4,724     2,423
Leasehold improvements......................................    1,286       878
Building....................................................      434        --
Land........................................................      151        10
                                                              -------   -------
                                                               13,056     7,660
Less -- accumulated depreciation............................   (6,761)   (3,864)
                                                              -------   -------
  Property and equipment, net...............................  $ 6,295   $ 3,796
                                                              =======   =======
</Table>

     Depreciation expense for the years ended December 31, 2002, 2001 and 2000
was $1,887, $1,199, and $810, respectively.

6.  INTANGIBLE ASSETS

     Intangible assets at December 31 consist of the following:

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
<S>                                                           <C>       <C>
Goodwill....................................................  $ 6,255   $ 2,464
Purchased contract rights...................................    3,885     1,410
Provider contracts..........................................    2,400        --
                                                              -------   -------
     Total intangibles......................................   12,540     3,874
Less accumulated amortization:
  Goodwill..................................................   (1,233)   (1,233)
  Purchased contract rights.................................     (592)     (245)
  Provider contracts........................................      (20)       --
                                                              -------   -------
     Total accumulated amortization.........................   (1,845)   (1,478)
                                                              -------   -------
Intangible assets, net......................................  $10,695   $ 2,396
                                                              =======   =======
</Table>

                                        53
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Amortization expense was $367, $648 and $224 for the years ended December
31, 2002, 2001 and 2000, respectively. The estimated amortization expense for
each of the next five years, assuming no further acquisitions, is approximately
$800.

7.  INCOME TAXES

     Centene files a consolidated federal income tax return while Centene and
each subsidiary file separate state income tax returns.

     The consolidated income tax expense (benefit) consists of the following for
the years ended December 31:

<Table>
<Caption>
                                                            2002      2001     2000
                                                           -------   ------   -------
<S>                                                        <C>       <C>      <C>
Current:
  Federal................................................  $13,661   $7,952   $   629
  State..................................................    2,338    1,624       625
                                                           -------   ------   -------
     Total current.......................................   15,999    9,576     1,254
Deferred.................................................     (368)    (445)   (1,797)
                                                           -------   ------   -------
     Total expense (benefit).............................  $15,631   $9,131   $  (543)
                                                           =======   ======   =======
</Table>

     The following is a reconciliation of the expected income tax expense
(benefit) as calculated by multiplying pretax income by federal statutory rates
and Centene's actual income tax benefit for the years ended December 31:

<Table>
<Caption>
                                                            2002      2001     2000
                                                           -------   ------   -------
<S>                                                        <C>       <C>      <C>
Expected federal income tax expense......................  $14,398   $7,709   $ 2,443
State income taxes, net of federal income tax benefit....    1,520    1,141       412
Tax exempt investment income.............................     (411)      --        --
Equity in losses of joint ventures, net of tax...........       --       --       175
Change in valuation allowance............................       --       --    (3,764)
Other, net...............................................      124      281       191
                                                           -------   ------   -------
     Income tax expense (benefit)........................  $15,631   $9,131   $  (543)
                                                           =======   ======   =======
</Table>

     Federal statutory rates for the years ended December 31, 2002, 2001 and
2000 were 35%, 35% and 34%, respectively.

                                        54
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Temporary differences that give rise to deferred tax assets and liabilities
are presented below for the years ended December 31:

<Table>
<Caption>
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Medical claims liabilities and other accruals...............  $3,848   $2,279
Allowance for doubtful accounts.............................      81    1,435
Depreciation and amortization...............................     702      353
Other.......................................................       8       18
                                                              ------   ------
     Total deferred tax assets..............................   4,639    4,085
                                                              ------   ------
Other.......................................................   1,321      782
                                                              ------   ------
     Total deferred tax liabilities.........................   1,321      782
                                                              ------   ------
Net deferred tax assets and liabilities.....................  $3,318   $3,303
                                                              ======   ======
</Table>

     The Company is required to record a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Management determined that a valuation allowance was no longer
necessary for its federal net operating loss carryforward as of December 31,
2000. As a result, the income tax benefit recorded for 2000 includes the
reversal of $3,764 of deferred tax valuation allowance.

                                        55
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8.  MEDICAL CLAIMS LIABILITIES

     The change in medical claims liabilities is summarized as follows:

<Table>
<Caption>
                                                                2002
                                                              --------
<S>                                                           <C>
Balance, January 1..........................................  $ 59,565
Acquisitions................................................    16,230
Incurred related to:
  Current year..............................................   399,141
  Prior years...............................................   (19,673)
                                                              --------
     Total incurred.........................................   379,468
                                                              --------
Paid related to:
  Current year..............................................   326,636
  Prior years...............................................    37,446
                                                              --------
     Total paid.............................................   364,082
                                                              --------
Balance, December 31........................................  $ 91,181
                                                              ========
</Table>

     Acquisitions in 2002 include reserves acquired in connection with the
Company's acquisition of 80% of the outstanding capital stock of UHP.

     Changes in estimates of incurred claims for prior years recognized during
2002 were attributable to favorable development in all of our markets, including
lower than anticipated utilization of medical services.

     The Company had reinsurance recoverables related to paid and unpaid medical
claims liabilities of $2,738 and $1,202 at December 31, 2002 and 2001,
respectively, included in premiums and other receivables.

9.  REVOLVING LINE OF CREDIT

     In May 2002, the Company entered into a $25,000 revolving line of credit
facility with LaSalle Bank N.A. The line of credit has a term of one year and
has interest rates based on prime, floating and LIBOR rates. The Company granted
a security interest in the common stock of its subsidiaries. The facility
includes financial covenants, including requirements of minimum EBITDA and
minimum tangible net worth. The Company is required to obtain LaSalle's consent
of any proposed acquisition that would result in a violation of any of the
covenants contained in the line of credit. As of December 31, 2002, no funds had
been drawn on the facility.

10.  NOTES PAYABLE AND SUBORDINATED DEBT

     As of December 31, 2002 and 2001, the Company has no outstanding debt.

     During 2001 and 2000, the Company had subordinate promissory notes with
principal balances due ranging from $0 to $4,000. Interest was due and payable
annually in September at a rate of 8.5%. In the event that the Company did not
comply with the terms of the subordinated promissory notes, the Company would be
considered to be in default on its debt and the interest rate would be 10.5%.

     During 2000, the Company was in default on its promissory notes due to late
interest payments. In December 2001, all of the promissory notes and related
accrued interest were paid in full. Interest expense for the years ended
December 31, 2001 and 2000 was $362 and $611, respectively.

                                        56
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  REDEEMABLE PREFERRED STOCK

     Upon completion of the Company's IPO in December 2001, all outstanding
shares of Series D redeemable preferred stock were converted into 3,716,000
shares of common stock.

     Series D preferred stock was convertible, at the option of the holder, into
common stock at an initial conversion rate of one common share for each
preferred share and was automatically converted at an initial public offering.
Series D preferred stock was redeemable for cash at the option of the holder for
up to 50% of that holder's Series D preferred stock outstanding on each of
September 1, 2003, and September 1, 2004, at a price equal to the sum of (1)
$5.50 per share plus (2) an amount equal to any dividends declared or accrued
but unpaid on such shares. Series D preferred stock was entitled to an initial
liquidation preference in the amount of $5.00 per share.

     Redeemable preferred stock is summarized as follows:

<Table>
<Caption>
                                                               SERIES D
                                                                SHARES      AMOUNT
                                                              ----------   --------
<S>                                                           <C>          <C>
Balance, December 31, 1999..................................   3,718,000   $ 18,386
  Preferred stock accretion.................................          --        492
                                                              ----------   --------
Balance, December 31, 2000..................................   3,718,000     18,878
  Preferred stock accretion.................................          --        467
  Purchase of stock.........................................      (2,000)       (16)
  Conversion to common......................................  (3,716,000)   (19,329)
                                                              ----------   --------
Balance, December 31, 2001..................................          --         --
  Purchase of stock.........................................          --         --
  Conversion to common......................................          --         --
                                                              ----------   --------
Balance, December 31, 2002..................................          --   $     --
                                                              ==========   ========
</Table>

12.  STOCKHOLDERS' EQUITY

     Upon completion of the Company's IPO in December 2001, each outstanding
share of each class of common stock and preferred stock was converted into one
share of a single class of $.001 par value common stock. Prior to the IPO, the
Company had three classes of preferred stock outstanding and included in equity.
They were Series A, Series B and Series C preferred stock.

     Holders of common stock are entitled to one vote for each share of common
stock held.

     Effective November 2001, the Company changed its state of incorporation
from Wisconsin to Delaware. Under the Delaware Certificate of Incorporation, the
Company has 10,000,000 authorized shares of preferred stock at $.001 par value
and 40,000,000 authorized shares of common stock at $.001 par value. At December
31, 2002, there were no preferred shares outstanding.

     During 2001, Centene had warrants outstanding to purchase 60,000 shares of
the Company's Series D preferred stock at an exercise price of $5.00 per share.
In addition, there were warrants outstanding to purchase 7,432 of the Company's
common stock at an exercise price of $2.40 per share. Prior to the completion of
the Company's IPO, all outstanding warrants were exercised.

13.  STATUTORY CAPITAL REQUIREMENTS

     Various state laws require Centene's subsidiaries to maintain minimum
capital requirements. At December 31, 2002 and 2001, Centene's subsidiaries had
aggregate statutory capital and surplus of $36,900

                                        57
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and $16,300, respectively, compared with the required minimum aggregate
statutory capital and surplus of $22,000 and $9,100, respectively.

14.  DIVIDEND RESTRICTIONS

     Under the laws of the states of which the Company operates, the Company's
regulated subsidiaries are required to obtain approval for dividends from the
appropriate state regulatory body. The Company received dividends of $4,000 from
its managed care subsidiaries during 2002. No dividends were declared in 2001 or
2000.

15.  STOCK OPTION PLANS

     As of December 31, 2002, Centene had five stock option plans (the Plans)
for issuance of common stock. The Plans allow for the granting of options to
purchase common stock at the market price at the date of grant for key
employees, consultants, and other individual contributors of or to Centene. Both
incentive options and nonqualified stock options can be awarded under the Plans.
Each option awarded under the Plans is exercisable as determined by the Board of
Directors upon grant. Further, depending on the type of grant, no option will be
exercisable for longer than ten years after date of grant. The Plans have
reserved 2,200,000 shares for option grants. Options granted generally vest over
a five-year period. Vesting generally begins on the anniversary of the date of
grant and annually thereafter.

     Option activity for the years ended December 31 is summarized below:

<Table>
<Caption>
                                      2002                    2001                    2000
                              ---------------------   ---------------------   ---------------------
                                           WEIGHTED                WEIGHTED                WEIGHTED
                                           AVERAGE                 AVERAGE                 AVERAGE
                                           EXERCISE                EXERCISE                EXERCISE
                                SHARES      PRICE       SHARES      PRICE       SHARES      PRICE
                              ----------   --------   ----------   --------   ----------   --------
<S>                           <C>          <C>        <C>          <C>        <C>          <C>
Options outstanding,
  beginning of year.........   1,422,940    $ 2.65     1,410,040    $ 1.68       955,992    $1.91
Granted.....................     487,500     24.82       139,000     11.99       531,000     1.26
Exercised...................    (277,400)     1.65       (19,100)     1.71            --       --
Canceled....................     (79,400)    10.98      (107,000)     1.82       (76,952)    1.69
                              ----------    ------    ----------    ------    ----------    -----
Options outstanding, end of
  year......................   1,553,640    $ 9.38     1,422,940    $ 2.67     1,410,040    $1.68
                              ==========              ==========              ==========
Weighted average remaining
  life......................   7.4 years               7.6 years               7.7 years
Weighted average fair value
  of options granted........  $    15.07              $     5.59              $     0.37
</Table>

                                        58
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about options outstanding as of
December 31, 2002:

<Table>
<Caption>
                          OPTIONS OUTSTANDING
------------------------------------------------------------------------           OPTIONS VESTED
                                     WEIGHTED AVERAGE                      ------------------------------
      RANGE OF           OPTIONS        REMAINING       WEIGHTED AVERAGE     OPTIONS     WEIGHTED AVERAGE
  EXERCISE PRICES      OUTSTANDING   CONTRACTUAL LIFE    EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
  ---------------      -----------   ----------------   ----------------   -----------   ----------------
<S>                    <C>           <C>                <C>                <C>           <C>
$ 0.00 - $ 3.43           988,040           6.2              $ 1.74          576,440          $ 1.99
$ 3.44 - $ 6.87            13,800           8.2                5.25            1,000            5.25
$ 6.88 - $10.30            25,000           8.7                7.78            6,250            7.78
$10.31 - $13.73                --            --                  --               --              --
$13.74 - $17.17            61,800           9.0               16.26            8,400           16.98
$17.18 - $20.60             5,000           9.1               18.86               --              --
$20.61 - $24.03           288,000           9.5               22.57            4,250           20.71
$24.04 - $27.46            44,000           9.7               25.66               --              --
$27.47 - $30.90            94,500           9.6               29.43               --              --
$30.91 - $34.33            33,500          10.0               32.13               --              --
                        ---------          ----              ------          -------          ------
                        1,553,640           7.4              $ 9.38          596,340          $ 2.40
                        =========                                            =======
</Table>

     The Company accounts for the Plans in accordance with the intrinsic value
based method of Accounting Principles Board Opinion No. 25 as permitted by SFAS
No. 123. Accordingly, compensation cost related to stock options issued to
employees is calculated on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. Compensation expense is then
recognized on a straight-line basis over the years the employees' services are
received (over the vesting period), generally five years. No compensation cost
related to the Plans was charged against income during 2000. During 2002 and
2001, the Company recognized $270 and $6, respectively, in noncash compensation
expense related to the issuance of stock options. Had compensation cost for the
Plans been determined based on the fair value method at the grant dates as
specified in SFAS No. 123, Centene's net earnings would have been reduced to the
following pro forma amounts:

<Table>
<Caption>
                                                     2002          2001         2000
                                                  -----------   ----------   ----------
<S>                                               <C>           <C>          <C>
Net earnings, as reported.......................  $    25,621   $   12,895   $    7,728
Accretion of redeemable preferred stock.........           --         (467)        (492)
                                                  -----------   ----------   ----------
  Net earnings attributable to common
     stockholders...............................       25,621       12,428        7,236
Total stock-based employee compensation expense
  determined under fair value based method, net
  of related tax effects........................        6,170          665          110
                                                  -----------   ----------   ----------
Pro forma net earnings..........................  $    19,451   $   11,763   $    7,126
                                                  ===========   ==========   ==========
EARNINGS PER COMMON SHARE:
  Basic, as reported............................  $      2.45   $     8.97   $     8.03
  Basic, pro forma..............................         1.86         8.49         7.90
  Diluted, as reported..........................  $      2.20   $     1.61   $     1.13
  Diluted, pro forma............................         1.67         1.53         1.12
SHARES USED IN COMPUTING PER SHARE AMOUNTS:
  Basic.........................................   10,447,360    1,385,399      901,526
  Diluted.......................................   11,644,077    8,019,497    6,819,595
</Table>

                                        59
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The fair value of each option grant is estimated on the date of the grant
using an option pricing model with the following assumptions: no dividend yield;
expected volatility of 1% through the date of the IPO; 50% through the end of
2001; and 54% for 2002, risk-free interest rate of 3.6%, 4.9% and 5.3% and
expected lives of 7.4, 7.6 and 7.7 for the years ended December 31, 2002, 2001
and 2000, respectively.

     During 2002, Centene implemented an employee stock purchase plan. Under
this plan, eligible employees are permitted to purchase shares of the Company's
common stock at a discounted price through payroll withholdings. At the end of
each plan period, the Company issues stock to participating employees at a price
equal to 85% of the lesser of the closing stock price on either the first
business day of the plan period or the exercise date. The Company has reserved
300,000 shares of common stock and issued 1,792 shares in 2002.

16.  RETIREMENT PLAN

     Centene has a defined contribution plan (Retirement Plan) which covers
substantially all employees who work at least 1,000 hours in a twelve
consecutive month period and are at least twenty-one years of age. Under the
Retirement Plan, eligible employees may contribute a percentage of their base
salary, subject to certain limitations. Centene may elect to match a portion of
the employee's contribution. In addition, Centene may make a profit sharing
contribution to the Retirement Plan covering all eligible employees. Expenses
under the Retirement Plan were $312, $306 and $203 during the years ended
December 31, 2002, 2001 and 2000, respectively.

     During 2002, Centene implemented an executive retirement savings plan
(Executive Plan). This Plan is a voluntary, nonqualified deferred compensation
plan designed to provide executive employees with tax-deferred savings
opportunities. Under the Executive Plan, eligible employees may contribute a
percentage of their base salary, subject to certain limitations.

17.  RELATED-PARTY TRANSACTIONS

     No related party transactions occurred in 2002. Certain members of
Centene's Board of Directors performed consulting services for the Company
totaling $3 in 2001 and $36 in 2000. Legal fees of $94 and $48 were paid in 2001
and 2000, respectively, to a law firm affiliated through a stockholder of the
Company.

18.  COMMITMENTS

     Centene and its subsidiaries lease office facilities and various equipment
under noncancelable operating leases. In addition to base rental costs, Centene
and its subsidiaries are responsible for property taxes and maintenance for both
facility and equipment leases. Rental expense was $2,109, $1,704 and $1,383 for
the years ended December 31, 2002, 2001 and 2000, respectively. The significant
annual noncancelable lease payments over the next five years and thereafter are
as follows:

<Table>
<S>                                                           <C>
2003........................................................  $ 3,241
2004........................................................    3,124
2005........................................................    3,026
2006........................................................    2,661
2007........................................................    2,396
Thereafter..................................................    7,624
                                                              -------
                                                              $22,072
                                                              =======
</Table>

                                        60
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19.  RISKS AND UNCERTAINTIES

     The Company is a party to various legal actions normally associated with
the managed care industry, the aggregate effect of which is presently unknown.

     The Company's profitability depends in large part on accurately predicting
and effectively managing medical services costs. The Company continually reviews
its premium and benefit structure to reflect its underlying claims experience
and revised actuarial data; however, several factors could adversely affect the
medical services costs. Certain of these factors, which include changes in
healthcare practices, inflation, new technologies, major epidemics, natural
disasters and malpractice litigation, are beyond any health plan's control and
could adversely affect the Company's ability to accurately predict and
effectively control healthcare costs. Costs in excess of those anticipated could
have a material adverse effect on the Company's results of operations.

     Financial instruments that potentially subject the Company to
concentrations of credit and interest rate risks consist primarily of cash and
cash equivalents, investments in marketable securities and accounts receivable.
The Company invests its excess cash in interest bearing deposits with major
banks, commercial paper, government and agency securities, and money market
funds. Investments in marketable securities are managed within guidelines
established by the Company's Board of Directors. The Company carries these
investments at fair value.

     Concentrations of credit risk with respect to accounts receivable are
limited due to significant customers paying as services are rendered.
Significant customers include the federal government and the states in which
Centene operates. The Company has a risk of incurring loss if its allowance for
doubtful accounts is not adequate.

     As discussed in Note 3 to the consolidated financial statements, the
Company has reinsurance agreements with insurance companies. The Company
monitors the insurance companies' financial ratings to determine compliance with
standards set by state law. The Company has a credit risk associated with these
reinsurance agreements to the extent the reinsurers are unable to pay valid
reinsurance claims of the Company.

                                        61
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

20.  EARNINGS PER SHARE

     The following table sets forth the calculation of basic and diluted net
earnings per share for the years ended December 31:

<Table>
<Caption>
                                                             2002          2001         2000
                                                          -----------   ----------   ----------
<S>                                                       <C>           <C>          <C>
Net earnings............................................  $    25,621   $   12,895   $    7,728
Accretion of redeemable preferred stock.................           --         (467)        (492)
                                                          -----------   ----------   ----------
     Net earnings attributable to common stockholders...  $    25,621   $   12,428   $    7,236
                                                          ===========   ==========   ==========
Shares used in computing per share amounts:
  Weighted average number of common shares
     outstanding........................................   10,477,360    1,385,399      901,526
  Dilutive effect of stock options and warrants (as
     determined by applying the treasury stock method)
     and convertible preferred stock....................    1,166,717    6,634,098    5,918,069
                                                          -----------   ----------   ----------
     Weighted average number of common shares and
       potential dilutive common shares outstanding.....   11,644,077    8,019,497    6,819,595
                                                          ===========   ==========   ==========
EARNINGS PER COMMON SHARE, BASIC:
  Net earnings per common share.........................  $      2.45   $     8.97   $     8.03
EARNINGS PER COMMON SHARE, DILUTED:
  Net earnings per common share.........................  $      2.20   $     1.61   $     1.13
</Table>

21.  JOINT VENTURES -- UNIVERSITY HEALTH PLANS, INC.

     On December 1, 2002, Centene purchased 80% of the outstanding capital stock
of University Health Plans, Inc. UHP is a managed health plan serving
approximately 53,000 Medicaid members in 15 counties throughout New Jersey.
Centene paid approximately $10,630 in cash and expenses. In accordance with
terms in the agreement, the purchase price may be adjusted based on certain
conditions up to one year after the acquisition date. The results of operation
for UHP are included in the consolidated financial statements since December 1,
2002. Centene will operate UHP as a joint venture with the third-party owner,
and Centene will manage UHP's operations in a manner consistent with its other
Medicaid health plans. The joint venture investment is consistent with Centene's
strategy to enter new markets where it sees an opportunity for organic growth in
Medicaid managed care.

     The stock purchase agreement provides terms for Centene's future purchase
of the remaining 20% of UHP's outstanding capital stock. This future purchase is
in the form of a call and put option. The call option allows Centene to purchase
the additional 20% of outstanding shares for cash within nine months after the
original acquisition date at an aggregate purchase price of $2,600. The put
option requires the third party owner to transfer, convey, assign and deliver
the additional 20% of outstanding common stock to Centene on the third
anniversary following the original acquisition date. The put option allows
Centene to acquire the additional shares based on its "deemed value" at such
point in time. The "deemed value" is defined as an amount equal to the greater
of (i) $2,600 or (ii) the enterprise value, as established by mutual agreement
of the parties, of UHP as of the date of exchange multiplied by the percentage
of the outstanding common stock.

     The condensed balance sheet below includes the purchase price allocation at
the acquisition date. Goodwill is not amortized and is not deductible for tax
purposes. The state contract and provider network will be amortized over a
ten-year period. The value of the common stock acquired is being determined
based on the fair value of tangible assets and liabilities acquired as well as
external valuations of identifiable intangible assets.

                                        62
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Centene is in the process of obtaining third party valuations related to
certain intangible assets, including the value associated with the options to
purchase the remaining 20% of UHP's outstanding common stock; thus, the
allocation of the purchase price is subject to refinement.

<Table>
<S>                                                            <C>
                                ASSETS
Cash and cash equivalents...................................   $ 3,324
Premium and related receivables.............................     6,604
Other current assets........................................       215
Property and equipment, net.................................       468
Restricted deposits.........................................    12,173
Intangible assets:
  Goodwill..................................................     3,791
  Purchased contract rights.................................     1,400
  Provider network..........................................     2,400
                                                               -------
  Total assets..............................................   $30,375
                                                               =======

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued medical claims......................................   $16,230
Accounts payable and accrued liabilities....................     2,518
Minority interest...........................................       997
Stockholders' equity........................................    10,630
                                                               -------
Total liabilities and stockholders' equity..................   $30,375
                                                               =======
</Table>

     The following unaudited pro forma information presents the results of
operations of Centene and subsidiaries as if the acquisition described above had
occurred as of January 1, 2001. Effective July 1, 2002, the state of New Jersey
excluded the General Assistance population from managed care programs. In
addition, effective November 22, 2002, in contemplation of its Stock Purchase
Agreement with Centene, UHP entered into an agreement with a third party related
to its commercial membership. Any members not enrolling with the third party
will not be renewed by UHP. As a result, pro forma adjustments include UHP
earnings before taxes excluding the financial results of the General Assistance
population and the commercial membership. In addition, the pro forma adjustments
include the amortization of intangibles, excluding goodwill, before taxes of
$348 in 2002 and $380 in 2001. The pro forma adjustments to earnings are net of
taxes at Centene's effective tax rates and have been adjusted for the 20%
minority interest in UHP by a third party. These pro forma results may not
necessarily reflect the actual results of operations that would have been
achieved, nor are they necessarily indicative of future results of operations.

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Revenue.....................................................  $567,048   $395,155
Net earnings before accretion of redeemable preferred
  stock.....................................................    25,986     12,305
Net earnings................................................    25,986     11,838
Basic earnings per share....................................      2.48       8.54
Diluted earnings per share..................................      2.23       1.53
</Table>

                                        63
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22.  JOINT VENTURES -- SUPERIOR HEALTHPLAN, INC.

     From 1998 through 2000, Centene owned 39% of Superior and, therefore,
accounted for the investment under the equity method of accounting. Superior
participates in the state of Texas medical assistance program. Superior had no
enrolled membership during 1998, but became fully operational on December 1,
1999. Under the terms of a management agreement, a wholly owned subsidiary of
Centene performs third-party administrative services for Superior. This
agreement generated $4,936 of administrative service fees during 2000.

     Summary financial information for Superior as of and for the year ended
December 31 follows:

<Table>
<Caption>
                                                                2000
                                                               -------
<S>                                                            <C>
Total assets................................................   $ 7,284
Stockholders' deficit.......................................    (1,481)
Revenues....................................................    34,102
Net loss....................................................    (1,303)
Company's equity in net loss................................      (508)
</Table>

     Effective January 1, 2001, Centene purchased an additional 51% of Superior
for $290 in cash, increasing Centene's ownership to 90%. Centene began
consolidating Superior's operations from that point forward. When the change in
ownership occurred, goodwill of $1,200 was recorded as part of the transaction.
In December 2001, Centene purchased the remaining shares of Superior for $100 in
stock, increasing Centene's ownership to 100%. At December 31, 2001, all
intercompany transactions between Centene and Superior have been eliminated in
consolidation.

     The following unaudited pro forma summary information presents the
consolidated statement of earnings information as if the aforementioned
transaction had been consummated on January 1, 2000, and does not purport to be
indicative of what would have occurred had the acquisition been made at that
date or of the results which may occur in the future.

<Table>
<Caption>
                                                                  YEAR ENDED
                                                               DECEMBER 31, 2000
                                                               -----------------
<S>                                                            <C>
Total revenues..............................................       $250,516
Net earnings attributable to common stockholders............          6,441
Diluted net earnings per common share.......................            .94
</Table>

23.  CONTRACT ACQUISITIONS

     In June 2002, Superior HealthPlan entered into an agreement with Texas
Universities Health Plan Inc. to purchase the SCHIP contracts in three Texas
service areas. Effective September 1, October 1 and November 1, 2002, the state
of Texas approved the contract sales between Superior and Texas Universities
Health Plan. As a result of this transaction, $595 was recorded as an intangible
asset, purchased contract rights. Centene is amortizing the contract rights on a
straight-line basis over five years, the period expected to be benefited.

     In December 2000, MHSIC and Superior entered into agreements with Humana
Inc. to transfer Humana's Medicaid contract with the state of Wisconsin to MHSIC
and Humana's Medicaid contract with the state of Texas to Superior. Effective
February 1, 2001, the state of Wisconsin approved the agreement, thereby
allowing MHSIC to serve approximately 35,000 additional members in the state.
Effective February 1, 2001, the state of Texas approved a management agreement
between Superior and Humana Inc., thereby allowing Superior to manage
approximately 30,000 additional members in Texas. As a result of these

                                        64
<PAGE>
                      CENTENE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions, $1,250 was recorded as an intangible asset purchased contract
rights. Centene is amortizing the contract rights on a straight-line basis over
five years, the period expected to be benefited.

24.  BANKERS RESERVE ACQUISITION

     On March 14, 2002, the Company completed an acquisition of Bankers Reserve
Life Insurance Company of Wisconsin (Bankers Reserve) for a cash purchase price
of $3,527. The Company allocated the purchase price to net tangible and
identifiable intangible assets based on their fair value. Centene allocated $479
to identifiable intangible assets, representing the value assigned to acquired
licenses, which are being amortized on a straight-line basis over a period of
ten years. The Company accounted for this acquisition under the purchase method
of accounting and accordingly, the consolidated results of operations include
the results of the acquired Bankers Reserve business from the date of
acquisition. The Company has excluded pro forma disclosures related to the
impact of Bankers Reserve on the results of operations for the twelve-month
period ended December 31, 2002, as well as the comparable period in the
preceding year. Such disclosures have been excluded as there are no significant
continuing operations as of the date of acquisition, outside of the run-off of
Separate Account activity.

     As part of the acquisition, the Company acquired $5,200 of Separate Account
assets and $5,200 of Separate Account liabilities. The acquired Separate Account
assets and liabilities represent fixed rate annuity contracts with various
maturity dates. Concurrent with the acquisition of Bankers Reserve, the Company
entered into a 100% coinsurance reinsurance agreement with an unaffiliated party
to reinsure the guaranteed cash value, annuity benefit, surrender benefit and
death benefits associated with these contracts. The reinsurance premiums paid
for this coverage equal the net administrative fee earned and received by the
Company on the annuity contracts. Accordingly, there is no income statement
impact to the Company as a result of acquiring the Separate Account assets and
liabilities. The Separate Account balances, which are being liquidated and paid
to insureds as annuities mature, do not have a minimum guarantee benefit beyond
the cash surrender value of the policy.

     Centene acquired Bankers Reserve for the purpose of providing reinsurance
coverage to its existing managed care Medicaid entities. It is not currently
anticipated that Bankers Reserve would be used to offer reinsurance to
unaffiliated entities.

     The intercompany reinsurance activity is eliminated on a consolidated
basis.

                                        65
<PAGE>

       REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors of Centene Corporation:

     Our audit of the consolidated financial statements of Centene Corporation
referred to in our report dated February 14, 2003 included in this Form 10-K
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

                                            /s/ PRICEWATERHOUSECOOPERS LLP

St. Louis, Missouri
February 14, 2003

                                        66
<PAGE>

                                  SCHEDULE II

                              CENTENE CORPORATION

                 SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                                      BALANCE       AMOUNTS     WRITE-OFFS OF   BALANCE
                                                    BEGINNING OF   CHARGED TO   UNCOLLECTIBLE   END OF
                                                       PERIOD       EXPENSE      RECEIVABLES    PERIOD
                                                    ------------   ----------   -------------   -------
<S>                                                 <C>            <C>          <C>             <C>
Allowance for Doubtful Receivables:
Year ended December 31, 2000......................     $1,245        $1,390        $  (769)     $1,866
Year ended December 31, 2001......................      1,866         2,319           (306)      3,879
Year ended December 31, 2002......................      3,879          (971)        (2,689)        219
</Table>

                                        67
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
                                                                     INCORPORATED BY REFERENCE
                                                  FILED WITH   -------------------------------------
EXHIBIT                                              THIS                    FILING DATE     EXHIBIT
NUMBER                 DESCRIPTION                 FORM 10-K     FORM         WITH SEC       NUMBER
-------                -----------                -----------  ---------  -----------------  -------
<C>       <S>                                     <C>          <C>        <C>                <C>
 3.1      Certificate of Incorporation of                         S-1      October 9, 2001     3.1
          Centene Corporation
 3.1a     Certificate of Amendment to                            S-1/A    November 13, 2001    3.2a
          Certificate of Incorporation of
          Centene Corporation, dated November 8,
          2001
 3.2      By-laws of Centene Corporation                          S-1      October 9, 2001     3.3
 4.1      Amended and Restated Shareholders'                      S-1      October 9, 2001     4.2
          Agreement, dated September 23, 1998
 4.2      Rights Agreement between Centene                        8-K      August 30, 2002     4.1
          Corporation and Mellon Investor
          Services LLC, as Rights Agent, dated
          August 30, 2002
10.1      Stock Purchase and Recapitalization                     S-1      October 9, 2001    10.1
          Agreement among Community Health
          Centers Network, L.P., Superior
          HealthPlan, Inc., Centene Corporation
          and TACHC GP, Inc., dated September
          10, 2001
10.2      Contract for Medicaid/Badger Care HMO                  10-Q      April 29, 2002     10.2
          Services between Managed Health
          Services Insurance Corp. and Wisconsin
          Department of Health and Family
          Services, dated January 2002-December
          2003
10.3+     Agreement between Network Health                        S-1      October 9, 2001    10.3
          Plan of Wisconsin, Inc. and Managed
          Health Services Insurance Corp., dated
          January 1, 2001
10.4      1999 Contract for Services between the                  S-1      October 9, 2001    10.4
          Texas Department of Health and
          Superior HealthPlan, Inc. (El Paso
          Service Area), dated May 14, 1999
10.4a     Amendments 7-10 to contract included         X
          as Exhibit 10.4
10.5      1999 Contract for Services between the                  S-1      October 9, 2001    10.5
          Texas Department of Health and
          Superior HealthPlan, Inc. (Travis
          Service Area), dated August 9, 1999
10.5a     Amendments 10-13 to contract included        X
          as Exhibit 10.5
10.6      1999 Contract for Services between the                  S-1      October 9, 2001    10.6
          Texas Department of Health and
          Superior HealthPlan, Inc. (Bexar
          Service Area), dated August 9, 1999
10.6a     Amendments 10-13 to contract included        X
          as Exhibit 10.6
10.8      1994 Stock Plan of Centene Corporation                  S-1      October 9, 2001    10.8
10.9      1996 Stock Plan of Centene Corporation                  S-1      October 9, 2001    10.9
10.10     1998 Stock Plan of Centene Corporation                  S-1      October 9, 2001    10.10
10.11     1999 Stock Plan of Centene Corporation                  S-1      October 9, 2001    10.11
10.12     2000 Stock Plan of Centene Corporation                  S-1      October 9, 2001    10.12
10.13     Form of Incentive Stock Option                          S-1      October 9, 2001    10.13
          Agreement of Centene Corporation
</Table>

                                        68
<PAGE>

<Table>
<Caption>
                                                                     INCORPORATED BY REFERENCE
                                                  FILED WITH   -------------------------------------
EXHIBIT                                              THIS                    FILING DATE     EXHIBIT
NUMBER                 DESCRIPTION                 FORM 10-K     FORM         WITH SEC       NUMBER
-------                -----------                -----------  ---------  -----------------  -------
<C>       <S>                                     <C>          <C>        <C>                <C>
10.14     Form of Non-statutory Stock Option                      S-1      October 9, 2001    10.14
          Agreement of Centene Corporation
10.15     Executive Employment Agreement between                  S-1      October 9, 2001    10.15
          Centene Corporation and Karey Witty,
          dated January 1, 2001
10.16     Executive Employment Agreement between                  S-1      October 9, 2001    10.16
          Centene Corporation and Brian G.
          Spanel, dated September 26, 2001
10.17     Executive Employment Agreement between                 10-Q      April 29, 2002     10.3
          Centene Corporation and Joseph P.
          Drozda, M.D., dated October 1, 2001
10.18     Executive Employment Agreement between                 10-Q      April 29, 2002     10.4
          Centene Corporation and Mary O'Hara,
          dated October 26, 2001
10.19     Standard Office Lease between Centene                   S-1     November 13, 2001   10.19
          Corporation and Clayton Investors
          Associates LLC, dated February 22,
          1999
10.20     2002 Employee Stock Purchase Plan of                   10-Q      April 29, 2002     10.5
          Centene Corporation
10.21     Loan Agreement between Centene                          S-1       May 14, 2002      10.21
          Corporation and LaSalle Bank National
          Association, dated May 1, 2002
10.21a    Revolving Note between Centene                          S-1       May 14, 2002      10.21a
          Corporation and LaSalle Bank National
          Association, dated May 1, 2002
10.21b    Stock Pledge Agreement between Centene                  S-1       May 14, 2002      10.21b
          Corporation and LaSalle Bank National
          Association, dated May 1, 2002
10.22     Stock Purchase Agreement among                         10-Q     October 28, 2002    10.1
          University Health Plans, Inc.,
          University of Medicine and Dentistry
          of New Jersey and Centene Corporation,
          dated August 2, 2002
10.23     Executive Employment Agreement between                 10-Q     October 28, 2002    10.2
          Centene Corporation and Carol E.
          Goldman, dated July 1, 2002
10.24     Executive Employment Agreement between       X
          Centene Corporation and Daniel R.
          Paquin, dated November 19, 2002
10.25     Executive Employment Agreement between       X
          Centene Corporation and John T.
          Tadich, dated October 31, 2002
10.26     Contract between the Office of               X
          Medicaid Policy and Planning, the
          Office of the Children's Health
          Insurance Program and Coordinated Care
          Corporation Indiana, Inc., dated
          January 1, 2001
10.27     Children's Health Insurance Program          X
          Agreement for the Provision of Health
          Care Services between the Texas Health
          and Human Services Commission and
          Texas Universities Health Plan, Inc.,
          dated January 20, 2000
</Table>

                                        69
<PAGE>

<Table>
<Caption>
                                                                     INCORPORATED BY REFERENCE
                                                  FILED WITH   -------------------------------------
EXHIBIT                                              THIS                    FILING DATE     EXHIBIT
NUMBER                 DESCRIPTION                 FORM 10-K     FORM         WITH SEC       NUMBER
-------                -----------                -----------  ---------  -----------------  -------
<C>       <S>                                     <C>          <C>        <C>                <C>
10.28     Contract between the State of New            X
          Jersey Department of Human Services
          Division of Medical Assistance and
          Health Services and University Health
          Plans, Inc., dated October 1, 2000
10.28a    Amendment to contract included as            X
          Exhibit 10.28
21        List of subsidiaries                         X
99.1      Certifications                               X
</Table>

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

+ Confidential treatment has been granted for a portion of this exhibit pursuant
  to Rule 406 promulgated under the Securities Act.

                                        70
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of February 24,
2003.

                                          CENTENE CORPORATION

                                          By:    /s/ MICHAEL F. NEIDORFF
                                            ------------------------------------
                                                    Michael F. Neidorff
                                               President and Chief Executive
                                                           Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant and in the capacities and indicated, as of February 24, 2003.

<Table>
<Caption>
                   SIGNATURE                                             TITLE
                   ---------                                             -----
<S>                                                <C>
            /s/ MICHAEL F. NEIDORFF                 President, Chief Executive Officer and Director
------------------------------------------------             (principal executive officer)
              Michael F. Neidorff




               /s/ KAREY L. WITTY                                Senior Vice President,
------------------------------------------------    Chief Financial Officer, Secretary and Treasurer
                 Karey L. Witty                       (principal financial and accounting officer)




              /s/ SAMUEL E. BRADT                                       Director
------------------------------------------------
                Samuel E. Bradt




              /s/ EDWARD L. CAHILL                                      Director
------------------------------------------------
                Edward L. Cahill




             /s/ ROBERT K. DITMORE                                      Director
------------------------------------------------
               Robert K. Ditmore




             /s/ CLAIRE W. JOHNSON                                      Director
------------------------------------------------
               Claire W. Johnson




           /s/ RICHARD P. WIEDERHOLD                                    Director
------------------------------------------------
             Richard P. Wiederhold
</Table>

                                        71
<PAGE>

                                 CERTIFICATIONS

I, Michael F. Neidorff, certify that:

     1. I have reviewed this annual report on Form 10-K of Centene Corporation;

     2. based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Centene Corporation as of, and for, the periods presented in this annual report;

     4. Karey L. Witty, the Senior Vice President, Chief Financial Officer and
Treasurer of Centene Corporation, and I:

     - are responsible for establishing and maintaining disclosure controls and
       procedures (as defined for purposes of Rule 13a-14 under the Securities
       and Exchange Act of 1934, as amended) for Centene Corporation;

     - have designed such disclosure controls and procedures to ensure that
       material information relating to Centene Corporation, including its
       consolidated subsidiaries, is made known to us by others within those
       entitling, particularly during the period in which this annual report was
       prepared;

     - have evaluated the effectiveness of the disclosure controls and
       procedures of Centene Corporation as of a date within 90 days prior to
       the filing date of this annual report; and

     - have presented in this annual report our conclusions about the
       effectiveness of the disclosure controls and procedures based on the
       required evaluation as of that date;

     5. Mr. Witty and I have disclosed, based on our most recent evaluation, to
the auditors of Centene Corporation and to the audit committee of the board of
directors of Centene Corporation:

     - all significant deficiencies in the design or operation of internal
       controls that could adversely affect the ability of Centene Corporation
       to record, process, summarize and report financial data and have
       identified for such auditors any material weaknesses in internal
       controls; and

     - any fraud, whether or not material, that involves management or other
       employees who have a significant role in the internal controls of Centene
       Corporation; and

     6. Mr. Witty and I have indicated in this annual report whether or not
there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                                /s/ MICHAEL F. NEIDORFF
                                          --------------------------------------
                                                   Michael F. Neidorff
                                          President and Chief Executive Officer
                                              (principal executive officer)

Date: February 24, 2003

                                        72
<PAGE>

                                 CERTIFICATIONS

I, Karey L. Witty, certify that:

     1. I have reviewed this annual report on Form 10-K of Centene Corporation;

     2. based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

     3. based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Centene Corporation as of, and for, the periods presented in this annual report;

     4. Mr. Michael F. Neidorff, the President and Chief Executive Officer of
Centene Corporation, and I:

     - are responsible for establishing and maintaining disclosure controls and
       procedures (as defined for purposes of Rule 13a-14 under the Securities
       and Exchange Act of 1934, as amended) for Centene Corporation;

     - have designed such disclosure controls and procedures to ensure that
       material information relating to Centene Corporation, including its
       consolidated subsidiaries, is made known to us by others within those
       entitling, particularly during the period in which this annual report was
       prepared;

     - have evaluated the effectiveness of the disclosure controls and
       procedures of Centene Corporation as of a date within 90 days prior to
       the filing date of this quarterly report; and

     - have presented in this annual report our conclusions about the
       effectiveness of the disclosure controls and procedures based on the
       required evaluation as of that date;

     5. Mr. Neidorff and I have disclosed, based on our most recent evaluation,
to the auditors of Centene Corporation and to the audit committee of the board
of directors of Centene Corporation:

     - all significant deficiencies in the design or operation of internal
       controls that could adversely affect the ability of Centene Corporation
       to record, process, summarize and report financial data and have
       identified for such auditors any material weaknesses in internal
       controls; and

     - any fraud, whether or not material, that involves management or other
       employees who have a significant role in the internal controls of Centene
       Corporation; and

     6. Mr. Neidorff and I have indicated in this annual report whether or not
there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

                                                  /s/ KAREY L. WITTY
                                          --------------------------------------
                                                      Karey L. Witty
                                                  Senior Vice President,
                                          Chief Financial Officer and Treasurer
                                                 (principal financial and
                                                   accounting officer)

Date: February 24, 2003

                                        73

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4A
<SEQUENCE>3
<FILENAME>c74739exv10w4a.txt
<DESCRIPTION>AMENDMENT TO 7-10 CONTRACT INCLUDED IN EX 10.4
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.4a


                                 AMENDMENT NO. 7
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                THE HEALTH AND HUMAN SERVICES COMMISSION AND HMO


This Amendment No. 7 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO) in El Paso Service Area,
to amend the 1999 Contract for Services between the Health and Human Services
Commission and HMO. The effective date of this Amendment is the date HHSC Signs
this Amendment. All other contract provisions remain in full force and effect.
The Parties agree to amend the Contract as follows:

1.   ARTICLE XVIII IS AMENDED TO READ AS FOLLOWS:

15.2            AMENDMENT AND CHANGE REQUEST PROCESS

15.2.1          HHSC 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, the contract may be terminated under Article
                XVIII.

15.2.2          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.

15.2.3          This contract may be amended at any time by mutual agreement.

15.2.4          All amendments to this contract must be in writing and signed by
                both parties.

15.2.5          Any change in either party's obligations under this contract
                ("Change") requires a written amendment to the contract that is
                negotiated using the process outlined in Article 15.2.6.

15.2.6          Change Request Process.





October 30, 2001                                                         1 of 3

<PAGE>


15.2.6.1        If federal or state laws, rules, regulations, policies or
                guidelines are adopted, promulgated, judicially interpreted or
                changed, or if contracts are entered into or changed, the effect
                of which is to alter the ability of either party to fulfill its
                obligations under this contract, the parties will promptly
                negotiate in good faith, using the process outlined in Article
                15.2.6, appropriate modifications or alterations to the contract
                and any appendix (appendices) or attachments(s) made a part of
                this contract.

15.2.6.2        Change Order Approval Procedure

15.2.6.2.1      During the term of this contract, HHSC or HMO may propose
                changes in the services, deliverables, or other aspects of this
                contract ("Changes"), pursuant to the procedures set forth in
                this article.

15.2.6.2.2      If HHSC proposes a Change, it shall deliver to the HMO a written
                notice describing the proposed Change which includes the State's
                estimated fiscal impact on the HMO, if available ("Change Order
                Request"). HMO must respond to such proposal within 30 calendar
                days of receipt by preparing and delivering to HHSC, at no
                additional cost to HHSC a written document (a "Change Order
                Response"), that specifies:

15.2.6.2.2.1    The financial impact, if any, of the Change Order Request on the
                HMO and the manner in which such impact was calculated;

15.2.6.2.2.2    The effect, if any, of the Change Order Request on HMO's
                performance of its obligations under this contract, including
                the effect on the services or deliverables;

15.2.6.2.2.3    The anticipated time schedule for implementing the Change Order
                Request; and

15.2.6.2.2.4    Any other information requested in the Change Order Request or
                which is reasonably necessary for HHSC to make an informed
                decision regarding the proposal.

15.2.6.2.3      If HMO proposes a Change, it must deliver a HMO Change Order
                Request to HHSC that includes the proposed Change and
                information described in Articles 15.2.6.2.2.1 - 15.2.6.2.2.4
                for a Change Order Response. HHSC must respond to HMO within 30
                calendar days of receipt of this information.

15.2.6.2.4      Upon HHSC's receipt of a Change Order Request or a Change Order
                Response, the Parties shall negotiate a resolution of the
                requested Change in good faith. The parties will exchange
                information in good faith in an attempt to agree upon the
                requested Change.




October 30, 2001                                                         2 of 3



<PAGE>

15.2.6.3        No Change to the services or deliverables or any other aspect of
                this contract will become effective without the written approval
                and execution of a mutually agreeable written amendment to this
                contract by HHSC and the HMO. Under no circumstances will the
                HMO be entitled to payment for any work or services rendered
                under a Change Order that has not been approved by HHSC in
                accordance with the Change Order Procedures.

15.2.7          The implementation of an amendment to this contract is subject
                to the approval of the Centers for Medicare and Medicaid
                Services (CMS, formerly called HCFA).

2.   APPENDIX C: Appendix C is deleted in its entirety and is replaced by a new
     Appendix C which is Attachment No. 1 to this amendment. This amendment
     provides for the addition of "Special Programs for Illness" for gestational
     diabetes and the modification of the "Prenatal Program with Gifts".


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 Neidorff
   ---------------------------               ----------------------------------
   Don. A Gilbert                            Michael Neidorff
                                             President & CEO, Centene

Approved as to Form:

-----------------------------
Office of General Counsel







October 30, 2001                                                        3 of 3

<PAGE>

                                 AMENDMENT NO. 8
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 8 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the El
Paso Service Area. The effective date of this amendment is January 1, 2002. The
Parties agree to amend the Contract as follows:

1. Article XIII is amended to read as follows:

ARTICLE XIII               PAYMENT PROVISIONS

13.1              CAPITATION AMOUNTS

13.1.2            HMO capitation rates listed below reflect program increases
                  appropriated by the 76th and 77th legislatures for physician
                  services (to include THSteps providers) and outpatient
                  facility services. Rates will be increased starting January 1,
                  2002, to reflect increases in traditional fee-for-service
                  payments for 1) Evaluation and Management Level 3 services
                  (procedure code 99213), and 2) high-volume providers. The
                  methodology for determining high-volume providers will be
                  distributed to HMO by HHSC ("High-volume Provider
                  Methodology"). The first rate increase will be effective
                  January 1, 2002, and will reflect increases for procedure code
                  99213. Rate increases for high volume providers will be
                  effective the first day of the month after the "High-volume
                  Provider Methodology" is released by HHSC. The Methodology
                  will state the amount of each increase (99213 and high-volume
                  provider). Final rates with all increases included are shown
                  in the table below.

13.1.2.           HMO must submit reports to HHSC indicating the methodology
                  used and must certify that the funds provided to the HMO for
                  the pass through have been passed through to providers. HMO
                  must use the reporting format specified by HHSC and follow the
                  reporting schedule indicated on the HHSC deliverables matrix.




                                          PPAC Rate Increase Amendment 12/12/01


<PAGE>


13.1.2.2          Capitation Rates
<Table>
<Caption>

                     Risk Group                            Monthly Capitation Amounts
                     ----------                            --------------------------
<S>                  <C>                                   <C>
                     TANF Adults                           $ 178.98
                     TANF Children > 12 Months             $  84.24
                     of Age
                     Expansion Children > 12               $  72.77
                     Months of Age
                     Newborns (12 Months of                $ 363.27
                     Age)
                     TANF Children 12 Months               $ 363.27
                     of Age
                     Expansion Children 12                 $ 363.27
                     Months of Age
                     Federal Mandate Children              $  47.90
                     CHIP Phase I                          $  62.04
                     Pregnant Women                        $ 216.51
                     Disabled/Blind                        $  14.00
                     Administration

</Table>




13.1.2.3          Delivery Supplemental Payment. A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO in
                  the following amount: $2,992.02. 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.

13.1.2.4          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.

13.1.2.5          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

                                          PPAC Rate Increase Amendment 12/12/01

<PAGE>

                  either a hospital or other provider. No DSP will be made for
                  deliveries which are not reported by HMO to TDH within 210
                  days after the date of delivery, or within 30 days from the
                  date of discharge from the hospital for the stay related to
                  the delivery, whichever is later.

13.1.2.6          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.

13.1.2.7          The DSP will be made by TDH to HMO within twenty (20) state
                  working days after receiving an accurate report from HMO.

13.1.2.8          All infants of age equal to or less than twelve months
                  (Newborns) in the TANF Children, Expansion Children, and
                  Newborns risk groups will be capitated at the Newborns
                  classification capitation amount in Article 13.1.2.

AGREED AND SIGNED by an authorized representative of the parties on
______________________________2001.


Health and Human Services Commission         Superior Health Plan, Inc.


By: /s/ Don A. Gilbert                       By: /s/ Michael Neidorff
   --------------------------                   -------------------------------
   Don A. Gilbert                               Michael Neidorff
                                                President & CEO, Centene


Approved as to Form:

------------------------------------
Office of General Counsel













                                          PPAC Rate Increase Amendment 12/12/01

<PAGE>

                                   AMENDMENT 9
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                           SUPERIOR HEALTH PLAN, INC.
                               FOR HEALTH SERVICES
                                     TO THE
                              MEDICAID STAR PROGRAM
                                     IN THE
                          EL PASO SERVICE DELIVERY AREA



<PAGE>


                                   AMENDMENT 9
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                           SUPERIOR HEALTH PLAN, INC.
                               FOR HEALTH SERVICES
                                     TO THE
                    MEDICAID STAR PROGRAM IN THE EL PASO SDA

<Table>
<Caption>
<S>     <C>                                                                                                         <C>
ARTICLE 1. PURPOSE................................................................................................... 1
  SECTION 1.01 AUTHORIZATION......................................................................................... 1
  SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES..................................................................... 1
ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES............................................................... 1
  SECTION 2.01 GENERAL............................................................................................... 1
  SECTION 2.02 MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS.......................................................... 1
  SECTION 2.03 MODIFICATION OF ARTICLE 2, DEFINITIONS................................................................ 2
  SECTION 2.04 MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS........................ 3
  SECTION 2.05 MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS RETENTION................................ 3
  SECTION 2.06 MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS REQUIREMENTS........................................ 3
  SECTION 2.07 MODIFICATION OF SECTION 4.3, PERFORMANCE BOND......................................................... 4
  SECTION 2.08 MODIFICATION OF SECTION 4.6, AUDIT.................................................................... 4
  SECTION 2.09 MODIFICATION OF SECTION 4.9, THIRD PARTY RECOVERY..................................................... 4
  SECTION 2.10 MODIFICATION OF SECTION 4.10, CLAIMS PROCESSING REQUIREMENTS.......................................... 4
  SECTION 2.11 MODIFICATION TO SECTION 5.4, SAFEGUARDING INFORMATION................................................. 5
  SECTION 2.12 MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)............................. 5
  SECTION 2.13 MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL....................................................... 6
  SECTION 2.14 MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY...................................................... 6
  SECTION 2.15 MODIFICATION OF SECTION 6.4, CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS.......................... 7
  SECTION 2.16 MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES....................................................... 8
  SECTION 2.17 MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS.................. 8
  SECTION 2.18 MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS.............................................. 9
  SECTION 2.19 MODIFICATION OF SECTION 8.4, MEMBER ID CARDS.......................................................... 9
  SECTION 2.20 MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS.................................................. 9
  SECTION 2.21 MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM...................................................... 9
  SECTION 2.22 MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM................................................ 9
  SECTION 2.23 MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE.............................................10
  SECTION 2.24 ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
    (HIPAA) COMPLIANCE.............................................................................................. 10
  SECTION 2.25 MODIFICATION OF SECTION 12.1., FINANCIAL REPORTS..................................................... 10
  SECTION 2.26 MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER COMPLAINTS.................................. 11
  SECTION 2.27 MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS...................................................... 12
  SECTION 2.28 MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH REPORT.................................... 12
  SECTION 2.29 ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT......................................... 12
  SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS................................... 12
  SECTION 2.31 MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS.................................................... 13
  SECTION 2.32 MODIFICATION OF SECTION 13.2, EXPERIENCE REBATE TO THE STATE......................................... 14
  SECTION 2.33 SECTION 13.3, PERFORMANCE OBJECTIVES................................................................. 15
  SECTION 2.34 MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS.......................... 15
  SECTION 2.35 MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT..................................................... 16
  SECTION 2.36 MODIFICATION OF SECTION 15.12, NOTICES............................................................... 16
  SECTION 2.37 MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO................................................... 16
  SECTION 2.38 MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED.............................16
  SECTION 2.39 MODIFICATION OF SECTION 19.1, CONTRACT TERM...........................................................17
  SECTION 2.40 MODIFICATIONS TO CONTRACT APPENDICES..................................................................17
ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES..............................................................17

</Table>



                                            i

<PAGE>


                                                   HHSC CONTRACT NO. 529-03-044

STATE OF TEXAS
COUNTY OF TRAVIS

                                   AMENDMENT 9
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                           SUPERIOR HEALTH PLAN, INC.
                               FOR HEALTH SERVICES
                                     TO THE
                              MEDICAID STAR PROGRAM
                                     IN THE
                          EL PASO SERVICE DELIVERY AREA

      THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"), an administrative agency within the
executive department of the State of Texas, and Superior Health Plan, Inc.
("HMO"), a health maintenance organization organized under the laws of the State
of Texas, possessing a certificate of authority issued by the Texas Department
of Insurance to operate as a health maintenance organization, and having its
principal office at: 2100 S. IH-35, Suite 202, Austin, TX 78704. HHSC and HMO
may be referred to in this Amendment individually as a "Party" and collectively
as the "Parties."

     The Parties hereby agree to amend their Agreement as set forth in Article 2
of this Amendment.

                               ARTICLE 1. PURPOSE.

SECTION 1.01 AUTHORIZATION.

     This Amendment is executed by the Parties in accordance with Section 15.2
of the Agreement.

SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES.

     This Amendment is effective SEPTEMBER 1, 2002, and terminates on August 31,
2003, unless extended or terminated sooner in accordance with the Agreement.

             ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES

SECTION 2.01 GENERAL

     The Health Care Financing Administration (HCFA) has had a name change to
the Centers for Medicare and Medicaid Services (CMS). All references to HCFA in
the Agreement should be replaced with CMS.

SECTION 2.02 MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS

     Section 1.4 is replaced with the following language:

                      "Renewal Review. At its sole discretion, HHSC may choose
                  to conduct a renewal review of HMO's performance and
                  compliance with this contract as a condition for retention and
                  renewal."




 HHSC Contract 529-03-044l
                                  Page 1 of 17


<PAGE>


SECTION 2.03 MODIFICATION OF ARTICLE 2, DEFINITIONS

         (a) The following terms amend and modify the definitions set forth in
Article 2:

                           "CMS means the Centers for Medicare and Medicaid
                  Services, formerly known as the Health Care Financing
                  Administration (HCFA), which is the federal agency responsible
                  for administering Medicare and overseeing state administration
                  of Medicaid.

                           EMERGENCY MEDICAL CONDITION means a medical condition
                  manifesting itself by acute symptoms of recent onset and
                  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. FAIR HEARING means the process adopted and implemented
                  by the Texas Health and Human Services Commission, 25 TAC
                  Chapter 1, in compliance with federal regulations and state
                  rules relating to Medicaid Fair Hearings.

                           HEDS means the HMO/EPO/Dental Services Division of
                  the Texas Health and Human Services Commission.

                           HHSC means the Texas Health and Human Services
                  Commission or its designees.

                           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 1 TAC, Subchapter 354.2301 et seq., relating to
                  Third Party Resources).

                           TP 40 means Type Program 40, which is a TDHS Medicaid
                  program eligibility type assigned to pregnant women under 185%
                  of the federal poverty level (FPL).

                           TP 45 means Type Program 45, which is a TDHS Medicaid
                  program eligibility code assigned to newborns (under 12
                  months) who are born to mothers who are Medicaid eligible at
                  the time of the child's birth.

                           TEXMEDNET means Texas Medical Network, which is the
                  State's information system that processes claims and
                  encounters. TexMedNet's functions include, but are not limited
                  to eligibility verification, claims and encounters
                  submissions, e-mail communications, and electronic funds
                  transfers."

     (b) The term "HHSCS" is deleted and replaced with "TDHS" as defined in
Article 2 of the Contract.

     (c) The term "THHSC" is deleted and replaced with "HHSC" as defined above.



HHSC Contract 529-03-044
                                  Page 2 of 17


<PAGE>


SECTION 2.04 MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND DISTRIBUTION OF
PLAN MATERIALS

         Section 3.4.3 is replaced with the following language:

                           "3.4.3 All plan materials regarding the STAR Program,
                  including Member education materials, must be submitted to
                  HHSC for approval prior to distribution. HHSC has fifteen (15)
                  working days to review the materials and recommend any
                  suggestions or required changes. If HHSC has not responded to
                  HMO by the fifteenth (15th) day, HMO may print and distribute
                  these materials. HHSC 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 fifteen (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 generally be reviewed by HHSC within five (5)
                  working days. HHSC 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, as determined by HHSC.

SECTION 2.05 MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS
RETENTION

     Section 3.5.1 is replaced with the following language:

                           "3.5.1 HMO must keep all records required to be
                  created and retained under this Agreement in accordance with
                  the standards set forth herein. Records related to Members
                  served in the HMO's service area(s) must be made available in
                  HMO's local office when requested by HHSC.

                           Original records, except paper claims, must be kept
                  in the form they were created in the regular course of
                  business for a minimum of three (3) years following the
                  expiration of the contract period, including any extensions.
                  Paper claims may be digitally copied from the time of initial
                  receipt, if the HMO: 1) receives HHSC prior written approval;
                  2) certifies that an unaltered copy of the original claim
                  received can be produced upon request; 3) the retention system
                  is reliable and supported by a retrieval system that allows
                  reasonable accurate records. HHSC may require the HMO to
                  retain the records for an additional period if an audit,
                  litigation or administrative action involving the records
                  exists."

SECTION 2.06 MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS REQUIREMENTS

     Section 3.7.1 is replaced with the following language:

                           3.7.1 For all HMO telephone access (including
                  Behavioral Health telephone services), HMO must ensure
                  adequately-staffed telephone lines. Telephone personnel must
                  receive customer service telephone training. HMO must ensure
                  that telephone staffing is adequate to fulfill the standards
                  of promptness and quality listed below: 1. 80% of all
                  telephone calls must be answered within an average of 30
                  seconds; 2. The lost (abandonment) rate must not exceed 10%;



HHSC Contract 529-03-044
                                   Page 3 of 17


<PAGE>


                           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 8.8) 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.

SECTION 2.07  MODIFICATION OF SECTION 4.3, PERFORMANCE BOND

     Section 4.3 is replaced with the following language:

                           "4.3 HMO has furnished HHSC with a performance bond
                  in the form prescribed by HHSC and approved by TDI, naming
                  HHSC as Obligee, securing HMO's faithful performance of the
                  terms and conditions of this Agreement. The performance bond
                  must be issued in the amount of $100,000 for the Contract
                  Period, plus an additional 12 months after the expiration of
                  the Contract Period. If the Contract Period is renewed or
                  extended pursuant to Article 15, the HMO must replace the
                  performance bond with a separate bond covering performance
                  during the renewal or extension period, plus an additional 12
                  months. The bond must be issued by a surety licensed by TDI,
                  and specify cash payment as the sole remedy. HMO must deliver
                  the bond to HHSC at the same time the signed HMO contract,
                  renewal or extension is delivered to HHSC."

SECTION 2.08  MODIFICATION OF SECTION 4.6, AUDIT

     Section 4.6.2 is replaced with the following language:

                           "4.6.2 HHSC or its designee will conduct an audit of
                  HMO at least once every two 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
                  Agreement."

SECTION 2.09 MODIFICATION OF SECTION 4.9, THIRD PARTY RECOVERY

     Section 4.9.2 is replaced with the following language:

                           "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
                  HHSC to obtain information from other state and federal
                  agencies and HMO must cooperate with HHSC in obtaining
                  information from commercial third party resources. HMO must
                  require all providers to comply with the provisions of 1 TAC
                  Section 354.2301, et seq., relating to Third Party Recovery in
                  the Medicaid program."

SECTION 2.10 MODIFICATION OF SECTION 4.10, CLAIMS PROCESSING REQUIREMENTS

     Section 4.10.8 is replaced with the following language:



HHSC Contract 529-03-044
                                  Page 4 of 17

<PAGE>


                           "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
                  (HIPAA), Public Law 104-191, regarding 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 (see 45 CFR parts 160 through 164).

SECTION 2.11 MODIFICATION TO SECTION 5.4, SAFEGUARDING INFORMATION

     Section 5.4.1 is replaced with the following language:

                           "5.4.1 The use and disclosure of all Member
                  information, records, and data (Member Information) collected
                  or provided to HMO by HHSC or another state agency is
                  protected by state and federal law and regulations, including,
                  but not limited to, the Health Insurance Portability and
                  Accountability Act of 1996 (HIPAA), Public law 104-191, and 45
                  CFR parts 160 through 164. HMO agrees to ensure that any of
                  its agents, including subcontractors, to whom HMO discloses
                  Member Information agrees to the same restrictions and
                  conditions that apply to HMO with respect to Member
                  Information.

SECTION 2.12 MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED BUSINESSES
(HUBS)

     Sections 5.6.1 through 5.6.3 are replaced with the following language:

                           "5.6.1 In accordance with Texas Government Code
                  Chapter 2161 and 1 TAC Section 111.11 et seq. and ss.392.100
                  state agencies are required to make a good faith effort to
                  assist Historically Underutilized Businesses (HUBs) in
                  receiving contract awards issued by the State. The goal of
                  this program is to promote full and equal business opportunity
                  for all businesses in contracting with the state. It is HHSC's
                  intent that all contractors make a good faith effort to
                  subcontract with HUBs during the performance of their
                  contracts.

                           IMPORTANT NOTE: The Health and Human Services
                  Commission has concluded that HUB subcontracting opportunities
                  may exist in connection with this contract. See Appendix B to
                  the Agreement for the following instructions and form:
                  "Grant/Contract Applicants Client Services HUB Subcontracting
                  Plan Instructions" (C-IGA), and Determination of Good Faith
                  Effort for Grant Contracts (C-DGFE). If an approved HUB
                  subcontracting plan is not already on file with HHSC, THE HMO
                  SHALL SUBMIT A COMPLETED C-DGFE FORM ALONG WITH THE SIGNED
                  CONTRACT OR RENEWAL.

                           If HMO responds, `yes' to question two on Form
                  C-DGFE, HMO shall document good faith efforts to develop a HUB
                  Subcontracting Plan by completing and documenting the steps on
                  form C-DGFE. Additionally, quarterly reports on HUB
                  subcontracting are required according to the schedule on Form
                  C-QSR. Quarterly Report forms are included in Appendix B of
                  this amendment.






HHSC Contract 529-03-044

                                  Page 5 of 17


<PAGE>


                           If HMO decides after the award to subcontract any
                  part of the contract, the HMO shall notify the contract
                  manager prior to entering into any subcontract. The HMO shall
                  comply with the good faith effort requirements relating to
                  developing and submitting a subcontracting plan.

                           5.6.2 HMO is required to submit HUB quarterly reports
                  to HHSC as required in Article 12.11.

                           5.6.3 HHSC will assist HMO in meeting the contracting
                  and reporting requirements of this Article."

SECTION 2.13 MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL

      Section 5.10 is replaced with the following:

                           "5.10 HMO must comply with the notice requirements
                  contained in 1 TAC Section 354.2211, and the maintaining
                  benefits and services contained in 1 TAC Section 354.2213,
                  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 8.6 of this
                  Agreement."

SECTION 2.14 MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY

      Section 6.3 and its subparts are replaced with the following language"

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

                           6.3.1 The payor responsible for the hospital/facility
                  charges at the start of an inpatient stay remains responsible
                  for hospital/facility charges until the time of discharge, or
                  until such time that there is a loss of Medicaid eligibility.

                           6.3.2 HMO is responsible for professional charges
                  during every month for which the payor receives a full
                  capitation payment.

                           6.3.3 HMO is not responsible for any services after
                  effective date of loss of Medicaid eligibility

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

                           6.3.5 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.

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






HHSC Contract 529-03-044

                                  Page 6 of 17


<PAGE>


                           6.3.7 For purposes of this Section 6.3, a Member
                  "loses Medicaid eligibility" when:

                           6.3.7.1 Medicaid eligibility is terminated and never
                  regained under one Medicaid Type Program with no subsequent
                  transfer of eligibility to another Medicaid Type Program; or

                           6.3.7.2 Medicaid eligibility is terminated and there
                  is a lapse of at least one month in regular Medicaid coverage.
                  The term "regular Medicaid coverage" refers to either
                  traditional fee-for-service Medicaid or Medicaid managed care
                  coverage; or

                           6.3.7.3 A client re-applies for Medicaid eligibility
                  and is certified for prior Medicaid coverage, as defined by
                  TDHS, for any month(s) prior to the month of application. The
                  term "prior Medicaid coverage" refers to Applicants who are
                  eligible for Medicaid coverage during the three-month period
                  before the month they apply for TANF or Medical Programs.
                  Prior Medicaid coverage may be continuous or there may be
                  interrupted periods of eligibility involving all or some of
                  the certified Members.

                           Administrative process limitations within the State's
                  application and recertification process do not constitute a
                  "loss of Medicaid eligibility".

SECTION 2.15 MODIFICATION OF SECTION 6.4, CONTINUITY OF CARE AND OUT-OF-NETWORK
PROVIDERS

     Section 6.4.3 is replaced with the following language:

                           "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. This Article
                  does not extend the obligation of HMO to reimburse the
                  Member's existing out-of-network providers for on-going care
                  for more than 90 days after Member enrolls in HMO or for more
                  than nine months in the case of a Member who at the time of
                  enrollment in HMO has been diagnosed with and receiving
                  treatment for a terminal illness. The obligation of HMO to
                  reimburse the Member's existing out-of-network provider for
                  services provided to a pregnant Member with 12 weeks or less
                  remaining before the expected delivery date extends through
                  delivery of the child, immediate postpartum care, and the
                  follow-up checkup within the first six weeks of delivery.

                           6.4.3.1 HMO will pay reasonable and customary rates
                  for all out-of-network provider claims with dates of service
                  between September 1, 2002 and November 30, 2002. HMO must
                  forward any complaints submitted by out-of-network providers
                  during this time to HHSC. HHSC will review all complaints and
                  determine whether payments were reasonable and customary. HHSC
                  will direct the HMO to pay a reasonable and customary amount,
                  as determined by HHSC, if it concludes that the payments were
                  not reasonable and customary for the provider. Failure to
                  comply with this provision constitutes a default under Article
                  XVI, Default and Remedies.

                           6.4.3.2 For all out-of-network provider claims with
                  dates of service on or after December 1, 2002, HMO must pay
                  providers a reasonable and




HHSC Contract 529-03-044

                                  Page 7 of 17


<PAGE>


                  customary amount consistent with a methodology approved by
                  HHSC. HMO must submit its methodology, along with any
                  supporting documentation, to HHSC by September 30, 2002. HHSC
                  will review and respond to the information by November 15,
                  2002. HMO must forward any complaints by out-of-network
                  providers submitted after December 1, 2002 to HHSC, which will
                  review all complaints. If HHSC determines that payment is not
                  consistent with the HMO's approved methodology, the HMO must
                  pay the provider a rate, using the approved reasonable and
                  customary methodology, as determined by HHSC. Failure to
                  comply with this provision constitutes a default under Article
                  XVI, Default and Remedies.

SECTION 2.16 MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES

     Section 6.5.1 is replaced with the following language:

                           "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.
                  6.5.1.1 For all out-of-network providers, HMO will pay a
                  reasonable and customary amount for emergency services.

                           HMO will pay a reasonable and customary amount for
                  services for all out-of-network emergency services provider
                  claims with dates of service between September 1, 2002 and
                  November 30, 2002. HMO must forward any complaints submitted
                  by out-of-network emergency services providers during this
                  time to HHSC. HHSC will review all complaints and determine
                  whether payments were reasonable and customary. HHSC will
                  direct the HMO to pay a reasonable and customary amount, as
                  determined by HHSC, if it concludes that the payments were not
                  reasonable and customary for the provider.

                           6.5.1.2 For all out-of-network emergency services
                  provider claims with dates of service on or after December 1,
                  2002, HMO must pay providers a reasonable and customary amount
                  consistent with a methodology approved by HHSC. HMO must
                  submit its methodology, along with any supporting
                  documentation, to HHSC by September 30, 2002. HHSC will review
                  and respond to the information by November 15, 2002. HMO must
                  forward any complaints by out-of-network emergency services
                  providers submitted after December 1, 2002 to HHSC, which will
                  review all complaints. If HHSC determines that payment is not
                  consistent with the HMO's approved methodology, the HMO must
                  pay the emergency services provider a rate, using the approved
                  reasonable and customary methodology, as determined by HHSC.
                  Failure to comply with this provision constitutes a default
                  under Article XVI, Default and Remedies.

SECTION 2.17 MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES -
SPECIFIC REQUIREMENTS

     Section 6.6.5 is replaced with the following language:




HHSC Contract 529-03-044

                                  Page 8 of 17


<PAGE>


                           "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. HHSC may
                  require use of other assessment instrument/outcome measures in
                  addition to the DSM-IV. Providers must document DSM-IV and
                  assessment/outcome information in the Member's medical
                  record."

SECTION 2.18 MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS

     Section 6.16.1 is replaced with the following language:

                           "6.16.1 Blind and disabled Members' SSI status is
                  effective the date of State's eligibility system, SAVERR,
                  identifies the Member as Type Program 13 (TP13). On this
                  effective date, the Member becomes a voluntary STAR enrollee.

                           The State is responsible for updating the State's
                  eligibility system within 45 days of official notice of the
                  Members' federal SSI eligibility by the Social Security
                  Administration (SSA).

SECTION 2.19 MODIFICATION OF SECTION 8.4, MEMBER ID CARDS

     Section 8.4.1 is replaced with the following language:

                           "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."

SECTION 2.20  MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS

     Section 10.1.3.6 is replaced with the following language:

                           "10.1.3.6 HMO is required to provide representation
                  to attend and participate in the HHSC Systems Workgroup as a
                  part of the Systems Scan Call."

SECTION 2.21 MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM

     Subparts 7 and 8 of Section 10.4 are replaced with the following language:

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

                           8. Provide Provider Network and Affiliation files 90
                  days prior to implementation and updates monthly. Format will
                  be provided by HHSC to contracted entities."

SECTION 2.22 MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM

     Section 10.9.3 is replaced with the following language:





HHSC Contract 529-03-044

                                  Page 9 of 17


<PAGE>


                           "10.9.3 Provider Network and Affiliation Files. The
                  HMO will supply network provider data to the Enrollment Broker
                  and Claims Administrator. This data will consist of a Provider
                  Network File and a Provider Affiliation File. The HMO will
                  submit the Provider Network File to the Enrollment Broker and
                  the Provider Affiliation File to the Claims Administrator.
                  Both files shall accomplish the following objectives:

                           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.

                           6. Provide other (Master Provider File) information
                  identified by HHSC."

SECTION 2.23 MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE

     Section 10.11 is deleted in its entirety.

SECTION 2.24 ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND
ACCOUNTABILITY ACT (HIPAA) COMPLIANCE.

     Section 10.12 is added as follows:

                           "10.12 Health Insurance Portability and
                  Accountability Act (HIPAA) Compliance. HMO's system must
                  comply with applicable certificate of coverage and data
                  specification and reporting requirements promulgated pursuant
                  to the Health Insurance Portability and Accountability Act
                  (HIPPA) of 1996, P.L. 104-191 (August 21, 1996), as amended or
                  modified.

SECTION 2.25 MODIFICATION OF SECTION 12.1., FINANCIAL REPORTS

     Sections 12.1.4, 12.1.11, and 12.13 are replaced with the following
language, and Section 12.14 is added.
Sections 12.1.2, 12.1.3, 12.1.7 and 12.1.10 are deleted in their entirety.

                      12.1.2        [Deleted]

                      12.1.3        [Deleted]

                      12.1.4        Final MCFS Reports. HMO must file two final
                 MCFS Reports for each of the following:

                           -        The initial two-year contract period (SFY
                                    2000-2001),

                           -        The first one-year contract extension period
                                    (SFY 2002), and



 HHSC Contract 529-03-044
                                 Page 10 of 17


<PAGE>


                           o        This second one-year contract extension
                                    period (SFY 2003).

                           The first final report must reflect expenses incurred
                  during each contract period and paid through the 90th day
                  after the end of the contract period. The first final report
                  must be filed on or before the 120th day after the end of each
                  contract period. The second final report must reflect expenses
                  incurred during each contract period and paid through the
                  334th day after the end of the contract period. The second
                  final report must be filed on or before the 365th day after
                  the end of each contract period.

                           . . . .

                           12.1.7 [Deleted]

                           . . . .

                           12.1.10 [Deleted]

                           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 HHSC no
                  later than 60 days after the effective date of this contract.
                  Changes to the IBNR plan and description must be submitted to
                  HHSC no later than 30 days before changes to the plan are
                  implemented by HMO.

                           . . . .

                           12.1.13 Each report required under this Article must
                  be mailed to: Medicaid HMO Contract Deliverables Manager, HEDS
                  Division, Texas Health and Human Services Commission, P.O. Box
                  13247, Austin, Texas 78711-3247 (Exception: The MCFS Report
                  may be submitted to HHSC via E-mail to
                  deliver@hhsc.state.tx.us).

                           12.1.14 Bonus and/or Incentive Payment Plan. The HMO
                  must furnish a written Bonus and/or Incentive Payments Plan to
                  HHSC to determine whether such payments are allowable
                  administrative expenses in accordance with Appendix L, "Cost
                  Principles for Administrative Expenses, 11. Compensation for
                  Personnel Services, i. Bonuses and Incentive Payments." The
                  written plan must include a description of the plan's criteria
                  for establishing bonus and/or incentive payments, the
                  methodology to calculate bonus and/or incentive payments, and
                  the timing as to when these bonus and/or incentive payments
                  are to be paid. The plan and description must be submitted to
                  HHSC for approval no later than 30 days after the execution of
                  the contract and any contract renewal. If the HMO revises the
                  Bonus and/or Incentive Payment Plan, the HMO must submit the
                  revised plan to HHSC for approval prior to implementing the
                  plan."

SECTION 2.26 MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER COMPLAINTS

     Section 12.4 is replaced with the following language:




HHSC Contract 529-03-044
                                 Page 11 of 17


<PAGE>


                           "12.4 HMO must submit a Summary Report of Provider
                  Complaints. HMO must also reports complaints submitted to its
                  subcontracted risk groups (e.g., IPAs). The complaint report
                  format must be submitted not later than 45 days following the
                  end of the state fiscal quarter in a format specified by
                  HHSC."

SECTION 2.27 MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS

     Section 12.6 is replaced with the following language:

                           "12.6 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 must be submitted not later than 45 days following the
                  end of the state fiscal quarter in a format specified by
                  HHSC."

SECTION 2.28 MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH REPORT

     Section 12.13 is deleted in its entirety.

SECTION 2.29 ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT

     Section 12.14 is added as follows:

                           "12.14 MEMBER HOTLINE PERFORMANCE REPORT

                           HMO must submit, on a monthly basis, a Member Hotline
                  Performance Report that contains all required elements set out
                  in Article 3.7 of this Agreement in a formant approved by
                  HHSC. The report is due on the 30th of the month following the
                  end of each month."

SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS

     Section 12.15 is added as follows:

                           "12.15 SUBMISSION OF STAR DELIVERABLES/REPORTS

                           12.15.1 Electronic Mail. STAR deliverables and
                  reports should be submitted to HHSC via electronic mail unless
                  HHSC expressly provides that they must be submitted in a
                  different manner. Reports and deliverables that may not be
                  submitted electronically include, but are not limited to:
                  Encounter Data, Supplemental Delivery Payment data, UDT data,
                  and certain Member Materials.

                           12.15.1.1 The e-mail address for deliverables
                                     submission is deliver@hhsc.state.tx.us.

                           12.15.1.2 Electronic Mail Restrictions:

                           File Size: E-mail file size is limited to 2.5 MB.
                  Files larger than that will need to be compressed (zip file)
                  or split into multiple files for submission.




HHSC Contract 529-03-044
                                 Page 12 of 17


<PAGE>


                           Confidentiality: Routine STAR deliverables/reports
                  should not contain any member specific data that would be
                  considered confidential.

                           12.15.2 FQHC and RHC Deliverables. HMO may submit
                  FQHC and RHC deliverables by uploading the required
                  information to the Claims Administrator's Bulleting Board
                  System (BBS). The uploaded data must contain a unique 8-digit
                  control number. HMO should format the 8-digit control number
                  as follows:

                           o        2 digit plan code identification number;

                           o        Julian date; and then

                           o        HMO's 3-digit report number (i.e., HMO's
                                    first report will be 001).

                           After uploading the data to the BBS, the HMO must
                  notify HHSC via e-mail that it has uploaded the data, and
                  include the name of the file and recipient directory. HMO must
                  also mail signed original report summaries, including the
                  corresponding 8-digit control number, to HHSC within three (3)
                  business days after uploading the data to the BBS.

                           12.15.3 Special Submission Needs. In special cases
                  where other submission methods are necessary, HMO must contact
                  the assigned Health Plan Manager for authorization and
                  instructions.

                           12.15.4 Deliverables due via Mail. HMO should mail
                  reports and deliverables that must be submitted by mail to the
                  following address: General Mail: Texas Health & Human Services
                  Commission HEDS Contract Deliverables P.O. Box 13247 Austin,
                  Texas 78711-3247

                      Overnight Mail:
                      Texas Health & Human Services Commission
                      HEDS Contract Deliverables
                      12555 Riata Vista Circle
                      Austin, TX 78727

                           12.15.5 Texas Department of Insurance (TDI). The
                  submission of deliverables/reports to HHSC does not relieve
                  the Plan of any reporting requirements/responsibility with
                  TDI. The Plan should continue to report to TDI as they have in
                  the past."

SECTION 2.31 MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS

     Section 13.1.7.1 is added:

                           "13.1.7.1 HMO rates for FY 2002 and FY 2003 include
                  pass through funds for providers, as appropriated by the 77th
                  Texas Legislature. HMO must file reports on pass through
                  methodology expenditures as requested by HHSC."



HHSC Contract 529-03-044
                                 Page 13 of 17


<PAGE>


SECTION 2.32 MODIFICATION OF SECTION 13.2,  EXPERIENCE REBATE TO THE STATE

     Sections 13.2.1, 13.2.2.1, 13.2.3, and 13.2.5 are replaced with the
following language:

                           "13.2.1 For the Contract Period, HMO must pay to HHSC
                  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 set
                  forth in Appendix I, as reviewed and confirmed by HHSC. HHSC
                  reserves the right to have an independent audit performed to
                  verify the information provided by HMO.

<Table>
<Caption>

                             GRADUATED REBATE METHOD
--------------------------------------------------------------------------------
NET INCOME BEFORE TAXES
  AS A PERCENTAGE OF
      REVENUES                     HMO SHARE                    STATE SHARE
-----------------------     -----------------------        ---------------------
<S>                                 <C>                              <C>
0% - 3%                              100%                             0%
Over 3% - 7%                          75%                            25%
Over 7% - 10%                         50%                            50%
Over 10% - 15%                        25%                            75%
Over 15%                               0%                           100%
</Table>

                           13.2.2.1 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 for
                  all STAR Medicaid service areas contracted between the State
                  and HMO.

                           13.2.3 Experience rebate will be based on a pre-tax
                  basis. Expenses for value-added services are excluded from the
                  determination of Net Income Before Taxes reported in the Final
                  MCFS Report; however, HMO may subtract from Net Income Before
                  Taxes, expenses incurred for value added services for the
                  experience rebate calculations.

                           13.2.5 There will be two settlements for payment(s)
                  of the experience rebate for SFY 2000-2001, two settlements
                  for payment(s) for the experience rebate for SFY 2002, and two
                  settlements for payment(s) for the experience rebate for SFY
                  2003. The first settlement for the specified contract period
                  shall equal 100 percent of the experience rebate as derived
                  from Net Income Before Taxes less the value-added services
                  expenses in the first final 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 the MCFS report. If
                  HHSC determines that corrections to the MCFS reports are
                  required, based on a audit of other documentation acceptable
                  to HHSC, to determine an adjustment to the amount of the
                  second settlement, then






HHSC Contract 529-03-044
                                 Page 14 of 17


<PAGE>


                  final adjustment shall be made within three 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."

SECTION 2.33 SECTION 13.3, PERFORMANCE OBJECTIVES

     Section 13.3.9 is replaced with the following language:

                           "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:


<Table>
<Caption>
          EPSDT SCREENS INCENTIVE           PERCENT OF PERFORMANCE OBJECTIVE FUND
------------------------------------      ------------------------------------------
<S>                                       <C>
           1. <12 months                                   12%

           2. 12 to 24 months                              12%

           3. 25 months - 20 years                         20%
</Table>


<Table>
<Caption>
        IMMUNIZATIONS                     PERCENT OF PERFORMANCE OBJECTIVE INCENTIVE FUND
---------------------------------       -------------------------------------------------
<S>                                     <C>
     4. <12 months                                         17%

     5. 12 to 24 months                                    12%
</Table>

<Table>
<Caption>

        PREGNANCY VISITS                   PERCENT OF PERFORMANCE OBJECTIVE INCENTIVE FUND
----------------------------------      ----------------------------------------------------
<S>                                     <C>
     6.  Initial prenatal exam                            15%

     7. Postpartum visit                                  12%
</Table>


SECTION 2.34 MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN PAYMENT
PROVISIONS

     Sections 13.5.1.1, 13.5.3 and 13.5.6 are replaced with the following
language:

                           "13.5.1.1 The mother of the newborn Member may
                  request that the newborn's health plan coverage be changed to
                  another HMO during the first 90 days following the date of
                  birth, but may only do so through the Medicaid managed care
                  Enrollment Broker.




HHSC Contract 529-03-044
                                 Page 15 of 17


<PAGE>


                           13.5.3 All non-TP45 newborns whose mothers are HMO
                  Members at the time of the birth will be retroactively
                  enrolled into the HMO by TDHS Data Control except as outlined
                  in Article 13.5.4.

                           13.5.6 HMO is responsible for payment for all covered
                  services provided to TP40 members by in-network or
                  out-of-network providers from the date of enrollment in HMO,
                  but prior to HMO receiving TP40 Member on monthly capitation
                  file. HMO must waive requirement for prior authorization (or
                  grant retroactive prior authorization) for medically necessary
                  services provided from the date of enrollment in HMO, but
                  prior to HMO receiving TP40 member on monthly capitation
                  file."

SECTION 2.35 MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT

     Section 14.3.1.1 is replaced with the following language:

                           "14.3.1.1 A mother of a newborn Member may request a
                  plan change for her newborn during the first 90 days by
                  contacting the Enrollment Broker. If a change is approved, the
                  Enrollment Broker will notify both plans involved in the
                  process. If no alternative to the plan change can be reached,
                  the Enrollment Broker will notify the HMO of the newborn plan
                  change request received from the mother."

SECTION 2.36 MODIFICATION OF SECTION 15.12, NOTICES

     Section 15.12 is replaced with the following language:

                           "Notice may be given by registered mail, facsimile,
                  and/or hand delivery. All notices to HHSC shall be addressed
                  to: Medicaid HMO Contract Deliverables Manager, HEDS Division,
                  Texas Health and Human Services Commission, P.O. Box 13247,
                  Austin, Texas 78711-3247, with a copy to the Contract
                  Administrator. Notices to HMO shall be addressed to
                  President/CEO, 2100 S. IH-35, Suite 202, Austin, TX 78704."

SECTION 2.37 MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO

     Section 18.1.6 is replaced with the following language:

                           "18.1.6 HMO may terminate this contract if HHSC fails
                  to pay HMO as required under Article 13 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 Contract Period. 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."

SECTION 2.38 MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES TO BE
IMPOSED

     Section 18.10 is replaced with the following language:

                           "18.10.2 HMO and HHSC must attempt to informally
                  resolve a dispute. If HMO and HHSC are unable to informally
                  resolve a dispute,


HHSC Contract 529-03-044
                                 Page 16 of 17


<PAGE>


                  HMO must notify the HEDS Manager and Director of Medicaid/CHIP
                  Operations that HMO and HHSC cannot agree. The Director of
                  Medicaid/CHIP Operations will refer the dispute to the State
                  Medicaid Director who will appoint a committee to review the
                  dispute under HHSC's dispute resolution procedures. The
                  decision of the dispute resolution committee will be HHSC's
                  final administrative decision."

SECTION 2.39 MODIFICATION OF SECTION 19.1, CONTRACT TERM

     Section 19.1 is replaced with the following language:

                           "19.1 The effective date of this contract is August
                  31, 1999. This contract will terminate on August 31, 2003
                  unless extended or terminated earlier as provided for
                  elsewhere in this contract."

SECTION 2.40 MODIFICATIONS TO CONTRACT APPENDICES.

         The following appendices are replaced with the versions attached to
this Amendment:

                           -        Appendix B, HUB

                           -        Appendix C, Value-added Services (for
                                    certain HMOs)

                           -        Appendix F, Texas Trauma Facilities

                           -        Appendix G, Texas Hemophilia Centers

                           -        Appendix I, Financial Statistical Report

                           -        Appendix K, Preventive Health Performance
                                    Objectives

                     ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

     The Parties contract and agree that the terms of the Agreement will remain
in effect and continue to govern except to the extent modified in this
Amendment.

     By signing this Amendment, the Parties expressly understand and agree that
this Amendment is hereby made a part of the Agreement as though it were set out
word for word in the Agreement.

     IN WITNESS HEREOF, HHSC AND THE HMO HAVE EACH CAUSED THIS AMENDMENT TO BE
SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.

<Table>
<Caption>
           SUPERIOR HEALTH PLAN, INC.                    HEALTH & HUMAN SERVICES COMMISSION



<S>                                                    <C>
     By: /s/ Christopher Bowers                        By:
        ----------------------------------                -----------------------------------
        Christopher Bowers                                Don Gilbert
        President & CEO                                   Commissioner

     Date: 8/22/02                                     Date:
          -------------------------------                   ---------------------------------
</Table>









HHSC Contract 529-03-044
                                 Page 17 of 17


<PAGE>


                                                   HHSC CONTRACT NO. 529-03-044

STATE OF TEXAS

COUNTY OF TRAVIS

                                  AMENDMENT 10
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                           SUPERIOR HEALTH PLAN, INC.
                               FOR HEALTH SERVICES
                                     TO THE
                              MEDICAID STAR PROGRAM
                                     IN THE
                          EL PASO SERVICE DELIVERY AREA

      THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"), an administrative agency within the
executive department of the State of Texas, and SUPERIOR HEALTH PLAN, INC.
("CONTRACTOR"), a health maintenance organization organized under the laws of
the State of Texas, possessing a certificate of authority issued by the Texas
Department of Insurance to operate as a health maintenance organization, and
having its principal office at 2100 S. IH-35, Suite 202, Austin, Texas 78704.
HHSC and CONTRACTOR may be referred to in this Amendment individually as a
"Party" and collectively as the "Parties."

     The Parties hereby agree to amend their Agreement as set forth in Article 2
of this Amendment.

                               ARTICLE 1. PURPOSE.

SECTION 1.01 AUTHORIZATION.

     This Amendment is executed by the Parties in accordance with Article 15.2
of the Agreement.

SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES.

     This Amendment is effective November 1, 2002.

                   ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES

SECTION 2.01 MODIFICATION OF ARTICLE 2 DEFINITIONS

         The following term is added to amend the definitions set forth in
Article 2:

                           "EXPERIENCE REBATE PERIOD means each period within
                  the Contract Period related to the calculations and
                  settlements of Experience Rebates to HHSC described in Section
                  13.2. The Contract Period consists of the following Experience
                  Rebate Periods:

                           -        September 1, 1999 through August 31, 2001
                                    (1st Experience Rebate Period)

                           -        September 1, 2001 through August 31, 2002
                                    (2nd Experience Rebate Period)

                           -        September 1, 2002 through August 31, 2003
                                    (3rd Experience Rebate Period)"





                                   Page 1 of 4
HHSC Contract 529-03-044


<PAGE>


SECTION 2.02 MODIFICATION TO SECTION 13.2, EXPERIENCE REBATE TO STATE

        Section 13.2 is replaced with the following language:

                           "13.2.1 HMO must pay to HHSC an experience rebate for
                  each Experience Rebate Period. HMO will calculate the
                  experience rebate in accordance with the tiered rebate formula
                  listed below based on Net Income Before Taxes (excess of
                  allowable revenues over allowable expenses) as set forth in
                  Appendix I. The HMO's calculations are subject to HHSC
                  approval, and HHSC reserves the right to have an independent
                  audit performed to verify the information provided by HMO.

<Table>
<Caption>

                            GRADUATED REBATE FORMULA
--------------------------------------------------------------------------------
         NET INCOME BEFORE TAXES
         AS A PERCENTAGE OF TOTAL
                REVENUES                  HMO SHARE                HHSC SHARE
----------------------------------   --------------------     ------------------
<S>         <C>                             <C>                        <C>
            0% - 3%                         100%                       0%
            Over 3% - 7%                     75%                      25%
            Over 7% - 10%                    50%                      50%
            Over 10% - 15%                   25%                      75%
            Over 15%                          0%                     100%
</Table>

                           13.2.2 Carry Forward of Prior Experience Rebate
                  Period Losses: Losses incurred for one Experience Rebate
                  Period can only be carried forward as an offset to Net Income
                  Before Taxes in the next Experience Rebate Period.

                           13.2.2.1 HMO shall calculate the experience rebate by
                  applying the experience rebate formula in Article 13.2.1 as
                  follows:

                           For the 1st Experience Rebate Period, to the Net
                  Income Before Taxes for each STAR Medicaid service area
                  contracted between HHSC and HMO. The HMO will separately
                  calculate the experience rebate for each service area, and
                  losses in one service area cannot be used to offset Net Income
                  Before Taxes in another service area. Losses from the 1st
                  Experience Rebate Period can be carried forward to the 2nd
                  Experience Rebate Period for the same service area.

                           For the 2nd Experience Rebate Period, to the sum of
                  the Net Income Before Taxes for all STAR Medicaid service
                  areas contracted between HHSC and HMO. Losses from the 2nd
                  Experience Rebate Period can be carried forward to the 3rd
                  Experience Rebate Period.

                           For the 3rd Experience Rebate Period, to the sum of
                  the Net Income Before Taxes for all CHIP, STAR Medicaid, and
                  STAR+PLUS Medicaid service areas contracted between HHSC or
                  TDHS and HMO.

                           13.2.3 Experience rebate will be based on a pre-tax
                  basis. Expenses for value-added services are excluded from the
                  determination







                                   Page 2 of 4
HHSC Contract 529-03-044


<PAGE>


                  of Net Income Before Taxes reported in the Final MCFS Report;
                  however, HMO may subtract from Net Income Before Taxes,
                  expenses incurred for value added services for the experience
                  rebate calculations.

                           13.2.4 Population-Based Initiatives (PBIs) and
                  Experience Rebates: HMO may subtract from an experience rebate
                  owed to HHSC, expenses for population-based health initiatives
                  that have been approved by HHSC. A 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 the 1st Experience Rebate Period,
                  two settlements for payment(s) of the experience rebate for
                  the 2nd Experience Rebate Period, and two settlements for
                  payment(s) of the experience rebate for the 3rd Experience
                  Rebate Period. Settlement payments are payable to HHSC. The
                  first settlement for the specified Experience Rebate Period
                  shall equal 100 percent of the experience rebate as derived
                  from Net Income Before Taxes reduced by any value-added
                  services expenses in the first Final MCFS Report and shall be
                  paid on the same day that 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 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 the MCFS
                  Reports. If HHSC determines that corrections to the MCFS
                  Reports are required, based on an audit of other documentation
                  acceptable to HHSC, to determine an adjustment to the amount
                  of the second settlement, then final adjustment shall be made
                  within three (3) 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 (an) affiliate(s) 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 goods and services in
                  the service area. HHSC has final authority in auditing and
                  determining the amount of the experience rebate."

                   ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

     The Parties contract and agree that the terms of the Agreement will remain
in effect and continue to govern except to the extent modified in this
Amendment.

     By signing this Amendment, the Parties expressly understand and agree that
this Amendment is hereby made a part of the Agreement as though it were set out
word for word in the Agreement.





                                   Page 3 of 4
HHSC Contract 529-03-044


<PAGE>


     IN WITNESS HEREOF, HHSC AND THE CONTRACTOR HAVE EACH CAUSED THIS AMENDMENT
TO BE SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.

<Table>
<Caption>
         SUPERIOR HEALTH PLAN, INC.               HEALTH & HUMAN SERVICES COMMISSION



<S>                                              <C>
By: /s/ Christopher Bowers                       By:
   ---------------------------------                ----------------------------------
   Christopher Bowers                               Don A. Gilbert
   President and CEO                                Commissioner

Date: 11/8/02                                    Date:
     ------------------------------                   --------------------------------
</Table>









                                   Page 4 of 4
HHSC Contract 529-03-044


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5A
<SEQUENCE>4
<FILENAME>c74739exv10w5a.txt
<DESCRIPTION>1999 CONTRACT FOR SERVICES DATED 5/9/99
<TEXT>
<PAGE>
                                                                  EXHIBIT 10.5a

                                AMENDMENT NO. 10
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                    BETWEEN
                THE HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 10 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO) in Travis Service Area,
to amend the 1999 Contract for Services between the Health and Human Services
Commission and HMO. The effective date of this Amendment is the date HHSC Signs
this Amendment. All other contract provisions remain in full force and effect.
The Parties agree to amend the Contract as follows:

1. ARTICLE XVIII IS AMENDED TO READ AS FOLLOWS:

15.2     AMENDMENT AND CHANGE REQUEST PROCESS

15.2.1   HHSC 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, the contract may
         be terminated under Article XVIII.

15.2.2   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.

15.2.3   This contract may be amended at any time by mutual agreement.

15.2.4   All amendments to this contract must be in writing and signed by both
         parties.

15.2.5   Any change in either party's obligations under this contract
         ("Change") requires a written amendment to the contract that is
         negotiated using the process outlined in Article 15.2.6.

15.2.6   Change Request Process.

October 30, 2001                                                         1 of 3


<PAGE>

15.2.6.1          If federal or state laws, rules, regulations, policies or
                  guidelines are adopted, promulgated, judicially interpreted
                  or changed, or if contracts are entered into or changed, the
                  effect of which is to alter the ability of either party to
                  fulfill its obligations under this contract, the parties will
                  promptly negotiate in good faith, using the process outlined
                  in Article 15.2.6, appropriate modifications or alterations
                  to the contract and any appendix (appendices) or
                  attachments(s) made a part of this contract.

15.2.6.2          Change Order Approval Procedure

15.2.6.2.1        During the term of this contract, HHSC or HMO may propose
                  changes in the services, deliverables, or other aspects of
                  this contract ("Changes"), pursuant to the procedures set
                  forth in this article.

15.2.6.2.2        If HHSC proposes a Change, it shall deliver to the HMO a
                  written notice describing the proposed Change which includes
                  the State's estimated fiscal impact on the HMO, if available
                  ("Change Order Request"). HMO must respond to such proposal
                  within 30 calendar days of receipt by preparing and
                  delivering to HHSC, at no additional cost to HHSC a written
                  document (a "Change Order Response"), that specifies:

15.2.6.2.2.1      The financial impact, if any, of the Change Order Request on
                  the HMO and the manner in which such impact was calculated;

15.2.6.2.2.2      The effect, if any, of the Change Order Request on HMO's
                  performance of its obligations under this contract, including
                  the effect on the services or deliverables;

15.2.6.2.2.3      The anticipated time schedule for implementing the Change
                  Order Request; and

15.2.6.2.2.4      Any other information requested in the Change Order Request
                  or which is reasonably necessary for HHSC to make an informed
                  decision regarding the proposal.

15.2.6.2.3        If HMO proposes a Change, it must deliver a HMO Change Order
                  Request to HHSC that includes the proposed Change and
                  information described in Articles 15.2.6.2.2.1 - 15.2.6.2.2.4
                  for a Change Order Response. HHSC must respond to HMO within
                  30 calendar days of receipt of this information.

15.2.6.2.4        Upon HHSC's receipt of a Change Order Request or a Change
                  Order Response, the Parties shall negotiate a resolution of
                  the requested Change in good faith. The parties will exchange
                  information in good faith in an attempt to agree upon the
                  requested Change.

October 30, 2001                                                         2 of 3


<PAGE>

15.2.6.3          No Change to the services or deliverables or any other aspect
                  of this contract will become effective without the written
                  approval and execution of a mutually agreeable written
                  amendment to this contract by HHSC and the HMO. Under no
                  circumstances will the HMO be entitled to payment for any
                  work or services rendered under a Change Order that has not
                  been approved by HHSC in accordance with the Change Order
                  Procedures.

15.2.7            The implementation of an amendment to this contract is
                  subject to the approval of the Centers for Medicare and
                  Medicaid Services (CMS, formerly called HCFA).

2.       APPENDIX C: Appendix C is deleted in its entirety and is replaced by a
         new Appendix C which is Attachment No. 1 to this amendment. This
         amendment provides for the removal of "Special Programs for Illness"
         and the modification of the "Prenatal Program with Gifts" services.

AGREED AND SIGNED by an authorized representative of the parties on December 13,
2001.


Health and Human Services Commission           Superior Health Plan, Inc.



By: /s/ Don A. Gilbert                         By: /s/ Michael Neidorff
   --------------------------                     -----------------------------
   Don. A Gilbert                                 Michael Neidorff
                                                  President & CEO, Centene


Approved as to Form:



-----------------------------
Office of General Counsel


October 30, 2001                                                         3 of 3
<PAGE>
                                AMENDMENT NO. 11
                                     TO THE
                          1999 CONTRACT FOR SERVICES
                                    BETWEEN
                 HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 11 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 January 1, 2002.
The Parties agree to amend the Contract as follows:

1.       Article XIII is amended to read as follows:

ARTICLE XIII PAYMENT PROVISIONS

13.1     CAPITATION AMOUNTS

13.1.2   HMO capitation rates listed below reflect program increases
         appropriated by the 76th and 77th legislatures for physician services
         (to include THSteps providers) and outpatient facility services. Rates
         will be increased starting January 1, 2002, to reflect increases in
         traditional fee-for-service payments for 1) Evaluation and Management
         Level 3 services (procedure code 99213), and 2) high-volume providers.
         The methodology for determining high-volume providers will be
         distributed to HMO by HHSC ("High-volume Provider Methodology"). The
         first rate increase will be effective January 1, 2002, and will
         reflect increases for procedure code 99213. Rate increases for high
         volume providers will be effective the first day of the month after
         the "High-volume Provider Methodology" is released by HHSC. The
         Methodology will state the amount of each increase (99213 and
         high-volume provider). Final rates with all increases included are
         shown in the table below.

13.1.2.  HMO must submit reports to HHSC indicating the methodology used and
         must certify that the funds provided to the HMO for the pass through
         have been passed through to providers. HMO must use the reporting
         format specified by HHSC and follow the reporting schedule indicated
         on the HHSC deliverables matrix.


                                                   PPAC Rate Increase Amendment
                                                                       12/12/01
<PAGE>
13.1.2.2 Capitation Rates

<TABLE>
<CAPTION>
Risk Group                             Monthly Capitation Amounts

<S>                                    <C>
TANF Adults                                 $165.30
TANF Children > 12 Months of Age            $ 75.07
Expansion Children > 12 Months
of Age                                      $ 61.17
Newborns ( <12 Months of Age)               $357.27
TANF Children  <1 2 Months of Age           $357.27
Expansion Children < 12 Months
of Age                                      $357.27
Federal Mandate Children                    $ 59.14
CHIP Phase I                                $ 71.69
Pregnant Women                              $270.52
Disabled/Blind Administration               $ 14.00
</TABLE>

13.1.2.3 Delivery Supplemental Payment. A one-time per pregnancy supplemental
         payment for each delivery shall be paid to HMO in the following
         amount: $2.817.00. 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.

13.1.2.4 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.

13.1.2.5 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


                                                   PPAC Rate Increase Amendment
                                                                       12/12/01
<PAGE>
         only deliveries for which HMO has made a payment for the delivery, to
         either a hospital or other provider. No DSP will be made for
         deliveries which are not reported by HMO to TDH within 210 days after
         the date of delivery, or within 30 days from the date of discharge
         from the hospital for the stay related to the delivery, whichever is
         later.

13.1.2.6 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.

13.1.2.7 The DSP will be made by TDH to HMO within twenty (20) state working
         days after receiving an accurate report from HMO.

13.1.2.8 All infants of age equal to or less than twelve months (Newborns) in
         the TANF Children, Expansion Children, and Newborns risk groups will
         be capitated at the Newborns classification capitation amount in
         Article 13.1.2.

AGREED AND SIGNED by an authorized representative of the parties on
_____________________ 2001.


Health and Human Services Commission       Health Plan Name


By:                                        By:
   ---------------------------------          ---------------------------------
   Don A. Gilbert                             Michael Neidorff
                                              President & CEO, Centene


Approved as to Form:


-------------------------
Office of General Counsel


                                                   PPAC Rate Increase Amendment
                                                                       12/12/01
<PAGE>
                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                             MEDICAID STAR PROGRAM
                                     IN THE
                          TRAVIS SERVICE DELIVERY AREA


<PAGE>
                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                    MEDICAID STAR PROGRAM EM THE TRAVIS SDA

<TABLE>
<S>                                                                                                             <C>
ARTICLE 1. PURPOSE...............................................................................................1
    SECTION 1.01 AUTHORIZATION...................................................................................1
    SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES...............................................................1
ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES...........................................................1
    SECTION 2.01 GENERAL.........................................................................................1
    SECTION 2.02 MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS....................................................1
    SECTION 2.03 MODIFICATION OF ARTICLE 2, DEFINITIONS..........................................................2
    SECTION 2.04 MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS..................3
    SECTION 2.05 MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS RETENTION..........................3
    SECTION 2.06 MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS REQUIREMENTS..................................3
    SECTION 2.07 MODIFICATION OF SECTION 4.3, PERFORMANCE BOND...................................................4
    SECTION 2.08 MODIFICATION OF SECTION 4.6, AUDIT..............................................................4
    SECTION 2.09 MODIFICATION OF SECTION 4.9, THIRD PARTY RECOVERY...............................................4
    SECTION 2.10 MODIFICATION OF SECTION 4.10, CLAIMS PROCESSING REQUIREMENTS....................................4
    SECTION 2.11 MODIFICATION TO SECTION 5.4, SAFEGUARDING INFORMATION...........................................5
    SECTION 2.12 MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS).......................5
    SECTION 2.13 MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL.................................................6
    SECTION 2.14 MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY................................................6
    SECTION 2.15 MODIFICATION OF SECTION 6.4, CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS....................7
    SECTION 2.16 MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES.................................................8
    SECTION 2.17 MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS............8
    SECTION 2.18 MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS........................................9
    SECTION 2.19 MODIFICATION OF SECTION 8.4, MEMBER ID CARDS....................................................9
    SECTION 2.20 MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS............................................9
    SECTION 2.21 MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM................................................9
    SECTION 2.22 MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM..........................................9
    SECTION 2.23 MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE......................................10
    SECTION 2.24 ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
      (HIP AA) COMPLIANCE.......................................................................................10
    SECTION 2.25 MODIFICATION OF SECTION 12.1., FINANCIAL REPORTS...............................................10
    SECTION 2.26 MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER COMPLAINTS............................11
    SECTION 2.27 MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS................................................12
    SECTION 2.28 MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH REPORT..............................12
    SECTION 2.29 ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT...................................12
    SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS.............................12
    SECTION 2.31 MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS..............................................13
    SECTION 2.32 MODIFICATION OF SECTION 13.2, EXPERIENCE REBATE TO THE STATE...................................14
    SECTION 2.33 SECTION 13.3, PERFORMANCE OBJECTIVES...........................................................15
    SECTION 2.34 MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS....................15
    SECTION 2.35 MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT...............................................16
    SECTION 2.36 MODIFICATION OF SECTION 15.12, NOTICES.........................................................16
    SECTION 2.37 MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO.............................................16
    SECTION 2.38 MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED......................16
    SECTION 2.39 MODIFICATION OF SECTION 19.1, CONTRACT TERM....................................................17
    SECTION 2.40 MODIFICATIONS TO CONTRACT APPENDICES...........................................................17
ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES.........................................................17
</TABLE>


                                       i
<PAGE>
STATE OF TEXAS                                     HHSC CONTRACT NO. 529-03-043
COUNTY OF TRAVIS


                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                             MEDICAID STAR PROGRAM
                                     IN THE
                          TRAVIS SERVICE DELIVERY AREA

         THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"), an administrative agency within
the executive department of the State of Texas, and Superior Health Plan, Inc.
("HMO"), a health maintenance organization organized under the laws of the
State of Texas, possessing a certificate of authority issued by the Texas
Department of Insurance to operate as a health maintenance organization, and
having its principal office at: 2100 S. IH-35, Suite 202, Austin, TX 78704.
HHSC and HMO may be referred to in this Amendment individually as a "Party" and
collectively as the "Parties."

         The Parties hereby agree to amend their Agreement as set forth in
Article 2 of this Amendment.

                              ARTICLE 1. PURPOSE.

SECTION 1.01      AUTHORIZATION.

         This Amendment is executed by the Parties in accordance with Section
15.2 of the Agreement.

SECTION 1.02      GENERAL EFFECTIVE DATE OF CHANGES.

         This Amendment is effective SEPTEMBER 1, 2002, and terminates on
August 31, 2003, unless extended or terminated sooner in accordance with the
Agreement.

             ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES

SECTION 2.01      GENERAL

         The Health Care Financing Administration (HCFA) has had a name change
to the Centers for Medicare and Medicaid Services (CMS). All references to HCFA
in the Agreement should be replaced with CMS.

SECTION 2.02      MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS

         Section 1.4 is replaced with the following language:

                  "Renewal Review. At its sole discretion, HHSC may choose to
         conduct a renewal review of HMO's performance and compliance with this
         contract as a condition for retention and renewal."


HHSC Contract 529-03-043          Page 1 of 17
<PAGE>
SECTION 2.03      MODIFICATION OF ARTICLE 2, DEFINITIONS

         (a)      The following terms amend and modify the definitions set
forth in Article 2:

                  "CMS means the Centers for Medicare and Medicaid Services,
         formerly known as the Health Care Financing Administration (HCFA),
         which is the federal agency responsible for administering Medicare and
         overseeing state administration of Medicaid.

                  EMERGENCY MEDICAL CONDITION means a medical condition
         manifesting itself by acute symptoms of recent onset and 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.

                  FAIR HEARING means the process adopted and implemented by the
         Texas Health and Human Services Commission, 25 TAG Chapter 1, in
         compliance with federal regulations and state rules relating to
         Medicaid Fair Hearings.

                  HEDS means the HMO/EPO/Dental Services Division of the Texas
         Health and Human Services Commission.

                  HHSC means the Texas Health and Human Services Commission or
         its designees.

                  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 1 TAG, Subchapter
         354.2301 et seq., relating to Third Party Resources).

                  TP 40 means Type Program 40, which is a TDHS Medicaid program
         eligibility type assigned to pregnant women under 185% of the federal
         poverty level (FPL).

                  TP 45 means Type Program 45, which is a TDHS Medicaid program
         eligibility code assigned to newborns (under 12 months) who are born
         to mothers who are Medicaid eligible at the time of the child's birth.

                  TEXMEDNET means Texas Medical Network, which is the State's
         information system that processes claims and encounters. TexMedNet's
         functions include, but are not limited to eligibility verification,
         claims and encounters submissions, e-mail communications, and
         electronic funds transfers."

         (b)      The term "HHSCS" is deleted and replaced with "TDHS" as
defined in Article 2 of the Contract.

         (c)      The term "THHSC" is deleted and replaced with "HHSC" as
defined above.


HHSC Contract 529-03-043          Page 2 of 17
<PAGE>
SECTION 2.04      MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND
DISTRIBUTION OF PLAN MATERIALS

         Section 3.4.3 is replaced with the following language:

                  "3.4.3   All plan materials regarding the STAR Program,
         including Member education materials, must be submitted to HHSC for
         approval prior to distribution. HHSC has fifteen (15) working days to
         review the materials and recommend any suggestions or required
         changes. If HHSC has not responded to HMO by the fifteenth (15th) day,
         HMO may print and distribute these materials. HHSC 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 fifteen (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 generally be
         reviewed by HHSC within five (5) working days. HHSC 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, as
         determined by HHSC.

SECTION 2.05      MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS
RETENTION

         Section 3.5.1 is replaced with the following language:

                  "3.5.1   HMO must keep all records required to be created and
         retained under this Agreement in accordance with the standards set
         forth herein. Records related to Members served in the HMO's service
         area(s) must be made available in HMO's local office when requested by
         HHSC.

                  Original records, except paper claims, must be kept in the
         form they were created in the regular course of business for a minimum
         of three (3) years following the expiration of the contract period,
         including any extensions. Paper claims may be digitally copied from
         the time of initial receipt, if the HMO: 1) receives HHSC prior
         written approval; 2) certifies that an unaltered copy of the original
         claim received can be produced upon request; 3) the retention system
         is reliable and supported by a retrieval system that allows reasonable
         accurate records. HHSC may require the HMO to retain the records for
         an additional period if an audit, litigation or administrative action
         involving the records exists."

SECTION 2.06      MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS
REQUIREMENTS

         Section 3.7.1 is replaced with the following language:

                  3.7.1    For all HMO telephone access (including Behavioral
         Health telephone services), HMO must ensure adequately-staffed
         telephone lines. Telephone personnel must receive customer service
         telephone training. HMO must ensure that telephone staffing is
         adequate to fulfill the standards of promptness and quality listed
         below:

                  1.       80% of all telephone calls must be answered within
         an average of 30 seconds;

                  2.       The lost (abandonment) rate must not exceed 10%;


HHSC Contract 529-03-043          Page 3 of 17
<PAGE>
                  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 8.8) 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.

SECTION 2.07      MODIFICATION OF SECTION 4.3. PERFORMANCE BOND

         Section 4.3 is replaced with the following language:

                  "4.3     HMO has furnished HHSC with a performance bond in
         the form prescribed by HHSC and approved by TDI, naming HHSC as
         Obligee, securing HMO's faithful performance of the terms and
         conditions of this Agreement. The performance bond must be issued in
         the amount of $100,000 for the Contract Period, plus an additional 12
         months after the expiration of the Contract Period. If the Contract
         Period is renewed or extended pursuant to Article 15, the HMO must
         replace the performance bond with a separate bond covering performance
         during the renewal or extension period, plus an additional 12 months.
         The bond must be issued by a surety licensed by TDI, and specify cash
         payment as the sole remedy. HMO must deliver the bond to HHSC at the
         same time the signed HMO contract, renewal or extension is delivered
         to HHSC."

SECTION 2.08      MODIFICATION OF SECTION 4.6. AUDIT

         Section 4.6.2 is replaced with the following language:

                  "4.6.2   HHSC or its designee will conduct an audit of HMO at
         least once every two 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 Agreement."

SECTION 2.09      MODIFICATION OF SECTION 4.9. THIRD PARTY RECOVERY

         Section 4.9.2 is replaced with the following language:

                  "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 HHSC to obtain
         information from other state and federal agencies and HMO must
         cooperate with HHSC in obtaining information from commercial third
         party resources. HMO must require all providers to comply with the
         provisions of 1 TAC ss.354.2301, et seq., relating to Third Party
         Recovery in the Medicaid program."

SECTION 2.10      MODIFICATION OF SECTION 4.10. CLAIMS PROCESSING REQUIREMENTS

         Section 4.10.8 is replaced with the following language:


HHSC Contract 529-03-043          Page 4 of 17
<PAGE>
                  "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 (HIPAA), Public
         Law 104-191, regarding 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 (see 45 CFR parts 160 through 164).

SECTION 2.11      MODIFICATION TO SECTION 5.A, SAFEGUARDING INFORMATION

         Section 5.4.1 is replaced with the following language:

                  "5.4.1   The use and disclosure of all Member information,
         records, and data (Member Information) collected or provided to HMO by
         HHSC or another state agency is protected by state and federal law and
         regulations, including, but not limited to, the Health Insurance
         Portability and Accountability Act of 1996 (HIPAA), Public law
         104-191, and 45 CFR parts 160 through 164. HMO agrees to ensure that
         any of its agents, including subcontractors, to whom HMO discloses
         Member Information agrees to the same restrictions and conditions that
         apply to HMO with respect to Member Information.

SECTION 2.12      MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED
BUSINESSES (HUBS)

         Sections 5.6.1 through 5.6.3 are replaced with the following language:

                  "5.6.1   In accordance with Texas Government Code Chapter
         2161 and 1 TAC ss.111.11 et seq. and ss.392.100 state agencies are
         required to make a good faith effort to assist Historically
         Underutilized Businesses (HUBs) in receiving contract awards issued by
         the State. The goal of this program is to promote full and equal
         business opportunity for all businesses in contracting with the state.
         It is HHSC's intent that all contractors make a good faith effort to
         subcontract with HUBs during the performance of their contracts.

                  IMPORTANT NOTE: The Health and Human Services Commission has
         concluded that HUB subcontracting opportunities may exist in
         connection with this contract. See Appendix B to the Agreement for the
         following instructions and form: "Grant/Contract Applicants Client
         Services HUB Subcontracting Plan Instructions" (C-IGA), and
         Determination of Good Faith Effort for Grant Contracts (C-DGFE). If an
         approved HUB subcontracting plan is not already on file with HHSC, the
         HMO shall submit a completed C-DGFE Form along with the signed
         contract or renewal.

                  If HMO responds, 'yes' to question two on Form C-DGFE, HMO
         shall document good faith efforts to develop a HUB Subcontracting Plan
         by completing and documenting the steps on form C-DGFE. Additionally,
         quarterly reports on HUB subcontracting are required according to the
         schedule on Form C-QSR. Quarterly Report forms are included in
         Appendix B of this amendment.


HHSC Contract 529-03-043          Page 5 of 17
<PAGE>
                  If HMO decides after the award to subcontract any part of the
         contract, the HMO shall notify the contract manager prior to entering
         into any subcontract. The HMO shall comply with the good faith effort
         requirements relating to developing and submitting a subcontracting
         plan.

                  5.6.2    HMO is required to submit HUB
                           quarterly reports to HHSC as required in Article
                           12.11.

                  5.6.3    HHSC will assist HMO in meeting the contracting and
                           reporting requirements of this Article."

SECTION 2.13      MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL

         Section 5.10 is replaced with the following:

                  "5.10    HMO must comply with the notice requirements
         contained in 1 TAG ss.354.2211, and the maintaining benefits and
         services contained in 1 TAG ss.354.2213, 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
         8.6 of this Agreement."

SECTION 2.14      MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY

         Section 6.3 and its subparts are replaced with the following language"

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

                  6.3.1    The payor responsible for the hospital/facility
         charges at the start of an inpatient stay remains responsible for
         hospital/facility charges until the time of discharge, or until such
         time that there is a loss of Medicaid eligibility.

                  6.3.2    HMO is responsible for professional charges during
         every month for which the payor receives a full capitation payment.

                  6.3.3    HMO is not responsible for any services after
         effective date of loss of Medicaid eligibility

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

                  6.3.5    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.

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


HHSC Contract 529-03-043          Page 6 of 17
<PAGE>
                  6.3.7    For purposes of this Section 6.3, a Member "loses
         Medicaid eligibility" when:

                  6.3.7.1  Medicaid eligibility is terminated and never
         regained under one Medicaid Type Program with no subsequent transfer
         of eligibility to another Medicaid Type Program; or

                  6.3.7.2  Medicaid eligibility is terminated and there is a
         lapse of at least one month in regular Medicaid coverage. The term
         "regular Medicaid coverage" refers to either traditional
         fee-for-service Medicaid or Medicaid managed care coverage; or

                  6.3.7.3  A client re-applies for Medicaid eligibility and is
         certified for prior Medicaid coverage, as defined by TDHS, for any
         month(s) prior to the month of application. The term "prior Medicaid
         coverage" refers to Applicants who are eligible for Medicaid coverage
         during the three-month period before the month they apply for TANF or
         Medical Programs. Prior Medicaid coverage may be continuous or there
         may be interrupted periods of eligibility involving all or some of the
         certified Members.

                  Administrative process limitations within the State's
         application and recertification process do not constitute a "loss of
         Medicaid eligibility".

SECTION 2.15      MODIFICATION OF SECTION 6.4, CONTINUITY OF CARE AND OUT-OF-
NETWORK PROVIDERS

         Section 6.4.3 is replaced with the following language:

                  "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.
         This Article does not extend the obligation of HMO to reimburse the
         Member's existing out-of-network providers for on-going care for more
         than 90 days after Member enrolls in HMO or for more than nine months
         in the case of a Member who at the time of enrollment in HMO has been
         diagnosed with and receiving treatment for a terminal illness. The
         obligation of HMO to reimburse the Member's existing out-of-network
         provider for services provided to a pregnant Member with 12 weeks or
         less remaining before the expected delivery date extends through
         delivery of the child, immediate postpartum care, and the follow-up
         checkup within the first six weeks of delivery.

                  6.4.3.1  HMO will pay reasonable and customary rates for all
         out-of-network provider claims with dates of service between
         September 1, 2002 and November 30, 2002. HMO must forward any
         complaints submitted by out-of-network providers during this time to
         HHSC. HHSC will review all complaints and determine whether payments
         were reasonable and customary. HHSC will direct the HMO to pay a
         reasonable and customary amount, as determined by HHSC, if it
         concludes that the payments were not reasonable and customary for the
         provider. Failure to comply with this provision constitutes a default
         under Article XVI, Default and Remedies.

                  6.4.3.2  For all out-of-network provider claims with dates of
         service on or after December 1, 2002, HMO must pay providers a
         reasonable and


HHSC Contract 529-03-043          Page 7 of 17
<PAGE>
         customary amount consistent with a methodology approved by HHSC. HMO
         must submit its methodology, along with any supporting documentation,
         to HHSC by September 30, 2002. HHSC will review and respond to the
         information by November 15, 2002. HMO must forward any complaints by
         out-of-network providers submitted after December 1, 2002 to HHSC,
         which will review all complaints. If HHSC determines that payment is
         not consistent with the HMO's approved methodology, the HMO must pay
         the provider a rate, using the approved reasonable and customary
         methodology, as determined by HHSC. Failure to comply with this
         provision constitutes a default under Article XVI, Default and
         Remedies.

SECTION 2.16      MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES

         Section 6.5.1 is replaced with the following language:

                  "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.

                  6.5.1.1  For all out-of-network providers, HMO will pay a
         reasonable and customary amount for emergency services.

                  HMO will pay a reasonable and customary amount for services
         for all out-of-network emergency services provider claims with dates
         of service between September 1, 2002 and November 30, 2002. HMO must
         forward any complaints submitted by out-of-network emergency services
         providers during this time to HHSC. HHSC will review all complaints
         and determine whether payments were reasonable and customary. HHSC
         will direct the HMO to pay a reasonable and customary amount, as
         determined by HHSC, if it concludes that the payments were not
         reasonable and customary for the provider.

                  6.5.1.2  For all out-of-network emergency services provider
         claims with dates of service on or after December 1, 2002, HMO must
         pay providers a reasonable and customary amount consistent with a
         methodology approved by HHSC. HMO must submit its methodology, along
         with any supporting documentation, to HHSC by September 30, 2002. HHSC
         will review and respond to the information by November 15, 2002. HMO
         must forward any complaints by out-of-network emergency services
         providers submitted after December 1, 2002 to HHSC, which will review
         all complaints. If HHSC determines that payment is not consistent with
         the HMO's approved methodology, the HMO must pay the emergency
         services provider a rate, using the approved reasonable and customary
         methodology, as determined by HHSC. Failure to comply with this
         provision constitutes a default under Article XVI, Default and
         Remedies.

SECTION 2.17      MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES
-- SPECIFIC REQUIREMENTS

         Section 6.6.5 is replaced with the following language:


HHSC Contract 529-03-043          Page 8 of 17
<PAGE>
                  "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. HHSC may require use of other assessment
instrument/outcome measures in addition to the DSM-IV. Providers must document
DSM-IV and assessment/outcome information in the Member's medical record."

SECTION 2.18      MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS

         Section 6.16.1 is replaced with the following language:

                  "6.16.1  Blind and disabled Members' SSI status is effective
         the date of State's eligibility system, SAVERR, identifies the Member
         as Type Program 13 (TP13). On this effective date, the Member becomes
         a voluntary STAR enrollee.

                  The State is responsible for updating the State's eligibility
         system within 45 days of official notice of the Members' federal SSI
         eligibility by the Social Security Administration (SSA).

SECTION 2.19      MODIFICATION OF SECTION 8.4, MEMBER ID CARDS

         Section 8.4.1 is replaced with the following language:

                  "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."

SECTION 2.20      MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS

         Section 10.1.3.6 is replaced with the following language:

                  "10.1.3.6 HMO is required to provide representation to attend
         and participate in the HHSC Systems Workgroup as a part of the Systems
         Scan Call."

SECTION 2.21      MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM

         Subparts 7 and 8 of Section 10.4 are replaced with the following
language:

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

                  8.       Provide Provider Network and Affiliation files 90
         days prior to implementation and updates monthly. Format will be
         provided by HHSC to contracted entities."

SECTION 2.22      MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM

         Section 10.9.3 is replaced with the following language:


HHSC Contract 529-03-043          Page 9 of 17
<PAGE>
                  "10.9.3  Provider Network and Affiliation Files. The HMO will
         supply network provider data to the Enrollment Broker and Claims
         Administrator. This data will consist of a Provider Network File and a
         Provider Affiliation File. The HMO will submit the Provider Network
         File to the Enrollment Broker and the Provider Affiliation File to the
         Claims Administrator. Both files shall accomplish the following
         objectives:

                  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.

                  6.       Provide other (Master Provider File) information
         identified by HHSC."

SECTION 2.23      MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE

         Section 10.11 is deleted in its entirety.

SECTION 2.24      ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND
ACCOUNTABILITY ACT (HIPAA) COMPLIANCE.

         Section 10.12 is added as follows:

                  "10.12   Health Insurance Portability and Accountability Act
         (HIPAA) Compliance. HMO's system must comply with applicable
         certificate of coverage and data specification and reporting
         requirements promulgated pursuant to the Health Insurance Portability
         and Accountability Act (HIPPA) of 1996, P.L. 104-191 (August 21,
         1996), as amended or modified.

SECTION 2.25      MODIFICATION OF SECTION 12.1. FINANCIAL REPORTS

         Sections 12.1.4, 12.1.11, and 12.13 are replaced with the following
language, and Section 12.14 is added. Sections 12.1.2, 12.1.3, 12.1.7 and
12.1.10 are deleted in their entirety.

                  12.1.2   [Deleted]

                  12.1.3   [Deleted]

                  12.1.4   Final MCFS Reports. HMO must file two final MCFS
         Reports for each of the following:

                  -        The initial two-year contract period (SFY
                           2000-2001),

                  -        The first one-year contract extension period (SFY
                           2002), and


HHSC Contract 529-03-043         Page 10 of 17
<PAGE>
                  -        This second one-year contract extension period (SFY
                           2003).

                  The first final report must reflect expenses incurred during
         each contract period and paid through the 90th day after the end of
         the contract period. The first final report must be filed on or before
         the 120th day after the end of each contract period. The second final
         report must reflect expenses incurred during each contract period and
         paid through the 334th day after the end of the contract period. The
         second final report must be filed on or before the 365th day after the
         end of each contract period.

                  . . . .

                  12.1.7   [Deleted]

                  . . . .

                  12.1.10  [Deleted]

                  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 HHSC no later than 60 days after the effective date of
         this contract. Changes to the IBNR plan and description must be
         submitted to HHSC no later than 30 days before changes to the plan are
         implemented by HMO.

                  . . . .

                  12.1.13  Each report required under this Article must be
         mailed to: Medicaid HMO Contract Deliverables Manager, HEDS Division,
         Texas Health and Human Services Commission, P.O. Box 13247, Austin,
         Texas 78711-3247 (Exception: The MCFS Report may be submitted to HHSC
         via E-mail to deliver@hhsc.state.tx.us).

                  12.1.14  Bonus and/or Incentive Payment Plan. The HMO must
         furnish a written Bonus and/or Incentive Payments Plan to HHSC to
         determine whether such payments are allowable administrative expenses
         in accordance with Appendix L, "Cost Principles for Administrative
         Expenses, 11. Compensation for Personnel Services, i. Bonuses and
         Incentive Payments." The written plan must include a description of
         the plan's criteria for establishing bonus and/or incentive payments,
         the methodology to calculate bonus and/or incentive payments, and the
         timing as to when these bonus and/or incentive payments are to be
         paid. The plan and description must be submitted to HHSC for approval
         no later than 30 days after the execution of the contract and any
         contract renewal. If the HMO revises the Bonus and/or Incentive
         Payment Plan, the HMO must submit the revised plan to HHSC for
         approval prior to implementing the plan."

SECTION 2.26      MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER
COMPLAINTS

         Section 12.4 is replaced with the following language:


HHSC Contract 529-03-043         Page 11 of 17
<PAGE>
                  "12.4    HMO must submit a Summary Report of Provider
         Complaints. HMO must also reports complaints submitted to its
         subcontracted risk groups (e.g., IPAs). The complaint report format
         must be submitted not later than 45 days following the end of the
         state fiscal quarter in a format specified by HHSC."

SECTION 2.27      MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS

         Section 12.6 is replaced with the following language:

                  "12.6    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 must be
         submitted not later than 45 days following the end of the state fiscal
         quarter in a format specified by HHSC."

SECTION 2.28      MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH
REPORT

         Section 12.13 is deleted in its entirety.

SECTION 2.29      ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT

         Section 12.14 is added as follows:

                  "12.14   MEMBER HOTLINE PERFORMANCE REPORT

                  HMO must submit, on a monthly basis, a Member Hotline
         Performance Report that contains all required elements set out in
         Article 3.7 of this Agreement in a formant approved by HHSC. The
         report is due on the 30th of the month following the end of each
         month."

SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS

         Section 12.15 is added as follows:

                  "12.15   SUBMISSION OF STAR DELIVERABLES/REPORTS

                  12.15.1  Electronic Mail. STAR deliverables and reports
         should be submitted to HHSC via electronic mail unless HHSC expressly
         provides that they must be submitted in a different manner. Reports
         and deliverables that may not be submitted electronically include, but
         are not limited to: Encounter Data, Supplemental Delivery Payment
         data, UDT data, and certain Member Materials.

                  12.15.1.1 The e-mail address for deliverables submission is
         deliver@hhsc.state.tx.us.

                  12.15.1.2 Electronic Mail Restrictions:

                  File Size: E-mail file size is limited to 2.5 MB. Files
         larger than that will need to be compressed (zip file) or split into
         multiple files for submission.


HHSC Contract 529-03-043         Page 12 of 17
<PAGE>
                  Confidentiality: Routine STAR deliverables/reports should not
         contain any member specific data that would be considered
         confidential.

                  12.15.2  FQHC and RHC Deliverables. HMO may submit FQHC and
         RHC deliverables by uploading the required information to the Claims
         Administrator's Bulleting Board System (BBS). The uploaded data must
         contain a unique 8-digit control number. HMO should format the 8-digit
         control number as follows:

                  -        2 digit plan code identification number;

                  -        Julian date; and then

                  -        HMO's 3-digit report number (i.e., HMO's first
                           report will be 001).

                  After uploading the data to the BBS, the HMO must notify HHSC
         via e-mail that it has uploaded the data, and include the name of the
         file and recipient directory. HMO must also mail signed original
         report summaries, including the corresponding 8-digit control number,
         to HHSC within three (3) business days after uploading the data to the
         BBS.

                  12.15.3  Special Submission Needs. In special cases where
         other submission methods are necessary, HMO must contact the assigned
         Health Plan Manager for authorization and instructions.

                  12.15.4  Deliverables due via Mail. HMO should mail reports
         and deliverables that must be submitted by mail to the following
         address:

                  General Mail:
                  Texas Health & Human Services Commission
                  HEDS Contract Deliverables
                  P.O. Box 13247
                  Austin, Texas 78711-3247

                  Overnight Mail:
                  Texas Health & Human Services Commission
                  HEDS Contract Deliverables
                  12555 Riata Vista Circle
                  Austin, TX 78727

                  12.15.5  Texas Department of Insurance (TDI). The submission
         of deliverables/reports to HHSC does not relieve the Plan of any
         reporting requirements/responsibility with TDI. The Plan should
         continue to report to TDI as they have in the past."

SECTION 2.31      MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS

         Section 13.1.7.1 is added:

                  "13.1.7.1 HMO rates for FY 2002 and FY 2003 include pass
         through funds for providers, as appropriated by the 77th Texas
         Legislature. HMO must file reports on pass through methodology
         expenditures as requested by HHSC."


HHSC Contract 529-03-043         Page 13 of 17
<PAGE>
SECTION 2.32      MODIFICATION OF SECTION 13.2, EXPERIENCE REBATE TO THE STATE

         Sections 13.2.1, 13.2.2.1, 13.2.3, and 13.2.5 are replaced with the
following language:

                  "13.2.1  For the Contract Period, HMO must pay to HHSC 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 set forth in Appendix I, as
         reviewed and confirmed by HHSC. HHSC reserves the right to have an
         independent audit performed to verify the information provided by HMO.

                            GRADUATED REBATE METHOD

<TABLE>
<CAPTION>
NET INCOME BEFORE
   TAXES AS A
 PERCENTAGE OF
   REVENUES                              HMO SHARE                    STATE SHARE

<S>                                      <C>                          <C>
0% - 3%                                     100%                          0%
OVER 3% - 7%                                75%                           25%
OVER 7% -10%                                50%                           50%
OVER 10% - 15%                              25%                           75%
OVER 15%                                     0%                          100%
</TABLE>

                  13.2.2.1 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 for all STAR Medicaid
         service areas contracted between the State and HMO.

                  13.2.3   Experience rebate will be based on a pre-tax basis.
         Expenses for value-added services are excluded from the determination
         of Net Income Before Taxes reported in the Final MCFS Report; however,
         HMO may subtract from Net Income Before Taxes, expenses incurred for
         value added services for the experience rebate calculations.

                  13.2.5   There will be two settlements for payment(s) of the
         experience rebate for SFY 2000-2001, two settlements for payment(s)
         for the experience rebate for SFY 2002, and two settlements for
         payment(s) for the experience rebate for SFY 2003. The first settlement
         for the specified contract period shall equal 100 percent of the
         experience rebate as derived from Net Income Before Taxes less the
         value-added services expenses in the first final 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 the MCFS report.
         If HHSC determines that corrections to the MCFS reports are required,
         based on a audit of other documentation acceptable to HHSC, to
         determine an adjustment to the amount of the second settlement, then


HHSC Contract 529-03-043         Page 14 of 17
<PAGE>
         final adjustment shall be made within three 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."

SECTION 2.33      SECTION 13.3, PERFORMANCE OBJECTIVES

         Section 13.3.9 is replaced with the following language:

                  "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:


<TABLE>
<CAPTION>
                                    PERCENT OF
                                    PERFORMANCE
                                     OBJECTIVE
EPSDT SCREENS                     INCENTIVE FUND

<S>                               <C>
1.<12 MONTHS                           12%
2. 12 TO 24 MONTHS                     12%
3. 25 MONTHS - 20 YEARS                20%

<CAPTION>
                                     PERCENT OF
                                     PERFORMANCE
                                      OBJECTIVE
IMMUNIZATIONS                       INCENTIVE FUND

<S>                                 <C>
4. <12 MONTHS                          17%
5. 12 TO 24 MONTHS                     12%

<CAPTION>
                                      PERCENT OF
                                      PERFORMANCE
PREGNANCY                              OBJECTIVE
 VISITS                             INCENTIVE FUND

<S>                                 <C>
6. INITIAL PRENATAL EXAM               15%
7. POSTPARTUM VISIT                    12%
</TABLE>

SECTION 2.34      MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN
PAYMENT PROVISIONS

         Sections 13.5.1.1, 13.5.3 and 13.5.6 are replaced with the following
language:

                  "13.5.1.1 The mother of the newborn Member may request that
         the newborn's health plan coverage be changed to another HMO during
         the first 90 days following the date of birth, but may only do so
         through the Medicaid managed care Enrollment Broker.


HHSC Contract 529-03-043         Page 15 of 17
<PAGE>
                  13.5.3   All non-TP45 newborns whose mothers are HMO Members
         at the time of the birth will be retroactively enrolled into the HMO
         by TDHS Data Control except as outlined in Article 13.5.4.

                  13.5.6   HMO is responsible for payment for all covered
         services provided to TP40 members by in-network or out-of-network
         providers from the date of enrollment in HMO, but prior to HMO
         receiving TP40 Member on monthly capitation file. HMO must waive
         requirement for prior authorization (or grant retroactive prior
         authorization) for medically necessary services provided from the date
         of enrollment in HMO, but prior to HMO receiving TP40 member on
         monthly capitation file."

SECTION 2.35      MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT

         Section 14.3.1.1 is replaced with the following language:

                  "14.3.1.1  A mother of a newborn Member may request a plan
         change for her newborn during the first 90 days by contacting the
         Enrollment Broker. If a change is approved, the Enrollment Broker will
         notify both plans involved in the process. If no alternative to the
         plan change can be reached, the Enrollment Broker will notify the HMO
         of the newborn plan change request received from the mother."

SECTION 2.36      MODIFICATION OF SECTION 15.12, NOTICES

         Section 15.12 is replaced with the following language:

                  "Notice may be given by registered mail, facsimile, and/or
         hand delivery. All notices to HHSC shall be addressed to: Medicaid HMO
         Contract Deliverables Manager, HEDS Division, Texas Health and Human
         Services Commission, P.O. Box 13247, Austin, Texas 78711-3247, with a
         copy to the Contract Administrator. Notices to HMO shall be addressed
         to President/CEO, 2100 S. IH-35, Suite 202, Austin, TX 78704."

SECTION 2.37      MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO

         Section 18.1.6 is replaced with the following language:

                  "18.1.6  HMO may terminate this contract if HHSC fails to pay
         HMO as required under Article 13 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 Contract Period. 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."

SECTION 2.38      MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES
TO BE IMPOSED

         Section 18.10 is replaced with the following language:

                  "18.10.2 HMO and HHSC must attempt to informally resolve a
         dispute. If HMO and HHSC are unable to informally resolve a dispute,


HHSC Contract 529-03-043         Page 16 of 17
<PAGE>
         HMO must notify the HEDS Manager and Director of Medicaid/CHIP
         Operations that HMO and HHSC cannot agree. The Director of
         Medicaid/CHIP Operations will refer the dispute to the State Medicaid
         Director who will appoint a committee to review the dispute under
         HHSC's dispute resolution procedures. The decision of the dispute
         resolution committee will be HHSC's final administrative decision."

SECTION 2.39      MODIFICATION OF SECTION 19.1, CONTRACT TERM

         Section 19.1 is replaced with the following language:

                  "19.1    The effective date of this contract is August 31,
         1999. This contract will terminate on August 31, 2003 unless extended
         or terminated earlier as provided for elsewhere in this contract."

SECTION 2.40      MODIFICATIONS TO CONTRACT APPENDICES.

         The following appendices are replaced with the versions attached to
this Amendment:

                  -        Appendix B, HUB

                  -        Appendix C, Value-added Services (for certain HMOs)

                  -        Appendix F, Texas Trauma Facilities

                  -        Appendix G, Texas Hemophilia Centers

                  -        Appendix I, Financial Statistical Report

                  -        Appendix K, Preventive Health Performance Objectives

            ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

         The Parties contract and agree that the terms of the Agreement will
remain in effect and continue to govern except to the extent modified in this
Amendment.

         By signing this Amendment, the Parties expressly understand and agree
that this Amendment is hereby made a part of the Agreement as though it were
set out word for word in the Agreement.

         IN WITNESS HEREOF, HHSC AND THE HMO HAVE EACH CAUSED THIS AMENDMENT TO
BE SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.


     SUPERIOR HEALTH PLAN, INC.              HEALTH & HUMAN SERVICES COMMISSION


By:                                          By:
   --------------------------------             -------------------------------
   Christopher Bowers                           Don Gilbert
   President & CEO                              Commissioner

Date:                                        Date:
     ------------------------------               -----------------------------


HHSC Contract 529-03-043         Page 17 of 17
<PAGE>
STATE OF TEXAS                                     HHSC CONTRACT NO. 529-03-043
COUNTY OF TRAVIS

                                  AMENDMENT 13
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                              MEDICAI STAR PROGRAM
                                     IN THE
                          TRAVIS SERVICE DELIVERY AREA

         THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"). an administrative agency within
the executive department of the State of Texas, and SUPERIOR HEALTH PLAN, INC.
("CONTRACTOR"), a health maintenance organization organized under the laws of
the State of Texas, possessing a certificate of authority issued by the Texas
Department of Insurance to operate as a health maintenance organization, and
having its principal office at 2100 S. IH-35, Suite 202, Austin, Texas 78704.
HHSC and CONTRACTOR may be referred to in this Amendment individually as a
"Party" and collectively as the "Parties."

         The Parties hereby agree to amend their Agreement as set forth in
Article 2 of this Amendment.

                              ARTICLE 1. PURPOSE.

SECTION 1.01      AUTHORIZATION.

         This Amendment is executed by the Parties in accordance with Article
15.2 of the Agreement.

SECTION 1.02      GENERAL EFFECTIVE DATE OF CHANGES.

         This Amendment is effective November 1,2002.

             ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES

SECTION 2.01      MODIFICATION OF ARTICLE 2 DEFINITIONS

         The following term is added to amend the definitions set forth in
Article 2:

                  "EXPERIENCE REBATE PERIOD means each period within the
         Contract Period related to the calculations and settlements of
         Experience Rebates to HHSC described in Section 13.2. The Contract
         Period consists of the following Experience Rebate Periods:

         -        September 1, 1999 through August 31, 2001 (1st Experience
                  Rebate Period)

         -        September 1, 2001 through August 31, 2002 (2nd Experience
                  Rebate Period)

         -        September 1, 2002 through August 31, 2003 (3rd Experience
                  Rebate Period)"


HHSC Contract 529-03-043          Page 1 of 4
<PAGE>
SECTION 2.02      MODIFICATION TO SECTION 13.2, EXPERIENCE REBATE TO STATE

         Section 13.2 is replaced with the following language:

                  "13.2.1  HMO must pay to HHSC an experience rebate for each
         Experience Rebate Period. HMO will calculate the experience rebate in
         accordance with the tiered rebate formula listed below based on Net
         Income Before Taxes (excess of allowable revenues over allowable
         expenses) as set forth in Appendix I. The HMO's calculations are
         subject to HHSC approval, and HHSC reserves the right to have an
         independent audit performed to verify the information provided by HMO.

                            GRADUATED REBATE FORMULA

<TABLE>
<CAPTION>
   NET INCOME
BEFORE TAXES AS
A PERCENTAGE OF
TOTAL REVENUES               HMO SHARE          HHSC SHARE

<S>                          <C>                <C>
0% - 3%                        100%                  0%
OVER 3% - 7%                    75%                 25%
OVER 7% -10%                    50%                 50%
OVER 10% - 15%                  25%                 75%
OVER 15%                         0%                100%
</TABLE>

                  13.2.2   Carry Forward of Prior Experience Rebate Period
         Losses: Losses incurred for one Experience Rebate Period can only be
         carried forward as an offset to Net Income Before Taxes in the next
         Experience Rebate Period.

                  13.2.2.1 HMO shall calculate the experience rebate by
         applying the experience rebate formula in Article 13.2.1 as follows:

                  For the 1st Experience Rebate Period, to the Net Income
         Before Taxes for each STAR Medicaid service area contracted between
         HHSC and HMO. The HMO will separately calculate the experience rebate
         for each service area, and losses in one service area cannot be used
         to offset Net Income Before Taxes in another service area. Losses from
         the 1st Experience Rebate Period can be carried forward to the 2nd
         Experience Rebate Period for the same service area.

                  For the 2nd Experience Rebate Period, to the sum of the Net
         Income Before Taxes for all STAR Medicaid service areas contracted
         between HHSC and HMO. Losses from the 2nd Experience Rebate Period can
         be carried forward to the 3rd Experience Rebate Period.

                  For the 3rd Experience Rebate Period, to the sum of the Net
         Income Before Taxes for all CHIP, STAR Medicaid, and STAR+PLUS
         Medicaid service areas contracted between HHSC or TDHS and HMO.

                  13.2.3   Experience rebate will be based on a pre-tax basis.
         Expenses for value-added services are excluded from the determination


HHSC Contract 529-03-043          Page 2 of 4
<PAGE>


         of Net Income Before Taxes reported in the Final MCFS Report; however,
         HMO may subtract from Net Income Before Taxes, expenses incurred for
         value added services for the experience rebate calculations.

                  13.2.4   Population-Based Initiatives (PBIs) and Experience
         Rebates: HMO may subtract from an experience rebate owed to HHSC,
         expenses for population-based health initiatives that have been
         approved by HHSC. A 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 the 1st Experience Rebate Period, two
         settlements for payment(s) of the experience rebate for the 2nd
         Experience Rebate Period, and two settlements for payments) of the
         experience rebate for the 3rd Experience Rebate Period. Settlement
         payments are payable to HHSC. The first settlement for the specified
         Experience Rebate Period shall equal 100 percent of the experience
         rebate as derived from Net Income Before Taxes reduced by any
         value-added services expenses in the first Final MCFS Report and shall
         be paid on the same day that 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 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 the MCFS Reports. If
         HHSC determines that corrections to the MCFS Reports are required,
         based on an audit of other documentation acceptable to HHSC, to
         determine an adjustment to the amount of the second settlement, then
         final adjustment shall be made within three (3) 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 (an)
         affiliate(s) 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 goods and
         services in the service area. HHSC has final authority in auditing and
         determining the amount of the experience rebate."

            ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

         The Parties contract and agree that the terms of the Agreement will
remain in effect and continue to govern except to the extent modified in this
Amendment.

         By signing this Amendment, the Parties expressly understand and agree
that this Amendment is hereby made a part of the Agreement as though it were
set out word for word in the Agreement.


HHSC Contract 529-03-043          Page 3 of 4
<PAGE>
         IN WITNESS HEREOF, HHSC AND THE CONTRACTOR HAVE EACH CAUSED THIS
AMENDMENT TO BE SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.


       SUPERIOR HEALTH PLAN, INC.           HEALTH & HUMAN SERVICES COMMISSION


By:                                       By:
   ----------------------------------        ----------------------------------
   Christopher Bowers                        Don A. Gilbert
   President and CEO                         Commissioner

Date:                                     Date:
     --------------------------------          --------------------------------


HHSC Contract 529-03-043          Page 4 of 4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6A
<SEQUENCE>5
<FILENAME>c74739exv10w6a.txt
<DESCRIPTION>AMENDMENT TO 10-13 TO CONTRACT INCLUDED AS EX-10.6
<TEXT>
<PAGE>
                                                                   Exhibit 10.6a

                                AMENDMENT NO. 10
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                THE HEALTH AND HUMAN SERVICES COMMISSION AND HMO


This Amendment No. 10 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO) in Bexar Service Area, to
amend the 1999 Contract for Services between the Health and Human Services
Commission and HMO. The effective date of this Amendment is the date HHSC Signs
this Amendment. All other contract provisions remain in full force and effect.
The Parties agree to amend the Contract as follows:

1.       ARTICLE XVIII IS AMENDED TO READ AS FOLLOWS:

15.2              AMENDMENT AND CHANGE REQUEST PROCESS

15.2.1            HHSC 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, the contract may be terminated under Article
                  XVIII.

15.2.2            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.

15.2.3            This contract may be amended at any time by mutual agreement.

15.2.4            All amendments to this contract must be in writing and signed
                  by both parties.

15.2.5            Any change in either party's obligations under this contract
                  ("Change") requires a written amendment to the contract that
                  is negotiated using the process outlined in Article 15.2.6.

15.2.6            Change Request Process.






October 30, 2001                                                          1 of 3


<PAGE>


15.2.6.1          If federal or state laws, rules, regulations, policies or
                  guidelines are adopted, promulgated, judicially interpreted or
                  changed, or if contracts are entered into or changed, the
                  effect of which is to alter the ability of either party to
                  fulfill its obligations under this contract, the parties will
                  promptly negotiate in good faith, using the process outlined
                  in Article 15.2.6, appropriate modifications or alterations to
                  the contract and any appendix (appendices) or attachments(s)
                  made a part of this contract.

15.2.6.2          Change Order Approval Procedure

15.2.6.2.1        During the term of this contract, HHSC or HMO may propose
                  changes in the services, deliverables, or other aspects of
                  this contract ("Changes"), pursuant to the procedures set
                  forth in this article.

15.2.6.2.2        If HHSC proposes a Change, it shall deliver to the HMO a
                  written notice describing the proposed Change which includes
                  the State's estimated fiscal impact on the HMO, if available
                  ("Change Order Request"). HMO must respond to such proposal
                  within 30 calendar days of receipt by preparing and delivering
                  to HHSC, at no additional cost to HHSC a written document (a
                  "Change Order Response"), that specifies:

15.2.6.2.2.1      The financial impact, if any, of the Change Order Request on
                  the HMO and the manner in which such impact was calculated;

15.2.6.2.2.2      The effect, if any, of the Change Order Request on HMO's
                  performance of its obligations under this contract, including
                  the effect on the services or deliverables;

15.2.6.2.2.3      The anticipated time schedule for implementing the Change
                  Order Request; and

15.2.6.2.2.4      Any other information requested in the Change Order Request or
                  which is reasonably necessary for HHSC to make an informed
                  decision regarding the proposal.

15.2.6.2.3        If HMO proposes a Change, it must deliver a HMO Change Order
                  Request to HHSC that includes the proposed Change and
                  information described in Articles 15.2.6.2.2.1 - 15.2.6.2.2.4
                  for a Change Order Response. HHSC must respond to HMO within
                  30 calendar days of receipt of this information.

15.2.6.2.4        Upon HHSC's receipt of a Change Order Request or a Change
                  Order Response, the Parties shall negotiate a resolution of
                  the requested Change in good faith. The parties will exchange
                  information in good faith in an attempt to agree upon the
                  requested Change.

October 30, 2001                                                          2 of 3







<PAGE>


15.2.6.3          No Change to the services or deliverables or any other aspect
                  of this contract will become effective without the written
                  approval and execution of a mutually agreeable written
                  amendment to this contract by HHSC and the HMO. Under no
                  circumstances will the HMO be entitled to payment for any work
                  or services rendered under a Change Order that has not been
                  approved by HHSC in accordance with the Change Order
                  Procedures.

15.2.7            The implementation of an amendment to this contract is subject
                  to the approval of the Centers for Medicare and Medicaid
                  Services (CMS, formerly called HCFA).

2.       APPENDIX C: Appendix C is deleted in its entirety and is replaced by a
         new Appendix C which is Attachment No. 1 to this amendment. This
         amendment provides for the removal of "Special Programs for Illness"
         and the modification of the "Prenatal Program with Gifts" services.


AGREED AND SIGNED by an authorized representative of the parties on 2001.

Health and Human Services Commission     Superior Health Plan, Inc.



By:                                      By:
   ------------------------------            ----------------------------------
   Don. A Gilbert                            Michael Neidorff
                                             President & CEO, Centene

Approved as to Form:


----------------------------------
Office of General Counsel

October 30, 2001                                                          3 of 3




<PAGE>


                                AMENDMENT NO. 11
                                     TO THE
                           1999 CONTRACT FOR SERVICES
                                     BETWEEN
                  HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 11 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the 1999
Contract for Services between the Health and Human Services Commission and HMO
in the Bexar Service Area. The effective date of this amendment is January 1,
2002. The Parties agree to amend the Contract as follows:

1. Article XIII is amended to read as follows:

ARTICLE XIII       PAYMENT PROVISIONS

13.1              CAPITATION AMOUNTS

13.1.2            HMO capitation rates listed below reflect program increases
                  appropriated by the 76th and 77th legislatures for physician
                  services (to include THSteps providers) and outpatient
                  facility services. Rates will be increased starting January 1,
                  2002, to reflect increases in traditional fee-for-service
                  payments for 1) Evaluation and Management Level 3 services
                  (procedure code 99213), and 2) high-volume providers. The
                  methodology for determining high-volume providers will be
                  distributed to HMO by HHSC ("High-volume Provider
                  Methodology"). The first rate increase will be effective
                  January 1, 2002, and will reflect increases for procedure code
                  99213. Rate increases for high volume providers will be
                  effective the first day of the month after the "High-volume
                  Provider Methodology" is released by HHSC. The Methodology
                  will state the amount of each increase (99213 and high-volume
                  provider). Final rates with all increases included are shown
                  in the table below.

13.1.2.           HMO must submit reports to HHSC indicating the methodology
                  used and must certify that the funds provided to the HMO for
                  the pass through have been passed through to providers. HMO
                  must use the reporting format specified by HHSC and follow the
                  reporting schedule indicated on the HHSC deliverables matrix.

                                                    PPAC Rate Increase Amendment
                                                                        12/12/01



<PAGE>


13.1.2.2          Capitation Rates



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
 Risk Group                             Monthly Capitation Amounts

--------------------------------------------------------------------------------
<S>                                     <C>
 TANF Adults                             $ 181.40
--------------------------------------------------------------------------------
 TANF Children > 12 Months of Age        $  65.77
--------------------------------------------------------------------------------
 Expansion Children > 12 Months          $  61.38
 of Age
--------------------------------------------------------------------------------
 Newborns ( < 12 Months of Age)          $ 379.74
--------------------------------------------------------------------------------
 TANF Children  < 12 Months of Age       $ 379.74
--------------------------------------------------------------------------------
 Expansion Children < 12 Months          $ 379.74
 of Age
--------------------------------------------------------------------------------
 Federal Mandate Children                $  54.74
--------------------------------------------------------------------------------
 CHIP Phase I                            $  72.38
--------------------------------------------------------------------------------
 Pregnant Women                          $ 257.80
--------------------------------------------------------------------------------
 Disabled/Blind                          $  14.00
 Administration
--------------------------------------------------------------------------------
</TABLE>

13.1.2.3          Delivery Supplemental Payment. A one-time per pregnancy
                  supplemental payment for each delivery shall be paid to HMO in
                  the following amount: $2.834.10. 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.

13.1.2.4          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.

13.1.2.5          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

                                                    PPAC Rate Increase Amendment
                                                                        12/12/01



<PAGE>


                  only deliveries for which HMO has made a payment for the
                  delivery, to either a hospital or other provider. No DSP will
                  be made for deliveries which are not reported by HMO to TDH
                  within 210 days after the date of delivery, or within 30 days
                  from the date of discharge from the hospital for the stay
                  related to the delivery, whichever is later.

13.1.2.6          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.

13.1.2.7          The DSP will be made by TDH to HMO within twenty (20) state
                  working days after receiving an accurate report from HMO.

13.1.2.8          All infants of age equal to or less than twelve months
                  (Newborns) in the TANF Children, Expansion Children, and
                  Newborns risk groups will be capitated at the Newborns
                  classification capitation amount in Article 13.1.2.

AGREED AND SIGNED by an authorized representative of the parties on 2001.

Health and Human Services Commission         Health Plan Name


By:                                          By:
    -------------------------------              ------------------------------
    Don A. Gilbert                               Michael Neidorff
                                                 President & CEO, Centene


Approved as to Form:


-----------------------------
Office of General Counsel

                                                    PPAC Rate Increase Amendment
                                                                        12/12/01



<PAGE>


                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                             MEDICAID STAR PROGRAM
                                     IN THE
                           BEXAR SERVICE DELIVERY AREA


<PAGE>


                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                     MEDICAID STAR PROGRAM IN THE BEXAR SDA

<TABLE>
<S>                                                                                                           <C>
ARTICLE 1. PURPOSE............................................................................................1
    SECTION 1.01 AUTHORIZATION................................................................................1
    SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES............................................................1
ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES........................................................1
    SECTION 2.01 GENERAL......................................................................................1
    SECTION 2.02 MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS.................................................1
    SECTION 2.03 MODIFICATION OF ARTICLE 2, DEFINITIONS.......................................................2
    SECTION 2.04 MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS...............3
    SECTION 2.05 MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS RETENTION.......................3
    SECTION 2.06 MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS REQUIREMENTS...............................3
    SECTION 2.07 MODIFICATION OF SECTION 4.3, PERFORMANCE BOND................................................4
    SECTION 2.08 MODIFICATION OF SECTION 4.6, AUDIT...........................................................4
    SECTION 2.09 MODIFICATION OF SECTION 4.9, THIRD PARTY RECOVERY............................................4
    SECTION 2.10 MODIFICATION OF SECTION 4.10, CLAIMS PROCESSING REQUIREMENTS.................................4
    SECTION 2.11 MODIFICATION TO SECTION 5.4, SAFEGUARDING INFORMATION........................................5
    SECTION 2.12 MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)....................5
    SECTION 2.13 MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL..............................................6
    SECTION 2.14 MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY.............................................6
    SECTION 2.15 MODIFICATION OF SECTION 6.4, CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS.................7
    SECTION 2.16 MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES..............................................8
    SECTION 2.17 MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS.........8
    SECTION 2.18 MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS.....................................9
    SECTION 2.19 MODIFICATION OF SECTION 8.4, MEMBER ID CARDS.................................................9
    SECTION 2.20 MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS.........................................9
    SECTION 2.21 MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM.............................................9
    SECTION 2.22 MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM.......................................9
    SECTION 2.23 MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE...................................10
    SECTION 2.24 ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
      (HIP AA) COMPLIANCE....................................................................................10
    SECTION 2.25 MODIFICATION OF SECTION 12.1., FINANCIAL REPORTS............................................10
    SECTION 2.26 MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER COMPLAINTS.........................11
    SECTION 2.27 MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS.............................................12
    SECTION 2.28 MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH REPORT...........................12
    SECTION 2.29 ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT................................12
    SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS..........................12
    SECTION 2.31 MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS...........................................13
    SECTION 2.32 MODIFICATION OF SECTION 13.2, EXPERIENCE REBATE TO THE STATE................................14
    SECTION 2.33 SECTION 13.3, PERFORMANCE OBJECTIVES........................................................15
    SECTION 2.34 MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS.................15
    SECTION 2.35 MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT............................................16
    SECTION 2.36 MODIFICATION OF SECTION 15.12, NOTICES......................................................16
    SECTION 2.37 MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO..........................................16
    SECTION 2.38 MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED...................16
    SECTION 2.39 MODIFICATION OF SECTION 19.1, CONTRACT TERM.................................................17
    SECTION 2.40 MODIFICATIONS TO CONTRACT APPENDICES........................................................17
 ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES.....................................................17
</TABLE>

                                       i

<PAGE>


                                                    HHSC CONTRACT NO. 529-03-042
STATE OF TEXAS
COUNTY OF TRAVIS

                                  AMENDMENT 12
                          TO THE AGREEMENT BETWEEN THE
                       HEALTH & HUMAN SERVICES COMMISSION
                                       AND
                 SUPERIOR HEALTH PLAN, INC. FOR HEALTH SERVICES
                                     TO THE
                          MEDICAID STAR PROGRAM IN THE
                           BEXAR SERVICE DELIVERY AREA

         THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"), an administrative agency within the
executive department of the State of Texas, and Superior Health Plan, Inc.
("HMO"), a health maintenance organization organized under the laws of the State
of Texas, possessing a certificate of authority issued by the Texas Department
of Insurance to operate as a health maintenance organization, and having its
principal office at: 2100 S. IH-35, Suite 202, Austin, TX 78704. HHSC and HMO
may be referred to in this Amendment individually as a "Party" and collectively
as the "Parties."

         The Parties hereby agree to amend their Agreement as set forth in
Article 2 of this Amendment.

                               ARTICLE 1. PURPOSE.

SECTION 1.01 AUTHORIZATION.

         This Amendment is executed by the Parties in accordance with Section
15.2 of the Agreement.

SECTION 1.02 GENERAL EFFECTIVE DATE OF CHANGES.

         This Amendment is effective SEPTEMBER 1, 2002, and terminates on August
31, 2003, unless extended or terminated sooner in accordance with the Agreement.

             ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES


SECTION 2.01 GENERAL

         The Health Care Financing Administration (HCFA) has had a name change
to the Centers for Medicare and Medicaid Services (CMS). All references to HCFA
in the Agreement should be replaced with CMS.

SECTION 2.02 MODIFICATION OF SECTION 1.4, RENEWAL REVIEWS

     Section 1.4 is replaced with the following language:

                       "Renewal Review. At its sole discretion, HHSC may choose
                  to conduct a renewal review of HMO's performance and
                  compliance with this contract as a condition for retention and
                  renewal."

HHSC Contract 529-03-042         Page 1 of 17






<PAGE>


 SECTION 2.03 MODIFICATION OF ARTICLE 2, DEFINITIONS

     (a)The following terms amend and modify the definitions set forth in
Article 2:

                       "CMS means the Centers for Medicare and Medicaid
                  Services, formerly known as the Health Care Financing
                  Administration (HCFA), which is the federal agency responsible
                  for administering Medicare and overseeing state administration
                  of Medicaid.

                      EMERGENCY MEDICAL CONDITION means a medical condition
                  manifesting itself by acute symptoms of recent onset and
                  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.

                           FAIR HEARING means the process adopted and
                  implemented by the Texas Health and Human Services Commission,
                  25 TAC Chapter 1, in compliance with federal regulations and
                  state rules relating to Medicaid Fair Hearings.

                           HEDS means the HMO/EPO/Dental Services Division of
                  the Texas Health and Human Services Commission.

                           HHSC means the Texas Health and Human Services
                  Commission or its designees.

                           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 1 TAC, Subchapter 354.2301 et seq., relating to
                  Third Party Resources).

                           TP 40 means Type Program 40, which is a TDHS Medicaid
                  program eligibility type assigned to pregnant women under 185%
                  of the federal poverty level (FPL).

                           TP 45 means Type Program 45, which is a TDHS Medicaid
                  program eligibility code assigned to newborns (under 12
                  months) who are born to mothers who are Medicaid eligible at
                  the time of the child's birth.

                           TEXMEDNET means Texas Medical Network, which is the
                  State's information system that processes claims and
                  encounters. TexMedNet's functions include, but are not limited
                  to eligibility verification, claims and encounters
                  submissions, e-mail communications, and electronic funds
                  transfers."

(b) The term "HHSCS" is deleted and replaced with "TDHS" as defined in Article 2
of the Contract.

(c) The term "THHSC" is deleted and replaced with "HHSC" as defined above.



HHSC Contract 529-03-042         Page 2 of 17





<PAGE>


SECTION 2.04 MODIFICATION OF SECTION 3.4, PLAN MATERIALS AND DISTRIBUTION OF
PLAN MATERIALS

     Section 3.4.3 is replaced with the following language:

                  "3.4.3   All plan materials regarding the STAR Program,
                  including Member education materials, must be submitted to
                  HHSC for approval prior to distribution. HHSC has fifteen (15)
                  working days to review the materials and recommend any
                  suggestions or required changes. If HHSC has not responded to
                  HMO by the fifteenth (15th) day, HMO may print and distribute
                  these materials. HHSC 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 fifteen (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 generally be reviewed by HHSC within five (5)
                  working days. HHSC 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, as determined by HHSC.

SECTION 2.05 MODIFICATION OF SECTION 3.5, RECORDS REQUIREMENT AND RECORDS
RETENTION Section 3.5.1 is replaced with the following language:

                           "3.5.1 HMO must keep all records required to be
                  created and retained under this Agreement in accordance with
                  the standards set forth herein. Records related to Members
                  served in the HMO's service area(s) must be made available in
                  HMO's local office when requested by HHSC.

                       Original records, except paper claims, must be kept in
                  the form they were created in the regular course of business
                  for a minimum of three (3) years following the expiration of
                  the contract period, including any extensions. Paper claims
                  may be digitally copied from the time of initial receipt, if
                  the HMO: 1) receives HHSC prior written approval; 2) certifies
                  that an unaltered copy of the original claim received can be
                  produced upon request; 3) the retention system is reliable and
                  supported by a retrieval system that allows reasonable
                  accurate records. HHSC may require the HMO to retain the
                  records for an additional period if an audit, litigation or
                  administrative action involving the records exists."

SECTION 2.06 MODIFICATION OF SECTION 3.7, HMO TELEPHONE ACCESS REQUIREMENTS

     Section 3.7.1 is replaced with the following language:

                           3.7.1 For all HMO telephone access (including
                  Behavioral Health telephone services), HMO must ensure
                  adequately-staffed telephone lines. Telephone personnel must
                  receive customer service telephone training. HMO must ensure
                  that telephone staffing is adequate to fulfill the standards
                  of promptness and quality listed below:

                           1. 80% of all telephone calls must be answered within
                  an average of 30 seconds;

                           2. The lost (abandonment) rate must not exceed 10%;



HHSC Contract 529-03-042         Page 3 of 17





<PAGE>


                           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 8.8) 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.

SECTION 2.07 MODIFICATION OF SECTION 4.3. PERFORMANCE BOND

     Section 4.3 is replaced with the following language:

                           "4.3 HMO has furnished HHSC with a performance bond
                  in the form prescribed by HHSC and approved by TDI, naming
                  HHSC as Obligee, securing HMO's faithful performance of the
                  terms and conditions of this Agreement. The performance bond
                  must be issued in the amount of $100,000 for the Contract
                  Period, plus an additional 12 months after the expiration of
                  the Contract Period. If the Contract Period is renewed or
                  extended pursuant to Article 15, the HMO must replace the
                  performance bond with a separate bond covering performance
                  during the renewal or extension period, plus an additional 12
                  months. The bond must be issued by a surety licensed by TDI,
                  and specify cash payment as the sole remedy. HMO must deliver
                  the bond to HHSC at the same time the signed HMO contract,
                  renewal or extension is delivered to HHSC."


SECTION 2.08 MODIFICATION OF SECTION 4.6. AUDIT

     Section 4.6.2 is replaced with the following language:

                           "4.6.2 HHSC or its designee will conduct an audit of
                  HMO at least once every two 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
                  Agreement."


SECTION 2.09 MODIFICATION OF SECTION 4.9. THIRD PARTY RECOVERY

     Section 4.9.2 is replaced with the following language:

                           "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
                  HHSC to obtain information from other state and federal
                  agencies and HMO must cooperate with HHSC in obtaining
                  information from commercial third party resources. HMO must
                  require all providers to comply with the provisions of 1
                  TAC ss.354.2301, et seq., relating to Third Party Recovery in
                  the Medicaid program."


SECTION 2.10 MODIFICATION OF SECTION 4.10. CLAIMS PROCESSING REQUIREMENTS

     Section 4.10.8 is replaced with the following language:

HHSC Contract 529-03-042           Page 4 of 17




<PAGE>


                       "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 (HIPAA),
                  Public Law 104-191, regarding 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 (see 45 CFR parts
                  160 through 164).

SECTION 2.11 MODIFICATION TO SECTION 5A, SAFEGUARDING INFORMATION

     Section 5.4.1 is replaced with the following language:

                           "5.4.1 The use and disclosure of all Member
                  information, records, and data (Member Information) collected
                  or provided to HMO by HHSC or another state agency is
                  protected by state and federal law and regulations, including,
                  but not limited to, the Health Insurance Portability and
                  Accountability Act of 1996 (HIPAA), Public law 104-191, and 45
                  CFR parts 160 through 164. HMO agrees to ensure that any of
                  its agents, including subcontractors, to whom HMO discloses
                  Member Information agrees to the same restrictions and
                  conditions that apply to HMO with respect to Member
                  Information.

SECTION 2.12 MODIFICATION OF SECTION 5.6, HISTORICALLY UNDERUTILIZED BUSINESSES
(HUBS)

     Sections 5.6.1 through 5.6.3 are replaced with the following language:

                           "5.6.1 In accordance with Texas Government Code
                  Chapter 2161 and 1 TAC ss.111.11 et seq. and ss.392.100 state
                  agencies are required to make a good faith effort to assist
                  Historically Underutilized Businesses (HUBs) in receiving
                  contract awards issued by the State. The goal of this program
                  is to promote full and equal business opportunity for all
                  businesses in contracting with the state. It is HHSC's intent
                  that all contractors make a good faith effort to subcontract
                  with HUBs during the performance of their contracts.

                           IMPORTANT NOTE: The Health and Human Services
                  Commission has concluded that HUB subcontracting opportunities
                  may exist in connection with this contract. See Appendix B to
                  the Agreement for the following instructions and form:
                  "Grant/Contract Applicants Client Services HUB Subcontracting
                  Plan Instructions" (C-IGA), and Determination of Good Faith
                  Effort for Grant Contracts (C-DGFE). If an approved HUB
                  subcontracting plan is not already on file with HHSC, THE HMO
                  SHALL SUBMIT A COMPLETED C-DGFE FORM ALONG WITH THE SIGNED
                  CONTRACT OR RENEWAL.

                           If HMO responds, 'yes' to question two on Form
                  C-DGFE, HMO shall document good faith efforts to develop a HUB
                  Subcontracting Plan by completing and documenting the steps on
                  form C-DGFE. Additionally, quarterly reports on HUB
                  subcontracting are required according to the schedule on Form
                  C-QSR. Quarterly Report forms are included in Appendix B of
                  this amendment.

HHSC Contract 529-03-042           Page 5 of 17


<PAGE>


                           If HMO decides after the award to subcontract any
                  part of the contract, the HMO shall notify the contract
                  manager prior to entering into any subcontract. The HMO shall
                  comply with the good faith effort requirements relating to
                  developing and submitting a subcontracting plan.

                           5.6.2 HMO is required to submit HUB quarterly reports
                  to HHSC as required in Article 12.11.

                           5.6.3 HHSC will assist HMO in meeting the contracting
                  and reporting requirements of this Article."

SECTION 2.13 MODIFICATION OF SECTION 5.10, NOTICE AND APPEAL

         Section 5.10 is replaced with the following:

                           "5.10 HMO must comply with the notice requirements
                  contained in 1 TAC ss.354.2211, and the maintaining benefits
                  and services contained in 1 TAC ss.354.2213, 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 8.6 of this Agreement."

SECTION 2.14 MODIFICATION OF SECTION 6.3, SPAN OF ELIGIBILITY

         Section 6.3 and its subparts are replaced with the following language"

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

                           6.3.1 The payor responsible for the hospital/facility
                  charges at the start of an inpatient stay remains responsible
                  for hospital/facility charges until the time of discharge, or
                  until such time that there is a loss of Medicaid eligibility.

                           6.3.2 HMO is responsible for professional charges
                  during every month for which the payor receives a full
                  capitation payment.

                           6.3.3 HMO is not responsible for any services after
                  effective date of loss of Medicaid eligibility

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

                           6.3.5 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.

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

HHSC Contract 529-03-042           Page 6 of 17






<PAGE>


                           6.3.7 For purposes of this Section 6.3, a Member
                  "loses Medicaid eligibility" when:

                           6.3.7.1 Medicaid eligibility is terminated and never
                  regained under one Medicaid Type Program with no subsequent
                  transfer of eligibility to another Medicaid Type Program; or

                           6.3.7.2 Medicaid eligibility is terminated and there
                  is a lapse of at least one month in regular Medicaid coverage.
                  The term "regular Medicaid coverage" refers to either
                  traditional fee-for-service Medicaid or Medicaid managed care
                  coverage; or

                           6.3.7.3 A client re-applies for Medicaid eligibility
                  and is certified for prior Medicaid coverage, as defined by
                  TDHS, for any month(s) prior to the month of application. The
                  term "prior Medicaid coverage" refers to Applicants who are
                  eligible for Medicaid coverage during the three-month period
                  before the month they apply for TANF or Medical Programs.
                  Prior Medicaid coverage may be continuous or there may be
                  interrupted periods of eligibility involving all or some of
                  the certified Members.

                           Administrative process limitations within the State's
                  application and recertification process do not constitute a
                  "loss of Medicaid eligibility".

SECTION 2.15 MODIFICATION OF SECTION 6.4. CONTINUITY OF CARE AND OUT-OF-NETWORK
PROVIDERS

         Section 6.4.3 is replaced with the following language:

                           "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. This Article
                  does not extend the obligation of HMO to reimburse the
                  Member's existing out-of-network providers for on-going care
                  for more than 90 days after Member enrolls in HMO or for more
                  than nine months in the case of a Member who at the time of
                  enrollment in HMO has been diagnosed with and receiving
                  treatment for a terminal illness. The obligation of HMO to
                  reimburse the Member's existing out-of-network provider for
                  services provided to a pregnant Member with 12 weeks or less
                  remaining before the expected delivery date extends through
                  delivery of the child, immediate postpartum care, and the
                  follow-up checkup within the first six weeks of delivery.

                           6.4.3.1 HMO will pay reasonable and customary rates
                  for all out-of-network provider claims with dates of service
                  between September 1, 2002 and November 30, 2002. HMO must
                  forward any complaints submitted by out-of-network providers
                  during this time to HHSC. HHSC will review all complaints and
                  determine whether payments were reasonable and customary. HHSC
                  will direct the HMO to pay a reasonable and customary amount,
                  as determined by HHSC, if it concludes that the payments were
                  not reasonable and customary for the provider. Failure to
                  comply with this provision constitutes a default under Article
                  XVI, Default and Remedies.

                           6.4.3.2 For all out-of-network provider claims with
                  dates of service on or after December 1, 2002, HMO must pay
                  providers a reasonable and

HHSC Contract 529-03-042           Page 7 of 17

<PAGE>


                  customary amount consistent with a methodology approved by
                  HHSC. HMO must submit its methodology, along with any
                  supporting documentation, to HHSC by September 30, 2002. HHSC
                  will review and respond to the information by November 15,
                  2002. HMO must forward any complaints by out-of-network
                  providers submitted after December 1, 2002 to HHSC, which will
                  review all complaints. If HHSC determines that payment is not
                  consistent with the HMO's approved methodology, the HMO must
                  pay the provider a rate, using the approved reasonable and
                  customary methodology, as determined by HHSC. Failure to
                  comply with this provision constitutes a default under Article
                  XVI, Default and Remedies.

SECTION 2.16 MODIFICATION OF SECTION 6.5, EMERGENCY SERVICES

     Section 6.5.1 is replaced with the following language:

                           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.

                           6.5.1.1 For all out-of-network providers, HMO will
                  pay a reasonable and customary amount for emergency services.

                           HMO will pay a reasonable and customary amount for
                  services for all out-of-network emergency services provider
                  claims with dates of service between September 1, 2002 and
                  November 30, 2002. HMO must forward any complaints submitted
                  by out-of-network emergency services providers during this
                  time to HHSC. HHSC will review all complaints and determine
                  whether payments were reasonable and customary. HHSC will
                  direct the HMO to pay a reasonable and customary amount, as
                  determined by HHSC, if it concludes that the payments were not
                  reasonable and customary for the provider.

                           6.5.1.2 For all out-of-network emergency services
                  provider claims with dates of service on or after December 1,
                  2002, HMO must pay providers a reasonable and customary amount
                  consistent with a methodology approved by HHSC. HMO must
                  submit its methodology, along with any supporting
                  documentation, to HHSC by September 30, 2002. HHSC will review
                  and respond to the information by November 15, 2002. HMO must
                  forward any complaints by out-of-network emergency services
                  providers submitted after December 1, 2002 to HHSC, which will
                  review all complaints. If HHSC determines that payment is not
                  consistent with the HMO's approved methodology, the HMO must
                  pay the emergency services provider a rate, using the approved
                  reasonable and customary methodology, as determined by HHSC.
                  Failure to comply with this provision constitutes a default
                  under Article XVI, Default and Remedies.

SECTION 2.17 MODIFICATION OF SECTION 6.6, BEHAVIORAL HEALTH CARE SERVICES --
SPECIFIC REQUIREMENTS

     Section 6.6.5 is replaced with the following language:

HHSC Contract 529-03-042         Page 8 of 17


<PAGE>


                           "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. HHSC may
                  require use of other assessment instrument/outcome measures in
                  addition to the DSM-IV. Providers must document DSM-IV and
                  assessment/outcome information in the Member's medical
                  record."

SECTION 2.18 MODIFICATION TO SECTION 6.16, BLIND AND DISABLED MEMBERS

     Section 6.16.1 is replaced with the following language:

                           "6.16.1 Blind and disabled Members' SSI status is
                  effective the date of State's eligibility system, SAVERR,
                  identifies the Member as Type Program 13 (TP13). On this
                  effective date, the Member becomes a voluntary STAR enrollee.

                           The State is responsible for updating the State's
                  eligibility system within 45 days of official notice of the
                  Members' federal SSI eligibility by the Social Security
                  Administration (SSA).

SECTION 2.19 MODIFICATION OF SECTION 8.4, MEMBER ID CARDS

     Section 8.4.1 is replaced with the following language:

                           "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."


SECTION 2.20 MODIFICATION OF SECTION 10.1, MODEL MIS REQUIREMENTS

     Section 10.1.3.6 is replaced with the following language:

                           "10.1.3.6 HMO is required to provide representation
                  to attend and participate in the HHSC Systems Workgroup as a
                  part of the Systems Scan Call."

SECTION 2.21 MODIFICATION OF SECTION 10.4, PROVIDER SUBSYSTEM

     Subparts 7 and 8 of Section 10.4 are replaced with the following language:

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

                           8. Provide Provider Network and Affiliation files 90
                  days prior to implementation and updates monthly. Format will
                  be provided by HHSC to contracted entities."

SECTION 2.22 MODIFICATION OF SECTION 10.9, DATA INTERFACE SUBSYSTEM

     Section 10.9.3 is replaced with the following language:

HHSC Contract 529-03-042            Page 9 of 17




<PAGE>


                           "10.9.3 Provider Network and Affiliation Files. The
                  HMO will supply network provider data to the Enrollment Broker
                  and Claims Administrator. This data will consist of a Provider
                  Network File and a Provider Affiliation File. The HMO will
                  submit the Provider Network File to the Enrollment Broker and
                  the Provider Affiliation File to the Claims Administrator.
                  Both files shall accomplish the following objectives:

                  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.

                  6.       Provide other (Master Provider File) information
                           identified by HHSC."


SECTION 2.23 MODIFICATION OF SECTION 10.11, YEAR 2000 (Y2K) COMPLIANCE

     Section 10.11 is deleted in its entirety.

SECTION 2.24 ADDITION OF SECTION 10.12, HEALTH INSURANCE PORTABILITY AND
ACCOUNTABILITY ACT (HIPAA) COMPLIANCE.

     Section 10.12 is added as follows:

                           "10.12 Health Insurance Portability and
                  Accountability Act (HIPAA) Compliance. HMO's system must
                  comply with applicable certificate of coverage and data
                  specification and reporting requirements promulgated pursuant
                  to the Health Insurance Portability and Accountability Act
                  (HIPPA) of 1996, P.L. 104-191 (August 21, 1996), as amended or
                  modified.

SECTION 2.25 MODIFICATION OF SECTION 12.1, FINANCIAL REPORTS

     Sections 12.1.4, 12.1.11, and 12.13 are replaced with the following
language, and Section 12.14 is added. Sections 12.1.2, 12.1.3, 12.1.7 and
12.1.10 are deleted in their entirety.

                  12.1.2   [Deleted]

                  12.1.3   [Deleted]

                  12.1.4   Final MCFS Reports. HMO must file two final MCFS
             Reports for each of the following:

         -        The initial two-year contract period (SFY 2000-2001),

         -        The first one-year contract extension period (SFY 2002), and


HHSC Contract 529-03-042         Page 10 of 17




<PAGE>


                           -        This second one-year contract extension
                  period (SPY 2003).

                           The first final report must reflect expenses incurred
                  during each contract period and paid through the 90th day
                  after the end of the contract period. The first final report
                  must be filed on or before the 120th day after the end of each
                  contract period. The second final report must reflect expenses
                  incurred during each contract period and paid through the
                  334th day after the end of the contract period. The second
                  final report must be filed on or before the 365th day after
                  the end of each contract period.

                           12.1.7       [Deleted]

                           12.1.10      [Deleted]

                           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 HHSC no
                  later than 60 days after the effective date of this contract.
                  Changes to the IBNR plan and description must be submitted to
                  HHSC no later than 30 days before changes to the plan are
                  implemented by HMO.

                           12.1.13  Each report required under this Article must
                  be mailed to: Medicaid HMO Contract Deliverables Manager, HEDS
                  Division, Texas Health and Human Services Commission, P.O. Box
                  13247, Austin, Texas 78711-3247 (Exception: The MCFS Report
                  may be submitted to HHSC via E-mail to deliver(a)hhsc.state.
                  tx.us).

                           12.1.14  Bonus and/or Incentive Payment Plan. The HMO
                  must furnish a written Bonus and/or Incentive Payments Plan to
                  HHSC to determine whether such payments are allowable
                  administrative expenses in accordance with Appendix L, "Cost
                  Principles for Administrative Expenses, 11. Compensation for
                  Personnel Services, i. Bonuses and Incentive Payments." The
                  written plan must include a description of the plan's criteria
                  for establishing bonus and/or incentive payments, the
                  methodology to calculate bonus and/or incentive payments, and
                  the timing as to when these bonus and/or incentive payments
                  are to be paid. The plan and description must be submitted to
                  HHSC for approval no later than 30 days after the execution of
                  the contract and any contract renewal. If the HMO revises the
                  Bonus and/or Incentive Payment Plan, the HMO must submit the
                  revised plan to HHSC for approval prior to implementing the
                  plan."

SECTION 2.26      MODIFICATION OF SECTION 12.4, SUMMARY REPORT OF PROVIDER
                  COMPLAINTS

     Section 12.4 is replaced with the following language:

HHSC Contract 529-03-042      Page 11 of 17


<PAGE>


                           "12.4    HMO must submit a Summary Report of Provider
                  Complaints. HMO must also reports complaints submitted to its
                  subcontracted risk groups (e.g., IPAs). The complaint report
                  format must be submitted not later than 45 days following the
                  end of the state fiscal quarter in a format specified by
                  HHSC."

SECTION 2.27 MODIFICATION OF SECTION 12.6, MEMBER COMPLAINTS

     Section 12.6 is replaced with the following language:

                           "12.6    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 must be submitted not later than 45 days
                  following the end of the state fiscal quarter in a format
                  specified by HHSC."

SECTION 2.28 MODIFICATION OF SECTION 12.13, EXPEDITED PRENATAL OUTREACH REPORT

     Section 12.13 is deleted in its entirety.

SECTION 2.29 ADDITION OF SECTION 12.14, MEMBER HOTLINE PERFORMANCE REPORT

     Section 12.14 is added as follows:

                       "12.14       MEMBER HOTLINE PERFORMANCE REPORT

                      HMO must submit, on a monthly basis, a Member Hotline
                  Performance Report that contains all required elements set out
                  in Article 3.7 of this Agreement in a formant approved by
                  HHSC. The report is due on the 30th of the month following the
                  end of each month."

SECTION 2.30 ADDITION OF SECTION 12.15, SUBMISSION OF STAR DELIVERABLES/REPORTS

         Section 12.15 is added as follows:

                           "12.15 SUBMISSION OF STAR DELIVERABLES/REPORTS

                           12.15.1  Electronic Mail. STAR deliverables and
                  reports should be submitted to HHSC via electronic mail unless
                  HHSC expressly provides that they must be submitted in a
                  different manner. Reports and deliverables that may not be
                  submitted electronically include, but are not limited to:
                  Encounter Data, Supplemental Delivery Payment data, UDT data,
                  and certain Member Materials.

                           12.15.1.1 The e-mail address for deliverables
                  submission is deliver@hhsc.state.tx.us.

                           12.15.1.2 Electronic Mail Restrictions:

                           File Size: E-mail file size is limited to 2.5 MB.
                  Files larger than that will need to be compressed (zip file)
                  or split into multiple files for submission.

HHSC Contract 529-03-042          Page 12 of 17


<PAGE>


                           Confidentiality: Routine STAR deliverables/reports
                  should not contain any member specific data that would be
                  considered confidential.

                           12.15.2 FQHC and RHC Deliverables. HMO may submit
                  FQHC and RHC deliverables by uploading the required
                  information to the Claims Administrator's Bulleting Board
                  System (BBS). The uploaded data must contain a unique 8-digit
                  control number. HMO should format the 8-digit control number
                  as follows:

                           -        2 digit plan code identification number;

                           -        Julian date; and then

                           -        HMO's 3-digit report number (i.e., HMO's
                                    first report will be 001).

                           After uploading the data to the BBS, the HMO must
                  notify HHSC via e-mail that it has uploaded the data, and
                  include the name of the file and recipient directory. HMO must
                  also mail signed original report summaries, including the
                  corresponding 8-digit control number, to HHSC within three (3)
                  business days after uploading the data to the BBS.

                           12.15.3 Special Submission Needs. In special cases
                  where other submission methods are necessary, HMO must contact
                  the assigned Health Plan Manager for authorization and
                  instructions.

                           12.15.4 Deliverables due via Mail. HMO should mail
                  reports and deliverables that must be submitted by mail to the
                  following address:

                           General Mail:
                           Texas Health & Human Services Commission
                           HEDS Contract Deliverables
                           P.O. Box 13247
                           Austin, Texas 78711-3247

                           Overnight Mail:
                           Texas Health & Human Services Commission
                           HEDS Contract Deliverables
                           12555 Riata Vista Circle
                           Austin, TX 78727

                           12.15.5 Texas Department of Insurance (TDI). The
                  submission of deliverables/reports to HHSC does not relieve
                  the Plan of any reporting requirements/responsibility with
                  TDI. The Plan should continue to report to TDI as they have in
                  the past."

SECTION 2.31 MODIFICATIONS TO SECTION 13.1, CAPITATION AMOUNTS

     Section 13.1.7.1 is added:

                           "13.1.7.1 HMO rates for FY 2002 and FY 2003 include
                  pass through funds for providers, as appropriated by the 77th
                  Texas Legislature. HMO must file reports on pass through
                  methodology expenditures as requested by HHSC."

HHSC Contract 529-03-042           Page 13 of 17

<PAGE>


SECTION 2.32 MODIFICATION OF SECTION 13.2, EXPERIENCE REBATE TO THE STATE

     Sections 13.2.1, 13.2.2.1, 13.2.3, and 13.2.5 are replaced with the
following language:

                           "13.2.1 For the Contract Period, HMO must pay to HHSC
                  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 set
                  forth in Appendix I, as reviewed and confirmed by HHSC. HHSC
                  reserves the right to have an independent audit performed to
                  verify the information provided by HMO.

                             GRADUATED REBATE METHOD

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
 NET INCOME BEFORE TAXES
   AS A PERCENTAGE OF           HMO SHARE                    STATE SHARE
       REVENUES

-------------------------------------------------------------------------------
<S>                           <C>                           <C>
 0% - 3%                           100%                          0%
-------------------------------------------------------------------------------
 OVER 3% - 7%                      75%                           25%
-------------------------------------------------------------------------------
 OVER 7% - 10%                     50%                           50%
-------------------------------------------------------------------------------
 OVER 10% - 15%                    25%                           75%
-------------------------------------------------------------------------------
 OVER 15%                           0%                          100%
-------------------------------------------------------------------------------
</TABLE>

                           13.2.2.1 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 for
                  all STAR Medicaid service areas contracted between the State
                  and HMO.

                           13.2.3   Experience rebate will be based on a pre-tax
                  basis. Expenses for value-added services are excluded from the
                  determination of Net Income Before Taxes reported in the Final
                  MCFS Report; however, HMO may subtract from Net Income Before
                  Taxes, expenses incurred for value added services for the
                  experience rebate calculations.

                           13.2.5   There will be two settlements for payment(s)
                  of the experience rebate for SPY 2000-2001, two settlements
                  for payment(s) for the experience rebate for SPY 2002, and two
                  settlements for payments) for the experience rebate for SPY
                  2003. The first settlement for the specified contract period
                  shall equal 100 percent of the experience rebate as derived
                  from Net Income Before Taxes less the value-added services
                  expenses in the first final 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 the MCFS report. If
                  HHSC determines that corrections to the MCFS reports are
                  required, based on a audit of other documentation acceptable
                  to HHSC, to determine an adjustment to the amount of the
                  second settlement, then


HHSC Contract 529-03-042            Page 14 of 17


<PAGE>


                  final adjustment shall be made within three 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."

 SECTION 2.33 SECTION 13.3, PERFORMANCE OBJECTIVES

     Section 13.3.9 is replaced with the following language:

                           "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:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
       EPSDT SCREENS                        PERCENT OF PERFORMANCE OBJECTIVE
                                                      INCENTIVE FUND

--------------------------------------------------------------------------------
<S>                                        <C>
   L.<12 MONTHS                                           12%
--------------------------------------------------------------------------------
   2. 12 TO 24 MONTHS                                     12%
--------------------------------------------------------------------------------
   3. 25 MONTHS - 20 YEARS                                20%
--------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
        IMMUNIZATIONS                        PERCENT OF PERFORMANCE OBJECTIVE
                                                        INCENTIVE FUND

--------------------------------------------------------------------------------
<S>                                        <C>
   4. <12 MONTHS                                          17%
--------------------------------------------------------------------------------
   5. 12 TO 24 MONTHS                                     12%
--------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
       PREGNANCY VISITS                           PERCENT OF PERFORMANCE
                                                 OBJECTIVE INCENTIVE FUND

--------------------------------------------------------------------------------
<S>                                        <C>
   6. INITIAL PRENATAL EXAM                               15%
--------------------------------------------------------------------------------
   7. POSTPARTUM VISIT                                    12%
--------------------------------------------------------------------------------
</TABLE>


SECTION 2.34 MODIFICATION OF SECTION 13.5, NEWBORN AND PREGNANT WOMEN PAYMENT
PROVISIONS

     Sections 13.5.1.1, 13.5.3 and 13.5.6 are replaced with the following
language:

                           "13.5.1.1 The mother of the newborn Member may
                  request that the newborn's health plan coverage be changed to
                  another HMO during the first 90 days following the date of
                  birth, but may only do so through the Medicaid managed care
                  Enrollment Broker.



HHSC Contract 529-03-042            Page 15 of 17


<PAGE>


                           13.5.3   All non-TP45 newborns whose mothers are HMO
                  Members at the time of the birth will be retroactively
                  enrolled into the HMO by TDHS Data Control except as outlined
                  in Article 13.5.4.

                           13.5.6   HMO is responsible for payment for all
                  covered services provided to TP40 members by in-network or
                  out-of-network providers from the date of enrollment in HMO,
                  but prior to HMO receiving TP40 Member on monthly capitation
                  file. HMO must waive requirement for prior authorization (or
                  grant retroactive prior authorization) for medically necessary
                  services provided from the date of enrollment in HMO, but
                  prior to HMO receiving TP40 member on monthly capitation
                  file."

SECTION 2.35 MODIFICATION OF SECTION 14.3, NEWBORN ENROLLMENT

     Section 14.3.1.1 is replaced with the following language:

                           "14.3.1.1 A mother of a newborn Member may request a
                  plan change for her newborn during the first 90 days by
                  contacting the Enrollment Broker. If a change is approved, the
                  Enrollment Broker will notify both plans involved in the
                  process. If no alternative to the plan change can be reached,
                  the Enrollment Broker will notify the HMO of the newborn plan
                  change request received from the mother."

SECTION 2.36 MODIFICATION OF SECTION 15.12, NOTICES

     Section 15.12 is replaced with the following language:

                       "Notice may be given by registered mail, facsimile,
                  and/or hand delivery. All notices to HHSC shall be addressed
                  to: Medicaid HMO Contract Deliverables Manager, HEDS Division,
                  Texas Health and Human Services Commission, P.O. Box 13247,
                  Austin, Texas 78711-3247, with a copy to the Contract
                  Administrator. Notices to HMO shall be addressed to
                  President/CEO, 2100 S. IH-35, Suite 202, Austin, TX 78704."

SECTION 2.37 MODIFICATION OF SECTION 18.1.6, TERMINATION BY HMO

     Section 18.1.6 is replaced with the following language:

                           "18.1.6  HMO may terminate this contract if HHSC
                  fails to pay HMO as required under Article 13 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 Contract Period. 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."

SECTION 2.38 MODIFICATION OF SECTION 18.10, REVIEW OF REMEDY OR REMEDIES TO BE
IMPOSED

     Section 18.10 is replaced with the following language:

                           "18.10.2 HMO and HHSC must attempt to informally
                  resolve a dispute. If HMO and HHSC are unable to informally
                  resolve a dispute,


HHSC Contract 529-03-042    age 16 of 17




<PAGE>


                  HMO must notify the HEDS Manager and Director of Medicaid/CHIP
                  Operations that HMO and HHSC cannot agree. The Director of
                  Medicaid/CHIP Operations will refer the dispute to the State
                  Medicaid Director who will appoint a committee to review the
                  dispute under HHSC's dispute resolution procedures. The
                  decision of the dispute resolution committee will be HHSC's
                  final administrative decision."

SECTION 2.39 MODIFICATION OF SECTION 19.1, CONTRACT TERM

     Section 19.1 is replaced with the following language:

                           "19.1    The effective date of this contract is
                  August 31, 1999. This contract will terminate on August 31,
                  2003 unless extended or terminated earlier as provided for
                  elsewhere in this contract."

SECTION 2.40 MODIFICATIONS TO CONTRACT APPENDICES.

         The following appendices are replaced with the versions attached to
this Amendment:

                  -        Appendix B, HUB

                  -        Appendix C, Value-added Services (for certain HMOs)

                  -        Appendix F, Texas Trauma Facilities

                  -        Appendix G, Texas Hemophilia Centers

                  -        Appendix I, Financial Statistical Report

                  -        Appendix K, Preventive Health Performance Objectives

                 ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

         The Parties contract and agree that the terms of the Agreement will
remain in effect and continue to govern except to the extent modified in this
Amendment.

         By signing this Amendment, the Parties expressly understand and agree
that this Amendment is hereby made a part of the Agreement as though it were set
out word for word in the Agreement.

         IN WITNESS HEREOF, HHSC AND THE HMO HAVE EACH CAUSED THIS AMENDMENT TO
BE SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.

          SUPERIOR HEALTH PLAN, INC.         HEALTH & HUMAN SERVICES COMMISSION




     By:                                     By:
        ------------------------------           ----------------------------
         Christopher Bowers                      Don Gilbert
         President & CEO                         Commissioner

     Date:                                   Date:
          ----------------------------           ----------------------------



HHSC Contract 529-03-042        Page 17 of 17

<PAGE>
STATE OF TEXAS                                     HHSC CONTRACT NO. 529-03-042
COUNTY OF TRAVIS

                                  AMENDMENT 13
                          TO THE AGREEMENT BETWEEN THE
                      HEALTH & HUMAN SERVICES COMMISSION
                                      AND
                           SUPERIOR HEALTH PLAN, INC.
                              FOR HEALTH SERVICES
                                     TO THE
                             MEDICATO STAR PROGRAM
                                     IN THE
                          BEXAR SERVICE DELIVERY AREA

         THIS CONTRACT AMENDMENT (the "Amendment") is entered into between the
HEALTH & HUMAN SERVICES COMMISSION ("HHSC"), an administrative agency within
the executive department of the State of Texas, and SUPERIOR HEALTH PLAN, INC.
("CONTRACTOR"), a health maintenance organization organized under the laws of
the State of Texas, possessing a certificate of authority issued by the Texas
Department of Insurance to operate as a health maintenance organization, and
having its principal office at 2100 S. IH-35, Suite 202, Austin, Texas 78704.
HHSC and CONTRACTOR may be referred to in this Amendment individually as a
"Party" and collectively as the "Parties."

         The Parties hereby agree to amend their Agreement as set forth in
Article 2 of this Amendment.

                        ARTICLE 1. PURPOSE.

SECTION 1.01      AUTHORIZATION.

         This Amendment is executed by the Parties in accordance with Article
15.2 of the Agreement.

SECTION 1.02      GENERAL EFFECTIVE DATE OF CHANGES.

         This Amendment is effective November 1, 2002.

             ARTICLE 2. AMENDMENT TO THE OBLIGATIONS OF THE PARTIES

SECTION 2.01      MODIFICATION OF ARTICLE 2 DEFINITIONS

         The following term is added to amend the definitions set forth in
Article 2:

                  "EXPERIENCE REBATE PERIOD means each period within the
         Contract Period related to the calculations and settlements of
         Experience Rebates to HHSC described in Section 13.2. The Contract
         Period consists of the following Experience Rebate Periods:

                  -        September 1, 1999 through August 31, 2001 (1st
                           Experience Rebate Period)

                  -        September 1, 2001 through August 31, 2002 (2nd
                           Experience Rebate Period)

                  -        September 1, 2002 through August 31, 2003 (3rd
                           Experience Rebate Period)"


HHSC Contract 529-03-042          Page 1 of 4
<PAGE>
SECTION 2.02      MODIFICATION TO SECTION 3.2, EXPERIENCE REBATE TO STATE

         Section 13.2 is replaced with the following language:

                  "13.2.1  HMO must pay to HHSC an experience rebate for each
         Experience Rebate Period. HMO will calculate the experience rebate in
         accordance with the tiered rebate formula listed below based on Net
         Income Before Taxes (excess of allowable revenues over allowable
         expenses) as set forth in Appendix I. The HMO's calculations are
         subject to HHSC approval, and HHSC reserves the right to have an
         independent audit performed to verify the information provided by HMO.

                    GRADUATED REBATE FORMULA

<TABLE>
<CAPTION>
  NET INCOME
BEFORE TAXES AS
A PERCENTAGE OF
TOTAL REVENUES             HMO SHARE          HHSC SHARE

<S>                        <C>                <C>
0% - 3%                       100%                 0%
OVER 3% - 7%                   75%                25%
OVER 7% -10%                   50%                50%
OVER 10% - 15%                 25%                75%
OVER 15%                        0%               100%
</TABLE>

                  13.2.2   Carry Forward of Prior Experience Rebate Period
         Losses: Losses incurred for one Experience Rebate Period can only be
         carried forward as an offset to Net Income Before Taxes in the next
         Experience Rebate Period.

                  13.2.2.1 HMO shall calculate the experience rebate by
         applying the experience rebate formula in Article 13.2.1 as follows:

                  For the 1st Experience Rebate Period, to the Net Income
         Before Taxes for each STAR Medicaid service area contracted between
         HHSC and HMO. The HMO will separately calculate the experience rebate
         for each service area, and losses in one service area cannot be used
         to offset Net Income Before Taxes in another service area. Losses from
         the 1st Experience Rebate Period can be carried forward to the 2nd
         Experience Rebate Period for the same service area.

                  For the 2nd Experience Rebate Period, to the sum of the Net
         Income Before Taxes for all STAR Medicaid service areas contracted
         between HHSC and HMO. Losses from the 2nd Experience Rebate Period can
         be carried forward to the 3rd Experience Rebate Period.

                  For the 3rd Experience Rebate Period, to the sum of the Net
         Income Before Taxes for all CHIP, STAR Medicaid, and STAR+PLUS
         Medicaid service areas contracted between HHSC or TDHS and HMO.

                  13.2.3   Experience rebate will be based on a pre-tax basis.
         Expenses for value-added services are excluded from the determination


HHSC Contract 529-03-042          Page 2 of 4
<PAGE>
         of Net Income Before Taxes reported in the Final MCFS Report; however,
         HMO may subtract from Net Income Before Taxes, expenses incurred for
         value added services for the experience rebate calculations.

                  13.2.4   Population-Based Initiatives (PBIs) and Experience
         Rebates: HMO may subtract from an experience rebate owed to HHSC,
         expenses for population-based health initiatives that have been
         approved by HHSC. A 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 the 1st Experience Rebate Period, two
         settlements for payment(s) of the experience rebate for the 2nd
         Experience Rebate Period, and two settlements for payment(s) of the
         experience rebate for the 3rd Experience Rebate Period. Settlement
         payments are payable to HHSC. The first settlement for the specified
         Experience Rebate Period shall equal 100 percent of the experience
         rebate as derived from Net Income Before Taxes reduced by any
         value-added services expenses in the first Final MCFS Report and shall
         be paid on the same day that 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 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 the MCFS Reports. If
         HHSC determines that corrections to the MCFS Reports are required,
         based on an audit of other documentation acceptable to HHSC, to
         determine an adjustment to the amount of the second settlement, then
         final adjustment shall be made within three (3) 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 (an)
         affiliate(s) 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 goods and
         services in the service area. HHSC has final authority in auditing and
         determining the amount of the experience rebate."

            ARTICLE 3. REPRESENTATIONS AND AGREEMENT OF THE PARTIES

         The Parties contract and agree that the terms of the Agreement will
remain in effect and continue to govern except to the extent modified in this
Amendment.

         By signing this Amendment, the Parties expressly understand and agree
that this Amendment is hereby made a part of the Agreement as though it were
set out word for word in the Agreement.



HHSC Contract 529-03-042          Page 3 of 4
<PAGE>
         IN WITNESS HEREOF, HHSC AND THE CONTRACTOR HAVE EACH CAUSED THIS
AMENDMENT TO BE SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.


       SUPERIOR HEALTH PLAN, INC.           HEALTH & HUMAN SERVICES COMMISSION


By:                                       By:
   ----------------------------------        ----------------------------------
   Christopher Bowers                        Don A. Gilbert
   President and CEO                         Commissioner

Date:                                     Date:
     --------------------------------          --------------------------------


HHSC Contract 529-03-042          Page 4 of 4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>6
<FILENAME>c74739exv10w24.txt
<DESCRIPTION>EXECUTIVE EMPLOYMENT AGREEMENT - DANIEL R. PAQUIN
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.24



                         EXECUTIVE EMPLOYMENT AGREEMENT

         THIS AGREEMENT, made and entered into as of the 19th day of November
2002, by and between CENTENE CORPORATION, a Delaware corporation (hereinafter
called the "Company"), and Daniel Paquin (hereinafter called the "Executive").

         1. EMPLOYMENT. Company hereby employs Executive as Senior Vice
President -- Health Plans Business Group with such other or additional titles or
positions as Company's President, Senior Vice Presidents, or Board of Directors
may, from time to time, determine.

         2. DUTIES. During the employment period, Executive shall faithfully
perform his duties to the best of his ability and in accordance with the
directions and orders (and to the satisfaction) of the Company's President,
Senior Vice Presidents, and Board of Directors of Company, and he shall devote
his full working time, attention and energy to the performance of his duties.

         In addition to the duties assigned to him by the Company's President
and/or Senior Vice Presidents and/or Board of Directors of Company, Executive
shall perform such other duties as are commensurate with his position and
responsibilities, including without limitation, exercising his best judgment;
safeguarding and saving from waste the assets of Company; and following,
maintaining, and implementing the business plans, budgets, business procedures
and directives established and promulgated by Company, as modified or amended
from time to time.

         Except as otherwise provided herein, Executive shall not render
services, directly or indirectly, to any other person or organization without
his Supervisor's prior written consent and shall not engage in any activity that
would interfere significantly with the faithful performance of his duties
thereunder. Executive may perform minor services for which he does not receive
compensation, provided that the activity does not conflict with the provisions
of his duties, without written consent.

         3. COMPENSATION. As compensation for all services rendered by Executive
under this agreement, company shall pay to Executive, in accordance with its
then prevailing payroll practices, a salary at the annualized rate of Two
Hundred Forty Thousand Dollars ($240,000.00), less applicable payroll
deductions. This salary may be adjusted from time to time as directed by the
Executive's immediate supervisor or the Company's President.

         4. OTHER EMPLOYMENT BENEFITS.  During the Employment Period:

                  (a)      Company shall reimburse Executive monthly for actual,
                           reasonable, and necessary out-of-pocket expenses he
                           incurs on Company's business in compliance with
                           company policies and procedures.

                  (b)      Executive shall participate in such of Company's
                           Executive plans or fringe benefit arrangements as
                           provided for all Executives, subject to their terms
                           and conditions.



<PAGE>




                  (c)      Vacation Leave. During the Employment Term, Executive
                           shall be entitled to a number of vacation days as
                           established in the standard company policy for senior
                           executives. Executive shall accrue and receive full
                           compensation and benefits during his vacation leave
                           periods. Vacation leave shall be taken at such times
                           as do not have an adverse effect on the operations or
                           transactions of the Company or otherwise as Executive
                           and his immediate supervisor shall agree.

                  (d)      Bonus Plan. The annual target bonus is 35% of base
                           salary with potential to exceed that if and when the
                           company exceeds its Annual Operating Plan criteria.
                           This award is at the discretion of the Company's
                           President. The Bonus Plan may be adjusted from time
                           to time as directed by the Company's President.

         5. TERMINATION OF EMPLOYMENT.

                  (a)      Termination for Cause. If the Company terminates
                           Executive's employment For Cause, or if Executive
                           resigns from his employment pursuant to Subsection
                           5(b), Executive shall be entitled only to payment of
                           that portion of his Salary earned through and
                           including the Termination Date or the Resignation
                           Date at the rate of Salary in effect at that time.

                  (b)      Resignation. Executive may resign from his employment
                           with the Company at any time by providing written
                           notice of his resignation to his immediate supervisor
                           at least thirty (30) days before the Resignation
                           Date, in which case he shall be entitled to
                           compensation as provided in Subsection 5(a).

                  (c)      Death. If Executive dies during his employment, or
                           Executive is entitled to receive payments from the
                           Company pursuant to Section 5(a) at the time of his
                           death, Executive's estate or personal representative
                           shall be entitled to receive that portion of the
                           Salary, at the rate in effect at Executive's death,
                           that Executive earned through and including the date
                           of Executive's death.

                  (d)      Disability. If Executive becomes Permanently
                           Disabled, the Board may terminate Executive's
                           employment by providing written notice to Executive
                           at least 72 hours before the Termination Date. If
                           Executive resigns from employment with the Company as
                           a result of a Permanent Disability, or the Company
                           terminates Executive's employment as a result of a
                           Permanent Disability, Executive shall be entitled to
                           receive that portion of his Salary, at the rate in
                           effect at the time he became Permanently Disabled,
                           that he earned through and including the Termination
                           Date or Resignation Date, as applicable; provided,
                           however, the amount due and payable for the period on
                           and after the date on which Executive became
                           Permanently Disabled shall not be less than the
                           portion of the Salary that would have been paid to
                           him if he had continued in the

<PAGE>




                           Company's employment for the 180 day period following
                           the date on which he became Permanently Disabled.

                  (e)      Compensation Following Termination. If the Company
                           terminates Executive's employment other than For
                           Cause the Company shall pay Executive that portion of
                           his Salary earned through and including the
                           Termination Date or the Resignation Date at the rate
                           of Salary in effect at that time, plus an amount
                           equal to thirty nine (39) weeks of his annualized
                           Salary paid in accordance with the then current
                           payroll practices, and conditioned upon Executive's
                           signing, and not revoking, a complete Release of any
                           and all claims. In such case, Company shall pay for
                           nine (9) months of the eighteen (18) months health
                           and dental insurance continuation coverage to which
                           Executive is entitled under the Consolidated Omnibus
                           Budget Reconciliation Act of 1985, Public Law 99-272,
                           Title X (COBRA).

                  (f)      Change of Control In the event of a "Change in
                           Control" which, within 24 months from and after such
                           Change in Control results in (a) the involuntary
                           termination of Executive's employment by the Company,
                           or (b) the voluntary resignation of employment by
                           Executive because of (i) the reduction of Executive's
                           compensation, (ii) a material adverse change in
                           Executive's position with the Company or the nature
                           or scope of Executive's duties or (iii) a request by
                           the Company or the surviving entity of the
                           transaction that resulted in the Change of Control
                           that Executive relocate outside of the Connecticut
                           area which Executive refuses, then Executive shall
                           receive severance equal to thirty nine (39) weeks pay
                           paid at his choice (which choice shall be irrevocably
                           made and set forth as part of the Release described
                           below) either as a lump sum payment or salary
                           continuance, rather than the severance paid pursuant
                           to paragraph 5(c) above, but conditioned upon
                           Executive's signing, and not revoking, a complete
                           Release of any and all claims. In such case, Company
                           shall pay for nine (9) months of the eighteen (18)
                           months health and dental insurance continuation
                           coverage to which Executive is entitled under the
                           Consolidated Omnibus Budget Reconciliation Act of
                           1985, Public Law 99-272, Title X (COBRA). In
                           addition, the Company agrees to pay for reasonable
                           outplacement services arranged by the Company.
                           Notwithstanding the foregoing, no payment or payments
                           shall be made under this Agreement which would be an
                           "excess parachute payment" as defined in Section
                           280G(b) of the Internal Revenue Code of 1986, as
                           amended. Payments which would be "excess parachute
                           payments" shall be proportionately reduced so that no
                           portion of any payment shall constitute an "excess
                           parachute payment." For purposes hereof a "Change in
                           Control" of the Company shall be deemed to occur if
                           (i) any "person" (as such term is used in Section
                           Section 13(d) and 14(d) of the Securities Exchange
                           Act of 1934, as amended (the "Exchange Act")), other
                           than (A) persons who, at the date of this Agreement,
                           are the beneficial owners of 25% or more of the
                           Company's voting securities or (B) a group including
                           Executive, is or

<PAGE>




                           becomes the "beneficial owner" (as defined in Rule
                           13d-3 under the Exchange Act), directly or
                           indirectly, of securities of the Company representing
                           fifty percent (50%) or more of the combined voting
                           power of the Company's then outstanding securities,
                           or (ii) the shareholders of the Company approve a
                           merger or consolidation of the Company with any other
                           corporation, other than a merger or consolidation
                           which would result in the voting securities of the
                           Company outstanding immediately prior thereto
                           continuing to represent (either by remaining
                           outstanding or by being converted into voting
                           securities of the surviving entity) at least fifty
                           percent (50%) of the combined voting power of the
                           voting securities of the Company or such surviving
                           entity outstanding immediately after such merger or
                           consolidation. Further, for purposes hereof, a
                           "Change in Control" also shall be deemed to occur if
                           individuals who, as the date hereof, constitute the
                           Board of Directors of the Company (the "Incumbent
                           Board) cease for any reason to constitute at least a
                           majority of the Board of Directors of the Company;
                           provided, however, that an individual becoming a
                           director subsequent to the date hereof whose
                           election, or nomination for election by the Company's
                           shareholders, was approved by at least a majority of
                           the directors then comprising the Incumbent Board
                           shall be included within the definition of Incumbent
                           Board, but excluding, for this purpose, any such
                           individual whose initial assumption of office occurs
                           as a result of either an actual election contest (or
                           such terms are used in Rule 14a-11 of Regulation 14A
                           promulgated under the Exchange Act) or other actual
                           or threatened solicitation of proxies or consents by
                           or on behalf of a person other than the Board.

         6. COVENANTS.

                  (a)      Non-competition by Executive. The Executive
                           acknowledges that the list of the Company's customers
                           and customer contacts as it may exist from time to
                           time are valuable, special, and unique assets of the
                           Company's business. During the period of nine (9)
                           months immediately after the termination of
                           Executive's employment with the Company for any cause
                           whatsoever, Executive will not, either directly or
                           indirectly, either for Executive or for any other
                           person, firm, Company or corporation, call upon,
                           solicit, divert, or take away, or attempt to solicit,
                           divert or take away any of the Executive's customers,
                           prospective customers, or business of the Company
                           related to Medicaid managed care upon whom Executive
                           called, solicited, catered, or became acquainted with
                           during Executive's employment with the Company.

                  (b)      Return of Company Records and Property. Executive
                           agrees that upon termination of Executive's
                           employment, for any cause whatsoever, Executive will
                           surrender to the Company in good condition all
                           property and equipment belonging to Company and all
                           records kept by Executive containing the names,
                           addresses or any other information with regard to

<PAGE>




                           customers or customer contacts of the Company, or
                           concerning any operational, financial or other
                           documents given to Executive during Executive's
                           employment with Company.

                  (c)      Non-disclosure by Executive. The Executive
                           acknowledges and agrees that any information obtained
                           by Executive while employed by the Company, including
                           but not limited to customer lists and customer
                           contacts, financial, promotional, marketing, training
                           or operational information, and employment data is
                           highly confidential, and is important to the Company
                           and to the effective operation of the Company's
                           business. Executive, therefore, agrees that while
                           employed by the Company, and at any time thereafter,
                           Executive will make no disclosure of any kind,
                           directly or indirectly, concerning any such
                           confidential matters relating to the Company or any
                           of its activities.

                  (d)      Enforcement. In the event of a breach or threatened
                           breach by the Executive of the provisions of this
                           Agreement, the Company shall be entitled to a
                           restraining order and/or an injunction restraining
                           the Executive from contacting, servicing or
                           soliciting Company's customers, or customer contacts,
                           or utilizing or disclosing, in whole or in part, the
                           list of the Company's customers, customer contacts,
                           employees, or financial, operational, promotional,
                           marketing, or training information, or from rendering
                           any services to any persons, firm, corporation,
                           association, or other entity to whom such list or
                           information, in whole or in part, has been disclosed
                           or is threatened to be disclosed. In the event the
                           Company is successful in any suit or proceeding
                           brought or instituted by the Company to enforce any
                           of the provisions of this agreement on account of any
                           damages sustained by the Company by reason of the
                           violation by the Executive of any of the terms and/or
                           provisions of this agreement to be performed by the
                           Executive, the Executive agrees to pay the Company
                           reasonable attorney's fees to be fixed by the Court.



<PAGE>




         7. INVENTIONS.

                  (a)      Executive shall promptly communicate and disclose in
                           writing to Company all those inventions and
                           developments including software, whether patentable
                           or not, as well as patents and patent applications
                           (hereinafter collectively called "Inventions"), made,
                           conceived, developed, or purchased by him, or under
                           which he acquires the right to grant licenses or to
                           become licensed, alone or jointly with others, which
                           have arisen or jointly with others, which have arisen
                           or may arise out of his employment, or relate to any
                           matters pertaining to, or useful in connection
                           therewith, the business or affairs of Company or any
                           of its subsidiaries. Included herein as if developed
                           during the employment period is any specialized
                           equipment and software developed for use in the
                           business of Company. All of Executive's right, title
                           and interest in, to, and under all such inventions,
                           licenses, and right to grant licenses shall be the
                           sole property of Company. Any such inventions
                           disclosed to anyone by Executive within one (1) year
                           after the termination of employment for any cause
                           whatsoever shall be deemed to have been made or
                           conceived by Executive during the Employment Period.

                  (b)      As to all such invention, Executive shall, upon
                           request of Company:

                           i.       Execute all documents which Company shall
                                    deem necessary or proper to enable it to
                                    establish title to such inventions or other
                                    rights, and to enable it to file and
                                    prosecute applications for letters patent of
                                    the United States and any foreign country;
                                    and

                           ii.      Do all things (including the giving of
                                    evidence in suits and other proceedings)
                                    which Company shall deem necessary or proper
                                    to obtain, maintain, or assert patents for
                                    any and all such inventions or to assert its
                                    rights in any inventions not patented.

         8. LITIGATION. Executive agrees that during his employment or
thereafter, he shall do all things, including the giving of evidence in suits
and other proceedings, which Company shall deem necessary or proper to obtain,
maintain or assert rights accruing to Company during the employment period and
in connection with which Executive has knowledge, information or expertise. All
reasonable expenses incurred by Executive in fulfilling the duties set forth in
this paragraph 8 shall be reimbursed by Company to the full extent legally
appropriate, including, without limitation, a reasonable payment for Executive's
time.

         9. MODIFICATION. No modification, amendment, or waiver of any of the
provisions of this Agreement shall be effective unless made in writing
specifically referring to this Agreement and signed by all parties therefore.

         10. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
of the parties hereto with respect to Executive's employment and his
compensation therefore.


<PAGE>





         11. WAIVER. The failure to enforce at any time any of the provisions of
this agreement or to require at any time performance by any party of any of the
provisions hereof shall in no way be construed to be a waiver of such provisions
or to affect either the validity of this Agreement, or any part hereof, or the
right of each party thereafter to enforce each and every provision in accordance
with the terms of this Agreement.

         12. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

         13. PRONOUNS. As used herein, the term "Executive" and the pronouns
therefore have been used for convenience only, and corresponding terms
reflecting the proper gender of Executive shall be deemed substituted by the
parties hereto where appropriate.

         14. SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of Company and any successor or assign of Company. For the purposes
of this Agreement, the terms "successor or assign" shall mean any person, firm,
corporation, or other business entity which, at any time, whether by merger,
purchase, assignment or otherwise, shall acquire the assets or business of
Company in part or as a whole.

         This Agreement shall also be binding upon and shall inure to the
benefit of Executive and his legal representatives and assigns, except that
Executive's obligations to perform such future services and rights to receive
payment therefore are hereby expressly declared to be non-assignable and
non-transferable.

         15. GOVERNING LAW. This Agreement shall be interpreted and executed in
accordance with the laws of the State of Missouri.

         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the day and year first above written.

                                                CENTENE CORPORATION


                                                By        /s/Centene Corporation
                                                --------------------------------
                                                         "Company"



                                                By        /s/ Daniel R. Paquin
                                                --------------------------------
                                                         "Executive"


November 14, 2002




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>7
<FILENAME>c74739exv10w25.txt
<DESCRIPTION>EXECUTIVE EMPLOYMENT AGREEMENT - JOHN T. TADICH
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.25


                         EXECUTIVE EMPLOYMENT AGREEMENT

         THIS AGREEMENT, made and entered into as of the 31st day of October
2002, by and between CENTENE CORPORATION, a Delaware corporation (hereinafter
called the "Company"), and John Tadich (hereinafter called the "Executive").

         1. EMPLOYMENT. Company hereby employs Executive as Senior Vice
President -- Speciality Companies with such other or additional titles or
positions as Company's President, Senior Vice Presidents, or Board of Directors
may, from time to time, determine.

         2. DUTIES. During the employment period, Executive shall faithfully
perform his duties to the best of his ability and in accordance with the
directions and orders (and to the satisfaction) of the Company's President,
Senior Vice Presidents, and Board of Directors of Company, and he shall devote
his full working time, attention and energy to the performance of his duties.

         In addition to the duties assigned to him by the Company's President
and/or Board of Directors of Company, Executive shall perform such other duties
as are commensurate with his position and responsibilities, including without
limitation, exercising his best judgment; safeguarding and saving from waste the
assets of Company; and following, maintaining, and implementing the business
plans, budgets, business procedures and directives established and promulgated
by Company, as modified or amended from time to time.

         Except as otherwise provided herein, Executive shall not render
services, directly or indirectly, to any other person or organization without
his Supervisor's prior written consent and shall not engage in any activity that
would interfere significantly with the faithful performance of his duties
thereunder. Executive may perform minor services for which he does not receive
compensation, provided that the activity does not conflict with the provisions
of his duties, without written consent.

         3. COMPENSATION. As compensation for all services rendered by Executive
under this agreement, company shall pay to Executive, in accordance with its
then prevailing payroll practices, a salary at the annualized rate of Two
Hundred Seventy-Five Thousand Dollars ($275,000.00), less applicable payroll
deductions. This salary may be adjusted upward from time to time as directed by
the Executive's immediate supervisor or the Company's President.

         4. OTHER EMPLOYMENT BENEFITS.  During the Employment Period:

                  (a)      Company shall reimburse Executive monthly for actual,
                           reasonable, and necessary out-of-pocket expenses he
                           incurs on Company's business in compliance with
                           company policies and procedures.

                  (b)      Executive shall participate in such of Company's
                           Executive plans or fringe benefit arrangements as
                           provided for all Executives, subject to their terms
                           and conditions.



<PAGE>




                  (c)      Vacation Leave. During the Employment Term, Executive
                           shall be entitled to a number of vacation days as
                           established in the standard company policy for senior
                           executives. Executive shall accrue and receive full
                           compensation and benefits during his vacation leave
                           periods. Vacation leave shall be taken at such times
                           as do not have an adverse effect on the operations or
                           transactions of the Company or otherwise as Executive
                           and his immediate supervisor shall agree.

                  (d)      Bonus Plan. The annual target bonus is 35% of base
                           salary with potential to exceed that if and when the
                           company exceeds its Annual Operating Plan criteria.
                           This award is at the discretion of the Company's
                           President. The Bonus Plan may be adjusted from time
                           to time as directed by the Company's President.

         5. TERMINATION OF EMPLOYMENT.

                  (a)      Termination for Cause. If the Company terminates
                           Executive's employment For Cause, or if Executive
                           resigns from his employment pursuant to Subsection
                           5(b), Executive shall be entitled only to payment of
                           that portion of his Salary earned through and
                           including the Termination Date or the Resignation
                           Date at the rate of Salary in effect at that time.

                  (b)      Resignation. Executive may resign from his employment
                           with the Company at any time by providing written
                           notice of his resignation to his immediate supervisor
                           at least thirty (30) days before the Resignation
                           Date, in which case he shall be entitled to
                           compensation as provided in Subsection 5(a).

                  (c)      Death. If Executive dies during his employment, or
                           Executive is entitled to receive payments from the
                           Company pursuant to Section 5(a) at the time of his
                           death, Executive's estate or personal representative
                           shall be entitled to receive that portion of the
                           Salary, at the rate in effect at Executive's death,
                           that Executive earned through and including the date
                           of Executive's death.

                  (d)      Disability. If Executive becomes Permanently
                           Disabled, the Board may terminate Executive's
                           employment by providing written notice to Executive
                           at least 72 hours before the Termination Date. If
                           Executive resigns from employment with the Company as
                           a result of a Permanent Disability, or the Company
                           terminates Executive's employment as a result of a
                           Permanent Disability, Executive shall be entitled to
                           receive that portion of his Salary, at the rate in
                           effect at the time he became Permanently Disabled,
                           that he earned through and including the Termination
                           Date or Resignation Date, as applicable; provided,
                           however, the amount due and payable for the period on
                           and after the date on which Executive became
                           Permanently Disabled shall not be less than the
                           portion of the Salary that would have been paid to
                           him if he had continued in the

<PAGE>




                           Company's employment for the 180 day period following
                           the date on which he became Permanently Disabled.

                  (e)      Compensation Following Termination. If the Company
                           terminates Executive's employment other than For
                           Cause the Company shall pay Executive that portion of
                           his Salary earned through and including the
                           Termination Date or the Resignation Date at the rate
                           of Salary in effect at that time, plus an amount
                           equal to fifty two (52) weeks of his annualized
                           Salary paid in accordance with the then current
                           payroll practices, and conditioned upon Executive's
                           signing, and not revoking, a complete Release of any
                           and all claims. In such case, Company shall pay for
                           twelve (12) months of the eighteen (18) months health
                           and dental insurance continuation coverage to which
                           Executive is entitled under the Consolidated Omnibus
                           Budget Reconciliation Act of 1985, Public Law 99-272,
                           Title X (COBRA).

                  (f)      Change of Control In the event of a "Change in
                           Control" which, within 24 months from and after such
                           Change in Control results in (a) the involuntary
                           termination of Executive's employment by the Company,
                           or (b) the voluntary resignation of employment by
                           Executive because of (i) the reduction of Executive's
                           compensation, (ii) a material adverse change in
                           Executive's position with the Company or the nature
                           or scope of Executive's duties or (iii) a request by
                           the Company or the surviving entity of the
                           transaction that resulted in the Change of Control
                           that Executive relocate outside of the Metropolitan
                           St. Louis area which Executive refuses, then
                           Executive shall receive severance equal to fifty two
                           (52) weeks pay paid at his choice (which choice shall
                           be irrevocably made and set forth as part of the
                           Release described below) either as a lump sum payment
                           or salary continuance, rather than the severance paid
                           pursuant to paragraph 5(c) above, but conditioned
                           upon Executive's signing, and not revoking, a
                           complete Release of any and all claims. In such case,
                           Company shall pay for twelve (12) months of the
                           eighteen (18) months health and dental insurance
                           continuation coverage to which Executive is entitled
                           under the Consolidated Omnibus Budget Reconciliation
                           Act of 1985, Public Law 99-272, Title X (COBRA). In
                           addition, the Company agrees to pay for reasonable
                           outplacement services arranged by the Company.
                           Notwithstanding the foregoing, no payment or payments
                           shall be made under this Agreement which would be an
                           "excess parachute payment" as defined in Section
                           280G(b) of the Internal Revenue Code of 1986, as
                           amended. Payments which would be "excess parachute
                           payments" shall be proportionately reduced so that no
                           portion of any payment shall constitute an "excess
                           parachute payment." For purposes hereof a "Change in
                           Control" of the Company shall be deemed to occur if
                           (i) any "person" (as such term is used in Section
                           Section 13(d) and 14(d) of the Securities Exchange
                           Act of 1934, as amended (the "Exchange Act")), other
                           than (A) persons who, at the date of this Agreement,
                           are the beneficial owners of 25% or more of the
                           Company's voting securities or (B) a group including

<PAGE>




                           Executive, is or becomes the "beneficial owner" (as
                           defined in Rule 13d-3 under the Exchange Act),
                           directly or indirectly, of securities of the Company
                           representing fifty percent (50%) or more of the
                           combined voting power of the Company's then
                           outstanding securities, or (ii) the shareholders of
                           the Company approve a merger or consolidation of the
                           Company with any other corporation, other than a
                           merger or consolidation which would result in the
                           voting securities of the Company outstanding
                           immediately prior thereto continuing to represent
                           (either by remaining outstanding or by being
                           converted into voting securities of the surviving
                           entity) at least fifty percent (50%) of the combined
                           voting power of the voting securities of the Company
                           or such surviving entity outstanding immediately
                           after such merger or consolidation. Further, for
                           purposes hereof, a "Change in Control" also shall be
                           deemed to occur if individuals who, as the date
                           hereof, constitute the Board of Directors of the
                           Company (the "Incumbent Board) cease for any reason
                           to constitute at least a majority of the Board of
                           Directors of the Company; provided, however, that an
                           individual becoming a director subsequent to the date
                           hereof whose election, or nomination for election by
                           the Company's shareholders, was approved by at least
                           a majority of the directors then comprising the
                           Incumbent Board shall be included within the
                           definition of Incumbent Board, but excluding, for
                           this purpose, any such individual whose initial
                           assumption of office occurs as a result of either an
                           actual election contest (or such terms are used in
                           Rule 14a-11 of Regulation 14A promulgated under the
                           Exchange Act) or other actual or threatened
                           solicitation of proxies or consents by or on behalf
                           of a person other than the Board.

         6. COVENANTS.

                  (a)      Non-competition by Executive. The Executive
                           acknowledges that the list of the Company's customers
                           and customer contacts as it may exist from time to
                           time are valuable, special, and unique assets of the
                           Company's business. During the period of twelve (12)
                           months immediately after the termination of
                           Executive's employment with the Company for any cause
                           whatsoever, Executive will not, either directly or
                           indirectly, either for Executive or for any other
                           person, firm, Company or corporation, call upon,
                           solicit, divert, or take away, or attempt to solicit,
                           divert or take away any of the Executive's customers,
                           prospective customers, or business of the Company
                           related to Medicaid managed care upon whom Executive
                           called, solicited, catered, or became acquainted with
                           during Executive's employment with the Company.

                  (b)      Return of Company Records and Property. Executive
                           agrees that upon termination of Executive's
                           employment, for any cause whatsoever, Executive will
                           surrender to the Company in good condition all
                           property and equipment belonging to Company and all
                           records kept by Executive containing the names,
                           addresses or any other information with regard to

<PAGE>




                           customers or customer contacts of the Company, or
                           concerning any operational, financial or other
                           documents given to Executive during Executive's
                           employment with Company.

                  (c)      Non-disclosure by Executive. The Executive
                           acknowledges and agrees that any information obtained
                           by Executive while employed by the Company, including
                           but not limited to customer lists and customer
                           contacts, financial, promotional, marketing, training
                           or operational information, and employment data is
                           highly confidential, and is important to the Company
                           and to the effective operation of the Company's
                           business. Executive, therefore, agrees that while
                           employed by the Company, and at any time thereafter,
                           Executive will make no disclosure of any kind,
                           directly or indirectly, concerning any such
                           confidential matters relating to the Company or any
                           of its activities.

                  (d)      Enforcement. In the event of a breach or threatened
                           breach by the Executive of the provisions of this
                           Agreement, the Company shall be entitled to a
                           restraining order and/or an injunction restraining
                           the Executive from contacting, servicing or
                           soliciting Company's customers, or customer contacts,
                           or utilizing or disclosing, in whole or in part, the
                           list of the Company's customers, customer contacts,
                           employees, or financial, operational, promotional,
                           marketing, or training information, or from rendering
                           any services to any persons, firm, corporation,
                           association, or other entity to whom such list or
                           information, in whole or in part, has been disclosed
                           or is threatened to be disclosed. In the event the
                           Company is successful in any suit or proceeding
                           brought or instituted by the Company to enforce any
                           of the provisions of this agreement on account of any
                           damages sustained by the Company by reason of the
                           violation by the Executive of any of the terms and/or
                           provisions of this agreement to be performed by the
                           Executive, the Executive agrees to pay the Company
                           reasonable attorney's fees to be fixed by the Court.



<PAGE>




         7. INVENTIONS.

                  (a)      Executive shall promptly communicate and disclose in
                           writing to Company all those inventions and
                           developments including software, whether patentable
                           or not, as well as patents and patent applications
                           (hereinafter collectively called "Inventions"), made,
                           conceived, developed, or purchased by him, or under
                           which he acquires the right to grant licenses or to
                           become licensed, alone or jointly with others, which
                           have arisen or jointly with others, which have arisen
                           or may arise out of his employment, or relate to any
                           matters pertaining to, or useful in connection
                           therewith, the business or affairs of Company or any
                           of its subsidiaries. Included herein as if developed
                           during the employment period is any specialized
                           equipment and software developed for use in the
                           business of Company. All of Executive's right, title
                           and interest in, to, and under all such inventions,
                           licenses, and right to grant licenses shall be the
                           sole property of Company. Any such inventions
                           disclosed to anyone by Executive within one (1) year
                           after the termination of employment for any cause
                           whatsoever shall be deemed to have been made or
                           conceived by Executive during the Employment Period.

                  (b)      As to all such invention, Executive shall, upon
                           request of Company:

                           i.       Execute all documents which Company shall
                                    deem necessary or proper to enable it to
                                    establish title to such inventions or other
                                    rights, and to enable it to file and
                                    prosecute applications for letters patent of
                                    the United States and any foreign country;
                                    and

                           ii.      Do all things (including the giving of
                                    evidence in suits and other proceedings)
                                    which Company shall deem necessary or proper
                                    to obtain, maintain, or assert patents for
                                    any and all such inventions or to assert its
                                    rights in any inventions not patented.

         8. LITIGATION. Executive agrees that during his employment or
thereafter, he shall do all things, including the giving of evidence in suits
and other proceedings, which Company shall deem necessary or proper to obtain,
maintain or assert rights accruing to Company during the employment period and
in connection with which Executive has knowledge, information or expertise. All
reasonable expenses incurred by Executive in fulfilling the duties set forth in
this paragraph 8 shall be reimbursed by Company to the full extent legally
appropriate, including, without limitation, a reasonable payment for Executive's
time.

         9. MODIFICATION. No modification, amendment, or waiver of any of the
provisions of this Agreement shall be effective unless made in writing
specifically referring to this Agreement and signed by all parties therefore.

         10. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
of the parties hereto with respect to Executive's employment and his
compensation therefore.


<PAGE>





         11. WAIVER. The failure to enforce at any time any of the provisions of
this agreement or to require at any time performance by any party of any of the
provisions hereof shall in no way be construed to be a waiver of such provisions
or to affect either the validity of this Agreement, or any part hereof, or the
right of each party thereafter to enforce each and every provision in accordance
with the terms of this Agreement.

         12. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

         13. PRONOUNS. As used herein, the term "Executive" and the pronouns
therefore have been used for convenience only, and corresponding terms
reflecting the proper gender of Executive shall be deemed substituted by the
parties hereto where appropriate.

         14. SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of Company and any successor or assign of Company. For the purposes
of this Agreement, the terms "successor or assign" shall mean any person, firm,
corporation, or other business entity which, at any time, whether by merger,
purchase, assignment or otherwise, shall acquire the assets or business of
Company in part or as a whole.

         This Agreement shall also be binding upon and shall inure to the
benefit of Executive and his legal representatives and assigns, except that
Executive's obligations to perform such future services and rights to receive
payment therefore are hereby expressly declared to be non-assignable and
non-transferable.

         15. GOVERNING LAW. This Agreement shall be interpreted and executed in
accordance with the laws of the State of Missouri.

         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the day and year first above written.

                                                     CENTENE CORPORATION


                                            By        /s/ Centene Corporation
                                            ------------------------------------
                                                     "Company"



                                            By       /s/ John T. Tadich
                                            ------------------------------------
                                                     "Executive"


November 4, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>8
<FILENAME>c74739exv10w26.txt
<DESCRIPTION>[NJ CONTRACT-NEW IN CONTRACT-TX SCHIP-NEW LEASE
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.26


                                CONTRACT BETWEEN
                   THE OFFICE OF MEDICAID POLICY AND PLANNING,
              THE OFFICE OF THE CHILDREN'S HEALTH INSURANCE PROGRAM
                                       AND
                    COORDINATED CARE CORPORATION INDIANA, INC

         This Contract is made and entered into by and between the State of
Indiana (hereinafter "State" or "State of Indiana"), through the Office of
Medicaid Policy and Planning and the Office of Children's Health Insurance
Program (hereinafter "the Offices"), of the Indiana Family and Social Services
Administration, 402 West Washington Street, W382, Indianapolis, Indiana, and
Coordinated Care Corporation Indiana, Inc., doing business as Managed Health
Services, 1099 North Meridian, Suite 400, Indianapolis, Indiana 46204,
(hereinafter "Contractor").

         WHEREAS, I.C. 12-15-30-1 and I.C. 12-17.6 authorize the Offices to
enter into contracts to assist in the administration of the Indiana Medicaid and
the Indiana Children's Health Insurance Program (CHIP), respectively;

         WHEREAS, the State of Indiana desires to contract for services to
arrange for and to administer a risk-based managed care program (RBMC) for
certain Hoosier Healthwise enrollees in Packages A, B and C as procured through
BAA 01-28;

         WHEREAS this Contract contains the payment rates under which the
Contractor shall be paid and that these rates have been determined to be
actuarially sound for risk contracts, in accordance with applicable law;

         WHEREAS, the Contractor is willing and able to perform the desired
services for Hoosier Healthwise Packages A, B and C;

         WHEREAS, the Family and Social Services Administration (FSSA) is
issuing new contract documents in lieu of renewal or amendment documents so that
FSSA may move its contract data into a single contract database. The original
contract was issued for the contract term starting January 1, 2001, through
December 31, 2002, and provided for a renewal clause, exercised at the option of
the State for two additional years. The State is hereby exercising this option
and renewing the contract.

         THEREFORE, the parties to this Contract agree that the terms and
conditions specified below will apply to services in connection with this
contract, and such terms and conditions are as follows:


                           I. TERM AND RENEWAL OPTION

         This Contract is effective from January 1, 2003 through December 31,
2004. In no event shall the term exceed December 31, 2004.



MCO Renewel Contract            Page 1 of 27             Managed Health Services

<PAGE>


                                 II. DEFINITIONS

         For the purposes of this contract, terms not defined herein shall be
  defined as they are in the documents incorporated in and attached to this
  document, subject to the order of precedence spelled out in Section V of this
  document.


  "Contract" means this document and all documents or standards incorporated
  herein, expressly including but not limited to the following documents
  appended hereto and listed in chronological order and to be given precedence
  as described in Section V of this document, entitled "Order of Precedence":

         Attachment 1 - BAA 01-28, released July 31, 2000;

         Attachment 2 - Original contract (effective January 1, 2001);

         Attachment 3 - First Amendment to the original contract
                        (effective April 1, 2002) and its associated
                        attachments; and

         Any other documents, standards, laws, rules or regulations incorporated
         by reference in the above materials, all of which are hereby
         incorporated by reference.

"Covered Services" means all services required to be arranged, administered,
managed or provided by or on behalf of the Contractor under this contract.

"Effective Date of Enrollment" means:

         o        The first day of the birth month of a newborn that is
                  determined by the Offices to be an enrolled member;

         o        The fifteenth day of the current month for a member who has,
                  between the twenty-sixth day of the previous month and the
                  tenth day of the current month, been determined by the Offices
                  to be an enrolled member; and,

         o        The first day of the following month for a member who has,
                  between the eleventh day and the twenty-fifth day of a month,
                  been determined by the Offices to be an enrolled member.

"Enrolled Member", or "Enrollee", means a Hoosier Healthwise-eligible member who
is listed by the Offices on the enrollment rosters to receive covered services
from the Contractor or its subcontractors, employees, agents, or providers, as
of the Effective Date of Enrollment, under this contract.

"Provider" means a physician, hospital, home health agency or any other
institution, or health or other professional person or entity, which
participates in the provision of services to an enrolled member under BAA 01-28,
whether as an independent contractor, a subcontractor, employee, or agent of the
Contractor.

"Broad Agency Announcement", or "BAA", means BAA 01-28 for providers of managed
care services, released July 31, 2000.



MCO Renewel Contract            Page 2 of 27             Managed Health Services

<PAGE>


                          III. DUTIES OF THE CONTRACTOR

A.       The Contractor agrees to assume financial risk for developing and
         managing a health care delivery system and for arranging or
         administering all Hoosier Healthwise covered services except, as set
         out in section 3.4.3 of the BAA, dental care, long-term institutional
         care, services provided as part of an individualized education plan
         (IEP) pursuant to the Individuals with Disabilities Education Act
         (IDEA) at 20 U.S.C. 1400 et seq., behavioral health, and hospice
         services, in exchange for a per-enrollee, per-month fixed fee, to
         certain enrollees in Hoosier Healthwise Packages A, B and C. Wards of
         the State, foster children and children receiving adoption assistance
         may enroll on a voluntary basis and will not be subject to
         auto-assignment into the Hoosier Healthwise program. The Contractor
         must, at a minimum, furnish covered services up to the limits specified
         by the Medicaid and CHIP programs. The Contractor may exceed these
         limits. However, in no instance may any covered service's limitations
         be more restrictive than those which exist in the Indiana Medicaid
         fee-for-service program for Packages A and B, and the Children's Health
         Insurance Program for Package C.

B.       The Contractor agrees to perform all duties and arrange and administer
         the provision of all services as set out herein and contained in the
         BAA as attached and the Contractor's responses to the BAA as attached,
         all of which are incorporated into this Contract by reference. In
         addition, the Contractor shall comply with all policies and procedures
         defined in any bulletin, manual, or handbook yet to be distributed by
         the State or its agents insofar as those policies and procedures
         provide further clarification and are no more restrictive than any
         policies and procedures contained in the BAA and any amendments to the
         BAA. The Contractor agrees to comply with all pertinent state and
         federal statutes and regulations in effect throughout the duration of
         this Contract and as they may be amended from time to time.

C.       The Contractor agrees that it will not discriminate against individuals
         eligible to be covered under this Contract on the basis of health
         status or need for health services; and the Contractor may not
         terminate an enrollee's enrollment, or act to encourage an enrollee to
         terminate his/her enrollment, because of an adverse change in the
         enrollee's health. The disenrollment function will be carried out by a
         State contractor who is independent of the Contractor; therefore, any
         request to terminate an enrollee's enrollment must be approved by the
         Offices.

D.       The Contractor agrees that no services or duties owed by the Contractor
         under this Contract will be performed or provided by any person or
         entity other than the Contractor, except as contained in written
         subcontracts or other legally binding agreements. Prior to entering
         into any such subcontract or other legally binding agreement, the
         Contractor shall, in each case, submit the proposed subcontract or
         other legally binding agreement to the Offices for prior review and
         approval. Prior review and approval of a subcontract or legally binding
         agreement shall not be unreasonably delayed by the Offices. The Offices
         shall, in appropriate cases and as requested by the Contractor,
         expedite the review and approval process. Under no circumstances shall



MCO Renewel Contract            Page 3 of 27             Managed Health Services
<PAGE>



         the Contractor be deemed to have breached its obligations under this
         Contract if such breach was a result of the Offices' failure to review
         and approve timely any proposed subcontract or other legally binding
         agreement. If the Offices disapprove any proposed subcontract or other
         legally binding agreement, the Offices shall state with reasonable
         particularity the basis for such disapproval. No subcontract into which
         the Contractor enters with respect to performance under this Contract
         shall in any way relieve the Contractor of any responsibility for the
         performance of duties under this Contract. All subcontracts and
         amendments thereto executed by the Contractor under this Contract must
         meet the following requirements; any existing subcontracts or legally
         binding agreements which fail to meet the following requirements shall
         be revised to include the requirements within ninety (90) days from the
         effective date of this Contract:

         1.       Be in writing and specify the functions of the subcontractor.

         2.       Be legally binding agreements.

         3.       Specify the amount, duration and scope of services to be
                  provided by the subcontractor.

         4.       Provide that the Offices may evaluate, through inspection or
                  other means, the quality, appropriateness, and timeliness of
                  services performed.

         5.       Provide for inspections of any records pertinent to the
                  contract by the Offices.

         6.       Require an adequate record system to be maintained for
                  recording services, charges, dates and all other commonly
                  accepted information elements for services rendered to
                  recipients under the contract.

         7.       Provide for the participation of the Contractor and
                  subcontractor in any internal and external quality assurance,
                  utilization review, peer review, and grievance procedures
                  established by the Contractor, in conjunction with the
                  Offices.

         8.       Provide that the subcontractor indemnify and hold harmless the
                  State of Indiana, its officers, and employees from all claims
                  and suits, including court costs, attorney's fees, and other
                  expenses, brought because of injuries or damage received or
                  sustained by any person, persons, or property that is caused
                  by any act or omission of the Contractor and/or the
                  subcontractors. The State shall not provide such
                  indemnification to the subcontractor.

         9.       Identify and incorporate the applicable terms of this Contract
                  and any incorporated documents. The subcontract shall provide
                  that the subcontractor agrees to perform duties under the
                  subcontract, as those duties pertain to enrollees, in
                  accordance with the applicable terms and conditions set out in
                  this Contract, any incorporated documents, and all applicable
                  state and federal laws, as amended.



MCO Renewel Contract            Page 4 of 27             Managed Health Services


<PAGE>

E.       The Contractor agrees that, during the term of this Contract, it shall
         maintain, with any innetwork provider rendering health care services
         under the BAA, provider service agreements which meet the following
         requirements:

         1.       Identify and incorporate the applicable terms of this Contract
                  and any incorporated documents. Under the terms of the
                  provider services agreement, the provider shall agree that the
                  applicable terms and conditions set out in this Contract, any
                  incorporated documents, and all applicable state and federal
                  laws, as amended, govern the duties and responsibilities of
                  the provider with regard to the provision of services to
                  enrollees.

         2.       Reference a written provider claim resolution procedure as set
                  out in section III.Q. below.

F.       The Contractor agrees that all laboratory testing sites providing
         services under this Contract must have a valid Clinical Laboratory
         Improvement Amendments (CLIA) certificate and comply with the CLIA
         regulations at 42 C.F.R. Part 493.

G.       The Contractor agrees that it shall:

         1.       Retain, at all times during the period of this Contract, a
                  valid Certificate of Authority under applicable State laws
                  issued by the State of Indiana Department of Insurance.

         2.       Ensure that, during the term of this Contract, each provider
                  rendering health care services under the BAA is authorized to
                  do so in accordance with the following:

                  a.       The provider must maintain a current Indiana Health
                           Coverage Programs (IHCP) provider agreement and must
                           be duly licensed in accordance with the appropriate
                           state licensing board and shall remain in good
                           standing with said board.

                  b.       If a provider is not authorized to provide such
                           services under a current IHCP provider agreement or
                           is no longer licensed by said board, the Contractor
                           is obligated to terminate its contractual
                           relationship authorizing or requiring such provider
                           to provide services under the BAA. The Contractor
                           must terminate its contractual relationship with the
                           provider as soon as the Contractor has knowledge of
                           the termination of the provider's license or the IHCP
                           provider agreement.

         3.       Comply with the specific requirements for Health Maintenance
                  Organizations (HMOs) eligible to receive Federal Financial
                  Participation (FFP) under Medicaid, as listed in the State
                  Organization and General Administration Chapter of the Health
                  Care Financing Administration (HCFA) Medicaid Manual. These
                  requirements include, but are not limited to the following:



MCO Renewel Contract            Page 5 of 27             Managed Health Services


<PAGE>

                  a.       The Contractor shall meet the definition of HMO as
                           specified in the Indiana State Medicaid Plan.

                  b.       Throughout the duration of this Contract, the
                           Contractor shall satisfy the Chicago Regional Office
                           of the Centers for Medicare and Medicaid Services
                           (hereinafter called CMS) that the Contractor is
                           compliant with the Federal requirements for
                           protection against insolvency pursuant to 42 CFR
                           434.20(c)(3) and 434.50(a), the requirement that the
                           Contractor shall continue to provide services to
                           Contractor enrollees until the end of the month in
                           which insolvency has occurred, and the requirement
                           that the Contractor shall continue to provide
                           inpatient services until the date of discharge for an
                           enrollee who is institutionalized when insolvency
                           occurs. The Contractor shall meet this requirement by
                           posting a performance bond pursuant to Section VII,
                           paragraph C, of this Contract, and satisfying the
                           statutory reserve requirements of the Indiana
                           Department of Insurance.

                  c.       The Contractor shall comply with, and shall exclude
                           from participation as either a provider or
                           subcontractor of the Contractor, any entity or person
                           that has been excluded under the authority of
                           Sections 1124A, 1128 or 1128A of the Social Security
                           Act or does not comply with the requirements of
                           Section 1128(b) of the Social Security Act.

                  d.       In the event that the CMS determines that the
                           Contractor has violated any of the provisions of 42
                           CFR 434.67(a), CMS may deny payment of FFP for new
                           enrollees of the HMO under 42 USC 1396b(m)(5)(B)(ii).
                           The Offices shall automatically deny State payment
                           for new enrollees whenever, and for so long as,
                           Federal payment for such enrollees has been denied.

H.       The Contractor shall submit proof, satisfactory to the Offices, of
         indemnification of the Contractor by the Contractor's parent
         corporation, if applicable, and by all of its subcontractors.

I.       The Contractor shall submit proof, satisfactory to the Offices, that
         all subcontractors will hold the State harmless from liability under
         the subcontract. This assurance in no way relieves the Contractor of
         any responsibilities under the BAA or this Contract.

K.       The Contractor shall establish and maintain a quality improvement
         program that meets the requirements of 42 CFR 434.34, as well as other
         specific requirements set forth in the BAA. The Offices and the CMS may
         evaluate, through inspection or other means, including but not limited
         to, the review of the quality assurance reports required under this
         Contract, and the quality, appropriateness, and timeliness of services
         performed under this Contract. The Contractor agrees to participate and
         cooperate, as directed by the Offices, in the annual external quality
         review of the services furnished by the Contractor.

         Annual HEDIS rates must be submitted in a manner and timeline
         established by the Office, including but not limited, to HEDIS rates
         that have been audited by a HEDIS-certified audit firm within 30 days
         of receiving their final audit report. The HEDIS rates which have



MCO Renewel Contract            Page 6 of 27             Managed Health Services


<PAGE>

         completed the certified audit may be submitted for 2003 HEDIS rates,
         but must be submitted for 2004 HEDIS rates and all other HEDIS rates in
         the future.

L.       In accordance with 42 CFR 434.28, the Contractor agrees that it and any
         of its subcontractors shall comply with the requirements, if
         applicable, of 42 CFR 489, Subpart I, relating to maintaining and
         distributing written policies and procedures respecting advance
         directives. The Contractor shall distribute policies and procedures to
         adult individuals during the enrollee enrollment process and whenever
         there are revisions to these policies and procedures. The Contractor
         shall make available for inspection, upon reasonable notice and request
         by the Offices, documentation concerning its written policies,
         procedures and distribution of such written procedures to enrollees.

M.       Pursuant to 42 C.F.R. 417.479(a), the Contractor agrees that no
         specific payment can be made directly or indirectly under a physician
         incentive plan to a physician or physician group as an inducement to
         reduce or limit medically necessary services furnished to an individual
         enrollee. The Contractor must disclose to the State the information on
         provider incentive plans listed in 42 C.F.R. 417.479(h)(1) and
         417.479(i) at the times indicated at 42 C.F.R. 434.70(a)(3), in order
         to determine whether the incentive plan meets the requirements of 42
         C.F.R. 417(d)-(g). The Contractor must provide the capitation data
         required under paragraph (h)(1)(vi) for the previous calendar year to
         the State by application/contract renewal of each year. The Contractor
         will provide the information on its physician incentive plan(s) listed
         in 42 C.F.R. 417.479(h)(3) to any enrollee upon request.

N.       The Contractor must not prohibit or restrict a health care professional
         from advising an enrollee about his/her health status, medical care, or
         treatment, regardless of whether benefits for such care are provided
         under this Contract, if the professional is acting within the lawful
         scope of practice. However, this provision does not require the
         Contractor to provide coverage of a counseling or referral service if
         the Contractor objects to the service on moral or religious grounds and
         makes available information on its policies to potential enrollees and
         enrollees within ninety (90) days after the date the Contractor adopts
         a change in policy regarding such counseling or referral service.

O.       In accordance with 42 U.S.C.ss. 1396u-2(b)(6), the Contractor agrees
         that an enrollee may not be held liable for the following:

         1.       Debts of the Contractor, or its subcontractors, in the event
                  of any organization's insolvency;

         2.       Services provided to the enrollee in the event the Contractor
                  fails to receive payment from the Offices for such services or
                  in the event a provider fails to receive payment from the
                  Contractor or Offices; or

         3.       Payments made to a provider in excess of the amount that would
                  be owed by the enrollee if the Contractor had directly
                  provided the services.



MCO Renewel Contract            Page 7 of 27             Managed Health Services

<PAGE>


P.       The Offices may from time to time request and the Contractor, and all
         of its subcontractors, agree that the Contractor, or its
         subcontractors, shall prepare and submit additional compilations and
         reports as requested by the Offices. Such requests will be limited to
         situations in which the desired data is considered essential and cannot
         be obtained through existing Contractor reports. The Contractor, and
         all of its subcontractors, agree that a response to the request shall
         be submitted within thirty (30) days from the date of the request, or
         by the Offices' requested completion date, whichever is earliest. The
         response shall include the additional compilations and reports as
         requested, or the status of the requested information and an expected
         completion date. When such requests pertain to legislative inquiries or
         expedited inquiries from the Office of the Governor, the additional
         compilations and reports shall be submitted by the Offices' requested
         completion date. Failure by the Contractor, or its subcontractors, to
         comply with response time frames shall be considered grounds for the
         Offices to pursue the provisions outlined in Section 3.16.5 of the BAA.
         In the event that delays in submissions are a consequence of a delay by
         the Offices or the Medicaid Fiscal Agent, the time frame for submission
         shall be extended by the length of time of the delay.

Q.       The Contractor shall establish a written claim resolution procedure
         applicable to both in-network and out-of-network providers which shall
         be distributed to all in-network providers and shall be available to
         out-of-network providers upon request. The Contractor shall negotiate
         the terms of a written claim resolution procedure with in-network
         providers individually; but if the Contractor and an in-network
         provider are unable to reach agreement on the terms of such procedure,
         the out-of-network provider claims resolution procedure approved by the
         Offices under this section shall govern the resolution of such
         in-network provider's claims with the Contractor.

         1.       A statement noting that providers objecting to determinations
                  involving their claims will be provided due process through
                  the Contractor's claim resolution procedure.

         2.       A description of both the informal and formal claim resolution
                  procedures that will be available to resolve a provider's
                  objection to a determination involving the provider's claim.

         3.       An informal claim resolution procedure which:

                  a.       shall be available for the resolution of claims
                           submitted to the Contractor by the provider within
                           120 days after the date on which services were
                           rendered;

                  b.       shall precede the formal claim resolution procedure;

                  c.       shall be used to resolve a provider's objection to a
                           determination by the Contractor involving the
                           provider's claim, including a provider's objection
                           to:

                           (1) any determination by the Contractor regarding
                           payment for a claim submitted by the provider,
                           including the amount of such payment; and



MCO Renewel Contract            Page 8 of 27             Managed Health Services




<PAGE>

                           (2) the Contractor's determination that a claim
                           submitted by the provider lacks sufficient supporting
                           information, records, or other materials;

                  d.       may, at the election of a provider, be utilized to
                           determine the payment due for a claim in the event
                           the Contractor fails, within thirty (30) days after
                           the provider submits the claim, to notify the
                           provider of:

                           (1) its determination regarding payment for the
                           provider's claim; or

                           (2) its determination that the provider's claim
                           lacked sufficient supporting information, records, or
                           other materials;

                  e.       shall be commenced by a provider submitting to the
                           Contractor:

                           (1) within sixty (60) days after the provider's
                           receipt of written notification of the Contractor's
                           determination regarding the provider's claim, the
                           provider's written objection to the Contractor's
                           determination and an explanation of the objection; or

                           (2) within sixty (60) days after the Contractor fails
                           to make a determination as described in subparagraph
                           (d), a written notice of the provider's election to
                           utilize the informal claims resolution procedure
                           under subparagraph (d) above;

                  f.       shall allow providers and the Contractor to make
                           verbal inquiries and to otherwise informally
                           undertake to resolve the matter submitted for
                           resolution by the provider.

         4.       In the event the matter submitted for informal resolution is
                  not resolved to the provider's satisfaction within thirty (30)
                  days after the provider commenced the informal claim
                  resolution procedure, the provider shall have sixty (60) days
                  from that point to submit to the Contractor written
                  notification of the provider's election to submit the matter
                  to the formal claim resolution procedure. The provider's
                  notice must specify the basis of the provider's dispute with
                  the Contractor. The Contractor's receipt of the provider's
                  written notice shall commence the formal claim resolution
                  procedure.

         5.       The formal claim resolution procedure shall be conducted by a
                  panel of one (1) or more individuals selected by the
                  Contractor. Each panel must be knowledgeable about the policy,
                  legal, and clinical issues involved in the matter that is the
                  subject of the formal claim resolution procedure. An
                  individual who has been involved in any previous consideration
                  of the matter by the Contractor may not serve on the panel.
                  The Contractor's medical director, or another licensed
                  physician designated by the medical director, shall serve as a
                  consultant to the panel in the event the matter involves a
                  question of medical necessity or medical appropriateness.

         6.       The panel shall consider all information and material
                  submitted to it by the provider that bears directly upon an
                  issue involved in the matter that is the subject of the formal



MCO Renewel Contract            Page 9 of 27             Managed Health Services




<PAGE>

                  claim resolution procedure. The panel shall allow the provider
                  an opportunity to appear in person before the panel, or to
                  communicate with the panel through appropriate other means if
                  the provider is unable to appear in person, and question the
                  panel in regard to issues involved in the matter. The provider
                  shall not be required to be represented by an attorney for
                  purposes of the formal claim review procedure.

         7.       Within forty-five (45) days after the commencement of the
                  formal claim resolution procedure, the panel shall deliver to
                  the provider the panel's written determination of the matter
                  before it. Such determination shall be the Contractor's final
                  position in regard to the matter. The written determination
                  shall include, as applicable, a detailed explanation of the
                  factual, legal, policy and clinical basis of the panel's
                  determination.

         8.       In the event the panel fails to deliver to the provider the
                  panel's written determination within forty-five (45) days
                  after the after the commencement of the formal claim
                  resolution procedure, such failure on the part of the panel
                  shall have the effect of a denial by the panel of the
                  provider's claim.

         9.       The panel's written determination shall include notice to the
                  provider of the provider's right, within sixty (60) days after
                  the provider's receipt of the panel's written determination,
                  to submit to binding arbitration the matter that was the
                  subject of the formal claim resolution procedure. The provider
                  shall also have the right to submit the matter to binding
                  arbitration if the panel has failed to deliver its written
                  determination to the provider within the required forty-five
                  (45) day period.

         10.      Any procedure involving binding arbitration must be conducted
                  in accordance with the rules and regulations of the American
                  Health Lawyers Association (AHLA), pursuant to the Uniform
                  Arbitration Act as adopted in the State of Indiana at I.C.
                  34-57-2, unless the provider and Contractor mutually agree to
                  some other binding resolution procedure. However, any
                  Contractor and provider that are subject to statutorily
                  imposed arbitration procedures for the resolution of these
                  claims shall be required to follow the statutorily imposed
                  arbitration procedures, but only to the extent those
                  procedures differ from, or are irreconcilable with, the rules
                  and regulations of the American Health Lawyers Association
                  (AHLA), pursuant to the Uniform Arbitration Act as adopted in
                  the State of Indiana at I.C. 34-57-2.

         11.      A provider may, within the requisite sixty (60) day time
                  period, include in a single arbitration proceeding matters
                  from multiple formal claim resolution procedures involving the
                  Contractor and the provider.

         12.      For claims disputed under Paragraph 3. c. (2) above:

                  a.       a claim that is finally determined through the
                           Contractor's claim resolution procedure (including
                           arbitration) not to lack sufficient supporting
                           documentation shall be processed by the Contractor
                           within thirty (30) days after such final



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<PAGE>

                           determination. The processing of the claim and the
                           Contractor's determination involving the claim shall
                           be subject to Paragraph 3. c. and Paragraph 3. d. and
                           the Contractor's formal claim resolution procedure
                           and binding arbitration.

                  b.       a claim that is finally determined through the
                           Contractor's claim resolution procedure (including
                           arbitration) to lack sufficient supporting
                           documentation shall be processed by the Contractor
                           within thirty (30) days after the provider submits to
                           the Contractor the requisite supporting
                           documentation. The provider shall have thirty (30)
                           days after written notice of the final determination
                           establishing that the claim lacked sufficient
                           supporting documentation is received by the provider
                           to submit the requisite supporting documentation. The
                           processing of the claim and the Contractor's
                           determination involving the claim shall be subject to
                           Paragraph 3. c. and Paragraph 3. d. and the
                           Contractor's formal claim resolution procedure and
                           binding arbitration.

         13.      A Contractor may not include in its claim resolution
                  procedures elements that restrict or diminish the claim review
                  procedures, time periods or subject matter provided for in
                  paragraphs 1 through l2 above.

         14.      A Contractor shall maintain a log of all informally and
                  formally filed provider objections to determinations involving
                  claims. The logged information shall include the provider's
                  name, date of objection, nature of the objection, and
                  disposition. The Contractor shall submit quarterly reports to
                  the Offices regarding the number and type of provider
                  objections.

R.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.1.3 of the BAA is amended
         to require the Contractor to submit the "Mandatory RBMC Transition
         Report" (Attachment A) according the schedule set out in the "2002
         Hoosier Healthwise MCO Reporting Calendar for Mandatory RBMC Transition
         Report" (Attachment B), unless the MCO has received written
         notification from OMPP that the report, or certain data elements in the
         report, is/are no longer required or may be reported less frequently.
         Pursuant to the reporting calendar (Attachment B), the final submission
         shall be due on January 6, 2003.

S.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.3 of the BAA is amended to
         require the Contractor to obtain written approval of the State prior to
         closing its provider networks, which shall not be unreasonably withheld
         or delayed.

T.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Sections 3.6.6 and 3.6.7.3 of the BAA
         are amended to require the Contractor to maintain a monthly telephone
         abandonment rate equal to or less than five percent of calls received
         each by the member helpline and provider helpline. The parties agree
         that BAA Section 3.16 is amended to add a new section 3.16.8 to read as
         follows:



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<PAGE>


         Section 3.16.8 The MCO will comply with the call abandonment
         requirements for the member and provider helplines described in
         Sections 3.6.6. and 3.6.7.3 of this BAA. Because actual damages caused
         by non-compliance are not subject to exact determination, the State
         will assess the MCO, as liquidated damages and not as a penalty, (a)
         two hundred dollars ($200.00) for each business day the MCO fails to
         submit required documentation to provide evidence of compliance with
         this requirement, or (b) two thousand dollars ($2000.00) for each month
         the MCO fails to meet the requirement after 2 consecutive months of
         non-compliance on the member helpline or (c) two thousand dollars
         ($2000.00) for each month the MCO fails to meet the requirement after 2
         consecutive months of non-compliance on the provider helpline.

U.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.5.3 of the BAA is amended to
         allow OMPP to change, at OMPP's discretion, the frequency of the MCO
         Enrollment Rosters generated by OMPP's fiscal agent to once per month,
         upon reasonable and adequate prior written notice to the Contractor.

V.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, Section 3.6.3 of the BAA is amended to
         require the Contractor to develop and adhere to a plan for identifying
         and serving people with special needs. The plan must satisfy any
         applicable federal requirements.

W.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, the Contractor agrees to provide OMPP
         with prior written notice at least ninety (90) days in advance of their
         inability to maintain a sufficient Primary Medical Provider (PMP)
         network in any of the counties where mandatory RBMC has been or will be
         implemented, including Marion, Allen, Elkhart, St. Joseph, Lake,
         Hamilton, and Vanderburgh Counties, such that the program would not be
         able to maintain the appropriate member choice of two (2) MCOs,
         pursuant to federal requirements.

X.       In accordance with the First Amendment to the original contract between
         the parties dated April 1, 2002, the Contractor agrees that agreements
         with PMPs in mandatory counties shall comply with the following
         requirements:

         1.       Any PMP agreements entered into on or after April 1, 2002,
                  shall include a provision allowing the PMP to terminate the
                  agreement for any reason upon written notice to the
                  Contractor. The Contractor may require that the physician
                  provide said notice to the Contractor up to ninety (90) days
                  prior to termination.

         2.       Any PMP agreements entered into before April 1, 2002, in which
                  the initial term, as defined in the agreement, will expire on
                  or after June 30, 2002, will be amended by July 1, 2002, to
                  allow the PMP to terminate the agreement for any reason upon
                  written notice to the Contractor. The Contractor may require
                  that the physician provide said notice to the Contractor up to
                  ninety (90) days prior to termination. The Contractor agrees
                  to notify these PMPs, by April 30, 2002, that their agreements
                  will be amended and that they may terminate the agreement upon
                  ninety (90) days written notice.



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<PAGE>


         3.       Existing PMP agreements in which the initial term expired
                  before July 1, 2002, may be terminated by the PMP for any
                  reason upon one hundred twenty (120) days written notice to
                  the Contractor. The Contractor agrees to notify the PMPs whose
                  initial agreement term has expired that they may terminate the
                  agreement upon one hundred twenty (120) days written notice.
                  If an agreement described in this paragraph is amended for any
                  reason, the agreement shall include a provision allowing the
                  PMP to terminate the agreement for any reason upon written
                  notice to the Contractor. The Contractor may require that the
                  physician provide said notice to the Contractor up to ninety
                  (90) days prior to termination.


           //The remainder of this page is intentionally left blank.//




MCO Renewel Contract           Page 13 of 27             Managed Health Services

<PAGE>




                                   IV. PAYMENT

A.       In consideration of the services to be performed by the Contractor, the
         Offices agree to pay the Contractor the following amounts per month per
         enrolled member as contained in the Offices' capitation payment listing
         based upon the capitation rates by category and benefit package as
         listed below:

<TABLE>
<CAPTION>
                    --------------------------------------------------------------------------------------
                                                    2003 CAPITATION RATES
                    ------------------------ -------------------------------- ----------------------------
                    CATEGORY                          PACKAGES A/B                     PACKAGE C
                    ======================== ================================ ============================
                    NORTH REGION
                    ======================== ================================ ============================
<S>                 <C>                      <C>                              <C>
                    Newborns                             $345.03                        $120.80
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $73.77                         $77.43
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $60.75                         $65.44
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $92.44                         $94.60
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $255.16
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $199.62
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,380.41/delivery             $3,393.54/delivery
                    ======================== ================================ ============================
                    CENTRAL REGION
                    ======================== ================================ ============================
                    Newborns                             $362.15                        $119.28
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $77.43                         $76.45
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $63.73                         $64.62
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $97.03                         $93.42
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $267.82
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $209.53
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,481.35/delivery             $3,491.61/delivery
                    ======================== ================================ ============================
                    SOUTH REGION
                    ======================== ================================ ============================
                    Newborns                             $348.38                        $116.83
                    ------------------------ -------------------------------- ----------------------------
                    Preschool                            $74.48                         $74.88
                    ------------------------ -------------------------------- ----------------------------
                    Children                             $61.31                         $63.29
                    ------------------------ -------------------------------- ----------------------------
                    Adolescents                          $93.34                         $91.49
                    ------------------------ -------------------------------- ----------------------------
                    Adult Males                          $257.64
                    ------------------------ -------------------------------- ----------------------------
                    Adult Females                        $201.56
                    ------------------------ -------------------------------- ----------------------------
                    Deliveries                     $3,544.51/delivery             $3,544.51/delivery
                    ------------------------ -------------------------------- ----------------------------
</TABLE>

B.       The actuarial basis for computing the rates set forth above is as
         follows: The capitation rates have been determined from historical
         Hoosier Healthwise claim experience for the PCCM enrollees. The
         historical experience has been adjusted to reflect anticipated trend in
         the Hoosier Healthwise program, cost containment initiatives, morbidity
         variations between the PCCM and RBMC enrollees, and anticipated managed
         care utilization adjustments. The Offices may rely on self-report RBMC
         experience to determine appropriate managed care utilization
         adjustments and other morbidity variation adjustments.

C.       The parties agree that the Offices have the option to adjust the
         capitation rates annually. In the event that the Offices adjust the
         fee-for-service (FFS) rates, the Offices may, in its sole discretion,
         further adjust the capitation rates in accordance with the FFS




MCO Renewel Contract           Page 14 of 27             Managed Health Services

<PAGE>

         adjustment. If the Offices made such an adjustment, it shall apply only
         to the specific service component of the capitation rate that
         corresponds to the FFS adjustment. Any capitation rates adjusted due to
         a change in the FFS program may be further adjusted to ensure actuarial
         soundness. All adjustments are subject to federal regulations for risk
         contracts. Rates revised under this provision shall be implemented only
         after a contract amendment is executed and approved.

D.       All payment obligations of the Offices are subject to the encumbrance
         of monies and shall be paid to the Contractor on the first Wednesday
         after the fifteenth of the month.

E.       The capitation payment will be prospective, based upon the number of
         enrollees assigned to the Contractor as of the first of the month. The
         Offices will establish an administrative procedure to allow retroactive
         or other payment adjustments as necessary to implement this contract.

F.       The Contractor will be provided a capitation payment listing which
         includes a detailed listing of all enrollees for which the Contractor
         is receiving a capitation payment.

G.       It is understood and agreed upon by the parties that all obligations of
         the State of Indiana are contingent upon the availability and continued
         appropriation of State and Federal funds, and in no event shall the
         State of Indiana be liable for any payments in excess of available
         appropriated funds.

H.       When the Director of the State Budget Agency makes a written
         determination that funds are not appropriated or otherwise available to
         support continuation of performance of this Contract, the Contract
         shall be cancelled. A determination by the State Budget Director that
         funds are not appropriated or otherwise available to support
         continuation of performance shall be final and conclusive.



                             V. ORDER OF PRECEDENCE

Any inconsistency or ambiguity in this Contract shall be resolved by giving
precedence in the following order:

         1)       The express terms of this contract;

         2)       Attachment 1 - BAA 01-28, released July 31, 2000, and
                  Attachment 3 - First Amendment to the original contract,
                  effective April 1, 2002;

         3)       Attachment 2 - Contractor's response to the BAA;

         4)       Any other documents, standards, laws, rules or regulations
                  incorporated by reference in the above materials, all of which
                  are hereby incorporated by reference.




MCO Renewel Contract           Page 15 of 27             Managed Health Services



<PAGE>


                                   VI. NOTICE

A.       Whenever notice is required to be given to the other party, it shall be
         made in writing and delivered to that party. Delivery shall be deemed
         to have occurred if a signed receipt is obtained when delivered by hand
         or according to the date on the return receipt if sent by certified
         mail, return receipt requested. Notices shall be addressed as follows:

<TABLE>
<S>     <C>                                                   <C>
         In case of notice to the Contractor:                 In case of notice to the Offices:

         Rita Johnson-Mills, President                        John Barth, Managed Care Director
         Managed Health Services                              Office of Medicaid Policy and Planning
         1099 North Meridian, Suite 400                       Family and Social Services Administration
         Indianapolis, IN  46204                              402 W. Washington St., IGCS W382, MS07
                                                              Indianapolis, Indiana 46204
</TABLE>

B.       Said notices shall become effective on the date of delivery or the date
         specified within the notice, whichever comes later. Either party may
         change its address for notification purposes by mailing a notice
         stating the change and setting forth the new address.


                          VII. MISCELLANEOUS PROVISIONS


A.       Entire Agreement. This Contract constitutes the entire agreement
         between the parties with respect to the subject matter; all prior
         agreements, representations, statements, negotiations, and undertakings
         are superseded hereby.

B.       Changes. Any changes to this Contract shall be by formal amendment of
         this Contract signed by all parties required by Indiana law.

C.       Termination. The Office may, without cause, cancel and terminate this
         Contract in whole or in part upon sixty (60) days' prior written
         notice. The Contractor will be reimbursed for services performed prior
         to the date of termination consistent with the terms of the Contract.
         The Office will not be liable for services performed after notice of
         termination, but before the date of termination, without written
         authorization from the Office. In no event will the Office be liable
         for services performed after the termination date.

         In the event that the Office requests that the Contractor perform any
         additional services associated with the transition or turnover of the
         contract, the Office agrees to pay reasonable costs for those
         additional services specifically requested by the Office. Any
         additional services and costs must receive prior approval in writing by
         the Office.

D.       Disputes. Should any disputes arise with respect to this Contract, the
         Contractor and the State of Indiana agree to act immediately to resolve
         any such disputes. Time is of the essence in the resolution of
         disputes.




MCO Renewel Contract           Page 16 of 27             Managed Health Services

<PAGE>


         The Contractor agrees that, the existence of a dispute notwithstanding,
         it will continue without delay to carry out all of its responsibilities
         under this Contract which are not affected by the dispute. Should the
         Contractor fail to continue without delay to perform its
         responsibilities under this Contract in the accomplishment of all
         non-disputed work, any additional costs incurred by the Contractor or
         the State of Indiana as a result of such failure to proceed shall be
         borne by the Contractor, and the Contractor shall make no claim against
         the State of Indiana for such costs. If the Contractor and the State of
         Indiana cannot resolve a dispute within ten (10) working days following
         notification in writing by either party of the existence of said
         dispute, then the following procedure shall apply:

         1.       The parties agree to resolve such matters through submission
                  of their dispute to the Commissioner of the Indiana Department
                  of Administration who shall reduce a decision to writing and
                  mail or otherwise furnish a copy thereof to the Contractor and
                  the State of Indiana within ten (10) working days after
                  presentation of such dispute for decision. The Commissioner's
                  decision shall be final and conclusive unless either party
                  mails or otherwise furnishes to the Commissioner, within ten
                  (10) working days after receipt of the Commissioner's
                  decision, a written appeal. Within ten (10) working days of
                  receipt by the Commissioner of a written request for appeal,
                  the decision may be reconsidered. If no reconsideration is
                  provided within ten (10) working days the Contractor may
                  submit the dispute to an Indiana court of competent
                  jurisdiction.

         2.       The State of Indiana may withhold payments on disputed items
                  pending resolution of the dispute. The non-payment by the
                  State of Indiana to the Contractor of one or more invoices not
                  in dispute shall not constitute default, however, the
                  Contractor may bring suit to collect such monies without
                  following the disputes procedure contained herein.

E.       Debarment and Suspension. Contractor certifies, by entering into this
         agreement, that neither it nor its principals are presently debarred,
         suspended, proposed for debarment, declared ineligible, or voluntarily
         excluded from entering into this agreement by any federal agency or
         department, agency or political subdivision of the State of Indiana.
         The term "principal" for the purposes of this agreement is defined as
         an officer, director, owner, partner, key employee, or other person
         with primary management or supervisory responsibilities or a person who
         has a critical influence on or substantive control over the operations
         of the Contractor.

F.       Compliance with Laws. The Contractor agrees to comply with all
         applicable Federal, State, and local laws, rules, regulations, or
         ordinances, and all provisions required thereby to be included herein
         are hereby incorporated by reference. The enactment of any state or
         federal statute or the promulgation of regulations thereunder after
         execution of this Contract shall be reviewed by the State and the
         Contractor to determine whether the provisions of the Contract require
         formal modification.



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<PAGE>


G.       Indemnification. Contractor agrees to indemnify, defend, and hold
         harmless the State of Indiana and its agents, officers, and employees
         from all claims and suits including court costs, attorney's fees, and
         other expenses caused by any act or omission of the Contractor and/or
         its subcontractors, if any. The State shall not provide such
         indemnification to the Contractor.

H.       Nondiscrimination. Pursuant to IC 22-9-1-10 and the Civil Rights Act of
         1964, Contractor and its subcontractors shall not discriminate against
         any employee or applicant for employment in the performance of this
         contract. The Contractor shall not discriminate with respect to the
         hire, tenure, terms, conditions or privileges of employment or any
         matter directly or indirectly related to employment, because of race,
         color, religion, sex, disability, national origin or ancestry. Breach
         of this covenant may be regarded as a material breach of contract.
         Acceptance of this Contract also signifies compliance with applicable
         federal laws, regulations, and executive orders prohibiting
         discrimination in the provision of services based on race, color,
         national origin, age, sex, disability, or status as a veteran. The
         Contractor understands that the State is a recipient of federal funds.
         Pursuant to that understanding, the Contractor and its subcontractor,
         if any, agree that if the Contractor employs fifty (50) or more
         employees and does at least fifty-thousand dollars ($50,000.00) worth
         of business with the State and is not exempt, the Contractor will
         comply with the affirmative action reporting requirements of 41
         C.F.R.ss.60-1.7, if applicable. The Contractor shall comply with
         Section 202 of Executive Order 11246, as amended, 41 C.F.R.ss.60-250,
         and 41 C.F.R.ss.60-741, as amended, which are incorporated herein by
         specific reference. Breach of this covenant may be regarded as a
         material breach of contract.

I.       Confidentiality of State of Indiana Information. The Contractor
         understands and agrees that data, materials and information disclosed
         to the Contractor may contain confidential and protected data;
         therefore, the Contractor promises and assures that data, material, and
         information gathered, based upon or disclosed to the Contractor for the
         purpose of this Contract will not be disclosed to others or discussed
         with other parties without the prior written consent of the State of
         Indiana.

J.       Confidentiality of Data, Property Rights in Products, and Copyright
         Prohibition. The Contractor further agrees that all information, data,
         findings, recommendations, proposals, etc., by whatever name described
         and by whatever form therein, secured, developed, written, or produced
         by the Contractor in furtherance of this Contract shall be the property
         of the State of Indiana. The Contractor shall take such action as is
         necessary under law to preserve such property rights in and of the
         State of Indiana while such property is within the control and/or
         custody of the Contractor. By this Contract the Contractor specifically
         waives and/or releases to the State of Indiana any cognizable property
         right in the Contractor to copyright or patent such information, data,
         findings, recommendations, proposals, etc.

K.       Ownership of Documents and Materials. All documents, records, programs,
         data, film, tape, articles, memoranda, and other materials developed
         under this Contract shall be considered "work for hire" and the
         Contractor transfers any ownership claim to the State of Indiana and



MCO Renewel Contract           Page 18 of 27             Managed Health Services

<PAGE>


         all such matters will be the property of the State of Indiana. Use of
         these materials, other than related to contract performance by the
         Contractor, without the prior written consent of the State of Indiana
         is prohibited. During the performance of the services specified herein,
         the Contractor shall be responsible for any loss or damage to these
         materials developed for or supplied by the State of Indiana and used to
         develop or assist in the services provided herein, while they are in
         the possession of the Contractor, and any loss or damage thereto shall
         be restored at the Contractor's expense. Full, immediate and
         unrestricted access to the work product of the Contractor during the
         term of this Contract shall be available to the State of Indiana. The
         Contractor will give to the State of Indiana, or the State of Indiana's
         designee, all records of other materials described in this section,
         after termination of the Contract and upon five (5) days notice of a
         request from the State of Indiana.

L.       Conveyance of Documents And Continuation of Existing Activity: Should
         the Contract for whatever reason, (i.e. completion of a contract with
         no renewal, or termination of service by either party), be discontinued
         and the activities as provided for in the Contract for services cease,
         the Contractor and any subcontractors employed by the terminating
         Contractor in the performance of the duties of the Contract shall
         promptly convey to the State of Indiana, copies of all vendor working
         papers, data collection forms, reports, charts, programs, cost records
         and all other material related to work performed on this Contract.

         The Contractor and the Office shall convene immediately upon
         notification of termination or non-renewal of the Contract to determine
         what work shall be suspended, what work shall be completed, and the
         time frame for completion and conveyance. The Office will then provide
         the Contractor with a written schedule of the completion and conveyance
         activities associated with termination. Documents/materials associated
         with suspended activities shall be conveyed by the Contractor to the
         State of Indiana upon five days' notice from the State of Indiana. Upon
         completion of those remaining activities noted on the written schedule,
         the Contractor shall also convey all documents and materials to the
         State of Indiana upon five days' notice from the State of Indiana.

M.       Independent Contractor. The Office and the Contractor acknowledge and
         agree that in the performance of this contract, the Contractor is an
         independent contractor and both parties will be acting in an individual
         capacity and not an as agents, employees, partners, joint venturers,
         officers, or associates of one another. The employees or agents of one
         party shall not be deemed or construed to be the employees or agents of
         the other party for any purposes whatsoever. Neither party will assume
         any liability for any injury (including death) to any persons, or
         damage to any property arising out of the acts or omissions of the
         agents, employees or subcontractors of the other party.

         The Contractor shall be responsible for providing all necessary
         unemployment and worker compensation insurance for the Contractor's
         employees.

N.       Work Standards. The Contractor agrees to execute its respective
         responsibilities by following and applying at all times the highest
         professional and technical guidelines and standards. If the State



MCO Renewel Contract           Page 19 of 27             Managed Health Services

<PAGE>


         becomes dissatisfied with the work product or the working relationship
         with those individuals assigned to work on this Contract, the State may
         request in writing the replacement of any or all such individuals and
         the Contractor shall grant such a request.

O.       Governing Laws. This Contract shall be construed in accordance with and
         governed by the laws of the State of Indiana and suit, if any, must be
         brought in the State of Indiana.

P.       Severability. The invalidity in whole or in part of any provision of
         this Contract shall not void or affect the validity of any other
         provision.

Q.       Waiver of Rights. No right conferred on either party under this
         Contract shall be deemed waived and no breach of this Contract deemed
         excused, unless such waiver or excuse shall be in writing and signed by
         the party claimed to have waived such right.

         Failure of the Office to enforce at any time any provision of this
         Contract shall not be construed as a waiver thereof. The remedies
         herein reserved shall be cumulative and additional to any other
         remedies in law or equity.

R.       Taxes. The State of Indiana is exempt from all State, Federal and local
         taxes. The State will not be responsible for any taxes levied on the
         Contractor as a result of this Contract.

S.       Force Majeure, Suspension and Termination. In the event either party is
         unable to perform any of its obligations under this Contract or to
         enjoy any of its benefits because of (or if failure to perform the
         service is caused by) natural disaster, actions or decrees of
         governmental bodies, or communication line failure not the fault of the
         affected party (hereinafter referred to as a "Force Majeure Event"),
         the party who has been so affected shall immediately give notice to the
         other party and shall take reasonable measures to resume performance.
         Upon receipt of such notice, all obligations under this Contract shall
         be immediately suspended. If the period of non-performance exceeds
         thirty (30) days from the receipt of notice of the Force Majeure Event,
         the party whose ability to perform has not been so affected may, by
         giving written notice, terminate this Contract.

T.       Assignment. The Contractor shall not assign or subcontract the whole or
         any part of this Contract without the State's prior written consent.
         The Contractor may assign its right to receive payments to such third
         parties as the Contractor may desire without the prior written consent
         of the State, provided that the Contractor gives written notice
         (including evidence of such assignment) to the State thirty (30) days
         in advance of any payment so assigned. The assignment shall cover all
         unpaid amounts under this Contract and shall not be made to more than
         one party.

U.       Successors and Assignees. The Contractor binds its successors,
         executors, assignees, and administrators, to all covenants of this
         Contract. Except as set forth above, the Contractor shall not assign,
         sublet, or transfer the Contractor's interest in this Contract without
         the prior written consent of the Office.



MCO Renewel Contract           Page 20 of 27             Managed Health Services

<PAGE>


V.       Drug-Free Workplace Certification

         The Contractor hereby covenants and agrees to make a good faith effort
         to provide and maintain a drug-free workplace. Contractor will give
         written notice to the State within ten (10) days after receiving actual
         notice that the Contractor or an employee of the Contractor has been
         convicted of a criminal drug violation occurring in the contractor's
         workplace.

         False certification or violation of the certification may result in
         sanctions including, but not limited to, suspension of contract
         payments, termination of the contract or agreement and/or debarment of
         contracting opportunities with the State of Indiana for up to three (3)
         years.

         In addition to the provisions of the above paragraphs, if the total
         contract amount set forth in this agreement is in excess of $25,000.00,
         Contractor hereby further agrees that this agreement is expressly
         subject to the terms, conditions, and representations of the following
         certification:

         This certification is required by Executive Order No. 90-5, April 12,
         1990, issued by the Governor of Indiana. Pursuant to its delegated
         authority, the Indiana Department of Administration is requiring the
         inclusion of this certification in all contracts with and grants from
         the State of Indiana in excess of $25,000.00. No award of a contract
         shall be made, and no contract, purchase order or agreement, the total
         amount of which exceeds $25,000.00, shall be valid, unless and until
         this certification has been fully executed by the Contractor and made a
         part of the contract or agreement as part of the contract documents.

         The Contractor certifies and agrees that it will provide a drug-free
         workplace by:

         1.       Publishing and providing to all of its employees a statement
                  notifying employees that the unlawful manufacture,
                  distribution, dispensing, possession or use of a controlled
                  substance is prohibited in the Contractor's workplace and
                  specifying the actions that will be taken against employees
                  for violations of such prohibition;

         2.       Establishing a drug-free awareness program to inform employees
                  of (1) the dangers of drug abuse in the workplace; (2) the
                  Contractor's policy of maintaining a drug-free workplace; (3)
                  any available drug counseling, rehabilitation, and employee
                  assistance programs; and (4) the penalties that may be imposed
                  upon an employee for drug abuse violations occurring in the
                  workplace;

         3.       Notifying all employees in the statement required by
                  subparagraph (1) above that as a condition of continued
                  employment the employee will (A) abide by the terms of the
                  statement; and (B) notify the Contractor of any criminal drug
                  statute conviction for a violation occurring in the workplace
                  no later than five (5) days after such conviction;



MCO Renewel Contract           Page 21 of 27             Managed Health Services

<PAGE>


         4.       Notifying in writing the State within ten (10) days after
                  receiving notice from an employee under subdivision (3)(B)
                  above, or otherwise receiving actual notice of such
                  conviction;

         5.       Within thirty (30) days after receiving notice under
                  subdivision (3)(B) above of a conviction, imposing the
                  following sanctions or remedial measures on any employee who
                  is convicted of drug abuse violations occurring in the
                  workplace: (1) take appropriate personnel action against the
                  employee, up to and including termination; or (2) require such
                  employee to satisfactorily participate in a drug abuse
                  assistance or rehabilitation program approved for such
                  purposes by a Federal, State or local health, law enforcement,
                  or other appropriate agency; and

         Making a good faith effort to maintain a drug-free workplace through
         the implementation of subparagraphs (1) through (5) above.

W.       Lobbying Activities. Pursuant to 31 U.S.C.ss.1352, and any regulations
         promulgated thereunder, the Contractor hereby assures and certifies
         that no federally appropriated funds have been paid, or will be paid,
         by or on behalf of the Contractor, to any person for influencing or
         attempting to influence an officer or employee of any agency, a member
         of Congress, an officer or employee of Congress, or an employee of a
         member of Congress, in connection with the awarding of any federal
         contract, the making of any federal grant, the making of any federal
         loan, the entering into of any cooperative contract, and the extension,
         continuation, renewal, amendment, or modification of any federal
         contract, grant, loan or cooperative contract. If any funds other than
         federally appropriated funds have been paid or will be paid to any
         person for influencing or attempting to influence an officer or
         employee of any agency, a member of Congress, an officer or employee of
         Congress, or an employee of a member of Congress in connection with
         this Contract, the Contractor shall complete and submit Standard
         Form-LLL, "Disclosure Form to Report Lobbying", in accordance with its
         instructions.

X.       Access to Records. The Contractor and any subcontractor shall maintain
         all books, documents, papers, accounting records, and any other
         evidence pertaining to the cost incurred under this agreement.
         Contractor and any subcontractors shall make such materials available
         at all reasonable times during the contract period and for three (3)
         years from the date of final payment under the Contract or until all
         pending matters are closed, whichever date is later, for inspection by
         the Office, or any other duly authorized representative of the State of
         Indiana or the Federal government. Copies thereof shall be furnished at
         no cost to the State if requested.

Y.       Environmental Standards. If the contract amount set forth in this
         Contract is in excess of $100,000, the Contractor shall comply with all
         applicable standards, orders, or requirements issued under section 306
         of the Clean Air Act (42 U.S.C. ss. 7606), section 508 of the Clean
         Water Act (33 U.S.C. ss. 1368), Executive Order 11738, and
         Environmental Protection Agency regulations (40 C.F.R. Part 32), which
         prohibit the use under non-exempt Federal contracts of facilities



MCO Renewel Contract           Page 22 of 27             Managed Health Services

<PAGE>


         included on the EPA List of Violating Facilities. The Contractor shall
         report any violations of this paragraph to the State of Indiana and to
         the United States Environmental Protection Agency Assistant
         Administrator for Enforcement.

Z.       Conflict of Interest

         1.       As used in this section:

                  "Immediate family" means the spouse and the unemancipated
                  children of an individual.

                  "Interested party" means:

                  a.       The individual executing this Contract;

                  b.       An individual who has an interest of three percent
                           (3%) or more of the Contractor if the Contractor is
                           not an individual; or

                  c.       Any member of the immediate family of an individual
                           specified under subdivision a or b.

                  "Department" means the Indiana Department of Administration.

                  "Commission" means the State Ethics Commission.

         2.       The Department may cancel this Contract without recourse by
                  the Contractor if any interested party is an employee of the
                  State of Indiana.

         3.       The Department will not exercise its right of cancellation
                  under section 2 above if the Contractor gives the Department
                  an opinion by the Commission indicating that the existence of
                  this Contract and the employment by the State of Indiana of
                  the interested party does not violate any statute or code
                  relating to ethical conduct of state employees. The Department
                  may take action, including cancellation of this Contract
                  consistent with an opinion of the Commission obtained under
                  this section.

         4.       The Contractor has an affirmative obligation under this
                  Contract to disclose to the Department when an interested
                  party is or becomes an employee of the State of Indiana. The
                  obligation under this section extends only to those facts
                  which the Contractor knows or reasonably could know.

AA.      Assurance of Compliance with Civil Rights Act of 1964, Section 504 of
         the Rehabilitation Act of 1973 and the Age Discrimination Act of 1975,
         the Americans with Disabilities Act of 1990 and Title IX of the
         Education Amendments of 1972: The Contractor agrees that it, and all of
         its subcontractors and providers, will comply with the following:



MCO Renewel Contract           Page 23 of 27             Managed Health Services

<PAGE>


         1.       Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352), as
                  amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Health and Human Services (45
                  C.F.R. Part 80), to the end that, in accordance with Title VI
                  of that Act and the Regulation, no person in the United States
                  shall on the ground of race, color, or national origin, be
                  excluded from participation in, be denied the benefits of, or
                  be otherwise subjected to discrimination under any program or
                  activity for which the Contractor receives Federal financial
                  assistance under this Contract.

         2.       Section 504 of the Rehabilitation Act of 1973 (Pub. L.
                  93-112), as amended, and all requirements imposed by or
                  pursuant to the Regulation of the Department of Health and
                  Human Services (45 C.F.R. Part 84), to the end that, in
                  accordance with Section 504 of that Act and the Regulation, no
                  otherwise qualified handicapped individual in the United
                  States shall, solely by reason of his/her handicap, be
                  excluded from participation in, be denied the benefits of, or
                  be subjected to discrimination under any program or activity
                  for which the Contractor receives Federal financial assistance
                  under this Contract.

         3.       The Age Discrimination Act of 1975 (Pub. L. 94-135), as
                  amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Health and Human Services (45
                  C.F.R. Part 91), to the end that, in accordance with the Act
                  and the Regulation, no person in the United States shall, on
                  the basis of age, be denied the benefits of, be excluded from
                  participation in, or be subjected to discrimination under any
                  program or activity for which the Contractor receives Federal
                  financial assistance under this Contract.

         4.       The Americans with Disabilities Act of 1990 (Pub. L. 101-336),
                  as amended, and all requirements imposed by or pursuant to the
                  Regulation of the Department of Justice (28 C.F.R. 35.101 et
                  seq.), to the end that in accordance with the Act and
                  Regulation, no person in the United States with a disability
                  shall, on the basis of the disability, be excluded from
                  participation in, be denied the benefits of, or otherwise be
                  subjected to discrimination under any program or activity for
                  which the Contractor receives Federal financial assistance
                  under this Contract.

         5.       Title IX of the Education Amendments of 1972, as amended (20
                  U.S.C. ss.ss. 1681-1683, and 1685-1686), and all requirements
                  imposed by or pursuant to regulation, to the end that, in
                  accordance with the Amendments, no person in the United States
                  shall, on the basis of sex, be excluded from participation in,
                  be denied the benefits of, or otherwise be subjected to
                  discrimination under any program or activity for which the
                  Contractor receives Federal financial assistance under this
                  Contract.

         The Contractor agrees that compliance with this assurance constitutes a
         condition of continued receipt of Federal financial assistance, and
         that it is binding upon the Contractor, its successors, transferees and
         assignees for the period during which such assistance is provided. The
         Contractor further recognizes that the United States shall have the
         right to seek judicial enforcement of this assurance.



MCO Renewel Contract           Page 24 of 27             Managed Health Services

<PAGE>


BB.      Security and Privacy of Health Information. The Contractor agrees to
         comply with all requirements of the Health Insurance Portability and
         Accountability Act of 1996 (HIPAA in all activities related to this
         contract, to maintain compliance throughout the life of the contract,
         to operate any systems used to fulfill the requirements of this
         contract in full compliance with HIPAA and to take no action which
         adversely affects the State's HIPAA compliance.

         The parties acknowledge that the Department of Health and Human
         Services has issued the Final Rule, as amended from time to time on the
         Standards for Privacy of Individually Identifiable Health Information,
         as required by the Administrative Simplification Section of the Health
         Insurance Portability and Accountability Act of 1996 (HIPAA). To the
         extent required by the provisions of HIPAA and regulations promulgated
         thereunder, the Contractor assures that it will appropriately safeguard
         Protected Health Information (PHI), as defined by the regulations,
         which is made available to or obtained by the Contractor in the course
         of its work under the contract. The Contractor agrees to comply with
         applicable requirements of law relating to PHI with respect to any task
         or other activity it performs for the Office including, as required by
         the final regulations:

         1.       Not using or further disclosing PHI other than as permitted or
                  required by this Contract or by applicable law;

         2.       Using appropriate safeguards to prevent use or disclosure of
                  PHI other than as provided by this Contract or by applicable
                  law;

         3.       Reporting to the Office any use or disclosure by the
                  Contractor, its agent, employees, subcontractors or third
                  parties, of PHI obtained under this Contract in a manner not
                  provided for by this Contract or by applicable law of which
                  the Contractor becomes aware;

         4.       Ensuring that any subcontractors or agents to whom the
                  Contractor provides PHI received from, or created or received
                  by the Contractor on behalf of the Office agrees to the same
                  restrictions, conditions and obligations applicable to such
                  party regarding PHI;

         5.       Making the Contractor's internal practices, books and records
                  related to the use of disclosure of PHI received from, or
                  created or received by the Contractor on behalf of the Office
                  available to the Secretary of the United States Department of
                  Health and Human Services for purposes of determining the
                  Office's compliance with applicable law. The Contractor shall
                  immediately notify the Office upon receipt by the Contractor
                  of any such request, and shall provide the Office with copies
                  of any materials made available in response to such a request;

         6.       Making available the information required to provide an
                  accounting of disclosures pursuant to applicable law; and

         7.       At the termination of this Contract, returning or destroying
                  all PHI obtained under this Contract.



MCO Renewel Contract           Page 25 of 27             Managed Health Services

<PAGE>


CC.      Substantial Performance. This Contract shall be deemed to be
         substantially performed only when fully performed according to its
         terms and conditions and any modification thereof.

DD.      Penalties/Interest/Attorney's Fees. The State will in good faith
         perform its required obligations hereunder and does not agree to pay
         any penalties, liquidated damages, interest, or attorney's fees, except
         as required by Indiana law, in part, IC 5-17-5, IC 34-54-8, and IC
         34-13-1.

EE.      Authority to Bind Contractor. Notwithstanding anything in the Contract
         to the contrary, the signatory for the Contractor represents that
         he/she has been duly authorized to execute contracts on behalf of the
         Contractor designated herein and has obtained all necessary or
         applicable approval from the home office of the Contractor, if
         applicable, to make this, the contract, fully binding upon the
         Contractor when his/her signature is affixed and is not subject to home
         office acceptance hereto when accepted by the State of Indiana.

FF.      Performance Bond. The Contractor agrees that a performance bond in the
         amount of five hundred thousand dollars ($500,000.00) will be
         maintained by the Indiana Department of Administration (IDOA). Said
         bond will be in the form of a cashier's check, a certified check, or a
         surety bond executed by a surety company authorized to do business in
         the State of Indiana as approved by the Insurance Department of State
         of Indiana. No other check or surety will be accepted. The performance
         bond shall be made payable to the IDOA and shall be effective for the
         duration of the contract and any extensions thereof. The State reserves
         the right to increase the performance bond amount if enrollment levels
         indicate the need for higher liquidated damages.

GG.      Non-Collusion and Acceptance. The undersigned attests, subject to the
         penalties for perjury, that he/she is the contracting party, or that
         he/she is the representative, agent, member or officer of the
         contracting party, that he/she has not, nor has any other member,
         employee, representative, agent, or officer of the firm, company,
         corporation, or partnership represented by him/her, directly or
         indirectly, to the best of his/her knowledge, entered into or offered
         to enter into any combination, collusion, or agreement to receive or
         pay, and that he/she has not received or paid, any sum of money or
         other consideration for the execution of this agreement other than that
         which appears upon the face of the agreement.


         /// The remainder of this page is left intentionally blank. ///




MCO Renewel Contract           Page 26 of 27             Managed Health Services


<PAGE>



IN WITNESS WHEREOF, Coordinated Care Corporation Indiana, Inc., and the State of
Indiana have, through duly authorized representatives, entered into this
agreement. The parties having read and understand the foregoing terms of the
Contract do by their respective signatures dated below hereby agree to the terms
thereof.

For the Contractor:                               For the State of Indiana:

/s/ Rita Johnson-Mills                            /s/ Melanie Bella
----------------------------                      ------------------------------
Rita Johnson-Mills, CEO                           Melanie Bella
Coordinated Care Corporation                      Assistant Secretary
  Indiana, Inc.                                   Office of Medicaid Policy &
                                                    Planning


Date:                                             Date:
     -------------------------                         -------------------------


                                                  /s/ Kathryn H. Moses
                                                  ------------------------------
                                                  Kathryn H. Moses, Director
                                                  Children's Health Insurance
                                                    Program

                                                  Date:
                                                       -------------------------


APPROVED:                                         APPROVED:

/s/ Marilyn Schultz                               /s/ David Perlini
------------------------------                    ------------------------------
Marilyn Schultz, Director                         David Perlini, Commissioner
State Budget Agency                               Department of Administration

Date:                                             Date:
      ------------------------                          ------------------------


APPROVED AS TO FORM AND LEGALITY

/s/ Stephen Carter
------------------------------
Stephen Carter
Attorney General of Indiana

Date:
      ------------------------





MCO Renewel Contract           Page 27 of 27             Managed Health Services


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27
<SEQUENCE>9
<FILENAME>c74739exv10w27.txt
<DESCRIPTION>CHILDREN'S HEALTH INSURANCE PROGRAM AGREEMENT
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.27

                  CHILDREN'S HEALTH INSURANCE PROGRAM AGREEMENT
                FOR THE PROVISION OF HEALTH CARE SERVICES BETWEEN
               THE TEXAS HEALTH AND HUMAN SERVICES COMMISSION AND
                      TEXAS UNIVERSITIES HEALTH PLAN, INC.

<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 1. INTRODUCTION ................................................................................................1

ARTICLE 2. BACKGROUND, INDUCEMENTS AND OBJECTIVES ......................................................................1
        SECTION 2.01 BACKGROUND ........................................................................................1
                (a) Federal legislative authorization ..................................................................1
                (b) State enabling legislation .........................................................................1
                (c) State child health plan ............................................................................1
                (d) Participation of the private sector ................................................................1
                (e) Procurement of comprehensive health plan coverage through health maintenance organizations
                (HMOs) .................................................................................................2
        SECTION 2.02 INDUCEMENTS .......................................................................................2
        SECTION 2.03 MISSION OBJECTIVES ................................................................................2
        SECTION 2.04 DESIRED BENEFITS ..................................................................................3
        SECTION 2.05 CONSTRUCTION OF AGREEMENT .........................................................................3
                (a) Scope of Article ...................................................................................3
                (b) Severability .......................................................................................3
                (c) Survival of terms ..................................................................................4
                (d) Headings ...........................................................................................4
                (e) Global drafting conventions ........................................................................4
        SECTION 2.06 TIME OF THE ESSENCE ...............................................................................4
        SECTION 2.07 NO IMPLIED AUTHORITY ..............................................................................4
        SECTION 2.08 LEGAL AUTHORITY ...................................................................................5
ARTICLE 3. DEFINITIONS .................................................................................................5

ARTICLE 4. GENERAL TERMS AND CONDITIONS ...............................................................................10
        SECTION 4.01 TERM OF THE AGREEMENT ............................................................................10
                (a) General provisions. ...............................................................................10
                (b) Initial Term ......................................................................................10
                (c) Optional extension of Agreement ...................................................................10
                (d) Modifications upon extension or renewal of Agreement ..............................................10
        SECTION 4.02 SCOPE OF WORK ....................................................................................10
        SECTION 4.03 AGREEMENT ELEMENTS ...............................................................................11
                (a) Agreement documentation ...........................................................................11
                (b) Order of documents ................................................................................11
                (c) Oral and written representations ..................................................................11
        SECTION 4.04 NOTICES ..........................................................................................11
        SECTION 4.05 FUNDING ..........................................................................................12
        SECTION 4.06 DELEGATION OF AUTHORITY ..........................................................................12
        SECTION 4.07 NO WAIVER OF SOVEREIGN IMMUNITY ..................................................................12
        SECTION 4.08 FORCE MAJEURE ....................................................................................12
        SECTION 4.09 HOLD HARMLESS ....................................................................................12
        SECTION 4.10 ASSIGNMENT .......................................................................................13
        SECTION 4.11 EVIDENCE OF FINANCIAL SOLVENCY ...................................................................13
        SECTION 4.12 MINIMUM NET WORTH ................................................................................13
        SECTION 4.13 PERFORMANCE AND FIDELITY BONDS ...................................................................13
        SECTION 4.14 INSURANCE. .......................................................................................13
        SECTION 4.15 REPROCUREMENT RIGHTS .............................................................................14
</Table>


                                       i
<PAGE>


<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 5. CONTRACTOR PERSONNEL MANAGEMENT .............................................................................14
        SECTION 5.01 QUALIFICATIONS, RETENTION AND REPLACEMENT OF CONTRACTOR EMPLOYEES .................................14
        SECTION 5.02 KEY CONTRACTOR PERSONNEL ..........................................................................14
        SECTION 5.03 MEDICAL DIRECTOR ..................................................................................15
        SECTION 5.04 RESPONSIBILITY FOR CONTRACTOR PERSONNEL ...........................................................15
        SECTION 5.05 COOPERATION WITH HHSC OR STATE ADMINISTRATIVE AGENCIES ............................................15
                (a) Cooperation with HHSC contractors ..................................................................15
                (b) Cooperation with state and federal administrative agencies .........................................15
ARTICLE 6. GOVERNING LAW AND REGULATIONS ...............................................................................16
        SECTION 6.01 GOVERNING LAW AND VENUE ...........................................................................16
        SECTION 6.02 LAW AND REGULATIONS GOVERNING ADMINISTRATION OF THE AGREEMENT .....................................16
        SECTION 6.03 CONTRACTOR RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND REGULATIONS ................................16
        SECTION 6.04 LAWS AND REGULATIONS GOVERNING PROCUREMENT OF THE SERVICES. .......................................16
        SECTION 6.05 IMMIGRATION REFORM AND CONTROL ACT OF 1986 ........................................................17
        SECTION 6.06 COMPLIANCE WITH STATE AND FEDERAL ANTI-DISCRIMINATION LAWS. .......................................17
        SECTION 6.07 ENVIRONMENTAL PROTECTION LAWS .....................................................................17
                (a) Pro-Children Act of 1994. ..........................................................................17
                (b) National Environmental Policy Act of 1969 ..........................................................18
                (c) Clean Air Act and Water Pollution Control Act regulations ..........................................18
                (d) State Clean Air Implementation Plan ................................................................18
                (e) Safe Drinking Water Act of 1974 ....................................................................18
ARTICLE 7. SERVICE LEVELS AND PERFORMANCE MEASUREMENT ..................................................................18
        SECTION 7.01 PERFORMANCE MEASUREMENT ...........................................................................18
        SECTION 7.02 MEASUREMENT AND MONITORING TOOLS ..................................................................19
        SECTION 7.03 CONTINUOUS IMPROVEMENT AND BEST PRACTICES .........................................................19
        SECTION 7.04 SYSTEMS DEVELOPMENT, MAINTENANCE AND OPERATION ....................................................19
                (a) General responsibilities ...........................................................................19
                (b) General management information system functions ....................................................19
                        (1) General data storage and handling requirements .............................................19
                        (2) Data override capability ...................................................................20
                        (3) HIPAA compliance ...........................................................................21
                        (4) Data security and confidentiality ..........................................................21
                        (5) Back-up. ...................................................................................21
                        (6) Disaster recovery ..........................................................................21
                (c) System-wide functions ..............................................................................22
                        (1) Enrollment and Eligibility Subsystem .......................................................22
                        (2) Provider Subsystem .........................................................................23
                        (3) Claims/Services Data Subsystem .............................................................24
                        (4) Financial Subsystem ........................................................................25
                        (5) Utilization/Quality Improvement Subsystem ..................................................26
                        (6) Report Subsystem ...........................................................................27
                        (7) Data Interface Subsystem ...................................................................28
                (d) Additions or changes to the requirements set out in this section ...................................29
ARTICLE 8. AMENDMENTS, MODIFICATIONS, AND CHANGE ORDERS ................................................................29
        SECTION 8.01 MODIFICATIONS. ....................................................................................29
                (a) Modifications resulting from changes in law or contract ............................................29
                (b) Modifications resulting from imposition of remedies ................................................29
                (c) Modifications upon renewal or extension of Agreement ...............................................29
SECTION 8.02 CHANGE ORDER PROCEDURES ...................................................................................30
                (a) Expectations and understandings ....................................................................30
                (b) Change order approval procedure ....................................................................30
                (c) Written approval required ..........................................................................30
SECTION 8.03 REQUIRED COMPLIANCE WITH MODIFICATION PROCEDURES ..........................................................31
</Table>


                                       ii
<PAGE>


<Table>
<S>     <C>                                                                                                            <C>
ARTICLE 9. AUDIT AND FINANCIAL COMPLIANCE ..............................................................................31
        SECTION 9.01 FINANCIAL RECORD RETENTION AND AUDIT ..............................................................31
        SECTION 9.02 OPERATION/PERFORMANCE AUDITS ......................................................................31
        SECTION 9.03 ACCESS TO RECORDS, BOOKS, AND DOCUMENTS ...........................................................31
ARTICLE 10. TERMS AND CONDITIONS OF PAYMENT ............................................................................32
        SECTION 10.01 MONTHLY PREMIUM PAYMENTS .........................................................................32
        SECTION 10.02 TIME AND MANNER OF PREMIUM PAYMENT ...............................................................32
        SECTION 10.03 DELIVERY SUPPLEMENTAL PAYMENT (DSP) ..............................................................33
        SECTION 10.04 PREMIUM RATES AFTER THE FIRST YEAR OF THE INITIAL TERM ...........................................34
                (a) Second year ........................................................................................34
                (b) Third year .........................................................................................34
        SECTION 10.05 ADJUSTMENTS TO PREMIUM PAYMENTS ..................................................................34
        SECTION 10.06 EXPERIENCE REBATE ................................................................................35
        SECTION 10.07 RESTRICTION ON ASSIGNMENT OF FEES ................................................................36
        SECTION 10.08 LIABILITY FOR TAXES ..............................................................................36
        SECTION 10.09 LIABILITY FOR EMPLOYMENT-RELATED CHARGES AND BENEFITS ............................................36
        SECTION 10.10 LIABILITY FOR OVERTIME COMPENSATION ..............................................................36
ARTICLE 11. CHIP ELIGIBILITY, ENROLLMENT, DISENROLLMENT, AND COST-SHARING ..............................................36
        SECTION 11.01 CHIP ELIGIBILITY .................................................................................36
                (a) Generally. .........................................................................................36
                (b) Continuous coverage for first twelve months ........................................................36
                (c) Pregnant Members and infants .......................................................................37
                (d) Span of coverage ...................................................................................37
        SECTION 11.02 ENROLLMENT .......................................................................................37
        SECTION 11.03 RE-ENROLLMENT ....................................................................................38
        SECTION 11.04 DISENROLLMENT DUE TO LOSS OF ELIGIBILITY .........................................................38
        SECTION 11.05 DISENROLLMENT BY CONTRACTOR ......................................................................39
        SECTION 11.06 COST-SHARING .....................................................................................39
ARTICLE 12. SCOPE OF CHIP COVERED SERVICES .............................................................................40
        SECTION 12.01 BASIC REQUIRED COVERED SERVICES ..................................................................40
        SECTION 12.02 DRUG FORMULARIES .................................................................................40
        SECTION 12.03 VALUE-ADDED SERVICES .............................................................................41
        SECTION 12.04 DENTAL SERVICES ..................................................................................41
        SECTION 12.05 CASE MANAGEMENT SERVICES FOR CHILDREN WITH COMPLEX SPECIAL HEALTH CARE NEEDS .....................41
                (a) Outreach and Informing .............................................................................42
                (b) Enhanced Care Coordination .........................................................................42
                (c) Community Referrals ................................................................................42
        SECTION 12.06 PRE-EXISTING CONDITIONS ..........................................................................42
        SECTION 12.07 COURT-ORDERED COMMITMENTS ........................................................................43
        SECTION 12.08 EARLY CHILDHOOD INTERVENTION (ECI) ...............................................................43
                (a) ECI Services. ......................................................................................43
                (b) Identification and Referral. .......................................................................43
                (c) Intervention .......................................................................................43
ARTICLE 13. MEMBER SERVICES ............................................................................................44
        SECTION 13.01 MEMBER EDUCATION .................................................................................44
        SECTION 13.02 MEMBER MATERIALS .................................................................................44
                (a) Member Handbook ....................................................................................44
                        (1) Exceptions to Section 11.1600(b) requirements ..............................................44
                        (2) Additional requirements ....................................................................45
                (b) Evidence of Coverage ...............................................................................45
                (c) Provider Directory .................................................................................45
</Table>


                                      iii
<PAGE>

<Table>
<S>     <C>                                                                                                             <C>

                (d) HHSC review of Member material .....................................................................46
                (e) Mailing of Member Material .........................................................................46
        SECTION 13.03 CHIP-SPECIFIC INTERNET WEBSITE ...................................................................46
        SECTION 13.04 MEMBER TELEPHONE HOTLINE .........................................................................46
        SECTION 13.05 NOTIFICATION OF PROVIDER TERMINATION .............................................................47
        SECTION 13.06 MEMBER COMPLAINT AND APPEALS PROCESS .............................................................47
        SECTION 13.07 MEMBER CULTURAL AND LINGUISTIC SERVICES ..........................................................47
                (a) Cultural Competency Plan ...........................................................................47
                (b) Linguistic, Interpreter Services, and Provision of Auxiliary Aids and Services .....................48
ARTICLE 14. MARKETING ..................................................................................................49
        SECTION 14.01 AIM OF MARKETING .................................................................................49
        SECTION 14.02 MARKETING GUIDELINES .............................................................................49
        SECTION 14.03 DISENROLLMENTS ...................................................................................50
        SECTION 14.04 MARKETING SCHEDULE ...............................................................................50
        SECTION 14.05 GENERAL PROVISIONS ...............................................................................50
        SECTION 14.06 REGULATION .......................................................................................50
ARTICLE 15. PROVIDER NETWORK REQUIREMENTS ..............................................................................51
        SECTION 15.01 PROVIDER SUBCONTRACTS ............................................................................51
                (a) Generally ..........................................................................................51
                (b) Subcontract terms ..................................................................................51
        SECTION 15.02 PROVIDER ACCESSIBILITY ...........................................................................52
        SECTION 15.03 PARTICULAR PROVIDERS .............................................................................53
                (a) Significant Traditional Providers ..................................................................53
                (b) Tribal clinics .....................................................................................53
                (c) Rural providers ....................................................................................53
        SECTION 15.04 GOOD-FAITH EFFORT ................................................................................54
        SECTION 15.05 PROVIDER TAX IDENTIFICATION NUMBERS ..............................................................54
        SECTION 15.06 PROVIDER HANDBOOK ................................................................................54
        SECTION 15.07 CLAIMS SUBMISSION AND PAYMENT ....................................................................55
ARTICLE 16. CONTINUOUS QUALITY IMPROVEMENT .............................................................................55
        SECTION 16.01 COMMITMENT TO QUALITY ............................................................................55
        SECTION 16.02 QUALITY IMPROVEMENT COMMITTEE ....................................................................55
        SECTION 16.03 QUALITY IMPROVEMENT PLAN (QIP) ...................................................................55
ARTICLE 17. REPORTING REQUIREMENTS .....................................................................................55
        SECTION 17.01 GENERALLY ........................................................................................55
        SECTION 17.02 FINANCIAL REPORTS ................................................................................55
        SECTION 17.03 ENCOUNTER DATA SPECIFICATIONS REPORT .............................................................56
        SECTION 17.04 UTILIZATION MANAGEMENT REPORTS ...................................................................56
                (a) HEDIS Reporting ....................................................................................56
                (b) Physical Health ....................................................................................56
                (c) Behavioral Health ..................................................................................56
        SECTION 17.05 FOCUSED STUDIES REPORTS ..........................................................................56
        SECTION 17.06 ANNUAL QUALITY IMPROVEMENT PLAN (QIP) SUMMARY REPORT .............................................57
        SECTION 17.07 HUB REPORTS ......................................................................................57
        SECTION 17.08 FRAUDULENT PRACTICES REPORT ......................................................................57
        FRAUD AND ABUSE COMPLIANCE PLAN ................................................................................57
                Model Compliance Plan ..................................................................................57
                Requirements for the CONTRACTOR's compliance plan ......................................................57
                Fraud and abuse training ...............................................................................57
        SECTION 17.09 PROVIDER NETWORK REPORTS .........................................................................58
                (a) PCPs and Specialists Report ........................................................................58
                (b) Provider Network Change Report .....................................................................58
</Table>


                                       iv
<PAGE>

<Table>
<S>     <C>                                                                                                             <C>
                (c) PCP Network and Capacity Report .....................................................................58
        SECTION 17.10 THIRD PARTY RECOVERY (TPR) REPORTS ................................................................58
        SECTION 17.11 ALL CLAIMS SUMMARY REPORT .........................................................................58
        SECTION 17.12 SUMMARY REPORT OF PROVIDER AND MEMBER COMPLAINTS ..................................................59
        SECTION 17.13 MONTHLY MEMBER HOTLINE STATUS REPORT ..............................................................59
        SECTION 17.14 PROVIDER HOTLINE PERFORMANCE REPORT ...............................................................59
        SECTION 17.15 AD HOC REPORTS. ...................................................................................59
ARTICLE 18. DISCLOSURE AND CONFIDENTIALITY OF INFORMATION ...............................................................59
        SECTION 18.01 CONFIDENTIALITY ...................................................................................59
        SECTION 18.02 REQUESTS FOR PUBLIC INFORMATION. ..................................................................59
        SECTION 18.03 PUBLICITY .........................................................................................60
        SECTION 18.04 MEMBER RECORDS ....................................................................................60
        SECTION 18.05 ACCESSIBILITY AND AVAILABILITY OF MEDICAL RECORDS. ................................................60
        SECTION 18.06 RECORDKEEPING .....................................................................................61
ARTICLE 19. NON-PROVIDER SUBCONTRACTING .................................................................................61
        SECTION 19.01 WRITTEN SUBCONTRACTS ..............................................................................61
        SECTION 19.02 APPLICATION OF FEDERAL LAW TO NON-PROVIDER SUBCONTRACTORS .........................................61
        SECTION 19.03 NO STATE LIABILITY FOR PAYMENT UNDER NON-PROVIDER SUBCONTRACTORS ..................................61
        SECTION 19.04 TERMINATION OF NON-PROVIDER SUBCONTRACTS ..........................................................62
        SECTION 19.05 FRAUD AND ABUSE INVESTIGATIONS ....................................................................62
ARTICLE 20. REMEDIES AND DISPUTES .......................................................................................62
        SECTION 20.01 UNDERSTANDING AND EXPECTATIONS ....................................................................62
        SECTION 20.02 ADMINISTRATIVE REMEDIES ...........................................................................62
                (a) CONTRACTOR responsibility for improvement ...........................................................62
                (b) Notification and interim response ...................................................................63
                (c) Notice and opportunity to cure ......................................................................63
                (d) Particular Events of Default ........................................................................64
                (e) Corrective Action Plan ..............................................................................64
                (f) Additional remedies .................................................................................64
                (g) Informal review of administrative remedies ..........................................................65
SECTION 20.03 LIQUIDATED DAMAGES ........................................................................................65
                (a) Failure to provide contracted services or support. ..................................................66
                        (1) Maximum damages .............................................................................66
                        (2) CONTRACTOR responsibility for associated costs ..............................................66
        SECTION 20.04 METHOD OF COLLECTION ..............................................................................66
        SECTION 20.05 MODIFICATION OF AGREEMENT IN THE EVENT OF REMEDIES ................................................66
        SECTION 20.06 TERMINATION OF AGREEMENT ..........................................................................66
        SECTION 20.07 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES ....................................................66
        SECTION 20.08 TERMINATION FOR CAUSE .............................................................................66
                (a) Assignment for the benefit of creditors, appointment of receiver, or inability to pay debts .........67
                (b) Judgment and execution ..............................................................................67
                (c) Failure to adhere to laws, rules, ordinances, or orders. ............................................67
                (d) Breach of confidentiality ...........................................................................67
                (e) Failure to maintain adequate personnel or resources .................................................67
                (f) Termination for insolvency ..........................................................................68
                (g) Termination for gifts and gratuities ................................................................68
        SECTION 20.09 TERMINATION FOR NON-APPROPRIATION OF FUNDS ........................................................68
        SECTION 20.10 TERMINATION IN THE EVENT OF HHSC'S FAILURE TO PAY .................................................69
        SECTION 20.11 TERMINATION FOR HHSC'S MATERIAL BREACH OF THIS AGREEMENT ..........................................69
                (a) Generally. ..........................................................................................69
                (b) Notice of default and opportunity to cure ...........................................................69
        SECTION 20.12 NOTICE OF TERMINATION .............................................................................69
        SECTION 20.13 EXTENSION OF TERMINATION EFFECTIVE DATE ...........................................................69
</Table>


                                       v
<PAGE>

<Table>
<S>     <C>                                                                                                          <C>
        SECTION 20.14 INJUNCTIVE RELIEF .............................................................................70
        SECTION 20.15 PAYMENT AND OTHER PROVISIONS AT AGREEMENT TERMINATION .........................................70
        SECTION 20.16 DISPUTE RESOLUTION ............................................................................71
                (a) General agreement of the Parties ................................................................71
                (b) Duty to negotiate in good faith .................................................................71
                (c) Claims for breach of Agreement ..................................................................71
        SECTION 20.17 LIABILITY OF CONTRACTOR .......................................................................72
ARTICLE 21. ASSURANCES AND CERTIFICATIONS ...........................................................................72
        SECTION 21.01 LOBBYING ......................................................................................72
        SECTION 21.02 DEBARMENT AND SUSPENSION ......................................................................73
        SECTION 21.03 CONFLICTS OF INTEREST .........................................................................73
                (a) Representation ..................................................................................73
                (b) General duty regarding conflicts of interest ....................................................73
                (c) Disclosure requirements .........................................................................73
        SECTION 21.04 CERTIFICATION REGARDING GOOD FAITH EFFORT .....................................................74
        SECTION 21.05 CHILD SUPPORT CERTIFICATION ...................................................................74
        SECTION 21.06 TEXAS CORPORATE FRANCHISE TAX CERTIFICATION ...................................................74
        SECTION 21.07 CERTIFICATION REGARDING STATUS OF LICENSE, CERTIFICATE, OR PERMIT .............................75
        SECTION 21.08 OUTSTANDING DEBTS AND JUDGMENTS ...............................................................75
        SECTION 21.09 UNAUTHORIZED ACTS .............................................................................75
        SECTION 21.10 LEGAL ACTION ..................................................................................75
ARTICLE 22. REPRESENTATIONS AND WARRANTIES ..........................................................................75
        SECTION 22.01 AUTHORIZATION .................................................................................76
        SECTION 22.02 ABILITY TO PERFORM ............................................................................76
        SECTION 22.03 WORKMANSHIP AND PERFORMANCE ...................................................................76
        SECTION 22.04 COMPLIANCE WITH LAWS ..........................................................................76
        SECTION 22.05 COMPLIANCE WITH AGREEMENT .....................................................................76
        SECTION 22.06 CONTINGENT FEE ARRANGEMENTS ...................................................................77
        SECTION 22.07 PROSELYTIZING .................................................................................77
        SECTION 22.08 YEAR 2000 PERFORMANCE WARRANTY ................................................................77
                (a) Terms of Warranty ...............................................................................77
                (b) Duration of warranty ............................................................................77
                (c) No limitation of rights or remedies .............................................................77
</Table>


                                       vi
<PAGE>


                             ARTICLE 1. INTRODUCTION

     THIS SERVICES AGREEMENT (the "Agreement") is entered into this 19th day of
January, 2000, between the HEALTH AND HUMAN SERVICES COMMISSION ("HHSC"), an
administrative agency within the executive department of the State of Texas and
having its principal office at 4900 North Lamar Boulevard, 4th Floor, Austin
Texas 78751, and Texas Universities Health Plan, Inc. ("CONTRACTOR"), a
corporation organized under the laws of the State of Texas, possessing a
certificate of authority issued by the Texas Department of Insurance to operate
as a health maintenance organization and having its principal office at 701
Brazos Street, Suite 950, Austin, Texas 78701.

     The Parties agree that the following terms and conditions apply to the
services to be provided by CONTRACTOR under this Agreement in consideration of
certain payments to be made by HHSC.


                 ARTICLE 2. BACKGROUND, INDUCEMENTS AND OBJECTIVES

     SECTION 2.01 BACKGROUND.

     (a) Federal legislative authorization.

     This Agreement is entered into in connection with the Texas Legislature's
decision to participate in the federally-authorized State Children's Health
Insurance Program ("CHIP"). CHIP is authorized under Title XXI of the federal
Social Security Act, 42 U.S.C. Sections 1397aa-1397jj. The CHIP program is an
optional joint state-federal program designed to provide affordable insurance to
low-income families with uninsured children.

     (b) State enabling legislation.

     Approximately 1.4 million children in Texas are uninsured. The costs, both
economic and social, to the State of Texas are immeasurable. In recognition of
this need, the 76th Texas Legislature authorized the state's participation in
the CHIP program. The enabling legislation, Senate Bill 445, is codified as
Chapter 62, Health & Safety Code. The principal objective of the state
legislation is to provide primary and preventative health care to low-income,
uninsured children of Texas, including children with special health care needs,
who are not served by or eligible for other state-assisted health insurance
programs.

     (c) State child health plan.

     Under chapter 62 of the Health and Safety Code, HHSC is directed to develop
and file with the federal government a state-designed health plan program that
ensures the state's eligibility for federal funding under Title XXI of the
Social Security Act. The federal government has approved the State's plan. HHSC
desires the participation of qualified organizations to assist with the
implementation of the plan in Texas.

     (d) Participation of the private sector.

     As expressed in section 62.055, Health & Safety Code, the Texas Legislature
intends that HHSC, in administering the state child health plan, maximize the
use of private resources, including nonprofit organizations. In fulfilling this
mandate, HHSC has solicited assistance with many aspects of the program,
including delivery of health plan coverage to CHIP-eligible children through
health maintenance organizations (HMOs).


                                  Page 1 of 78
<PAGE>

     (e) Procurement of comprehensive health plan coverage through health
         maintenance organizations (HMOs).

     HHSC solicited proposals for health care services to CHIP through a Request
for Proposals ("RFP") dated August 2, 1999. The procurement that is the subject
of this Agreement is undertaken as a "best value" procurement under to the terms
of Chapter 531, Texas Government Code, Chapter 62, Health & Safety Code, and
section 2155.144, Government Code. In response to the RFP, CONTRACTOR submitted
its Proposal, dated September 29, 1999 (the "Proposal"). Following review of
proposals, the evaluators appointed by HHSC recommended CONTRACTOR's Proposal as
a best value for the state in one or more of the coverage areas in the state.
HHSC desires to implement the terms of CONTRACTOR's Proposal, subject to the
terms and conditions of this Agreement.

     SECTION 2.02 INDUCEMENTS.

     In making the award of this Agreement, HHSC relies on CONTRACTOR's
assurances of the following:

          (1) CONTRACTOR is an established health maintenance organization that
          arranges for the provision of health care services;

          (2) CONTRACTOR has the skills, qualifications, expertise, financial
          resources and experience necessary to perform the services described
          in the Request For Proposals, CONTRACTOR's Proposal, and this
          Agreement in an efficient, cost-effective manner, with a high degree
          of quality and responsiveness, and has performed similar services for
          other public or private entities;

          (3) CONTRACTOR has thoroughly reviewed, analyzed and understood the
          Request for Proposals and has had the opportunity to review and
          understand the State's desire to create a new program to provide the
          health care services that are the subject of this Agreement to
          uninsured, low-income children, and the needs and requirements of the
          State as provided in the Agreement;

          (4) CONTRACTOR has had the opportunity to review and understand the
          State's stated objectives in entering into this Agreement and, based
          on such review and understanding, CONTRACTOR currently has the
          capability to perform in accordance with the terms and conditions of
          this Agreement;

          (5) CONTRACTOR also has reviewed and understands the risks associated
          with the CHIP program as described in the Request for Proposals,
          including the risk of non-appropriation of funds.

     Accordingly, on the basis of the terms and conditions of this Agreement,
HHSC desires to engage CONTRACTOR to perform the services described in this
Agreement under the terms and conditions set forth in this Agreement.

     SECTION 2.03 MISSION OBJECTIVES.

     CONTRACTOR acknowledges its understanding that HHSC's overall objective in
engaging CONTRACTOR pursuant to this Agreement is to arrange for the provision
of health care services to the CHIP-eligible population through qualified health
care providers. The health care services will be delivered in a highly efficient
and effective manner on behalf of HHSC, the state administrative agencies
operating portions of the CHIP program in Texas, and the members of the CHIP
program. In particular,


                                  Page 2 of 78
<PAGE>

CONTRACTOR acknowledges its understanding of HHSC's desire to achieve the
following primary Mission Objectives:

          (1) Provision of quality, accessible, and comprehensive health care
          services, as set out in the RFP, which are tailored to meet the health
          care needs of Texas children;

          (2) Responsiveness by CONTRACTOR to the special circumstances of
          children with special health care needs; and

          (3) Provision of health care services to all persons who are eligible
          for and enrolled in CHIP in an efficient, cost-effective manner.

     SECTION 2.04 DESIRED BENEFITS.

     CONTRACTOR understands that as a result of CONTRACTOR's arranging for the
delivery of health care services, HHSC anticipates and CONTRACTOR is committed
to assist HHSC achieve the following desired benefits for the State of Texas:

     (1) High-quality health care services as described in this Agreement
provided in a cost-effective, efficient manner;

     (2) Health insurance coverage for low-income children in the State of Texas
who are currently uninsured and who are not served by or eligible for other
state-assisted health insurance programs.

     (3) A flexible relationship between HHSC and CONTRACTOR under which
CONTRACTOR will be highly responsive to the needs and requests of HHSC and to
changes in methods and strategies for providing services; and

     (4) Continuous identification of methods to improve services and reduce
costs.

     SECTION 2.05 CONSTRUCTION OF AGREEMENT.

     (a) Scope of Article.

     The provisions of this article are intended to be a general introduction to
this Agreement and are not intended to expand the scope of the Parties'
obligations under this Agreement or to alter the plain meaning of the terms and
conditions of this Agreement. For purposes of this transaction, HHSC, the single
state agency designated to administer CHIP, is the contracting agency.
References in this Agreement to the State are interpreted, as appropriate, to
mean or include HHSC and other State agencies that may participate in the
administration of CHIP; provided, however, that no provision will be interpreted
to include any entity other than HHSC as the contracting agency.

     (b) Severability.

     If any provision of this Agreement is construed to be illegal or invalid,
such interpretation will not affect the legality or validity of any of its other
provisions. The illegal or invalid provision will be deemed stricken and deleted
to the same extent and effect as if never incorporated in this Agreement, but
all other provisions will remain in full force and effect.


                                  Page 3 of 78
<PAGE>

     (c) Survival of terms.

     Termination or expiration of this Agreement for any reason will not release
either Party from any liabilities or obligations set forth in this Agreement
that:

          (1) The Parties have expressly agreed shall survive any such
          termination or expiration; or

          (2) Remain to be performed or by their nature would be intended to be
          applicable following any such termination or expiration.

     (d) Headings.

     The article and section headings in this Agreement are for reference and
convenience only and may not be considered in the interpretation of this
Agreement.

     (e) Global drafting conventions.

          (1) The terms "include," "includes," and "including" are terms of
          inclusion, and where used in this Agreement, are deemed to be followed
          by the words "without limitation."

          (2) Any references to "sections," "appendices," or "attachments" are
          deemed to be references to sections, appendices, or attachments to
          this Agreement.

          (3) Any references to agreements, contracts, statutes, or
          administrative rules or regulations in this Agreement are deemed
          references to these documents as amended, modified, or supplemented
          from time to time during the term of this Agreement.

     SECTION 2.06 TIME OF THE ESSENCE.

     In consideration of the time limits for implementation of the CHIP, time is
of the essence in the performance of the Parties' obligations under this
Agreement.

     SECTION 2.07 NO IMPLIED AUTHORITY.

     The authority delegated to CONTRACTOR by HHSC is limited to the terms of
this Agreement. HHSC is the state agency designated by the Texas Legislature to
administer CHIP, and no other agency of the State grants CONTRACTOR any
authority related to CHIP unless directed through HHSC. CONTRACTOR may not rely
upon implied authority, and specifically is not delegated authority under this
Agreement to:

          (1) make public policy;

          (2) promulgate, amend or disregard administrative regulations or
          program policy decisions made by State and federal agencies
          responsible for administration of CHIP; or

          (3) unilaterally communicate or negotiate with any federal or state
          agency or the Texas Legislature on behalf of HHSC regarding the CHIP
          program.

     CONTRACTOR is required to reasonably cooperate to assist HHSC in
communications and negotiations with state and federal agencies as directed by
HHSC.


                                  Page 4 of 78
<PAGE>

     SECTION 2.08 LEGAL AUTHORITY.

     (a) HHSC is authorized to enter into this Agreement under sections of
Chapter 531, Texas Government Code, Chapter 62, Texas Health & Safety Code, and
section 2155.144, Texas Government Code. CONTRACTOR is authorized to enter into
this Agreement pursuant to the authorization of its governing board or
controlling owner or officer.

     (b) The person or persons signing and executing this Agreement on behalf of
HHSC, or representing themselves as signing and executing this Agreement on
behalf of HHSC, warrant and guarantee that he, she, or they have been duly
authorized by HHSC to execute this Agreement on behalf of HHSC and to validly
and legally bind HHSC to all of its terms, performances, and provisions.

ACCORDINGLY, UNLESS OTHERWISE SPECIFIED IN THIS AGREEMENT, CONTRACTOR ASSURES
COMPLIANCE WITH THE FOLLOWING TERMS AND CONDITIONS:

                             ARTICLE 3. DEFINITIONS.

     As used in this Agreement, the following terms and conditions shall have
the meanings assigned below:

     "ADMINISTRATIVE SERVICES CONTRACTOR" means the entity performing the
functions under a contract awarded pursuant to a procurement solicitation
instrument entitled "Children's Health Insurance Program, Administrative
Services Request for Proposals," issued by HHSC on July 7, 1999.

     "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 are not appropriate.

     "AGREEMENT" means this formal, written, and legally enforceable agreement
and amendments thereto between the Parties that is awarded pursuant to state law
and in accordance with the procurement solicitation instrument entitled "Texas
Children's Health Insurance Program, Health Maintenance Organization Request for
Proposals," issued by HHSC on August 2, 1999.

     "ANNIVERSARY DATE" means May 1 of each year after the first year of this
Agreement, regardless of the date of execution or effective date of the
Agreement.

     "AUXILIARY AIDS AND SERVICES" include qualified interpreters or other
effective methods of making aurally-delivered materials understood by persons
with hearing impairments; 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 include effective methods
to ensure that materials (delivered both aurally and visually) are available to
those with cognitive or other disabilities affecting communication.

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

     "CHANGE" means any alteration, adjustment, exchange, substitution, or
modification of the Services under this Agreement that are authorized in
accordance with Article 8 of this Agreement.

     "CHANGE ORDER" means an authorization to make a change in the Services or
Deliverables under this Agreement.


                                  Page 5 of 78
<PAGE>

     "CHILDREN'S HEALTH INSURANCE PROGRAM" or "CHIP" means the health insurance
program that is the subject of the services under this Agreement, authorized and
funded pursuant to Title XXI, Social Security Act (42 U.S.C. Sections
1397aa-1397jj) and administered by the Texas Health and Human Services
Commission.

     A "CHILD WITH COMPLEX SPECIAL HEALTH CARE NEEDS" or "CCSHCN" means a child
who:

          a. ranges in age from birth up to age 19 years;

          b. has a serious ongoing illness, a complex chronic condition, or a
          disability that has lasted or is anticipated to last at least twelve
          continuous months or more;

          c. has an illness, condition or disability that results (or without
          treatment would be expected to result) in limitation of function,
          activities, or social roles in comparison with accepted pediatric
          age-related milestones in the general areas of physical, cognitive,
          emotional, and/or social growth and/or development;

          d. requires regular, ongoing therapeutic intervention and evaluation
          by appropriately trained health care personnel; and

          e. has a need for health and/or health-related services at a level
          significantly above the usual for the child's age.

     "CHIP SERVICE AREA" means those areas originally designated and numbered by
HHSC in the RFP as available for coverage by a health maintenance organization.

     "COMPLAINANT" means a Member or a treating provider or other individual
designated to act on behalf of the Member who files the Complaint.

     "COMPLAINT" means any dissatisfaction, expressed by a complainant orally or
in writing to CONTRACTOR, with any aspect of CONTRACTOR'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 in
Texas Insurance Code, article 20A.12; the denial, reduction, or termination of a
service for reasons not related to medical necessity; the way a service is
provided; or disenrollment decisions. 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.

     "CONFIDENTIAL INFORMATION" means any communication or record (whether oral,
written, electronically stored or transmitted, or in any other form) that
consists of:

          (a) Information relating to applicants or recipients of services or
          benefits under the CHIP Program;

          (b) All non-public budget, expense, payment, and other financial
          information;

          (c) Any information marked by HHSC as confidential or not subject to
          required public disclosure for purposes of Chapter 552, Texas
          Government Code;

          (d) Unless previously publicly disclosed by HHSC or another state
          agency or authorized by HHSC, the substance and content of any CHIP
          program guidance or manual; and


                                  Page 6 of 78
<PAGE>

     "CONTRACTOR" means Texas Universities Health Plan, Inc., a health
maintenance organization licensed by the State of Texas.

     "CONTRACTOR'S CSA" means all of the counties in the State of Texas in which
CONTRACTOR is providing Covered Services, specifically set out in Appendix C.

     "CSA #(INSERTED)" means a designated CHIP Service Area as specified in the
RFP.

     "CORRECTIVE ACTION PLAN" means the detailed written plan required by HHSC
to correct or resolve a deficiency or event causing the assessment of a
liquidated damage against CONTRACTOR.

     "COURT-ORDERED COMMITMENT" means a commitment of a 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.

     "COVERAGE YEAR" means twelve (12) months from the first date that a Member
is covered by a health plan or the appropriate period for pregnant Members in
accordance with section 11.01(c).

     "COVERED SERVICES" are those health care services that CONTRACTOR must
arrange to provide to Members, as set out in the RFP.

     "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.

     "DATE OF DISENROLLMENT" means the last day of the last month for which
CONTRACTOR receives premium for a Member.

     "DELIVERABLE" means a written or recorded work product prepared, developed,
or procured by CONTRACTOR as part of the Services under this Agreement for the
use or benefit of HHSC or the State of Texas and identified in Article 17 of
this Agreement to be specified in a report matrix to be developed by the Parties
and attached to this Agreement as an amendment.

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

     "EFFECTIVE DATE" means January 19, 2000. For purposes of this Agreement,
the term includes any period under which work is performed in accordance with a
properly executed Letter of Intent between HHSC and CONTRACTOR.

     "EFFECTIVE DATE OF COVERAGE" means the first day of the month for which
CONTRACTOR has received premium for a Member.

     "EXPIRATION DATE" means April 30, 2003.

     "FORCE MAJEURE EVENT" means any failure or delay in performance of a duty
by a Party under this Agreement that is caused by fire, flood, hurricane,
tornadoes, earthquake, an act of God, an act of war, riot, civil disorder, or
any similar event beyond the reasonable control of such Party and without the
fault or negligence of such Party.

     "HEALTH AND HUMAN SERVICES COMMISSION" or "HHSC" means the administrative
agency within the executive department of Texas state government established
under chapter 531, Texas Government Code,


                                  Page 7 of 78
<PAGE>

and authorized to administer CHIP under chapter 62, Texas Health and Safety Code
or its designee, including, but not limited to, the Texas Department of Health.

     "HEALTH MAINTENANCE ORGANIZATION" or "HMO" means an entity defined in
article 20A.02(n), Texas Insurance Code.

     "IMPLEMENTATION DATE" means May 1, 2000.

     "INITIAL TERM" means the period between the Effective Date and the original
Expiration Date of this Agreement.

     "KEY CONTRACTOR PERSONNEL" means the critical management and technical
positions identified by CONTRACTOR in its Proposal and subject to the approval
and oversight of HHSC in accordance with section 5.02 of this Agreement.

     "MANAGEMENT SERVICES CONTRACTOR" means the entity contracted by HHSC to
manage CHIP service contracts.

     "MEMBER" means a person who has met CHIP eligibility criteria, and is
enrolled in a CHIP health plan.

     "NON-PROVIDER SUBCONTRACTS" means contracts between CONTRACTOR and a third
party which performs a function, excluding delivery of health care services,
that CONTRACTOR is required to perform under its contract with HHSC.

     "PARTIES" means HHSC and CONTRACTOR, collectively.

     "PARTY" means either HHSC or CONTRACTOR, individually.

     "PROPOSAL" means the proposal submitted by CONTRACTOR in response to the
CHIP Health Maintenance Organization Request for Proposals.

     "PROVIDER SUBCONTRACT" means an agreement entered into by a direct provider
of health care services and CONTRACTOR or an intermediary entity.

     "PUBLIC INFORMATION" means information that:

          (1) 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

          (2) The governmental body owns or has a right of access to.

     "READINESS REVIEW" means the examination conducted by HHSC of CONTRACTOR's
ability, preparedness, and availability to fulfill its obligations under this
Agreement.

     "REQUEST FOR PROPOSALS" or "RFP" means the procurement solicitation
instrument entitled Children's Health Insurance Program, Health Maintenance
Organization Request for Proposals," issued by HHSC on August 2, 1999, and under
which this Agreement was awarded and is executed. The term includes all
modifications, amendments, revisions, and errata to the RFP published by HHSC.

     "SCOPE OF WORK" means the description of Services and Deliverables
specified in the RFP, CONTRACTOR's Proposal, and Articles 7 and 10 through and
including 19 of this Agreement.


                                  Page 8 of 78
<PAGE>

     "SERVICES" means the tasks, functions, and responsibilities assigned and
delegated to CONTRACTOR under this Agreement and described in Articles 7 and 10
through and including 19 of this Agreement, and any ancillary tasks, functions
or responsibilities not otherwise expressly described in this Agreement but
which are customary or required for the proper performance or delivery of the
Services.

     "SOFTWARE" means all operating system and applications software used by
CONTRACTOR to provide the Services under this Agreement.

     "STATE" means HHSC or an agency within the executive or legislative branch
of Texas state government other than HHSC, as appropriate.

     "SYSTEM" means the automated information system utilized by CONTRACTOR in
the performance of the Services under this Agreement.

     "SUBCONTRACT" means any written agreement between CONTRACTOR and other
party to fulfill the requirements of this Agreement. All subcontracts are
required to be in writing.

     "SUBCONTRACTOR" means any individual or entity which has entered into a
subcontract with CONTRACTOR.

     "SUPPLEMENTAL REIMBURSEMENT" means a methodology that is available for the
first year that CHIP is in operation by which health plans may select one of a
prescribed set of thresholds that, once the selected threshold is met by claim
costs with dates of service between May 1, 2000, and April 30, 2001, that
represent actual expenses incurred by CONTRACTOR for Covered Services,
CONTRACTOR will be reimbursed by HHSC for claim costs with dates of service
between May 1, 2000, and April 30, 2001, that represent actual expenses incurred
by CONTRACTOR for Covered Services that exceed the selected threshold. The
supplemental reimbursement applies to all Members during the first year of the
Initial Term.

     "TDI" means the Texas Department of Insurance.

     "TRANSITION PLAN" means the written plan developed by CONTRACTOR, approved
by HHSC, and to be employed in the event of an early termination of this
Agreement. The Transition Plan describes CONTRACTOR's policies and procedures
that will assure:

                  (1) The least disruption in the delivery of health care
         services to those CHIP-eligible children who are enrolled with
         CONTRACTOR during the transition to a substitute health plan; and

                  (2) Cooperation with HHSC and the substitute health plan
         provider in transferring information to a substitute health plan , as
         well as notifying Members of the transition and of their option to
         select a new plan, as requested and in the form required or approved by
         HHSC.

     "VALUE-ADDED SERVICES" means those services, if any, that CONTRACTOR
offered to provide and described in its Proposal, which are required to be
offered and provided to Members. CONTRACTOR does not receive capitation for
these services. The cost of providing these Value-added Services is an allowable
expense for purposes of calculating the experience rebate described in section
10.06.


                                  Page 9 of 78
<PAGE>

                         ARTICLE 4. GENERAL TERMS AND CONDITIONS

     SECTION 4.01 TERM OF THE AGREEMENT.

     (a) General provisions.

     This section will govern the period for performance of this Agreement. No
commitment of funds by HHSC is permitted prior to the Effective Date or
subsequent to the last regularly-scheduled payment date services provided during
the Initial Term, including retroactive adjustments, and any properly executed
extension of the Initial Term unless authorized under a properly executed Letter
of Intent between HHSC and CONTRACTOR. The term may be extended or shortened by
amendment.

     (b) Initial Term.

     The Initial Term of this Agreement will commence on January 19, 2000, and
will terminate on April 30, 2003, unless terminated sooner or extended in
accordance with the terms of this Agreement. The Initial Term includes any
period during which work is performed under a Letter of Intent that is properly
executed between HHSC and CONTRACTOR.

     (c) Optional extension of Agreement.

     HHSC may offer to extend the term of this Agreement by written notice to
CONTRACTOR no less than 90 days before the Expiration Date. Upon mutual written
agreement of the parties, this Agreement may be extended for two one-year terms.
If HHSC decides to offer an extension of this Agreement for a second one-year
term, HHSC will provide written notice to CONTRACTOR no less than 90 days before
the originally-extended expiration date.

     (d) Modifications upon extension or renewal of Agreement.

          (1) If HHSC seeks modifications to the Agreement as a condition of any
          extension, HHSC's notice to CONTRACTOR will specify those
          modifications, the Agreement pricing terms, or other terms and
          conditions of the Agreement HHSC seeks.

          (2) Modifications proposed by HHSC may apply to operations under this
          Agreement in any Agreement year beginning after the date of written
          notice to CONTRACTOR. CONTRACTOR must respond to HHSC's proposed
          modification within 30 days of receipt. Upon receipt of CONTRACTOR's
          written response to the proposed modifications, HHSC may enter into
          negotiations with CONTRACTOR to arrive at mutually agreeable Agreement
          modifications. If HHSC determines that the Parties will be unable to
          reach agreement on mutually satisfactory Agreement modifications, then
          HHSC must provide written notice to CONTRACTOR of its intent not to
          extend the Agreement beyond the Agreement term then in effect, at
          least 90 days before the Agreement Expiration Date, inclusive of all
          extension options previously exercised.

     SECTION 4.02 SCOPE OF WORK.

     CONTRACTOR will arrange for the delivery of health care services set out in
the RFP and prepare and deliver the reports described in Article 17 and to be
more specifically described in an appendix that the Parties will develop and
attach as an appendix by amendment of this Agreement. CONTRACTOR will also
perform the other functions set out in Articles 7 and 10 through and including
19 of this Agreement, as well as the duties and responsibilities set out in the
RFP and CONTRACTOR's Proposal. The RFP and CONTRACTOR's Proposal are both
incorporated into this Agreement by reference for all purposes.


                                 Page 10 of 78
<PAGE>

     SECTION 4.03 AGREEMENT ELEMENTS.

     (a) Agreement documentation.

     The agreement between the Parties will consist of this Agreement, the RFP,
and CONTRACTOR's Proposal.

     (b) Order of documents.

     In the event of any conflict or contradiction between or among these
documents, the documents shall control in the following order of precedence:

         (1) The final executed Agreement;

         (2) CONTRACTOR's Proposal ; and

         (3) The RFP.

     (c) Oral and written representations.

     No oral or written representations of CONTRACTOR, including representations
made outside of its formal Proposal documentation, have been regarded by HHSC as
inducements to contract and are not expressly made a part of this Agreement.

     SECTION 4.04 NOTICES.

     (a) Any notice under this Agreement must be sent by registered or certified
mail, return receipt requested, or must be delivered in hand, and a receipt
provided.

     (b) Any notice under this Agreement to HHSC will be sufficient if
hand-delivered or mailed to:

                  Don A. Gilbert, M.B.A.
                  Commissioner
                  Health and Human Services Commission
                  P.O. Box 12347
                  4900 North Lamar Blvd.
                  Austin, Texas 78751

                  Copy to:
                  Jason Cooke
                  Health & Human Services Commission
                  P.O. Box 12347
                  4900 North Lamar Blvd.
                  Austin, Texas 78751

     (c) Any notice under this Agreement to CONTRACTOR will be sufficient if
hand-delivered or mailed to:

                  Name: Sydney Stuart
                  Title: Vice President of Government Affairs and Compliance
                  Business name: Texas Universities Health Plan, Inc.
                  Address: 701 Brazos Street, Suite 950
                           Austin, Texas 78701


                                 Page 11 of 78
<PAGE>

                  Copy to:
                  Name: John Hackworth
                  Address: 701 Brazos Street, Suite 950
                           Austin, Texas 78701

     (d) Either Party may change its designee or address upon five (5) days'
prior written notice to the other Party.

     SECTION 4.05 FUNDING.

     This Agreement is expressly conditioned on the availability of state and
federal appropriated funds. CONTRACTOR will have no right of action against HHSC
in the event that HHSC is unable to perform its obligations under this Agreement
as a result of the suspension, termination, withdrawal, or failure of funding to
HHSC or lack of sufficient funding of HHSC for any activities or functions
contained within the scope of this Agreement. If funds become unavailable, the
provisions of Article 20 (Remedies and Disputes) will apply. HHSC will use all
reasonable efforts to ensure that such funds are available. HHSC shall make best
efforts to provide reasonable written advance notice to CONTRACTOR upon learning
that funding for CHIP may be discontinued.

     SECTION 4.06 DELEGATION OF AUTHORITY.

     Whenever, by any provision of this Agreement, any right, power, or duty is
imposed or conferred on HHSC, the right, power, or duty so imposed or conferred
is possessed and exercised by the Commissioner unless any such right, power, or
duty is specifically delegated to the duly appointed agents or employees of
HHSC. The Commissioner will reduce any such delegation of authority to writing
and provide a copy to CONTRACTOR on request.

     SECTION 4.07 NO WAIVER OF SOVEREIGN IMMUNITY.

     The Parties expressly agree that no provision of this Agreement is in any
way intended to constitute a waiver by HHSC or the State of Texas of any
immunities from suit or from liability that HHSC or the State of Texas may have
by operation of law.

     SECTION 4.08 FORCE MAJEURE.

     Neither CONTRACTOR nor HHSC will be liable to the other for any delay in,
or failure of performance, of any requirement contained in the Agreement caused
by a force majeure event. The existence of such causes of delay or failure will
extend the period of performance in the exercise of reasonable diligence until
after the causes of delay or failure have been removed. Each Party must inform
the other in writing with proof of receipt within ten (10) business days of the
existence of a force majeure event or otherwise waive this right as a defense.

     SECTION 4.09 HOLD HARMLESS.

     CONTRACTOR agrees that it shall hold harmless HHSC and its Commissioner,
employees, agents, contractors, subcontractors, and independent consultants and
their subcontractors and consultants from any and all actions in bid or proposal
evaluation other than acts of willful misconduct and gross negligence.


                                 Page 12 of 78
<PAGE>

     SECTION 4.10 ASSIGNMENT.

     This Agreement was awarded to CONTRACTOR based on CONTRACTOR's
qualifications to perform the services described in the RFP. CONTRACTOR cannot
assign this Agreement without the written consent of TDI and HHSC. This
provision does not prevent CONTRACTOR from subcontracting duties and
responsibilities to qualified Subcontractors. If TDI and HHSC consent to an
assignment of this Agreement, a transition period of 90 days will run from the
date the assignment is approved by TDI and HHSC so that Members' services are
not interrupted. The assigning CONTRACTOR must also submit a transition plan, as
set out in section 20.15(d), subject to HHSC's approval.

     SECTION 4.11 EVIDENCE OF FINANCIAL SOLVENCY.

     CONTRACTOR must be and remain in full compliance with all applicable state
and federal solvency requirements for basic-service health maintenance
organizations, including but not limited to, all reserve requirements, net worth
standards, debt-to-equity ratios, or other debt limitations.

     If CONTRACTOR becomes aware of any impending changes to its financial or
business structure that could adversely impact its compliance with the
requirements of this Agreement or its ability to pay its debts as they come due,
CONTRACTOR must notify HHSC immediately in writing. CONTRACTOR has not filed for
protection under any state or federal bankruptcy laws.

     SECTION 4.12 MINIMUM NET WORTH.

     CONTRACTOR 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 Members; or (c) an amount that complies with standards
adopted by the Texas Department of Insurance. 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 Texas Insurance
Code.

     SECTION 4.13 PERFORMANCE AND FIDELITY BONDS.

     CONTRACTOR will furnish HHSC with a performance bond in the form prescribed
by HHSC and approved by TDI, naming HHSC as Obligee, securing CONTRACTOR's
faithful performance of the terms and conditions of this Agreement. The
performance bond has been issued in the amount of $100,000 for a three-year
period (the Initial Term). If the Agreement is renewed or extended under section
4.01(c), a separate bond will be required for each additional term of the
Agreement. 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 article 20A.30 of the Texas Insurance Code and 28
T.A.C. Section 11.1805, relating to Performance and Fidelity Bonds. The bond
must be delivered to HHSC at the same time this signed Agreement is delivered to
HHSC.

     SECTION 4.14 INSURANCE.

     CONTRACTOR 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.

     CONTRACTOR 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.


                                 Page 13 of 78
<PAGE>

     CONTRACTOR 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 CONTRACTOR's Members in the first month of the
Agreement term multiplied by one hundred fifty dollars ($150), not to exceed
$10,000,000.

     Any exceptions to the requirements of this section must be approved in
writing by HHSC prior to the Implementation Date. Subcontractors and providers
who qualify as state or federal units of government and are prohibited by law
from purchasing liability insurance are exempt from the insurance requirements
of this section. 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.

     SECTION 4.15 REPROCUREMENT RIGHTS.

     Notwithstanding anything in this Agreement to the contrary, HHSC may at any
time issue requests for proposals to other potential contractors for performance
of any portion of the Services covered by this Agreement or services similar or
comparable to the Services performed by CONTRACTOR under this Agreement to
achieve choice in a CHIP Service Area or to replace an HMO who is no longer
providing Covered Services in a CHIP Service Area. HHSC will provide advance
written notice to CONTRACTOR if HHSC reprocures in CONTRACTOR's CSA.


                   ARTICLE 5. CONTRACTOR PERSONNEL MANAGEMENT

     SECTION 5.01 QUALIFICATIONS, RETENTION AND REPLACEMENT OF CONTRACTOR
EMPLOYEES.

     CONTRACTOR agrees to maintain the organizational and administrative
capacity and capabilities to carry out all duties and responsibilities under
this Agreement. The personnel CONTRACTOR assigns to perform the duties and
responsibilities under this Agreement will be properly trained and qualified for
the functions they are to perform. CONTRACTOR does not warrant the quality of
training for which the State is responsible. Notwithstanding transfer or
turnover of personnel, CONTRACTOR remains obligated to perform all duties and
responsibilities under this Agreement without degradation and in accordance with
this Agreement.

     SECTION 5.02 KEY CONTRACTOR PERSONNEL.

     (a) CONTRACTOR's Proposal includes a list of designated key management and
technical personnel ("Key CONTRACTOR Personnel") who will be assigned to this
Agreement. For the purposes of this requirement, Key CONTRACTOR Personnel are
those with management responsibility or principal technical responsibility for
the following functional areas of this Agreement: Member Services; Management
Information Systems; Provider/Network Development and Maintenance; Benefit
Administration and Utilization; Financial Functions; and Reporting. CONTRACTOR's
Medical Director is also a Key CONTRACTOR Personnel.

     (b) CONTRACTOR shall maintain throughout the period of this Agreement with
HHSC the ability to support its Key CONTRACTOR Personnel with the required
resources necessary to meet contract requirements and comply with applicable
law. CONTRACTOR shall ensure project continuity by timely replacing Key
CONTRACTOR Personnel, if necessary, with a sufficient number of persons having
the requisite skills, experience and other qualifications. No later than thirty
(30) calendar days after any change in Key CONTRACTOR Personnel, CONTRACTOR
shall notify HHSC in writing with the names of any replacement staff and details
of their requisite skills, experience and other qualifications.


                                 Page 14 of 78
<PAGE>

     (c) If HHSC determines that a working relationship satisfactory to HHSC
cannot be established between a Key CONTRACTOR Personnel and HHSC and desires
that the Key CONTRACTOR Personnel not work with HHSC on CONTRACTOR's duties and
responsibilities under this Agreement, HHSC will notify CONTRACTOR in writing.
After receipt of HHSC's notice, HHSC and CONTRACTOR will attempt to resolve
HHSC's concerns on a mutually agreeable basis.

     (d) Regardless of specific personnel changes, CONTRACTOR must maintain the
overall level of expertise, experience, and skill reflected in the Key
Contractor Personnel resumes submitted. HHSC will continuously monitor the
overall level of expertise of CONTRACTOR's staff to ensure that CONTRACTOR is in
compliance with this requirement.

     SECTION 5.03 MEDICAL DIRECTOR

     CONTRACTOR must have the equivalent of a full-time Medical Director
licensed under the Texas State Board of Medical Examiners (M.D. or D.O.). The
Medical Director must comply with applicable federal and state statutes and
regulations.

     The Medical Director must exercise independent medical judgment in all
decisions relating to medical necessity. CONTRACTOR must ensure that its
decisions relating to medical necessity are not adversely influenced by fiscal
management decisions. HHSC may conduct reviews of decisions relating to medical
necessity upon reasonable notice.

     SECTION 5.04 RESPONSIBILITY FOR CONTRACTOR PERSONNEL.

     (a) CONTRACTOR's employees will not in any sense be considered employees of
HHSC or the State of Texas, but will be considered CONTRACTOR's employees for
all purposes.

     (b) Except as expressly provided in this Agreement, neither CONTRACTOR nor
any of CONTRACTOR's employees, subcontractors or agents may act in any sense as
agents or representatives of HHSC or the State of Texas.

     (c) CONTRACTOR's employees must be paid exclusively by CONTRACTOR for all
services performed. CONTRACTOR is responsible for and must comply with all
requirements and obligations related to such employees under local, state or
federal law, including minimum wage, social security, unemployment insurance,
state and federal income tax and workers' compensation obligations.

     SECTION 5.05 COOPERATION WITH HHSC OR STATE ADMINISTRATIVE AGENCIES.

     (a) Cooperation with HHSC contractors.

     CONTRACTOR agrees to reasonably cooperate with and work with the state's
contractors, subcontractors and third-party representatives as requested by
HHSC. To the extent permitted by HHSC's financial and personnel resources, HHSC
agrees to reasonably cooperate with CONTRACTOR and to use its best efforts to
ensure that HHSC's other CHIP contractors reasonably cooperate with CONTRACTOR.

     (b) Cooperation with state and federal administrative agencies.

     CONTRACTOR must ensure that CONTRACTOR personnel will cooperate with HHSC
or other state or federal administrative agency personnel at no charge to HHSC
for purposes relating to the administration of the CHIP program including, but
not limited to the following purposes:


                                 Page 15 of 78
<PAGE>

          (1) The investigation and prosecution of fraud, abuse, and waste in
          the Texas Title XIX Medical Assistance (Medicaid) Program or the CHIP
          program;

          (2) Audit, inspection, or other investigative purposes; and

          (3) Testimony in judicial or quasi-judicial proceedings relating to
          the Services under this Agreement or other delivery of information to
          HHSC or other agencies' investigators or legal staff.


                        ARTICLE 6. GOVERNING LAW AND REGULATIONS

     SECTION 6.01 GOVERNING LAW AND VENUE.

     This Agreement is governed by the laws of the State of Texas and
interpreted in accordance with Texas law. Proper venue for litigation arising
from this Agreement is the District Courts of Travis County, Texas.

     SECTION 6.02 LAW AND REGULATIONS GOVERNING ADMINISTRATION OF THE AGREEMENT.

     The administration of the Agreement shall be in accordance with the
following laws and regulations:

          (1) Title XXI of the Social Security Act, as amended, and any final
          regulations promulgated thereunder;

          (2) Chapter 62, Texas Health & Safety Code, as amended, and any
          administrative rules adopted under that chapter;

          (4) Chapter 531, Texas Government Code, as amended; and

          (5) Any other pertinent provisions of Federal law or Texas law.

     SECTION 6.03 CONTRACTOR RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND
REGULATIONS.

     CONTRACTOR is responsible for compliance with all laws, regulations, and
administrative rules that govern the performance of the Services including, but
not limited to, all state and federal tax laws, state and federal employment
laws, state and federal regulatory requirements, and licensing provisions.
CONTRACTOR is responsible for ensuring each of its personnel who provide
services under the Agreement are properly licensed, certified, and/or have
proper permits to perform any activity related to the Services.

     SECTION 6.04 LAWS AND REGULATIONS GOVERNING PROCUREMENT OF THE SERVICES.

     (a) It is the express intention of the Parties that this Agreement be a
procurement of health care services and meeting all applicable requirements of
the following:

          (1) Title 42, Code of Federal Regulations, Part 92;

          (2) Title 45, Code of Federal Regulations, Part 74;

          (3) Chapter 62, Texas Health & Safety Code;


                                 Page 16 of 78
<PAGE>

          (4) Section 2155.144, Texas Government Code.

     SECTION 6.05 IMMIGRATION REFORM AND CONTROL ACT OF 1986.

     CONTRACTOR shall comply with the requirements of the Immigration Reform and
Control Act of 1986 and the Immigration Act of 1990, 8 U.S.C. Sections 1101, et
seq., regarding employment verification and retention of verification forms for
any individual(s) hired on or after November 6, 1986, who will perform any labor
or services under this Agreement.

     SECTION 6.06 COMPLIANCE WITH STATE AND FEDERAL ANTI-DISCRIMINATION LAWS.

     (a) To the extent such provisions are applicable to CONTRACTOR, CONTRACTOR
agrees to fully comply with the following laws and regulations that implement
such laws:

          (1) Title VI of the Civil Rights Act of 1964, 28 U.S.C. Sections 2000d
          to 2000d-4 (P.L. 88-352);

          (2) Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. Section
          794 (P.L.] 93-112);

          (3) The Americans with Disabilities Act of 1990, 29 U.S.C. Section
          706, 42 U.S.C. Sections 12101, et seq.;

          (4) 47 U.S.C. Sections 152, 221, 225, 611 (P.L. 101-336);

          (5) Title 45, Code of Federal Regulations, Part 80 (relating to race,
          color and national origin);

          (6) Title 45, Code of Federal Regulations, Part 84 (relating to
          handicap);

          (7) Title 45, Code of Federal Regulations, Part 86 (relating to sex);
          and

          (8) Title 45, Code of Federal Regulations, Part 91 (relating to age).

     Collectively, these authorities obligate HHSC to provide services without
discrimination on the basis of race, color, national origin, age, sex,
disability, or political or religious beliefs. CONTRACTOR agrees that in
carrying out the terms of this Agreement, it will do so in a manner that assists
HHSC to comply with such obligations.

     (b) CONTRACTOR agrees to comply with the applicable requirements of Texas
Labor Code, Chapter 21, which requires that certain employers not discriminate
on the basis of race, color, disability, religion, sex, national origin, or age.

     SECTION 6.07 ENVIRONMENTAL PROTECTION LAWS.

     CONTRACTOR agrees to comply with the applicable provisions of federal
environmental protection laws as described in this section:

     (a) Pro-Children Act of 1994.

     CONTRACTOR agrees to comply with the Pro-Children Act of 1994, as
applicable, 20 U.S.C. Sections 6081 - 6084 P.L. 103-227; 108 Stat. Section 104)
regarding the provision of a smoke-free workplace and promoting the non-use of
all tobacco products.


                                 Page 17 of 78
<PAGE>

     (b) National Environmental Policy Act of 1969.

     CONTRACTOR agrees to comply with any applicable provisions relating to the
institution of environmental quality control measures contained in the National
Environmental Policy Act of 1969, 42 U.S.C. Sections 4321-4332,) and Executive
Order 11514 ("Protection and Enhancement of Environmental Quality").

     (c) Clean Air Act and Water Pollution Control Act regulations.

     CONTRACTOR agrees to comply with any applicable provisions relating to
required notification of facilities violating the requirements of Executive
Order 11738 ("Providing for Administration of the Clean Air Act and the Federal
Water Pollution Control Act with Respect to Federal Contracts, Grants, or
Loans").

     (d) State Clean Air Implementation Plan.

     CONTRACTOR agrees to comply with any applicable provisions requiring
conformity of federal actions to State (Clean Air) Implementation Plans under
Section 176(c) of the Clean Air Act of 1955, as amended (42 U.S.C. Sections
740-7642).

     (e) Safe Drinking Water Act of 1974.

     CONTRACTOR agrees to comply with applicable provisions relating to the
protection of underground sources of drinking water under the Safe Drinking
Water Act of 1974, as amended (21 U.S.C. Section 349; 42 U.S.C. Sections 300f to
300j-9).

            ARTICLE 7. SERVICE LEVELS AND PERFORMANCE MEASUREMENT.

     SECTION 7.01 PERFORMANCE MEASUREMENT.

     Satisfactory performance of this Agreement will be measured by:

     (a) Adherence to this Agreement, including all representations and
warranties;

     (b) Compliance with project work plans, schedules, and milestones as
proposed by CONTRACTOR in its Proposal and as revised by CONTRACTOR and finally
approved by HHSC;

     (c) Delivery of the Services and Deliverables in accordance with the
service levels and availability proposed in its Proposal and as finally approved
or accepted by HHSC;

     (d) Results of audits performed by HHSC or its representatives in
accordance with Article 9;

     (e) Timeliness, completeness, and accuracy of required reports; and

     (f) Achievement of performance measures developed by CONTRACTOR and HHSC
and as modified from time to time by written agreement during the Initial Term
of this Agreement.


                                 Page 18 of 78
<PAGE>
     SECTION 7.02 MEASUREMENT AND MONITORING TOOLS.

     CONTRACTOR must implement all reasonably necessary measurement and
monitoring tools and procedures required to measure and report CONTRACTOR's
performance of the Services against the applicable service levels as such
service levels are specified in the Agreement. Such measurement and monitoring
must permit reporting at a level of detail sufficient to verify compliance with
the service levels specified in the Agreement and will be subject to audit by
HHSC. CONTRACTOR will provide HHSC with information and access to all applicable
information or work product produced by such tools and procedures upon request
for purposes of verification.

     SECTION 7.03 CONTINUOUS IMPROVEMENT AND BEST PRACTICES.

     CONTRACTOR must on an ongoing basis, as part of its total quality
management process, identify ways to improve performance of the Services and
identify and apply techniques and tools from other operations that would benefit
CHIP either operationally or financially.

     SECTION 7.04 SYSTEMS DEVELOPMENT, MAINTENANCE AND OPERATION.

     (a) General responsibilities.

     CONTRACTOR will develop, maintain, and operate or arrange for the
development, maintenance, and operation of the automated information system
described in CONTRACTOR's Proposal that will be utilized by CONTRACTOR in the
performance of the Services under this Agreement (the "System") and that
performs functions necessary and convenient to the delivery of the Services,
including, but not limited to, the following:

          (1) The general management information systems functions described in
          subsection (b) of this section; and

          (2) The specific system-wide functions described in subsection (c) of
          this section.

     (b) General management information system functions.

          (1) General data storage and handling requirements.

          (A) The System will manage, process, and securely store data in
          accordance with the requirements of this Agreement, the RFP, and
          CONTRACTOR's Proposal.

          (B) The System must process, store, manipulate, or manage information
          relating to CONTRACTOR's business operations and this Agreement,
          including, but not limited to:

               (i) Accounting and financial information, including, but not
               limited to:

                    a. Health care payment information--e.g., capitation
                    payments, claims payments, refunds;

                    b. Administrative financial information--e.g., payments to
                    subcontractors, suppliers, interest income

               (ii) Enrolled member information specified by HHSC; and

               (iii) Utilization data specified by HHSC.


                                 Page 19 of 78
<PAGE>

          (C) In addition to any other requirement specified in this article,
          the System implemented by CONTRACTOR must include the following system
          features or functionality:

               (i) The capability to access, update and edit all data in a
               manner approved by HHSC;

               (ii) The capability to maintain automated audit trails regarding
               data changes to enable verification and validation of data
               changes, including:

                    a. The date of a change;

                    b. The reason and authority for the change;

                    c. The chronological recording of the change (i.e., the
                    information before the change and after the change);

                    d. Whether the change was made by the system or by a person;
                    and

                    e. The identity, authority, login name, or machine ID of the
                    person, operator, or machine that made the change;

               (iii) The capability to allow data input, updating, and editing
               through manual and electronic transmissions;

               (iv) Procedures and processes for accumulating, archiving, and
               restoring data in the event of a system or subsystem failure;

               (v) Maintenance of automated or manual linkages between and among
               all management information systems subsystems and interfaces;

               (vi) The capability to relate member and provider data with
               utilization, service, accounting data, and reporting functions
               and other relationships deemed appropriate by HHSC within time
               frames specified by or on behalf of HHSC;

               (vii) The capability to relate and extract data elements into
               detail and summary reporting formats;

               (viii) Process and procedures manuals, available in written or
               electronic format, that:

                    a. Document and describe all manual and automated system
                    procedures and processes for all the functions and features
                    described in this section, and the various subsystem
                    components; and

                    b. Are reviewed and updated at least annually and updated
                    within

               (ix) The capability to maintain and cross-reference all
               member-related information with the most current CHIP member
               unique identifying number.

         (2) Data override capability.

     The System implemented by CONTRACTOR must include data override capability
sufficient to allow CONTRACTOR staff to manually or electronically correct
errors and, with appropriate permissions and security clearances, to mitigate
specific system-wide data problems.


                                 Page 20 of 78
<PAGE>

         (3) HIPAA compliance.

     The System implemented by CONTRACTOR must comply with applicable
certificate of coverage and data specification and reporting requirements
promulgated pursuant to the federal Health Insurance Portability and
Accountability Act of 1996, P.L. 104-91 (August 21, 1996), as amended.
CONTRACTOR will issue the Certificate of Creditable Coverage to disenrolled
Members.

          (4) Data security and confidentiality.

     The System implemented by CONTRACTOR must contain system security features
that include:

               (A) The ability to log and report all unauthorized attempts to
               access the system;

               (B) Dial-up access protection to permit systems access only from
               authorized locations and/or users;

               (C) A process for ensuring complete confidentiality of all
               passwords and IDs used by CONTRACTOR and HHSC employees;

               (D) Storage of all critical data files, when not in use, in a
               fireproof vault; and (E) Additional security requirements as
               agreed to by HHSC and CONTRACTOR.

          (5) Back-up.

               (A) CONTRACTOR will develop, equip, operate, and maintain or
               contract with a facility that will conduct back-up operations of
               all critical operational data (including all major data files,
               microfiche records, computer programs, system and operations, and
               documentation) received, generated, and maintained by the System
               in accordance with the representations in CONTRACTOR's Proposal
               or as specified by HHSC.

               (B) In fulfilling the requirements of this section, CONTRACTOR
               will implement a data back-up plan subject to HHSC approval.

               (C) The data back up operations described in this section will be
               for the purpose of restoring the System or data to fully
               operational status within timeframes specified by HHSC in
               cooperation with CONTRACTOR and will be conducted at a site other
               than the central facility established by CONTRACTOR for data
               center operations.

          (6) Disaster recovery.

          (A) CONTRACTOR must provide acceptable back-up hardware processing
          facilities for maintaining back-ups for all computer programs,
          microfiche originals, major files, system and operations, and user
          documentation (in magnetic and non-magnetic form) in the event of a
          disaster.

          (B) In the event of a failure of the data processing facilities and/or
          communications networks because of any disaster, mission critical
          administrative services normally furnished by CONTRACTOR must be fully
          available within five (5) working days following the disaster. The
          five-day period does not excuse CONTRACTOR from meeting the
          contractual performance criteria.


                                 Page 21 of 78
<PAGE>

         (C) CONTRACTOR must provide HHSC with an updated acceptable detailed
         back-up and disaster recovery plan on an annual basis. The plan, and
         any subsequent modifications, are subject to HHSC approval. CONTRACTOR
         must demonstrate the back-up facilities' capability to HHSC at least
         once a year.

         (D) Failure to comply with the requirements set out in subsections (A)
         through (C) may subject CONTRACTOR to imposition of liquidated damages
         under Article 20 of this Agreement.

         (E) CONTRACTOR will test the operability of the Disaster Recovery Plan
         and related systems no sooner than April 1, 2000.

         (F) CONTRACTOR will supply any data or information (including cost
         information) HHSC may require in order to secure a waiver under House
         Bill 1, 76th Texas Legislature (General Appropriations Act), Article
         IX, Section 9-6.23 ("West Texas Disaster Recovery and Data Operations
         Center") if such a waiver is or becomes necessary. CONTRACTOR will
         reasonably cooperate with HHSC to secure such waiver.

     (c) System-wide functions.

     The System utilized by CONTRACTOR will have the functionality of and
accomplish the requirements of the separate subsystems and tasks identified in
the RFP and in this section, including the following:

         (1) Enrollment and Eligibility Subsystem.

         (A) The System implemented by CONTRACTOR must include an enrollment and
         Eligibility Subsystem that has the capability to receive, store, and
         process in accordance with this paragraph (c)(1) this section.

         (B) The System implemented by CONTRACTOR must:

              (i) Receive CHIP member enrollment information that is
              electronically transmitted to CONTRACTOR by the CHIP
              Administrative Services Contractor on a monthly basis. CONTRACTOR
              must update its records and issue new or revised
              membership/identification cards on the basis of the updated CHIP
              member enrollment information.

              (ii) Maintain historical data (files) as required by HHSC;

              (iii) Maintain data on enrollment, disenrollment, complaint, and
              appeal activities, including, but not limited to the following:

                    a. The reason for or type of disenrollment; and

                    b. Complaint and appeal resolution, organized in accordance
                    with a format approved by HHSC;

              (iv) Receive, translate, edit and update files in accordance with
              requirements developed by the CHIP Administrative Services
              Contractor and HHSC prior to inclusion in the System, including
              processing updates received from the CHIP Administrative Services
              Contractor within 2 working days of CONTRACTOR's receipt of such
              updates;


                                 Page 22 of 78
<PAGE>

               (v) Provide error reports and a reconciliation process between
               new data and data existing in the System;

               (vi) Verify Member eligibility for medical services rendered, or
               for other Member inquiries; and

               (vii) Search records by a variety of fields (e.g., name, unique
               identification numbers, date of birth, social security number,
               etc.) for eligibility verification purposes.

          (2) Provider Subsystem.

          (A) The System implemented by CONTRACTOR must include a Provider
          Subsystem that accepts, processes, stores and retrieves current and
          historical data on health care providers in CONTRACTOR's network,
          including, but not limited to, the following data:

               (i) Services offered or provided;

               (ii) Payment methodology;

               (iii) License/credentialing information;

               (iv) Service capacity and facility linkages; and

               (v) If required by HHSC, information concerning excluded
               providers.

          (B) The functions and/or features of the Provider Subsystem must
          achieve the following:

               (i) Identify network providers, specialty or specialties by:

                    a. The appropriate regulatory board
                    certification/eligibility;

                    b. Admission privileges;

                    c. Member linkage;

                    d. Capacity;

                    e. Facility linkages;

                    f. Emergency arrangements or contact; and

                    g. Other limitations, affiliations, or restrictions
                    specified by HHSC;

               (ii) Maintain provider history files to include audit trails and
               effective dates of information;

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

               (iv) Support CONTRACTOR's credentialing, re-credentialing, and
               credential-tracking processes;


                                 Page 23 of 78
<PAGE>

               (v) Incorporate or link appropriate billing, client, and other
               information to the provider record;

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

               (vii) Support national and state provider number formats (such as
               UPIN, NPI, CLIA, Medicaid, TPI, etc.) as required by HHSC;

               (viii) Identify providers excluded from participation by HHSC as
               ineligible or excluded and update Provider Subsystem and other
               files to reflect period and reason for exclusion;

               (ix) Capture provider complaints;

               (x) Provide geographical mapping of provider network and
               assessment of network's capabilities to meet client needs; and

               (xi) Update provider information (e.g. provider addresses).

          (3) Claims/Services Data Subsystem.

          (A) The System implemented by CONTRACTOR must include a
          Claims/services Data Subsystem that collects, processes, and stores
          data on all services delivered for which CONTRACTOR is financially
          responsible, primarily for the following purposes:

               (i) Processing claims and tracking service utilization data;

               (ii) Capturing all medically related services, including medical
               supplies and/or equipment (using standard codes as specified by
               HHSC, e.g. HCPCS, ICD9-CM), rendered by service providers to an
               eligible member;

               (iii) Approving, preparing for payment, or rejecting or denying
               claims submitted. This subsystem may integrate manual and
               automated systems to validate and adjudicate claims. Refer to
               Section VIII of the RFP for additional information.

          (B) Functions and features of this subsystem are:

               (i) Accommodate multiple input methods -- tape, claim document,
               magnetic media;

               (ii) Support entry and capture of a minimum of two diagnosis
               codes for each individual encounter for a provider on a specific
               date of service;

               (iii) Edit and audit to ensure allowed services are provided to
               eligible clients by eligible providers;

               (iv) Interface with the Enrollment and Eligibility Subsystem,
               Provider Subsystem, and/or other CHIP-related systems specified
               by HHSC;

               (v) Edit for utilization and service criteria, medical policy,
               fee schedules, multiple contract periods and conditions;


                                 Page 24 of 78
<PAGE>

               (vi) The ability to submit data to HHSC when requested through
               electronic transmission using specified formats and meeting
               specified edits;

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

               (viii) Provide timely, accurate, and complete data for monitoring
               claims processing performance;

               (ix) Provide claims editing capability for detecting CPT coding
               errors;

               (x) Provide timely, accurate, and complete data for reporting
               service utilization;

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

               (xii) Maintain and apply edits and audits to verify timely,
               accurate, and complete data reporting;

               (xiii) Submit reimbursement to non-contracted providers for
               emergency services and medically necessary services not available
               in network but rendered to members in a timely and accurate
               manner.

               (xiv) Validate approval and denials of precertification, prior
               authorization, and referral requests during adjudication of
               claims;

               (xv) Track and report the exact date a service was performed
               using HHSC approved date ranges; and

               (xvi) Support all functions and report all required data
               elements.

               (xvii) CONTRACTOR must comply with the standards adopted by the
               United States Department of Health and Human Services under the
               Health Insurance Portability and Accountability Act of 1996
               (HIPAA) for submitting and receiving claims information through
               electronic data interchange 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) Financial Subsystem.

          (A) The System implemented by CONTRACTOR must include a Financial
          Subsystem that provides the necessary data for all accounting
          functions including:

               (i) Cost accounting;

               (ii) Inventory;

               (iii) Fixed assets;

               (iv) Payroll;


                                 Page 25 of 78
<PAGE>

               (v) General ledger;

               (vi) Accounts receivable and payable; and

               (vii) Financial statement presentation.

          (B) The Financial Subsystem must be capable of providing CONTRACTOR's
          management staff with information that:

               (i) Demonstrates that CONTRACTOR is meeting, exceeding, or
               falling short of fiscal goals; and

               (ii) Provides CONTRACTOR management with the necessary data to
               identify signs of potential fiscal distress and to enable
               management to take appropriate mitigating or corrective action.

          (5) Utilization/Quality Improvement Subsystem.

          (A) The System implemented by CONTRACTOR must include a
          Utilization/Quality Improvement Subsystem that combines data from
          other subsystems, and/or external systems, to:

               (i) Produce reports for analysis which focus on:

                    a. The review and assessment of quality of care given;

                    b. Detection of overutilization and underutilization of
                    services; and

                    c. Development of user-defined reporting criteria and
                    standards.

               (ii) Profiles utilization of providers and members and compares
               them against experience and norms for comparable individuals;

               (iii) Support the quality assessment function;

               (iv) Track utilization control function(s) and monitor inpatient
               admissions, emergency room use, ancillary, and out-of-area
               services.

               (v) Produce health care provider profiles, occurrence reporting,
               monitoring and evaluation studies, and member satisfaction survey
               compilations;

               (vi) Integrate, at CONTRACTOR's discretion, with CONTRACTOR's
               manual and automated processes or incorporate other software
               reporting and/or analysis programs; and

               (vii) Incorporate and summarize information from member surveys,
               provider and member complaints, and appeal processes.

          (B) Functions and features of the Utilization/Quality Improvement
          Subsystem are:

               (i) Supports CONTRACTOR processes to monitor and identify
               deviations in patterns of treatment from recognized standards or
               norms or standards specified by HHSC;


                                 Page 26 of 78
<PAGE>

               (ii) Provides feedback information for monitoring progress toward
               goals, identifying optimal practices, and promoting continuous
               improvement;

               (iii) Supports development of cost and utilization data by
               provider and service;

               (iv) Provides aggregate performance and outcome measures using
               standardized quality indicators similar to HEDIS or as specified
               by HHSC.

               (v) Supports focused quality of care studies;

               (vi) Supports the management of referral/utilization control
               processes and procedures including prior authorization and
               precertifications and denials of services;

               (vii) Monitors primary care provider referral patterns;

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

               (x) Stores and reports patient satisfaction data through use of
               member surveys;

               (xi) Supports fraud and abuse detection, monitoring and
               reporting, including support of state- operated fraud and abuse
               detection systems; and

               (xii) Otherwise satisfies the minimum reporting/data
               collection/analysis functions requirements of the RFP.

          (6) Report Subsystem.

          (A) The System implemented by CONTRACTOR must include a Reporting
          Subsystem that:

               (i) Supports reporting requirements of all CONTRACTOR operations
               to the CHIP Administrative Services Contractor and HHSC and
               enables recipients of reports to verify or validate the accuracy
               of the reports; and

               (ii) Allows CONTRACTOR to develop various reports to support
               contract management and evaluation and to facilitate HHSC
               oversight.

          (B) The minimum functions and capabilities of the Reporting Subsystem
          are:

               (i) Produces standard, HHSC-required reports (whether on a
               recurring or sporadic) and ad hoc reports from data available in
               all management information subsystems specified in the RFP or
               this section within the timeframes requested by HHSC;

               (ii) Has system flexibility to permit the development of reports
               at irregular periods as needed and according to any combination
               of data (including calculated data--i.e., age) and variety of
               formats (including paper, electronic, or web-based formats);

               (iii) Generates reports of unduplicated counts of members,
               providers, payments and units of service as requested by HHSC;

               (iv) Generates alphabetic and numeric member listings;


                                 Page 27 of 78
<PAGE>

               (v) Generates member eligibility listings by each PCP (panel
               report);

               (vi) Reports on third party liability information as required by
               HHSC;

               (vii) Generates claims lag reports, including dates of service,
               claims receipts, and claims paid or denied;

               (viii) Generates aged outstanding liability reports;

               (ix) Produces member ID Cards;

               (x) Produces client/provider mailing lists and labels; and

               (xi) Other appropriate functions specified by HHSC.

          (7) Data Interface Subsystem.

          (A) The System implemented by CONTRACTOR must include a Data Interface
          Subsystem that maintains secure electronic interfaces with the
          following entities:

               (i) CONTRACTOR's subcontractors, including, if required by HHSC,
               health care providers comprising CONTRACTOR's provider network;

               (ii) The CHIP Administrative Services Contractor;

               (ii) The CHIP Quality Monitor Contractor; and

               (iii) Any other entity specified by HHSC.

          (B) The electronic interfaces required for the Data Interface
          Subsystem must:

               (i) Maintain and update critical data, including, but not limited
               to:

                    a. Member enrollment data;

                    b. Primary care physician selection;

                    c. Enrollment/disenrollment status; and

                    d. Other relevant data identified by HHSC.

               (ii) Comply with frequency, file formatting and other relevant
               requirements established by the CHIP Administrative Services
               Contractor in conjunction with HHSC;

               (iii) Exchange data for the following functions:

                    a. Enrollment/disenrollment functions;

                    b. Premiums payable functions;

                    c. Provider capacity and availability functions;


                                 Page 28 of 78
<PAGE>

                    d. Confirmation of the status of Children with Complex
                    Special Health Care Needs;

                    e. Quality monitoring functions; and

                    f. CONTRACTOR, subcontractor, or health care provider
                    performance measurement.

     (d) Additions or changes to the requirements set out in this section.

     The Parties will negotiate in good faith to reach agreement on when
requested additions or changes to the requirements in this section will be made
by CONTRACTOR at no additional charge to HHSC and when requested additions or
changes should be handled through the Change Order Process set out in Article 8.


             ARTICLE 8. AMENDMENTS, MODIFICATIONS, AND CHANGE ORDERS

     SECTION 8.01 MODIFICATIONS.

     (a) Modifications resulting from changes in law or contract.

     If Federal or State laws, rules, regulations, policies or guidelines are
adopted, promulgated, judicially interpreted or changed, or if contracts are
entered or changed, the effect of which is to alter the ability of either Party
to fulfill its obligations under this Agreement, the Parties will promptly
negotiate in good faith appropriate modifications or alterations to the
Agreement and any schedule(s) or attachment(s) made a part of this Agreement.
Such modifications or alterations must equitably adjust the terms and conditions
of this Agreement and must be limited to those provisions of this Agreement
affected by the change.

     (b) Modifications resulting from imposition of remedies.

     This Agreement may be modified under the terms of Article 20 (relating to
Remedies and Disputes). This Agreement may not be amended or modified unless
such amendment or modification to the Scope of Work is in writing and signed by
individuals with authority to bind the parties.

     (c) Modifications upon renewal or extension of Agreement

          (1) If HHSC seeks modifications to the Agreement as a condition of any
          annual extension, HHSC's notice to CONTRACTOR will specify those
          modifications to the Scope of Work, the Agreement pricing terms, or
          other terms and conditions of the Agreement HHSC seeks.

          (2) Modifications proposed by HHSC may apply to the services under
          this Agreement in any Agreement year beginning after the date of
          notice to CONTRACTOR. CONTRACTOR must respond to HHSC's proposed
          modification within 30 days of receipt. Upon receipt of CONTRACTOR's
          response to the proposed modifications, HHSC may enter into
          negotiations with CONTRACTOR to arrive at mutually agreeable Agreement
          amendments. In the event that HHSC determines that the Parties will be
          unable to reach agreement on mutually satisfactory Agreement
          modifications, then HHSC must provide written notice to CONTRACTOR of
          its intent not to extend the Agreement beyond the Agreement term then
          in effect, at least 90 days before the Expiration Date to provide for
          the approval and implementation of the transition plan as set out in
          section 20.15(d), inclusive of all extension options previously
          exercised.


                                 Page 29 of 78
<PAGE>

     SECTION 8.02 CHANGE ORDER PROCEDURES

     (a) Expectations and understandings.

     As specified in section 8.01 of this Agreement, the Agreement may be
amended by HHSC and CONTRACTOR by mutual agreement. Changes in contracted
Services or Deliverables shall be authorized in accordance with this article.

     (b) Change order approval procedure.

         (1) During the Initial Term of this Agreement HHSC or CONTRACTOR may
         propose changes in the Services, Deliverables, or other aspects of this
         Contract ("Changes"), including, but not limited to, issues that
         CONTRACTOR contends affects the actuarial soundness of CONTRACTOR's
         premium, and any such Changes will be implemented pursuant to the
         procedures set forth in this section 8.02.

         (2) If HHSC desires to propose a Change, it shall deliver a written
         notice to CONTRACTOR describing the proposed Change ("Change Order
         Request"). CONTRACTOR must respond to such proposal as promptly as
         reasonably possible by preparing, at no additional cost to HHSC for
         developing the response, and delivering to HHSC a written document (a
         "Change Order Response"), that specifies:

                    (A) The effect, if any, of the Change Order Request on the
                    amounts payable by HHSC under this Agreement and the manner
                    in which such effect was calculated;

                    (B) The effect, if any, of the Change Order Request on
                    CONTRACTOR's performance of its obligations under this
                    Agreement, including the effect on the Services or
                    Deliverables;

                    (C) The anticipated time schedule for implementing the
                    Change Order Request; and

                    (D) Any other information requested in the Change Order
                    Request or which is reasonably necessary for HHSC to make an
                    informed decision regarding the proposal.

         (3) If CONTRACTOR desires to propose a Change, it must deliver a
         CONTRACTOR Change Order Request to HHSC that includes the information
         described in section 8.02(b) for a Change Order and Change Order
         Response.

         (4) Upon HHSC's receipt of a Change Order and Change Order Response,
         the Parties shall negotiate a resolution of the requested Change in
         good faith. The Parties will exchange information in good faith in an
         attempt to resolve the requested Change.

     (c) Written approval required.

     No Change to the contracted Services or Deliverables or any other aspect of
this Agreement will become effective without the written approval and execution
of a mutually agreeable written amendment to this Agreement by HHSC and
CONTRACTOR. Under no circumstances will CONTRACTOR be entitled to payment for
any work or services rendered under a Change Order that has not been approved by
HHSC in accordance with the Change Order Procedures.


                                 Page 30 of 78
<PAGE>

     SECTION 8.03  REQUIRED COMPLIANCE WITH MODIFICATION PROCEDURES.

     No different or additional services, work, or products will be authorized
or performed except pursuant to an amendment or modification of this Agreement
that is executed in compliance with this article. No waiver of any term,
covenant, or condition of this Agreement will be valid unless executed in
compliance with this article. CONTRACTOR will not be entitled to payment for any
services, work or products that are not authorized by a properly executed
Agreement amendment or modification, or through the express authorization of
HHSC.

                        ARTICLE 9. AUDIT AND FINANCIAL COMPLIANCE.

     SECTION 9.01 FINANCIAL RECORD RETENTION AND AUDIT.

     CONTRACTOR agrees to maintain and retain financial records and supporting
documents relating to this Agreement for a period of three (3) years and ninety
(90) days after the date of final payment under this Agreement or until the
resolution of all litigation, claim, financial management review or audit
pertaining to this Agreement, whichever is longer. CONTRACTOR agrees to repay
any valid, undisputed audit exceptions taken by HHSC in any audit of this
Agreement.

     SECTION 9.02 OPERATION/PERFORMANCE AUDITS.

     CONTRACTOR agrees to make available at reasonable times and for reasonable
periods all books, records, and supporting documents kept current by CONTRACTOR
pertaining to this Agreement, wherever such books, records, and supporting
documentation are maintained, for purposes of inspecting, monitoring, auditing,
or evaluation by HHSC, the State Auditor of Texas, the Comptroller General of
the United States, the United States Department of Health and Human Services, a
State or Federal law enforcement agency, or their representatives upon request
or notification from HHSC.

     HHSC will provide a minimum of thirty (30) calendar days written notice
prior to initiating a comprehensive audit (intensive review of files and
documents, along with interviews with key staff) not resulting from a complaint.
HHSC will provide CONTRACTOR written notice at least ten (10) business days
prior to any site visit at CONTRACTOR's offices (a general inspection and
interviews with CONTRACTOR's staff) not resulting from a complaint. If an
on-site visit or audit is the result of a complaint against CONTRACTOR, HHSC
will send written notice to CONTRACTOR via facsimile at least 24 hours prior to
the hour that the visit or audit will begin. CONTRACTOR must cooperate with
HHSC's evaluation or audit process.

     SECTION 9.03 ACCESS TO RECORDS, BOOKS, AND DOCUMENTS.

     (a) CONTRACTOR must provide the officials and entities identified in
paragraph (b) of this section 9.03 with prompt, reasonable, and adequate access
to any records, books, documents, and papers that are directly pertinent to the
performance of the services under this Agreement. Such access must be provided
upon request of the officials or entities identified in paragraph (b) for the
purpose of examination, audit, investigation, contract administration, or the
making of excerpts or transcripts.

     (b) The access required under this section must be provided to the
following officials and/or entities:

                    (1) The United States Department of Health and Human
               Services or its designee;

                    (2) The Comptroller General of the United States or its
               designee;


                                 Page 31 of 78
<PAGE>

                    (3) CHIP program personnel from HHSC or the Texas Department
               of Health;

                    (4) The Office of Investigations and Enforcement of HHSC;

                    (5) The CHIP program Management Services Contractor, when
               acting on behalf of HHSC;

                    (6) The Office of the State Auditor of Texas or its
               designee; and

                    (7) A special or general investigating committee of the
               Texas Legislature or its designee.

                     ARTICLE 10. TERMS AND CONDITIONS OF PAYMENT.

     SECTION 10.01 MONTHLY PREMIUM PAYMENTS.

     (a) CONTRACTOR agrees to provide the Services and Deliverables described in
this Agreement for monthly premium payments to be paid by HHSC to CONTRACTOR.

     (b) CONTRACTOR understands and expressly assumes the risks associated with
the performance of the duties and responsibilities under this Agreement,
including the failure, termination or suspension of funding to HHSC, delays or
denials of required approvals, and cost overruns not reasonably attributable to
HHSC. To the extent that funding or required approvals are not provided,
CONTRACTOR is not further obligated to provide Services or Deliverables beyond
any Service or Deliverable for which HHSC can provide acceptable assurances of
available funding.

     (c) CONTRACTOR further agrees that:

         (1) No additional charges, fees, or costs will be added to the monthly
         premium amount and the delivery supplemental payment described in
         section 10.03 or sought except for properly authorized and executed
         Change Orders; and

         (2) No other charges for tasks, functions, or activities that are
         incidental or ancillary to the delivery of the Services and
         Deliverables will be sought from HHSC or any other state agency, nor
         will the failure of HHSC or any other party to pay for such incidental
         or ancillary services entitle CONTRACTOR to withhold Services or
         Deliverables due under the Agreement.

     (d) A CONTRACTOR's monthly premium payment will not be reduced for a
family's failure to make its premium payment. There is no relationship between
the per member/per month amount owed to an CONTRACTOR for coverage provided
during a month and the family's payment of its premium obligation for that
month.

     SECTION 10.02 TIME AND MANNER OF PREMIUM PAYMENT.

     For the first year of the Initial Term, CONTRACTOR will be receiving
supplemental reimbursement at the attachment level of $100,000. CONTRACTOR will
be paid based on per member/per month premiums and new and current enrollment
figures (including disenrollment adjustments to previous monthly enrollment
totals). The Administrative Services Contractor will convey premiums payable
information to CONTRACTOR for data reconciliation and to the Management Services
Contractor. CONTRACTOR must reconcile the data and report any errors to the
Management Services Contractor by the cut-off date of the next


                                 Page 32 of 78
<PAGE>

month. CONTRACTOR must accept payment for premiums by direct deposit into
CONTRACTOR's account. For the first year of the Initial Term, these premium
rates are:

<Table>
<Caption>
      CSA #              Under Age 1            Ages 1-5             Ages 6-14            Ages 15-18
      -----              -----------            --------             ---------            ----------
<S>                      <C>                    <C>                  <C>                  <C>
      CSA 1                $372.47                $75.88               $49.60               $ 98.20

      CSA 4                $393.63                $80.30               $52.48               $103.92

      CSA 7                $358.86                $73.41               $47.78               $ 94.14

      CSA 11               $358.52                $73.04               $47.74               $ 94.04
</Table>

     CONTRACTOR does not bill HHSC, the Administrative Services Contractor,
other state agencies, or institutions for the monthly premium payment.

     Claim costs incurred for any child with dates of service between May 1,
2000, and April 30, 2001 that exceed the selected supplemental reimbursement
attachment level will be reimbursed to CONTRACTOR by HHSC. These claim costs
must represent actual expenses incurred by CONTRACTOR for CHIP covered services.
The supplemental reimbursement applies to all Members during the first year of
the Initial Term. After the first year of the Initial Term, HHSC will review the
supplemental reimbursement methodology and the attachment levels and determine
whether it should continue after the first year and, if so, in the same manner.
HHSC has final authority to decide whether the supplemental methodology will
continue and, if so, in what manner.

     HHSC may audit all claims for an individual whose costs have exceeded the
supplemental reimbursement attachment level.

     SECTION 10.03 DELIVERY SUPPLEMENTAL PAYMENT (DSP).

     HHSC shall pay to CONTRACTOR a one-time-per-pregnancy Delivery Supplemental
Payment (DSP) in the amount of $3,000.00 for each live or still birth delivery.
The one-time payment is made regardless of whether there is a single birth or
multiple births at the time of delivery. For purposes of this section, a
"delivery" is the birth of a live-born infant, regardless of the duration of the
pregnancy, or a stillborn (fetal death) infant of 22 weeks or more gestation.

     CONTRACTOR should make its best effort to report all deliveries to the
Administrative Services Contractor within 10 days of the delivery and no later
than 45 days from the date of delivery. No DSP will be made for deliveries that
are not reported by CONTRACTOR to the Administrative Services Contractor within
120 days from the receipt of claim, or within 60 days from the date of discharge
from the hospital for the stay related to the delivery, whichever is later.

     HHSC reserves the right to audit the claims submitted for DSP to ensure the
accuracy of those claims. The DSP will be paid to CONTRACTOR as part of the
monthly premium payment after receiving an accurate report from CONTRACTOR.


                                 Page 33 of 78
<PAGE>

     SECTION 10.04 PREMIUM RATES AFTER THE FIRST YEAR OF THE INITIAL TERM.

     (a) Second year.

     HHSC will review the methodology submitted by CONTRACTOR for determining
subsequent premium rate changes and re-examine the premium rates paid to
CONTRACTOR during the first year of the Initial Term to determine if a rate
change is needed for the second year of the Initial Term. HHSC will establish
the premium rates for each year. HHSC will provide any proposed revisions to the
premium rate changes for the second year of the Initial Term no later than 30
days before the first Anniversary Date. If CONTRACTOR disagrees with any
proposed revisions to the premium rates, the Parties will exchange actuarial
data supporting each of their positions as to what the premium rates for the
second year should be. HHSC and CONTRACTOR only will negotiate in good faith to
reach an agreement on the premium rates for the second year. Failing timely
agreement, CONTRACTOR and HHSC will select a neutral actuary who is agreeable to
both parties to review each of the Party's recommended premium rates and the
supporting actuarial data. The Parties will share the cost of the neutral
actuary equally. Full payment to the actuary may be made by CONTRACTOR, with
HHSC reimbursing CONTRACTOR for HHSC's share. The neutral actuary will make
non-binding recommendations for the premium rates for the second year after
reviewing each of the Party's data. HHSC will then determine the premium rates
for the second year.

     (b) Third year.

     HHSC will review the methodology submitted by CONTRACTOR for determining
subsequent premium rate changes and re-examine the premium rates paid to
CONTRACTOR during the first and second years of the Initial Term to determine if
a rate change is needed for the third year of the Initial Term. HHSC will
establish the premium rates for each year. HHSC will provide any proposed
revisions to the premium rate changes for the third year of the Initial Term no
later than 30 days before the second Anniversary Date. If CONTRACTOR disagrees
with any proposed revisions to the premium rates, the Parties will exchange
actuarial data supporting each of their positions as to what the premium rates
for the third year should be. HHSC and CONTRACTOR only will negotiate in good
faith to reach an agreement on the premium rates for the third year. Failing
timely agreement, CONTRACTOR and HHSC will select a neutral actuary who is
agreeable to both parties to review each of the Party's recommended premium
rates and the supporting actuarial data. The Parties will share the cost of the
neutral actuary equally. Full payment to the actuary may be made by CONTRACTOR,
with HHSC reimbursing CONTRACTOR for HHSC's share. The neutral actuary will make
non-binding recommendations for the premium rates for the third year after
reviewing the Parties' data. HHSC will then determine the premium rates for the
third year.

     SECTION 10.05 ADJUSTMENTS TO PREMIUM PAYMENTS.

     As provided below, HHSC or the Administrative Services Contractor may
adjust or recoup premiums paid to CONTRACTOR in error, which may be either human
or machine error on the part of HHSC. HHSC may recoup or adjust premiums paid to
CONTRACTOR if a CHIP-eligible child is enrolled into CONTRACTOR in error and
CONTRACTOR provides no covered services to the child for the period of time for
which the monthly premium payment was made. If CONTRACTOR arranged for services
to be provided to the Member as a result of the error during the time period for
which the monthly premium payment was made, no recoupment will occur. Under no
circumstances may HHSC recoup premiums paid for a period greater than two (2)
months.

     HHSC or the Administrative Services Contractor may recoup monthly premium
payments paid to CONTRACTOR if an Member for whom the monthly premium payment is
made was deceased during any full month for which CONTRACTOR received a premium
payment for that Member.


                                 Page 34 of 78
<PAGE>

     HHSC or the Administrative Services Contractor may adjust a monthly premium
or recoup a monthly premium payment made to CONTRACTOR for a Member if the
Member's eligibility status is changed, corrected, or retroactively adjusted as
a result of error. Adjustments to premium or recoupment may be appealed by
CONTRACTOR using the dispute resolution process outlined in section 20.16.

     SECTION 10.06 EXPERIENCE REBATE.

     For the Initial Term, CONTRACTOR must pay to HHSC an experience rebate
calculated in accordance with the tiered rebate method listed below based on the
excess of allowable CHIP HMO revenues over allowable CHIP HMO expenses as
measured by any positive amount on Line 7, Net Income Before Taxes, of "Part 1:
CHIP Financial Summary, All Coverage Groups Combined" of the annual
Financial-Statistical Report contained in Appendix D, as reviewed and confirmed
by HHSC.

                             GRADUATED REBATE METHOD

<Table>
<Caption>
      Experience Rebate as a
      Percentage of Revenues                CONTRACTOR Share                        HHSC Share
      ----------------------                ----------------                        ----------
<S>                                         <C>                                     <C>
             0% - 3%                             100%                                   0%

          Over 3% - 7%                            75%                                  25%

          Over 7% - 10%                           50%                                  50%

        Over 10% - 15%                            25%                                  75%

            Over 15%                               0%                                 100%
</Table>

     The financial governance document for calculating the experience rebate is
the governance document used in the Texas Medicaid STAR program on the Effective
Date of the Agreement.

     Losses incurred for one contract year may be carried forward only to the
next contract year. If CONTRACTOR operates in multiple CHIP Service Areas,
losses in one CHIP Service Area cannot be used to offset net income before taxes
in another CHIP Service Area.

     CONTRACTOR may subtract from an experience rebate that is owed to HHSC any
expenses for population-based health initiatives that have been approved by
HHSC.

     A population-based initiative is a project or program designed to improve
some aspect of quality of care, quality of life, or health care knowledge for
children and/or their adult caretakers, as a whole.

     There will be two settlements for payment(s) of the state share of the
experience rebate. The first settlement shall equal 100% of the state share of
the experience rebate as derived from Line 7, Net Income Before Taxes, of "Part
1: CHIP Financial Summary, All Groups Combined" of the annual CHIP Financial-
Statistical (CFS) Report contained in Appendix D and shall be paid on the same
day the first annual CFS Report is submitted to the Administrative Services
Contractor or HHSC. The second settlement shall be an adjustment to the first
settlement and shall be paid to HHSC on the same day that the second annual CFS
Report is submitted to the Administrative Services Contractor or HHSC if the
adjustment is a payment from CONTRACTOR to HHSC. HHSC or its agent may audit or
review the CFS reports. If HHSC determines that corrections to the CFS reports
are required based on an HHSC audit/review or other documentation acceptable to
HHSC, to determine an adjustment to the amount of the second settlement, then
final


                                 Page 35 of 78
<PAGE>

adjustment shall be made within two years from the date that CONTRACTOR submits
the second annual CFS report. CONTRACTOR must pay the first and second
settlements on the due dates for the first and second CFS reports respectively
as identified in section 17.02. HHSC may adjust the experience rebate if HHSC
determines that CONTRACTOR has paid affiliates amounts for goods or services
that are higher than the fair market value of the goods and services in that
CHIP Service Area. Fair market value may be based on the amount CONTRACTOR pays
a non-affiliate(s) or the amount another health maintenance organization pays
for the same or similar service in that CHIP Service Area. HHSC has final
authority in auditing and determining the amount of the experience rebate.

     SECTION 10.07 RESTRICTION ON ASSIGNMENT OF FEES.

     During the term of the Agreement CONTRACTOR may not, directly or
indirectly, assign to any third party any beneficial or legal interest of
CONTRACTOR in or to any payments to be made by HHSC pursuant to this Agreement.

     SECTION 10.08 LIABILITY FOR TAXES.

     HHSC is not responsible in any way for the payment of any Federal, state or
local taxes related to or incurred in connection with the Services or
Deliverables or this Agreement. CONTRACTOR must pay and discharge any and all
such taxes, including any penalties and interest.

     SECTION 10.09 LIABILITY FOR EMPLOYMENT-RELATED CHARGES AND BENEFITS.

     CONTRACTOR will perform work under this Agreement as an independent
contractor and not as agent or representative of HHSC. CONTRACTOR is solely and
exclusively liable for all taxes and employment-related charges incurred in
connection with the performance of this Agreement. HHSC will not be liable for
any employment-related charges or benefits of CONTRACTOR, such as workers
compensation benefits, unemployment insurance and benefits, or fringe benefits.

     SECTION 10.10 LIABILITY FOR OVERTIME COMPENSATION.

     CONTRACTOR will be solely responsible for any obligations of overtime pay
due employees.


ARTICLE 11. CHIP ELIGIBILITY, ENROLLMENT, DISENROLLMENT, AND COST-SHARING

     SECTION 11.01 CHIP ELIGIBILITY.

     (a) Generally.

     CHIP eligibility will be determined by the Administrative Services
Contractor. The Administrative Services Contractor will enroll and disenroll
eligible individuals into and out of CHIP. Parents or guardians will enroll
eligible individuals in a health plan.

     (b) Continuous coverage for first twelve months.

     A child who is CHIP-eligible will, for at least the first year of CHIP,
have twelve months of continuous coverage. That coverage begins on the first day
of the month following the child's enrollment into a health


                                 Page 36 of 78
<PAGE>

plan unless enrollment occurs after the cut-off date, in which case coverage
begins on the first day of the next month.

     (c) Pregnant Members and infants.

     Becoming pregnant, in and of itself, does not make a Member ineligible for
CHIP. If, after becoming pregnant, a Member chooses to apply for Medicaid and is
determined to be Medicaid-eligible, she is no longer eligible for CHIP. The
Administrative Services Contractor will notify the Member about her potential
Medicaid eligibility and of her ability to apply for Medicaid and will provide
appropriate resource information.

     Infants are automatically enrolled in the mother's CHIP health plan at
birth with CHIP eligibility and re-enrollment following the same timeframe as
those of the mother.

     CONTRACTOR through electronic means or the providers through calls to the
provider hotline will notify the Administrative Services Contractor when a
pregnancy is diagnosed. The administrative contractor will suspend the pregnant
Member's eligibility expiration date after notification is received. The
Administrative Services Contractor will unsuspend the mother's eligibility
expiration date and set the mother's and baby's eligibility expiration dates at
the later of (1) the end of the second month following the month of the baby's
birth or (2) the date when the mother's eligibility would have expired if it had
not been suspended during her pregnancy.

     To further ensure the reliability of the data, families also will be
encouraged to notify the Administrative Services Contractor by phone or in
writing when delivery of a baby to a CHIP-enrolled Member occurs.

     (d) Span of coverage.

     If a Member's effective date of coverage occurs while the Member is
confined in a hospital, the CONTRACTOR is responsible for the Member's costs of
Covered Services beginning on the Effective Date of Coverage. For each day that
the Member is hospitalized beginning on the Effective Date of Coverage, HHSC
will pay to CONTRACTOR $700 for non-ICU care and $1400 for ICU care. If a Member
is disenrolled while the Member is confined in a hospital, CONTRACTOR's
responsibility for the Member's costs of Covered Services terminates on the Date
of Disenrollment. Six months after the Implementation Date, the Parties will
review CONTRACTOR's data, and if either party believes that these payments are
insufficient, either Party can instigate the Change Order process set out in
Article 8. The Parties agree to negotiate any requested Change Order in good
faith.

     SECTION 11.02 ENROLLMENT.

     To enroll in CONTRACTOR's health plan, the Member's permanent residence
must be located within CONTRACTOR's CSA.

     HHSC makes no guarantees or representations to CONTRACTOR regarding the
number of eligible Members who will ultimately be enrolled into CONTRACTOR's
health plan.

     The Administrative Services Contractor will electronically transmit to
CONTRACTOR new Member information, PCP selections, and change information
applicable to active Members five business days prior to the first day of each
month. This monthly transmittal date is defined as the "cut-off date." Twelve
months of continuous coverage begins on the first day of the month following
enrollment unless enrollment occurs after the cut-off date, in which case
coverage begins on the first day of the next month. CONTRACTOR must


                                 Page 37 of 78
<PAGE>

accept all persons who reside within CONTRACTOR's CSA and chose to enroll in
CONTRACTOR's health plan without regard to the Member's health status or any
other factor.

     A Member is enrolled in a health plan initially selected for twelve (12)
months from the date that the individual is first covered by that health plan or
the applicable time period if the Member is pregnant as is set out in section
11.01(c). However, CONTRACTOR must accommodate Member requests to change health
plans for exceptional reason or good cause including, but not limited to:

     (a) permanent relocation from a CHIP Service Area; or

     (b) permanent relocation within CONTRACTOR's CSA that necessitates a change
in the Member's Primary Care Provider that CONTRACTOR cannot accommodate within
the prescribed TDI access standards;

     Additional reasons that qualify as an exceptional reason or good cause will
be determined by HHSC on a case-by-case basis or by rule. Members may change
health plans the first day of the month following the month in which exceptional
reason or good cause situation occurred, in accordance with the same cut-off
processing timeframes applied to new Members. All changes must be handled
through the Administrative Services Contractor. If a Member changes health plans
while the Member is confined in a hospital, the health plan from which the
Member is moving is responsible for all charges until the Member is discharged.

     There is no retroactive enrollment in CHIP.

     SECTION 11.03 RE-ENROLLMENT.

     At the beginning of the tenth month of coverage, the Administrative
Services Contractor will send a notice to the family outlining the next steps
for renewal or continuation of coverage. The Administrative Services Contractor
will also send a notice to CONTRACTOR regarding its Members and to a
community-based outreach organization providing follow-up assistance in the
Members' areas. To promote continuity of care for children eligible for
re-enrollment, CONTRACTOR may facilitate re-enrollment through reminders to
Members and other appropriate means. Failure of the family to respond to the
Administrative Services Contractor's renewal notice will result in disenrollment
from the plan and from CHIP.

     SECTION 11.04 DISENROLLMENT DUE TO LOSS OF ELIGIBILITY.

     For those Members who are disenrolled because they are no longer eligible
for CHIP, CONTRACTOR will receive from the Administrative Services Contractor
notice informing CONTRACTOR that the Members' coverage will end on a particular
date. Disenrollment due to loss of eligibility includes, but is not limited to:

         "Aging-out" when a child turns nineteen;

         Failure to re-enroll at the conclusion of the 12-month eligibility
         period;

         Change in health insurance status, such as a child enrolling in an
         employer-sponsored health plan;

         Failure to meet monthly cost-sharing obligation;

         Death of a child;

         The child permanently moves out of the state; and


                                 Page 38 of 78
<PAGE>

         Data match with the Medicaid system indicates dual enrollment in
         Medicaid and CHIP.

     If a child is disenrolled from CHIP, the child loses his or her CHIP
eligibility and must re-apply for a determination of CHIP eligibility in the
future.

     Regardless of the reason for retroactive disenrollment, recoupment of
premium payments by HHSC shall be in accordance with section 10.05. Under no
circumstances may HHSC recoup premiums paid for a period greater than two (2)
months.

     SECTION 11.05 DISENROLLMENT BY CONTRACTOR.

     CONTRACTOR has a limited right to request a Member be disenrolled from
CONTRACTOR without the Member's consent. HHSC must approve any CONTRACTOR
request for disenrollment of a Member for cause within thirty (30) days from
date request is received. Disenrollment of a Member may be permitted for the
reasons set out in 11 T.A.C. Section 11.506(a)(3). Disenrollment of a Member at
the request of CONTRACTOR may not occur during an inpatient stay.

     CONTRACTOR must notify the Member of HHSC's approval of the disenrollment
of the Member. IF THE MEMBER DISAGREES WITH THE DECISION TO DISENROLL THE MEMBER
FROM CONTRACTOR, CONTRACTOR MUST NOTIFY THE MEMBER OF THE AVAILABILITY OF
CONTRACTOR'S COMPLAINT PROCEDURE.

     THE CONTRACTOR CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES THAT ARE MEDICALLY
NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

     SECTION 11.06 COST-SHARING.

     Health care providers within CONTRACTOR's network are responsible for
collecting all Member copayments and deductibles at the time of service. No
co-payments apply, at any income level, to well-child or well-baby visits or
immunizations.

     No co-payments for families under 100% of the federal poverty level (FPL)

     Co-payments for families between 100% and 150% FPL are as follows:

              $2 per office visit
              $5 per emergency room visit
              $1 per prescription valued up to and including $15; $2 per
              prescription valued at more than $15 (based on retail value)
              An annual self-declared co-payment cap of $100 per family

     Co-payments for families above 150% FPL and up to and including 185% FPL
         are as follows:

              $5 per office visit
              $25 per emergency room visit
              $5 per generic prescription and $10 per brand-name prescription

     Co-payments for families above 185% FPL are as follows:
              $10 per office visit
              $35 per emergency room visit
              $5 per generic prescription and $10 per brand-name prescription


                                 Page 39 of 78
<PAGE>

     For families with incomes between 186% and 200% FPL, a per-family annual
deductible of $200 for inpatient hospital services and $50 for outpatient
hospital services will apply. This $50 deductible for outpatient hospital stays
does not include applicable pharmacy co-pays.

     Upon notification from the Administrative Services Contractor that a family
is approaching its cost-sharing limit for the Coverage Year, CONTRACTOR will
generate and mail to the Member a new Member ID card, showing that the Member's
cost-sharing obligation for that Coverage Year has been met. No cost-sharing may
be collected from these Members for the balance of their Coverage Year.

     Except for costs associated with unauthorized non-emergency services
provided to a Member by out-of-network providers and for non-covered services,
the co-payments and deductibles outlined in this section are the only amounts
that a provider may collect from a CHIP-eligible family.

     Federal law prohibits charging co-payments or deductibles to Members of
Native American Tribes. The Administrative Services Contractor will notify
CONTRACTOR of Members who are Native Americans and who are not subject to
cost-sharing requirements. CONTRACTOR is responsible for educating providers
about the cost-sharing waiver for this population.

     A CONTRACTOR's monthly premium payment will not be reduced for a family's
failure to make its premium payment. There is no relationship between the per
member/per month amount owed to an CONTRACTOR for coverage provided during a
month and the family's payment of its premium obligation for that month.


                       ARTICLE 12. SCOPE OF CHIP COVERED SERVICES

     SECTION 12.01 BASIC REQUIRED COVERED SERVICES.

     CONTRACTOR is paid capitation for all services that are Covered Services as
described in the RFP. Unless the RFP specifies otherwise, CONTRACTOR may
determine if a covered service requires prior authorization, pre-certification,
or physician prescription. CONTRACTOR must pay for or reimburse for all
CHIP-covered services provided to Members for whom CONTRACTOR is paid
capitation.

     Out-of-network and emergency services also must be provided in accordance
with the Texas Insurance Code and TDI regulations as they apply to HMOs. Covered
services are subject to change due to changes in federal law, changes in CHIP
policy, and/or responses to changes in medicine, clinical protocols, or
technology. If covered services change, the change will be the subject of a
change order as provided in Article 8 of this Agreement. Any proposed change in
the scope of Covered Services, as set out in the RFP, will be made through a
Change Order under Article 8 of this Agreement.

     SECTION 12.02 DRUG FORMULARIES.

     If CONTRACTOR utilizes a prescription drug formulary for Members,
CONTRACTOR must fully disclose its use of the formulary in its marketing
materials. During the term of the Agreement, CONTRACTOR cannot create a new
formulary or significantly revise an existing formulary; however, minor
revisions to include new drugs, or to remove drugs in compliance with FDA
directives are allowed. HHSC will determine if a revision is significant.
CONTRACTOR may revise the formulary on a annual basis, subject to HHSC review
and approval.


                                 Page 40 of 78
<PAGE>
     SECTION 12.03 VALUE-ADDED SERVICES.

     CONTRACTOR must also provide or arrange for the provision of the
Value-added services, offered by CONTRACTOR in its proposal. CONTRACTOR must
provide these Value-added Services at no additional cost to HHSC. CONTRACTOR
must not pass on the cost of the Value-added Services to providers. CONTRACTOR
must specify the conditions and specific parameters regarding the delivery of
the Value-added Services in CONTRACTOR's marketing materials and evidence of
coverage or member handbook. CONTRACTOR must clearly state to Members any
limitations or conditions specific to the Value-added Services.

     Value-added Services can be added or removed only by written amendment of
this Agreement. CONTRACTOR cannot include a Value-added Service in any material
distributed to Members or prospective Members until this Agreement has been
amended to include that Value-added Service or CONTRACTOR has received written
approval of the suggested Value-added Service from HHSC pending finalization of
the amendment.

     If a Value-added Service is deleted by amendment, CONTRACTOR must notify
each Member that the service is no longer available through CONTRACTOR.
CONTRACTOR must also revise all materials distributed to prospective Members to
reflect the change in Value-added Services.

     SECTION 12.04 DENTAL SERVICES.

     CONTRACTOR is not responsible for providing preventive and therapeutic
dental services to Members. However, hospital and related medical charges, such
as anesthesia, that are associated with dental care, are covered CHIP services.
CONTRACTOR must provide access to facilities and physician services that are
medically necessary to support the dentist who is providing CHIP dental services
under general anesthesia or intravenous (IV) sedation. Covered Services relating
to dental services are set forth in the RFP; this section does not expand the
scope of the Covered Services set out in the RFP.

     CONTRACTOR must inform network facilities, anesthesiologists, and PCPs what
authorization procedures are required, and how providers are to be reimbursed
for the preoperative evaluations by the PCP and/or anesthesiologist and for the
facility services. For dental-related medical emergency services, CONTRACTOR
must reimburse in-network and out-of-network providers in accordance with
federal and state statutes and regulations.

     SECTION 12.05 CASE MANAGEMENT SERVICES FOR CHILDREN WITH COMPLEX SPECIAL
                   HEALTH CARE NEEDS

     CONTRACTOR must have a documented process for identifying and tracking the
services of CHIP-eligible children with complex special health care needs
(CCSHCN).

     A child, a child's family, a health care provider, the CHIP Administrative
Services Contractor, or CONTRACTOR may preliminarily identify a CCSHCN.
CONTRACTOR must confirm the designation of a CCSHCN utilizing the standardized
screening instrument provided by the State. That screening instrument will be
substantially in the form attached hereto as Appendix E. Procedures for
collecting and processing data for CCSHCN are being developed; however,
CONTRACTOR will be required to electronically transmit CCSHCN information to the
Administrative Services Contractor on a quarterly basis.

     CCSHCN are eligible for case management services beyond the scope normally
provided to other CHIP-eligible children. CONTRACTOR must provide the following
enhanced case management services to CCSHCN as appropriate:


                                 Page 41 of 78
<PAGE>

     (a) Outreach and Informing

     Upon CCSHCN designation by CONTRACTOR, CONTRACTOR must contact the CCSHCN's
family to discuss covered services, including specialty services, the family's
right to select a specialist as a primary care provider, out-of-network services
applicable to the child's condition, if not available within network, the
availability of enhanced care coordination, and community referrals.

     (b) Enhanced Care Coordination

     Upon CCSHCN designation by CONTRACTOR, CCSHCNs, their families, or their
health providers may request enhanced care coordination from CONTRACTOR.
CONTRACTOR must furnish a care coordinator when requested. CONTRACTOR may also
recommend to the CCSHCN's family that a care coordinator be furnished if
CONTRACTOR determines that care coordination would benefit the child. Care
coordinators are responsible for working with CCSHCN, their families, and their
health care providers to develop a seamless package of care in which primary,
acute, and specialty service needs are met through a single plan that is
understandable to the family. A written plan of care must be developed and
updated at least annually. The care coordinator will coordinate all services
with the PCP and, as necessary, with the child's pediatric specialty care
physician. The care coordinator also makes referrals for other community
services.

     (c) Community Referrals

     CONTRACTOR must make a best effort to implement a systematic process to
enlist the involvement of community organizations that may not be providing
CHIP-covered services but are otherwise important to the health and well being
of Members. CONTRACTOR also must make a best effort to establish relationships
with these community organizations in order to make referrals for CCSHCN and
other children who need community services. These organizations may include, but
are not limited to:

     Early Childhood Intervention Program (512/424-6745)

     Department of Mental Health and Mental Retardation (MHMR) (512/206-4830)

     Texas Department of Health (TDH) Title V Program (512/458-7321)

     Local School District (Special Education)

     Other state and local agencies and programs with jurisdiction over
children's services, including food stamps, Women, Infants, and Children's (WIC)
Program

     Texas Information and Referral Network

     Texas Commission for the Blind (TCB)

     Child-serving civic and religious organizations and consumer and advocacy
groups, such as United Cerebral Palsy, that also work on behalf of the CCSHCN
population

     SECTION 12.06 PRE-EXISTING CONDITIONS.

     CONTRACTOR may not impose any pre-existing condition limitations or
exclusions or require evidence of insurability to provide coverage to any
CHIP-eligible child.


                                 Page 42 of 78
<PAGE>

     SECTION 12.07 COURT-ORDERED COMMITMENTS.

     CONTRACTOR must provide inpatient psychiatric services to Members under the
age of 19 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.

     Any modification or termination of services must be presented to the court
with jurisdiction over the matter for determination.

     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 CONTRACTOR's complaint or appeals process as described in
section 13.06 of this Agreement.

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

     SECTION 12.08 EARLY CHILDHOOD INTERVENTION (ECI).

     (a) ECI Services.

     CONTRACTOR must provide all federally mandated services contained at 34
C.F.R. 303.1, et seq., and 25 TAC Section 621.21 et seq., relating to
identification and referral for health care services contained in the Member's
Individual Family Service Plan (IFSP). An IFSP is the written plan which: (1)
identifies a Member's disability or chronic or complex condition(s) or
developmental delay; (2) describes the course of action developed to meet those
needs; and (3) identifies the person or persons responsible for each action in
the plan. The plan is a mutual agreement of the Member's PCP, case manager, and
the Member/family, and is part of the Member's medical record.

     (b) Identification and Referral.

     CONTRACTOR 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. CONTRACTOR must use written education
material developed or approved by the Texas Interagency Council on Early
Childhood Intervention. CONTRACTOR must ensure that all providers refer
identified Members to ECI service providers within two business 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 T.A.C. Section 621.21, et
seq.

     (c) Intervention.

     CONTRACTOR must require, through contract provisions, that all medically
necessary Covered 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. CONTRACTOR cannot modify
the plan of care or alter the amount, duration and scope of services required by
the Member's IFSP. CONTRACTOR 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.


                                 Page 43 of 78
<PAGE>
                           ARTICLE 13. MEMBER SERVICES

     SECTION 13.01 MEMBER EDUCATION.

     CONTRACTOR must, at a minimum, develop and implement health education
initiatives that educate Members about:

          (a) How the HMO system operates;

          (b) How to obtain services, including:

               (1) Accessing OB/GYN and plan requirements concerning specialty
               care;

               (2) Emergency services;

               (3) Behavioral health care services;

               (4) Prenatal services and unique aspects of CHIP/Medicaid
               eligibility prior- and post-partum;

               (5) Care and treatment, under CONTRACTOR's plan, for Members with
               disabilities and Children with Complex, Special Health Care
               Needs; and

               (6) Early Childhood Intervention (ECI) Services;

          (c) Covered Services, limitations and any Value-added Services offered
          by CONTRACTOR;

          (d) Member co-payments, if applicable; and

          (e) The value of screening and preventive care.

     CONTRACTOR also must provide child-oriented, disease specific-information
and educational materials to Members.

     In addition to the above requirements, CONTRACTOR must make any additional
educational initiatives outlined in its Proposal appropriately available to
Members.

     CONTRACTOR may respond to inquiries from pregnant Members or their families
regarding their potential Medicaid eligibility and making an informed choice.
CONTRACTOR's presentation should be balanced, presenting and explaining the
advantages and disadvantages to the Member of both CHIP and Medicaid as
appropriate in response to the Member's inquiries.

     SECTION 13.02 MEMBER MATERIALS.

     CONTRACTOR must design, print, and distribute Member identification (ID)
cards, provider directories, and evidence of coverage or Member handbooks
detailing Covered and any Value-added Services and the complaint and appeals
process as set out in section 13.06 of this Agreement.

     (a) Member Handbook.

     Except as noted below, CONTRACTOR must submit to HHSC a Member handbook
that complies with 28 T.A.C. Section 11.1600(b).

          (1) Exceptions to Section 11.1600(b) requirements.


                                 Page 44 of 78
<PAGE>

          Readability. The Member handbook should have a 6th grade reading level
          as measured by the appropriate score on the Flesch reading ease test.

          Cost-sharing. The Member handbook section regarding cost-sharing
          should illustrate the variations in Member financial responsibility by
          income levels.

          Provider Directory. CONTRACTOR need not mail a provider directory
          along with the member handbook to individuals at the time of their
          enrollment with CONTRACTOR's health plan. The Texas Department of
          Insurance has approved this exception to 28 TAC Section 11.1600. The
          Administrative Services Contractor will send CONTRACTOR's provider
          directory to an individual after the individual's program application
          is approved. This section does not preclude CONTRACTOR from mailing a
          provider directory to CONTRACTOR's Members.

          (2) Additional requirements.

          Cultural competency. The Member handbook must be available in a format
          accessible to the visually-impaired. The accessible format may include
          large print, Braille, and audio tapes.

          Languages other than English. The Member handbook must be available in
          English, Spanish, and the languages of other major population groups
          making up 10% or more of the enrolled CHIP population within the CHIP
          Service Area, as specified by HHSC. HHSC will provide CONTRACTOR with
          reasonable notice when the enrolled CHIP population reaches 10% within
          the CONTRACTOR's CSA.

     (b) Evidence of Coverage.

     CONTRACTOR's evidence of coverage must be approved by HHSC and TDI and
comply with applicable Texas insurance law and regulation.

     (c) Provider Directory.

     The font in the provider directory must be no more or less than 10 points
in height and lowercase unspaced alphabet length of no more or less than 120
points. The weight of the provider directory cannot exceed three (3) ounces. The
provider directory cannot measure larger than 8 1/2" by 11" and the content of
the directory is limited to:

     1. listing of all network providers, their locations, phone numbers and
office hours, with the exception of specialty providers, who may be listed by
name and location, which may be by county, and by a complete alphabetical list;
and

     2. two pages (1-page front and back) introducing the plan to the
prospective Member.

     The introduction of the plan to the prospective Member must be at a 6th
grade reading level, as measured by the appropriate score on the Flesch reading
ease test, and must be available in Spanish, English, and the languages of other
major population groups making up 10% or more of the enrolled CHIP population
within the CHIP Service Area, as specified by HHSC. HHSC will provide CONTRACTOR
with reasonable notice when the enrolled CHIP population reaches 10% within the
CONTRACTOR's CSA. The provider directory must be available in a format
accessible to the visually-impaired. The accessible format may include large
print, Braille, and audio tapes.


                                 Page 45 of 78
<PAGE>

     (d) HHSC review of Member material.

     HHSC has 15 business days from the date the Member material is received to
review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material.

     (e) Mailing of Member Material.

     CONTRACTOR must mail a Member's ID card and evidence of coverage or Member
handbook to the Member's mailing address by the fourth business day of the month
following receipt of an enrollment file from the Administrative Services
Contractor. CONTRACTOR is responsible only for those Members for whom valid data
is contained in the enrollment file.

     SECTION 13.03 CHIP-SPECIFIC INTERNET WEBSITE

     By May 1, 2000, CONTRACTOR must have operational and must maintain, a
website to provide general information about the plan, its provider network, its
Member services, and its complaints and appeals process as set out in section
13.06 of this Agreement. The site's content must be: written in English,
Spanish, and the languages of other major populations making up 10% or more of
the enrolled CHIP population within CONTRACTOR'S CSA, as specified by HHSC;
culturally appropriate; written for understanding at the 6th grade reading
level; and be geared to the health needs of children, including those with
special needs. CONTRACTOR's CHIP website must receive prior approval from HHSC.
HHSC has 15 business days from the date the website content and design is
received to review the submitted material and to recommend any suggestions or
required changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material. CONTRACTOR may develop a CHIP page
within its existing website to meet the requirements of this section.

     CONTRACTOR's CHIP website cannot use tools or techniques that require
significant memory or disk resources or require special intervention on the
customer side to install plug-ins or additional software. CONTRACTOR cannot use
proprietary items that would require a specific browser in the CHIP website.

     SECTION 13.04 MEMBER TELEPHONE HOTLINE

     CONTRACTOR must maintain a Member telephone hotline. CONTRACTOR must ensure
that its Member service representatives treat all callers with dignity and
respect the callers' need for privacy. At a minimum, CONTRACTOR's Member service
representatives must be:

     (1) Able to give correct cost-sharing information relating to co-pays or
deductibles;

     (2) Able to answer non-technical questions pertaining to the role of the
primary care provider;

     (3) Able to answer administrative, non-clinical questions pertaining to
referrals or the process for receiving authorization for special procedures or
services;

     (4) Trained regarding cultural competency; and

     (5) Trained regarding the administrative process used to designate a child
as a child with complex special health care needs.


                                 Page 46 of 78
<PAGE>

     Except for federal holidays, CONTRACTOR must staff the toll-free hotline
from 8:00 AM to 5:00 PM Monday through Friday (Central Time Zone or Mountain
Time Zone, as applicable). A voice mailbox must be available after hours with a
callback the next working day. All recordings must be in English and Spanish.

     If CONTRACTOR does not have a voice-activated menu system, CONTRACTOR must
have a menu system that will accommodate individuals who cannot access the
system through other physical means, such as pushing a button on the telephone.

     CONTRACTOR must appropriately handle calls from non-English speaking (and
particularly Spanish-speaking) callers, as well as calls from individuals who
are deaf or hard-of-hearing.

     During the Initial Term, CONTRACTOR must answer 80% of all telephone calls
within an average of 30 seconds, and the abandonment rate must not exceed 10%.

     SECTION 13.05 NOTIFICATION OF PROVIDER TERMINATION

     If CONTRACTOR terminates its contract with a health care provider,
CONTRACTOR must provide timely written notification, as defined by the Texas
Insurance Code and TDI regulations, to affected Members.

     SECTION 13.06 MEMBER COMPLAINT AND APPEALS PROCESS.

     CONTRACTOR must develop, implement and maintain a Member complaint system
that complies with the requirements of article 20A.12 of the Texas Insurance
Code. The complaint and appeals procedure must be the same for all Members and
must comply with Texas Insurance Code, article 20A.12.

     CONTRACTOR must implement and maintain a procedure to appeal adverse
determinations that complies with the requirements of article 21.58A of the
Texas Insurance Code. The appeal of an adverse determination procedure must be
the same for all Members and must comply with Texas Insurance Code, article
21.58A.

     The provisions of article 21.58A, Texas Insurance Code, relating to a
Member's right to appeal an adverse determination made by CONTRACTOR or a
utilization review agent to an independent review organization also apply to
Members .

     SECTION 13.07 MEMBER CULTURAL AND LINGUISTIC SERVICES.

     (a) Cultural Competency Plan.

     CONTRACTOR must have a comprehensive written Cultural Competency Plan
describing how it will ensure culturally competent services and provide
linguistic and disability-related access. The plan must describe how the
individuals and systems within CONTRACTOR 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 their dignity.
CONTRACTOR must submit a written plan to HHSC at the time of the readiness
review. Modifications and amendments to the written plan must be submitted to
HHSC no later than 30 days prior to implementation of the modification or
amendment. The plan must also be made available to CONTRACTOR's network of
providers.

     The Cultural Competency Plan must include the following:


                                 Page 47 of 78
<PAGE>

     CONTRACTOR'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. CONTRACTOR must disseminate these policies and
procedures to ensure that both staff and subcontractors are aware of their
responsibilities under this provision of the Agreement;

     A description of how CONTRACTOR 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;

     A description of how CONTRACTOR will implement the plan in its
organization, identifying a person in the organization who will serve as the
contact with HHSC regarding the plan;

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

     A description of how CONTRACTOR 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

     A description of how CONTRACTOR will help Members access culturally and
linguistically appropriate community health or social service resources.

     (b) Linguistic, Interpreter Services, and Provision of Auxiliary Aids and
Services.

     CONTRACTOR 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. Sections 2000d, et seq. CONTRACTOR must
ensure that auxiliary aids and services necessary for effective communication
are provided, as per the Americans with Disabilities Act, Title III, Department
of Justice Regulations 36.303.

     CONTRACTOR 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. CONTRACTOR must
inform its providers on how to obtain an updated list of participating,
qualified interpreters.

     A competent interpreter is defined as someone who is:

         (1)      proficient in both English and the other language;

         (2)      has had orientation or training in the ethics of interpreting;
                  and

         (3)      has the ability to interpret accurately and impartially.

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

     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
he or she can be relied upon to provide a complete and accurate translation of
the information being provided to the Member if (1)


                                 Page 48 of 78
<PAGE>

the Member is advised that a free interpreter is available, and (2) the Member
expresses a preference to rely on the family member or friend.

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


                             ARTICLE 14. MARKETING.

     SECTION 14.01 AIM OF MARKETING.

     CONTRACTOR may engage in marketing within the marketing guidelines set out
in this Agreement. CONTRACTOR's marketing activities must have the goal of
increasing the number of applications for health insurance and be consistent
with HHSC's outreach campaign.

     SECTION 14.02 MARKETING GUIDELINES.

     1. CONTRACTOR may accept CHIP eligibility applications, with any applicable
supporting eligibility documentation, and mail to Administrator Contractor.

     2. CONTRACTOR is prohibited from engaging in door-to-door marketing or
solicitation.

     3. CONTRACTOR is prohibited from marketing to any person who is under the
age of eighteen (18) years.

     4. CONTRACTOR is prohibited from street marketing.

     5. CONTRACTOR may conduct telephone marketing during incoming calls from
prospective Members. CONTRACTOR may return telephone calls only when requested
to do so by the caller. CONTRACTOR is prohibited from initiating outbound
telemarketing calls.

     6. If CONTRACTOR approaches a person who is currently enrolled in Medicaid,
no marketing can take place; CONTRACTOR must refer the individual to the
Medicaid enrollment broker in areas where Medicaid managed care is present.

     7. CONTRACTOR's marketing representatives must wear ID badges with nametags
and photographs.

     8. CONTRACTOR may conduct face-to-face marketing during CBO, Administrative
Services Contractor, or health plan sponsored events.

     9. CONTRACTOR may provide health-related promotional giveaways under $10
("Giveaways") during events sponsored by a CBO, the Administrative Services
Contractor, or the health plans, to the extent permitted by applicable statutes
and TDI rules. Giveaways that include only CONTRACTOR's name or initials and its
phone number and do not refer to CHIP in any way do not require HHSC approval
before distribution.

     10. CONTRACTOR must seek and obtain permission from the appropriate person
or entity at the site where CONTRACTOR plans to market prior to engaging in CHIP
marketing activities. With permission, CONTRACTOR may market at small businesses
and factories, unemployment offices, Head Start, WIC, day care centers,
providers' offices, and schools. CONTRACTOR must not marketing in County Welfare
Agencies (CWA) or around the CWA office.


                                 Page 49 of 78
<PAGE>

     11. Only the following marketing materials are allowed: billboards,
literature display racks, bus ads, flyers, newspaper advertisements, pamphlets,
brochures, radio advertisements, television advertisements, and CHIP material
provided by HHSC. All CONTRACTOR marketing materials must be approved by HHSC.
HHSC has 15 business days from the date the Member material is received to
review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted material.

     12. CONTRACTOR may request that HHSC approve marketing materials other than
those listed in section 14.02(11). HHSC will approve or disapprove the submitted
marketing materials within fifteen (15) business days from the date HHSC
receives the materials. These materials will not be deemed approved.

     SECTION 14.03 DISENROLLMENTS.

     The Administrative Services Contractor must handle all disenrollments.
CONTRACTOR is not allowed to discuss, induce or accept disenrollment from a CHIP
Member except to refer to the CHIP Administrative Services Contractor. If
CONTRACTOR approaches or is approached by a person who states that he or she is
enrolled in another CHIP health plan, CONTRACTOR must end the conversation.

     SECTION 14.04 MARKETING SCHEDULE.

     CONTRACTOR must submit to HHSC for approval a marketing schedule at least
twenty (20) business days prior to beginning of any CHIP marketing activity.
CONTRACTOR must indicate the exact address of the site at which it will market
on the schedule. HHSC will respond to the submitted marketing schedule within
fifteen (15) business days from the date of receipt. CONTRACTOR must receive
HHSC's approval of the schedule prior to the marketing event, which approval
HHSC may not unreasonably withhold. If HHSC does not approve the schedule within
the allotted fifteen (15) business days, the schedule is deemed approved. If
HHSC expressly disapproves the marketing schedule, CONTRACTOR is prohibited from
engaging in the marketing activity set out on the schedule at the time
indicated. HHSC may require changes in the marketing schedule before it will
approve the schedule.

     SECTION 14.05 GENERAL PROVISIONS.

     CONTRACTOR must comply with all state insurance law and TDI regulations
regarding prohibitions on marketing.

     CONTRACTOR may conduct a plan-sponsored event without being required to
invite other health plans participating in CHIP.

     At no time during the application, enrollment, and re-enrollment processes
may CONTRACTOR use licensed insurance agents.

     SECTION 14.06 REGULATION.

     An industry group comprised of one representative from each health
maintenance organization participating in CHIP, as well as ex officio
representation from the State and consumers, will be charged with developing and
recommending to HHSC a sanctions schedule for marketing violations by CHIP
health maintenance organizations. The sanctions schedule is subject to approval
by HHSC. The industry group is responsible for reporting to HHSC possible
marketing violations that the group discovers or that are reported to the group.
HHSC is responsible for investigating possible marketing violations that are
reported to it by


                                 Page 50 of 78
<PAGE>

the industry group and is responsible for imposing sanctions based on the
sanctions schedule developed by the industry group. The industry group must meet
regularly, at least once a month. The first meeting will be called by HHSC. At
the end of the first year of the Initial Term, the State will evaluate the
effectiveness of this regulatory approach and will review options for state
enforcement if that approach is deemed by HHSC to be inadequate.


                      ARTICLE 15. PROVIDER NETWORK REQUIREMENTS

     SECTION 15.01 PROVIDER SUBCONTRACTS.

     (a) Generally.

     CONTRACTOR must enter into written contracts with properly credentialed
health care service providers, licensed in Texas, either directly or through
intermediaries, such as Independent Practice Associations (IPAs). CONTRACTOR
must have its own credentialing process to review, approve, and periodically
re-certify the credentials of all participating providers in compliance with 28
T.A.C. Section 11.1902. CONTRACTOR may delegate credentialing in accordance with
TDI regulations.

     (b) Subcontract terms.

     CONTRACTOR must ensure that, as part of its contract with the provider, or
in its intermediary's contract with the actual provider of health services, in
addition to any requirements imposed by state insurance law or TDI regulation,
the following requirements are included:

          (1) A statement to the effect that the provider is subject to all
          state and federal laws, rules and regulations that apply to all
          persons or entities receiving state and federal funds, including
          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; the exclusion, debarment, and
          suspension provisions of Section 1128(a) or (b) of the Social Security
          Act (42 USC Section 1320 a-7), or Executive Order 12549; the
          provisions of 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; Health and Safety Code, Chapter 85, Subchapter E,
          relating to the Duties of State Agencies and State Contractors for the
          confidentiality of AIDS and HIV-related medical information and an
          anti-discrimination policy for employees and Members with communicable
          diseases; confidentiality provisions relating to Member information
          (cite); 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
          provisions of Executive Order 11246, as amended by 11375, relating to
          Equal Employment Opportunity; Texas Government Code, Title 10,
          Subtitle D, Chapter 2161 and 1 TAC Section 111.11(b) and 111.13(c)(7)
          relating to the good faith effort to use Historically Underutilized
          Businesses (HUBs); section 9-7.06 of article IX of the General
          Appropriations Act of 1999 regarding "Buy Texas"; Texas Family Code
          Section 231.006 regarding child support payments; and chapter 552 of
          the Texas Government Code regarding the release of public information;

          (2) A statement that the provider understands and agrees that
          CONTRACTOR has the sole responsibility for payment of covered services
          rendered by the provider under CONTRACTOR/provider contract and a
          statement that in the event that CONTRACTOR becomes insolvent or
          ceases operations, the provider's sole recourse is against CONTRACTOR
          through CONTRACTOR's bankruptcy, conservatorship, or receivership
          estate;


                                 Page 51 of 78
<PAGE>

         (3) A statement that CONTRACTOR will initiate and maintain any action
         necessary to stop a health care provider or employee, agent, assign,
         trustee, or successor-in-interest from maintaining an action against
         HHSC or any Member to collect payment from HHSC or any Members over and
         above allowable copayments or deductibles, excluding payment for
         services not covered under CHIP;

         (4) A statement that CONTRACTOR must defend, indemnify and hold
         harmless Members and HHSC against any and all claims, costs, damages,
         or expenses (including attorney's fees) of any type or nature arising
         from the failure, inability, or refusal of CONTRACTOR to pay health
         care providers for covered services or supplies;

         (5) CONTRACTOR must ensure that each health care provider contract
         prohibits the provider from engaging in direct marketing to Members
         that is designed to increase enrollment in a particular health plan.
         This prohibition should not constrain providers from engaging in
         permissible marketing activities consistent with broad outreach
         objectives and application assistance;

         (6) A statement that the provider is subject to all state and federal
         laws and regulations relating to fraud and abuse in health care and
         CHIP. The provider must cooperate and assist HHSC and any state or
         federal agency that has the duty of identifying, investigating,
         sanctioning or prosecuting suspected fraud and abuse. The provider must
         provide originals and/or copies of all records and information
         requested and allow access to premises and provide records to HHSC or
         its authorized agent(s), HCFA, the U.S. Department of Health and Human
         Services (DHHS), FBI, TDI, or other unit of state government. The
         provider must provide all copies of records free of charge; and

         (7) A requirement that the provider is responsible for collecting at
         the time of the service any applicable CHIP copayments or deductibles
         given the limitations on those copayments and deductibles as set out in
         section 11.06 of this Agreement.

     CONTRACTOR 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 F. 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.

     THE CONTRACTOR REMAINS RESPONSIBLE FOR PERFORMING AND FOR ANY FAILURE TO
PERFORM ALL DUTIES, RESPONSIBILITIES AND SERVICES UNDER THIS AGREEMENT
REGARDLESS OF WHETHER THE DUTY, RESPONSIBILITY OR SERVICE IS CONTRACTED TO
ANOTHER FOR ACTUAL PERFORMANCE.

     SECTION 15.02 PROVIDER ACCESSIBILITY.

     CONTRACTOR is required to meet the TDI accessibility and availability
requirements and the TDI services requirements for HMOs (Title 28, Part I,
Chapter 11, Subchapters Q and U of the Texas Administrative Code).
Out-of-network and emergency services also must be provided in accordance with
the Texas Insurance Code and TDI regulations as they apply to HMOs.

     CONTRACTOR must have a sufficient number of providers (including pediatric
providers) to meet Members' needs in accordance with TDI accessibility and
availability requirements. PCPs and specialty care providers with experience in
treating children and adolescents must be available to all Members .


                                 Page 52 of 78
<PAGE>

     CONTRACTOR must ensure that CCSHCN 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.

     CONTRACTOR must assure access to Texas Department of Health
(TDH)-designated Level I and Level II trauma centers within the State or
hospitals meeting the equivalent level of trauma care, for emergency services
only. CONTRACTOR may make out-of-network reimbursement arrangements with the
TDH-designated Level I and Level II trauma centers.

     CONTRACTOR must assure adequate access of all Members to children's
hospitals and pediatric health care centers with recognized special expertise in
the care of CCSHCN to meet the medically necessary referrals of a PCP as
documented in the Member's medical record. TDH-approved pediatric transplant
centers and federally qualified hemophilia centers are examples. CONTRACTOR may
make out-of-network reimbursement arrangements for treatment in these hospitals
or centers.

     SECTION 15.03 PARTICULAR PROVIDERS.

     (a) Significant Traditional Providers.

     CONTRACTOR must seek participation in its provider network from:

          (1) all hospitals receiving disproportionate share hospital funds in
          the Medicaid program in State Fiscal Year 1999; and

          (2) all other providers in a county that, when listed by provider type
          or by specialty code in descending order by the amount of recipient or
          Member billings, provided the top 80 percent of recipient or Member
          billings for either the Texas Medicaid Program in State Fiscal Year
          1998 as determined by the Texas Department of Health, or the Texas
          Healthy Kids Corporation program in State Fiscal Year 1999 as
          determined by the Texas Healthy Kids Corporation for each provider
          type or specialty code, or providers that were funded and in good
          standing with the Department of Mental Health and Mental Retardation
          or the Council on Alcohol and Drug Abuse in State Fiscal Year 1999.

     (b) Tribal clinics.

     CONTRACTOR must seek participation in its provider network from the tribal
health clinics located near El Paso, Eagle Pass, and Livingston.

     (c) Rural providers.

     In rural areas of the CONTRACTOR's CSA, CONTRACTOR 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:

     1. are the only providers located in the CHIP Service Area; and

     2. are Significant Traditional Providers as defined in 1 T.A.C. Section
361.001.

     To contract with CONTRACTOR, rural health providers must:


                                 Page 53 of 78
<PAGE>

     1. agree to accept the prevailing provider contract rate of CONTRACTOR
based on provider type; and

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

     SECTION 15.04 GOOD-FAITH EFFORT

     CONTRACTOR must demonstrate a good faith effort to include STPs, tribal
clinics, and rural providers in its provider network. CONTRACTOR's compliance
with this requirement must be reported on a quarterly basis using report
requirements defined by HHSC.

     To be a network provider under this section, STPs, tribal clinics, and
rural providers must agree to the provider contract requirements set out in
section 15.01 of this Agreement unless exempted from a requirement by law or
rule. STPs, tribal clinics, and rural providers must also agree in the contract
that they will:

          (1) accept the standard reimbursement rate offered by CONTRACTOR to
          other providers for the same or similar services;

          (2) meet CONTRACTOR's credentialing requirements. CONTRACTOR must not
          require STPs to meet a different or higher credentialing standard than
          is required of other providers providing the same or similar services.
          CONTRACTOR also must not require STPs to contract with a subcontractor
          who requires a different or higher credentialing standard than
          CONTRACTOR's if the application of that higher standard results in a
          disproportionate number of STPs being excluded from the subcontractor;
          and

          (3) accept the same form of provider agreement that CONTRACTOR is
          using in its core CHIP business.

     Failure to demonstrate a good faith effort to include STPs, tribal clinics,
and rural providers in CONTRACTOR's provider network, or failure to report
efforts and compliance as required in this section are defaults under this
Agreement and may result in any or all of the remedies included in Article 20 of
this Agreement.

     SECTION 15.05 PROVIDER TAX IDENTIFICATION NUMBERS.

     CONTRACTOR must require tax identification numbers from all providers.
CONTRACTOR is required to do back-up withholding from all payments to providers
who fail to give tax identification numbers or who give incorrect numbers.

     SECTION 15.06 PROVIDER HANDBOOK.

     CONTRACTOR must submit to HHSC a provider handbook that complies with Texas
Department of Insurance provisions, including, but not limited to: 28 T.A.C.
Section 11.1606(e)(5) (regarding the requirements CONTRACTOR imposes upon
physicians and providers); 28 T.A.C. Section 11.1903(2)(F)(iv) (practice
guidelines); and 28 T.A.C. Section 11.900(b) (regarding the written criteria for
determining medical need for a Member to utilize a specialist as a primary care
physician).


                                 Page 54 of 78
<PAGE>

     HHSC has 15 business days from the date the provider handbook is received
to review the submitted material and to recommend any suggestions or required
changes. If HHSC has not responded to CONTRACTOR by the fifteenth day,
CONTRACTOR may use the submitted handbook.

     SECTION 15.07 CLAIMS SUBMISSION AND PAYMENT.

     CONTRACTOR must comply with article 20A.18B of the Texas Insurance Code
regarding prompt payment of physicians and providers and any applicable
regulations. Providers are required to comply with chapter 146 of the Texas
Civil Practice and Remedies Code regarding timely billing.


                     ARTICLE 16. CONTINUOUS QUALITY IMPROVEMENT.

     SECTION 16.01 COMMITMENT TO QUALITY.

     CONTRACTOR shall develop and maintain an ongoing quality improvement
program designed to objectively and systematically monitor and evaluate the
quality and appropriateness of care and service provided to Members, and to
pursue opportunities for improvement.

     SECTION 16.02 QUALITY IMPROVEMENT COMMITTEE.

     CONTRACTOR must have a formal quality improvement committee that meets the
requirements of 11 T.A.C. Section 11.1903.

     SECTION 16.03 QUALITY IMPROVEMENT PLAN (QIP).

     CONTRACTOR must provide to HHSC its annual written Quality Improvement Plan
(QIP) in accordance with federal and state requirements. The Quality Improvement
Plan shall meet all requirements of 28 TAC Section 11.1902 with regard to scope
and content.


                             ARTICLE 17. REPORTING REQUIREMENTS

     SECTION 17.01 GENERALLY.

     The Parties agree that they will collaborate and negotiate in good faith to
develop a report matrix that will be added through amendment to this Agreement.
The Parties intend the report matrix to supply reporting details that are not in
this Agreement, the Proposal, or the RFP.

     SECTION 17.02 FINANCIAL REPORTS.

     CONTRACTOR must submit to HHSC the following financial reports as they are
described in Appendix D:

          The Monthly or Quarterly CHIP Financial-Statistical Report in the
          format set out in Appendix D, as modified or amended by HHSC;

          The Annual CHIP Financial-Statistical Report in the format set out in
          Appendix D, as modified or amended by HHSC;


                                 Page 55 of 78
<PAGE>

          The Affiliate Report;

          CONTRACTOR'S Annual Audited Financial Report;

          Form HCFA-1513;

          Section 1318 Financial Disclosure Report;

          TDI Examination Report on CONTRACTOR; and

          CONTRACTOR'S IBNR Plan.

     SECTION 17.03 ENCOUNTER DATA SPECIFICATIONS REPORT.

     The Parties agree that they will negotiate in good faith to develop the
specifications on the reporting and processing of encounter data that meet
federal and programmatic requirements. Any subsequent requirements leading to
actual data reporting will be handled through an amendment of this Agreement.

     SECTION 17.04 UTILIZATION MANAGEMENT REPORTS.

     (a) HEDIS Reporting.

     The Parties agree that they will negotiate in good faith to develop the
specifications on the reporting of HEDIS data that meets federal and
programmatic requirements. Any subsequent requirements leading to actual data
reporting will be handled through an amendment of this Agreement.

     (b) Physical Health

     Physical Health (PH) Utilization Management Reports are required on a
quarterly basis due to HHSC no later than 150 days following the end of the
reporting period. The form of the report and the instructions are contained in
Appendix G. The PH Utilization Management Report instructions may periodically
be updated by HHSC to facilitate clear communication to CONTRACTOR.

     (c) Behavioral Health

     Behavioral Health (BH) Utilization Management Reports are required on a
quarterly basis due to HHSC no later than 150 days following the end of the
reporting period. The form of the report and the instructions are contained in
Appendix H. The BH Utilization Report instructions may periodically be updated
by HHSC to facilitate clear communication to the health plan.

     SECTION 17.05 FOCUSED STUDIES REPORTS

     CONTRACTOR must conduct one (1) state-specified focused study and one (1)
study chosen by CONTRACTOR. The state-specified study will be developed through
collaboration among HHSC, TDH, the Administrative Services Contractor, and the
health plans and is conducted and submitted on an annual basis. This study must
be conducted and data collected using criteria and methods developed by HHSC and
TDH in collaboration with the health plans. The report format is set out in the
RFP.


                                 Page 56 of 78
<PAGE>

     SECTION 17.06 ANNUAL QUALITY IMPROVEMENT PLAN (QIP) SUMMARY REPORT

     An annual Quality Improvement Plan (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. The information to be included is set out in
the RFP.

     SECTION 17.07 HUB REPORTS

     CONTRACTOR must submit quarterly reports documenting CONTRACTOR's
Historically Underutilized Business (HUB) program efforts and accomplishments.
The format for this report is contained in Appendix I.

     SECTION 17.08 FRAUDULENT PRACTICES REPORT

     CONTRACTOR must report all fraud and abuse enforcement actions or
investigations taken against CONTRACTOR 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
known or suspected act of fraud or abuse. The report must include information
concerning the detection and the disposition of any potential fraudulent or
abusive practices.

FRAUD AND ABUSE COMPLIANCE PLAN.

Model Compliance Plan

     CONTRACTOR must submit a written compliance plan to HHSC for approval no
later than the scheduled date for initiating readiness reviews. CONTRACTOR must
comply with the requirements of the Model Compliance Plan for HMOs when this
model plan is issued by the U.S. Department of Health and Human Services, the
Office of Inspector General, if the federal government mandates the Plan for
CHIP. In the meantime, HHSC will provide guidance in the form of a template for
use by plans in developing compliance plans that will be subject to HHSC
approval. That template is attached to this Agreement as Appendix J.

Requirements for the CONTRACTOR's compliance plan

     Additionally, the plan must ensure that all officers, directors, managers
and employees know and understand the provisions of the CONTRACTOR's fraud and
abuse compliance plan. The written plan must contain procedures designed to
prevent and detect potential or suspected abuse and fraud in the administration
and delivery of Services under this Agreement. The plan must contain provisions
for the confidential reporting of plan violations to the designated person,
ensure that the identity of an individual reporting violations of the plan is
protected and that no individual who reports plan violations or suspected fraud
and abuse is subject to retaliation. The plan provisions must provide for the
investigation and follow-up of any compliance plan reports and contain specific
and detailed internal procedures for officers, directors, managers and employees
for detecting, reporting, and investigating fraud and abuse compliance plan
violations. The compliance plan also must require that confirmed violations be
reported to HHSC. The plan must require any confirmed violations or confirmed or
suspected fraud and abuse under state or federal law is reported to HHSC or its
designated agents or other units of state government specified in the Agreement.

Fraud and abuse training.

     CONTRACTOR 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


                                 Page 57 of 78
<PAGE>

and Enforcement, Health and Human Services Commission, and will be provided free
of charge. CONTRACTOR must schedule and complete training no later than 90 days
after the Implementation Date.

     The CONTRACTOR must designate an officer or director in its organization
with responsibility and authority for carrying out the provisions of the
compliance plan. A CONTRACTOR'S failure to report potential or suspected fraud
or abuse may result in sanctions, cancellation of contract, or exclusion from
participation in CHIP. The CONTRACTOR must allow the HHSC, its agents, or other
governmental units to conduct private interviews of the CONTRACTOR's personnel,
Subcontractors and their personnel, witnesses, and patients with regard to a
confirmed violation. The CONTRACTOR's personnel and it Subcontractors and their
personnel must cooperate fully by being available in person for interviews,
consultation, grand jury proceedings, pre-trial conferences, hearings, trials
and in any other process, including investigations, at the CONTRACTOR's and
Subcontractors' own expense.

     SECTION 17.09 PROVIDER NETWORK REPORTS

     (a) PCPs and Specialists Report

     CONTRACTOR must submit to HHSC by the date of the readiness review an
electronic listing of all PCPs participating in their network. The format for
this report is contained in Appendix K.

     CONTRACTOR must also submit to HHSC by the date of the readiness review an
electronic listing of all specialists participating in their network. The format
for this report is contained in Appendix L to the RFP.

     (b) Provider Network Change Report

     CONTRACTOR must submit a monthly report summarizing changes in CONTRACTOR's
provider network. The report must be submitted to HHSC in the format set out in
the RFP 30 days following the end of the reporting month.

     (c) PCP Network and Capacity Report

     CONTRACTOR must submit electronically to the Administrative Services
Contractor a weekly report that shows changes to the PCP network and PCP
capacity.

     SECTION 17.10 THIRD PARTY RECOVERY (TPR) REPORTS

     If CONTRACTOR chooses to engage in Third Party Recovery (TPR) activities,
it must file quarterly TPR Reports in accordance with the format developed by
the State. TPR reports must include total dollars recovered from third party
payers for services to Members for each month and the total dollars recovered.

     SECTION 17.11 ALL CLAIMS SUMMARY REPORT

     CONTRACTOR must submit the "All Claims Summary Report" 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 HHSC
in a format specified by HHSC. This report format will be developed
collaboratively with the health plans.


                                 Page 58 of 78
<PAGE>

     SECTION 17.12 SUMMARY REPORT OF PROVIDER AND MEMBER COMPLAINTS

     CONTRACTOR must submit Member and provider complaints reports. CONTRACTOR
must also report complaints submitted to its subcapitated groups (e.g., IPAs).
The complaint reports 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 the TDI format.

     SECTION 17.13 MONTHLY MEMBER HOTLINE STATUS REPORT

     CONTRACTOR must submit, on a monthly basis, a Member hotline status report
that contains the elements set out in the RFP.

     SECTION 17.14 PROVIDER HOTLINE PERFORMANCE REPORT

     CONTRACTOR must submit, on a monthly basis, a provider telephone status
report that contains the elements set out in the RFP.

     SECTION 17.15 AD HOC REPORTS.

     CONTRACTOR will provide ad hoc reports as requested by HHSC at no
additional charge if the information requested is currently available or easily
modified from existing data. If the requested information is not currently
available or easily modified from existing data, the change order process set
out in Article 8 will apply or the Parties may mutually agree on an alternative.


           ARTICLE 18. DISCLOSURE AND CONFIDENTIALITY OF INFORMATION.

     SECTION 18.01 CONFIDENTIALITY.

     (a) CONTRACTOR and all subcontractors under this Contact shall treat all
information which is obtained through performance under this Agreement as
confidential information to the extent that confidential treatment is provided
under law and regulations, and shall not use any information so obtained in any
manner except as necessary to the proper discharge of obligations and securing
of rights hereunder.

     (b) CONTRACTOR will have a system in effect to protect all records and all
other documents deemed confidential by law which are maintained in connection
with the activities funded under this Agreement. Any disclosure or transfer of
confidential information by CONTRACTOR, including information required by HHSC,
will be in accordance with applicable law.

     (c) In addition to the requirements expressly stated in this article,
CONTRACTOR will comply with any policy, rule, or reasonable requirement of HHSC
that relates to the safeguarding or disclosure of information relating to
Members, CONTRACTOR's operations, or the Services performed by CONTRACTOR under
this Agreement.

     SECTION 18.02 REQUESTS FOR PUBLIC INFORMATION.

     (a) HHSC agrees that it will promptly notify CONTRACTOR of a request for
disclosure of public information that relates to information or data to which
CONTRACTOR has a proprietary or commercial interest. HHSC will deliver a copy of
the request for public information to CONTRACTOR.


                                 Page 59 of 78
<PAGE>

     (b) With respect to any confidential information that is the subject of a
request for disclosure, CONTRACTOR is required to provide a written explanation
of specific reasons why the requested information is confidential or otherwise
excepted from required public disclosure under law. HHSC shall, in its sole
discretion, determine the appropriate response to the request for information.

     SECTION 18.03 PUBLICITY.

     (a) CONTRACTOR may use the name of HHSC, the State of Texas, or any other
state agency, or the name of the Children's Health Insurance Program in a media
release, public announcement, or public disclosure relating to this Agreement or
its subject matter (other than in proposals submitted to the State of Texas, an
administrative agency of the State of Texas, or a governmental agency of another
state) only if, at least three (3) business days prior to distributing the
material, CONTRACTOR submits the information to HHSC for review and approval. If
HHSC has not responded within three (3) business days, CONTRACTOR may use the
submitted information. If the information is to be used in marketing, the
provisions of Article 14 apply to the material.

     (b) CONTRACTOR may publish, at it sole expense, results of CONTRACTOR
performance under this Agreement with HHSC's prior review and approval, which
HHSC may not unreasonably withhold. Any publication (written, visual, or sound)
shall acknowledge the support received from HHSC and any federal agency, as
appropriate. CONTRACTOR will provide HHSC at least three (3) copies of any such
publication prior to public release. CONTRACTOR will provide additional copies
at the request of HHSC. If HHSC has not responded to the CONTRACTOR within
fifteen (15) business days from the date HHSC receives the information for
review, the information is deemed approved.

     (c) HHSC will submit all studies or audits that relate or refer to
CONTRACTOR for review and comment to CONTRACTOR fifteen (15) days prior to
releasing the report to the public or to Members.

     SECTION 18.04 MEMBER RECORDS.

     CONTRACTOR and any subcontractor shall not transfer an identifiable Member
record, including a patient record, to another entity or person without written
consent from the Member or someone authorized to act on his or her behalf;
however, HHSC may require CONTRACTOR, or any subcontractor, to transfer a Member
record to another agency or to HHSC if the transfer is necessary to protect
either the confidentiality of the record or the health and welfare of the
Member.

     If at any time during the Initial Term, this Agreement is terminated, HHSC
may require the transfer of Member records, upon written notice to CONTRACTOR,
to another entity that agrees to continue performance of the Agreement, as
consistent with federal and state laws and applicable releases.

     The term "Member Record" for this section means only those administrative,
enrollment, case management and other such records maintained by CONTRACTOR and
is not intended to include patient records maintained by participating network
providers.

     SECTION 18.05 ACCESSIBILITY AND AVAILABILITY OF MEDICAL RECORDS.

     CONTRACTOR must require, through contractual provisions, providers to
create and keep medical records in compliance with the medical records standards
contained in the Standards for Quality Improvement Programs in Appendix F. 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.


                                 Page 60 of 78
<PAGE>

     SECTION 18.06 RECORDKEEPING.

     Medical records may be on paper or electronic. CONTRACTOR 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 F. 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. CONTRACTOR must take steps to promote maintenance of medical records
in a legible, current, detailed, organized and comprehensive manner that permits
effective patient care and quality review.


                        ARTICLE 19. NON-PROVIDER SUBCONTRACTING

     SECTION 19.01 WRITTEN SUBCONTRACTS.

     CONTRACTOR must enter into written contracts with all Non-Provider
Subcontractors and maintain copies of the Subcontracts in CONTRACTOR's
administrative office. CONTRACTOR must submit two copies of all Non-Provider
Subcontracts to HHSC for approval no later than 60 days after the Effective Date
of this Agreement. Subcontracts entered into after the Effective Date of this
Agreement must be submitted no later than 30 days prior to the date of execution
of the Subcontract. CONTRACTOR must also make Non-Provider Subcontracts
available to HHSC upon request, at the time and location requested by HHSC.

     HHSC has 15 business days to review the Subcontract and recommend any
suggestions or required changes. If HHSC has not responded to CONTRACTOR by the
fifteenth day, CONTRACTOR may execute the Subcontract. HHSC reserves the right
to request CONTRACTOR to modify any Subcontract that has been deemed approved.

     The form and substance of all Subcontracts, including subsequent
amendments, are subject to approval by HHSC. HHSC 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 Agreement or
create significant barriers for HHSC in carrying out its duty to monitor
compliance with the Agreement.

     Additionally, if CONTRACTOR desires to enter into a Non-Provider
Subcontract that has a value over $100,000, CONTRACTOR must obtain prior written
approval from HHSC. HHSC reserves the right to require the replacement of any
Non-Provider Subcontractor, which HHSC will not unreasonably require.

     SECTION 19.02 APPLICATION OF FEDERAL LAW TO NON-PROVIDER SUBCONTRACTORS.

     CONTRACTOR must ensure that Non-Provider Subcontractors are aware of their
obligations and responsibilities under 42 U.S.C. Section 1320a-7a and 42 U.S.C.
Section 1320a-7b. CONTRACTOR must also ensure that its Non-Provider
Subcontractors are 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 CHIP.

     SECTION 19.03 NO STATE LIABILITY FOR PAYMENT UNDER NON-PROVIDER
                   SUBCONTRACTORS.

     CONTRACTOR must ensure that Non-Provider Subcontractors understand and
agree that CONTRACTOR is solely responsible for payment of services rendered by
the Non-Provider Subcontractor. CONTRACTOR must ensure that Non-Provider
Subcontractors understand and agree that if


                                 Page 61 of 78
<PAGE>

CONTRACTOR becomes insolvent or ceases operations, the Subcontractor's sole
recourse is against CONTRACTOR

     SECTION 19.04 TERMINATION OF NON-PROVIDER SUBCONTRACTS.

     CONTRACTOR must notify HHSC no later than 90 days prior to terminating any
Non-Provider Subcontract affecting a major performance function of this
Agreement. All major Non-Provider Subcontractor, defined as those Subcontracts
with a value over $100,000 or affecting a major function under this Agreement,
terminations or substitutions require HHSC approval. HHSC may require CONTRACTOR
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 Agreement.

     SECTION 19.05 FRAUD AND ABUSE INVESTIGATIONS.

     Subcontracts that 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 business days from HHSC's
notification to CONTRACTOR of the request. All requested records must be
provided free-of-charge.

     THE CONTRACTOR REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES,
RESPONSIBILITIES AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE
DUTY, RESPONSIBILITY OR SERVICE IS SUBCONTRACTED TO ANOTHER.


                              ARTICLE 20. REMEDIES AND DISPUTES.

     SECTION 20.01 UNDERSTANDING AND EXPECTATIONS.

     (a) CONTRACTOR agrees and understands that HHSC may pursue contractual
remedies for both programmatic and financial noncompliance. HHSC, in its
discretion, may impose or pursue one or more remedies for each item of
noncompliance and will determine sanctions on a case-by-case basis. HHSC's
pursuit or non-pursuit of a tailored administrative remedy shall not constitute
a waiver of any other remedy that HHSC may have at law or equity.

     (b) As described in the RFP, CHIP represents a comprehensive and aggressive
effort to provide adequate health care to uninsured children by providing
affordable insurance to their families. Section 2.04 of this Agreement also
describes HHSC's objective to establish a flexible and responsive relationship
with CONTRACTOR. Accordingly, the remedies described in this article are
directed to CONTRACTOR's timely and responsive performance of the Services and
production of Deliverables.

     SECTION 20.02  ADMINISTRATIVE REMEDIES.

     (a) CONTRACTOR responsibility for improvement.

     HHSC expects CONTRACTOR's performance to continuously meet or exceed
performance criteria over the term of this Agreement. Accordingly, CONTRACTOR
will be responsible for ensuring that performance for a particular activity or
result described in its Proposal or the RFP that falls below the expectations


                                 Page 62 of 78
<PAGE>

identified in CONTRACTOR's Proposal, the RFP, or this Agreement must improve
within thirty (30) days of written notice from HHSC regarding the deficiency.

     (b) Notification and interim response.

     (1) HHSC will notify CONTRACTOR in writing of specific areas of CONTRACTOR
performance that fail to meet performance standards as set out in this
Agreement, but which, in the determination of HHSC, do not result in a material
delay in the implementation or operation of the CHIP health plan coverage
through HMOs. CONTRACTOR will, within five (5) business days of receipt of
written notice of a non-material deficiency, provide HHSC with a written
response that:

          (A) Explains the reasons for the deficiency, CONTRACTOR's plan to
          address or cure the deficiency, and the date and time by which the
          deficiency will be cured; or

          (B) If CONTRACTOR disagrees with HHSC's findings, its reasons for
          disagreeing with HHSC's findings.

     (2) CONTRACTOR's proposed cure of a non-material deficiency is subject to
the approval of HHSC. CONTRACTOR's repeated commission of non-material
deficiencies or repeated failure to resolve any such deficiencies may be
regarded by HHSC as a material deficiency and entitle HHSC to pursue any other
remedy provided in this Agreement or any other appropriate remedy HHSC may have
at law or equity.

     (c) Notice and opportunity to cure.

     TDH will provide CONTRACTOR with written notice of default (Notice of
Default) under this Agreement. The Notice of Default may be given by any means
that provides verification of receipt. The Notice of Default must contain the
following information:

     1. A clear and concise statement of the circumstances or conditions that
constitute a default under this Agreement;

     2. The Agreement provision(s) under which HHSC is declaring a default;

     3. A clear and concise statement of whether CONTRACTOR may cure the default
and, if so, how;

     4. A clear and concise statement of the time period during which CONTRACTOR
may cure the default if CONTRACTOR is allowed to cure;

     5. The remedy or remedies HHSC is electing to pursue and when the remedy or
remedies will take effect;

     6. If HHSC is electing to impose liquidated damages, the amount that HHSC
intends to withhold or impose;

     7. If HHSC elects to pursue liquidated damages, whether any part of those
damages may be passed through to an individual or entity who is or may be
responsible for the act or omission for which HHSC declares a default;

     8. Whether failure of CONTRACTOR to cure the default within any specified
time period will result in HHSC pursuing an additional remedy or remedies,
including, but not limited to, additional damages and/or termination of the
Agreement.


                                 Page 63 of 78
<PAGE>

     (d) Particular Events of Default.

     For convenience, specified events of default under this Agreement, which
are listed throughout this Agreement, are listed here. Those events, include,
but are not limited to:

          (1) Failure to demonstrate a good faith effort to include STPs, tribal
          clinics, and rural providers in the CONTRACTOR's provider network, or
          failure to report efforts and compliance as required in section 15.04;

          (2) CONTRACTOR's placing the health and safety of the Members in
          jeopardy;

          (3) Exclusion of the CONTRACTOR or any of the managing employees or
          persons with an ownership interest whose disclosure is required by
          Section 1124(a) of the Social Security Act from the Medicaid or
          Medicare program under the provisions of Section 1128(a) and/or (b) of
          the Social Security Act is a default under this contract;

          (4) Exclusion of any Subcontractor or any of the managing employees or
          persons with an ownership interest of the Subcontractor whose
          disclosure is required by Section 1124(a) of the Social Security Act
          from the Medicaid or Medicare program under the provisions of Section
          1128(a) and/or (b) of the Social Security if the exclusion will
          materially affect the CONTRACTOR's performance under this Agreement;
          and

          (5) A CONTRACTOR'S failure to report potential or suspected fraud or
          abuse.

     (e) Corrective Action Plan.

     (1) In the event HHSC assesses a liquidated damage as provided in this
article, HHSC may require CONTRACTOR to submit to HHSC a detailed written plan
(the "Corrective Action Plan") to correct or resolve the deficiency or event
causing the assessment of the liquidated damage. The Corrective Action Plan must
provide a detailed explanation of the reasons for the cited deficiency,
CONTRACTOR's assessment or diagnosis of the cause, and a specific proposal to
cure or resolve the deficiency. The Corrective Action Plan must be submitted
within ten (10) business days following the request for the plan by HHSC and is
subject to approval by HHSC, which approval will not unreasonably be withheld.

     (2) Notwithstanding the submission and acceptance of a Corrective Action
Plan, CONTRACTOR remains responsible for achieving all written performance
criteria. The acceptance of a Corrective Action Plan under this section will not
excuse prior substandard performance, relieve CONTRACTOR of its duty to comply
with performance standards, or prohibit HHSC from assessing additional
liquidated damages or pursuing other appropriate remedies for continued
substandard performance.

     (f) Additional remedies.

     HHSC at its own discretion may impose one or more the following remedies
for each item of noncompliance and will determine the scope and severity of the
remedy on a case-by-case basis. Both Parties agree that a state or federal
statute, rule, regulation or federal guideline will prevail over the provisions
of this section unless the statute, rule, regulation, or guidelines can be read
together with this section to give effect to both.

          (1) Assess liquidated damages in accordance with section 20.03 and
          deduct such damages against payments to CONTRACTOR as set-off in
          accordance with section 20.04;


                                 Page 64 of 78
<PAGE>

          (2) Conduct accelerated monitoring of CONTRACTOR. Accelerated
          monitoring means more frequent or more extensive monitoring will be
          performed by HHSC than would routinely be accomplished;

          (3) Require additional, more detailed, financial and/or programmatic
          reports to be submitted by CONTRACTOR in accordance with Article 17 of
          this Agreement; or

          (4) Suspend new enrollment.

               (a) HHSC must give the CONTRACTOR 30 days notice of intent to
               suspend new enrollment other than for imminent danger to the
               health or safety of Members. The suspension date will be
               calculated as 30 days following the date that the CONTRACTOR
               receives the notice of intent to suspend new enrollment.

               (b) HHSC may immediately suspend new enrollment into the
               CONTRACTOR for a default declared as a result of imminent danger
               to the health and safety of Members.

               (c) The suspension of new enrollment may be for any duration, up
               to the termination date of the Agreement. HHSC will base the
               duration of the suspension upon the type and severity of the
               default and upon the CONTRACTOR's ability, if any, to cure the
               default.

          (5) Decline to renew this Agreement.

     HHSC will formally notify CONTRACTOR of the imposition of an administrative
remedy in writing in accordance with paragraph (b) of this section, with the
exception of accelerated monitoring, which may be unannounced. CONTRACTOR is
required to file a written response to in accordance with paragraph (b) of this
section.

     (g) Informal review of administrative remedies.

     CONTRACTOR may request an informal review of the imposition of the
foregoing remedies in accordance with section 20.16 within ten (10) business
days of receipt of written notification of the imposition of a remedy by HHSC.

     SECTION 20.03 LIQUIDATED DAMAGES.

     The liquidated damages prescribed in this section are not intended to be in
the nature of a penalty, but are intended to be reasonable estimates of HHSC's
projected financial loss and damage resulting from CONTRACTOR's non-performance,
including financial loss as a result of project delays.

     The Parties intend to negotiate liquidated damages specifically tailored
for particular events of nonperformance, which schedule will be attached to this
Agreement through amendment. In the event that the Parties fail to reach
agreement on the liquidated damages to be assessed, the events on which they are
to be assessed, or the amount of the damages, the liquidated damages set out in
this section will apply.

     Accordingly, in the event CONTRACTOR fails to perform in accordance with
this Agreement, HHSC may assess liquidated damages as provided in this section.


                                 Page 65 of 78
<PAGE>

     (a) Failure to provide contracted services or support.

     If CONTRACTOR fails to perform any of the Services described in this
Agreement, HHSC may assess a liquidated damage of $1,000.00 each business day
such Service is not provided.

         (1) Maximum damages.

     Liquidated damages assessed pursuant to this paragraph shall not, in any
single month, exceed 25% of the fee due CONTRACTOR for that month. However, if
CONTRACTOR fails to perform any Service or combination of Services, and such
failure represents a budgeted sum greater than 25% of the fee due CONTRACTOR for
that month, HHSC may terminate the Agreement in accordance with this article.

         (2) CONTRACTOR responsibility for associated costs.

     If HHSC terminates this Agreement pursuant to paragraph (a)(i) of this
section, CONTRACTOR will be responsible to HHSC for all costs incurred by HHSC,
the State of Texas or any of its administrative agencies to replace CONTRACTOR.
These costs include, but are not limited to, the costs of procuring a substitute
vendor following termination of this Agreement and the cost of any claim or
litigation that is reasonably attributable to CONTRACTOR's failure to perform
any Service in accordance with the Agreement.

     SECTION 20.04 METHOD OF COLLECTION.

     HHSC may elect to assess a liquidated damage directly to CONTRACTOR, or it
may deduct amounts assessed as liquidated damages as set-off against payments
then due to CONTRACTOR for the Services or Deliverables or which become due at
any time thereafter.

     SECTION 20.05 MODIFICATION OF AGREEMENT IN THE EVENT OF REMEDIES.

     As provided in section 8.01(b) of this Agreement, HHSC may propose a
modification of this Agreement in response to the imposition of a remedy under
this article. Any modifications under this section must be reasonable, limited
to the matters causing the exercise of a remedy, and in writing. CONTRACTOR must
negotiate such proposed modifications in good faith.

     SECTION 20.06 TERMINATION OF AGREEMENT.

     In addition to other provisions of this article allowing termination, this
Agreement will terminate upon the Expiration Date unless extended in accordance
with Article 4 of this Agreement, or terminated sooner under the terms of
section 20.07 through section 20.09 of this Agreement. Prior to completion of
the Initial Term and any extensions or renewal thereof, all or a part of this
Agreement may be terminated for any of the following reasons:

     SECTION 20.07 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES.

     This Agreement may be terminated by mutual agreement of the Parties. Such
agreement must be in writing.

     SECTION 20.08 TERMINATION FOR CAUSE.

     HHSC reserves the right to terminate this Agreement, in whole or in part,
upon the following conditions:


                                 Page 66 of 78
<PAGE>

     (a) Assignment for the benefit of creditors, appointment of receiver, or
inability to pay debts.

     HHSC may terminate this Agreement if CONTRACTOR:

          (1) Makes an assignment for the benefit of its creditors;

          (2) Admits in writing its inability to pay its debts generally as they
          become due; or

          (3) Consents to the appointment of a receiver, trustee, or liquidator
          of CONTRACTOR or of all or any part of its property.

     (b) Judgment and execution.

     (1) HHSC may terminate this Agreement if judgment for the payment of money
in excess of $50,000.00 (fifty thousand dollars and zero cents) which is not
covered by insurance is rendered by any court or governmental body against
CONTRACTOR, and CONTRACTOR does not

          (i) Discharge the judgment or provide for its discharge in accordance
          with the terms of the judgment;

          (ii) Procure a stay of execution thereof within 30 days from the date
          of entry thereof; or

          (iii) Perfect an appeal of such judgment and cause the execution of
          such judgment to be stayed during the appeal, providing such financial
          reserves as may be required under generally accepted accounting
          principles.

     (2) If a writ or warrant of attachment or any similar process is issued by
any court against all or any material portion of the property of CONTRACTOR, and
such writ or warrant of attachment or any similar process is not released or
bonded within 30 days after its entry, HHSC may terminate this Agreement in
accordance with this section.

     (c) Failure to adhere to laws, rules, ordinances, or orders.

     HHSC may terminate this Agreement if a court of competent jurisdiction
finds CONTRACTOR failed to adhere to any laws, ordinances, rules, regulations or
orders of any public authority having jurisdiction and such violation prevents
or substantially impairs performance of CONTRACTOR's duties under this
Agreement.

     (d) Breach of confidentiality.

     HHSC may terminate this Agreement if CONTRACTOR breaches confidentiality
laws with respect to the Services provided under this Agreement.

     (e) Failure to maintain adequate personnel or resources.

     HHSC may terminate this Agreement if, after providing notice and an
opportunity to correct in accordance with section 20.02 of this Agreement, HHSC
determines that CONTRACTOR has either failed to provide the personnel and
resources described in its Proposal or has failed to supply personnel or
resources and such failure results in CONTRACTOR's inability to fulfill its
duties under this Agreement and substantially compromises HHSC's ability to
comply with legislative mandates regarding the implementation or administration
of CHIP.


                                 Page 67 of 78
<PAGE>

     (f) Termination for insolvency.

     (1) HHSC may, by giving written notice of termination to CONTRACTOR,
terminate this Agreement as of a date specified in such notice of termination if
CONTRACTOR:

          (A) files for bankruptcy;

          (B) becomes or is declared insolvent, or is the subject of any
          proceedings related to its liquidation, insolvency or the appointment
          of a receiver or similar officer for it;

          (C) makes an assignment for the benefit of all or substantially all of
          its creditors; or

          (D) enters into a contract for the composition, extension, or
          readjustment of substantially all of its obligations.

     (2) CONTRACTOR agrees to pay for all reasonable expenses of HHSC including
the cost of counsel, incident to:

          (A) The enforcement of payment of all obligations of CONTRACTOR by any
          action or participation in, or in connection with a case or proceeding
          under chapters 7, 11, or 13 of the United States Bankruptcy Code, or
          any successor statute;

          (B) A case or proceeding involving a receiver or other similar officer
          duly appointed to handle CONTRACTOR's business; or

          (C) A case or proceeding in a State court initiated by HHSC when
          previous collection attempts have been unsuccessful.

     (g) Termination for gifts and gratuities.

     (1) HHSC may terminate this Agreement on one (1) days' notice to CONTRACTOR
following the determination by a competent judicial or quasi-judicial authority
and CONTRACTOR's exhaustion of all legal remedies that CONTRACTOR, its
employees, agents or representatives have either offered or given any thing of
value an officer or employee of HHSC or the State of Texas in violation of state
law.

     (2) CONTRACTOR must include a similar provision in each of its subcontracts
and shall enforce this provision against a subcontractor who has offered or
given any thing of value to any of the persons or entities described in this
section, whether or not the offer or gift was in CONTRACTOR's behalf.

     SECTION 20.09 TERMINATION FOR NON-APPROPRIATION OF FUNDS.

     (a) Notwithstanding any other provision of this Agreement, if funds for the
continued fulfillment of this Agreement by HHSC are at any time not forthcoming
or are insufficient, through failure of any entity to appropriate funds or
otherwise, then HHSC will have the right to terminate this Agreement at no
additional cost and with no penalty whatsoever by giving prior written notice
documenting the lack of funding.

     (b) In such instance, unless otherwise agreed to by the Parties, this
Agreement will terminate and become null and void on the last day of the fiscal
period for which appropriations were received. HHSC will use all reasonable
efforts to ensure appropriated funds are available.


                                 Page 68 of 78
<PAGE>

     SECTION 20.10 TERMINATION IN THE EVENT OF HHSC'S FAILURE TO PAY.

     CONTRACTOR may terminate this Agreement if HHSC fails to pay the CONTRACTOR
undisputed charges when due as required under this Agreement. Retaining premium,
recoupment, sanctions, or penalties that are allowed under this Agreement or
that result from the CONTRACTOR's failure to perform or the CONTRACTOR's default
under the terms of this Agreement is not cause for termination. Termination for
failure to pay does not release HHSC from the obligation to pay undisputed
charges for services provided prior to the termination date.

     CONTRACTOR must give HHSC 90 days written notice of intent to terminate
this Agreement. 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 HHSC.

     HHSC must be given 30 days from the date HHSC receives the CONTRACTOR's
written notice of intent to terminate for failure to pay to pay the CONTRACTOR
all undisputed amounts due. If HHSC pays all undisputed amounts then due within
this 30-day period, the CONTRACTOR cannot terminate the Agreement under this
article for that reason.

     SECTION 20.11 TERMINATION FOR HHSC'S MATERIAL BREACH OF THIS AGREEMENT.

     (a) Generally.

     HHSC's failure to perform a material duty or responsibility as set out in
this Agreement is a default under this Agreement.

     (b) Notice of default and opportunity to cure.

     CONTRACTOR will provide HHSC with written notice of default (Notice of
Default) under this Agreement. The Notice of Default may be given by any means
that provides verification of receipt. The Notice of Default must contain the
following information:

     1. A clear and concise statement of the circumstances or conditions that
CONTRACTOR contends constitute a default under this Agreement;

     2. The Agreement provision(s) under which CONTRACTOR is declaring a
default; and

     3. A statement that HHSC has thirty (30) days from the date HHSC receives
the Notice of Default to cure the alleged breach.

     SECTION 20.12 NOTICE OF TERMINATION.

     Each Party will provide written notice of termination of this Agreement at
least 90 days prior to the intended date of termination unless the health or
safety of the Members is at issue, in which case HHSC may terminate immediately.

     SECTION 20.13  EXTENSION OF TERMINATION EFFECTIVE DATE.

     HHSC may extend the effective date of termination one or more times as it
elects, in its sole discretion, provided that the total of all such extensions
shall not exceed 90 calendar days following the original effective date of
termination, excluding termination under section 20.11.


                                 Page 69 of 78
<PAGE>

     SECTION 20.14  INJUNCTIVE RELIEF.

     Each Party acknowledges and agrees that, in the event of a breach or
threatened breach of any of the provisions of this Agreement, such Party may
have no adequate remedy in damages. Accordingly, each Party will be entitled to
seek an injunction to prevent such breach or threatened breach. However, the
specification of a particular legal or equitable remedy will not be construed as
a waiver, prohibition, or limitation of any other legal or equitable remedies in
the event of a breach of this Agreement.

     SECTION 20.15 PAYMENT AND OTHER PROVISIONS AT AGREEMENT TERMINATION.

     (a) If HHSC terminates this Agreement, HHSC will pay CONTRACTOR on the
effective date of termination (or as soon as possible thereafter taking into
account appropriation and fund accounting requirements) any undisputed amounts
due for all completed, approved, and accepted Services or Deliverables.

     (b) HHSC further agrees to negotiate in good faith with CONTRACTOR to
equitably adjust and settle any accrued or outstanding liabilities for any
unaccepted Service or deliverable and Change Order that

          (1) Is due or delivered prior to or upon contract termination;

          (2) Is complete or substantially complete, or for which CONTRACTOR can
          document to the satisfaction of HHSC substantial progress; and

          (3) Benefits HHSC or the State of Texas, notwithstanding its
          unaccepted status.

     (c) CONTRACTOR must provide HHSC all reasonable access to records,
facilities, and documentation as is required to efficiently and expeditiously
close out the Services under this Agreement.

     (d) HHSC and the CONTRACTOR must prepare a transition plan, which is
acceptable to and approved by HHSC, 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 HHSC's reasonable belief
that the CONTRACTOR is placing the health or welfare of Members in jeopardy.

     CONTRACTOR must continue to perform Services under the transition plan
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 HHSC's reasonable belief
that the CONTRACTOR is placing the health and safety of the Members in jeopardy.
If termination is due to this reason, HHSC may prohibit the CONTRACTOR's further
performance of Services under this Agreement.

     (1) If HHSC terminates this Agreement for any reason other than
non-appropriation of funds under section 20.10:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) CONTRACTOR is responsible for all expenses related to giving
          notice to Members; and

          (c) CONTRACTOR is responsible for all expenses incurred by HHSC in
          implementing the transition plan.


                                 Page 70 of 78
<PAGE>

     (2) If the Agreement is terminated by the CONTRACTOR for any reason:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) HHSC is responsible for all expenses related to giving notice to
          Members; and

          (c) HHSC is responsible for all expenses it incurs in implementing the
          transition plan.

     (3) If the Agreement is terminated by mutual agreement of the Parties under
section 20.07:

          (a) HHSC is responsible for notifying all Members of the date of
          termination and how Members can continue to receive Covered Services;

          (b) CONTRACTOR is responsible for all expenses related to giving
          notice to Members; and

          (c) HHSC is responsible for all expenses it incurs in implementing the
          transition plan.

     SECTION 20.16 DISPUTE RESOLUTION.

     (a) General agreement of the Parties.

     The Parties mutually agree that the interests of fairness, efficiency, and
good business practices are best served when the Parties employ all reasonable
and informal means to resolve any dispute under this Agreement. The Parties
express their mutual commitment to using all reasonable and informal means of
resolving disputes including, but not limited to, the informal review of
liquidated damage assessments under section 20.02 of this Agreement, prior to
invoking a remedy provided elsewhere in this section.

     (b) Duty to negotiate in good faith.

     Any dispute that in the judgment of any Party to this Agreement may
materially or substantially affect the performance of any Party will be reduced
to writing and delivered to the other Party. The Parties must then negotiate in
good faith and use every reasonable effort to resolve such dispute and the
Parties shall not resort to any formal proceedings unless they have reasonably
determined that a negotiated resolution is not possible. The resolution of any
dispute disposed of by agreement between the Parties shall be reduced to writing
and delivered to all Parties within ten (10) business days.

     (c) Claims for breach of Agreement.

     (1) General requirement. As required by Chapter 2260, Government Code,
CONTRACTOR's claim for breach of this Agreement must resolved in accordance with
the dispute resolution process established by HHSC in accordance with Chapter
2260, Government Code.

     (2) Negotiation of claims. A CONTRACTOR's claim for breach of this
Agreement that the Parties cannot resolve in the ordinary course of business or
through the use of all reasonable and informal means must be submitted to the
negotiation process provided in Chapter 2260, subchapter B, Government Code.

          (A) To initiate the process, CONTRACTOR must submit written notice in
          accordance with Section 4.04 of this Agreement that specifically
          states that CONTRACTOR invokes the provisions of Chapter 2260,
          subchapter B, Government Code.


                                 Page 71 of 78
<PAGE>

          (B) Compliance by CONTRACTOR with Chapter 2260, subchapter B,
          Government Code, is a condition precedent to the filing of a contested
          case proceeding under Chapter 2260, subchapter C, of the Government
          Code.

     (3) Contested case proceedings. The contested case process provided in
Chapter 2260, subchapter C, Government Code, is CONTRACTOR's sole and exclusive
process for seeking a remedy for any and all alleged breaches of contract by
HHSC if the Parties are unable to resolve their disputes under subsection (d)(2)
of this section.

          (A) Compliance with the contested case process provided in Chapter
          2260, Subchapter C, Government Code, is a condition precedent to
          seeking consent to sue from the Texas Legislature under Chapter 107,
          Civil Practices & Remedies Code. Neither the execution of this
          Agreement by HHSC nor any other conduct of any representative of HHSC
          relating to this Agreement shall be considered a waiver of the State's
          sovereign immunity to suit.

     (4) HHSC rules. The submission, processing and resolution of CONTRACTOR's
claim is governed by the rules to be adopted by HHSC pursuant to Chapter 2260,
Government Code.

          (A) CONTRACTOR expressly acknowledges that, as of the Effective Date
          of this Agreement, HHSC has not adopted rules to implement the
          requirements of Chapter 2260, Government Code. CONTRACTOR expressly
          waives any claim regarding the absence of any such rules at the
          Effective Date.

     (5) CONTRACTOR's duty to perform. Neither the occurrence of an event
constituting an alleged breach of contract nor the pending status of any claim
for breach of contract is grounds for the suspension of performance, in whole or
in part, by CONTRACTOR of any duty or obligation with respect to the Services
under this Agreement.

     SECTION 20.17 LIABILITY OF CONTRACTOR.

     CONTRACTOR will not be liable to HHSC for any loss, damages or liabilities
attributable to or arising from:

          (1) The failure of HHSC or any state agency or HHSC CONTRACTOR to
          perform a service or activity in connection with this Agreement; or

          (2) CONTRACTOR's prudent and diligent performance of the Services in
          compliance with instructions given by HHSC in accordance with section
          2.07 (relating to implied authority), section 4.04 (relating to
          notices), and section 4.06 (relating to delegation of authority) of
          this Agreement.


                    ARTICLE 21. ASSURANCES AND CERTIFICATIONS

     SECTION 21.01 LOBBYING.

     (a) In accordance with 3l U.S.C. Section 1352 (Section 1352 of Public Law
[P.L.] 101-121 effective December 22, 1989), CONTRACTOR is prohibited from using
funds granted under this Agreement for lobbying Congress or any Federal agency
in connection with a particular Agreement. CONTRACTOR agrees that none f the
funds provided under this Agreement will be so used.


                                 Page 72 of 78
<PAGE>

     (b) In addition, if at any time a contract exceeds $100,000, the law
requires certification that none of the funds provided by HHSC to CONTRACTOR
have been used for payment to lobbyists. CONTRACTOR certifies that it has not
and will not use any funds provided under this Agreement for such prohibited
purposes.

     (c) Regardless of funding source, if a Contract Attachment exceeds
$100,000, CONTRACTOR will provide to HHSC a certification of the names of any
and all registered lobbyists with whom CONTRACTOR has an agreement. CONTRACTOR
agrees that it will provide this certification on a form provided by HHSC, along
with the names of any lobbyists, if applicable, within 90 days of receipt of the
executed Agreement.

     SECTION 21.02 DEBARMENT AND SUSPENSION.

     (a) CONTRACTOR certifies by execution of this Agreement that it is not now
ineligible for participation in Federal or State assistance programs under
Executive Order 12549, Debarment and Suspension.

     (b) CONTRACTOR certifies by execution of this Agreement that neither it nor
its principals is presently debarred, suspended, proposed for debarment,
declared ineligible, or voluntarily excluded from participation in this
transaction by any Federal department or agency.

     (c) Where CONTRACTOR is unable to certify to any of the statements in this
certification, CONTRACTOR shall attach an explanation.

     (d) CONTRACTOR specifically warrants that it has not knowingly failed to
pay a single substantial debt or a number of outstanding debts to a Federal or
State agency and it is not subject to an outstanding judgment in a suit against
CONTRACTOR for collection of the balance. A false statement regarding
CONTRACTOR's status will be treated as a material breach of this Agreement and
may be grounds for termination at the option of HHSC.

     SECTION 21.03 CONFLICTS OF INTEREST.

     (a) Representation.

     CONTRACTOR agrees to comply with regulations regarding conflicts of
interest in the performance of its duties under this Agreement.

     (b) General duty regarding conflicts of interest.

     CONTRACTOR will establish safeguards to prohibit employees from using their
positions for a purpose that constitutes or presents the appearance of personal
or organizational conflict of interest, or personal gain. CONTRACTOR will
operate with complete independence and objectivity without actual, potential or
apparent conflict of interest with respect to the activities conducted under
this Agreement with the State of Texas.

     (c) Disclosure requirements.

         (1) CONTRACTOR must disclose any existing or potential conflicts of
         interest relative to the performance requirements of this Agreement and
         must comply with other disclosure requirements set out below, as
         applicable.


                                 Page 73 of 78
<PAGE>

         (2) Any relationship that might be perceived or represented as a
         conflict must be disclosed by CONTRACTOR within 15 calendar days of its
         discovery by CONTRACTOR or by HHSC as a potential conflict. This
         disclosure requirement is a continuing obligation throughout the
         Initial Term of this Agreement and any extension of this Agreement.

         (3) By submitting a Proposal in response to the RFP, CONTRACTOR
         affirmed that it has neither given, nor intends to give, at any time
         hereafter, any economic opportunity, future employment, gift, loan,
         gratuity, special discount, trip, favor, or service to a public servant
         or any employee or representative of same, at any time during the
         procurement process or in connection with the procurement process
         except as allowed under relevant state and federal law.

         (4) In addition, it is the responsibility of CONTRACTOR to request, in
         writing, a determination by HHSC when there is a question as to whether
         a conflict exists. HHSC reserves the right to make a final
         determination regarding conflict of interest with respect to
         CONTRACTOR's relationship with other parties whether individual or
         corporate, public or private, and CONTRACTOR agrees to abide by HHSC's
         decision.

         (5) A violation of the disclosure requirements applicable to this
         Agreement may constitute grounds for the immediate termination of this
         Agreement. Furthermore, such violation may be submitted to the Office
         of the Attorney General, Texas Ethics Commission, or appropriate State
         or Federal law enforcement officials for further action.

     SECTION 21.04 CERTIFICATION REGARDING GOOD FAITH EFFORT.

     HHSC is committed to making a good faith effort to assist Historically
Underutilized Businesses (HUBs) through the contract award process in a manner
consistent with rules prescribed by the General Services Commission (GSC) at 1
T.A.C. 111.11 et seq. The GSC has established a goal of a minimum 18.1 percent
(18.1%) HUB participation in non-professional services contracts, either through
direct contracting or through prime or general contractors' subcontracting
efforts. HHSC is required to establish that CONTRACTOR has complied with this
good faith effort. CONTRACTOR has completed or shall complete required
documentation of good faith effort on forms and in the manner prescribed by
HHSC. CONTRACTOR shall comply with continuing reporting requirements imposed by
HHSC or GSC.

     SECTION 21.05 CHILD SUPPORT CERTIFICATION.

     In accordance with Section 231.006, Family Code, CONTRACTOR certifies the
following:

         "Under Section 231.006, Family Code, the vendor or applicant certifies
         that the individual or business entity named in this Agreement, bid, or
         application is not ineligible to receive the specified grant, loan, or
         payment, and acknowledges that this Agreement may be terminated and
         payment withheld if this certification is inaccurate."

     SECTION 21.06 TEXAS CORPORATE FRANCHISE TAX CERTIFICATION.

     CONTRACTOR has certified that it is not delinquent in payments or
obligations due or owing for state franchise taxes by executing the form
entitled "Texas Corporate Franchise Tax Certification" contained in its
Proposal.


                                 Page 74 of 78
<PAGE>
     SECTION 21.07 CERTIFICATION REGARDING STATUS OF LICENSE, CERTIFICATE, OR
                   PERMIT.

     Article IX, Section 163 of the General Appropriations Act for the 1998/1999
state fiscal biennium prohibits an agency which receives an appropriation under
either Article II or V of the General Appropriations Act from awarding a
Agreement with the owner, operator, or administrator of a facility which has had
a license, certificate, or permit revoked by another Article II or V agency.
CONTRACTOR certifies it is not ineligible for an award under this provision.

     SECTION 21.08 OUTSTANDING DEBTS AND JUDGMENTS.

     CONTRACTOR certifies that it is not presently indebted to the State of
Texas, and that CONTRACTOR is not subject to an outstanding judgment in a suit
by the State of Texas against CONTRACTOR for collection of the balance. For
purposes of this section, an indebtedness is any amount sum of money that is due
and owing to the State of Texas and is not currently under dispute. A false
statement regarding CONTRACTOR's status will be treated as a material breach of
this Agreement and may be grounds for termination at the option of HHSC.

     SECTION 21.09 UNAUTHORIZED ACTS.

     Each Party agrees to:

     (1) Notify the other Party promptly of any unauthorized possession, use, or
knowledge, or attempt thereof, of any Confidential Information by any person or
entity that may become known to it;

     (2) Promptly furnish to the other Party full details of the unauthorized
possession, use, or knowledge, or attempt thereof, and use reasonable efforts to
assist the other Party in investigating or preventing the reoccurrence of any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information;

     (3) Cooperate with the other Party in any litigation and investigation
against third Parties deemed necessary by such Party to protect its proprietary
rights; and

     (4) Promptly prevent a reoccurrence of any such unauthorized possession,
use, or knowledge of Confidential Information.

     SECTION 21.10  LEGAL ACTION.

     Neither party may commence any legal action or proceeding in respect to any
unauthorized possession, use, or knowledge, or attempt thereof, of Confidential
Information by any person or entity which action or proceeding identifies the
other Party or its Confidential Information without such Party's consent.


                   ARTICLE 22. REPRESENTATIONS AND WARRANTIES.

EXCEPT AS SPECIFIED IN THIS ARTICLE AND ARTICLE 2, CONTRACTOR MAKES NO
WARRANTIES AND DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE IN
RESPECT TO THE SERVICES OR DELIVERABLES.


                                 Page 75 of 78
<PAGE>

     SECTION 22.01 AUTHORIZATION.

     (a) CONTRACTOR is a corporation duly incorporated, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.

     (b) The execution, delivery and performance of this Agreement has been duly
authorized by CONTRACTOR and no approval, authorization or consent of any
governmental or regulatory agency is required to be obtained in order for
CONTRACTOR to enter into this Agreement and perform its obligations under this
Agreement.

     (c) CONTRACTOR is duly authorized to conduct business in and is in good
standing in each jurisdiction in which CONTRACTOR will conduct business in
connection with this Agreement.

     (d) CONTRACTOR has obtained all licenses, certifications, permits, and
authorizations necessary to perform the Services under this Agreement and
currently is in good standing with all regulatory agencies that regulate any or
all aspects of CONTRACTOR's performance of the Services. CONTRACTOR will
maintain all required certifications, licenses, permits, and authorizations
during the term of this Agreement.

     SECTION 22.02 ABILITY TO PERFORM.

     CONTRACTOR has the financial resources necessary to perform the functions
under this Agreement without advances from the State.

     CONTRACTOR represents that each non-provider subcontractor providing
services under this Agreement under a contract with a value greater than
$100,000 has the financial resources to carry out its duties under this
Agreement.

     SECTION 22.03 WORKMANSHIP AND PERFORMANCE.

     (a) All Services and Deliverables provided under this Agreement will be
provided in a manner consistent with the standards of quality and integrity as
outlined in this Agreement, the RFP, and CONTRACTOR's Proposal.

     (b) All Services and Deliverables must meet or exceed the levels of
performance specified in or pursuant to this Agreement.

     (c) CONTRACTOR will perform the Services in a workmanlike manner, in
accordance with best practices and high professional standards.

     SECTION 22.04 COMPLIANCE WITH LAWS.

     CONTRACTOR will comply with all applicable local, state and Federal laws
and regulations in providing the Services and must have and maintain all
applicable permits, rights and licenses to perform the Services.

     SECTION 22.05 COMPLIANCE WITH AGREEMENT.

     CONTRACTOR will not take any action substantially or materially
inconsistent with any of the terms and conditions set forth in this Agreement
without the express written approval of HHSC.


                                 Page 76 of 78
<PAGE>

     SECTION 22.06 CONTINGENT FEE ARRANGEMENTS.

     CONTRACTOR warrants that no person or agency, other than a bona fide
regular employee or bona fide commercial agency has been employed or retained to
solicit or obtain this Agreement upon a contract or understanding for a
contingent fee.

     SECTION 22.07 PROSELYTIZING.

     CONTRACTOR and HHSC mutually agree that neither party will intentionally
solicit or recruit any employee of the State of Texas who is assigned to provide
assistance or services to the CHIP program in connection with this Agreement to
become an employee or agent of CONTRACTOR, and vice versa, during the term of
this Agreement and for one-year following the termination of this Agreement.

     SECTION 22.08 YEAR 2000 PERFORMANCE WARRANTY

     (a) Terms of Warranty

     CONTRACTOR warrants that all Software records, stores, processes, and
presents calendar dates falling on or after January 1, 2000 at no added cost to
HHSC. CONTRACTOR must take all appropriate measures to ensure that the Software
used by CONTRACTOR in connection with CHIP will not lose, alter, or destroy
records containing dates falling on or after January 1, 2000. CONTRACTOR must
ensure that all Software will interface and operate with HHSC's data systems
that exchange data, including, but not limited to, historical and archived data.
CONTRACTOR warrants that the year 2000 leap year calculations will be
accommodated and will not result in software, hardware, or firmware failures.

     (b) Duration of warranty.

         (1) The duration of this warranty and the remedies available to HHSC or
         CONTRACTOR for breach of this warranty shall be as defined in, and
         subject to, the terms and conditions of CONTRACTOR's standard
         commercial warranty or warranties contained in this Agreement.

         (2) Despite any provision to the contrary in CONTRACTOR's standard
         commercial warranty or warranties, the remedies available to HHSC or
         CONTRACTOR under the warranty made under this section must include
         repair or replacement of any supplied product whose non-compliance is
         discovered and made known to CONTRACTOR in writing within ninety (90)
         days from the date that CONTRACTOR receives notice of the
         non-compliance

     (c) No limitation of rights or remedies.

     Nothing in the warranty made under this section will be considered to limit
any rights or remedies HHSC or CONTRACTOR may otherwise have under this
Agreement with respect to defects other than Year 2000 performance.


                                 Page 77 of 78
<PAGE>

IN WITNESS HEREOF, HHSC AND CONTRACTOR HAVE EACH CAUSED THIS AGREEMENT TO BE
SIGNED AND DELIVERED BY ITS DULY AUTHORIZED REPRESENTATIVE.


    TEXAS UNIVERSITIES HEALTH                     TEXAS HEALTH AND HUMAN
            PLAN, INC.                              SERVICES COMMISSION




---------------------------------           ------------------------------------
JOHN R. HACKWORTH, M.D.                     DON A. GILBERT
PRESIDENT AND CEO                           COMMISSIONER


                                 Page 78 of 78

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.28
<SEQUENCE>10
<FILENAME>c74739exv10w28.txt
<DESCRIPTION>CONTRACT DATED OCTOBER 1, 2000
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.28

                                    CONTRACT

                                    BETWEEN

                              STATE OF NEW JERSEY

                          DEPARTMENT OF HUMAN SERVICES

               DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES

                                      AND

                   University Health Plans, Inc., CONTRACTOR
<PAGE>
                              STATE OF NEW JERSEY
                          DEPARTMENT OF HUMAN SERVICES
               DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES
                                      AND
                         UNIVERSITY HEALTH PLANS, INC.
                          CONTRACT TO PROVIDE SERVICES

     This risk comprehensive contract is entered into this _______ day of
_________, and is effective on the 1st day of October between the Department of
Human Services, which is in the executive branch of state government, the state
agency designated to administer the Medicaid program under Title XIX of the
Social Security Act, 42 U.S.C. 1396 et seq. pursuant to the New Jersey Medical
Assistance Act, N.J.S.A. 30:4D-1 et seq. and the State Child Health Insurance
Program under Title XXI of the Social Security Act, 42 U.S.C. 1397aa et seq.,
pursuant to the Children's Health Care Coverage Act, PL 1997, c.272 (also known
as "NJ KidCare"), pursuant to Family Care Health Coverage Act, P.L. 2000, c.71
(also known as "NJ FamilyCare") whose principal office is located at CN 712, in
the City of Trenton, New Jersey hereinafter referred to as the "Department" and
University Health Plans, Inc., a federally qualified/ state defined health
maintenance organization (HMO) which is a New Jersey, profit/non-profit
corporation, certified to operate as an HMO by the State of New Jersey
Department of Banking and Insurance and the State of New Jersey Department of
Health and Senior Services, and whose principal corporate office is located at
550 Broad Street, in the City of Newark, County of Essex, New Jersey,
hereinafter referred to as the "contractor".

WHEREAS, the contractor is engaged in the business of providing prepaid,
capitated comprehensive health care services pursuant to N.J.S.A. 26:2J-1 et
seq.; and

WHEREAS, the Department, as the state agency designated to administer a program
of medical assistance for eligible persons under Title XIX of the Social
Security Act (42 U.S.C. Sec. 1396, et seq., also known as "Medicaid"), for
eligible persons under the Family Care Health Coverage Act (P.L. 2000, c.71) and
for children under Title XXI of the Social Security Act (42 U.S.C. Sec. 1397aa,
et seq., also known as "State Child Health Insurance Program"), is authorized
pursuant to the federal regulations at 42 C.F.R. 434 to provide such a program
through an HMO and is desirous of obtaining the contractor's services for the
benefit of persons eligible for Medicaid/NJ FamilyCare; and

WHEREAS, the Division of Medical Assistance and Health Services (DMAHS), is the
Division within the Department designated to administer the medical assistance
program, and the Department's functions as regards all Medicaid/NJ FamilyCare
program benefits provided through the contractor for Medicaid/NJ FamilyCare
eligibles enrolled in the contractor's plan.
<PAGE>
NOW THEREFORE, in consideration of the contracts and mutual covenants herein
contained, the Parties hereto agree as follows:

PREAMBLE

Governing Statutory and Regulatory Provisions: This contract and all renewals
and modifications are subject to the following laws and all amendments thereof:
Title XIX and Title XXI of the Social Security Act, 42 U.S.C. 1396 et. seq., 42
U.S.C. 1397aa et seq., the New Jersey Medical Assistance Act and the Medicaid,
and NJ KidCare and NJ FamilyCare State Plans approved by HCFA (N.J.S.A. 30:4D-1
et seq.; 30:4I-1 et seq.; 30:4J-1 et seq.); federal and state Medicaid and State
Child Health Insurance, and NJ FamilyCare regulations, other applicable federal
and state statutes, and all applicable local laws and ordinances.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this contract and Appendices
to be executed this 27th day of September, 2000. This contract and
Appendices are hereby accepted and considered binding in accordance with the
terms outlined in the preceding statements.

             CONTRACTOR                   STATE OF NEW JERSEY
             ADDRESS                      DEPARTMENT OF HUMAN SERVICES
                                          DIRECTOR, DIVISION MEDICAL ASSISTANCE
                                          AND HEALTH SERVICES

BY: /s/ Alexander H. McLean           BY: /s/ Margaret A. Murray


TITLE: President & CEO             TITLE: Director, DMAHS


DATE: 9/27/00                       DATE:______________________


                              Approved As to Form

                            ______________________
                            Deputy Attorney General

                            Date: _________________
<PAGE>
TABLE OF CONTENTS

ARTICLE ONE: DEFINITIONS

ARTICLE TWO: CONDITIONS PRECEDENT

ARTICLE THREE: MANAGED CARE MANAGEMENT INFORMATION SYSTEM

<TABLE>
<CAPTION>
<S>      <C>                                                                         <C>
3.1      GENERAL OPERATIONAL REQUIREMENTS FOR THE MCMIS.........................     III-1
         3.1.1    ONLINE ACCESS.................................................     III-1
         3.1.2    PROCESSING REQUIREMENTS.......................................     III-1
         3.1.3    REPORTING AND DOCUMENTATION REQUIREMENTS .....................     III-3
         3.1.4    OTHER REQUIREMENTS............................................     III-3
3.2      ENROLLEE SERVICES......................................................     III-4
         3.2.1    CONTRACTOR ENROLLMENT DATA....................................     III-4
         3.2.2    ENROLLEE PROCESSING REQUIREMENTS .............................     III-5
         3.2.3    CONTRACTOR ENROLLMENT VERIFICATION ...........................     III-6
         3.2.4    ENROLLEE COMPLAINT AND GRIEVANCE TRACKING SYSTEM .............     III-6
         3.2.5    ENROLLEE REPORTING............................................     III-7
3.3      PROVIDER SERVICES......................................................     III-7
         3.3.1    PROVIDER INFORMATION AND PROCESSING REQUIREMENTS .............     III-7
         3.3.2    PROVIDER CREDENTIALING........................................     III-8
         3.3.3    PROVIDER/ENROLLEE LINKAGE.....................................     III-8
         3.3.4    PROVIDER MONITORING ..........................................     III-8
         3.3.5    REPORTING REQUIREMENTS........................................     III-9
3.4      CLAIMS/ENCOUNTER PROCESSING ...........................................     III-9
         3.4.1    GENERAL REQUIREMENTS..........................................     III-9
         3.4.2    COORDINATION OF BENEFITS......................................     III-10
         3.4.3    REPORTING REQUIREMENTS........................................     III-11
3.5      PRIOR AUTHORIZATION, REFERRAL AND UTILIZATION MANAGEMENT...............     III-11
         3.5.1    FUNCTIONS AND CAPABILITIES ...................................     II-12
         3.5.2    REPORTING REQUIREMENTS........................................     III-12
3.6      FINANCIAL PROCESSING ..................................................     III-12
         3.6.1    FUNCTIONS AND CAPABILITIES ...................................     II-13
         3.6.2    REPORTING PRODUCTS............................................     III-14
3.7      QUALITY ASSURANCE......................................................     III-14
         3.7.1    FUNCTIONS AND CAPABILITIES ...................................     II-14
         3.7.2    REPORTING PRODUCTS............................................     III-16
3.8      MANAGEMENT AND ADMINISTRATIVE REPORTING................................     III-16
         3.8.1    GENERAL REQUIREMENTS..........................................     III-16
         3.8.2    QUERY CAPABILITIES............................................     III-17
         3.8.3    REPORTING CAPABILITIES........................................     III-17
3.9      ENCOUNTER DATA REPORTING...............................................     III-17
         3.9.1    REQUIRED ENCOUNTER DATA ELEMENTS..............................     III-18
</TABLE>

                                                                               i
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
         3.9.2    SUBMISSION OF TEST ENCOUNTER DATA.............................     III-18
         3.9.3    SUBMISSION OF PRODUCTION ENCOUNTER DATA.......................     III-19
         3.9.4    REMITTANCE ADVICE ............................................     III-20
         3.9.5    SUBCONTRACTS AND ENCOUNTER DATA REPORTING FUNCTION............     III-20
         3.9.6    FUTURE ELECTRONIC ENCOUNTER SUBMISSION REQUIREMENTS...........     III-20
</TABLE>

ARTICLE FOUR: PROVISION OF HEALTH CARE SERVICES

<TABLE>
<S>      <C>                                                                         <C>
4.1      COVERED SERVICES.......................................................     IV-1
         4.1.1    GENERAL PROVISIONS AND CONTRACTOR RESPONSIBILITIES............     IV-1
         4.1.2    BENEFIT PACKAGE...............................................     V-3
         4.1.3    SERVICES REMAINING IN FEE-FOR-SERVICE PROGRAM AND MAY
                  NECESSITATE CONTRACTOR ASSISTANCE TO THE ENROLLEE TO ACCESS
                  THE SERVICES..................................................     IV-6
         4.1.4    MEDICAID COVERED SERVICES NOT PROVIDED BY CONTRACTOR..........     IV-8
         4.1.5    INSTITUTIONAL FEE-FOR-SERVICE BENEFITS -- NO
                  COORDINATION BY THE CONTRACTOR................................     IV-9
         4.1.6    BENEFIT PACKAGE FOR NJ FAMILYCARE PLAN D .....................     IV-9
         4.1.7    SUPPLEMENTAL BENEFITS ........................................     IV-13
         4.1.8    CONTRACTOR AND DMAHS SERVICE EXCLUSIONS ......................     IV-13
4.2      SPECIAL PROGRAM REQUIREMENTS...........................................     IV-15
         4.2.1    EMERGENCY SERVICES... ........................................     IV-15
         4.2.2    FAMILY PLANNING SERVICES AND SUPPLIES ........................     IV-19
         4.2.3    OBSTETRICAL SERVICES REQUIREMENTS/ISSUES......................     IV-20
         4.2.4    PRESCRIBED DRUGS AND PHARMACY SERVICES........................     IV-20
         4.2.5    LABORATORY SERVICES ..........................................     IV-23
         4.2.6    EPSDT SCREENING SERVICES .....................................     IV-23
         4.2.7    IMMUNIZATIONS.................................................     IV-32
         4.2.8    CLINICAL TRIALS...............................................     IV-32
         4.2.9    HEALTH PROMOTION AND EDUCATION PROGRAMS ......................     IV-34
4.3      COORDINATION WITH ESSENTIAL COMMUNITY PROVIDERS .......................     IV-35
         4.3.1    GENERAL ......................................................     IV-35
         4.3.2    HEAD START PROGRAMS...........................................     IV-35
         4.3.3    SCHOOL-BASED YOUTH SERVICES PROGRAMS..........................     IV-36
         4.3.4    LOCAL HEALTH DEPARTMENTS......................................     IV-38
         4.3.5    WIC PROGRAM REQUIREMENTS/ISSUES ..............................     IV-38
         4.3.6    COMMUNITY LINKAGES ...........................................     IV-38
4.4      COORDINATION WITH MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES ..........     IV-39
4.5      ENROLLEES WITH SPECIAL NEEDS ..........................................     IV-41
         4.5.1    INTRODUCTION..................................................     IV-41
         4.5.2    GENERAL REQUIREMENTS..........................................     IV-42
</TABLE>

                                                                              ii
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
         4.5.3    PROVIDER NETWORK REQUIREMENTS ................................     IV-47
         4.5.4    CARE MANAGEMENT AND COORDINATION OF CARE FOR PERSONS WITH
                  SPECIAL NEEDS ................................................     IV-48
         4.5.5    CHILDREN WITH SPECIAL HEALTH CARE NEEDS.......................     IV-50
         4.5.6    CLIENTS OF THE DIVISION OF DEVELOPMENTAL DISABILITIES.........     IV-52
         4.5.7    PERSONS WITH HIV/AIDS.........................................     IV-53
4.6      QUALITY MANAGEMENT SYSTEM..............................................     IV-54
         4.6.1    QUALITY ASSESSMENT AND PERFORMANCE IMPROVEMENT PLAN ..........     IV-54
         4.6.2    QAPI ACTIVITIES...............................................     IV-56
         4.6.3    REFERRAL SYSTEMS..............................................     IV-67
         4.6.4    UTILIZATION MANAGEMENT .......................................     IV-69
         4.6.5    CARE MANAGEMENT ..............................................     IV-75
4.7      MONITORING AND EVALUATION..............................................     IV-78
         4.7.1    GENERAL PROVISIONS............................................     IV-78
         4.7.2    EVALUATION AND REPORTING - CONTRACTOR RESPONSIBILITIES .......     IV-80
         4.7.3    MONITORING AND EVALUATION - DEPARTMENT ACTIVITIES ............     IV-82
         4.7.4    INDEPENDENT EXTERNAL REVIEW ORGANIZATION REVIEWS..............     IV-83
4.8      PROVIDER NETWORK ......................................................     IV-84
         4.8.1    GENERAL PROVISIONS............................................     IV-84
         4.8.2    PRIMARY CARE PROVIDER REQUIREMENTS ...........................     IV-86
         4.8.3    PROVIDER NETWORK FILE REQUIREMENTS............................     IV-88
         4.8.4    PROVIDER DIRECTORY REQUIREMENTS ..............................     IV-88
         4.8.5    CREDENTIALING/RECREDENTIALING REQUIREMENTS/ISSUES.............     IV-89
         4.8.6    LABORATORY SERVICE PROVIDERS..................................     IV-89
         4.8.7    SPECIALTY PROVIDERS AND CENTERS ..............................     IV-91
         4.8.8    PROVIDER NETWORK REQUIREMENTS ................................     IV-92
         4.8.9    DENTAL PROVIDER NETWORK REQUIREMENTS .........................     IV-102
         4.8.10   GOOD FAITH NEGOTIATIONS ......................................     IV-103
         4.8.11   PROVIDER NETWORK ANALYSIS ....................................     IV-103
4.9      PROVIDER CONTRACTS AND SUBCONTRACTS....................................     IV-103
         4.9.1    GENERAL PROVISIONS............................................     IV-103
         4.9.2    CONTRACT SUBMISSION ..........................................     IV-105
         4.9.3    PROVIDER CONTRACT AND SUBCONTRACT TERMINATION.................     IV-107
         4.9.4    PROHIBITION OF INTERFERENCE WITH CERTAIN MEDICAL
                  COMMUNICATIONS ...............................................     IV-108
         4.9.5    ANTIDISCRIMINATION ...........................................     IV-109
4.10     EXPERT WITNESS REQUIREMENTS AND COURT OBLIGATIONS.....................     IV-109
4.11     ADDITIONS, DELETIONS, AND/OR CHANGES .................................     IV-110
</TABLE>

ARTICLE FIVE: ENROLLEE SERVICES

<TABLE>
<S>      <C>                                                                         <C>
5.1      GEOGRAPHIC REGIONS.....................................................     V-1
</TABLE>

                                                                             iii
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
5.2      AID CATEGORIES ELIGIBLE FOR CONTRACTOR ENROLLMENT......................     V-2
5.3      EXCLUSIONS AND EXEMPTIONS .............................................     V-2
         5.3.1    ENROLLMENT EXCLUSIONS ........................................     V-3
         5.3.2    ENROLLMENT EXEMPTIONS.........................................     V-4
5.4      ENROLLMENT OF MANAGED CARE ELIGIBLES ..................................     V-5
5.5      ENROLLMENT AND COVERAGE REQUIREMENTS ..................................     V-6
5.6      VERIFICATION OF ENROLLMENT.............................................     V-10
5.7      MEMBER SERVICES UNIT ..................................................     V-10
5.8      ENROLLEE EDUCATION AND INFORMATION.....................................     V-11
         5.8.1    GENERAL REQUIREMENTS..........................................     V-11
         5.8.2    ENROLLEE NOTIFICATION/HANDBOOK................................     V-12
         5.8.3    ANNUAL INFORMATION TO ENROLLEES ..............................     V-18
         5.8.4    NOTIFICATION OF CHANGES IN SERVICES ..........................     V-18
         5.8.5    ID CARD.......................................................     V-18
         5.8.6    ORIENTATION AND WELCOME LETTER ...............................     V-19
5.9      PCP SELECTION AND ASSIGNMENT ..........................................     V-19
         5.9.1    INITIAL SELECTION/ASSIGNMENT .................................     V-20
         5.9.2    PCP CHANGES...................................................     V-20
5.10     DISENROLLMENT FROM CONTRACTOR'S PLAN...................................     V-22
         5.10.1   GENERAL PROVISIONS............................................     V-22
         5.10.2   DISENROLLMENT FROM THE CONTRACTOR'S PLAN AT THE ENROLLEE'S
                  REQUEST.......................................................     V-23
         5.10.3   DISENROLLMENT FROM THE CONTRACTOR'S PLAN AT THE CONTRACTOR'S
                  REQUEST ......................................................     V-24
         5.10.4   TERMINATION ..................................................     V-26
5.11     TELEPHONE ACCESS ......................................................     V-27
5.12     APPOINTMENT AVAILABILITY ..............................................     V-28
5.13     APPOINTMENT MONITORING PROCEDURES......................................     V-30
5.14     CULTURAL AND LINGUISTIC NEEDS .........................................     V-31
5.15     ENROLLEE COMPLAINTS AND GRIEVANCES ....................................     V-34
         5.15.1   GENERAL REQUIREMENTS..........................................     V-34
         5.15.2   NOTIFICATION TO ENROLLEES OF GRIEVANCE PROCEDURE..............     V-35
         5.15.3   GRIEVANCE PROCEDURES..........................................     V-36
         5.15.4   PROCESSING GRIEVANCES ........................................     V-37
         5.15.5   RECORDS MAINTENANCE ..........................................     V-38
5.16     MARKETING .............................................................     V-39
         5.16.1   GENERAL PROVISIONS - CONTRACTOR'S RESPONSIBILITIES............     V-39
         5.16.2   STANDARDS FOR MARKETING REPRESENTATIVES.......................     V-43
</TABLE>

ARTICLE SIX: PROVIDER INFORMATION

<TABLE>
<S>      <C>                                                                         <C>
6.1      GENERAL................................................................     VI-1
6.2      PROVIDER PUBLICATIONS .................................................     VI-1
6.3      PROVIDER EDUCATION AND TRAINING........................................     VI-3
</TABLE>

                                                                              iv
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
6.4      PROVIDER TELEPHONE ACCESS..............................................     VI-3
6.5      PROVIDER GRIEVANCES AND APPEALS .......................................     VI-4
</TABLE>

ARTICLE SEVEN: TERMS AND CONDITIONS (ENTIRE CONTRACT)

<TABLE>
<S>      <C>                                                                         <C>
7.1      CONTRACT COMPONENTS ...................................................     VII-1
7.2      GENERAL PROVISIONS ....................................................     VII-1
7.3      STAFFING...............................................................     VII-4
7.4      RELATIONSHIPS WITH DEBARRED OR SUSPENDED PERSONS PROHIBITED ...........     VII-5
7.5      CONTRACTING OFFICER AND CONTRACTOR'S REPRESENTATIVE....................     VII-7
7.6      AUTHORITY OF THE STATE.................................................     VII-8
7.7      EQUAL OPPORTUNITY EMPLOYER.............................................     VII-8
7.8      NONDISCRIMINATION REQUIREMENTS.........................................     VII-8
7.9      INSPECTION RIGHTS .....................................................     VII-10
7.10     NOTICES/CONTRACT COMMUNICATION.........................................     VII-11
7.11     TERM...................................................................     VII-11
         7.11.1   CONTRACT DURATION AND EFFECTIVE DATE .........................     VII-11
         7.11.2   AMENDMENT, EXTENSION, AND MODIFICATION........................     VII-11
7.12     TERMINATION ...........................................................     VII-13
7.13     CLOSEOUT REQUIREMENTS..................................................     VII-15
7.14     MERGER/ACQUISITION REQUIREMENTS........................................     VII-19
7.15     SANCTIONS..............................................................     VII-22
7.16     LIQUIDATED DAMAGES PROVISIONS..........................................     VII-24
         7.16.1   GENERAL PROVISIONS............................................     VII-24
         7.16.2   MANAGED CARE OPERATIONS, TERMS AND CONDITIONS,
                  AND PAYMENT PROVISIONS........................................     VII-25
         7.16.3   TIMELY REPORTING REQUIREMENTS.................................     VII-26
         7.16.4   ACCURATE REPORTING REQUIREMENTS ..............................     VII-26
         7.16.5   TIMELY PAYMENTS TO MEDICAL PROVIDERS..........................     VII-27
         7.16.6   CONDITIONS FOR TERMINATION OF LIQUIDATED DAMAGES .............     VII-28
         7.16.7   EPSDT PERFORMANCE STANDARDS ..................................     VII-28
         7.16.8   DEPARTMENT OF HEALTH AND HUMAN SERVICES CIVIL MONEY PENALTIES.     VII-31
         7.16.8.1 FEDERAL STATUTES..............................................     VII-31
         7.16.8.2 FEDERAL PENALTIES.............................................     VII-31
7.17     STATE SANCTIONS .......................................................     VII-32
7.18     APPEAL PROCESS.........................................................     VII-33
7.19     ASSIGNMENTS............................................................     VII-33
</TABLE>

                                                                               v
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
7.20     CONTRACTOR CERTIFICATIONS .............................................     VII-33
         7.20.1   GENERAL PROVISIONS ...........................................     VII-33
         7.20.2   CERTIFICATION SUBMISSIONS ....................................     VII-34
         7.20.3   ENVIRONMENTAL COMPLIANCE......................................     VII-34
         7.20.4   ENERGY CONSERVATION...........................................     VII-34
         7.20.5   INDEPENDENT CAPACITY OF CONTRACTOR ...........................     VII-34
         7.20.6   NO THIRD PARTY BENEFICIARIES..................................     VII-34
         7.20.7   PROHIBITION ON USE OF FEDERAL FUNDS FOR LOBBYING .............     VII-34
7.21     REQUIRED CERTIFICATE OF AUTHORITY .....................................     VII-35
7.22     SUBCONTRACTS...........................................................     VII-35
7.23     SET-OFF FOR STATE TAXES AND CHILD SUPPORT..............................     VII-36
7.24     CLAIMS ................................................................     VII-36
7.25     MEDICARE RISK CONTRACTOR...............................................     VII-36
7.26     TRACKING AND REPORTING.................................................     VII-36
7.27     FINANCIAL STATEMENTS...................................................     VII-38
         7.27.1   AUDITED FINANCIAL STATEMENTS (GAAP BASIS) ....................     VII-38
         7.27.2   FINANCIAL STATEMENTS (SAP)....................................     VII-39
7.28     FEDERAL APPROVAL AND FUNDING ..........................................     VII-39
7.29     CONFLICT OF INTEREST...................................................     VII-39
7.30     RECORDS RETENTION .....................................................     VII-40
7.31     WAIVERS................................................................     VII-41
7.32     CHANGE BY THE CONTRACTOR ..............................................     VII-41
7.33     INDEMNIFICATION........................................................     VII-41
7.34     INVENTIONS.............................................................     VII-43
7.35     USE OF CONCEPTS........................................................     VII-43
7.36     PREVAILING WAGE .......................................................     VII-43
7.37     DISCLOSURE STATEMENT...................................................     VII-44
7.38     FRAUD AND ABUSE........................................................     VII-45
         7.38.1   ENROLLEES ....................................................     VII-45
         7.38.2   PROVIDERS.....................................................     VII-46
         7.38.3   NOTIFICATION TO DMAHS ........................................     VII-48
7.39     EQUALITY OF ACCESS AND TREATMENT/DUE PROCESS...........................     VII-48
7.40     CONFIDENTIALITY........................................................     VII-48
7.41     SEVERABILITY...........................................................     VII-49
7.42     CONTRACTING OFFICER AND CONTRACTOR'S REPRESENTATIVE...VII-50
</TABLE>

ARTICLE EIGHT: FINANCIAL PROVISIONS

<TABLE>
<S>      <C>                                                                         <C>
8.1      GENERAL INFORMATION ...................................................     VIII-1
8.2      FINANCIAL REQUIREMENTS ................................................     VIII-1
         8.2.1    COMPLIANCE WITH CERTAIN CONDITIONS ...........................     VIII-1
         8.2.2    SOLVENCY REQUIREMENTS.........................................     VIII-1
         8.2.3    GENERAL PROVISIONS AND CONTRACTOR COMPLIANCE .................     VIII-2
8.3      INSURANCE REQUIREMENTS ................................................     VIII-3
         8.3.1    INSURANCE CANCELLATION AND/OR CHANGES ........................     VIII-3
</TABLE>

                                                                              vi
<PAGE>
<TABLE>
<S>      <C>                                                                         <C>
         8.3.2    STOP-LOSS INSURANCE ..........................................     VIII-3
8.4      MEDICAL COST RATIO.....................................................     VIII-4
         8.4.1    MEDICAL COST RATIO STANDARD...................................     VIII-4
         8.4.2    EXEMPTIONS....................................................     VIII-5
         8.4.3    DAMAGES ......................................................     VIII-5
8.5      REGIONS, PREMIUM GROUPS, AND SPECIAL PAYMENT PROVISIONS................     VIII-6
         8.5.1    REGIONS.......................................................     VIII-6
         8.5.2    AFDC/TANF AND NJ FAMILYCARE, PLAN A CHILDREN..................     VIII-6
         8.5.3    NJ FAMILYCARE PLAN A PARENTS/CARETAKERS ......................     VIII-7
         8.5.4    NJ FAMILYCARE PLAN A ADULTS WITHOUT DEPENDENT
                  CHILDREN UNDER 19 YEARS OF AGE................................     VIII-7
         8.5.5    NJ FAMILYCARE PLANS B & C.....................................     VIII-7
         8.5.6    NJ FAMILYCARE PLAN D CHILDREN ................................     VIII-7
         8.5.7    NJ FAMILYCARE PLAN D PARENTS/CARETAKERS ......................     VIII-8
         8.5.8    NJ FAMILYCARE PLAN D ADULTS WITHOUT DEPENDENT
                  CHILDREN UNDER 19 YEARS OF AGE................................     VIII-8
         8.5.9    PREMIUM GROUPS FOR DYFS AND AGING OUT FOSTER CHILDREN.........     VIII-8
         8.5.10   ABDWITHOUT MEDICARE...........................................     VIII-8
         8.5.11   ABD WITH MEDICARE.............................................     VIII-9
         8.5.12   CLIENTS OF DDD................................................     VIII-9
         8.5.13   PREMIUM GROUPS FOR ENROLLEES WITH AIDS .......................     VIII-9
         8.5.14   SUPPLEMENTAL PAYMENT PER PREGNANCY OUTCOME....................     VIII-10
         8.5.15   PAYMENT FOR CERTAIN BLOOD CLOTTING FACTORS ...................     VIII-10
         8.5.16   PAYMENT FOR HIV/AIDS DRUGS....................................     VIII-10
         8.5.17   EPSDT INCENTIVE PAYMENT ......................................     VIII-11
         8.5.18   ADMINISTRATIVE COSTS..........................................     VIII-11
8.6      HEALTH BASED PAYMENT SYSTEM (HBPS) FOR THE ABD WITHOUT MEDICARE
         POPULATION.............................................................     VIII-11
8.7      THIRD PARTY LIABILITY..................................................     VIII-14
8.8      COMPENSATION/CAPITATION CONTRACTUAL REQUIREMENTS.......................     VIII-19
8.9      CONTRACTOR ADVANCED PAYMENTS AND PIPS TO PROVIDERS ....................     VIII-21
8.10     FEDERALLY QUALIFIED HEALTH CENTERS.....................................     VIII-23
</TABLE>

                                                                             vii
<PAGE>
ARTICLE ONE: DEFINITIONS

         The following terms shall have the meaning stated, 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/NJ FamilyCare program, or in reimbursement for
         services that are not medically necessary or that fail to meet
         professionally recognized standards for health care. It also includes
         enrollee practices that result in unnecessary cost to the Medicaid/NJ
         FamilyCare program. (See 42 C.F.R. Section 455.2)

         ADDP--AIDS Drug Distribution Program, a Department of Health and Senior
         Servicessponsored program which provides life-sustaining and
         life-prolonging medications to persons who are HIV positive or who are
         living with AIDS and meet certain residency and income criteria for
         program participation.

         ADJUDICATE--the point in the claims processing at which a final
         decision is reached to pay or deny a claim.

         ADMINISTRATIVE SERVICE(S)--the contractual obligations of the
         contractor that include but may not be limited to utilization
         management, credentialing providers, network management, quality
         improvement, marketing, enrollment, member services, claims payment,
         management information systems, financial management, and reporting.

         ADVERSE EFFECT--medically necessary medical care has not been provided
         and the failure to provide such necessary medical care has presented an
         imminent danger to the health, safety, or well-being of the patient or
         has placed the patient unnecessarily in a high-risk situation.

         ADVERSE SELECTION--the enrollment with a contractor of a
         disproportionate number of persons with high health care costs.

         AFDC OR AFDC/TANF--Aid to Families with Dependent Children, established
         by 42 U.S.C. Section 601 et seq., and N.J.S.A. 44:10-1 et seq., as a
         joint federal/State cash assistance program administered by counties
         under State supervision. For cash assistance, it is now called "TANF."
         For Medicaid, the former AFDC rules still apply.

         AFDC-RELATED--see "SPECIAL MEDICAID PROGRAMS" and "TANF"

         AID CODES--the two-digit number which indicates the aid category under
         which a person is eligible to receive Medicaid and NJ FamilyCare.

         AMELIORATE--to improve, maintain, or stabilize a health outcome, or to
         prevent or mitigate an adverse change in health outcome.

                                                                             I-1
<PAGE>
         ANTICIPATORY GUIDANCE--the education provided to parents or authorized
         individuals during routine prenatal or pediatric visits to prevent or
         reduce the risk to their fetuses or children developing a particular
         health problem.

         ASSIGNMENT--the process by which a Medicaid enrollee in a New Jersey
         Care 2000+ contractor receives a Primary Care Provider (PCP).

         AT-RISK--any service for which the provider agrees to accept
         responsibility to provide or arrange for in exchange for the capitation
         payment.

         AUTHORIZED PERSON--in general means a person authorized to make medical
         determinations for an enrollee, including, but not limited to,
         enrollment and disenrollment decisions and choice of a PCP.

         For individuals who are eligible through the Division of Youth and
         Family Services (DYFS), the authorized person is authorized to make
         medical determinations, including but not limited to enrollment,
         disenrollment and choice of a PCP, on behalf of or in conjunction with
         individuals eligible through DYFS. These persons may include a foster
         home parent, an authorized health care professional employee of a group
         home, an authorized health care professional employee of a residential
         center or facility, a DYFS employee, a pre-adoptive or adoptive parent
         receiving subsidy from DYFS, a natural or biological parent, or a legal
         caretaker.

         For individuals who are eligible through the Division of Developmental
         Disabilities (DD), the authorized person may be one of the following:

                  A.       The enrollee, if he or she is an adult and has the
                           capacity to make medical decisions;

                  B.       The parent or guardian of the enrollee, if the
                           enrollee is a minor, or the individual or agency
                           having legal guardianship if the enrollee is an adult
                           who lacks the capacity to make medical decisions;

                  C.       The Bureau of Guardianship Services (BGS); or

                  D.       A person or agency who has been duly designated by a
                           power of attorney for medical decisions made on
                           behalf of an enrollee.

         Throughout the contract, information regarding enrollee rights and
         responsibilities can be taken to include authorized persons, whether
         stated as such or not.

         AUTOMATIC ASSIGNMENT--the enrollment of an eligible person, for whom
         enrollment is mandatory, in a managed care plan chosen by the New
         Jersey Department of Human Services pursuant to the provisions of
         Article 5.4 of this contract.

                                                                             I-2
<PAGE>
         BASIC SERVICE AREA--the geographic area in which the contractor is
         obligated to provide covered services for its Medicaid/NJ FamilyCare
         enrollees under this contract.

         BENEFICIARY--any person eligible to receive services in the New Jersey
         Medicaid/NJ FamilyCare program.

         BENEFITS PACKAGE--the health care services set forth in this contract,
         for which the contractor has agreed to provide, arrange, and be held
         fiscally responsible.

         BILINGUAL--see "MULTILINGUAL"

         BONUS--a payment the contractor makes to a physician or physician group
         beyond any salary, fee-for-service payments, capitation, or returned
         withholding amount.

         CAPITATED SERVICE--any covered service for which the contractor
         receives capitation payment.

         CAPITATION--a contractual agreement through which a contractor agrees
         to provide specified health care services to enrollees for a fixed
         amount per month.

         CAPITATION PAYMENTS--the amount prepaid monthly by DMAHS to the
         contractor in exchange for the delivery of covered services to
         enrollees based on a fixed Capitation Rate per enrollee,
         notwithstanding (a) the actual number of enrollees who receive services
         from the contractor, or (b) the amount of services provided to any
         enrollee.

         CAPITATION RATE--the fixed monthly amount that the contractor is
         prepaid by the Department for each enrollee for which the contractor
         provides the services included in the Benefits Package described in
         this contract.

         CARE MANAGEMENT--a set of enrollee-centered, goal-oriented, culturally
         relevant, and logical steps to assure that an enrollee receives needed
         services in a supportive, effective, efficient, timely, and
         cost-effective manner. Care management emphasizes prevention,
         continuity of care, and coordination of care, which advocates for, and
         links enrollees to, services as necessary across providers and
         settings. Care management functions include 1) early identification of
         enrollees who have or may have special needs, 2) assessment of an
         enrollees risk factors, 3) development of a plan of care, 4) referrals
         and assistance to ensure timely access to providers, 5) coordination of
         care actively linking the enrollee to providers, medical services,
         residential, social, and other support services where needed, 6)
         monitoring, 7) continuity of care, and 8) follow-up and documentation.

         CERTIFICATE OF AUTHORITY--a license granted by the New Jersey
         Department of Banking and Insurance and the New Jersey Department of
         Health and Senior Services to operate an HMO in compliance with
         N.J.S.A. 26:2J-1 et. seq.

                                                                             I-3
<PAGE>
         CHILDREN'S HEALTH CARE COVERAGE PROGRAM--means the program established
         by the "Children's Health Care Coverage Act", P.L. 1997, c.272 as a
         health insurance program for targeted, low-income children.

         CHILDREN WITH SPECIAL HEALTH CARE NEEDS--those children who have or are
         at increased risk for chronic physical, developmental, behavioral, or
         emotional conditions and who also require health and related services
         of a type and amount beyond that required by children generally.

         CHRONIC ILLNESS--a disease or condition of long duration (repeated
         inpatient hospitalizations, out of work or school at least three months
         within a twelve-month period, or the necessity for continuous health
         care on an ongoing basis), sometimes involving very slow progression
         and long continuance. Onset is often gradual and the process may
         include periods of acute exacerbation alternating with periods of
         remission.

         CLINICAL PEER--a physician or other health care professional who holds
         a non-restricted license in New Jersey and is in the same or similar
         specialty as typically manages the medical condition, procedure, or
         treatment under review.

         CNM OR CERTIFIED NURSE MIDWIFE--a registered professional nurse who is
         legally authorized under State law to practice as a nurse-midwife, and
         has completed a program of study and clinical experience for
         nurse-midwives or equivalent.

         CNP OR CERTIFIED NURSE PRACTITIONER--a registered professional nurse
         who is licensed by the New Jersey Board of Nursing and meets the
         advanced educational and clinical practice requirements beyond the two
         to four years of basic nursing education required of all registered
         nurses.

         CNS OR CLINICAL NURSE SPECIALIST--a person licensed to practice as a
         registered professional nurse who is licensed by the New Jersey State
         Board of Nursing or similarly licensed and certified by a comparable
         agency of the state in which he/she practices.

         COLD CALL MARKETING--any unsolicited personal contact with a potential
         enrollee by an employee or agent of the contractor for the purpose of
         influencing the individual to enroll with the contractor. Marketing by
         an employee of the contractor is considered direct; marketing by an
         agent is considered indirect.

         COMMISSIONER--the Commissioner of the New Jersey Department of Human
         Services or a duly authorized representative.

         COMPLAINT--a protest by an enrollee as to the conduct by the contractor
         or any agent of the contractor, or an act or failure to act by the
         contractor or any agent of the contractor, or any other matter in which
         an enrollee feels aggrieved by the contractor, that is communicated to
         the contractor and that could be resolved by the contractor within the
         same day/24 hours of receipt.

                                                                             I-4
<PAGE>
         CONDITION--a disease, illness, injury, disorder, or biological or
         psychological condition or status for which treatment is indicated.

         CONTESTED CLAIM--a claim that is denied because the claim is an
         ineligible claim, the claim submission is incomplete, the coding or
         other required information to be submitted is incorrect, the amount
         claimed is in dispute, or the claim requires special treatment.

         CONTINUITY OF CARE--the plan of care for a particular enrollee that
         should assure progress without unreasonable interruption.

         CONTRACT--the written agreement between the State and the contractor,
         and comprises the contract, any addenda, appendices, attachments, or
         amendments thereto.

         CONTRACTING OFFICER--the individual empowered to act and respond for
         the State throughout the life of any contract entered into with the
         State.

         CONTRACTOR--the Health Maintenance Organization with a valid
         Certificate of Authority in New Jersey that contracts hereunder with
         the State for the provision of comprehensive health care services to
         enrollees on a prepaid, capitated basis.

         CONTRACTOR'S PLAN--all services and responsibilities undertaken by the
         contractor pursuant to this contract.

         CONTRACTOR'S REPRESENTATIVE--the individual legally empowered to bind
         the contractor, using his/her signature block, including his/her title.
         This individual will be considered the Contractor's Representative
         during the life of any contract entered into with the State unless
         amended in writing pursuant to Article 7.

         COPAYMENT--the part of the cost-sharing requirement for NJ FamilyCare
         Plan D enrollees in which a fixed monetary amount is paid for certain
         services/items received from the contractor's providers.

         COST AVOIDANCE--a method of paying claims in which the provider is not
         reimbursed until the provider has demonstrated that all available
         health insurance has been exhausted.

         COVERED SERVICES--see "BENEFITS PACKAGE"

         CREDENTIALING--the contractor's determination as to the qualifications
         and ascribed privileges of a specific provider to render specific
         health care services.

         CULTURAL COMPETENCY--a set of interpersonal skills that allow
         individuals to increase their understanding, appreciation, acceptance
         of and respect for cultural differences and similarities within, among
         and between groups and the sensitivity to how these differences
         influence relationships with enrollees. This requires a willingness and
         ability to draw on community-based values, traditions and customs, to
         devise strategies to better

                                                                             I-5
<PAGE>
         meet culturally diverse enrollee needs, and to work with knowledgeable
         persons of and from the community in developing focused interactions,
         communications, and other supports.

         CWA OR COUNTY WELFARE AGENCY ALSO KNOWN AS COUNTY BOARD OF SOCIAL
         SERVICES--the agency within the county government that makes
         determination of eligibility for Medicaid and financial assistance
         programs.

         DAYS--calendar days unless otherwise specified.

         DBI--the New Jersey Department of Banking and Insurance in the
         executive branch of New Jersey State government.

         DEFAULT--see "AUTOMATIC ASSIGNMENT"

         DELIVERABLE--a document/report/manual to be submitted to the Department
         by the contractor pursuant to this contract.

         DENTAL DIRECTOR--the contractor's Director of dental services, who is
         required to be a Doctor of Dental Science or a Doctor of Medical
         Dentistry and licensed by the New Jersey Board of Dentistry, designated
         by the contractor to exercise general supervision over the provision of
         dental services by the contractor.

         DEPARTMENT--the Department of Human Services (DHS) in the executive
         branch of New Jersey State government. The Department of Human Services
         includes the Division of Medical Assistance and Health Services (DMAHS)
         and the terms are used interchangeably. The Department also includes
         Division of Youth and Family Services (DYFS), the Division of Family
         Development (DFD), the Division of Mental Health Services (DMHS), and
         the Division of Developmental Disabilities (DDD).

         DEVELOPMENTAL DISABILITY--a severe, chronic disability of a person
         which is attributable to a mental or physical impairment or combination
         of mental and physical impairments; is manifested before the person
         attains age twenty-two (22); is likely to continue indefinitely;
         results in substantial functional limitations in three or more of the
         following areas of major life activity: self-care, receptive and
         expressive language, learning, mobility, self-direction, capacity for
         independent living and economic self-sufficiency; and reflects the
         person's need for a combination and sequence of special,
         interdisciplinary, or generic care, treatment, or other services which
         are lifelong or of extended duration and are individually planned and
         coordinated. Developmental disability includes but is not limited to
         severe disabilities attributable to mental retardation, autism,
         cerebral palsy, epilepsy, spina bifida and other neurological
         impairments where the above criteria are met.

         DFD--the Division of Family Development, within the New Jersey
         Department of Human Services that administers programs of financial and
         administrative support for certain qualified individuals and families.

                                                                             I-6
<PAGE>
         DIAGNOSTIC SERVICES--any medical procedures or supplies recommended by
         a physician or other licensed practitioner of the healing arts, within
         the scope of his or her practice under State law, to enable him or her
         to identify the existence, nature, or extent of illness, injury, or
         other health deviation in an enrollee.

         DIRECTOR--the Director of the Division of Medical Assistance and Health
         Services or a duly authorized representative.

         DISABILITY--a physical or mental impairment that substantially limits
         one or more of the major life activities for more than three months a
         year.

         DISABILITY IN ADULTS--for adults applying under New Jersey Care Special
         Medicaid Programs and Title II (Social Security Disability Insurance
         Program) and for adults applying under Title XVI (the Supplemental
         Security Income [SSI] program), disability is defined as the inability
         to engage in any substantial gainful activity by reason of any
         medically determinable physical or mental impairment(s) which can be
         expected to result in death or which has lasted or can be expected to
         last for a continuous period of not less than 12 months.

         DISABILITY IN CHILDREN--a child under age 18 is considered disabled if
         he or she has a medically determinable physical or mental impairment(s)
         which results in marked and severe functional limitations that limit
         the child's ability to function independently, appropriately, and
         effectively in an age-appropriate manner, and can be expected to result
         in death or which can be expected to last for 12 months or longer.

         DISENROLLMENT--the removal of an enrollee from participation in the
         contractor's plan, but not from the Medicaid program.

         DIVISION OF DEVELOPMENTAL DISABILITIES (DDD)--a Division within the New
         Jersey Department of Human Services that provides evaluation,
         functional and guardianship services to eligible persons. Services
         include residential services, family support, contracted day programs,
         work opportunities, social supervision, guardianship, and referral
         services.

         DIVISION OR DMAHS--the New Jersey Division of Medical Assistance and
         Health Services within the Department of Human Services which
         administers the contract on behalf of the Department.

         DHHS OR HHS--United States Department of Health and Human Services of
         the executive branch of the federal government, which administers the
         Medicaid program through the Health Care Financing Administration
         (HCFA).

         DHSS--the New Jersey Department of Health and Senior Services in the
         executive branch of New Jersey State government, one of the regulatory
         agencies of the managed care industry. Its role and functions are
         delineated throughout the contract.

                                                                             I-7
<PAGE>
         DURABLE MEDICAL EQUIPMENT (DME)--equipment, including assistive
         technology, which: a) can withstand repeated use; b) is used to service
         a health or functional purpose; c) is ordered by a qualified
         practitioner to address an illness, injury or disability; and d) is
         appropriate for use in the home or work place/school.

         DYFS--the Division of Youth and Family Services, within the New Jersey
         Department of Human Services, whose responsibility is to ensure the
         safety of children and to provide social services to children and their
         families. DYFS enrolls into Medicaid financially eligible children
         under its supervision who reside in DYFS-supported substitute living
         arrangements such as foster care and certain subsidized adoption
         placements.

         DYFS RESIDENTIAL FACILITIES--include Residential Facilities, Teaching
         Family Homes, Juvenile Family In-Crisis Shelters, Children's Shelters,
         Transitional Living Homes, Treatment Homes Programs, Alternative Home
         Care Program, and Group Homes.

         EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT (EPSDT)--a Title
         XIX mandated program that covers screening and diagnostic services to
         determine physical and mental defects in enrollees under the age of 21,
         and health care, treatment, and other measures to correct or ameliorate
         any defects and chronic conditions discovered, pursuant to Federal
         Regulations found in Title XIX of the Social Security Act.

         EFFECTIVE DATE OF CONTRACT--shall be October 1, 2000.

         EFFECTIVE DATE OF DISENROLLMENT--the last day of the month in which the
         enrollee may receive services under the contractor's plan.

         EFFECTIVE DATE OF ENROLLMENT--the date on which an enrollee can begin
         to receive services under the contractor's plan pursuant to Article
         Five of this contract.

         ELDERLY PERSON--a person who is 65 years of age or older.

         EMERGENCY MEDICAL CONDITION--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
         medicine and health, could reasonably expect the absence of immediate
         medical attention to result in placing the health of the individual
         (or, with respect to a pregnant woman, the health of the woman or her
         unborn child) in serious jeopardy; serious impairment to bodily
         functions; or serious dysfunction of any bodily organ or part.

         EMERGENCY SERVICES--covered inpatient and outpatient services furnished
         by any qualified provider that are necessary to evaluate or stabilize
         an emergency medical condition.

                                                                             I-8
<PAGE>
         ENCOUNTER--the basic unit of service used in accumulating utilization
         data and/or a face-to-face contact between a patient and a health care
         provider resulting in a service to the patient.

         ENCOUNTER DATA--the record of the number and types of services rendered
         to patients during a specific time period and defined in Article 3.9 of
         this contract.

         ENROLLEE--an individual who is eligible for Medicaid/NJ FamilyCare,
         residing within the defined enrollment area, who elects or has had
         elected on his or her behalf by an authorized person, in writing, to
         participate in the contractor's plan and who meets specific Medicaid/NJ
         FamilyCare eligibility requirements for plan enrollment agreed to by
         the Department and the contractor. Enrollees include individuals in the
         AFDC/TANF, AFDC/TANF-Related Pregnant Women and Children, SSI-Aged,
         Blind and Disabled, DYFS, NJ FamilyCare, and Division of Developmental
         Disabilities/Community Care Waiver (DDD/CCW) populations. See also
         "Authorized Person."

         ENROLLEE WITH SPECIAL NEEDS--for adults, special needs includes
         complex/chronic medical conditions requiring specialized health care
         services, including persons with physical, mental/substance abuse,
         and/or developmental disabilities, including such persons who are
         homeless. Children with special health care needs are those who have or
         are at increased risk for a chronic physical, developmental,
         behavioral, or emotional conditions and who also require health and
         related services of a type or amount beyond that required by children
         generally.

         ENROLLMENT--the process by which an individual eligible for Medicaid
         voluntarily or mandatorily applies to utilize the contractor's plan in
         lieu of standard Medicaid benefits, and such application is approved by
         DMAHS.

         ENROLLMENT AREA--the geographic area bound by county lines from which
         Medicaid/NJ FamilyCare eligible residents may enroll with the
         contractor unless otherwise specified in the contract.

         ENROLLMENT LOCK-IN PERIOD--the period between the first day of the
         fourth (4th) month and the end of twelve (12) months after the
         effective date of enrollment in the contractor's plan, during which the
         enrollee must have good cause to disenroll or transfer from the
         contractor's plan. This is not to be construed as a guarantee of
         eligibility during the lock-in period. Lock-in provisions will not
         apply to clients of DDD or SSI, New Jersey Care Special Medicaid
         Program - Aged, Blind, Disabled, and DYFS enrollees.

         ENROLLMENT PERIOD--the twelve (12) month period commencing on the
         effective date of enrollment.

         EPSDT--see "EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT"

                                                                             I-9
<PAGE>
         EQUITABLE ACCESS--the concept that enrollees are given equal
         opportunity and consideration for needed services without exclusionary
         practices of providers or system design because of gender, age, race,
         ethnicity, sexual orientation, health status, or disability.

         EXCLUDED SERVICES--those services covered under the fee-for-service
         Medicaid program that are not included in the contractor benefits
         package.

         EXTERNAL REVIEW ORGANIZATION (ERO)--an outside independent accredited
         review organization under contract with the Department for the purposes
         of conducting annual contractor operation assessments and quality of
         care reviews for contractors.

         FAIR HEARING--the appeal process available to all Medicaid Eligibles
         pursuant to N.J.S.A. 30:4D-7 and administered pursuant to N.J.A.C.
         10:49-10.1 et seq.

         FEDERAL FINANCIAL PARTICIPATION--the funding contribution that the
         federal government makes to the New Jersey Medicaid and NJ FamilyCare
         programs.

         FEDERALLY QUALIFIED HEALTH CENTER (FQHC)--an entity that provides
         outpatient health programs pursuant to 42 U.S.C. Section 201 et seq.

         FEDERALLY QUALIFIED HMO--an HMO that has been found by the Secretary of
         the federal Department of Health and Human Services to provide "basic"
         and "supplemental" health services to its enrollees in accordance with
         the Health Maintenance Organization Act of 1973, as amended (Title XIII
         of the Public Health Service Act, 42 U.S.C. Section 300e), and to meet
         the other requirements of that Act relating to fiscal assurance
         mechanisms, continuing education for staff, and membership
         representation on the HMO's board of directors.

         FEE-FOR-SERVICE OR FFS--a method for reimbursement based on payment for
         specific services rendered to an enrollee.

         FRAUD--an intentional deception or misrepresentation made by a person
         with the knowledge that the deception could result in some unauthorized
         benefit to him/herself or some other person. It includes any act that
         constitutes fraud under applicable federal or State law. (See 42 C.F.R.
         Section 455.2)

         FULL TIME EQUIVALENT--the number of personnel with the same job title
         and responsibilities who, in the aggregate, perform work equivalent to
         a singular individual working a 40-hour work week.

         GA--means General Assistance, established by N.J.S.A. 10:90-1 et seq.,
         as a State cash assistance program administered by counties and
         municipalities under State supervision.

         GAAP--Generally Accepted Accounting Principles.

                                                                            I-10
<PAGE>
         GOOD CAUSE--reasons for disenrollment or transfer that include failure
         of the contractor to provide services including physical access to the
         enrollee in accordance with contract terms, enrollee has filed a
         grievance and has not received a response within the specified time
         period or enrollee has filed a grievance and has not received
         satisfaction. See Article 5.10.2 for more detail.

         GOVERNING BODY--a managed care organization's Board of Directors or,
         where the Board's participation with quality improvement issues is not
         direct, a designated committee of the senior management of the managed
         care organization.

         GRIEVANCE--means any complaint that is submitted in writing, or that is
         orally communicated and could not be resolved within the same day of
         receipt.

         GROUP MODEL--a type of HMO operation similar to a group practice except
         that the group model must meet the following criteria: (a) the group is
         a separate legal entity, (i.e. administrative entity) apart from the
         HMO; (b) the group is usually a corporation or partnership; (c) members
         of the group must pool their income; (d) members of the group must
         share medical equipment, as well as technical and administrative staff;
         (e) members of the group must devote at least 50 percent of their time
         to the group; and (f) members of the group must have "substantial
         responsibility" for delivery of health services to HMO members, within
         four years of qualification. After that period, the group may request
         additional time or a waiver in accordance with federal regulations at
         42 C.F.R. Section 110.104(2), Subpart A.

         HCFA--the Health Care Financing Administration within the U.S.
         Department of Health and Human Services.

         HEALTH BENEFITS COORDINATOR (HBC)--the external organization under
         contract with the Department whose primary responsibility is to assist
         Medicaid eligible individuals in contractor selection and enrollment.

         HEALTH CARE PROFESSIONAL--a physician or other health care professional
         if coverage for the professional's services is provided under the
         contractor's contract for the services. It includes podiatrists,
         optometrists, chiropractors, psychologists, dentists, physician
         assistants, physical or occupational therapists and therapy assistants,
         speech-language pathologists, audiologists, registered or licensed
         practical nurses (including nurse practitioners, clinical nurse
         specialists, certified registered nurses, registered nurse
         anesthetists, and certified nurse midwives), licensed certified social
         workers, registered respiratory therapists, and certified respiratory
         therapy technicians.

         HEALTH CARE SERVICES--are all preventive and therapeutic medical,
         dental, surgical, ancillary (medical and non-medical) and supplemental
         benefits provided to enrollees to diagnose, treat, and maintain the
         optimal well-being of enrollees provided by physicians, other health
         care professionals, institutional, and ancillary service providers.

                                                                            I-11
<PAGE>
         HEALTH INSURANCE--private insurance available through an individual or
         group plan that covers health services. It is also referred to as Third
         Party Liability.

         HEALTH MAINTENANCE ORGANIZATION (HMO)--any entity which contracts with
         providers and furnishes at least basic comprehensive health care
         services on a prepaid basis to enrollees in a designated geographic
         area pursuant to N.J.S.A. 26:2J-1 et seq., and with regard to this
         contract is either:

                  A.       A Federally Qualified HMO; or

                  B.       Meets the State Plan's definition of an HMO which
                           includes, at a minimum, the following requirements:

                           1.       It is organized primarily for the purpose of
                                    providing health care services;

                           2.       It makes the services it provides to its
                                    Medicaid enrollees as accessible to them (in
                                    terms of timeliness, amount, duration, and
                                    scope) as the services are to non-enrolled
                                    Medicaid eligible individuals within the
                                    area served by the HMO;

                           3.       It makes provision, satisfactory to the
                                    Division and Departments of Banking and
                                    Insurance and Health and Senior Services,
                                    against the risk of insolvency, and assures
                                    that Medicaid enrollees will not be liable
                                    for any of the HMO's debts if it does become
                                    insolvent; and

                           4.       It has a Certificate of Authority granted by
                                    the State of New Jersey to operate in all or
                                    selected counties in New Jersey.

         HEDIS--Health Plan Employer Data and Information Set.

         INDICATORS--the objective and measurable means, based on current
         knowledge and clinical experience, used to monitor and evaluate each
         important aspect of care and service identified.

         INDIVIDUAL HEALTH CARE PLAN (IHCP)--a multi-disciplinary plan of care
         for enrollees with special needs who qualify for a higher level of care
         management based on a Complex Needs Assessment. IHCPs specify short-
         and long-term goals, identify needed medical services and relevant
         social/support services, specialized transportation and communication,
         appropriate outcomes, and barriers to effective outcomes, and
         timelines. The IHCP is implemented and monitored by the care manager.

         INQUIRY--means a request for information by an enrollee, or a verbal
         request by an enrollee for action by the contractor that is so clearly
         contrary to the Medicaid Managed Care Program or the contractor's
         operating procedures that it may be construed as a factual
         misunderstanding, provided that the issue can be immediately explained
         and resolved by the contractor. Inquiries need not be treated or
         reported as complaints or grievances.

                                                                            I-12
<PAGE>
         INSOLVENT--unable to meet or discharge financial liabilities pursuant
         to N.J.S.A. 17B:32- 33.

         INSTITUTIONALIZED--residing in a nursing facility, psychiatric
         hospital, or intermediate care facility/mental retardation (ICF/MR);
         this does not include admission in an acute care or rehabilitation
         hospital setting.

         IPN OR INDEPENDENT PRACTITIONER NETWORK--one type of HMO operation
         where member services are normally provided in the individual offices
         of the contracting physicians.

         LIMITED-ENGLISH-PROFICIENT POPULATIONS--individuals with a primary
         language other than English who must communicate in that language if
         the individual is to have an equal opportunity to participate
         effectively in and benefit from any aid, service or benefit provided by
         the health provider.

         MAINTENANCE SERVICES--include physical services provided to allow
         people to maintain their current level of functioning. Does not include
         habilitative and rehabilitative services.

         MANAGED CARE--a comprehensive approach to the provision of health care
         which combines clinical preventive, restorative, and emergency services
         and administrative procedures within an integrated, coordinated system
         to provide timely access to primary care and other medically necessary
         health care services in a cost effective manner.

         MANAGED CARE ENTITY--a managed care organization described in Section
         1903(m)(1)(A) of the Social Security Act, including Health Maintenance
         Organizations (HMOs), organizations with Section 1876 or
         Medicare+Choice contracts, provider sponsored organizations, or any
         other public or private organization meeting the requirements of
         Section 1902(w) of the Social Security Act, which has a risk
         comprehensive contract and meets the other requirements of that
         Section.

         MANDATORY--the requirement that certain DMAHS beneficiaries, delineated
         in Article 5, must select, or be assigned to a contractor in order to
         receive Medicaid services.

         MANDATORY ENROLLMENT--the process whereby an individual eligible for
         Medicaid/NJ FamilyCare is required to enroll in a contractor, unless
         otherwise exempted or excluded, to receive the services described in
         the standard benefits package as approved by the Department of Human
         Services through necessary federal waivers.

         MARKETING--any activity by the contractor, its employees or agents, or
         on behalf of the contractor by any person, firm or corporation by which
         information about the contractor's plan is made known to Medicaid or NJ
         FamilyCare Eligible Persons for enrollment purposes.

         MAXIMUM PATIENT CAPACITY--the estimated maximum number of active
         patients that could be assigned to a specific provider within mandated
         access-related requirements.

                                                                            I-13
<PAGE>
         MCMIS--managed care management information system, an automated
         information system designed and maintained to integrate information
         across the enterprise. The State recommends that the system include,
         but not necessarily be limited to, the following functions:

                  -    Enrollee Services

                  -    Provider Services

                  -    Claims and Encounter Processing

                  -    Prior Authorization, Referral and Utilization Management

                  -    Financial Processing

                  -    Quality Assurance

                  -    Management and Administrative Reporting

                  -    Encounter Data Reporting to the State

         MEDICAID--the joint federal/State program of medical assistance
         established by Title XIX of the Social Security Act, 42 U.S.C. Section
         1396 et seq., which in New Jersey is administered by DMAHS in DHS
         pursuant to N.J.S.A. 30:4D-1 et seq.

         MEDICAID ELIGIBLE--an individual eligible to receive services under the
         New Jersey Medicaid program.

         MEDICAID EXPANSION--means the expansion of the New Jersey
         Care...Special Medicaid Programs, incorporates NJ FamilyCare Plan A,
         that will extend coverage to uninsured children below the age of 19
         years with family incomes up to and including 133 percent of the
         federal poverty level. (See NJ FamilyCare Plan A)

         MEDICAID RECIPIENT OR MEDICAID BENEFICIARY--an individual eligible for
         Medicaid who has applied for and been granted Medicaid benefits by
         DMAHS, generally through a CWA or Social Security District Office.

         MEDICAL COMMUNICATION--any communication made by a health care provider
         with a patient of the health care provider (or, where applicable, an
         authorized person) with respect to:

                  A.       The patient's health status, medical care, or
                           treatment options;

                  B.       Any utilization review requirements that may affect
                           treatment options for the patient; or

                  C.       Any financial incentives that may affect the
                           treatment of the patient.

         The term "medical communication" does not include a communication by a
         health care provider with a patient of the health care provider (or,
         where applicable, an authorized person) if the communication involves a
         knowing or willful misrepresentation by such provider.

                                                                            I-14
<PAGE>
         MEDICAL DIRECTOR--the licensed physician, in the State of New Jersey,
         i.e. Medical Doctor (MD) or Doctor of Osteopathy (DO), designated by
         the contractor to exercise general supervision over the provision of
         health service benefits by the contractor.

         MEDICAL GROUP--a partnership, association, corporation, or other group
         which is chiefly composed of health professionals licensed to practice
         medicine or osteopathy, and other licensed health professionals who are
         necessary for the provision of health services for whom the group is
         responsible.

         MEDICALLY DETERMINABLE IMPAIRMENT--an impairment that results from
         anatomical, physiological, or psychological abnormalities which can be
         shown by medically acceptable clinical and laboratory diagnostic
         techniques. A physical or mental impairment must be established by
         medical evidences consisting of signs, symptoms, and laboratory
         findings -- not only the individual's statement of symptoms.

         MEDICAL RECORDS--the complete, comprehensive records, accessible at the
         site of the enrollee's participating primary care physician or
         provider, that document all medical services received by the enrollee,
         including inpatient, ambulatory, ancillary, and emergency care,
         prepared in accordance with all applicable DHS rules and regulations,
         and signed by the medical professional rendering the services.

         MEDICAL SCREENING--an examination 1) provided on hospital property, and
         provided for that patient for whom it is requested or required, and 2)
         performed within the capabilities of the hospital's emergency room (ER)
         (including ancillary services routinely available to its ER), and 3)
         the purpose of which is to determine if the patient has an emergency
         medical condition, and 4) performed by a physician (M.D. or D.O.)
         and/or by a nurse practitioner, or physician assistant as permitted by
         State statutes and regulations and hospital bylaws.

         MEDICALLY NECESSARY SERVICES--services or supplies necessary to
         prevent, diagnose, correct, prevent the worsening of, alleviate,
         ameliorate, or cure a physical or mental illness or condition; to
         maintain health; to prevent the onset of an illness, condition, or
         disability; to prevent or treat a condition that endangers life or
         causes suffering or pain or results in illness or infirmity; to prevent
         the deterioration of a condition; to promote the development or
         maintenance of maximal functioning capacity in performing daily
         activities, taking into account both the functional capacity of the
         individual and those functional capacities that are appropriate for
         individuals of the same age; to prevent or treat a condition that
         threatens to cause or aggravate a handicap or cause physical deformity
         or malfunction, and there is no other equally effective, more
         conservative or substantially less costly course of treatment available
         or suitable for the enrollee. The services provided, as well as the
         type of provider and setting, must be reflective of the level of
         services that can be safely provided, must be consistent with the
         diagnosis of the condition and appropriate to the specific medical
         needs of the enrollee and not solely for the convenience of the
         enrollee or provider of service and in accordance with standards of
         good medical practice and generally recognized by the medical
         scientific community as

                                                                            I-15
<PAGE>
         effective. Course of treatment may include mere observation or, where
         appropriate, no treatment at all. Experimental services or services
         generally regarded by the medical profession as unacceptable treatment
         are not medically necessary for purposes of this contract.

         Medically necessary services provided must be based on peer-reviewed
         publications, expert pediatric, psychiatric, and medical opinion, and
         medical/pediatric community acceptance.

         In the case of pediatric enrollees, this definition shall apply with
         the additional criteria that the services, including those found to be
         needed by a child as a result of a comprehensive screening visit or an
         inter-periodic encounter whether or not they are ordinarily covered
         services for all other Medicaid enrollees, are appropriate for the age
         and health status of the individual and that the service will aid the
         overall physical and mental growth and development of the individual
         and the service will assist in achieving or maintaining functional
         capacity.

         MEDICALLY NEEDY (MN) PERSON OR FAMILY--a person or family receiving
         services under the Medically Needy Program.

         MEDICARE--the program authorized by Title XVIII of the Social Security
         Act to provide payment for health services to federally defined
         populations.

         MEDICARE+CHOICE ORGANIZATION--an entity that contracts with HCFA to
         offer a Medicare+Choice plan pursuant to 42 U.S.C. Section 1395w-27.

         MEMBER--an enrolled participant in the contractor's plan; also means
         enrollee.

         MINORITY POPULATIONS--Asian/Pacific Islanders, African-American/Black,
         Hispanic/ Latino, and American Indians/Alaska Natives.

         MIS--management information system.

         MULTILINGUAL--at a minimum, English and Spanish and any other language
         which is spoken by 200 enrollees or five percent of the enrolled
         Medicaid population of the contractor's plan, whichever is greater.

         NCQA--the National Committee for Quality Assurance.

         NEWBORN--an infant born to a mother enrolled in a contractor at the
         time of birth.

         NEW JERSEY STATE PLAN OR STATE PLAN--the DHS/DMAHS document, filed with
         and approved by HCFA, that describes the New Jersey Medicaid program.

         N.J.A.C.--New Jersey Administrative Code.

                                                                            I-16
<PAGE>
         NJ FAMILYCARE PLAN A--means the State-operated program which provides
         comprehensive managed care coverage to:

         -    Uninsured children below the age of 19 with family incomes up to
              and including 133 percent of the federal poverty level;

         -    Children under the age of one year and pregnant women eligible
              under the New Jersey Care...Special Medicaid Programs;

         -    Pregnant women up to 200 percent of the federal poverty level;

         -    AFDC eligibles with incomes up to and including 133 percent of the
              federal poverty level;

         -    Parents/caretaker relatives with children below the age of 19
              years who do not qualify for AFDC Medicaid and have family incomes
              up to and including 133 percent of the federal poverty level;

         -    Uninsured single adults/couples without dependent children with
              family incomes up to and including 50 percent of the federal
              poverty level; and

         -    General Assistance eligibles.

         In addition to covered managed care services, eligibles under this
         program may access certain other services which are paid
         fee-for-service and not covered under this contract.

         NJ FAMILYCARE PLAN B--means the State-operated program which provides
         comprehensive managed care coverage, including all benefits provided
         through the New Jersey Care... Special Medicaid Programs, to uninsured
         children below the age of 19 with family incomes above 133 percent and
         up to and including 150 percent of the federal poverty level. In
         addition to covered managed care services, eligibles under this program
         may access certain other services which are paid fee-for-service and
         not covered under this contract.

         NJ FAMILYCARE PLAN C--means the State-operated program which provides
         comprehensive managed care coverage, including all benefits provided
         through the New Jersey Care... Special Medicaid Programs, to uninsured
         children below the age of 19 with family incomes above 150 percent and
         up to and including 200 percent of the federal poverty level. Eligibles
         are required to participate in cost-sharing in the form of monthly
         premiums and a personal contribution to care for most services. In
         addition to covered managed care services, eligibles under this program
         may access certain other services which are paid fee-for-service and
         not covered under this contract.

         NJ FAMILYCARE PLAN D--means the State-operated program which provides
         managed care coverage to uninsured:

         -    Adults and couples without dependent children under the age of 19
              with family incomes above 50% and up to and including 100 percent
              of the federal poverty level;

         -    Adults and couples without dependent children under the age of 23
              years with family incomes up to and including 250% of the federal
              poverty level;

                                                                            I-17
<PAGE>
         -    Parents/caretakers with children below the age of 19 who do not
              qualify for AFDC Medicaid with family incomes up to and including
              200 percent of the federal poverty level;

         -    Parents/caretakers with children below the age of 23 years and
              children from the age of 19 through 22 years who are full time
              students who do not qualify for AFDC Medicaid with family incomes
              up to and including 250% of the federal poverty level; and

         -    Children below the age of 19 with family incomes between 201
              percent and up to and including 350 percent of the federal poverty
              level.

         Eligibles with incomes above 150 percent of the federal poverty level
         are required to participate in cost sharing in the form of monthly
         premiums and copayments for most services. These groups are identified
         by Program Status Codes (PSCs) on the eligibility system as indicated
         below. For clarity, the codes related to Plan D non-cost sharing groups
         are also listed.

<TABLE>
<CAPTION>
Cost Sharing       No Cost Sharing
------------       ---------------
<S>                <C>
    493                 497
    494                 763
    495                 300
    498                 700
    301
    701
</TABLE>

         In addition to covered managed care services, eligibles under these
         programs may access certain services which are paid fee-for-service and
         not covered under this contract.

         N.J.S.A.--New Jersey Statutes Annotated.

         NON-COVERED CONTRACTOR SERVICES--services that are not covered in the
         contractor's benefits package included under the terms of this
         contract.

         NON-COVERED MEDICAID SERVICES--all services that are not covered by the
         New Jersey Medicaid State Plan.

         NON-PARTICIPATING PROVIDER--a provider of service that does not have a
         contract with the contractor.

         OIT--the New Jersey Office of Information Technology.

         OTHER HEALTH COVERAGE--private non-Medicaid individual or group
         health/dental insurance. It may be referred to as Third Party Liability
         (TPL) or includes Medicare.

         OUT OF AREA SERVICES--all services covered under the contractor's
         benefits package included under the terms of the Medicaid contract
         which are provided to enrollees outside the defined basic service area.

                                                                            I-18
<PAGE>
         OUTCOMES--the results of the health care process, involving either the
         enrollee or provider of care, and may be measured at any specified
         point in time. Outcomes can be medical, dental, behavioral, economic,
         or societal in nature.

         OUTPATIENT CARE--treatment provided to an enrollee who is not admitted
         to an inpatient hospital or health care facility.

         P FACTOR (P7)--the grade of service for the telephone system. The digit
         following the P (e.g., 7) indicates the number of calls per hundred
         that are or can be blocked from the system. In this sample, P7 means
         seven (7) calls in a hundred may be blocked, so the system is designed
         to meet this criterion. Typically, the grade of service is designed to
         meet the peak busy hour, the busiest hour of the busiest day of the
         year.

         PARTICIPATING PROVIDER--a provider that has entered into a provider
         contract with the contractor to provide services.

         PARTIES--the DMAHS, on behalf of the DHS, and the contractor.

         PATIENT--an individual who is receiving needed professional services
         that are directed by a licensed practitioner of the healing arts toward
         the maintenance, improvement, or protection of health, or lessening of
         illness, disability, or pain.

         PAYMENTS--any amounts the contractor pays physicians or physician
         groups or subcontractors for services they furnished directly, plus
         amounts paid for administration and amounts paid (in whole or in part)
         based on use and costs of referral services (such as withhold amounts,
         bonuses based on referral levels, and any other compensation to the
         physician or physician groups or subcontractor to influence the use of
         referral services). Bonuses and other compensation that are not based
         on referral levels (such as bonuses based solely on quality of care
         furnished, patient satisfaction, and participation on committees) are
         not considered payments for purposes of the requirements pertaining to
         physician incentive plans.

         PEER REVIEW--a mechanism in quality assurance and utilization review
         where care delivered by a physician, dentist, or nurse is reviewed by a
         panel of practitioners of the same specialty to determine levels of
         appropriateness, effectiveness, quality, and efficiency.

         PERSONAL CONTRIBUTION TO CARE (PCC)--means the portion of the
         cost-sharing requirement for NJ FamilyCare Plan C enrollees in which a
         fixed monetary amount is paid for certain services/items received from
         contractor providers.

         PERSONAL INJURY (PI)--a program designed to recover the cost of medical
         services from an action involving the tort liability of a third party.

                                                                            I-19
<PAGE>
         PHYSICIAN GROUP--a partnership, association, corporation, individual
         practice association, or other group that distributes income from the
         practice among members. An individual practice association is a
         physician group only if it is composed of individual physicians and has
         no subcontracts with physician groups.

         PHYSICIAN INCENTIVE PLAN--any compensation arrangement between a
         contractor and a physician or physician group that may directly or
         indirectly have the effect of reducing or limiting services furnished
         to Medicaid beneficiaries enrolled in the organization.

         POST-STABILIZATION SERVICES--services subsequent to an emergency that a
         treating physician views as medically necessary after an emergency
         medical condition has been stabilized.

         PREPAID HEALTH PLAN--an entity that provides medical services to
         enrollees under a contract with the DHS and on the basis of prepaid
         capitation fees, but does not necessarily qualify as an MCE.

         PREVENTIVE SERVICES--services provided by a physician or other licensed
         practitioner of the healing arts within the scope of his or her
         practice under State law to:

                  A.       Prevent disease, disability, and other health
                           conditions or their progression;

                  B.       Treat potential secondary conditions before they
                           happen or at an early remediable stage;

                  C.       Prolong life; and

                  D.       Promote physical and mental health and efficiency

         PRIMARY CARE DENTIST (PCD)--a licensed dentist who is the health care
         provider responsible for supervising, coordinating, and providing
         initial and primary dental care to patients; for initiating referrals
         for specialty care; and for maintaining the continuity of patient care.

         PRIMARY CARE PROVIDER (PCP)--a licensed medical doctor (MD) or doctor
         of osteopathy (DO) or certain other licensed medical practitioner who,
         within the scope of practice and in accordance with State
         certification/licensure requirements, standards, and practices, is
         responsible for providing all required primary care services to
         enrollees, including periodic examinations, preventive health care and
         counseling, immunizations, diagnosis and treatment of illness or
         injury, coordination of overall medical care, record maintenance, and
         initiation of referrals to specialty providers described in this
         contract and the Benefits Package, and for maintaining continuity of
         patient care. A PCP shall include general/family practitioners,
         pediatricians, internists, and may include specialist physicians,
         physician assistants, CNMs or CNPs/CNSs, provided that the practitioner
         is

                                                                            I-20
<PAGE>
         able and willing to carry out all PCP responsibilities in accordance
         with these contract provisions and licensure requirements.

         PRIOR AUTHORIZATION (ALSO KNOWN AS "PRE-AUTHORIZATION" OR "APPROVAL")--
         authorization granted in advance of the rendering of a service after
         appropriate medical/dental review.

         PROVIDER--means any physician, hospital, facility, or other health care
         professional who is licensed or otherwise authorized to provide health
         care services in the state or jurisdiction in which they are furnished.

         PROVIDER CAPITATION--a set dollar payment per patient per unit of time
         (usually per month) that the contractor pays a provider to cover a
         specified set of services and administrative costs without regard to
         the actual number of services.

         PROVIDER CONTRACT--any written contract between the contractor and a
         provider that requires the provider to perform specific parts of the
         contractor's obligations for the provision of health care services
         under this contract.

         QAPI--Quality Assessment and Performance Improvement.

         QARI--Quality Assurance Reform Initiative.

         QIP--Quality Improvement Project.

         QISMC--Quality Improvement System for Managed Care.

         QUALIFIED INDIVIDUAL WITH A DISABILITY--an individual with a disability
         who, with or without reasonable modifications to rules, policies, or
         practices, the removal of architectural, communication, or
         transportation barriers, or the provision of auxiliary aids and
         services, meets the essential eligibility requirements for the receipt
         of services or the participation in programs or activities provided by
         a public entity (42 U.S.C. Section 12131).

         REASSIGNMENT--the process by which an enrollee's entitlement to receive
         services from a particular Primary Care Practitioner/Dentist is
         terminated and switched to another PCP/PCD.

         REFERRAL SERVICES--those health care services provided by a health
         professional other than the primary care practitioner and which are
         ordered and approved by the primary care practitioner or the
         contractor.

                  Exception A: An enrollee shall not be required to obtain a
                  referral or be otherwise restricted in the choice of the
                  family planning provider from whom the enrollee may receive
                  family planning services.

                                                                            I-21
<PAGE>
                  Exception B: An enrollee may access services at a Federally
                  Qualified Health Center (FQHC) in a specific enrollment area
                  without the need for a referral when neither the contractor
                  nor any other contractor has a contract with the Federally
                  Qualified Health Center in that enrollment area and the cost
                  of such services will be paid by the Medicaid fee-for-service
                  program.

         REINSURANCE--an agreement whereby the reinsurer, for a consideration,
         agrees to indemnify the contractor, or other provider, against all or
         part of the loss which the latter may sustain under the enrollee
         contracts which it has issued.

         RISK OR UNDERWRITING RISK--the possibility that a contractor may incur
         a loss because the cost of providing services may exceed the payments
         made by the Department to the contractor for services covered under the
         contract.

         RISK COMPREHENSIVE CONTRACT--for purposes of this contract, a risk
         contract for furnishing comprehensive health care services, i.e.,
         inpatient hospital services and any three of the following services or
         groups of services:

                  A.       Outpatient hospital services and rural health
                           clinical services;

                  B.       Other laboratory and diagnostic and therapeutic
                           radiologic services;

                  C.       Skilled nursing facility services, EPSDT, and family
                           planning;

                  D.       Physician services; and

                  E.       Home health services.

         RISK THRESHOLD--the maximum liability, if the liability is based on
         referral services, to which a physician or physician group may be
         exposed under a physician incentive plan without being at substantial
         financial risk.

         ROUTINE CARE--treatment of a condition which would have no adverse
         effects if not treated within 24 hours or could be treated in a less
         acute setting (e.g., physician's office) or by the patient.

         SAFETY-NET PROVIDERS OR ESSENTIAL COMMUNITY PROVIDERS--public-funded or
         government-sponsored clinics and health centers which provide
         specialty/specialized services which serve any individual in need of
         health care whether or not covered by health insurance and may include
         medical/dental education institutions, hospital-based programs,
         clinics, and health centers.

         SAP--Statutory Accounting Principles.

         SCOPE OF SERVICES--those specific health care services for which a
         provider has been credentialed, by the plan, to provide to enrollees.

                                                                            I-22
<PAGE>
         SCREENING SERVICES--any encounter with a health professional practicing
         within the scope of his or her profession as well as the use of
         standardized tests given under medical direction in the examination of
         a designated population to detect the existence of one or more
         particular diseases or health deviations or to identify for more
         definitive studies individuals suspected of having certain diseases.

         SECRETARY--the Secretary of the United States Department of Health and
         Human Services.

         SEMI--Special Education Medicaid Initiative, a federal Medicaid program
         that allows for reimbursement to local education agencies for certain
         special education related services (e.g., physical therapy,
         occupational therapy, and speech therapy).

         SERVICE AREA--the geographic area or region comprised of those counties
         as designated in the contract.

         SERVICE LOCATION/SERVICE SITE--any location at which an enrollee
         obtains any health care service provided by the contractor under the
         terms of the contract.

         SHORT TERM--a period of 30 calendar days or less.

         SIGNING DATE--the date on which the parties sign this contract. In no
         event shall the signing date be later than 5 P.M. Eastern Standard Time
         on March 17, 2000.

         SPECIAL MEDICAID PROGRAMS--programs for: (a) AFDC/TANF-related family
         members who do not qualify for cash assistance, and (b) SSI-related
         aged, blind and disabled individuals whose incomes or resources exceed
         the SSI Standard.

                  For AFDC/TANF, they are:

                  Medicaid Special: covers children ages 19 to 21 using AFDC
                  standards; New Jersey Care: covers pregnant women and children
                  up to age 1 with incomes at or below 185 percent of the
                  federal poverty level (FPL); children up to age 6 at 133
                  percent of FPL; and children up to age 13 (the age range
                  increases annually, pursuant to federal law until children up
                  to age 18 are covered) at 100 percent of FPL.

                  For SSI-related, they are:

                  Community Medicaid Only-provides full Medicaid benefits for
                  aged, blind and disabled individuals who meet the SSI age and
                  disability criteria, but do not receive cash assistance,
                  including former SSI recipients who receive Medicaid
                  continuation;

                                                                            I-23
<PAGE>
                  New Jersey Care-provides full Medicaid benefits for all
                  SSI-related Aged, Blind, and Disabled individuals with income
                  below 100 percent of the federal poverty level and resources
                  at or below 200 percent of the SSI resource standard.

         SSI--the Supplemental Security Income program, which provides cash
         assistance and full Medicaid benefits for individuals who meet the
         definition of aged, blind, or disabled, and who meet the SSI financial
         needs criteria.

         STAFF MODEL--a type of HMO operation in which HMO employees are
         responsible for both administrative and medical functions of the plan.
         Health professionals, including physicians, are reimbursed on a salary
         or fee-for-service basis. These employees are subject to all policies
         and procedures of the HMO. In addition, the HMO may contract with
         external entities to supplement its own staff resources (e.g., referral
         services of specialists).

         STANDARD SERVICE PACKAGE--see "COVERED SERVICES" and "BENEFITS PACKAGE"

         STATE--the State of New Jersey.

         STATE PLAN--see "NEW JERSEY STATE PLAN"

         STOP-LOSS--the dollar amount threshold above which the contractor
         insures the financial coverage for the cost of care for an enrollee
         through the use of an insurance underwritten policy.

         SUBCONTRACT--any written contract between the contractor and a third
         party to perform a specified part of the contractor's obligations under
         this contract.

         SUBCONTRACTOR--any third party who has a written contract with the
         contractor to perform a specified part of the contractor's obligations
         under this contract.

         SUBCONTRACTOR PAYMENTS--any amounts the contractor pays a provider or
         subcontractor for services they furnish directly, plus amounts paid for
         administration and amounts paid (in whole or in part) based on use and
         costs of referral services (such as withhold amounts, bonuses based on
         referral levels, and any other compensation to the physician or
         physician group to influence the use of referral services). Bonuses and
         other compensation that are not based on referral levels (such as
         bonuses based solely on quality of care furnished, patient
         satisfaction, and participation on committees) are not considered
         payments for purposes of physician incentive plans.

         SUBSTANTIAL CONTRACTUAL RELATIONSHIP--any contractual relationship that
         provides for one or more of the following services: 1) the
         administration, management, or provision of medical services; and 2)
         the establishment of policies, or the provision of operational support,
         for the administration, management, or provision of medical services.

                                                                            I-24
<PAGE>
         TANF--Temporary Assistance for Needy Families, which replaced the
         federal AFDC program.

         TARGET POPULATION--the population of individuals eligible for
         Medicaid/NJ FamilyCare residing within the stated enrollment area and
         belonging to one of the categories of eligibility found in Article Five
         from which the contractor may enroll, not to exceed any limit specified
         in the contract.

         TDD--Telecommunication Device for the Deaf.

         TT--Tech Telephone.

         TERMINAL ILLNESS--a condition in which it is recognized that there will
         be no recovery, the patient is nearing the "terminus" of life and
         restorative treatment is no longer effective.

         THIRD PARTY--any person, institution, corporation, insurance company,
         public, private or governmental entity who is or may be liable in
         contract, tort, or otherwise by law or equity to pay all or part of the
         medical cost of injury, disease or disability of an applicant for or
         recipient of medical assistance payable under the New Jersey Medical
         Assistance and Health Services Act N.J.S.A. 30:4D-1 et seq.

         THIRD PARTY LIABILITY--the liability of any individual or entity,
         including public or private insurance plans or programs, with a legal
         or contractual responsibility to provide or pay for medical/dental
         services. Third Party is defined in N.J.S.A. 30:4D-3m.

         TRADITIONAL PROVIDERS--those providers who have historically delivered
         medically necessary health care services to Medicaid enrollees and have
         maintained a substantial Medicaid portion in their practices.

         TRANSFER--an enrollee's change from enrollment in one contractor's plan
         to enrollment of said enrollee in a different contractor's plan.

         UNCONTESTED CLAIM--a claim that can be processed without obtaining
         additional information from the provider of the service or third party.

         URGENT CARE--treatment of a condition that is potentially harmful to a
         patient's health and for which his/her physician determined it is
         medically necessary for the patient to receive medical treatment within
         24 hours to prevent deterioration.

         UTILIZATION--the rate patterns of service usage or types of service
         occurring within a specified time.

         UTILIZATION REVIEW--procedures used to monitor or evaluate the clinical
         necessity, appropriateness, efficacy, or efficiency of health care
         services, procedures or settings, and includes ambulatory review,
         prospective review, concurrent review, second opinions, care
         management, discharge planning, or retrospective review.

                                                                            I-25
<PAGE>
         VOLUNTARY ENROLLMENT--the process by which a Medicaid eligible
         individual voluntarily enrolls in a contractor.

         WIC--A special supplemental food program for Women, Infants, and
         Children.

         WITHHOLD--a percentage of payments or set dollar amounts that a
         contractor deducts from a practitioner's service fee, capitation, or
         salary payment, and that may or may not be returned to the physician,
         depending on specific predetermined factors.

                                                                            I-26
<PAGE>
ARTICLE TWO: CONDITIONS PRECEDENT

         A.       This contract shall be with qualified, established HMOs
                  operating in New Jersey through a Certificate of Authority for
                  Medicaid lines of business approved by the New Jersey
                  Department of Banking and Insurance and Department of Health
                  and Senior Services. The contractor shall receive all
                  necessary authorizations and approvals of governmental or
                  regulatory authorities to operate in the service/enrollment
                  areas as of the effective date of operations.

         B.       The contractor shall ensure continuity of care and full access
                  to primary, specialty, and ancillary care as required under
                  this contract and access to full administrative programs and
                  support services offered by the contractor for all its lines
                  of business and/or otherwise required under this contract.

         C.       The contractor shall, by the effective date, have received all
                  necessary authorizations and approvals of governmental or
                  regulatory authorities including an approved Certificate of
                  Authority (COA) to operate in all counties in a geographic
                  region as defined in Article 5.1 or shall have an approved (by
                  DMAHS) county phase-in plan defined in Section H. This Article
                  does not and is not intended to require the contractor to
                  obtain COAs in all three geographic regions.

         D.       Documentation. Subsequent to the signing date by the
                  contractor but prior to contract execution by the Department,
                  the Department shall review and approve the materials listed
                  in Section B.2.2 of the Appendices.

         E.       Readiness Review. The Department will, prior to the signing
                  date, conduct a readiness review of the areas set forth in
                  Section B.2.3 of the Appendices to generally assess the
                  contractor's readiness to begin operations and issue a letter
                  to the contractor that conveys its findings and any changes
                  required before contracting with the Department.

         F.       This contract, as well as any attachments or appendices hereto
                  shall only be effective, notwithstanding any provisions in
                  such contract to the contrary, upon the receipt of federal
                  approval and approval as to form by the Office of the Attorney
                  General for the State of New Jersey.

         G.       The contractor shall remain in compliance with the following
                  conditions which shall satisfy the Departments of Banking and
                  Insurance, Health and Senior Services, and Human Services
                  prior to this contract becoming effective:

                  1.       The contractor shall maintain an approved certificate
                           of authority to operate as a health maintenance
                           organization in New Jersey from the Department of
                           Banking and Insurance and the Department of Health
                           and Senior Services for the Medicaid population.

                                                                            II-1
<PAGE>
                  2.       The contractor shall comply with and remain in
                           compliance with minimum net worth and fiscal solvency
                           and reporting requirements of the Department of
                           Banking and Insurance, the Department of Human
                           Services, the federal government, and this contract.

                  3.       The contractor shall provide written certification of
                           new written contracts for all providers other than
                           FQHCs and shall provide copies of fully executed
                           contracts for new contracts with FQHCs on a quarterly
                           basis.

                  4.       If insolvency protection arrangements change, the
                           contractor shall notify the DMAHS sixty (60) days
                           before such change takes effect and provide written
                           copy of DOBI approval.

         H.       County Expansion Phase-In Plan. If the contractor does not
                  have an approved COA for each of the counties in a designated
                  region, the contractor shall submit to DMAHS a county
                  expansion phase-in plan for review and approval by DMAHS prior
                  to the execution of this contract. The plan shall include
                  detailed information of:

                  -        The region and names of the counties targeted for
                           expansion;

                  -        Anticipated dates of the submission of the COA
                           modification to DOBI and DHSS (with copies to DMAHS);

                  -        Anticipated date of approval of the COA;

                  -        Anticipated date for full operations in the region;

                  -        Anticipated date for initial beneficiary enrollment
                           in each county

                  The phase-in plan shall indicate that full expansion into a
                  region shall be completed by June 30, 2001. The contractor
                  shall maintain full coverage for each county in each region in
                  which the contractor operates for the duration of this
                  contract.

         I.       No court order, administrative decision, or action by any
                  other instrumentality of the United States Government or the
                  State of New Jersey or any other state is outstanding which
                  prevents implementation of this contract.

         J.       Net Worth

                  1.       The contractor shall maintain a minimum net worth in
                           accordance with N.J.A.C. Title 8:38-11 et seq.

                  2.       The Department shall have the right to conduct
                           targeted financial audits of the contractor's
                           Medicaid line of business. The contractor shall
                           provide

                                                                            II-2
<PAGE>
                           the Department with financial data, as requested by
                           the Department, within a timeframe specified by the
                           Department.

         K.       The contractor shall comply with the following financial
                  operations requirements:

                  1.       A contractor shall establish and maintain:

                           a.       An office in New Jersey, and

                           b.       Premium and claims accounts in a bank with a
                                    principal office in New Jersey.

                  2.       The contractor shall have a fiscally sound operation
                           as demonstrated by:

                           a.       Maintenance of a minimum net worth in
                                    accordance with DOBI requirements (total
                                    line of business) and the requirements
                                    outlined in G and J above and Article 8.2.

                           b.       Maintenance of a net operating surplus for
                                    Medicaid line of business. If the contractor
                                    fails to earn a net operating surplus during
                                    the most recent calendar year or does not
                                    maintain minimum net worth requirements on a
                                    quarterly basis, it shall submit a plan of
                                    action to DMAHS within the time frame
                                    specified by the Department. The plan is
                                    subject to the approval of DMAHS. It shall
                                    demonstrate how and when minimum net worth
                                    will be replenished and present marketing
                                    and financial projections. These shall be
                                    supported by suitable back-up material. The
                                    discussion shall include possible alternate
                                    funding sources, including invoking of
                                    corporate parental guarantee. The plan will
                                    include:

                                    i.       A detailed marketing plan with
                                             enrollment projections for the next
                                             two years.

                                    ii.      A projected balance sheet for the
                                             next two years.

                                    iii.     A projected statement of revenues
                                             and expenses on an accrual basis
                                             for the next two years.

                                    iv.      A statement of cash flow projected
                                             for the next two years.

                                    v.       A description of how to maintain
                                             capital requirements and replenish
                                             net worth.

                                    vi.      Sources and timing of capital shall
                                             be specifically identified.

                  3.       The contractor may be required to obtain prior to
                           this contract and maintain "Stop-Loss" insurance,
                           pursuant to provisions in Article 8.3.2.

                                                                            II-3
<PAGE>
                  4.       The contractor shall obtain prior to this contract
                           and maintain for the duration of this contract, any
                           extension thereof or for any period of liability
                           exposure, protection against insolvency pursuant to
                           provisions in G above and Article 8.2.

                                                                            II-4
<PAGE>
ARTICLE THREE: MANAGED CARE MANAGEMENT INFORMATION SYSTEM

The contractor's MCMIS shall provide certain minimum functional capabilities as
described in this contract. The contractor shall have sophisticated information
systems capabilities that cannot only support the specific requirements of this
contract, but also respond to future program requirements. The DHS shall provide
the contractor with what the DHS, in its sole discretion, believes is sufficient
lead time to make system changes.

The various components of the contractor's MCMIS shall be sufficiently
integrated to effectively and efficiently support the requirements of this
contract. The contractor's MCMIS shall also be a collection point and repository
for all data required under this contract and shall provide comprehensive
information retrieval capabilities. Contractors with multiple systems and/or
subcontracted health care services shall integrate the data, at a minimum, to
provide for combined reporting and, as required, to support the required
processing functions.

3.1      GENERAL OPERATIONAL REQUIREMENTS FOR THE MCMIS

         The following requirements apply to the contractor's MCMIS. Any
         reference to "systems" in this Article shall mean contractor's MCMIS
         unless otherwise specified. If the contractor subcontracts any MCMIS
         functions, then these requirements apply to the subcontractor's
         systems. For example, if the contractor contracts with a dental network
         to provide services and pay claims/collect encounters, then these
         requirements shall apply to the dental network's systems. However, if
         the contractor contracts with a dental network only to provide dental
         services, then these requirements do not apply.

3.1.1    ONLINE ACCESS

         The system(s) shall provide online access for contractor use to all
         major files and data elements within the MIS including enrollee
         demographic and enrollment information, provider demographic and
         enrollment data, processed claims and encounters, prior approvals,
         referrals, reference files, and payment and financial transactions.

3.1.2    PROCESSING REQUIREMENTS

         A.       Timely Processing. The contractor shall provide for timely
                  updates and edits for all transactions on a schedule that
                  allows the contractor to meet the State's performance
                  requirements. In general, the State expects the following
                  schedule:

                  1.       Enrollee and provider file updates to be daily

                  2.       Reference file updates to be at least weekly or as
                           needed

                  3.       Prior authorizations and referral updates to be daily

                  4.       Claims and encounters to be processed (entered and
                           edited) daily

                  5.       Claim payments to be at a minimum biweekly

                  6.       Capitation payments to be monthly

                                                                           III-1
<PAGE>
         Specific update schedule requirements are identified in the remaining
         subarticles of this Article.

B.       Error Tracking and Audit Trails. The update and edit processes for each
         transaction shall provide for the monitoring of errors incurred by type
         of error and frequency. The system shall maintain information
         indicating the errors failed, the person making the corrections, when
         the correction was made, and if the error was overridden on all
         critical transactions (e.g., terminating enrollment or denying a
         claim). The major update processes shall maintain sufficient audit
         trails to allow reconstruction of the processing events.

C.       Comprehensive Edits and Audits. The contractor's system shall provide
         for a comprehensive set of automated edits and audits that will ensure
         the data are valid, the benefits are covered and appropriate, the
         payments are accurate and timely, other insurance is maximized, and all
         of the requirements of this contract are met.

D.       System Controls and Balancing. The contractor's system shall provide
         adequate control totals for balancing and ensuring that all inputs are
         accounted for. The contractor shall have operational procedures for
         balancing and validating all outputs and processes. Quality checkpoints
         should be as automated as possible.

E.       Multimedia Input Capability. The system shall support a variety of
         input media formats including hardcopy, diskette, tape, clearing house,
         direct entry, electronic transmission or other means, as defined by all
         federal and State laws and regulations. The contractor may use any
         clearing house(s) and/or alternatively provide for electronic
         submissions directly from the provider to the contractor. These
         requirements apply to claims/encounter and prior authorization (PA),
         referral, and UM subsystems. Provider/vendor data must be routed
         through the contractor when submitting data/information to the State.

F.       Backup/Restore and Archiving. The contractor shall provide for periodic
         backup of all key processing and transaction files such that there will
         be a minimum of interruption in the event of a disaster. Unless
         otherwise agreed by the State, key processes must be restored as
         follows:

         1.       Enrollment verification - twenty-four (24) hours

         2.       Enrollment update process - twenty-four (24) hours

         3.       Prior authorization/referral processing - twenty-four (24)
                  hours

         4.       Claims/encounter processing - seventy-two (72) hours

         5.       Encounter submissions to State - one (1) week

         6.       Other functions - two (2) weeks

         The contractor shall demonstrate its restore capabilities at least once
         a year. The contractor shall also provide for permanent archiving of
         all major files for a

                                                                           III-2
<PAGE>
         period of no less than seven (7) years. The contractor's backup/recover
         plan must be approved by State.

3.1.3    REPORTING AND DOCUMENTATION REQUIREMENTS

         A.       Regular Reporting. The contractor's system shall provide
                  sufficient reports to meet the requirements of this contract
                  as well as to support the efficient and effective operation of
                  its business functions. The required reports, including time
                  frames and format requirements, are in Section A of the
                  Appendices.

         B.       Ad Hoc Reporting. The contractor shall have the capability to
                  support ad hoc reporting requests, in addition to those listed
                  in this contract, both from its own organization and from the
                  State in a reasonable time frame. The time frame for
                  submission of the report will be determined by DMAHS with
                  input from the contractor based on the nature of the report.
                  DMAHS shall at its option request six (6) to eight (8) reports
                  per year, hardcopy or electronic reports and/or file extracts.
                  This does not preclude or prevent DMAHS from requiring, or the
                  contractor from providing, additional reports that are
                  required by State or federal governmental entities or any
                  court of competent jurisdiction.

         C.       System Documentation. The contractor shall update
                  documentation on its system(s) within 30 days of
                  implementation of the changes. The contractor's documentation
                  must include a system introduction, program overviews,
                  operating environment, external interfaces, and data element
                  dictionary. For each of the functional components, the
                  documentation should include where applicable program
                  narratives, processing flow diagrams, forms, screens, reports,
                  files, detailed logic such as claims pricing algorithms and
                  system edits. The documentation should also include job
                  descriptions and operations instructions. The contractor shall
                  have available current documentation on-site for State audit
                  as requested.

3.1.4    OTHER REQUIREMENTS

         A.       Future Changes. The system shall be easily modifiable to
                  accommodate future system changes/enhancements to claims
                  processing or other related systems at the same time as
                  changes take place in the State's MMIS. In addition, the
                  system shall be able to accommodate all future requirements
                  based upon federal and State statutes, policies and
                  regulations. Unless otherwise agreed by the State, the
                  contractor shall be responsible for the costs of these
                  changes.

         B.       Year 2000. The MCMIS shall meet the Office of Information
                  Technology (OIT) standards for Year 2000 compliance unless
                  otherwise approved by the Department. The OIT standards may be
                  accessed on the Internet at
                  http://www.state.nj.us/infobank/circular/cir9705s.htm.

                                                                           III-3
<PAGE>
3.2      ENROLLEE SERVICES

         The MCMIS shall support all of the enrollee services as specified in
         Article 5 of this contract. The system shall:

         A.       Capture and maintain contractor enrollment data
                  electronically.

         B.       Provide information so that the contractor can send plan
                  materials and information to enrollees.

         C.       Capture electronically the Primary Care Provider (PCP)
                  selections by enrollees.

         D.       Provide contractor enrollment and Medicaid information to
                  providers.

         E.       Maintain an enrollee complaint and grievance tracking system
                  for Medicaid and NJ FamilyCare enrollees.

         F.       Produce the required enrollee data reports.

         The enrollee module(s) shall interface with all other required modules
         and permit the access, search, and retrieval of enrollee data by key
         fields, including date-sensitive information.

3.2.1    CONTRACTOR ENROLLMENT DATA

         A.       Enrollee Data. The contractor shall maintain a complete
                  history of enrollee information, including contractor
                  enrollment, primary care provider assignment, third party
                  liability coverage, and Medicare coverage. In addition, the
                  contractor shall capture demographic information relating to
                  the enrollee (age, sex, county, etc.), information related to
                  family linkages, information relating to benefit and service
                  limitations, and information related to health care for
                  enrollees with special needs.

         B.       Updates. The contractor shall accept and process a weekly
                  enrollment and eligibility file (the managed care register
                  files; See Section B.3.2 of the Appendices) within 48 hours of
                  receipt from the Department. The system shall provide reports
                  that identify all errors encountered, count all transactions
                  processed, and provide for a complete audit trail of the
                  update processes. The MCMIS shall accommodate the following
                  specific Medicaid/NJ FamilyCare requirements.

                  1.       The contractor shall be able to access and identify
                           all enrollees by their Medicaid/NJ FamilyCare
                           Identification Number. This number shall be readily
                           cross-referenced to the contractor's enrollee number
                           and the enrollee's social security number. For DYFS
                           cases, it is important that the contractor's system
                           be able to distinguish the DYFS enrolled children

                                                                           III-4
<PAGE>
                           from other cases and that mailings to the DYFS
                           enrolled children not be consolidated based on the
                           first 10 digits of the Medicaid ID number because the
                           family members may not be residing together.

                  2.       The system shall be able to link family members for
                           on-line inquiry access and for consolidated mailings
                           based on the first ten-digits of the Medicaid ID
                           number.

                  3.       The system shall be able to identify newborns from
                           the date of birth, submit the proper eligibility form
                           to the State, and link the newborn record to the NJ
                           FamilyCare/Medicaid eligibility and enrollment data
                           when these data are received back from the State.

                  4.       The system shall capture and maintain all of the data
                           elements provided by the Department on the weekly
                           update files.

                  5.       The system shall allow for day-specific enrollment
                           into the contractor.

3.2.2    ENROLLEE PROCESSING REQUIREMENTS

         The contractor's system shall support the enrollee processing
         requirements of this contract. The system shall be modified/enhanced as
         required to meet the contract requirements in an efficient manner and
         ensure that each requirement is consistently and accurately
         administered by the contractor. Materials shall be sent to the enrollee
         or authorized representative, as applicable.

         A.       Enrollee Notification. The contractor shall issue contractor
                  plan materials and information to all new enrollees prior to
                  the effective date of enrollment or within seven (7) calendar
                  days following the receipt of weekly enrollment file specified
                  above, or, in case of retroactive enrollment, issue the
                  materials by the 1st of the subsequent month or within seven
                  (7) calendar days following receipt of the weekly enrollment
                  file. The specifications for the contractor plan materials and
                  information are listed in Article 5.8.

         B.       ID Cards. The contractor shall issue an Identification Card to
                  all new enrollees within ten (10) calendar days following
                  receipt of the weekly enrollment file specified above but no
                  later than seven (7) calendar days after the effective date of
                  enrollment.

                  The specifications for Identification Cards are in Article
                  5.8.5. The system shall produce ID cards that include the
                  information required in that Article. The contractor shall
                  also be able to produce replacement cards on request.

                                                                           III-5
<PAGE>
         C.       PCP Selection. The contractor shall provide the enrollee with
                  the opportunity to select a PCP. If no selection is made by
                  the enrollee, the contractor shall assign the PCP for the
                  enrollee according to the timeframes specified in Article 5.9.

                  If the enrollee selects a PCP, the contractor shall process
                  the selection. The contractor is responsible for monitoring
                  the PCP capacity and limitations prior to assignment of an
                  enrollee to a PCP. The contractor shall notify the enrollee
                  accordingly if a selected PCP is not available.

                  The contractor shall notify the PCP of newly assigned
                  enrollees or any other enrollee roster changes that affect the
                  PCP monthly by the second working day of the month.

         D.       Other Enrollee Processing. The contractor's enrollee
                  processing shall also support the following:

                  1.       Notification of State of any enrollee demographic
                           changes including date of death, change of address,
                           newborns, and commercial enrollment.

                  2.       Generation of correspondence to enrollees based on
                           variable criteria, including PCP and demographic
                           information.

3.2.3    CONTRACTOR ENROLLMENT VERIFICATION

         A.       Electronic Verification System. The contractor shall provide a
                  system that supports the electronic verification of contractor
                  enrollment to network providers via the telephone 24 hours a
                  day and 365 days a year or on a schedule approved by the
                  State. This capability should require the enrollee's
                  contractor Identification Number, the Medicaid/NJ FamilyCare
                  Identification Number, or the Social Security Number. The
                  system should provide information on the enrollee's current
                  PCP as well as the enrollment information.

         B.       Telephone Enrollment Inquiry. The contractor shall provide
                  telephone operator personnel (both member services and
                  provider services) to verify contractor enrollment during
                  normal business hours. The contractor's telephone operator
                  personnel should have the capability to electronically verify
                  contractor enrollment based on a variety of fields, including
                  contractor Identification Number, Medicaid/NJ FamilyCare
                  Identification Number, Social Security Number, Enrollee Name,
                  Date of Birth, etc.

                  The contractor shall ensure that a recorded message is
                  available to providers when enrollment capability is
                  unavailable for any reason.

3.2.4    ENROLLEE COMPLAINT AND GRIEVANCE TRACKING SYSTEM

         The contractor shall develop an electronic system to capture and track
         the content and

                                                                           III-6
<PAGE>
         resolution of enrollee complaints or grievances.

         A.       Data Requirements. The system shall capture, at a minimum, the
                  enrollee, the reason of the complaint or grievance, the date
                  the complaint or grievance was reported, the operator who
                  talked to the enrollee, the explanation of the resolution, the
                  date the complaint or grievance was resolved, the person who
                  resolved the complaint or grievance, referrals to other
                  departments, and comments including general information and/or
                  observations. See Article 5.15.

         B.       Processing and Reporting. The contractor shall identify trends
                  in complaint and grievance reasons and responsiveness to the
                  complaints or grievances. The system shall provide detail
                  reports to be used in tracking individual complaints and
                  grievances. The system shall also produce summary reports that
                  include statistics indicating the number of complaints and
                  grievances, the types, the dispositions, and the average time
                  for dispositioning, broken out by category of eligibility. See
                  Article 5.15.

3.2.5    ENROLLEE REPORTING

         The contractor shall produce all of the reports according to the
         timeframes and specifications outlined in Section A of the Appendices.

         The contractor shall provide the State with a monthly file of enrollees
         (See Section A.3.1 of the Appendices). The State's fiscal agent will
         reconcile this file with the State's Recipient File. The contractor
         shall provide for reconciling any differences and taking the
         appropriate corrective action.

3.3      PROVIDER SERVICES

         The contractor's system shall collect, process, and maintain current
         and historical data on program providers. This information shall be
         accessible to all parts of the MCMIS for editing and reporting.

3.3.1    PROVIDER INFORMATION AND PROCESSING REQUIREMENTS

         A.       Provider Data. The contractor shall maintain individual and
                  group provider network information with basic demographics,
                  EIN or tax identification number, professional credentials,
                  license and/or certification numbers and dates, sites, risk
                  arrangements (i.e., individual and group risk pools), services
                  provided, payment methodology and/or reimbursement schedules,
                  group/individual provider relationships, facility linkages,
                  number of grievances and/or complaints.

                  For PCPs, the contractor shall maintain identification as
                  traditional or safety net provider, specialties, enrollees
                  with beginning and ending effective dates, capacity, emergency
                  arrangements or contact, other limitations or restrictions,
                  languages spoken, address, office hours, disability access.
                  See Article 5.

                                                                           III-7
<PAGE>
                  The contractor shall maintain provider history files and
                  provide for easy data retrieval. The system should maintain
                  audit trails of key updates.

                  Providers should be identified with a unique number. The
                  contractor shall be able to cross-reference its provider
                  number with the provider's EIN or tax number, the provider's
                  license number, UPIN, Medicaid provider number, and Medicare
                  provider number where applicable.

         B.       Updates. The contractor shall apply updates to the provider
                  file daily.

         C.       Complaint Tracking System. The system shall provide for the
                  capabilities to track and report provider complaints as
                  specified in Article 6.5. The contractor shall provide detail
                  reports identifying open complaints and summary statistics by
                  provider on the types of complaints, resolution, and average
                  time for resolution.

3.3.2    PROVIDER CREDENTIALING

         A.       Credentialing. The contractor shall credential and
                  re-credential each network provider as specified in Article
                  4.6.1. The system should provide a tracking and reporting
                  system to support this process.

         B.       Review. The contractor shall be able to flag providers for
                  review based on problems identified during credentialing,
                  information received from the State, information received from
                  HCFA, complaints, and in-house utilization review results.
                  Flagging providers should cause all claims to deny as
                  appropriate.

3.3.3    PROVIDER/ENROLLEE LINKAGE

         A.       Enrollee Rosters. The contractor shall generate electronic
                  and/or hard copy enrollee rosters to its PCPs each month by
                  the second business day of the month. The rosters shall
                  indicate all enrollees that are assigned to the PCP and should
                  provide the provider with basic demographic and enrollment
                  information related to the enrollee.

         B.       Provider Capacity. The contractor's system shall support the
                  provider network requirements described in Article 4.8.

                                                                           III-8
<PAGE>
3.3.4    PROVIDER MONITORING

         The contractor's system shall support monitoring and tracking of
         provider/enrollee complaints, grievances and appeals from receipt to
         disposition. The system shall be able to produce provider reports for
         quality of medical and dental care analysis, flag and identify
         providers with restrictive conditions (e.g., fraud monitoring), and
         identify the confidentiality level of information (i.e., to manage who
         has access to the information).

3.3.5    REPORTING REQUIREMENTS

         The contractor shall produce all of the reports identified in Section A
         of the Appendices. In addition, the system shall provide ongoing and
         periodic reports to monitor provider activity, support provider
         contracting, and provide administrative and management information as
         required for the contractor to effectively operate.

3.4      CLAIMS/ENCOUNTER PROCESSING

         The system shall capture and adjudicate all claims and encounters
         submitted by providers. The major functions of this module(s) include
         enrollee enrollment verification, provider enrollment verification,
         claims and encounter edits, benefit determination, pricing, medical
         review and claims adjudication, and claims payment. Once claims and
         encounters are processed, the system shall maintain the
         claims/encounter history file that supports the State's encounter
         reporting requirements as well as all of the utilization management and
         quality assurance functions and other reporting requirements of the
         contractor.

3.4.1    GENERAL REQUIREMENTS

         The contractor shall have an automated claims and encounter processing
         system that will support the requirements of this contract and ensure
         the accurate and timely processing of claims and encounters. The
         contractor shall offer its providers an electronic payment option.

         A.       Input Processing. The contractor shall support both hardcopy
                  and electronic submission of claims and encounters for all
                  claim types (hospital, medical, dental, pharmacy, etc.). The
                  contractor should also support hardcopy and electronic
                  submission of referral and authorization documents, claim
                  inquiry forms, and adjustment claims and encounters. Providers
                  shall be afforded a choice between an electronic or a hardcopy
                  submission. Electronic submissions include diskette, tape,
                  clearinghouse, electronic transmission, and direct entry. The
                  contractor must process all standard electronic formats
                  recognized by the State. The contractor may use any
                  clearinghouse(s) and/or alternatively provide for electronic
                  submission directly from providers to the contractor.

                                                                           III-9
<PAGE>
                  The system shall maintain the receipt date for each document
                  (claim, encounter, referral, authorization, and adjustment)
                  and track the processing time from date of receipt to final
                  disposition.

         B.       Edits and Audits. The system shall perform sufficient edits to
                  ensure the accurate payment of claims and ensure the accuracy
                  and completeness of encounters that are submitted. Edits
                  should include, but not be limited to, verification of member
                  enrollment, verification of provider eligibility, field edits,
                  claim/encounter crosscheck and consistency edits, validation
                  of code values, duplicate checks, authorization checks, checks
                  for service limitations, checks for service inconsistencies,
                  medical review, and utilization management. Pharmacy claim
                  edits shall include prospective drug utilization review
                  (ProDUR) checks.

                  The contractor shall comply with New Jersey law and
                  regulations to process records in error. (Note: Uncontested
                  payments to providers and uncontested portions of contested
                  claims should not be withheld pending final adjudication.)

         C.       Benefit and Reference Files. The system shall provide
                  file-driven processing for benefit determination, validation
                  of code values, pricing (multiple methods and schedules), and
                  other functions as appropriate. Files should include code
                  descriptions, edit criteria, and effective dates. The system
                  shall support the State's procedure and diagnosis coding
                  schemes and other codes that shall be submitted on the
                  hardcopy and electronic reports and files.

                  The system shall provide for an automated update to the
                  National Drug Code file including all product, packaging,
                  prescription, and pricing information.

                  The system shall provide online access to reference file
                  information. The system should maintain a history of the
                  pricing schedules and other significant reference data.

         D.       Claims/Encounter History Files. The contractor shall maintain
                  two (2) years active history of adjudicated claims and
                  encounter data for verifying duplicates, checking service
                  limitations, and supporting historical reporting. For drug
                  claims, the contractor may maintain nine (9) months of active
                  history of adjudicated claims/encounter data if it has the
                  ability to restore such information back to two (2) years and
                  provide for permanent archiving in accordance with Article
                  3.1.2F. Provisions should be made to maintain permanent
                  history by service date for those services identified as
                  "once-in-a-lifetime" (e.g., hysterectomy). The system should
                  readily provide access to all types of claims and encounters
                  (hospital, medical, dental, pharmacy, etc.) for combined
                  reporting of claims and encounters. Archive requirements are
                  described in Article 3.1.2F.

3.4.2    COORDINATION OF BENEFITS

         The contractor shall exhaust all other sources of payment prior to
         remitting payment for a

                                                                          III-10
<PAGE>
         Medicaid enrollee.

         A.       Other Coverage Information. The contractor shall maintain
                  other coverage information for each enrollee. The contractor
                  shall verify the other coverage information provided by the
                  State pursuant to Article 8.13 and develop a system to include
                  additional other coverage information when it becomes
                  available. The contractor shall provide a periodic file of
                  updates to other coverage back to the State as specified in
                  Article 8.7.

         B.       Cost Avoidance. As provided in Article 8.13, except in certain
                  cases, the contractor shall attempt to avoid payment in all
                  cases where there is other insurance.

                  The system should have edits to identify potential other
                  coverage situations and flag the claims accordingly. The edits
                  should include looking for accident indicators, other coverage
                  information from the claims, other coverage information on
                  file for the enrollee, and potential accident/injury
                  diagnoses.

         C.       Postpayment Recoupments. Where other insurance is discovered
                  after the fact, for the exceptions identified in 8.13, and for
                  encounters, recoveries shall be initiated on a postpayment
                  basis.

         D.       Personal Injury Cases. These cases should be referred to the
                  Department for recovery.

         E.       Medicare. The contractor's system shall provide for
                  coordinating benefits on enrollees that are also covered by
                  Medicare. See Article 8.13.

         F.       Reporting and Tracking. The contractor's system shall identify
                  and track potential collections. The system should produce
                  reports indicating open receivables, closed receivables,
                  amounts collected, and amounts written off.

3.4.3    REPORTING REQUIREMENTS

         A.       General. The contractor's operational reports shall be
                  created, maintained and made available for audit by State
                  personnel and will include, but will not be limited to, the
                  following:

                  1.       Claims Processing Statistics

                  2.       Inventory and Claims Aging Statistics

                  3.       Error Reports

                  4.       Contested Claims and Encounters

                  5.       Aged Claims and Encounters

                  6.       Checks and EOB(s)

                  7.       Lag Factors and IBNR

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<PAGE>
         B.       The contractor shall produce reports according to the
                  timeframes and specification outlined in Section A of the
                  Appendices.

3.5      PRIOR AUTHORIZATION, REFERRAL AND UTILIZATION MANAGEMENT

         The prior authorization/referral and utilization management functions
         shall be an integrated component of the MCMIS. It shall allow for
         effective management of delivery of care. It shall provide a
         sophisticated environment for managing the monitoring of both inpatient
         and outpatient care on a proactive basis.

3.5.1    FUNCTIONS AND CAPABILITIES

         A.       Prior Authorizations. The contractor shall provide an
                  automated system that includes the following:

                  1.       Enrollee eligibility, utilization, and case
                           management information.

                  2.       Edits to ensure enrollee is eligible, provider is
                           eligible, and service is covered.

                  3.       Predefined treatment criteria to aid in adjudicating
                           the requests.

                  4.       Notification to provider of approval or denial.

                  5.       Notification to enrollees of any denials or cutbacks
                           of service.

                  6.       Interface with claims processing system for editing.

         B.       Referrals. The contractor shall provide an automated system
                  that includes the following:

                  1.       Ability for providers to enter referral information
                           directly, fax information to the contractor, or call
                           in on dedicated phone lines.

                  2.       Interface with claims processing system for editing.

         C.       Utilization Management. The contractor should provide an
                  automated system that includes the following:

                  1.       Provides case tracking, notifies the case worker of
                           outstanding actions.

                  2.       Provide case history of all activity.

                  3.       Provide online access to cases by enrollee and
                           provider numbers.

                  4.       Includes an automated correspondence generator for
                           letters to clients and network providers.

                  5.       Reports for case analysis, concurrent review, and
                           case follow up including hospital admissions,
                           discharges, and census reports.

         D.       Fraud and Abuse. The contractor shall have a system that
                  supports the requirements in Article 7.40 to identify
                  potential and/or actual instances of fraud, abuse,
                  underutilization and/or overutilization and shall meet the
                  REPORTING requirements in Section A of the Appendices.

                                                                          III-12
<PAGE>
3.5.2    REPORTING REQUIREMENTS

         The contractor's system shall support the reporting requirements as
         described in Section A of the Appendices.

3.6      FINANCIAL PROCESSING

         The contractor's system shall provide for financial processing to
         support the requirements of the contract and the contractor's
         operations.

3.6.1    FUNCTIONS AND CAPABILITIES

         A.       General. The system shall provide the necessary data for all
                  accounting functions including claims payment, capitation
                  payment, capitation reconciliation, recoupments, recoveries,
                  accounts receivable, accounts payable, general ledger, and
                  bank reconciliation. The financial module shall provide the
                  contractor's management with information to demonstrate the
                  contractor is meeting, exceeding or falling short of its
                  fiscal and level of risk goals. It shall interface with other
                  relevant modules. The information shall provide management
                  with the necessary tools to monitor financial performance,
                  make prompt payments on financial obligations, monitor
                  accounts receivables, and keep accurate and complete financial
                  records.

                  Reports should:

                  1.       Provide information useful in making business and
                           economic decisions.

                  2.       Provide information that will allow the Department to
                           monitor the future cash flow of the contractor
                           resulting from this contract.

                  3.       Provide information relative to an enterprise's
                           economic resources, the claims on those resources,
                           and the effects of transactions, events and
                           circumstances that change resources and claims to
                           resources.

                  4.       Generate data to evaluate the contractor's operations
                           (i.e., indicators of risk, efficiency,
                           capitalization, and profitability).

                  5.       Provide support for detailed actuarial analysis of
                           the operations performed under the contract resulting
                           from this contract.

                  6.       Provide other information that is useful in
                           evaluating important past events or predicting
                           meaningful future events.

         B.       Specific Functions. The contractor's system shall provide for
                  integration of the financial system with the claims and
                  encounter system. At a minimum the system shall:

                                                                          III-13
<PAGE>
                  1.       Update the specific claim records in the claims
                           history if payments are voided or refunded.

                  2.       Update the specific claims records in the claims
                           history if amounts are recovered.

                  3.       Update capitation history if payments are voided or
                           refunded.

                  4.       Provide for liens and withholds of payments to
                           providers.

                  5.       Provide for reissuing lost or stolen checks.

                  6.       Provide for automatic recoupment if a claim is
                           adjusted and results in a negative payment.

3.6.2    REPORTING PRODUCTS

         Report descriptions and criteria required by the State for the
         financial portion of the system are set forth in Section A of the
         Appendices.

3.7      QUALITY ASSURANCE

         The contractor's system shall produce reports for analysis that focus
         on the review and assessment of quality of care given, the detection of
         over- and under-utilization, the development of user-defined criteria
         and standards of care, and the monitoring of corrective actions.

3.7.1    FUNCTIONS AND CAPABILITIES

         A.       General. The system shall provide data to assist in the
                  definition and establishment of contractor performance
                  measurement standards, norms and service criteria.

                  1.       The system shall provide reports to monitor and
                           identify deviations of patterns of treatment from
                           established standards or norms and established
                           baselines. These reports shall profile utilization of
                           providers and enrollees and compare them against
                           experience and norms for comparable individuals.

                  2.       The system should provide cost utilization reports by
                           provider and service in various arrays.

                  3.       It should maintain data for medical and dental
                           assessments and evaluations.

                  4.       It should collect, integrate, analyze, and report
                           data necessary to

                                                                          III-14
<PAGE>
                           implement the Quality Assessment and Performance
                           Improvement (QAPI) program.

                  5.       It should collect data on enrollee and provider
                           characteristics and on services furnished to
                           enrollees, as needed to guide the selection of
                           performance improvement project topics and to meet
                           the data collection requirements for such projects.

                  6.       It should collect data in standardized formats to the
                           extent feasible and appropriate. The contractor must
                           review and ensure that data received from providers
                           are accurate, timely, and complete.

                  7.       Reports should facilitate at a minimum monthly
                           tracking and trending of enrollee care issues to
                           monitor and assess contractor and provider
                           performance and services provided to enrollees.

                  8.       Reports should monitor billings for evidence of a
                           pattern of inappropriate billings, services, and
                           assess potential mispayments as a result of such
                           practices.

                  9.       Reports should support tracking utilization control
                           function(s) and monitoring activities for out-of-area
                           and emergency services.

         B.       Specific Capabilities. The system should:

                  1.       Include a database for utilization, referrals,
                           tracking function for utilization controls, and
                           consultant services.

                  2.       Accommodate and apply standard norms/criteria and
                           medical and dental policy standards for quality of
                           care and utilization review.

                  3.       Include all types of claims and encounters data along
                           with service authorizations and referrals.

                  4.       Include pharmacy utilization data from MH/SA
                           providers.

                  5.       Interface, as applicable, with external utilization
                           and quality assurance/measurement software programs.

                  6.       Include tracking of coordination requirements with
                           MH/SA providers.

                  7.       Include ability to protect patient confidentiality
                           through the use of masked identifiers and other
                           safeguards as necessary.

         C.       Measurement Functions. The system should include:

                                                                          III-15
<PAGE>
                  1.       Ability to track review committee(s) functions when
                           case requires next review and/or follow-up.

                  2.       Track access, use and coordination of services.

                  3.       Provide patient satisfaction data through use of
                           enrollee surveys, grievance, complaint/appeals
                           processes, etc.

                  4.       Generate HEDIS reports in the version specified by
                           the State.

3.7.2    REPORTING PRODUCTS

         The system shall support the reporting requirements and other functions
         described in Article 4 and Section A of the Appendices.

3.8      MANAGEMENT AND ADMINISTRATIVE REPORTING

         The MCMIS shall have a comprehensive reporting capability to support
         the reporting requirements of this contract and the management needs
         for all of the contractor operations.

3.8.1    GENERAL REQUIREMENTS

         A.       Purpose. The reports should provide information to determine
                  and review fiscal viability, to evaluate the appropriateness
                  of care rendered, and to identify reporting/billing problems
                  and provider practices that are at variance with the norm, and
                  measure overall performance.

         B.       General Capabilities. MCMIS reporting capabilities shall
                  include the capabilities to access relatively small amounts of
                  data very quickly as well as to generate comprehensive reports
                  using multiple years of historical claims and encounter data.
                  The contractor shall provide a management and administrative
                  reporting system that allows full access to all of the
                  information utilized in the MCMIS. The contractor shall
                  provide a solution that makes all data contained in any
                  subcontractor's MIS available to authorized users through the
                  use of the various software that provides the capabilities
                  detailed in the following Articles.

         C.       Regular Reports. The system shall generate a comprehensive set
                  of management and administrative management reports that
                  facilitate the oversight, evaluation, and management of this
                  program as well as the contractor's other operations.

                  The system should provide the capability for pre-defined,
                  parameter driven report/trend alerts. The system shall have
                  the capability to select important and specific parameters of
                  utilization, and have specified users alerted when these
                  parameters are being exceeded. For example, the State may want
                  to monitor the use of a specific drug as treatment for a
                  specific condition.

                                                                          III-16
<PAGE>
         D.       The contractor shall acquire the capability to receive and
                  transmit data in a secure manner electronically to and from
                  the State's data centers, which are operated by OIT. The
                  standard data transfer software that OIT utilizes for
                  electronic data exchange is Connect: Direct. Both mainframe
                  and PC versions are available. A dedicated line is preferred,
                  but at a minimum connectivity software can be used for the
                  connection.

3.8.2    QUERY CAPABILITIES

         The contractor's MCMIS should have a sophisticated, query tool with
         access to all major files for the users.

         A.       General. The system should provide a user-friendly, online
                  query language to construct database queries to data available
                  across all of the database(s), down to raw data elements. It
                  should provide options to select query output to be displayed
                  on-line, in a formatted hard-copy report, or downloaded to
                  disk for PCbased analysis.

         B.       Unduplicated Counts. The system should provide the capability
                  to execute queries that perform unduplicated counts (e.g.,
                  unduplicated count of original beneficiary ID number),
                  duplicated counts (e.g., total number of services provided for
                  a given aid category), or a combination of unduplicated and
                  duplicated counts.

3.8.3    REPORTING CAPABILITIES

         The contractor should provide reporting tools with its MCMIS that
         facilitate ad hoc, user, and special reporting. The MCMIS should
         provide flexible report formatting/editing capabilities that meet the
         contractor's business requirements and support the Department's
         information needs. For example, it should provide the ability to
         import, export and manipulate data files from spreadsheet, word
         processing and database management tools as well as the database(s) and
         should provide the capability to indicate header information, date and
         run time, and page numbers on reports. The system should provide
         multiple pre-defined report types and formats that are easily selected
         by users.

                                                                          III-17
<PAGE>
3.9      ENCOUNTER DATA REPORTING

         The contractor shall collect, process, format, and submit electronic
         encounter data for all services delivered for which the contractor is
         responsible. The contractor shall capture all required encounter data
         elements using coding structures recognized by the Department. The
         contractor shall process the encounter data, integrating any manual or
         automated systems to validate the adjudicated encounter data. The
         contractor shall interface with any systems or modules within its
         organization to obtain the required encounter data elements. The
         contractor shall submit the encounter data to the Department's fiscal
         agent electronically, via diskette, tape, or electronic transmission,
         according to specifications in the Electronic Media Claims (EMC) Manual
         found in Section B.3.3 of the Appendices. The encounter data processing
         system shall have a data quality assurance plan to include timely data
         capture, accurate and complete encounter records, and internal data
         quality audit procedures. If DMAHS determines that changes are
         required, the contractor shall be given advance notice and time to make
         the change according to the extent and nature of the required change.

3.9.1    REQUIRED ENCOUNTER DATA ELEMENTS

         A.       All Types of Claims. The contractor shall capture all required
                  encounter data elements for each of the eight claim types:
                  Inpatient, Outpatient, Professional, Home Health,
                  Transportation, Vision, Dental, and Pharmacy.

         B.       Data Elements. The required data elements are provided in
                  Section A.7.11 and Section B.3.3 of the Appendices. Note that
                  New Jersey-specific Medicaid codes are required in some
                  fields. Providers shall be identified using the provider's EIN
                  or tax identification number. Inpatient hospital claims and
                  encounters shall be combined into a single stay when the
                  enrollee's dates of services are consecutive.

         C.       Contractor Encounter. The contractor shall submit encounter
                  data for claims and encounters received by the contractor. The
                  contractor shall identify a capitated arrangement versus a
                  "fee-for-service" arrangement for each of its network
                  providers. For noncapitated arrangements, the contractor shall
                  report the actual payment made to the provider for each
                  encounter. For capitated arrangements, the contractor may
                  report a zero payment for each encounter. However, a monthly
                  "Capitation Summary Record" shall be required for each
                  provider type, beneficiary capitation category, and service
                  month combination. The specifications for the submission of
                  monthly capitation summary records is further detailed in the
                  EMC Manual, found in Section B.3.3 of the Appendices.

3.9.2    SUBMISSION OF TEST ENCOUNTER DATA

         A.       Submitter ID. The contractor shall make application in order
                  to obtain a Submitter Identification Number, according to the
                  instructions listed in the EMC Manual found in Section B.3.3
                  of the Appendices.

                                                                          III-18
<PAGE>
         B.       Test Requirement. The contractor shall be required to pass a
                  testing phase for each of the eight encounter claim types
                  before production encounter data will be accepted. The
                  contractor shall pass the testing phase for all encounter
                  claim type submissions within twelve (12) calendar weeks from
                  the award date of the contract. Contractors with prior
                  contracting experience with DHS who have successfully passed
                  test phases and have successfully submitted approved
                  production data may be exempted at DHS's option.

                  The contractor shall submit the test encounter data to the
                  Department's fiscal agent electronically, via diskette, tape,
                  or electronic transmission, according to the specifications of
                  the Electronic Media Claims (EMC) Manual found in Section
                  B.3.3 of the Appendices.

                  The contractor shall be responsible for passing a two-phased
                  test for each encounter claim type. The first phase requires
                  that each submitted file follows the prescribed format, that
                  header and trailer records are present and correctly located
                  within the file, and that the key fields are present. The
                  second phase requires that the required data elements are
                  present and properly valued.

                  Following each submission, an error report will be forwarded
                  to the contractor identifying the file and record location of
                  each error encountered for both testing phases. The contractor
                  shall analyze the report, complete the necessary corrections,
                  and re-submit the encounter data test file(s).

                  The contractor shall utilize production encounter data,
                  systems, tables, and programs when processing encounter test
                  files. The contractor shall submit errorfree production data
                  once testing has been approved for all of the encounter claims
                  types.

3.9.3    SUBMISSION OF PRODUCTION ENCOUNTER DATA

         A.       Adjudicated Claims and Encounters. The contractor shall submit
                  all adjudicated encounter data for all services provided for
                  which the contractor is responsible. Adjudicated encounter
                  data are defined as data from claims and encounters that the
                  contractor has processed as paid or denied. The contractor is
                  not responsible for submitting contested claims or encounters
                  until final adjudication has been determined.

                                                                          III-19
<PAGE>
         B.       Schedule. Encounter data shall be submitted per the schedule
                  established by the Department. Each submission shall include
                  encounter data that were adjudicated in the prior period and
                  any adjustments for encounter data previously submitted.

         C.       Two-Phase Process. Similar to testing, the contractor shall be
                  responsible for passing a two-phased test for all production
                  encounter data submitted. The first phase requires each
                  submitted file follow the prescribed format, that header and
                  trailer records are present and correctly located within the
                  file, and that the key fields are present. The second phase
                  requires that the required data elements are present and
                  properly valued.

         D.       Phase One Errors. If all or part of a production encounter
                  file(s) rejects during phase one, an error report will be
                  forwarded to the contractor identifying the file and record
                  location of each error encountered. The contractor shall
                  analyze the report, complete the necessary corrections, and
                  re-submit the "rejected" encounter production data within
                  forty-five (45) calendar days from the date the contractor
                  receives the notice of error(s).

         E.       The contractor shall not be permitted to provide services
                  under this contract nor shall the contractor receive
                  capitation payment until it has passed the testing and
                  production submission of encounter data.

3.9.4    REMITTANCE ADVICE

         A.       Remittance Advice File Processing Report. The Department's
                  fiscal agent shall produce a Remittance Advice File on a
                  monthly basis that itemizes all processed encounters. The
                  contractor shall be responsible for the acceptance and
                  processing of a Remittance Advice (RA) File according to the
                  specifications listed in the EMC Manual found in Section B.3.3
                  of the Appendices. The Remittance Advice File is produced on
                  magnetic tape and contains all submitted encounter data that
                  passed phase one testing. The disposition (paid or denied)
                  shall be reported for each encounter along with the "phase
                  two" errors for those claims that New Jersey Medicaid denied.

         B.       Reconciliation. The contractor shall be responsible for
                  matching the encounters on the Remittance Advice File against
                  the contractor's data files(s). The contractor shall correct
                  any encounters that denied improperly and/or any other
                  discrepancies noted on the file. Corrections shall be
                  resubmitted within thirty (30) calendar days from the date the
                  contractor receives the Remittance Advice File.

                  All corrections to "denied" encounter data, as reported on the
                  Remittance Advice File, shall be resubmitted as "full record"
                  adjustments, according to the requirements listed in the EMC
                  Manual found in Section B.3.3 of the Appendices.

                                                                          III-20
<PAGE>
3.9.5    SUBCONTRACTS AND ENCOUNTER DATA REPORTING FUNCTION

         A.       Interfaces. All encounter data shall be submitted to the
                  Department directly by the contractor. DMAHS shall not accept
                  any encounter data submissions or correspondence directly from
                  any subcontractors, and DMAHS shall not forward any electronic
                  media, reports or correspondence directly to a subcontractor.
                  The contractor shall be required to receive all electronic
                  files and hardcopy material from the Department, or its
                  appointed fiscal agent, and distribute them within its
                  organization or to its subcontractors appropriately.

         B.       Communication. The contractor and its subcontractors shall be
                  represented at all DMAHS meetings scheduled to discuss any
                  issue related to the encounter function requirements.

3.9.6    FUTURE ELECTRONIC ENCOUNTER SUBMISSION REQUIREMENTS

         At the present time, the Health Care Financing Administration (HCFA) is
         pursuing a standardization of all electronic health care information,
         including encounter data. The contractor shall be responsible for
         completing and paying for any modifications required to submit
         encounter data electronically, according to the same specifications and
         timeframes outlined by HCFA for the New Jersey MMIS.

                                                                          III-21
<PAGE>
ARTICLE FOUR: PROVISION OF HEALTH CARE SERVICES

4.1      COVERED SERVICES

         For enrollees who are eligible through Title XIX or the NJ FamilyCare
         program the contractor shall provide or arrange to have provided
         comprehensive, preventive, and diagnostic and therapeutic, health care
         services to enrollees that include all services that Medicaid
         beneficiaries are entitled to receive under Medicaid, subject to any
         limitations and/or excluded services as specified in this Article.
         Provision of these services shall be equal in amount, duration, and
         scope as established by the Medicaid program, in accordance with
         medical necessity and without any predetermined limits, unless
         specifically stated, and as set forth in 42 C.F.R. Part 440; 42 C.F.R.
         Part 434; the Medicaid State Plan; the Medicaid Provider Manuals: The
         New Jersey Administrative Code, Title 10, Department of Human Services
         Division of Medical Assistance and Health Services; Medicaid/NJ
         FamilyCare Alerts; Medicaid/NJ FamilyCare Newsletters; and all
         applicable federal and State statutes, rules, and regulations.

4.1.1    GENERAL PROVISIONS AND CONTRACTOR RESPONSIBILITIES

         A.       With the exception of certain emergency services described in
                  Article 4.2.1 of this contract, all care covered by the
                  contractor pursuant to the benefits package must be provided,
                  arranged, or authorized by the contractor or a participating
                  provider.

         B.       The contractor and its providers shall furnish all covered
                  services required to maintain or improve health in a manner
                  that maximizes coordination and integration of services, and
                  in accordance with professionally recognized standards of
                  quality and shall ensure that the care is appropriately
                  documented to encompass all health care services for which
                  payment is made.

         C.       For beneficiaries eligible solely through the NJ FamilyCare
                  Plan A the contractor shall provide the same managed care
                  services and products provided to enrollees who are eligible
                  through Title XIX. For beneficiaries eligible solely through
                  the NJ FamilyCare Plans B and C the contractor shall provide
                  the same managed care services and products provided to
                  enrollees who are eligible through Title XIX with the
                  exception of limitations on EPSDT coverage as indicated in
                  Articles 4.1.2A.3 and 4.2.6A.2. NJ FamilyCare Plan D and other
                  plans have a different service package specified in Article
                  4.1.6.

         D.       Out-of-Area Coverage. The contractor shall provide or arrange
                  for out-of-area coverage of contracted benefits in emergency
                  situations and non-emergency situations when travel back to
                  the service area is not possible, is impractical, or when
                  medically necessary services could only be provided elsewhere.
                  The contractor shall not be responsible for out-of-state
                  coverage for routine care if the enrollee resides out-of-state
                  for more than 30 days. For full time students attending school
                  and residing out of the country, the contractor shall not be
                  responsible for health care benefits while the individual is
                  in school.

                                                                            IV-1
<PAGE>
         E.       Existing Plans of Care. The contractor shall honor and pay for
                  plans of care for new enrollees, including prescriptions,
                  durable medical equipment, medical supplies, prosthetic and
                  orthotic appliances, and any other on-going services initiated
                  prior to enrollment with the contractor. Services shall be
                  continued until the enrollee is evaluated by his/her primary
                  care physician and a new plan of care is established with the
                  contractor.

                  The contractor shall use its best efforts to contact the new
                  enrollee or, where applicable, authorized person and/or
                  contractor care manager. However, if after documented,
                  reasonable outreach (i.e., mailers, certified mail, use of
                  MEDM system provided by the State, contact with the Medicaid
                  District Office (MDO), DDD, or DYFS to confirm addresses
                  and/or to request assistance in locating the enrollee) the
                  enrollee fails to respond within 20 working days of certified
                  mail, the contractor may cease paying for the pre-existing
                  service until the enrollee or, where applicable, authorized
                  person, contacts the contractor for re-evaluation.

         F.       Routine Physicals. The contractor shall provide for routine
                  physical examinations required for employment, school, camp or
                  other entities/programs that require such examinations as a
                  condition of employment or participation.

         G.       Non-Participating Providers. The contractor shall pay for
                  services furnished by non-participating providers to whom an
                  enrollee was referred, even if erroneously referred, by
                  his/her PCP or network specialist. Under no circumstances
                  shall the enrollee bear the cost of such services when
                  referral errors by the contractor or its providers occur. It
                  is the sole responsibility of the contractor to provide
                  regular updates on complete network information to all its
                  providers as well as appropriate policies and procedures for
                  provider referrals.

         H.       The contractor shall have policies and procedures on the use
                  of enrollee selfreferred services.

         I.       The contractor shall have policies and procedures on how it
                  will provide for genetic testing and counseling.

         J.       Second Opinions. The contractor shall have a Second Opinion
                  program that can be utilized at the enrollee's option for
                  diagnosis and treatment of serious medical conditions, such as
                  cancer and for elective surgical procedures. The program shall
                  include at a minimum: hernia repair (simple) for adults (18
                  years or older), hysterectomy (elective procedures), spinal
                  fusion (except for children under 18 years of age with a
                  diagnosis of scoliosis or spina bifida), and laminectomy
                  (except for children under 18 years of age with a diagnosis of
                  scoliosis). The plan shall be incorporated into the
                  contractor's medical procedures. The exceptions noted do not
                  require second surgical opinion before surgery can be
                  performed. The Second Opinion program shall be incorporated
                  into the contractor's medical procedures and submitted to
                  DMAHS for review and approval.

                                                                            IV-2
<PAGE>
         K.       Unless otherwise required by this contract, the contractor
                  shall make no distinctions with regard to the provision of
                  services to Medicaid and NJ FamlyCare enrollees and the
                  provision of services provided to the contractor's
                  non-Medicaid/NJ FamilyCare enrollees.

         L.       DMAHS may intercede on an enrollee's behalf when DMAHS deems
                  it appropriate for the provision of medically necessary
                  services and to assist enrollees with the contractor's
                  operations and procedures which may cause undue hardship for
                  the enrollee. In the event of a difference in interpretation
                  of contractually required service provision between the
                  Department and the contractor, the Department's interpretation
                  shall prevail until a formal decision is reached, if
                  necessary.

         M.       A New Jersey Care 2000+ enrollee who seeks self-initiated care
                  from a nonparticipating provider without
                  referral/authorization shall be held responsible for the cost
                  of care. The enrollee shall be fully informed of the
                  requirement to seek care when it is available within the
                  network and the consequences of obtaining unauthorized
                  out-of-network care for covered services.

         N.       Protection of Enrollee - Provider Communications. Health care
                  professionals may not be prohibited from advising their
                  patients about their health status or medical care or
                  treatment, regardless of whether this care is covered as a
                  benefit under the contract.

         O.       Medical or Dental Procedures. For procedures that may be
                  considered either medical or dental such as surgical
                  procedures for fractured jaw or removal of cysts, the
                  contractor shall establish written policies and procedures
                  clearly and definitively delineated for all providers and
                  administrative staff, indicating that either a physician
                  specialist or oral surgeon may perform the procedure and when,
                  where, and how authorization, if needed, shall be promptly
                  obtained.

4.1.2    BENEFIT PACKAGE

         A.       The following categories of services shall be provided by the
                  contractor for all Medicaid and NJ FamilyCare Plans A, B, and
                  C enrollees, except where indicated. See Section B.4.1 of the
                  Appendices for complete definitions of the covered services.

                  1.       Primary and Specialty Care by physicians and, within
                           the scope of practice and in accordance with State
                           certification/licensure requirements, standards and
                           practices, by Certified Nurse Midwives, Certified
                           Nurse Practitioners, Clinical Nurse Specialists, and
                           Physician Assistants

                  2.       Preventive Health Care and Counseling and Health
                           Promotion

                                                                            IV-3
<PAGE>
                  3.       Early and Periodic Screening, Diagnosis, and
                           Treatment (EPSDT) Program Services

                           For NJ FamilyCare Plans B and C participants,
                           coverage includes early and periodic screening and
                           diagnosis medical examinations, dental, vision,
                           hearing, and lead screening services. It includes
                           only those treatment services identified through the
                           examination that are available under the contractor's
                           benefit package or specified services under the FFS
                           program.

                  4.       Emergency Medical Care

                  5.       Inpatient Hospital Services including acute care
                           hospitals, rehabilitation hospitals, and special
                           hospitals

                  6.       Outpatient Hospital Services

                  7.       Laboratory Services [Except routine testing related
                           to administration of Clozapine and the other
                           psychotropic drugs listed in Article 4.1.4B for
                           non-DDD clients.]

                  8.       Radiology Services - diagnostic and therapeutic

                  9.       Prescription Drugs (legend and non-legend covered by
                           the Medicaid program) - For payment method for
                           Protease Inhibitors, certain other antiretrovirals,
                           blood clotting factors VIII and IX, and coverage of
                           protease inhibitors and certain other anti-
                           retrovirals under NJ FamilyCare, see Article 8.

                  10.      Family Planning Services and Supplies

                  11.      Audiology

                  12.      Inpatient Rehabilitation Services

                  13.      Podiatrist Services

                  14.      Chiropractor Services

                  15.      Optometrist Services

                  16.      Optical Appliances

                  17.      Hearing Aid Services

                  18.      Home Health Agency Services - Not a
                           contractor-covered benefit for the non-dually
                           eligible ABD population. All other services provided
                           to any

                                                                            IV-4
<PAGE>
                           enrollee in the home, including but not limited to
                           pharmacy and DME services, are the contractor's
                           fiscal and medical management responsibility.

                  19.      Hospice Agency Services

                  20.      Durable Medical Equipment (DME)/Assistive Technology
                           Devices in accordance with existing Medicaid
                           regulations

                  21.      Medical Supplies

                  22.      Prosthetics and Orthotics including certified shoe
                           provider

                  23.      Dental Services

                  24.      Organ Transplants

                  25.      Transportation Services for any contractor-covered
                           service or noncontractor covered service including
                           ambulance, mobile intensive care units (MICUs) and
                           invalid coach (including lift equipped vehicles)

                  26.      Post-acute Care

                  27.      Mental Health/Substance Abuse Services for enrollees
                           who are clients of the Division of Developmental
                           Disabilities

         B.       Conditions Altering Mental Status. Those diagnoses which are
                  categorized as altering the mental status of an individual but
                  are of organic origin shall be part of the contractor's
                  medical, financial and care management responsibilities for
                  all categories of enrollees. These include the diagnoses in
                  the following ICD-9-CM Series:

                  1.       290.0 Senile dementia, simple type

                  2.       290.1 Presenile dementia

                  3.       290.3 Senile dementia with acute confusional state

                  4.       290.4 Arteriosclerotic dementia uncomplicated

                  5.       290.8 Other

                  6.       290.9 Unspecified

                  7.       291.1 Korsakov's psychosis, alcoholic

                  8.       291.2 Other alcoholic dementia

                  9.       292.82 Drug induced dementia

                  10.      292.9 Unspecified drug induced mental disorders

                  11.      293.0 Acute delirium

                  12.      293.1 Subacute delirium

                  13.      294.0 Amnestic syndrome

                  14.      294.1 Dementia in conditions classified elsewhere

                                                                            IV-5
<PAGE>
                  15.      294.8 Other specified organic brain syndromes
                                 (chronic)

                  16.      294.9 Unspecified organic brain syndrome (chronic)

                  17.      305.1 Non-dependent abuse of drugs - tobacco

                  18.      310.0 Frontal lobe syndrome

                  19.      310.2 Postconcussion syndrome

                  20.      310.8 Other specified nonpsychotic mental disorder
                                 following organic brain damage

                  21.      310.9 Unspecified nonpsychotic mental disorder
                                 following organic brain damage

                  In addition, the contractor shall retain responsibility for
                  delivering all covered Medicaid mental health/substance abuse
                  services to enrollees who are clients of the Division of
                  Developmental Disabilities (referred to as "clients of DDD").
                  Articles Four and Five contain further information regarding
                  clients of DDD.

4.1.3    SERVICES REMAINING IN FEE-FOR-SERVICE PROGRAM AND MAY NECESSITATE
         CONTRACTOR ASSISTANCE TO THE ENROLLEE TO ACCESS THE SERVICES

         A.       The following services provided by the New Jersey Medicaid
                  program under its State plan shall remain in the
                  fee-for-service program but may require medical orders by the
                  contractor's PCPs/providers. These services shall not be
                  included in the contractor's capitation.

                  1.       Personal Care Assistant Services (not covered for NJ
                           FamilyCare Plans B and C)

                  2.       Medical Day Care (not cove red for NJ FamilyCare
                           Plans B and C)

                  3.       Outpatient Rehab - Physical therapy, occupational
                           therapy, and speech pathology services (For NJ
                           FamilyCare Plans B & C enrollees, limited to 60 days
                           per therapy per year)

                  4.       Abortions and related services including surgical
                           procedure, cervical dilation, insertion of cervical
                           dilator, anesthesia including para cervical block,
                           history and physical examination on day of surgery;
                           lab tests including PT, PTT, OB Panel (includes
                           hemogram, platelet count, hepatitis B surface
                           antigen, rubella antibody, VDRL, blood typing ABO and
                           Rh, CBC and differential), pregnancy test, urinalysis
                           and urine drug screen, glucose and electrolytes;
                           routine venapuncture; ultrasound, pathological
                           examination of aborted fetus; Rhogam and its
                           administration.

                  5.       Transportation - lower mode (not covered for NJ
                           FamilyCare Plans B and C)

                  6.       Sex Abuse Examinations

                                                                            IV-6
<PAGE>
                  7.       Services Provided by New Jersey MH/SA and DYFS
                           Residential Treatment Facilities or Group Homes. For
                           enrollees living in residential facilities or group
                           homes where ongoing care is provided, contractor
                           shall cooperate with the medical, nursing, or
                           administrative staff person designated by the
                           facility to ensure that the enrollees have timely and
                           appropriate access to contractor providers as needed
                           and to coordinate care between those providers and
                           the facility's employed or contracted providers of
                           health services. Medical care required by these
                           residents remains the contractor's responsibility
                           providing the contractor's provider network and
                           facilities are utilized.

                  8.       Family Planning Services and Supplies when furnished
                           by a nonparticipating provider

                  9.       Home health agency services for the non-dually
                           eligible ABD population

         B.       Dental Services. For those dental services specified below
                  that are initiated by a Medicaid non-New Jersey Care 2000+
                  provider prior to first time New Jersey Care 2000+ enrollment,
                  an exemption from contractor-covered services based on the
                  initial managed care enrollment date will be provided and the
                  services paid by Medicaid FFS. The exemption shall only apply
                  to those beneficiaries who have initially received these
                  services during the 60 or 120 day period immediately prior to
                  the initial New Jersey Care 2000+ enrollment date.

                  1.       Procedure Codes to be paid by Medicaid FFS up to 60
                           days after first time New Jersey Care
                           2000+ enrollment:

                           02710    02792       03430
                           02720    02950       05110
                           02721    02952       05120
                           02722    02954       05211
                           02750    03310       05211-52
                           02751    03320       05212
                           02752    03330       05212-52
                           02790    03410-22    05213
                           02791    03411       05214

                  2.       Procedure Codes to be paid by Medicaid FFS up to 120
                           days from date of last preliminary extractions after
                           patient enrolls in New Jersey Care 2000+ (applies to
                           tooth codes 5 - 12 and 21 - 28 only):

                           05130
                           05130-22
                           05140
                           05140-22

                                                                            IV-7
<PAGE>
                  3.       Extraction Procedure Codes to be paid by Medicaid FFS
                           up to 120 days from last date of preliminary
                           extractions after first time New Jersey Care 2000+
                           enrollment in conjunction with the following codes
                           (05130, 05130-22, 05140, 05140-22):

                           07110
                           07130
                           07210

4.1.4    MEDICAID COVERED SERVICES NOT PROVIDED BY CONTRACTOR

         A.       Mental Health/Substance Abuse. The following mental
                  health/substance abuse services (except for the conditions
                  listed in 4.1.2.B) will be managed by the State or its agent
                  for non-DDD enrollees, including all NJ FamilyCare enrollees.
                  (The contractor will retain responsibility for furnishing
                  mental health/substance abuse services, excluding the cost of
                  the drugs listed below, to Medicaid enrollees who are clients
                  of the Division of Developmental Disabilities).

                  -        Substance Abuse Services--diagnosis, treatment, and
                           detoxification

                  -        Costs for Methadone and its administration

                  -        Mental Health Services

         B.       Drugs. The following drugs will be paid fee-for-service by the
                  Medicaid program for all DMAHS enrollees:

                  -        Clozapine

                  -        Risperidone

                  -        Olanzapine

                  -        Ziprasidone

                  -        Quetiapine

                  -        Methadone - cost and its administration. Except as
                           provided in Article 4.4, the contractor will remain
                           responsible for the medical care of enrollees
                           requiring substance abuse treatment

                  -        Generically-equivalent drug products of the drugs
                           listed in this section.

         C.       Up to twelve (12) inpatient hospital days required for social
                  necessity

         D.       DDD/CCW waiver services: individual supports (which includes
                  personal care and training), habilitation, case management,
                  respite, and Personal Emergency Response Systems (PERS).

                                                                            IV-8
<PAGE>
4.1.5    INSTITUTIONAL FEE-FOR-SERVICE BENEFITS - NO COORDINATION BY THE
         CONTRACTOR

         The following institutional services shall remain in the
         fee-for-service program without requiring coordination by the
         contractor. In addition, Medicaid beneficiaries participating in a
         waiver (except the Division of Developmental Disabilities Community
         Care Waiver) or demonstration program or admitted for long term care
         treatment in one of the following shall be disenrolled from the
         contractor's plan on the date of admission to institutionalized care.

         A.       Nursing Facility care (if the admission is only for inpatient
                  rehabilitation/postacute care services and is less than 30
                  days, the enrollee will not be disenrolled).

         B.       Inpatient psychiatric services (except for RTCs) for
                  individuals under age 21 and 65 and over - Services that are
                  provided:

                  1.       Under the direction of a physician;

                  2.       In a facility or program accredited by the Joint
                           Commission on Accreditation of Health Care
                           Organizations; and

                  3.       Meet the federal and State requirements.

         C.       Intermediate Care Facility/Mental Retardation Services - Items
                  and services furnished in an intermediate care facility for
                  the mentally retarded.

         D.       Waiver (except Division of Developmental Disabilities
                  Community Care Waiver) and demonstration program services.

4.1.6    BENEFIT PACKAGE FOR NJ FAMILYCARE PLAN D

         A.       Services Included In The Contractor's Benefits Package for NJ
                  FamilyCare Plan D. The following services shall be provided
                  and case managed by the contractor:

                  1.       Primary Care

                           a.       All physicians services, primary and
                                    specialty

                           b.       In accordance with state
                                    certification/licensure requirements,
                                    standards, and practices, primary care
                                    providers shall also include access to
                                    certified nurse midwifes, certified nurse
                                    practitioners, clinical nurse specialists,
                                    and physician assistants

                           c.       Services rendered at independent clinics
                                    that provide ambulatory services

                                                                            IV-9
<PAGE>
                           d.       Federally Qualified Health Center primary
                                    care services

                  2.       Emergency room services

                  3.       Family Planning Services, including medical history
                           and physical examinations (including pelvic and
                           breast), diagnostic and laboratory tests, drugs and
                           biologicals, medical supplies and devices,
                           counseling, continuing medical supervision,
                           continuity of care and genetic counseling

                           Services provided primarily for the diagnosis and
                           treatment of infertility, including sterilization
                           reversals, and related office (medical and clinic)
                           visits, drugs, laboratory services, radiological and
                           diagnostic services and surgical procedures are not
                           covered by the NJ FamilyCare program. Obtaining
                           family planning services from providers outside the
                           contractor's provider network is not available to NJ
                           FamilyCare Plan D enrollees.

                  4.       Home Health Care Services -- Limited to skilled
                           nursing for a home bound beneficiary which is
                           provided or supervised by a registered nurse, and
                           home health aide when the purpose of the treatment is
                           skilled care; and medical social services which are
                           necessary for the treatment of the beneficiary's
                           medical condition

                  5.       Hospice Services

                  6.       Inpatient Hospital Services, including general
                           hospitals, special hospitals, and rehabilitation
                           hospitals. The contractor shall not be responsible
                           when the primary admitting diagnosis is mental health
                           or substance abuse related.

                  7.       Outpatient Hospital Services, including outpatient
                           surgery

                  8.       Laboratory Services -- All laboratory testing sites
                           providing services under this contract must have
                           either a Clinical Laboratory Improvement Act (CLIA)
                           certificate of waiver or a certificate of
                           registration along with a CLIA identification number.
                           Those providers with certificates of waiver shall
                           provide only the types of tests permitted under the
                           terms of their waiver. Laboratories with certificates
                           of registration may perform a full range of
                           laboratory services.

                  9.       Radiology Services -- Diagnostic and therapeutic

                  10.      Optometrist Services, including one routine eye
                           examination per year

                                                                           IV-10
<PAGE>
                  11.      Optical appliances -- Limited to one pair of glasses
                           (or cont act lenses) per 24 month period or as
                           medically necessary

                  12.      Organ transplant services which are non-experimental
                           or non-investigational

                  13.      Prescription drugs, excluding over-the-counter drugs
                           Exception: See Article 8 regarding Protease
                           Inhibitors and other antiretrovirals.

                  14.      Dental Services -- Limited to preventive dental
                           services for children under the age of 12 years,
                           including oral examinations, oral prophylaxis, and
                           topical application of fluorides

                  15.      Podiatrist Services -- Excludes routine hygienic care
                           of the feet, including the treatment of corns and
                           calluses, the trimming of nails, and other hygienic
                           care such as cleaning or soaking feet, in the absence
                           of a pathological condition

                  16.      Prosthetic appliances -- Limited to the initial
                           provision of a prosthetic device that temporarily or
                           permanently replaces all or part of an external body
                           part lost or impaired as a result of disease, injury,
                           or congenital defect. Repair and replacement services
                           are covered when due to congenital growth.

                  17.      Private duty nursing -- Only when authorized by the
                           contractor

                  18.      Transportation Services -- Limited to ambulance for
                           medical emergency only

                  19.      Well child care including immunizations, lead
                           screening and treatments

                  20.      Maternity and related newborn care

                  21.      Diabetic supplies and equipment

         B.       Services Available To NJ FamilyCare Plan D Under
                  Fee-For-Service. The following services are available to NJ
                  FamilyCare Plan D enrollees under fee-for-service:

                  1.       Abortion services

                  2.       Skilled nursing facility services

                                                                           IV-11
<PAGE>
                  3.       Outpatient Rehabilitation Services -- Physical
                           therapy, Occupational therapy, and Speech therapy for
                           non-chronic conditions and acute illnesses and
                           injuries. Limited to treatment for a 60-day
                           consecutive period per incident of illness or injury
                           beginning with the first day of treatment per
                           contract year. Speech therapy services rendered for
                           treatment of delays in speech development, unless
                           resulting from disease, injury or congenital defects
                           are not covered

                  4.       Inpatient hospital services for mental health,
                           including psychiatric hospitals, limited to 35 days
                           per year

                  5.       Outpatient benefits for short-term, outpatient
                           evaluative and crisis intervention, or home health
                           mental health services, limited to 20 visits per year

                           a.       When authorized by the Division of Medical
                                    Assistance and Health Services, one (1)
                                    mental health inpatient day may be exchanged
                                    for up to four (4) home health visits or
                                    four (4) outpatient services, including
                                    partial care. This is limited to an exchange
                                    of up to a maximum of 10 inpatient days for
                                    a maximum of 40 additional outpatient
                                    visits.

                           b.       When authorized by the Division of Medical
                                    Assistance and Health Services, one (1)
                                    mental health inpatient day may be exchanged
                                    for two (2) days of treatment in partial
                                    hospitalization up to the maximum number of
                                    covered inpatient days.

                  6.       Inpatient and outpatient services for substance abuse
                           are limited to detoxification.

         C.       Exclusions. The following services not covered for NJ
                  FamilyCare Plan D participants either by the contractor or the
                  Department include, but are not limited to:

                  1.       Non-medically necessary services.

                  2.       Intermediate Care Facilities/Mental Retardation

                  3.       Private duty nursing unless authorized by the
                           contractor

                  4.       Personal Care Assistant Services

                  5.       Medical Day Care Services

                  6.       Chiropractic Services

                  7.       Dental services except preventive dentistry for
                           children under age 12

                  8.       Orthotic devices

                  9.       Targeted Case Management for the chronically ill

                  10.      Residential treatment center psychiatric programs

                  11.      Religious non-medical institutions care and services

                                                                           IV-12
<PAGE>
                  12.      Durable Medical Equipment

                  13.      Early and Periodic Screening, Diagnosis and Treatment
                           (EPSDT) services (except for well child care,
                           including immunizations and lead screening and
                           treatments)

                  14.      Transportation Services, including non-emergency
                           ambulance, invalid coach, and lower mode
                           transportation

                  15.      Hearing Aid Services

                  16.      Blood and Blood Plasma, except administration of
                           blood, processing of blood, processing fees and fees
                           related to autologous blood donations are covered.

                  17.      Cosmetic Services

                  18.      Custodial Care

                  19.      Special Remedial and Educational Services

                  20.      Experimental and Investigational Services

                  21.      Medical Supplies (except diabetic supplies)

                  22.      Infertility Services

                  23.      Rehabilitative Services for Substance Abuse

                  24.      Weight reduction programs or dietary supplements,
                           except surgical operations, procedures or treatment
                           of obesity when approved by the contractor

                  25.      Acupuncture and acupuncture therapy, except when
                           performed as a form of anesthesia in connection with
                           covered surgery

                  26.      Temporomandibular joint disorder treatment, including
                           treatment performed by prosthesis placed directly in
                           the teeth

                  27.      Recreational therapy

                  28.      Sleep therapy

                  29.      Court-ordered services

                  30.      Thermograms and thermography

                  31.      Biofeedback

                  32.      Radial keratotomy

4.1.7    SUPPLEMENTAL BENEFITS

         Any service, activity or product not covered under the State Plan may
         be provided by the contractor only through written approval by the
         Department and the cost of which shall be borne solely by the
         contractor.

4.1.8    CONTRACTOR AND DMAHS SERVICE EXCLUSIONS

         Neither the contractor nor DMAHS shall be responsible for the
         following:

         A.       All services not medically necessary, provided, approved or
                  arranged by a contractor's physician or other provider (within
                  his/her scope of practice) except emergency services.

         B.       Cosmetic surgery except when medically necessary and approved.

                                                                           IV-13
<PAGE>
         C.       Experimental organ transplants.

         D.       Services provided primarily for the diagnosis and treatment of
                  infertility, including sterilization reversals, and related
                  office (medical or clinic), drugs, laboratory services,
                  radiological and diagnostic services and surgical procedures.

         E.       Rest cures, personal comfort and convenience items, services
                  and supplies not directly related to the care of the patient,
                  including but not limited to, guest meals and accommodations,
                  telephone charges, travel expenses other than those services
                  not in Article 4.1 of this contract, take home supplies and
                  similar cost. Costs incurred by an accompanying parent(s) for
                  an out-of-state medical intervention are covered under EPSDT
                  by the contractor.

         F.       Services involving the use of equipment in facilities, the
                  purchase, rental or construction of which has not been
                  approved by applicable laws of the State of New Jersey and
                  regulations issued pursuant thereto.

         G.       All claims arising directly from services provided by or in
                  institutions owned or operated by the federal government such
                  as Veterans Administration hospitals.

         H.       Services provided in an inpatient psychiatric institution,
                  that is not an acute care hospital, to individuals under 65
                  years of age and over 21 years of age.

         I.       Services provided to all persons without charge. Services and
                  items provided without charge through programs of other public
                  or voluntary agencies (for example, New Jersey State
                  Department of Health and Senior Services, New Jersey Heart
                  Association, First Aid Rescue Squads, and so forth) shall be
                  utilized to the fullest extent possible.

         J.       Services or items furnished for any sickness or injury
                  occurring while the covered person is on active duty in the
                  military.

         K.       Services provided outside the United States and territories.

         L.       Services or items furnished for any condition or accidental
                  injury arising out of and in the course of employment for
                  which any benefits are available under the provisions of any
                  workers' compensation law, temporary disability benefits law,
                  occupational disease law, or similar legislation, whether or
                  not the Medicaid beneficiary claims or receives benefits
                  thereunder, and whether or not any recovery is obtained from a
                  third-party for resulting damages.

         M.       That part of any benefit which is covered or payable under any
                  health, accident, or other insurance policy (including any
                  benefits payable under the New Jersey no-fault automobile
                  insurance laws), any other private or governmental health
                  benefit

                                                                           IV-14
<PAGE>
                  system, or through any similar third-party liability, which
                  also includes the provision of the Unsatisfied Claim and
                  Judgment Fund.

         N.       Any services or items furnished for which the provider does
                  not normally charge.

         O.       Services furnished by an immediate relative or member of the
                  Medicaid beneficiary's household.

         P.       Services billed for which the corresponding health care
                  records do not adequately and legibly reflect the requirements
                  of the procedure described or procedure code utilized by the
                  billing provider.

         Q.       Services or items reimbursed based upon submission of a cost
                  study when there are no acceptable records or other evidence
                  to substantiate either the costs allegedly incurred or
                  beneficiary income available to offset those costs. In the
                  absence of financial records, a provider may substantiate
                  costs or available income by means of other evidence
                  acceptable to the Division.

4.2      SPECIAL PROGRAM REQUIREMENTS

4.2.1    EMERGENCY SERVICES

         A.       For purposes of this contract, "emergency" means an onset of a
                  medical or behavioral condition, the onset of which is sudden,
                  that manifests itself by symptoms of sufficient severity,
                  including severe pain, that a prudent layperson, who possesses
                  an average knowledge of medicine and health, could reasonably
                  expect the absence of immediate medical attention to result
                  in:

                  1.       Placing the health of the person or others in serious
                           jeopardy;

                  2.       Serious impairment to such person's bodily functions;

                  3.       Serious dysfunction of any bodily organ or part of
                           such person; or

                  4.       Serious disfigurement of such person.

                  With respect to a pregnant woman who is having contractions,
                  an emergency exists where there is inadequate time to effect a
                  safe transfer to another hospital before delivery or the
                  transfer may pose a threat to the health or safety of the
                  woman or the unborn child.

         B.       The contractor shall be responsible for emergency services,
                  both within and outside the contractor's enrollment area, as
                  required by an enrollee in the case of an emergency. Emergency
                  services shall also include:

                  1.       Medical examination at an Emergency Room which is
                           required by N.J.A.C. 10:122D-2.5(b) when a foster
                           home placement of a child occurs after business
                           hours.

                                                                           IV-15
<PAGE>
                  2.       Examinations at an Emergency Room for suspected
                           physical/child abuse and/or neglect.

                  3.       Post-Stabilization of Care. The contractor shall
                           comply with 42 C.F.R. 422.100(b)(iv). The contractor
                           must cover post-stabilization services without
                           requiring authorization and regardless of whether the
                           enrollee obtains the services within or outside the
                           contractor's network if:

                           a.       The services were pre-approved by the
                                    contractor or its providers; or

                           b.       The services were not pre-approved by the
                                    contractor because the contractor did not
                                    respond to the provider of
                                    post-stabilization care services' request
                                    for pre-approval within one (1) hour after
                                    being requested to approve such care; or

                           c.       The contractor could not be contacted for
                                    pre-approval.

         C.       Access Standards. The contractor shall ensure that all covered
                  services, that are required on an emergency basis are
                  available to all its enrollees, twenty-four (24) hours per
                  day, seven (7) days per week, either in the contractor's own
                  provider network or through arrangements approved by DMAHS.
                  The contractor shall maintain twenty-four (24) hours per day,
                  seven (7) days per week on-call telephone coverage, including
                  Telecommunication Device for the Deaf (TDD)/Tech Telephone
                  (TT) systems, to advise enrollees of procedures for emergency
                  and urgent care and explain procedures for obtaining
                  non-emergent/ non-urgent care during regular business hours
                  within the enrollment area as well as outside the enrollment
                  area.

         D.       Non-Participating Providers. The contractor shall be
                  responsible for developing and advising its enrollees and
                  where applicable, authorized persons of procedures for
                  obtaining emergency services, including emergency dental
                  services, when it is not medically feasible for enrollees to
                  receive emergency services from or through a participating
                  provider, or when the time required to reach the participating
                  provider would mean risk of permanent damage to the enrollee's
                  health. The contractor shall bear the cost of providing
                  emergency service through non-participating providers.

         E.       Emergency Care Prior Authorization. Prior authorization shall
                  not be required for emergency services. This applies to
                  out-of-network as well as to in-network providers.

         F.       Medical Screenings/Urgent Care. Prior authorization shall not
                  be required for medical screenings or in urgent care
                  situations at the hospital emergency room. The hospital
                  emergency room physician may determine the necessity for

                                                                           IV-16
<PAGE>
                  contacting the PCP or the contractor for information about an
                  enrollee who presents with an urgent condition.

         G.       The contractor shall pay for all medical screening services
                  rendered to its enrollees by hospitals and emergency room
                  physicians. The amount and method of reimbursement for medical
                  screenings shall be subject to negotiation between the
                  contractor and the hospital and directly with non-hospital
                  salaried emergency room physicians and shall include
                  reimbursement for urgent care and non-urgent care rates.
                  Non-participating hospitals may be reimbursed for hospital
                  costs at Medicaid rates or other mutually agreeable rates for
                  medical screening services. Additional fees for additional
                  services may be included at the discretion of the contractor
                  and the hospital.

                  1.       The contractor shall not retroactively deny a claim
                           for an emergency medical screening exam because the
                           condition, which appeared to be an emergency medical
                           condition under the prudent layperson standard, was
                           subsequently determined to be non-emergency in
                           nature.

         H.       The contractor shall be liable for payment for the following
                  emergency services provided to an enrollee:

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

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

                           If there is a disagreement between a hospital and the
                           contractor concerning whether the patient is stable
                           enough for discharge or transfer, or whether the
                           medical benefits of an unstabilized transfer outweigh
                           the risks, the judgment of the attending physician(s)
                           actually caring for the enrollee at the treating
                           facility prevails and is binding on the contractor.
                           The contractor may establish arrangements with
                           hospitals whereby the contractor may send one of its
                           physicians with appropriate ER privileges to assume
                           the attending physician's responsibilities to
                           stabilize, treat, or transfer the patient.

                  3.       If the screening examination leads to a clinical
                           determination by the examining physician that an
                           actual emergency medical condition does not exist,
                           but the enrollee had acute symptoms of sufficient
                           severity at the time of presentation to warrant
                           emergency attention under the prudent

                                                                           IV-17
<PAGE>
                           layperson standard, the contractor shall pay for all
                           services related to the screening examination.

                  4.       The enrollee's PCP or other contractor representative
                           instructs the enrollee to seek emergency care
                           in-network or out-of-network, whether or not the
                           patient meets the prudent layperson definition.

         I.       The contractor may utilize a common list of symptom-based
                  presenting complaints that will reasonably substantiate that
                  an emergent/urgent medical condition existed. Some examples
                  include but are not limited to:

                  1.       Severe pain of any kind.

                  2.       Altered mental status, sustained or transient, for
                           any reason.

                  3.       Abrupt change in neurological status, sustained or
                           transient, for any reason.

                  4.       Complications of pregnancy.

                  5.       Chest pain.

                  6.       Acute allergic reactions.

                  7.       Shortness of breath.

                  8.       Abdominal pain.

                  9.       Multiple episodes of vomiting or diarrhea, any age.

                  10.      Fever greater than 102.5oF in any age group.

                  11.      Fever greater than 100.4oF in infants three months or
                           younger.

                  12.      Injuries with active bleeding.

                  13.      Injuries with functional loss of any body part.

                  14.      All patients arriving at the hospital by ambulance
                           after an injury with any body part immobilized.

                  15.      All patients arriving at the hospital by paramedic
                           ambulance.

                  16.      Symptoms of substance abuse.

                  17.      Psychiatric disturbances.

         J.       Women who arrive at any emergency room in active labor shall
                  be considered as an emergency situation and the contractor
                  shall reimburse providers of care accordingly.

         K.       If within thirty (30) minutes after receiving a request from a
                  hospital emergency department for a specialty consultation,
                  the contractor fails to identify an appropriate specialist who
                  is available and willing to assume the care of the enrollee,
                  the emergency department may arrange for medically necessary
                  emergency services by an appropriate specialist, and the
                  contractor shall not deny coverage for these services due to
                  lack of prior authorization. The contractor shall not require
                  prior authorization for specialty care emergency services for
                  treatment of any immediately life-threatening medical
                  condition.

         L.       The contractor shall establish and maintain policies and
                  procedures for emergency dental services for all enrollees.

                                                                           IV-18
<PAGE>
                  1.       Within the contractor's Enrollment/Service Area, the
                           contractor will ensure that:

                           a.       Enrollees shall have access to emergency
                                    dental services on a twenty-four (24) hour,
                                    seven (7) day a week basis.

                           b.       The contractor shall bear full
                                    responsibility for the provision of
                                    emergency dental services, and shall assure
                                    the availability of a back-up provider in
                                    the event that an on-call provider is
                                    unavailable.

                  2.       Outside the contractor's Service Area, the contractor
                           shall ensure that:

                           a.       Enrollees shall be able to seek emergency
                                    dental services from any licensed dental
                                    provider without the need for prior
                                    authorization from the contractor while
                                    outside the Service Area (including out-of-
                                    state services covered by the Medicaid
                                    program).

         M.       The contractor shall reimburse ambulance and MICU
                  transportation providers responding to "911" calls whether or
                  not the patient's condition is determined, retrospectively, to
                  be an emergency.

4.2.2    FAMILY PLANNING SERVICES AND SUPPLIES

         A.       General. Except where specified in Section 4.1, the
                  contractor's enrollees are permitted to obtain family planning
                  services and supplies from either the contractor's family
                  planning provider network or from any other qualified Medicaid
                  family planning provider. The DMAHS shall reimburse family
                  planning services provided by non-participating providers
                  based on the Medicaid fee schedule.

         B.       Non-Participating Providers. The contractor shall cooperate
                  with nonparticipating family planning providers accessed at
                  the enrollee's option by establishing cooperative working
                  relationships with such providers for accepting referrals from
                  them for continued medical care and management of complex
                  health care needs and exchange of enrollee information, where
                  appropriate, to assure provision of needed care within the
                  scope of this contract. The contractor shall not deny coverage
                  of family planning services for a covered diagnostic,
                  preventive or treatment service solely on the basis that the
                  diagnosis was made by a non-participating provider.

                                                                           IV-19
<PAGE>
4.2.3    OBSTETRICAL SERVICES REQUIREMENTS/ISSUES

         A.       Obstetrical services shall be provided in the same amount,
                  duration, and scope as the Medicaid HealthStart program.
                  Guidelines, standards, and required program provisions are
                  found in Section B.4.2 of the Appendices.

         B.       The contractor shall not limit benefits for postpartum
                  hospital stays to less than forty-eight (48) hours following a
                  normal vaginal delivery or less than ninety-six (96) hours
                  following a cesarean section, unless the attending provider,
                  in consultation with the mother, makes the decision to
                  discharge the mother or the newborn before that time and the
                  provisions of N.J.S.A. 26:2J-4.9 are met.

                  1.       The contractor shall not provide monetary payments or
                           rebates to mothers to encourage them to accept less
                           than the minimum protections provided for in this
                           Article.

                  2.       The contractor shall not penalize, reduce, or limit
                           the reimbursement of an attending provider because
                           the provider provided care in a manner consistent
                           with this Article.

4.2.4    PRESCRIBED DRUGS AND PHARMACY SERVICES

         A.       General. The contractor shall provide all medically necessary
                  legend and non-legend drugs which are also covered by the
                  Medicaid program and ensure the availability of quality
                  pharmaceutical services for all enrollees including drugs
                  prescribed by Mental Health/Substance Abuse providers. See
                  Article 4.4C for additional information pertaining to MH/SA
                  pharmacy benefits.

         B.       Use of Formulary. The contractor may use a formulary as long
                  as the following minimum requirements are met:

                  1.       The contractor shall only exclude coverage of drugs
                           or drug categories permitted under 1927(d) of the
                           Social Security Act as amended by OBRA 1993. In
                           addition, the contractor shall include in its
                           formulary, if it chooses to operate a formulary, any
                           FDA-approved drugs that may allow for clinical
                           improvement or are clinically advantageous for the
                           management of a disease or condition.

                  2.       The contractor's formulary shall be developed by a
                           Pharmacy and Therapeutics (P&T) Committee that shall
                           represent the needs of all its enrollees including
                           enrollees with special needs. Network physicians and
                           dentists shall have the opportunity to participate in
                           the development of the formulary and, prior to any
                           changes to a drug formulary, to review, consider and
                           comment on proposed changes. The formulary shall be
                           reviewed in its entirety and updated at least
                           annually.

                                                                           IV-20
<PAGE>
                  3.       The formulary for the DMAHS pharmacy benefit and any
                           revision thereto shall be reviewed and approved by
                           DMAHS.

                  4.       The formulary shall include only FDA approved drug
                           products. For each Specific Therapeutic Drug (STD)
                           class, the selection of drugs included for each drug
                           class shall be sufficient to ensure the availability
                           of covered drugs with the least need for prior
                           authorization to be initiated by providers of
                           pharmaceutical services and include FDA approved
                           drugs to best serve the medical needs of enrollees
                           with special needs. In addition, the formulary shall
                           be revised periodically to assure compliance with
                           this requirement.

                  5.       The contractor shall authorize the provision of a
                           drug not on the formulary requested by the PCP or
                           referral provider on behalf of the enrollee if the
                           approved prescriber certifies medical necessity for
                           the drug to the contractor for a determination.
                           Medically accepted indications shall be consistent
                           with Section 1927(k)(6) of the Social Security Act.
                           The contractor shall have in place a DMAHS-approved
                           prior approval process for authorizing the dispensing
                           of such drugs. In addition:

                           a.       Any prior approval issued by the contractor
                                    shall take into consideration prescription
                                    refills related to the original pharmacy
                                    service.

                           b.       A formulary shall not be used to deny
                                    coverage of any Medicaid covered outpatient
                                    drug determined medically necessary through
                                    the review and appeal process. The prior
                                    approval process shall be used to ensure
                                    drug coverage consistent with the policies
                                    of the New Jersey Medicaid program.

                           c.       Prior approval may be used for covered drug
                                    products under the following conditions:

                                    i.       For prescribing and dispensing
                                             medically necessary non-formulary
                                             drugs.

                                    ii.      To limit drug coverage consistent
                                             with the policies of the Medicaid
                                             program.

                                    iii.     To minimize potential drug
                                             over-utilization.

                                    iv.      To accommodate exceptions to
                                             Medicaid drug utilization review
                                             standards related to proper
                                             maintenance drug therapy.

                           d.       Except for the use of approved generic drug
                                    substitution of brand drugs, under no
                                    circumstances shall the contractor permit
                                    the therapeutic substitution of a prescribed
                                    drug without a prescriber's authorization.

                                                                           IV-21
<PAGE>
                           e.       The contractor shall not penalize the
                                    prescriber or enrollee, financially or
                                    otherwise, for such requests and approvals.

                           f.       Determinations shall be made within
                                    twenty-four (24) hours of receipt of all
                                    necessary information. A seventy-two
                                    (72)-hour supply of medication shall be
                                    permitted without prior authorization in
                                    emergency situations or if a determination
                                    has not been made within the required
                                    timeframe.

                           g.       Denials of off-formulary requests or
                                    offering of an alternative medication shall
                                    be provided to the prescriber and/or
                                    enrollee in writing. All denials shall be
                                    reported to the DMAHS quarterly.

                  6.       The contractor shall publish and distribute hard copy
                           or on-line, at least annually, its current formulary
                           (if the contractor uses a formulary) to all
                           prescribing providers and pharmacists. Updates to the
                           formulary shall be distributed in all formats within
                           sixty (60) days of the changes.

                  7.       If the formulary includes generic equivalents, the
                           contractor shall provide for a brand name exception
                           process for prescribers to use when medically
                           necessary.

                  8.       The contractor shall establish and maintain a
                           procedure, approved by DMAHS, for internal review and
                           resolution of complaints, such as timely access and
                           coverage issues, drug utilization review, and claim
                           management based on standards of drug utilization
                           review.

         C.       Pharmacy Lock-In Program. The contractor may implement a
                  pharmacy lock-in program including policies, procedures and
                  criteria for establishing the need for the lock-in which must
                  be prior approved by DMAHS and must include the following
                  components to the program:

                  1.       Enrollees shall be notified prior to the lock-in and
                           must be permitted to choose or change pharmacies for
                           good cause.

                  2.       A seventy-two (72)-hour emergency supply of
                           medication at pharmacies other than the designated
                           lock-in pharmacy shall be permitted to assure the
                           provision of necessary medication required in an
                           interim/urgent basis when the assigned pharmacy does
                           not immediately have the medication.

                  3.       Care management and education reinforcement of
                           appropriate medication/pharmacy use shall be
                           provided. A plan for an education program for
                           enrollees shall be developed and submitted for review
                           and approval.

                                                                           IV-22
<PAGE>
                  4.       The continued need for lock-in shall be periodically
                           (at least every two years) evaluated by the
                           contractor for each enrollee in the program.

                  5.       Prescriptions from all participating prescribers
                           shall be honored and may not be required to be
                           written by the PCP only.

                  6.       The contractor shall fill medications prescribed by
                           mental health/substance abuse providers, subject to
                           the limitations described in Article 4.4C.

                  7.       The contractor shall submit quarterly reports on
                           Pharmacy Lock-in participants. See Section A.7.17 of
                           the Appendices (Table 15).

         D.       The contractor shall develop criteria and protocols to avoid
                  enrollee injury due to the prescribing of drugs by more than
                  one provider.

4.2.5    LABORATORY SERVICES

         A.       Urgent/Emergent Results. The contractor shall develop policies
                  and procedures to require providers to notify enrollees of
                  laboratory and radiology results within twenty-four (24) hours
                  of receipt of results in urgent or emergent cases. The
                  contractor may allow its providers to arrange an appointment
                  to discuss laboratory/radiology results within 24 hours of
                  receipt of results when it is deemed face-to-face discussion
                  with the enrollee/authorized person may be necessary.
                  Urgent/emergency appointment standards must be followed (see
                  Article 5.12). Rapid strep test results must be available to
                  the enrollee within 24 hours of the test.

         B.       Routine Results. The contractor shall assure that its
                  providers establish a mechanism to notify enrollees of
                  non-urgent or non-emergent laboratory and radiology results
                  within ten business days of receipt of the results.

         C.       The contractor shall reimburse, on a fee-for service basis,
                  PCPs and other providers for blood drawing in the office for
                  lead screening.

4.2.6    EPSDT SCREENING SERVICES

         A.       The contractor shall comply with EPSDT program requirements
                  and performance standards found below.

                  1.       The contractor shall provide EPSDT services.

                  2.       NJ FamilyCare Plans B and C. For children eligible
                           solely through NJ FamilyCare Plans B and C, coverage
                           includes all preventive screening and diagnostic
                           services, medical examinations, immunizations,
                           dental, vision, lead screening and hearing services.
                           Includes only those treatment services identified
                           through the examination that are included under the
                           contractor's benefit package or specified services
                           through the FFS

                                                                           IV-23
<PAGE>
                           program. Other services identified through an EPSDT
                           examination that are not included in the New Jersey
                           Care 2000+ covered benefits package are not covered.

                  3.       Enrollee Notification. The contractor shall provide
                           written notification to its enrollees under
                           twenty-one (21) years of age when appropriate
                           periodic assessments or needed services are due and
                           must coordinate appointments for care.

                  4.       Missed Appointments. The contractor shall implement
                           policies and procedures and shall monitor its
                           providers to provide follow up on missed appointments
                           and referrals for problems identified through the
                           EPSDT exams. Reasonable outreach shall be documented
                           and must consist of: mailers, certified mail as
                           necessary; use of MEDM system provided by the State;
                           and contact with the Medicaid District Office (MDO),
                           DDD, or DYFS regional offices in the case of DYFS
                           enrollees to confirm addresses and/or to request
                           assistance in locating an enrollee.

                  5.       PCP Notification. The contractor shall provide each
                           PCP, on a calendar quarter basis, a list of the PCP's
                           enrollees who have not had an encounter during the
                           past year and/or who have not complied with the EPSDT
                           periodicity and immunization schedules for children.
                           Primary care sites/PCPs and/or the contractor shall
                           be required to contact these enrollees to arrange an
                           appointment. Documentation of the outreach efforts
                           and responses is required.

                  6.       Reporting Standards. The contractor shall submit
                           quarterly reports, hard copy and on diskette, of
                           EPSDT services. See Section A.7.16 of the Appendices
                           (Table 14).

         B.       Section 1905(r) of the Social Security Act (42 U.S.C. 1396d)
                  and federal regulation 42 C.F.R. 441.50 et seq. requires EPSDT
                  services to include:

                  1.       EPSDT Services which include:

                           a.       A comprehensive health and developmental
                                    history including assessments of both
                                    physical and mental health development and
                                    the provision of all diagnostic and
                                    treatment services that are medically
                                    necessary to correct or ameliorate a
                                    physical or mental condition identified
                                    during a screening visit. The contractor
                                    shall have procedures in place for referral
                                    to the State or its agent for non-covered
                                    mental health/substance abuse services.

                           b.       A comprehensive unclothed physical
                                    examination including:

                                    -    Vision and hearing screening;

                                                                           IV-24
<PAGE>
                                    -    Dental inspection; and

                                    -    Nutritional assessment.

                           c.       Appropriate immunizations according to age,
                                    health history and the schedule established
                                    by the Advisory Committee on Immunization
                                    Practices (ACIP) for pediatric vaccines (See
                                    Section B.4.3 of the Appendices). Contractor
                                    and its providers must adjust for periodic
                                    changes in recommended types and schedule of
                                    vaccines. Immunizations must be reviewed at
                                    each screening examination as well as during
                                    acute care visits and necessary
                                    immunizations must be administered when not
                                    contraindicated. Deferral of administration
                                    of a vaccine for any reason must be
                                    documented.

                           d.       Appropriate laboratory tests: A recommended
                                    sequence of screening laboratory
                                    examinations must be provided by the
                                    contractor. The following list of screening
                                    tests is not all inclusive:

                                    -    Hemoglobin/hematocrit/EP

                                    -    Urinalysis

                                    -    Tuberculin test - intradermal,
                                         administered annually and when
                                         medically indicated

                                    -    Lead screening using blood lead level
                                         determinations must be done for every
                                         Medicaid-eligible and NJ FamilyCare
                                         child:

                                         -    between nine (9) months and
                                              eighteen (18) months,
                                              preferably at twelve (12)
                                              months of age

                                         -    at 18-26 months, preferably at
                                              twenty-four (24) months of age

                                         -    test any child between
                                              twenty-seven (27) to
                                              seventy-two (72) months of age
                                              not previously tested

                                    -    Additional laboratory tests may be
                                         appropriate and medically indicated
                                         (e.g., for ova and parasites) and shall
                                         be obtained as necessary.

                           e.       Health education/anticipatory guidance.

                           f.       Referral for further diagnosis and treatment
                                    or follow-up of all abnormalities which are
                                    treatable/correctable or require maintenance
                                    therapy uncovered or suspected (referral may
                                    be to the provider conducting the screening
                                    examination, or to another provider, as
                                    appropriate.)

                           g.       EPSDT screening services shall reflect the
                                    age of the child and be provided
                                    periodically according to the following
                                    schedule:

                                                                           IV-25
<PAGE>
                                    -    Neonatal exam

                                    -    Under six (6) weeks

                                    -    Two (2) months

                                    -    Four (4) months

                                    -    Six (6) months

                                    -    Nine (9) months

                                    -    Twelve (12) months

                                    -    Fifteen (15) months

                                    -    Eighteen (18) months

                                    -    Twenty-four (24) months

                                    -    Annually through age twenty (20)

                  2.       Vision Services. At a minimum, include diagnosis and
                           treatment for defects in vision, including
                           eyeglasses. Vision screening in an infant means, at a
                           minimum, eye examination and observation of responses
                           to visual stimuli. In an older child, screening for
                           distant visual acuity and ocular alignment shall be
                           done for each child beginning at age three.

                  3.       Dental Services. Dental services may not be limited
                           to emergency services. Dental screening in this
                           context means, at a minimum, observation of tooth
                           eruption, occlusion pattern, presence of caries, or
                           oral infection. A referral to a dentist at or after
                           one year of age is recommended. A referral to a
                           dentist is mandatory at three years of age and
                           annually thereafter through age twenty (20) years.

                  4.       Hearing Services. At a minimum, include diagnosis and
                           treatment for defects in hearing, including hearing
                           aids. For infants identified as at risk for hearing
                           loss through the New Jersey Newborn Hearing Screening
                           Program, hearing screening should be conducted prior
                           to three months of age using professionally
                           recognized audiological assessment techniques. For
                           all other children, hearing screening means, at a
                           minimum, observation of an infant's response to
                           auditory stimuli and audiogram for a child three (3)
                           years of age and older. Speech and hearing assessment
                           shall be a part of each preventive visit for an older
                           child.

                  5.       Mental Health/Substance Abuse. Include a mental
                           health/substance abuse assessment documenting
                           pertinent findings. When there is an indication of
                           possible MH/SA issues, a mental health/substance
                           abuse screening tool(s) found in Section B.4.9 of the
                           Appendices or a DHS - approved equivalent shall be
                           used to evaluate the enrollee.

                  6.       Such other necessary health care, diagnostic
                           services, treatment, and other measures to correct or
                           ameliorate defects, and physical and mental/substance
                           abuse illnesses and conditions discovered by the
                           screening services.

                                                                           IV-26
<PAGE>
                  7.       Lead Screening. The contractor shall provide a
                           screening program for the presence of lead toxicity
                           in children which shall consist of two components:
                           verbal risk assessment and blood lead testing.

                           a.       Verbal Risk Assessment - The provider shall
                                    perform a verbal risk assessment for lead
                                    toxicity at every periodic visit between the
                                    ages of six (6) and seventy-two (72) months
                                    as indicated on the schedule. The verbal
                                    risk assessment includes, at a minimum, the
                                    following types of questions:

                                    i.       Does your child live in or
                                             regularly visit a house built
                                             before 1960? Does the house have
                                             chipping or peeling paint?

                                    ii.      Was your child's day care
                                             center/preschool/babysitter's home
                                             built before 1960? Does the house
                                             have chipping or peeling paint?

                                    iii.     Does your child live in or
                                             regularly visit a house built
                                             before 1960 with recent, ongoing,
                                             or planned renovation or
                                             remodeling?

                                    iv.      Have any of your children or their
                                             playmates had lead poisoning?

                                    v.       Does your child frequently come in
                                             contact with an adult who works
                                             with lead? Examples include
                                             construction, welding, pottery, or
                                             other trades practiced in your
                                             community.

                                    vi.      Do you give your child home or folk
                                             remedies that may contain lead?

                                    Generally, a child's level of risk for
                                    exposure to lead depends upon the answers to
                                    the above questions. If the answer to all
                                    questions are negative, a child is
                                    considered at low risk for high doses of
                                    lead exposure. If the answers to any
                                    question is affirmative or "I don't know," a
                                    child is considered at high risk for high
                                    doses of lead exposure. Regardless of risk,
                                    each child must be tested between nine (9)
                                    months and eighteen (18) months, preferably
                                    at twelve (12) months of age, at 18-26
                                    months, preferably at two (2) years, and any
                                    child between twenty-seven (27) and
                                    seventy-two (72) months of age not
                                    previously tested. A child's risk category
                                    can change with each administration of the
                                    verbal risk assessment.

                                                                           IV-27
<PAGE>
                           b.       Blood Lead Testing - All screening must be
                                    done through a blood lead level
                                    determination. The contractor must implement
                                    a screening program to identify and treat
                                    high-risk children for leadexposure and
                                    toxicity. The screening program shall
                                    include blood level screening, diagnostic
                                    evaluation and treatment with follow-up care
                                    of children whose blood lead levels are
                                    elevated. The EP test is no longer
                                    acceptable as a screening test for lead
                                    poisoning; however, it is still valid as a
                                    screening test for iron deficiency anemia.
                                    Screening blood lead testing may be
                                    performed by either a capillary sample
                                    (fingerstick) or a venous sample. However,
                                    all elevated blood levels (equal to or
                                    greater than ten (10) micrograms per one (1)
                                    deciliter) obtained through a capillary
                                    sample must be confirmed by a venous sample.
                                    The blood lead test must be performed by a
                                    New Jersey Department of Health and Senior
                                    Services licensed laboratory. The frequency
                                    with which the blood test is to be
                                    administered depends upon the results of the
                                    verbal risk assessment. For children
                                    determined to be at low risk for high doses
                                    of lead exposure, a screening blood lead
                                    test must be performed once between the ages
                                    of nine (9) and eighteen (18) months,
                                    preferably at twelve (12) months, once
                                    between 18-26 months, preferably at
                                    twenty-four (24) months, and for any child
                                    between twenty-seven (27) and seventy-two
                                    (72) months not previously tested. For
                                    children determined to be at high risk for
                                    high doses of lead exposure, a screening
                                    blood test must be performed at the time a
                                    child is determined to be a high risk
                                    beginning at six months of age if there is
                                    pertinent information or evidence that the
                                    child may be at risk at younger ages than
                                    stated in 4.2.6B.1.d.

                                    i.       If the initial blood lead test
                                             results are less than ten (10)
                                             micrograms per deciliter, a verbal
                                             risk assessment is required at
                                             every subsequent periodic visit
                                             through seventytwo (72) months of
                                             age, with mandatory blood lead
                                             testing performed according to the
                                             schedule in 4.2.6B.7.

                                    ii.      If the child is found to have a
                                             blood lead level equal to or
                                             greater than ten (10) micrograms
                                             per deciliter, providers should use
                                             their professional judgment, in
                                             accordance with the CDC guidelines
                                             regarding patient management and
                                             treatment, as well as follow-up
                                             blood test.

                                    iii.     If a child between the ages of
                                             twenty-four (24) months and
                                             seventy-two (72) months has not
                                             received a screening blood lead
                                             test, the child must receive the
                                             blood lead test immediately,
                                             regardless of whether the child is
                                             determined

                                                                           IV-28
<PAGE>
                                             to be a low or high risk according
                                             to the answers to the above-listed
                                             questions.

                                    iv.      When a child is found to have a
                                             blood lead level equal to or
                                             greater than twenty (20) ug/dl, the
                                             contractor shall ensure its PCPs
                                             cooperate with the local health
                                             department in whose jurisdiction
                                             the child resides to facilitate the
                                             environmental investigation to
                                             determine and remediate the source
                                             of lead. This cooperation shall
                                             include sharing of information
                                             regarding the child's care,
                                             including the scheduling and
                                             results of follow-up blood lead
                                             tests.

                                    v.       When laboratory results are
                                             received, the contractor shall
                                             require PCPs to report to the
                                             contractor all children with blood
                                             lead levels > than = to 10 ug/dl.
                                             Conversely, when a provider other
                                             than the PCP has reported the lead
                                             screening test to the contractor,
                                             the contractor shall ensure that
                                             this information is transmitted to
                                             the PCP.

                           c.       On a semi-annual basis, the contractor shall
                                    outreach, via letters and informational
                                    materials to parents/custodial caregivers of
                                    all children enrolled in the contractor's
                                    plan who have not been screened, educating
                                    them as to the need for a lead screen and
                                    informing them how to obtain lead screening
                                    and transportation to the screening
                                    location.

                                    i.       The contractor shall provide to
                                             DMAHS, 45 days after the end of
                                             each semi-annual reporting period,
                                             documentation of all lead outreach
                                             activities including the
                                             distribution of the letters and
                                             informational materials indicated
                                             above.

                                    ii.      The contractor shall implement a
                                             corrective action plan, which
                                             describes the interventions to be
                                             taken to outreach
                                             parents/caregivers who do not
                                             respond to the letters and outreach
                                             indicated above. Corrective actions
                                             may include interventions such as
                                             telephone follow-up, home visits,
                                             or other actions proposed by the
                                             contractor and incorporated in the
                                             corrective action plan for review
                                             and approval by DMAHS.

                           d.       On an annual basis, the contractor shall
                                    send letters to PCPs who have lead screening
                                    rates of less than 80% for two consecutive
                                    six-month periods, educating them on the
                                    need and their responsibility to provide
                                    lead screening services.

                                                                           IV-29
<PAGE>
                                    i.       The contractor shall provide to
                                             DMAHS documentation as to the
                                             efforts made to educate providers
                                             with low screening rates.

                                    ii.      The contractor shall implement
                                             corrective action plans that
                                             describe interventions to be taken
                                             to identify and correct
                                             deficiencies and impediments to the
                                             screening and how the effectiveness
                                             of its interventions will be
                                             measured.

                           e.       On a quarterly basis, the contractor shall
                                    submit to DMAHS a report of all
                                    lead-burdened children who are receiving
                                    treatment and case management services.

                           f.       Lead Case Management Program. The contractor
                                    shall establish a Lead Case Management
                                    Program (LCMP) and have written policies and
                                    procedures for the enrollment of children
                                    with blood lead levels > than = to 10 ug/dl
                                    and members of the same household who are
                                    between six months and six years of age,
                                    into the contractor's LCMP.

                                    i.       Lead Case Management shall consist
                                             of, at a minimum:

                                             1)    Follow-up of a child in need
                                                   of lead screening, or who has
                                                   been identified with an
                                                   elevated blood lead level >
                                                   than = to 10 ug/dl. At
                                                   minimum, follow-up shall
                                                   include:

                                                   A)    For a child with an
                                                         elevated blood lead
                                                         level > than = to 10
                                                         ug/dl, the Plan's LCM
                                                         shall ascertain if the
                                                         blood lead level has
                                                         been confirmed by a
                                                         venous blood
                                                         determination. In the
                                                         absence of confirmatory
                                                         test results, the LCM
                                                         will arrange for a
                                                         test.

                                                   B)    For a child with a
                                                         confirmed blood
                                                         (venous) lead level of
                                                         > than = to 10 ug/dl,
                                                         the contractor's LCM
                                                         shall notify and
                                                         provide to the local
                                                         health department the
                                                         child's name, primary
                                                         health care provider's
                                                         name, the confirmed
                                                         blood lead level, and
                                                         any other pertinent
                                                         information.

                                             2)     Education of the family
                                                    about all aspects of lead
                                                    hazard and toxicity.
                                                    Materials shall explain the
                                                    sources of lead exposure,
                                                    the consequences of elevated
                                                    blood levels, preventive
                                                    measures,

                                                                           IV-30
<PAGE>
                                                    including housekeeping,
                                                    hygiene, and appropriate
                                                    nutrition. The reasons why
                                                    it is necessary to follow a
                                                    prescribed medical regimen
                                                    shall also be explained.

                                             3)     Communication among all
                                                    interested parties.

                                             4)     Development of a written
                                                    case management plan with
                                                    the PCP and the child's
                                                    family and other interested
                                                    parties. The case management
                                                    plan shall be reviewed and
                                                    updated on an ongoing basis.

                                             5)     Coordination of the various
                                                    aspects of the affected
                                                    child's care, e.g., WIC,
                                                    support groups, and
                                                    community resources, and

                                             6)     Aggressively pursuing
                                                    non-compliance with follow-
                                                    up tests and appointments,
                                                    and document these
                                                    activities in the LCMP.

                                    ii.      Active case management may be
                                             discontinued if one of the
                                             following criteria has been met:

                                             1)     The child has two confirmed
                                                    blood lead levels < 10 ug/dl
                                                    drawn at least three months
                                                    apart and all other children
                                                    under the age of six years
                                                    living in the household who
                                                    have been tested and their
                                                    blood levels are < 10 ug/dl,
                                                    and the sources of lead have
                                                    been identified and reduced,
                                                    or

                                             2)     The family has been
                                                    permanently relocated to a
                                                    lead-safe house, or

                                             3)     The parent/guardian has
                                                    given a written refusal of
                                                    service, or

                                             4)     The LCM is unable to locate
                                                    the child after a minimum of
                                                    three documented attempts,
                                                    using the assistance of
                                                    County Board of Social
                                                    Services, and the LHD. The
                                                    child's PCP will be notified
                                                    in writing.

                                                                           IV-31
<PAGE>
4.2.7    IMMUNIZATIONS

         A.       General. The contractor shall ensure that its providers
                  furnish immunizations to its enrollees in accordance with the
                  most current recommendations for vaccines and periodicity
                  schedule of the Advisory Committee on Immunization Practices
                  (ACIP) (See Section B.4.3 of the Appendices) and any
                  subsequent revision to the schedule as formally recommended by
                  the ACIP, whether or not included as a contract amendment. To
                  the extent possible, the State will provide copies of updated
                  schedules and vaccine recommendations.

         B.       New Vaccines. New vaccines and/or new scheduling or method of
                  administration shall be provided as recommended by the ACIP.
                  The contractor shall monitor periodic recommendations and
                  disseminate updated instruction to its providers and assure
                  appropriate payment adjustment to its providers.

         C.       The contractor shall build in provisions for appropriate
                  reimbursement for catch-up immunizations its providers shall
                  provide for those pediatric enrollees who have missed
                  age-appropriate vaccines.

         D.       Vaccines for Children Program

                  1.       Contractor's providers must enroll with the
                           Department of Health and Senior Services' Vaccines
                           for Children (VFC) Program and use the free vaccine
                           for its enrollees if the vaccine is covered by VFC.
                           (See Section B.4.4 of the Appendices for list of
                           vaccines to be covered by the NJ DHSS VFC program.)
                           The contractor shall not receive from DHS any
                           reimbursement for the cost of VFC-covered vaccines.

                  2.       For non-VFC vaccines the contractor shall reimburse
                           its providers for the cost of both administration and
                           the vaccines.

         E.       To the extent possible, and as permitted by New Jersey
                  statutes and regulations, the contractor and its network
                  providers shall participate in the Statewide immunization
                  registry database, when it becomes fully operational.

         F.       The contractor shall provide immunizations recommended by
                  local health departments based on local epidemiological
                  conditions.

4.2.8    CLINICAL TRIALS

         A.       The contractor shall permit participation in an approved
                  clinical trial to a qualified enrollee (as defined in 4.2.8B),
                  and the contractor:

                  1.       May not deny the enrollee participation in the
                           clinical trial referred to in 4.2.8B.2.

                                                                           IV-32
<PAGE>
                  2.       Subject to 4.2.8C, may not deny (or limit or impose
                           additional conditions on) the coverage of routine
                           patient costs for items and services furnished in
                           connection with participation in the trial.

                  3.       May not discriminate against the enrollee on the
                           basis of the enrollee's participation in such trial.

         B.       Qualified Enrollee Defined. For purposes of this Article, the
                  term "qualified enrollee" means an enrollee under the
                  contractor's coverage who meets the following conditions:

                  1.       The enrollee has a life-threatening or serious
                           illness for which no standard treatment is effective;

                  2.       The enrollee is eligible to participate in an
                           approved clinical trial with respect to treatment of
                           such illness;

                  3.       The enrollee and the referring physician conclude
                           that the enrollee's participation in such trial would
                           be appropriate; and

                  4.       The enrollee's participation in the trial offers
                           potential for significant clinical benefit for the
                           enrollee.

         C.       Payment. The contractor shall provide for payment for medical
                  problems/complications and for routine patient costs described
                  in Article 4.2.8A2 but is not required to pay for costs of
                  items and services that are reasonably expected to be paid for
                  by the sponsors of an approved clinical trial.

         D.       Approved Clinical Trial. For purposes of this Article, the
                  term "approved clinical trial" means a clinical research study
                  or clinical investigation that meets the following
                  requirements:

                  1.       The trial is approved and funded by one or more of
                           the following:

                           a.       The National Institutes of Health

                           b.       A cooperative group or center of the
                                    National Institutes of Health

                           c.       The Department of Veterans Affairs

                           d.       The Department of Defense

                           e.       The Food and Drug Administration, in the
                                    form of an investigational new drug (IND)
                                    exemption

                  2.       The facility and personnel providing the treatment
                           are capable of doing so by virtue of their experience
                           or training.

                  3.       There is no alternative noninvestigational therapy
                           that is clearly superior.

                                                                           IV-33
<PAGE>
                  4.       The available clinical or preclinical data provide a
                           reasonable expectation that the protocol treatment
                           will be at least as effective as the
                           noninvestigational alternative.

         E.       Coverage of Investigational Treatment. The contractor should
                  make a determination for coverage/denial of experimental
                  treatment for a terminal condition based on the following:

                  1.       The treating physician refers the case to a
                           contractor internal review group not associated with
                           the case or referral center.

                  2.       If the internal review group denies the referral, a
                           second, ad hoc group with two or more experts in the
                           field and not involved with the case must review the
                           case.

         F.       Experimental treatments for rare disorders shall not be
                  automatically excluded from coverage but decisions regarding
                  their medical necessity should be considered by a medical
                  review board established by the contractor. Routine costs
                  associated with investigational procedures that are part of an
                  approved research trial are considered medically appropriate.
                  Under no circumstances shall the contractor implement a
                  medical necessity standard that arbitrarily limits coverage on
                  the basis of the illness or condition itself.

4.2.9    HEALTH PROMOTION AND EDUCATION PROGRAMS

         The contractor shall identify relevant community issues (such as TB
         outbreaks, violence) and health education needs of its enrollees, and
         implement plans that are culturally appropriate to meet those needs,
         issues relevant to each of the target population groups of enrollees
         served, as defined in Article 5.2, and the promotion of health. The
         contractor shall use community-based needs assessments and other
         relevant information available from State and local governmental
         agencies and community groups. Health promotion activities shall be
         made available in formats and presented in ways that meet the needs of
         all enrollee groups including elderly enrollees and enrollees with
         special needs, including enrollees with cognitive impairments. The
         contractor shall comply with all applicable State and federal statutes
         and regulations on health wellness programs. The contractor shall
         submit a written description of all planned health education activities
         and targeted implementation dates for DMAHS' approval, prior to
         implementation, including culturally and linguistically appropriate
         materials and materials developed to accommodate each of the enrolled
         target population groups. Thereafter, the plan shall be reviewed,
         revised, and pre-approved by the Department annually.

         Health promotion topics shall include, but are not limited to, the
         following:

         A.       General health education classes

                                                                           IV-34
<PAGE>
         B.       Smoking cessation programs, with targeted outreach for
                  adolescents and pregnant women

         C.       Childbirth education classes

         D.       Nutrition counseling, with targeted outreach for pregnant
                  women, elderly enrollees, and enrollees with special needs

         E.       Signs and symptoms of common diseases and complications

         F.       Early intervention and risk reduction strategies to avoid
                  complications of disability and chronic illness

         G.       Prevention and treatment of alcohol and substance abuse

         H.       Coping with losses resulting from disability or aging

         I.       Self care training, including self-examination

         J.       Need for clear understanding of how to take over-the-counter
                  and prescribed medications and the importance of coordinating
                  all such medications

         K.       Understanding the difference between emergent, urgent and
                  routine health conditions

4.3      COORDINATION WITH ESSENTIAL COMMUNITY PROVIDERS

4.3.1    GENERAL

         The contractor shall identify and establish working relationships for
         coordinating care and services with external organizations that
         interact with its enrollees, including State agencies, schools, social
         service organizations, consumer organizations, and civic/community
         groups, such as an Hispanic coalition.

4.3.2    HEAD START PROGRAMS

         A.       The contractor shall demonstrate to DMAHS that it has
                  established working relationships with Head Start programs
                  (See Section B.4.5 of the Appendices for a list of Head Start
                  Programs). Such relationships will include an exchange of
                  information on the following:

                  1.       Policies and procedures for referrals for routine,
                           urgent and emergent care.

                  2.       Policies and procedures for scheduling appointments
                           for routine and urgent care.

                                                                           IV-35
<PAGE>
                  3.       Policies and procedures for the exchange of
                           information of Head Start participants who are
                           contractor enrollees.

                  4.       Policies and procedures for follow-up and assuring
                           the provision of health care services.

                  5.       Policies and procedures for appealing denials of
                           service and/or reductions in the level of service.

                  6.       Policies and procedures for Head Start staff in
                           supporting enforcement of contractor's health care
                           delivery system policies and procedures for accessing
                           all health care needs.

                  7.       Policies and procedures addressing the need through
                           prior authorization to utilize the contractor's
                           established provider network and what will be done
                           for out-of-network referrals in cases where the
                           contractor does not have an appropriate participating
                           provider in accordance with Article 4.8.7.

                  8.       Policies and procedures for providing comprehensive
                           medical examinations in accordance with EPSDT
                           standards and addressing the need for an examination
                           based on a Head Start referral if the enrollee has
                           had an age-appropriate EPSDT examination (for
                           infants) or an EPSDT examination (for children two
                           (2) to five (5) years old) within six (6) months of
                           the referral date.

                  9.       Policies and Procedures for Head Start's role in
                           prevention activities or programs developed by the
                           contractor.

         B.       The contractor shall evaluate referred Head Start patients to
                  determine the need for treatment/therapies for problems
                  identified by staff of those programs. The contractor/PCP
                  shall be responsible for providing treatment and follow-up
                  information for medically necessary care.

         C.       The contractor shall review referrals and provide appointments
                  in accordance with Article 5.12. Denials of service requests
                  or reduction in level of service, only after an evaluation is
                  completed, shall be in writing, following the requirements in
                  Article 4.6.4.

4.3.3    SCHOOL-BASED YOUTH SERVICES PROGRAMS

         A.       The contractor shall demonstrate to DMAHS that it has
                  established a working linkage with school based youth services
                  programs (SBYSP) that meet credentialing and scope of service
                  requirements for services offered by these programs which are
                  covered MCE services. (See Section B.4.6 of the Appendices for
                  a list of SBYSPs).

                                                                           IV-36
<PAGE>
                  1.       SBYSP service provision must meet MCE contract
                           requirements, e.g., twenty-four (24)-hour coverage.

                  2.       SBYSP employees must meet credentialing requirements.

         B.       Such working linkages shall include, at minimum, an exchange
                  of information on the following:

                  1.       Policies and procedures for referrals for routine,
                           urgent and emergent care, and standing referrals.

                  2.       Policies and procedures for scheduling appointments
                           for routine and urgent care.

                  3.       Policies and procedures for the exchange of
                           information of SBYSP participants who are contractor
                           enrollees.

                  4.       Policies and procedures for follow-up and assuring
                           the provision of health care services.

                  5.       Policies and procedures for appealing denials of
                           service and/or reductions in the level of service.

                  6.       Policies and procedures for SBYSP staff in supporting
                           enforcement of contractor's health care delivery
                           system policies and procedures for accessing all
                           health care needs.

                  7.       Policies and procedures addressing the need through
                           prior authorization to utilize the contractor's
                           established provider network and what will be done
                           for out-of-network referrals in cases where the
                           contractor does not have an appropriate participating
                           provider in accordance with Article 4.8.7.

                  8.       Policies and procedures for providing comprehensive
                           medical examinations in accordance with EPSDT
                           standards and addressing the need for an examination
                           based on a SBYSP if the enrollee has had an
                           age-appropriate EPSDT examination (for infants) or an
                           EPSDT examination (for children two (2) to five (5)
                           years) within six (6) months of the referral date.

                  9.       Policies and Procedures for the SBYSP's role in
                           prevention activities or programs developed by the
                           contractor.

         C.       The contractor shall evaluate referred SBYSP patients to
                  determine the need for treatment/therapies for problems
                  identified by staff of those programs. The contractor/PCP
                  shall be responsible for providing treatment and follow-up

                                                                           IV-37
<PAGE>
                  information for medically necessary care for SBYSPs
                  participants where there is no formal
                  contractual/reimbursement relationship.

         D.       The contractor shall review referrals and provide appointments
                  in accordance with Article 5.12. Denials of service requests
                  or reduction in level of service, only after an evaluation is
                  completed, shall be in writing, following the requirements in
                  Article 4.6.4.

         E.       The contractor shall provide the DMAHS with a description of
                  its plans to meet the requirements of this contract provision
                  in establishing a working linkage with SBYSPs.

4.3.4    LOCAL HEALTH DEPARTMENTS

         The contractor shall demonstrate to DMAHS that it has established a
         working linkage with local health departments (LHDs) that meet
         credentialing and scope of service requirements.

         The contractor should include linkages with LHDs especially for meeting
         the lead screening and toxicity treatment compliance standards required
         in this contract. The contractor shall refer lead-burdened children to
         LHDs for environmental investigation to determine and remediate the
         source of lead.

4.3.5    WIC PROGRAM REQUIREMENTS/ISSUES

         The contractor shall require its providers to refer potentially
         eligible women (pregnant, breast-feeding and postpartum), infants, and
         children up to age five, to established community Women, Infants and
         Children (WIC) programs. The referral shall include the information
         needed by WIC programs in order to provide appropriate services. The
         required information to be included with the referral is found on the
         sample forms in Section B.4.8 of the Appendices, the New Jersey WIC
         program medical referral form, and must be completed with the current
         (within sixty (60) days) height, weight, hemoglobin, or hematocrit, and
         any identified medical/nutritional problems for the initial WIC
         referral and for all subsequent certifications. The contractor shall
         submit a quarterly WIC referral report. (See Section A.7.14 of the
         Appendices (Table 12).)

4.3.6    COMMUNITY LINKAGES

         The contractor shall describe any relationships being explored,
         planned, and/or existing between the contractor and provider entities
         including for example:

         A.       Public health clinics or agencies

         B.       DYFS contracted Child Abuse Regional Diagnostic Centers

         C.       Environmental health clinics

                                                                           IV-38
<PAGE>
         D.       Women's health clinics

         E.       Family Planning/Reproductive health clinics

         F.       Developmental disabilities clinics

4.4      COORDINATION WITH MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES

         The State shall retain a separate Mental Health/Substance Abuse system
         for the coordination and monitoring of most mental health/substance
         abuse conditions. The contractor shall furnish MH/SA services to
         clients of DDD. However, as described below, the contractor shall
         retain responsibility for MH/SA screening, referrals, prescription
         drugs, higher-mode transportation, and for treatment of the conditions
         identified in Article 4.1.2B.

         A.       Screening Procedures. Mental health and substance abuse
                  problems shall be systematically identified and addressed by
                  the enrollee's PCP at the earliest possible time following
                  initial participation of the enrollee in the contractor or
                  after the onset of a condition requiring mental health and/or
                  substance abuse treatment. PCPs and other providers shall
                  utilize mental health/substance abuse screening tools as set
                  forth in Section B.4.9 of the Appendices as well as other
                  mechanisms to facilitate early identification of mental health
                  and substance abuse needs for treatment. The contractor may
                  request permission to use alternative screening tools. The use
                  of alternative screening tools shall be pre-approved by DMAHS.
                  The lack of motivation of an enrollee to participate in
                  treatment shall not be considered a factor in determining
                  medical necessity and shall not be used as a rationale for
                  withholding or limiting treatment of an enrollee.

                  The contractor shall present its policies and procedures
                  regarding how its providers will identify enrollees with MH/SA
                  service needs, how they will encourage these enrollees to
                  begin treatment, and the screening tools to be used to
                  identify enrollees requiring MH/SA services. The contractor
                  should refer to the DSM-IV Primary Care Version in development
                  of its procedures.

         B.       Referrals. The contractor shall be responsible for referring
                  or coordinating referrals of enrollees as indicated to Mental
                  Health/Substance Abuse providers. In order to facilitate this,
                  the contractor may contact DMHS or its agent (e.g., if the
                  State contracts with a third party administrator (TPA) for a
                  list of MH/SA providers. Enrollees may be referred to a MH/SA
                  provider by the PCP, family members, other providers, State
                  agencies, the contractor's staff, or may self-refer.

                  1.       The contractor shall be responsible for referrals
                           from MH/SA providers for medical diagnostic work-up
                           to formulate a diagnosis or to effect the treatment
                           of a MH/SA disorder and ongoing medical care for any
                           enrollee

                                                                           IV-39
<PAGE>
                           with a MH/SA diagnosis and shall coordinate the care
                           with the MH/SA provider. This includes the
                           responsibility for physical examinations (with the
                           exception of physical examinations performed in
                           direct connection with the administration of
                           Methadone, which will remain FFS), neurological
                           evaluations, laboratory testing and radiologic
                           examinations, and any other diagnostic procedures
                           that are necessary to make the diagnostic
                           determination between a primary MH/SA disorder and an
                           underlying physical disorder, as well as for medical
                           work-ups required for medical clearances prior to the
                           provision of psychiatric medication or
                           electroconvulsive therapy (ECT), or for transfer to a
                           psychiatric/SA facility. Routine laboratory
                           procedures ordered by treating MH/SA providers in
                           conjunction with MH/SA treatment, for routine blood
                           testing performed in conjunction with the
                           administration of Clozapine and the other drugs
                           listed in Article 4.1.4B for non-DDD enrollees, are
                           not the responsibility of the contractor.

                  2.       The contractor shall develop a referral process to be
                           used by its providers which shall include providing a
                           copy of the medical consultation and diagnostic
                           results to the MH/SA provider. The contractor shall
                           develop procedures to allow for notification of an
                           enrollee's MH/SA provider of the findings of his/her
                           physical examination and laboratory/radiological
                           tests within twenty-four (24) hours of receipt for
                           urgent cases and within five business days in
                           non-urgent cases. This notification shall be made by
                           phone with follow-up in writing when feasible.

         C.       Pharmacy Services. Except for the drugs specified in Article
                  4.1.4 (Clozapine, Risperidone, Olanzapine, etc.), all pharmacy
                  services are covered by the contractor. This includes drugs
                  prescribed by the contractor or MH/SA providers. The
                  contractor shall only restrict or require a prior
                  authorization for prescriptions or pharmacy services
                  prescribed by MH/SA providers if one of the following
                  exceptions is demonstrated:

                  1.       The drug prescribed is not related to the treatment
                           of substance abuse/dependency/addiction or mental
                           illness or to any side effects of the
                           psychopharmacological agents. These drugs are to be
                           prescribed by the contractor's PCP or specialists in
                           the contractor's network.

                  2.       The prescribed drug does not conform to standard
                           rules of the contractor's pharmacy plan.

                  3.       The contractor, at its option, may require a prior
                           authorization (PA) process if the number of
                           prescriptions written by the MH/SA provider for
                           MH/SA-related conditions exceed four (4) per month
                           per enrollee. For drugs that require weekly
                           prescriptions, these prescriptions shall be counted
                           as one per month and not as four separate
                           prescriptions. The

                                                                           IV-40
<PAGE>
                           contractor's PA process for the purposes of this
                           section shall require review and prior approval by
                           DMAHS.

         D.       Prescription Abuse. If the contractor suspects prescription
                  abuse by a MH/SA provider, the contractor shall contact DMAHS
                  for investigation and decision of potentially excluding the
                  provider from the NJ Medicaid program. The contractor shall
                  provide the Department with any and all documentation.

         E.       Inpatient Hospital Services for Enrollees who are not clients
                  of DDD with both a Physical Health as well as a Mental
                  Health/Substance Abuse Diagnosis. The contractor's financial
                  and medical management responsibilities are as follows:

                  1.       If the inpatient hospital admission of an enrollee
                           who is not a client of DDD is for a physical health
                           primary diagnosis, the contractor shall be
                           responsible for inpatient hospital costs and medical
                           management. Where psychiatric consultation is
                           required to assist the contractor with mental
                           health/substance abuse management, the State or its
                           agent (e.g., a TPA) shall be responsible for
                           authorizing the psychiatric consult/services provided
                           during the inpatient stay. The State shall not
                           require service authorization for at least one
                           psychiatric consultation per inpatient admission.
                           When a substance abuse disorder is known to be the
                           primary diagnosis of an enrollee and a co-occurring
                           psychiatric disorder is not a management concern,
                           then the State or its agent may authorize that the
                           consult/services be by an ASAM certified physician.
                           The contractor shall coordinate inpatient MH/SA
                           consultations and services with the enrollee's MH/SA
                           provider as well as discharge planning and follow-up.

                  2.       If the inpatient hospital admission of an enrollee
                           who is not a client of DDD is for a mental
                           health/substance abuse primary diagnosis, the
                           inpatient stay will be paid by the State through the
                           FFS program. The contractor shall provide and pay for
                           participating providers who may be called in as
                           consultants to manage any physical problems.

         F.       Transportation. The contractor shall be responsible for all
                  transportation through ambulance, Mobile Intensive Care Units
                  (MICUs), and invalid coach modalities, even if the enrollee is
                  being transported to a Medicaid or NJ FamilyCare service that
                  is not included in the contractor's benefit package including
                  to MH/SA services.

4.5      ENROLLEES WITH SPECIAL NEEDS

4.5.1    INTRODUCTION

         For purposes of this contract, adults with special needs includes
         complex/chronic medical conditions requiring specialized health care
         services, including persons with physical, mental, substance abuse,
         and/or developmental disabilities, including such

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<PAGE>
         persons who are homeless. Children with special health care needs are
         those who have or are at increased risk for a chronic physical,
         developmental, behavioral, or emotional condition and who also require
         health and related services of a type or amount beyond that required by
         children generally.

         In addition to the standards set forth in this Article, contractor
         shall make all reasonable efforts and accommodations to ensure that
         services provided to enrollees with special needs are equal in quality
         and accessibility to those provided to all other enrollees.

4.5.2    GENERAL REQUIREMENTS

         A.       Identification and Service Delivery. The contractor shall have
                  in place all of the following to identify and serve enrollees
                  with special needs:

                  1.       Methods for identifying persons at risk of, or having
                           special needs who should be referred for a
                           comprehensive needs assessment. (See Articles 4.5.4B
                           and 4.6.5D for information on Complex Needs
                           Assessments). Such methods should include the
                           application of screening procedures/instruments for
                           new enrollees as well as the conditions and
                           indicators listed in Article 4.6.5D.1 and 2. These
                           include review of hospital and pharmacy utilization
                           and policies and procedures for providers or, where
                           applicable, authorized persons, to make referrals of
                           assessment candidates and for enrollees to self-refer
                           for a Complex Needs Assessment.

                  2.       Methods and guidelines for determining the specific
                           needs of referred individuals who have been
                           identified through a Complex Needs Assessment as
                           having complex needs and developing care plans that
                           address their service requirements with respect to
                           specialist physician care, durable medical equipment,
                           medical supplies, home health services, social
                           services, transportation, etc. Article 4.5.4D
                           contains additional information on Individual Health
                           Care Plans.

                  3.       Care management systems to ensure all required
                           services, as identified through a Complex Needs
                           Assessment, are furnished on a timely basis, and that
                           communication occurs between participating and
                           nonparticipating providers (to the extent the latter
                           are used). Articles 4.5.4 and 4.6.5 contain
                           additional information on care management.

                  4.       Policies and procedures to allow for the continuation
                           of existing relationships with non-participating
                           providers, when appropriate providers are not
                           available within network or it is otherwise
                           considered by the contractor to be in the best
                           medical interest of the enrollee with special needs.
                           Articles 4.5.2D and 4.8.7G contain more specific
                           standards for use of non-participating providers.

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<PAGE>
                  5.       Methods to assure that access to all
                           contractor-covered services, including
                           transportation, is available for enrollees with
                           special needs whose disabilities substantially impede
                           activities of daily living. The contractor shall
                           reasonably accommodate enrollees with disabilities
                           and shall ensure that physical and communication
                           barriers do not prohibit enrollees with disabilities
                           from obtaining services from the contractor.

                  6.       Services for enrollees with special needs must be
                           provided in a manner responsive to the nature of a
                           person's disability/specific health care need and
                           include adequate time for the provision of the
                           service.

         B.       The contractor shall ensure that any new enrollee identified
                  (either by the information on the Plan Selection form at the
                  time of enrollment or by contractor providers after
                  enrollment) as having complex/chronic conditions receives
                  immediate transition planning. The planning shall be completed
                  within a timeframe appropriate to the enrollee's condition,
                  but in no case later than ten (10) business days from the
                  effective date of enrollment when the Plan Selection form has
                  an indication of special health care needs or within thirty
                  (30) days after special conditions are identified by a
                  provider. This transition planning shall not constitute the
                  IHCP described in Sections 4.5.4 and 4.6.5. Transition
                  planning shall provide for a brief, interim plan to ensure
                  uninterrupted services until a more detailed plan of care is
                  developed. The transition planning process includes, but is
                  not limited to:

                  1.       Review of existing care plans.

                  2.       Preparation of a transition plan that ensures
                           continuous care during the transfer into the
                           contractor's network.

                  3.       If durable medical equipment had been ordered prior
                           to enrollment but not received by the time of
                           enrollment, the contractor must coordinate and
                           follow-through to ensure that the enrollee receives
                           necessary equipment.

         C.       Outreach and Enrollment Staff. The contractor shall have
                  outreach and enrollment staff who are trained to work with
                  enrollees with special needs, are knowledgeable about their
                  care needs and concerns, and are able to converse in the
                  different languages common among the enrolled population,
                  including TDD/TT and American Sign Language if necessary.

         D.       Specialty Care. The contractor shall have a procedure by which
                  a new enrollee upon enrollment, or an enrollee upon diagnosis,
                  who requires very complex, highly specialized health care
                  services over a prolonged period of time, or with (i) a
                  life-threatening condition or disease or (ii) a degenerative
                  and/or disabling condition or disease, either of which
                  requires specialized medical care over a prolonged period of
                  time, may receive a referral to a specialist or a specialty
                  care center with expertise in treating the life-threatening
                  disease or specialized

                                                                           IV-43
<PAGE>
                  condition, who shall be responsible for and capable of
                  providing and coordinating the enrollee's primary and
                  specialty care.

                  If the contractor or primary care provider in consultation
                  with the contractor's medical director and a specialist, if
                  any, determines that the enrollee's care would most
                  appropriately be coordinated by such specialist/specialty care
                  center, the contractor shall refer the enrollee. Such referral
                  shall be pursuant to a care plan approved by the contractor,
                  in consultation with the primary care provider if appropriate,
                  the specialist, care manager, and the enrollee (or, where
                  applicable, authorized person). The contractor-participating
                  specialist/specialty care center acting as both primary and
                  specialty care provider shall be permitted to treat the
                  enrollee without a referral from the enrollee's primary care
                  provider and may authorize such referrals, procedures, tests
                  and other medical services as the enrollee's primary care
                  provider would otherwise be permitted to provide or authorize,
                  subject to the terms of the care plan. If the
                  specialist/specialty care center will not be providing primary
                  care, then the contractor's rules for referrals apply.
                  Consideration for policies and procedures should be given for
                  a standing referral when on-going, long-term specialty care is
                  required.

                  If the contractor refers an enrollee to a non contractor-
                  participating provider, services provided pursuant to the
                  approved care plan shall be provided at no additional cost to
                  the enrollee. In no event shall the contractor be required to
                  permit an enrollee to elect to have a non contractor-
                  participating specialist/specialty care center.

                  For purposes of this Article a specialty care center shall
                  mean the Centers of Excellence identified in Section B.4.10 of
                  the Appendices. These centers have special expertise in
                  treating life-threatening diseases/conditions and degenerative
                  /disabling diseases/conditions.

         E.       Dental. While the contractor must assure that enrollees with
                  special needs have access to all medically necessary care, the
                  State considers dental services to be an area meriting
                  particular attention. The contractor, therefore, shall accept
                  for network participation dental providers with expertise in
                  the dental management of enrollees with developmental
                  disabilities. All current providers of dental services to
                  enrollees with developmental disabilities shall be considered
                  for participation in the contractor's dental provider network.
                  Credentialing and recredentialing standards must be
                  maintained. The contractor shall make provisions for providers
                  of dental services to enrollees with developmental
                  disabilities to allow for limiting their dental practices at
                  their choice to only those patients with developmental
                  disabilities.

                  The contractor shall develop specific policies and procedures
                  for the provision of dental services to enrollees with
                  developmental disabilities. At a minimum, the policies and
                  procedures shall address:

                                                                           IV-44
<PAGE>
                  1.       Special needs/issues of enrollees with developmental
                           disabilities, including the importance of providing
                           consultations and assistance to patient caregivers.

                  2.       Provisions in the contractor's dental reimbursement
                           system for initial and follow-up dental visits which
                           may require up to 60 minutes on average to allow for
                           a comprehensive dental examination and other services
                           to include, but not limited to: a visual examination
                           of the enrollee; appropriate radiographs; dental
                           prophylaxis, including extra scaling and topical
                           applications, such as fluoride treatments;
                           non-surgical periodontal treatment, including root
                           planing and scaling; the application of dental
                           sealants on molars and premolars; thorough inquiries
                           regarding patient medical histories; and most
                           importantly, consultations with patient caregivers to
                           establish a thorough understanding of proper dental
                           management during visits.

                  3.       Standards for dental visits that recognize the
                           additional time that may be required in treatment of
                           patients with developmental disabilities. Standards
                           should allow for up to four (4) visits annually
                           without prior authorization.

                  4.       Provisions for home visits when medically necessary
                           and where available.

                  5.       Policies and procedures to ensure that providers
                           specializing in the treatment of enrollees with
                           developmental disabilities have adequate support
                           staff to meet the needs of such patients.

                  6.       Provisions for use and replacement of fixed as well
                           as removable prosthetic devices as medically
                           necessary and appropriate.

                  7.       Provisions in the contractor's dental reimbursement
                           system to reimburse dentists for the costs of
                           preoperative and postoperative evaluations associated
                           with dental surgery performed on patients with
                           developmental disabilities. Preauthorization shall
                           not be required for dental procedures performed
                           during surgery on these patients for dentally
                           appropriate restorative care provided under general
                           anesthesia. Informed consent, signed by the enrollee
                           or authorized person, must be obtained prior to the
                           surgical procedure. Provisions should be made to
                           evaluate such procedures as part of a post payment
                           review process.

                  8.       Provisions in the contractor's dental reimbursement
                           system for dentists to receive reimbursement for the
                           cost of providing oral hygiene instructions to
                           caregivers to maintain a patient's overall oral
                           health between dental visits. Such provisions shall
                           include designing and implementing a "dental
                           management" plan, coordinated by the care manager,
                           for overseeing a patient's oral health.

                                                                           IV-45
<PAGE>
                  9.       The care manager of an enrollee with a developmental
                           disability shall coordinate authorizations for
                           dentally required hospitalizations by consulting with
                           the plan's dental and medical consultants in an
                           efficient and time-sensitive manner.

         F.       After Hours. The contractor shall have policies and procedures
                  to respond to crisis situations after hours for enrollees with
                  special needs. Training sessions/materials and triage
                  protocols for all staff/providers who respond to after-hours
                  calls shall address enrollees with special needs. For example,
                  protocols should recognize that a non-urgent condition for an
                  otherwise healthy individual, such as a moderately elevated
                  temperature, may indicate an urgent care need in the case of a
                  child with a congenital heart anomaly.

         G.       Behavior Problems. The contractor shall take appropriate steps
                  to ensure that its care managers, network providers and Member
                  Services staff are able to serve persons with behavior
                  problems associated with developmental disabilities, including
                  to the extent these problems affect their level of compliance.
                  The contractor shall educate providers and staff about the
                  nature of such problems and how to address them. The
                  contractor shall identify providers who have expertise in
                  serving persons with behavior problems.

         H.       ADA Compliance. The contractor shall have written policies and
                  procedures that ensure compliance with requirements of the
                  Americans with Disabilities Act of 1990, and a written plan to
                  monitor compliance to determine the ADA requirements are being
                  met. The plan shall be sufficient to determine the specific
                  actions that will be taken to remove existing barriers and/or
                  to accommodate the needs of enrollees who are qualified
                  individuals with a disability. The plan shall include the
                  assurance of appropriate physical access to obtain included
                  benefits for all enrollees who are qualified individuals with
                  a disability including, but not limited to, the following:

                  1.       Street level access or accessible ramp into
                           facilities;

                  2.       Access to lavatory; and

                  3.       Access to examination rooms.

                  The contractor shall also address in its policies and
                  procedures regarding ADA compliance the following issues:

                  1.       Provider refusal to treat qualified individuals with
                           disabilities, including but not limited to
                           individuals with HIV/AIDS.

                  2.       Contractor's role in ensuring providers receive
                           available resource information on how to accommodate
                           qualified individuals with a

                                                                           IV-46
<PAGE>
                           disability, particularly mobility impaired enrollees,
                           in examination rooms and for examinations.

                  3.       How the contractor will accommodate visual and
                           hearing impaired individuals and assist its providers
                           in communicating with these individuals.

                  4.       How the contractor will accommodate individuals with
                           communication-affecting disorders and assist its
                           providers in communicating with these individuals.

                  5.       Holding community events as part of its provider and
                           consumer education responsibilities in places of
                           public accommodation, i.e., facilities readily
                           accessible to and useable by qualified individuals
                           with disabilities.

                  6.       How the contractor will ensure it will link qualified
                           individuals with disabilities with the
                           providers/specialists with the knowledge and
                           expertise in treating the illness, condition, and
                           special needs of the enrollees.

4.5.3    PROVIDER NETWORK REQUIREMENTS

         A.       General. The contractor's provider network shall include
                  primary care and specialist providers who are trained and
                  experienced in treating individuals with special needs. The
                  contractor shall ensure that such providers will be equally
                  accessible to all enrollees covered under this contract.

                  1.       The contractor shall operate a program to provide
                           services for enrollees with special needs that
                           emphasizes: (a) that providers are educated regarding
                           the needs of enrollees with special needs; (b) that
                           providers will reasonably accommodate enrollees with
                           special needs; (c) that providers will assist
                           enrollees in maximizing involvement in the care they
                           receive and in making decisions about such care; and
                           (d) that providers maximize for enrollees with
                           special needs independence and functioning through
                           health promotions and preventive care, decreased
                           hospitalization and emergency room care, and the
                           ability to be cared for at home.

                  2.       The contractor shall describe how its provider
                           network will respond to the cultural and linguistic
                           needs of enrollees with special needs.

                  3.       The network shall include primary care providers and
                           dentists whose clinical practice has specialized to
                           some degree in treating one or more groups of
                           children and adults with complex/chronic or disabling
                           conditions. To the extent possible, children and
                           adults with complex physical conditions should be in
                           the care of board certified pediatricians and family
                           practitioners or internists, respectively, or
                           subspecialists, as appropriate.

                                                                           IV-47
<PAGE>
                  4.       The network shall include adult and pediatric
                           subspecialists for cardiology, hematology/oncology,
                           gastroenterology, emergency medicine, endocrinology,
                           infectious disease, orthopedics, neurology,
                           neurosurgery, ophthalmology, physiatry, pulmonology,
                           surgery, and urology, as well as providers who have
                           knowledge and experience in behavioral-developmental
                           pediatrics, adolescent health, geriatrics, and
                           chronic illness management.

                  5.       The network shall include an appropriate and
                           accessible number of institutional facilities,
                           professional allied personnel, home care and
                           community based services to perform the
                           contractor-covered services included in this
                           contract.

         B.       SCHSNA. The contractor shall include in its provider network
                  Special Child Health Services Network Agencies (SCHSNA) for
                  children with special health care needs. These agencies are
                  designated and approved by the Department of Health and Senior
                  Services and include Pediatric Ambulatory Tertiary Centers
                  (pediatric tertiary centers may also be used when a pediatric
                  subspecialty is not sufficiently accessible in a county to
                  meet the needs of the child), Regional Cleft Lip/Palate
                  Centers, Pediatric AIDS/HIV Network, Comprehensive Regional
                  Sickle Cell/Hemoglobinopathies Treatment Centers, PKU
                  Treatment Centers, Genetic Testing and Counseling Centers, and
                  Hemophilia Treatment Centers, and others as designated from
                  time to time by the Department of Health and Senior Services.
                  A list of such providers is found in Section B.4.10 of the
                  Appendices.

         C.       Credentialing. The contractor shall collect and maintain, as
                  part of its credentialing process or through special survey
                  process, information from licensed practitioners including
                  pediatricians and pediatric subspecialists about the nature
                  and extent of their experience in serving children with
                  special health care needs including developmental
                  disabilities.

4.5.4    CARE MANAGEMENT AND COORDINATION OF CARE FOR PERSONS WITH SPECIAL NEEDS

         A.       The contractor shall provide coordination of care to actively
                  link the enrollee to providers, medical services, residential,
                  social and other support services as needed. For persons with
                  special needs, care management shall be provided, but, for
                  those with higher needs, as determined through the Complex
                  Needs Assessment (the CNA is described in Article 4.6.5), the
                  contractor shall provide care management at a higher level of
                  intensity. (See Section B.4.12 of the Appendices for a
                  flowchart of the three levels of care management.) Specific
                  requirements for this highest level of care management are
                  described below.

         B.       Complex Needs Assessment. For enrollees with special needs,
                  the contractor shall perform a Complex Needs Assessment no
                  later than thirty (30) days (or

                                                                           IV-48
<PAGE>
                  earlier, if urgent) from initial enrollment if special needs
                  are indicated on the Plan Selection Form or from the point of
                  identification of special needs. See 4.6.5 for a description
                  of the CNA.

         C.       Experience and Caseload. Care managers for enrollees who
                  require a higher level of care management will have the same
                  role and responsibilities as the care manager for the lower
                  intensity care management and additionally will address the
                  complex intensive needs of the enrollee identified as being at
                  "high risk" of adverse medical outcomes absent active
                  intervention by the contractor. For example, a
                  visually-impaired, insulin-dependent diabetic who requires
                  frequent glucose monitoring, nutritional guidance, vision
                  checks, and assistance in coordination with visits with
                  multiple providers, therapeutic regimen, etc. The contractor
                  shall provide intensive acute care services to treat
                  individuals with multiple complex conditions. The number of
                  medical and social services required by an enrollee in this
                  level of care management will generally be greater, thus the
                  number of linkages to be created, maintained, and monitored,
                  including the promotion of communication among providers and
                  the consumer and of continuity of care, will be greater. The
                  contractor shall provide these enrollees greater assistance
                  with scheduling appointments/visits. The intensity and
                  frequency of interaction with the enrollee and other members
                  of the treatment team will also be greater. The care manager
                  shall contact the enrollee bi-weekly or as needed.

                  1.       At a minimum, the care manager for this level of care
                           management shall include, but is not limited to,
                           individuals with an undergraduate or graduate degree
                           in nursing or a graduate degree in social work and
                           with at least two (2) years experience serving
                           enrollees with special needs.

                  2.       The contractor shall ensure that the care manager's
                           caseload is adjusted, as needed, to accommodate the
                           work and level of effort needed to meet the needs of
                           the entire case mix of assigned enrollees including
                           those determined to be high risk.

                  3.       The contractor should include care managers with
                           experience working with pediatric as well as adult
                           enrollees with special needs.

         D.       IHCPs. The contractor through its care manager shall ensure
                  that an Individual Health Care Plan (IHCP) is developed and
                  implemented as soon as possible, according to the
                  circumstances of the enrollee. The contractor shall ensure the
                  full participation and consent of the enrollee or, where
                  applicable, authorized person and participation of the
                  enrollee's PCP and other case managers identified through the
                  Complex Needs Assessment (e.g. DDD case manager) in the
                  development of the plan.

         E.       The contractor shall provide written notification to the
                  enrollee, or authorized person, of the level of care
                  management approved and the name of the care

                                                                           IV-49
<PAGE>
                  manager as soon as the IHCP is completed. The contractor shall
                  have a mechanism to allow for changing levels of care
                  management as needs change.

         F.       Offering of Service. The contractor shall offer and document
                  the enrollee's response for this higher level care management
                  to enrollees (or, where applicable, authorized persons) who,
                  upon completion of a Complex Needs Assessment, are determined
                  to have complex needs which merit development of an IHCP and
                  comprehensive service coordination by a care manager.
                  Enrollees shall have the right to decline coordination of care
                  services; however, such refusal does not preclude the
                  contractor from case managing the enrollee's care.

4.5.5    CHILDREN WITH SPECIAL HEALTH CARE NEEDS

         A.       The contractor shall provide services to children with special
                  health care needs, who may have or are suspected of having
                  serious or chronic physical, developmental, behavioral, or
                  emotional conditions (short-term, intermittent, persistent, or
                  terminal), who manifest some degree of delay or disability in
                  one or more of the following areas: communication, cognition,
                  mobility, self-direction, and self-care; and with specified
                  clinically significant disturbance of thought, behavior,
                  emotions, or relationships that can be described as a syndrome
                  or pattern, generally resulting from neurochemical
                  dysfunction, negative environmental influences, or some
                  combination of both. Services needed by these children may
                  include but are not limited to psychiatric care and substance
                  abuse counseling for DDD clients (appropriate referrals for
                  all other pediatric enrollees); medications; crisis
                  intervention; inpatient hospital services; and intensive care
                  management to assure adherence to treatment requirements.

         B.       The contractor shall be responsible for establishing:

                  1.       Methods for well child care, health promotion, and
                           disease prevention, specialty care for those who
                           require such care, diagnostic and intervention
                           strategies, home therapies, and ongoing ancillary
                           services, as well as the long-term management of
                           ongoing medical complications.

                  2.       Care management systems for assuring that children
                           with serious, chronic, and rare disorders receive
                           appropriate diagnostic work-ups on a timely basis.

                  3.       Access to specialty centers in and out of New Jersey
                           for diagnosis and treatment of rare disorders. A
                           listing of specialty centers is included in Section
                           B.4.10 of the Appendices.

                  4.       Policies and procedures to allow for continuation of
                           existing relationships with out-of-network providers,
                           when considered to be in the best medical interest of
                           the enrollee.

                                                                           IV-50
<PAGE>
         C.       Linkages. The contractor shall have methods for coordinating
                  care and creating linkages with external organizations,
                  including but not limited to school districts, child
                  protective service agencies, early intervention agencies,
                  behavioral health, and developmental disabilities service
                  organizations. At a minimum, linkages shall address:

                  1.       Contractor's process for generating or receiving
                           referrals, and sharing information;

                  2.       Contractor's process for obtaining consent from
                           enrollees or, where applicable, authorized persons to
                           share individual beneficiary medical information; and

                  3.       Ongoing coordination efforts (regularly scheduled
                           meetings, newsletters, joint community based
                           project).

         D.       IEPs. The contractor shall cooperate with school districts to
                  provide medically necessary contractor-covered services when
                  included as a recommendation in an enrollee's Individualized
                  Education Program (IEP) developed by the school district's
                  child study team, e.g. recommended medications or DME. The
                  contractor shall work with local school districts to develop
                  and implement procedures for linking and coordinating services
                  for children who need to receive medical services under an
                  Individualized Education Plan, in order to prevent duplication
                  of services, and to provide for cost effective services. Those
                  services which are included in the IEP as required services
                  are paid for by the school district, e.g. physical therapy.
                  Services covered under the Special Education Medicaid
                  Initiative (SEMI) program, or not included in Article 4.1 of
                  this contract, or not available under EPSDT are not the
                  contractor's responsibility. The provision of services shall
                  be based on medical necessity as defined in this contract.

         E.       Early Intervention. The contractor shall cooperate with and
                  coordinate its services with local Early Intervention Programs
                  to provide medically necessary (as defined in this contract)
                  contractor-covered services included in the Individualized
                  Family Support Plan (IFSP). These programs are comprehensive,
                  community based programs of integrated developmental services
                  which use a family centered approach to facilitate the
                  developmental progress of children between the ages of birth
                  and three (3) years of age whose developmental patterns are
                  atypical, or are at serious risk to become atypical through
                  the influence of certain biological or environmental risk
                  factors. At a minimum, the contractor must have policies and
                  procedures for identifying children who are candidates for
                  early intervention, making referrals through Special Child
                  Health Services County Case Management Units (See Appendix
                  B.4.11) in accordance with the Department of Health and Senior
                  Services procedures for referrals, and sharing information
                  with early intervention providers.

                                                                           IV-51
<PAGE>
4.5.6    CLIENTS OF THE DIVISION OF DEVELOPMENTAL DISABILITIES

         A.       The contractor shall provide all physical health services
                  required by this contract as well as the MH/SA services
                  included in the Medicaid State Plan to enrollees who are
                  clients of DDD. The contractor shall include in its provider
                  network a specialized network of providers who will deliver
                  both physical as well as MH/SA services (in accordance with
                  Medicaid program standards) to clients of DDD, and ensure
                  continuity of care within that network.

         B.       The contractor's specialized network shall provide disease
                  management services for clients of DDD, which shall include
                  participation in:

                  1.       Care Management, including Complex Needs Assessment,
                           development and implementation of IHCP, referral,
                           coordination of care, continuity of care, monitoring,
                           and follow-up and documentation.

                  2.       Coordination of care across multi-disciplinary
                           treatment teams to assist PCPs in identifying the
                           providers within the network who will meet the
                           specific needs and health care requirements of
                           clients of DDD with both physical health and MH/SA
                           needs and provide continuity of care with an
                           identified provider who has an established
                           relationship with the patient.

                  3.       Apply quality improvement techniques/protocols to
                           effect improved quality of life outcomes.

                  4.       Design and implement clinical pathways and practice
                           guidelines that will produce overall quality outcomes
                           for specific diseases/conditions identified in
                           clients of DDD.

                  5.       Medical treatment.

         C.       The specialized provider network shall consist of credentialed
                  providers for physical health and MH/SA services, who have
                  experience and expertise in treating clients of DDD who have
                  both physical health and MH/SA needs, and who can provide
                  internal management of the complex care needs of these
                  enrollees. The contractor shall ensure that the specialized
                  provider network will be able to deliver identified physical
                  health and MH/SA outcomes.

         D.       Clients of DDD may, at their option, receive their physical
                  health and/or MH/SA services from any qualified provider in
                  the contractor's network. They are not required to receive
                  their services through the contractor's specialized network.

         E.       Individuals who are both DYFS clients and clients of DDD who
                  voluntarily enroll shall receive MH/SA services through the
                  contractor's network.

                                                                           IV-52
<PAGE>
4.5.7    PERSONS WITH HIV/AIDS

         A.       Pregnant Women. The contractor shall implement a program to
                  educate, test and treat pregnant women with HIV/AIDS to reduce
                  perinatal transmission of HIV from mother to infant. All
                  pregnant women shall receive HIV education and counseling and
                  HIV testing with their consent as part of their regular
                  prenatal care. A refusal of testing shall be documented in the
                  patient's medical record. Additionally, counseling and
                  education regarding perinatal transmission of HIV and
                  available treatment options (the use of Zidovudine [AZT] or
                  most current treatment accepted by the medical community for
                  treating this disease) for the mother and newborn infant
                  should be made available during pregnancy and/or to the infant
                  within the first months of life. The contractor shall submit a
                  quarterly report on HIV referrals and treatment. (See Section
                  A.7.15 of the Appendices (Table 13).)

         B.       Prevention. The contractor shall address the HIV/AIDS
                  prevention needs of uninfected enrollees, as well as the
                  special needs of HIV+ enrollees. The contractor shall
                  establish:

                  1.       Methods for promoting HIV prevention to all enrollees
                           in the contractor's plan. HIV prevention information
                           shall be consistent with the enrollee's age, sex, and
                           risk factors as well as culturally and linguistically
                           appropriate.

                  2.       Methods for accommodating self-referral and early
                           treatment.

                  3.       A process to facilitate access to specialists and/or
                           include HIV/AIDS specialists as PCPs.

         C.       Traditional Providers. The contractor shall include
                  traditional HIV/AIDS providers in its networks, including
                  HIV/AIDS Specialty Centers (Centers of Excellence), and shall
                  establish linkages with AIDS clinical educational programs to
                  keep current on up-to-date treatment guidelines and standards.

         D.       Current Protocols. The contractor shall establish policies and
                  procedures for its providers to assure the use of the most
                  current diagnosis and treatment protocols and standards
                  established by the DHSS and the medical community.

         E.       Care Management. The contractor shall develop and implement an
                  HIV/AIDS care management program with adequate capacity to
                  provide services to all enrollees who would benefit from
                  HIV/AIDS care management services. Contractors shall establish
                  linkage with Ryan White CARE Act grantees for these services
                  either through a contract, MOA, or other cooperative working
                  agreement approved by the Department.

                                                                           IV-53
<PAGE>
         F.       ADDP. The contractor shall have policies and procedures for
                  supplying DHSS application forms and referring qualified NJ
                  FamilyCare enrollees to the AIDS Drug Distribution Program
                  (ADDP). Qualified individuals, described in Article 8.5.16,
                  receive protease inhibitors and certain anti- retrovirals
                  solely through the ADDP. The contractor shall ensure timely
                  referral for registration with the program to assure these
                  individuals receive appropriate and timely treatment.

4.6      QUALITY MANAGEMENT SYSTEM

         A.       The contractor shall provide for medical care and health
                  services that comply with federal and State Medicaid and NJ
                  FamilyCare standards and regulations and shall satisfy all
                  applicable requirements of the federal and State statutes and
                  regulations pertaining to medical care and services.

                  1.       The contractor shall fulfill all its obligations
                           under this contract so that all health care services
                           required by its enrollees under this contract will
                           meet quality standards within the acceptable medical
                           practice of care for that individual, consistent with
                           the medical community standards of care, and such
                           services will comply with equal amount, duration, and
                           scope requirements in this contract, as described in
                           Article 4.1.

         B.       The contractor shall use its best efforts to ensure that
                  persons and entities providing care and services for the
                  contractor in the capacity of physician, dentist, CNP/CNS,
                  physician's assistant, CNM, or other medical professional meet
                  applicable licensing, certification, or qualification
                  requirements under New Jersey law or applicable state laws in
                  the state where service is provided, and that the functions
                  and responsibilities of such persons and entities in providing
                  medical care and services under this contract do not exceed
                  those permissible under New Jersey law. This shall also
                  include knowledge, training and experience in providing care
                  to individuals with special needs.

4.6.1    QUALITY ASSESSMENT AND PERFORMANCE IMPROVEMENT PLAN

         A.       General. The contractor shall implement and maintain a Quality
                  Assessment and Performance Improvement program (QAPI) that is
                  capable of producing prospective, concurrent, and
                  retrospective analyses. Delegation of any QAPI activities
                  shall not relieve the contractor of its obligations to perform
                  all QAPI functions.

         B.       Goals. The contractor's QAPI shall be based on HCFA Guidelines
                  and shall:

                  1.       Provide for health care that is medically necessary
                           with an emphasis on the promotion of health in an
                           effective and efficient manner;

                  2.       Assess the appropriateness and timeliness of the care
                           provided;

                                                                           IV-54
<PAGE>
                  3.       Evaluate and improve, as necessary, access to care
                           and quality of care with a focus on improving
                           enrollee outcomes; and

                  4.       Focus on the clinical quality of medical care
                           rendered to enrollees.

         C.       Required Standards. The contractor's QAPI shall include all
                  standards described in New Jersey modified QARI/QISMC (See
                  Section B.4.14 of the Appendices). The following standards
                  shall be included in addition to the QARI/QISMC requirements:

                  1.       QM Committee. The contractor shall have adequate
                           general liability insurance for members of the QM
                           committee and subcommittees, if any. The committee
                           shall include representation by providers who serve
                           enrollees with special needs.

                  2.       Medical Director. The contractor shall have on staff
                           a Medical Director who is currently licensed in New
                           Jersey as a Doctor of Medicine or Doctor of
                           Osteopathic Medicine. The Medical Director shall be
                           responsible for:

                           a.       The development, implementation and medical
                                    interpretation of medical policies and
                                    procedures to guide and support the
                                    provision of medical care to enrollees;

                           b.       Oversight of provider recruitment
                                    activities;

                           c.       Reviewing all providers' applications and
                                    making recommendations to those with
                                    contracting authority regarding
                                    credentialing and reappointing all providers
                                    prior to the providers' contracting (or
                                    renewal of contract) with the contractor's
                                    plan;

                           d.       Continuing surveillance of the performance
                                    of providers in their provision of health
                                    care to enrollees;

                           e.       Administration of all medical activities of
                                    the contractor;

                           f.       Continuous assessment and improvement of the
                                    quality of care provided to enrollees;

                           g.       Serving as Chairperson of Quality Management
                                    Committee; [Note: the medical director may
                                    designate another physician to serve as
                                    chairperson with prior approval from DMAHS.]

                           h.       Oversight of provider education, in-service
                                    training and orientation;

                                                                           IV-55
<PAGE>
                           i.       Assuring that adequate staff and resources
                                    are available for the provision of proper
                                    medical care to enrollees; and

                           j.       The review and approval of studies and
                                    responses to DMAHS concerning QM matters.

                  3.       Enrollee Rights and Responsibilities. Shall include
                           the right to the Medicaid Fair Hearing Process for
                           Medicaid enrollees.

                  4.       Medical Record standards shall address both Medical
                           and Dental records. Records shall also contain
                           notation of any cultural/linguistic needs of the
                           enrollee.

                  5.       Provider Credentialing. Before any provider may
                           become part of the contractor's network, that
                           provider shall be credentialed by the contractor. The
                           contractor must comply with Standard IX of NJ
                           modified QARI/QISMC (Section B.4.14 of the
                           Appendices). Additionally, the contractor's
                           credentialing procedures shall include verification
                           that providers and subcontractors have not been
                           suspended, debarred, disqualified, terminated or
                           otherwise excluded from Medicaid, Medicare, or any
                           other federal or state health care program. The
                           contractor shall obtain federal and State lists of
                           suspended/debarred providers from the appropriate
                           agencies.

                  6.       Institutional and Agency Provider Credentialing. The
                           contractor shall have written policies and procedures
                           for the initial quality assessment of institutional
                           and agency providers with which it intends to
                           contract. At a minimum, such procedures shall include
                           confirmation that a provider has been reviewed and
                           approved by a recognized accrediting body and is in
                           good standing with State and federal regulatory
                           bodies. If a provider has not been approved by a
                           recognized accrediting body, the contractor shall
                           develop and implement standards of participation. For
                           home health agency and hospice agency providers, the
                           contractor shall verify that the providers are
                           licensed and meet Medicare certification
                           participation requirements.

                  7.       Delegation/subcontracting of QAPI activities shall
                           not relieve the contractor of its obligation to
                           perform all QAPI functions. The contractor shall
                           submit a written request and a plan for active
                           oversight of the QAPI activities to DMAHS for review
                           and approval prior to subcontracting/delegating any
                           QAPI responsibilities.

4.6.2    QAPI ACTIVITIES

         The contractor shall carry out the activities described in its QAPI.
         The contractor shall develop and submit to DMAHS annually an annual
         work plan of expected

                                                                           IV-56
<PAGE>
         accomplishments which includes a schedule of clinical standards to be
         developed, medical care evaluations to be completed, and other key
         quality assurance activities to be completed. The contractor shall also
         prepare and submit to DMAHS an annual report on quality assurance
         activities which demonstrate the contractor's accomplishments,
         compliance and/or deficiencies in meeting its previous year's work plan
         and should include studies undertaken, subsequent actions, and
         aggregate data on utilization and clinical quality of medical care
         rendered.

         The contractor's quality assurance activities shall include,
         at a minimum:

         A.       Guidelines. The contractor shall develop guidelines for the
                  management of selected diagnoses and basic health maintenance,
                  and shall distribute all standards, protocols, and guidelines
                  to all providers.

         B.       Treatment Protocols. The contractor may use treatment
                  protocols, ho wever, such protocols shall allow for
                  adjustments based on the enrollee's medical condition and
                  contributing family and social factors.

         C.       Monitoring. The contractor shall have procedures for
                  monitoring the quality and adequacy of medical care including:
                  1) assessing use of the distributed guidelines and 2)
                  assessing possible under-treatment/under-utilization of
                  services.

         D.       Focused Evaluations. The contractor shall have procedures for
                  focused medical care evaluations to be employed when
                  indicators suggest that quality may need to be studied. The
                  contractor shall also have procedures for conducting
                  problem-oriented clinical studies of individual care.

         E.       Follow-up. The contractor shall have procedures for prompt
                  follow-up of reported problems and complaints involving
                  quality of care issues.

         F.       Utilization Data. The contractor shall conduct a quarterly
                  analysis of utilization data, including inpatient utilization,
                  and shall follow-up on cases of potential under- and
                  over-utilization. Over- and under-utilization shall be
                  determined based on comparison to established medical
                  community standards. See Section A.7.7 of the Appendices
                  (Table 5) for a description of utilization data to be
                  submitted to the Department.

         G.       Data Collection. The contractor shall have procedures for
                  gathering and trending data including outcome data.

         H.       Mortality Rates. The contractor shall review inpatient
                  hospital mortality rates of its enrollees.

         I.       Corrective Action. The contractor shall have procedures for
                  informing providers of identified deficiencies, conducting
                  ongoing monitoring of corrective actions, and taking
                  appropriate follow-up actions, such as instituting progressive
                  sanctions

                                                                           IV-57
<PAGE>
                  and appeal processes. The contractor shall conduct
                  reassessments to determine if corrective action yields
                  intended results.

         J.       Discharge Planning. The contractor shall have procedures to
                  ensure adequate discharge planning, and to include
                  coordination with services enrollees with special needs.

         K.       Ethical Issues. The contractor shall comply and monitor its
                  providers for compliance with state and federal laws and
                  regulations concerning ethical issues, including but not
                  limited to:

                  -        Advance Directives

                  -        Family Planning services for minors

                  -        Other issues as identified

                  Contractor shall submit report annually or within thirty (30)
                  days to DMAHS with changes or updates to the policies.

         L.       Emergency Care. The contractor shall have methods to track
                  emergency care utilization and to take follow-up action,
                  including individual counseling, to improve appropriate use of
                  urgent and emergency care settings.

         M.       New Medical Technology. The contractor shall have policies and
                  procedures for criteria which are based on scientific evidence
                  for the evaluation of the appropriate use of new medical
                  technologies or new applications of established technologies
                  including medical procedures, drugs, devices, assistive
                  technology devices, and DME.

         N.       Informed Consent. The contractor is required and shall require
                  all participating providers to comply with the informed
                  consent forms and procedures for hysterectomy and
                  sterilization as specified in 42 C.F.R. Part 441, Sub-part B,
                  and shall include the annual audit for such compliance in its
                  quality assurance reviews of participating providers. Copies
                  of the forms are included in Section B.4.15 of the Appendices.

         O.       Continuity of Care. The contractor's Quality Management Plan
                  shall include a continuity of care system including a
                  mechanism for tracking issues over time with an emphasis on
                  improving health outcomes, as well as preventive services and
                  maintenance of function for enrollees with special needs.

         P.       HEDIS. The contractor shall submit annually, on a date
                  specified by the State, HEDIS 3.0 data or more updated
                  version, stratified by eligibility group: 1) aged, blind, and
                  disabled; 2) AFDC/TANF; and 3) NJ FamilyCare and aggregate
                  population data as well as, if available, the contractor's
                  commercial and Medicare enrollment HEDIS data for its
                  aggregate, enrolled commercial and Medicare population in the
                  State or region (if these data are collected and reported to

                                                                           IV-58
<PAGE>
                  DHSS, a copy of the report should be submitted also to
                  DMAHS) the following clinical indicator measures:

<TABLE>
<CAPTION>
                                                  Report Period
Reporting Set Measures                            by Contract Year
----------------------                            ----------------
<S>                                               <C>
childhood immunization status                         annually
adolescent immunization status                        annually
well-child care                                       annually
prenatal care in the first trimester                  annually
low birth weight babies                               annually
check ups after delivery                              annually
prenatal care utilization                             annually
</TABLE>

         Q.       Quality Improvement Projects (QIPs). The contractor shall
                  participate in QIPs defined annually by the State with input
                  from the contractor. The State will, with input from the
                  contractor and possibly other MCEs, define measurable
                  improvement goals and QIP-specific measures which shall serve
                  as the focus for each QIP. The contractor shall be responsible
                  for designing and implementing strategies for achieving each
                  QIP's objectives. At the beginning of each contract year the
                  contractor shall present a plan for designing and implementing
                  such strategies, which shall receive approval from the State
                  prior to implementation. The contractor shall then submit
                  semiannual progress reports summarizing performance relative
                  to each of the objectives of each contract year.

                  For year one the QIPs shall be the two areas identified below.
                  The external review organization (ERO) under contract with DHS
                  shall prepare a final report for year one that will contain
                  data, using State-approved sampling and measurement
                  methodologies, for each of the two measures below. Future
                  contract year QIPs shall be defined by the DHS and
                  incorporated into the contract by amendment.

                  For each measure the DHS will identify a baseline and a
                  compliance standard. The baselines in the following chart are
                  the year one QIPs. They are based on 1995 and 1996 focused
                  studies conducted by the ERO or MCE self-reported data (for
                  immunizations). Baseline data, target standards, and
                  compliance standards shall be established or updated by the
                  State.

                  If DHS determines that the contractor is not in compliance
                  with the requirements of the annual QIP objectives, either
                  based on the contractor's progress report or the ERO's report,
                  the contractor shall prepare and submit a corrective action
                  plan for DHS approval.

                  1.       Well-Child Care (EPSDT)

                                                                           IV-59
<PAGE>
                  The QIP for Well-Child Care shall focus upon achieving
                  compliance with the EPSDT periodicity schedule (See Article
                  4.2.6) in the following four priority areas:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
                                                       Minimum
Clinical Area                        Performance     Compliance      Discretionary
                                      Standard        Standard         Sanction
----------------------------------------------------------------------------------
<S>                                  <C>             <C>             <C>
Age-appropriate
Comprehensive exams

0 - 24 months                           80%             60%             60 - 70%
2 - 4 yr olds                           80%             60%             60 - 70%
4 - 6 yr olds (at least 1 visit)        80%             65%             60 - 70%
12 - 20 yr olds (at least 1 visit)      80%             60%             60 - 70%

----------------------------------------------------------------------------------
Immunizations
2 year olds (combined rate)             80%             60%             60 - 70%
----------------------------------------------------------------------------------
Annual Dental Visit -
3 - 12 yr olds                          80%             60%             60 - 70%
13 - 21 yr olds                         80%             60%             60 - 70%
----------------------------------------------------------------------------------
Lead screens (6 months
through 4 yr olds)                      80%             60%             60 - 70%
----------------------------------------------------------------------------------
</TABLE>

                  2.       Prenatal Care and Pregnancy Outcome

                           The QIP for Prenatal Care and Pregnancy Outcome shall
                           focus upon achieving improvements in compliance with
                           prenatal care protocols and in obtaining positive
                           pregnancy outcomes

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
                                                                   Compliance
Clinical Area                             Target Standard          Standard
----------------------------------------------------------------------------
<S>                                       <C>                      <C>
Initial visit in first trimester or
within 6 wks of enrollment                     85%                    75%
----------------------------------------------------------------------------
Adequate frequency of prenatal care            85%                    75%
----------------------------------------------------------------------------
Low birth weight babies
1500 grams or less                              -                      1%
2500 grams or less                              -                      6%
----------------------------------------------------------------------------
Post partum exam within 60 days
after delivery                                 75%                    60%
----------------------------------------------------------------------------
</TABLE>

         R.       Care for Persons with Disabilities and the Elderly (Defined as
                  SSI-Aged and New Jersey Care - Aged enrollees and SSI and New
                  Jersey Care enrollees with disabilities)

                                                                           IV-60
<PAGE>
                  1.       General. The contractor's Quality Committee shall
                           promote improved or clinical outcomes and enhanced
                           quality of life for elderly enrollees and enrollees
                           with disabilities. The Quality Committee shall:

                           a.       Oversee quality of life indicators, such as:

                                    i.       Degree of personal autonomy;
                                    ii.      Provision of services and supports
                                             that assist people in exercising
                                             medical and social choices;
                                    iii.     Self-direction of care to the
                                             greatest extent appropriate; and
                                    iv.      Maximum use of natural support
                                             networks.

                           b.       Review persistent or significant complaints
                                    from elderly enrollees and enrollees with
                                    disabilities or their authorized person,
                                    identified through contractors' complaint
                                    procedures and through external oversight;

                           c.       Review quality assurance policies, standards
                                    and written procedures to ensure they
                                    adequately address the needs of elderly
                                    enrollees and enrollees with disabilities;

                           d.       Review utilization of services, including
                                    any relationship to adverse or unexpected
                                    outcomes specific to elderly enrollees and
                                    enrollees with disabilities;

                           e.       Develop written procedures and protocols for
                                    at least the following:

                                    i.       Assessing the quality of complex
                                             health care/care management;

                                    ii.      Ensuring contractor compliance
                                             with the Americans with
                                             Disabilities Act; and

                                    iii.     Instituting effective health
                                             management protocols for elderly
                                             enrollees and enrollees with
                                             disabilities.

                           f.       Develop and test methods to identify and
                                    collect quality measurements including
                                    measures of treatment efficacy of particular
                                    relevance to elderly enrollees and enrollees
                                    with disabilities.

                           g.       The contractor shall submit an annual report
                                    of the quality activities of this Article.

                                                                           IV-61
<PAGE>
                  2.       Initiatives for Aged. The contractor shall implement
                           specific initiatives for the aged population through
                           the development of programs and protocols approved by
                           DMAHS including:

                           a.       The contractor shall develop a program to
                                    ensure provision of the pneumococcal vaccine
                                    and influenza immunizations, as recommended
                                    by the Centers for Disease Control (CDC).
                                    The adult preventive immunization program
                                    shall include the following components:

                                    i.       Development, distribution, and
                                             measurement of PCP compliance with
                                             practice guidelines;

                                    ii.      Educational outreach for enrollees
                                             and practitioners;

                                    iii.     Access for ambulatory and homebound
                                             enrollees; and

                                    iv.      Mechanism to report to DMAHS, via
                                             encounter data, all immunizations
                                             given.

                           b.       The contractor shall develop a program to
                                    ensure the provision of preventive cancer
                                    screening services including, at a minimum,
                                    mammography and prostate cancer screening.
                                    The program shall include the following
                                    components:

                                    i.       Measurement of provider compliance
                                             with performance standards;

                                    ii.      Education outreach for both
                                             enrollees and practitioners
                                             regarding preventive cancer
                                             screening services;

                                    iii.     Mammography services for women ages
                                             sixty-five (65) to seventy-five
                                             (75) offered at least annually;

                                    iv.      Screen for prostate cancer
                                             scheduled for enrollees aged
                                             sixty-five (65) to seventy-five
                                             (75) at least every two (2) years;
                                             and

                                    v.       Documentation on medical records of
                                             all tests given, positive findings
                                             and actions taken to provide
                                             appropriate follow-up care.

                           c.       The contractor shall develop specific
                                    programs for the care of enrollees
                                    identified with congestive heart failure,
                                    chronic obstructive lung disease (COPD),
                                    diabetes, hypertension, and depression. The
                                    program shall include the following:

                                    i.       Written quality of care plan to
                                             monitor clinical management,
                                             including diagnostic,
                                             pharmacological, and functional
                                             standards and to evaluate outcomes
                                             of care;

                                    ii.      Measurement and distribution to
                                             providers of reports on outcomes of
                                             care;

                                                                           IV-62
<PAGE>
                                    iii.     Educational programming for
                                             enrollees and significant
                                             caregivers which emphasizes
                                             self-care and maximum independence;

                                    iv.      Educational materials for clinical
                                             providers in the best practices of
                                             managing the disease;

                                    v.       Evaluation of effectiveness of each
                                             program by measuring outcomes of
                                             care; and

                           d.       The contractor shall develop a program to
                                    manage the care for enrollees identified
                                    with cognitive impairments. The program
                                    shall include the following:

                                    i.       Written quality of care plans to
                                             monitor clinical management,
                                             including functional standards, and
                                             to evaluate outcomes of care;

                                    ii.      Measurement and distribution to
                                             providers of reports on outcomes of
                                             care;

                                    iii.     Educational programming for
                                             significant caregivers which
                                             emphasizes community based care and
                                             support systems for caregivers; and

                                    iv.      Educational materials for clinical
                                             providers in the best practices of
                                             managing cognitive impairments.

                           e.       Initiatives to Prevent Long Term
                                    Institutionalization: Contractor shall
                                    develop a program to prevent unnecessary or
                                    inappropriate nursing facility admissions
                                    for the ABD, dually eligible population.
                                    This program shall include, but is not
                                    limited to, the following:

                                    i.       Identification of medical and
                                             social conditions that indicate
                                             risk of being institutionalized;

                                    ii.      Monitoring and risk assessment
                                             mechanisms that assist PCPs and
                                             others to identify enrollees
                                             at-risk of institutionalization;

                                    iii.     Protocols to ensure the timely
                                             provision of appropriate preventive
                                             care services to at-risk enrollees.
                                             Such protocols should emphasize
                                             continuity of care and coordination
                                             of services; and

                                    iv.      Provision of home/community
                                             services covered by the contractor
                                             as needed.

                           f.       Abuse and Neglect Identification Initiative:
                                    Contractor shall develop a program on
                                    prevention, awareness, and treatment of
                                    abuse and neglect of enrollees, to include
                                    the following:

                                                                           IV-63
<PAGE>
                                    i.       Diagnostic tools for identifying
                                             enrollees who are experiencing or
                                             who are at risk of abuse and
                                             neglect;

                                    ii.      Protocols and interventions to
                                             treat abuse and neglect of
                                             enrollees, including ongoing
                                             evaluation of the effectiveness of
                                             these protocols and interventions;
                                             and

                                    iii.     Coordination of these efforts
                                             through the PCP.

                  3.       QIP for Persons with Disabilities and the Elderly.
                           The contractor shall cooperate with the DMAHS and the
                           ERO in providing the data and in participating in the
                           QIP studies for persons with disabilities and the
                           elderly. The study and final report will be conducted
                           and prepared by the ERO.

                           a.       Preventive Medicine

                                    i.       Influenza vaccinations rates:
                                             percentage of enrollees who have
                                             received an influenza vaccination
                                             in the past year;

                                    ii.      Pneumonia vaccination rate:
                                             percentage of enrollees who have
                                             received the pneumonia vaccination
                                             at any time.

                                    iii.     Biennial eye examination:
                                             percentage of enrollees receiving
                                             vision screening in the past two
                                             (2) years;

                                    iv.      Biennial hearing examination:
                                             percentage of enrollees receiving
                                             hearing screening in the past two
                                             (2) years;

                                    v.       Screening for smoking: percentage
                                             of enrollees who reported smoking
                                             tobacco, and percentage of those
                                             encouraged to stop smoking during
                                             the past year;

                                    vi.      Screening for drug abuse:
                                             percentage of enrollees reporting
                                             alcohol utilization in the
                                             substance abuse risk areas, and
                                             percentage of those referred for
                                             counseling; and

                                    vii.     Screening for colon cancer:
                                             percentage of enrollees who
                                             received this service in the past
                                             two (2) years.

                           b.       Congestive Heart Failure (CHF):

                                    i.       The number of enrollees diagnosed
                                             with CHF:

                                    ii.      The number hospitalized for CHF and
                                             average lengths of stay;

                                    iii.     Percentage of enrollees for whom
                                             Angiotensin Converting Enzyme (ACE)
                                             Inhibitors were prescribed;

                                    iv.      Percentage for whom cardiac
                                             arrhythmias were diagnosed;

                                    v.       CHF readmission rate (the number of
                                             enrollees admitted more than once
                                             for CHF during the past year);

                                    vi.      CHF readmission rate ratio (the
                                             ratio of enrollees admitted more
                                             than once for CHF compared to
                                             enrollees admitted only once);

                                    vii.     Percentage who died during the past
                                             year in hospitals; and

                                                                           IV-64
<PAGE>
                                    viii.    Percentage who died during the past
                                             year in non-hospital settings.

                           c.       Hypertension:

                                    i.       The number of enrollees identified
                                             as hypertensive using HEDIS
                                             measures

                                    ii.      Percentage who received a blood
                                             test for cholesterol or LDL.

         S.       For the elderly and enrollees with disabilities, the
                  contractor shall monitor and report outcomes annually to DMAHS
                  of the following quality indicators of potential adverse
                  outcomes and provide for appropriate education, outreach and
                  care management, and quality improvement activities as
                  indicated:

                  1.       Aspiration pneumonia

                  2.       Injuries, fractures, and contusions

                  3.       Decubiti

                  4.       Seizure management

         T.       MH/SA Services for Clients of DDD. In addition to including
                  clients of DDD and MH/SA services for clients of DDD in other
                  required reports, the contractor shall monitor and report on
                  the following measures: 1) timely outpatient follow-up to
                  intensive treatment, defined as the percentage of enrollees
                  discharged from acute treatment who receive ambulatory
                  services within 7 days; and 2) adequacy of outpatient
                  follow-up, defined as the percentage of enrollees discharged
                  from an inpatient hospital who attend a minimum of one
                  ambulatory service appointment per month for four months.

         U.       The contractor shall provide to DMAHS for review and approval
                  a written description of its compensation methodology for
                  marketing representatives, including details of commissions,
                  financial incentives, and other income.

         V.       Provider Performance Measures. The contractor shall conduct a
                  multidimensional assessment of a provider's performance, and
                  utilize such measures in the evaluation and management of
                  those providers. Data shall be supplied to providers for their
                  management activities. The contractor shall indicate in its
                  QAPI/Utilization Management Plan how it will address this
                  provision subject to DHS approval. At a minimum, the
                  evaluation management approach shall address the following:

                  1.       Resource utilization of services, specialty and
                           ancillary services;

                  2.       Clinical performance measures on outcomes of care;

                  3.       Maintenance and preventive services;

                                                                           IV-65
<PAGE>
                  4.       Enrollee experience and perceptions of service
                           delivery; and

                  5.       Access.

                  For MH/SA services provided to enrollees who are clients of
                  DDD the contractor shall report MH/SA utilization data to its
                  providers.

         W.       Member Satisfaction. The State will assess member satisfaction
                  of contractor services by conducting surveys employing the
                  Consumer Assessments of Health Plans Study (CAHPS) survey, or
                  another survey instrument specified by the State. The survey
                  shall be stratified to capture statistically significant
                  results for all categories of New Jersey Care 2000+ enrollees
                  including AFDC/TANF, DYFS, SSI and New Jersey Care Aged, Blind
                  and Disabled, NJ FamilyCare, pregnant and parenting women, and
                  racial and linguistic minorities. Sample size, sample
                  selection, and implementation methodology shall be determined
                  by the State, with contractor input, to assure comparability
                  of results across State contractors.

                  The State will select an independent survey administrator to
                  perform the survey on behalf of all of the State's New Jersey
                  Care 2000+ contractors.

                  The contractor shall fully cooperate with the State and the
                  independent survey administrator such that final, analyzed
                  survey results shall be available from the survey
                  administrator to the State, in a format approved by the State,
                  by a date specified by the State of each contract year. Within
                  sixty (60) days of receipt of the final, analyzed survey
                  results sent to the contractor, it shall identify leading
                  sources of enrollee dissatisfaction, specify additional
                  measurement or intervention efforts developed to address
                  enrollee dissatisfaction, and a timeline, subject to State
                  approval, indicating when such activities will be completed. A
                  status report on the additional measurement or intervention
                  efforts shall be submitted to the State by a date specified by
                  DMAHS. The contractor shall respond to and submit a corrective
                  action to address and correct problems and deficiencies found
                  through the survey.

                  If the contractor conducts a member satisfaction survey of its
                  own, it shall send to DMAHS the results of the survey.

         X.       Focus Groups. The State will annually conduct four focus
                  groups with enrolled populations identified by the State and
                  communicated in writing to the contractor. Objectives for the
                  focus groups will be collaboratively developed by the State
                  and the contractor. For the first contract year, two focus
                  groups each will be conducted with enrollees who have
                  communication-affecting disorders and with enrollees who are
                  elderly.

                  Focus group results will be reported by the State. The
                  contractor shall identify opportunities for improvement
                  identified through the focus groups, specify

                                                                           IV-66
<PAGE>
                  additional measurement or intervention efforts developed to
                  address the opportunities for improvement, and a timeline,
                  subject to State approval, indicating when such activities
                  will be completed. A status report on the additional
                  measurement or intervention efforts shall be submitted
                  annually to the State by a date specified by DMAHS.

         Y.       ERO. Other "areas of concern" shall be monitored through the
                  external review process. The External Review Organization
                  (ERO) shall, in its monitoring activities, validate the
                  contractor's protocols, sampling, and review methodologies.

         Z.       Community/Health Education Advisory Committee. The contractor
                  shall establish and maintain a community advisory committee,
                  consisting of persons being served by the contractor,
                  including enrollees or authorized persons, individuals and
                  providers with knowledge of and experience with serving
                  elderly people or people with disabilities; and
                  representatives from community agencies that do not provide
                  contractor-covered services but are important to the health
                  and well-being of members. The committee shall meet at least
                  quarterly and its input and recommendations shall be employed
                  to inform and direct contractor quality management activities
                  and policy and operations changes. The contractor shall submit
                  a narrative annual report indicating the constituencies on
                  this committee, as well as the committee's activities
                  throughout the year.

         AA.      Provider Advisory Committee. The contractor shall establish
                  and maintain a provider advisory committee, consisting of
                  providers contracting with the contractor to serve enrollees.
                  At least two providers on the committee shall maintain
                  practices that predominantly serve Medicaid beneficiaries and
                  other indigent populations, in addition to at least one other
                  practicing provider on the committee who has experience and
                  expertise in serving enrollees with special needs. The
                  committee shall meet at least quarterly and its input and
                  recommendations shall be employed to inform and direct
                  contractor quality management activities and policy and
                  operations changes. The contractor shall submit a narrative
                  annual report indicating the constituencies on this committee,
                  as well as the committee's activities throughout the year.

4.6.3    REFERRAL SYSTEMS

         A.       The contractor shall have a system whereby enrollees needing
                  specialty medical and dental care will be referred timely and
                  appropriately. The system shall address authorization for
                  specific services with specific limits or authorization of
                  treatment and management of a case when medically indicated
                  (e.g., treatment of a terminally ill cancer patient requiring
                  significant specialist care). The contractor shall maintain
                  and submit a flow chart accurately describing the contractor's
                  referral system, including the title of the person(s)
                  responsible for approving referrals. The following items shall
                  be contained within the referral system:

                                                                           IV-67
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                  1.       Procedures for recording and tracking each authorized
                           referral.

                  2.       Documentation and assurance of completion of
                           referrals.

                  3.       Policies and procedures for identifying and
                           rescheduling broken referral appointments with the
                           providers and/or contractor as appropriate (e.g.
                           EPSDT services).

                  4.       Policies and procedures for accepting, resolving and
                           responding to verbal and written enrollee requests
                           for referrals made to the PCP and/or contractor as
                           appropriate. Such requests shall be logged and
                           documented. Requests that cannot be decided upon
                           immediately shall be responded to in writing no later
                           than five (5) business days from the date of receipt
                           of the request (with a call made to the enrollee on
                           final disposition) and postmarked the next day.

                  5.       Policies and procedures for proper notification of
                           the enrollee and where applicable, authorized person,
                           the enrollee's provider, and the enrollee's care
                           manager, including notice of right to appeal and/or
                           right to a request a second opinion when services are
                           denied.

                  6.       A referral form which can be given to the enrollee
                           or, where applicable, an authorized person to take to
                           a specialist.

                  7.       Referral form mailed, faxed, or sent by electronic
                           means directly to the referral provider.

                  8.       Telephoned authorization for urgent situations or
                           when deemed appropriate by the enrollee's PCP or the
                           contractor.

                  9.       Where applicable, the contractor must also notify the
                           contractor care manager or authorized person.

         B.       The contractor shall provide a mechanism to assure the
                  facilitation of referrals when traveling by an enrollee
                  (especially when very ill) from one location to another to
                  pick-up and deliver forms can cause undue hardship for the
                  enrollee. Referrals from practitioners or prior authorizations
                  by the contractor shall be sent/processed within two (2)
                  working days of the request, one (1) day for urgent cases. The
                  contractor shall have procedures to allow enrollees to receive
                  a standing referral to a specialist in cases where an enrollee
                  needs ongoing specialty care.

         C.       The contractor shall not impose an arbitrary number of
                  attempted dental treatment visits by a PCD as a condition
                  prior to the PCD initiating any specialty referral requests.

                                                                           IV-68
<PAGE>
         D.       The contractor shall authorize any reasonable referral request
                  from a PCP/PCD without imposing any financial penalties to the
                  same PCP/PCD.

         E.       All final decisions regarding denials of referrals, PAs,
                  treatment and treatment plans for non-emergency services shall
                  be made by a physician and/or peer physician specialist or by
                  a dentist/dental specialist in the case of dental services.
                  Prior authorization decisions for non-emergency services shall
                  be made within ten (10) business days or sooner as required by
                  the needs of the enrollee.

4.6.4    UTILIZATION MANAGEMENT

         A.       Utilization Review Plan. The contractor shall develop a
                  written Utilization Review Plan that includes all standards
                  described in the NJ modified QARI/QISMC (See Section B.4.14 of
                  the Appendices). The written plan shall also include policies
                  and procedures that address the following:

                  1.       The contractor shall not deny benefits to require
                           enrollees and providers to go through the appeal
                           process in an effort to forestall and reduce needed
                           benefits. The contractor shall provide all medically
                           necessary services covered by the NJ Division of
                           Medical Assistance and Health Services program in
                           this contract. If a dispute arises concerning the
                           provision of a service or the level of service, the
                           service, if initiated, shall be continued until the
                           issue is resolved.

                  2.       Utilization Management Committee. The committee shall
                           have written parameters for operating and will meet
                           on a regular schedule, defined to be at least
                           quarterly. Committee members shall be clearly
                           identified and representative of the contractor's
                           providers, accountable to the medical director and
                           governing body, and shall maintain appropriate
                           documentation of the committee's activities,
                           findings, recommendations, and actions.

                  3.       Data Collection and Reporting. The plan shall provide
                           for systematic utilization data collection and
                           analysis, including profiling of provider utilization
                           patterns and patient results. The contractor must use
                           aggregate data to establish utilization patterns,
                           allow for trend analysis, and develop statistical
                           profiles of both individual providers and all network
                           providers. Such data shall be regularly reported to
                           the contractor management and contractor providers.
                           The plan shall also provide for interpretation of the
                           data to providers.

                  4.       Corrective Action. The plan shall include procedures
                           for corrective action and follow-up activities when
                           problems in utilization are identified.

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<PAGE>
                  5.       Roles and Responsibilities. The plan shall clearly
                           define the roles, functions, and responsibilities of
                           the utilization management committee and medical
                           director.

                  6.       Prohibitions on Compensation. The contractor or the
                           contractor's delegated utilization review agent shall
                           not permit or provide compensation or anything of
                           value to its employees, agents or contractors based
                           on:

                           a.       Either a percentage of the amount by which a
                                    claim is reduced for payment or the number
                                    of claims or the cost of services for which
                                    the person has denied authorization or
                                    payment; or

                           b.       Any other method that encourages the
                                    rendering of an adverse determination.

                  7.       Retrospective Review. If a health care service has
                           been pre-authorized or approved, the specific
                           standards, criteria or procedures used in the
                           determination shall not be modified pursuant to
                           retrospective review.

                  8.       Collection of Information. Only such information as
                           is necessary to make a determination shall be
                           collected. During prospective or concurrent review,
                           copies of medical records shall only be required when
                           necessary to verify that the health care services
                           subject to review are medically necessary. In such
                           cases, only the relevant sections of the records
                           shall be required. Complete or partial medical
                           records may be requested for retrospective reviews.
                           In no event shall such information be reviewed by
                           persons other than health care professionals,
                           registered health information technicians, registered
                           health information administrators, or administrative
                           personnel who have received appropriate training and
                           who will safeguard patient confidentiality.

                  9.       Prohibited Actions. Neither the contractor's UM
                           committee nor its utilization review agent shall take
                           any action with respect to an enrollee or a health
                           care provider that is intended to penalize or
                           discourage the enrollee or the enrollee's health care
                           provider from undertaking an appeal, dispute
                           resolution or judicial review of an adverse
                           determination.

         B.       Prior Authorization. The contractor shall have policies and
                  procedures for prior-authorization. Prior authorization shall
                  be conducted by a currently licensed, registered or certified
                  health care professional, including a registered nurse or a
                  physician who is appropriately trained in the principles,
                  procedures and standards of utilization review. The following
                  timeframes and requirements shall apply to all prior
                  authorization determinations:

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<PAGE>
                  1.       Routine determinations. Prior authorization
                           determinations for non-urgent services shall be made
                           and a notice of determination provided by telephone
                           and in writing to the provider within ten (10)
                           business days (or sooner as required by the needs of
                           the enrollee) of receipt of necessary information
                           sufficient to make an informed decision.

                  2.       Urgent determinations. Prior authorization
                           determinations for urgent services shall be made
                           within twenty-four (24) hours of receipt of the
                           necessary information.

                  3.       Determination for Services that have been delivered.
                           Determinations involving health care services which
                           have been delivered shall be made within thirty (30)
                           days of receipt of the necessary information.

                  4.       Adverse Determinations. A physician and/or a
                           physician peer reviewer shall make the final
                           determination in all adverse determinations.

                  5.       Continued/Extended Services. A utilization review
                           agent shall make a determination involving continued
                           or extended health care services, or additional
                           services for an enrollee undergoing a course of
                           continued treatment prescribed by a health care
                           provider and provide notice of such determination to
                           the enrollee or the enrollee's designee, which may be
                           satisfied by notices to the enrollee's health care
                           provider, by telephone and in writing within one (1)
                           business day of receipt of the necessary information.
                           Notification of continued or extended services shall
                           include the number of extended services approved, the
                           new total of approved services, the date of onset of
                           services and the next review date. For services that
                           require multiple visits, a series of tests, etc. to
                           complete the service, the authorized time period
                           shall be adequate to cover the anticipated span of
                           time that best fits the service needs and
                           circumstances of each individual enrollee.

                  6.       Reconsiderations. The contractor shall have policies
                           and procedures for reconsideration in the event that
                           an adverse determination is made without an attempt
                           to discuss such determination with the referring
                           provider. Determinations in such cases shall be made
                           within the timeframes established for initial
                           considerations.

                  7.       The contractor shall provide written notification to
                           enrollees and/or, where applicable, an authorized
                           person at the time of denial, deferral or
                           modification of a request for prior approval to
                           provide a medical/dental service(s), when the
                           following conditions exist:

                           a.       The request is made by a medical/dental or
                                    other health care provider who has a formal
                                    arrangement with the contractor to provide
                                    services to the enrollee.

                                                                           IV-71
<PAGE>
                           b.       The request is made by the provider through
                                    the formal prior authorization procedures
                                    operated by the contractor.

                           c.       The service for which prior authorization is
                                    requested is a Medicaid covered service for
                                    which the contractor has established a prior
                                    authorization requirement.

                           d.       The prior authorization decision is being
                                    made at the ultimate level of responsibility
                                    within the contractor's organization for
                                    approving, denying, deferring or modifying
                                    the service requested but prior to the point
                                    at which the enrollee must initiate the
                                    contractor's grievance procedure.

                  8.       Notice of Action. Written notification shall be given
                           on a standardized form approved by the Department and
                           shall inform the provider, enrollee or authorized
                           person of the following:

                           a.       The effective date of the denial, reduction
                                    of service, or other medical coverage
                                    determination;

                           b.       The enrollee's rights to, and method for
                                    obtaining, a State hearing (Fair Hearing
                                    and/or IURO) to contest the denial, deferral
                                    or modification action;

                           c.       The enrollee's right to represent
                                    himself/herself at the State hearing or to
                                    be represented by legal counsel, friend or
                                    other spokesperson;

                           d.       The action taken by the contractor on the
                                    request for prior authorization and the
                                    reason for such action including clinical
                                    rationale and the underlying contractual
                                    basis or Medicaid authority;

                           e.       The name and address of the contractor;

                           f.       Notice of internal (contractor) appeal
                                    rights and instructions on how to initiate
                                    such appeal;

                           g.       Notice of the availability, upon request, of
                                    the clinical review criteria relied upon to
                                    make the determination;

                           h.       The notice to the enrollee shall inform the
                                    enrollee that he or she may file an appeal
                                    concerning the contractor's action using the
                                    contractor's appeal procedure prior to or
                                    concurrent with the initiation of the State
                                    hearing process;

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<PAGE>
                           i.       The contractor shall notify enrollees,
                                    and/or authorized persons within the time
                                    frames set forth in this contract;

                  9.       In no instance shall the contractor apply prior
                           authorization requirements and utilization controls
                           that effectively withhold or limit medically
                           necessary services, or establish prior authorization
                           requirements and utilization controls that would
                           result in a reduced scope of benefits for any
                           enrollee.

         C.       Appeal Process for UM Determinations. The contractor shall
                  have policies and procedures for the appeal of utilization
                  management determinations and similar determinations. In the
                  case of an enrollee who was receiving a covered service (from
                  the contractor, another contractor, or the Medicaid
                  Fee-for-Service program) prior to the determination, the
                  contractor shall continue to provide the same level of service
                  while the determination is in appeal. However, the contractor
                  may require the enrollee to receive the service from within
                  the contractor's provider network, if equivalent care can be
                  provided within network.

                  1.       The contractor shall provide that an enrollee, and
                           any provider acting on behalf of the enrollee with
                           the enrollee's consent (enrollee's consent shall not
                           be required in the case of a deceased patient, or
                           when an enrollee has relocated and cannot be found),
                           may appeal any UM decision resulting in a denial,
                           termination, or other limitation in the coverage of
                           and access to health care services in accordance with
                           this contract and as defined in C.2 under the
                           procedures described in this Article. Such enrollees
                           and providers shall be provided with a written
                           explanation of the appeal process upon the conclusion
                           of each stage in the appeal process.

                  2.       Appealable decision means, at a minimum, any of the
                           following:

                           a.       An adverse determination under a utilization
                                    review program;

                           b.       Denial of access to specialty and other
                                    care;

                           c.       Denial of continuation of care;

                           d.       Denial of a choice of provider;

                           e.       Denial of coverage of routine patient costs
                                    in connection with an approved clinical
                                    trial;

                           f.       Denial of access to needed drugs;

                           g.       The imposition of arbitrary limitation on
                                    medically necessary services; or

                           h.       Denial of payment for a benefit.

                  3.       Hearings. If the contractor provides a hearing to the
                           enrollee on the appeal, the enrollee shall have the
                           right to representation. The contractor shall permit
                           the enrollee to be accompanied by a representative of
                           the enrollee's choice to any proceedings and
                           grievances. Such hearing must

                                                                           IV-73
<PAGE>
                           take place in community locations convenient and
                           accessible to the enrollee.

                  4.       The appeal process shall consist of an informal
                           internal review by the contractor (stage 1 appeal), a
                           formal internal review by the contractor (stage 2
                           appeal), and a formal external review (stage 3
                           appeal) by an independent utilization review
                           organization under the DHSS and/or the Medicaid Fair
                           Hearing process shall be in accordance with N.J.A.C
                           10:49 et seq. Stages 1-3 appeals shall be in
                           accordance with N.J.A.C. 8:38-8.

                  5.       Utilization Management Grievances. Appropriate
                           clinical personnel shall be involved in the
                           investigation and resolution of all UM grievances.
                           The processing of all such grievances shall be
                           incorporated in the contractor's quality management
                           activities and shall be reviewed periodically (at
                           least quarterly) by the Medical Director/Dental
                           Director.

                  6.       Nothing in this Article shall be construed as
                           removing any legal rights of enrollees under State or
                           federal law, including the right to file judicial
                           actions to enforce rights or request a Medicaid Fair
                           Hearing for Medicaid enrollees in accordance with
                           their rights under State and federal laws and
                           regulations. All written notices to Medicaid/NJ
                           FamilyCare Plan A enrollees shall include a statement
                           of their right to access the Medicaid Fair Hearing
                           process at any time.

         D.       Drug Utilization Review Program (DUR): The contractor shall
                  establish and maintain a drug utilization review (DUR) program
                  that satisfies the minimum requirements for prospective and
                  retrospective DUR as described in 1927(g) of the Social
                  Security Act, amended by the Omnibus Budget Reconciliation Act
                  (OBRA) of 1990. The contractor shall include review of Mental
                  Health/Substance Abuse drugs in its DUR program. The State or
                  its agent shall provide its expertise in developing review
                  protocols and shall assist the contractor in analyzing MH/SA
                  drug utilization. Results of the review shall be provided to
                  the State or its agent and, where applicable, to the
                  contractor's network providers. The State or its agent will
                  take appropriate corrective action to report its actions and
                  outcomes to the contractor.

                  1.       DUR standards shall encourage proper drug utilization
                           by ensuring maximum compliance, minimizing potential
                           fraud and abuse, and taking into consideration both
                           the quality and cost of the pharmacy benefit.

                  2.       The contractor shall implement a claims adjudication
                           system, preferably on-line, which shall include a
                           prospective review of drug utilization, and include
                           age-specific edits.

                  3.       The prospective and retrospective DUR standards
                           established by the contractor shall be consistent
                           with those same standards established by the

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<PAGE>
                           Medicaid Drug Utilization Review Board. DMAHS shall
                           approve the effective date for implementation of any
                           DUR standards by the contractor as well as any
                           subsequent changes within thirty (30) days of such
                           change.

4.6.5    CARE MANAGEMENT

         A.       Care Management Standards. The contractor shall develop and
                  implement care management as defined in Article 1 with
                  adequate capacity to provide services to all enrollees who
                  would benefit from care management services. In addition, the
                  contractor shall develop a higher level of care management for
                  enrollees with special needs, as described in Article 4.5.4.
                  Specific care management activities shall include at least the
                  following:

                  1.       An effective mechanism to initiate and discontinue
                           care management services in both inpatient and
                           outpatient settings, in addition to catastrophic
                           incidents.

                  2.       An effective mechanism to coordinate services
                           required by enrollees, including community support
                           services. When appropriate, such activities shall be
                           coordinated with those of the Division of Family
                           Development (DFD), Division of Youth and Family
                           Services (DYFS), Division of Mental Health Services
                           (DMHS), Division of Developmental Disabilities,
                           Special Child Health Services County Case Management
                           Units, Division of Addiction Services, and community
                           agencies.

                  3.       Care plans specifically developed for each care
                           managed enrollee which ensure continuity and
                           coordination of care among the various clinical and
                           non-clinical disciplines and services.

                  4.       A process to evaluate and improve individual care
                           management services as well as the effectiveness of
                           care management as a whole.

                  5.       Protocols for the following care management
                           activities:

                           a.       Pregnancy services including HealthStart
                                    program requirements;

         b.       All EPSDT services and coordination for children with elevated
                  blood lead levels;

                           c.       Mental health/substance abuse services
                                    coordination;

                           d.       HIV/AIDS services coordination; and

                           e.       Dental services for enrollees with
                                    developmental disabilities.

         B.       Early Identification. The contractor shall develop policies
                  and procedures for early identification of enrollees who
                  require care management. The contractor shall include in its
                  policies and procedures a review of the following possible
                  indicators of complex care needs:

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<PAGE>
                  1.       Poor health or functional status, as reported by the
                           enrollee or authorized person;

                  2.       Existence of a care plan;

                  3.       Existence of a case manager;

                  4.       Request for an assessment from the enrollee or
                           authorized person;

                  5.       Request for an assessment from a State agency or
                           private agency contracting with DDD involved with the
                           enrollee;

                  6.       A chronic condition;

                  7.       A recent hospitalization or admission to a nursing
                           facility;

                  8.       Recent critical social events, such as the death or
                           relocation of a family member or a move to a new
                           home;

                  9.       Existence of multiple medical or social service
                           systems or providers in the life of the enrollee;

                  10.      Use of prescription drugs, particularly multiple
                           drugs; and

                  11.      Use of interpreter or any special services.

         C.       Complex Needs Assessment. The contractor shall have protocols
                  and tools for performing and reviewing/updating Complex Needs
                  Assessments.

                  1.       The Complex Needs Assessment must cover at least the
                           following risk factors:

                           a.       Medical status and history, including
                                    primary and secondary diagnosis and current
                                    and past medications prescribed

                           b.       Functional status

                           c.       Physical well-being

                           d.       Mental health status

                           e.       History of tobacco, alcohol and drug use or
                                    abuse

                           f.       Identification of existing and potential
                                    formal and informal supports

                           g.       Determination of willingness and capacity of
                                    family members or, where applicable,
                                    authorized persons and others to provide
                                    informal support

                           h.       Condition and proximity to services of
                                    current housing, and access to appropriate
                                    transportation

                           i.       Identification of current or potential long
                                    term service needs

                           j.       Need for medical supplies and DME

                  2.       When any of the following conditions are met, the
                           contractor shall ensure that a Complex Needs
                           Assessment is conducted, or an existing assessment is
                           reviewed, within a time frame that meets the needs of
                           the enrollee but within no more than thirty (30)
                           days:

                           a.       Special needs are identified at the time of
                                    enrollment or any time thereafter;

                           b.       An enrollee or authorized person requests an
                                    assessment;

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<PAGE>
                           c.       The enrollee's PCP requests an assessment;

                           d.       A State agency involved with an enrollee
                                    requests an assessment; or

                           e.       An enrollee's status otherwise indicates.

         D.       Plan of Care. The contractor, through its care manager, shall
                  ensure that a plan of care is developed and implementation has
                  begun within thirty (30) business days of the date of a needs
                  assessment, or sooner, according to the circumstances of the
                  enrollee. The contractor shall ensure the full participation
                  and consent of the enrollee or, where applicable, authorized
                  person and participation of the enrollee's PCP and other case
                  managers identified through the Complex Needs Assessment
                  (e.g., DDD case manager) in the development of the plan. The
                  plan shall specify treatment goals, identify medical service
                  needs, relevant social and support services, appropriate
                  linkages and timeframe as well as provide an ongoing accurate
                  record of the individual's clinical history. The care manager
                  shall be responsible for implementing the linkages identified
                  in the plan and monitoring the provision of services
                  identified in the plan. This includes making referrals,
                  coordinating care, promoting communication, ensuring
                  continuity of care, and conducting follow-up. The care manager
                  shall also be responsible for ensuring that the plan is
                  updated as needed, but at least annually. This includes early
                  identification of changes in the enrollee's needs.

         E.       Referrals. The contractor shall have policies and procedures
                  to process and respond within ten (10) business days to care
                  management referrals from network providers, state agencies,
                  private agencies under contract with DDD, self-referrals, or,
                  where applicable, referrals from an authorized person.

         F.       Continuity of Care

                  1.       The contractor shall establish and operate a system
                           to assure that a comprehensive treatment plan for
                           every enrollee will progress to completion in a
                           timely manner without unreasonable interruption.

                  2.       The contractor shall construct and maintain policies
                           and procedures to ensure continuity of care by each
                           provider in its network.

                  3.       An enrollee shall not suffer unreasonable
                           interruption of his/her active treatment plan. Any
                           interruptions beyond the control of the provider will
                           not be deemed a violation of this requirement.

                  4.       If an enrollee has already had a medical or dental
                           treatment procedure initiated prior to his/her
                           enrollment in the contractor's plan, the initiating
                           treating provider must complete that procedure (not
                           the entire treatment plan). See 4.1.1.E for details.

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<PAGE>
         G.       Documentation. The contractor shall document all contacts and
                  linkages to medical and other services in the enrollee's case
                  files.

         H.       Informing Providers. The contractor shall inform its PCPs and
                  specialists of the availability of care management services,
                  and must develop protocols describing how providers will
                  coordinate services with the care managers.

         I.       Care Managers. The contractor shall establish a distinct care
                  management function within the contractor's plan. This
                  function shall be overseen by a Care Management Supervisor, as
                  described in Article 7.3. Care managers shall be dedicated to
                  providing care management and may be employees or contracted
                  agents of the contractor. The care manager, in conjunction
                  with and with approval from, the enrollee's PCP, shall make
                  referrals to needed services. The care management system shall
                  recognize three levels set forth in Section B.4.12 of the
                  Appendices. Level 3 is described in Article 4.5.4.

                  1.       The care manager for the first level of care
                           management shall have as a minimum a license as a
                           registered nurse or a Bachelor's degree in social
                           work, health or behavioral science.

                  2.       For level two of care management, in addition to the
                           requirements in 4.6.5I.1. above, the care managers
                           shall also have at least one (1) year of experience
                           serving enrollees with special needs.

                  3.       The contractor shall have procedures to monitor the
                           adequacy of staffing and must adjust staffing ratios
                           and caseloads as appropriate based on its staffing
                           assessment.

         J.       Care management shall also be made available to enrollees who
                  exhibit inappropriate, disruptive or threatening behaviors in
                  a medical practitioner's office when such behaviors may relate
                  to or result from the existence of the enrollee's special
                  needs.

         K.       Hours of Service. The contractor shall make care management
                  services available during normal office hours, Monday through
                  Friday.

4.7      MONITORING AND EVALUATION

4.7.1    GENERAL PROVISIONS

         A.       For purposes of monitoring and evaluating the contractor's
                  performance and compliance with contract provisions, to assure
                  overall quality management (QM), and to meet State and federal
                  statutes and regulations governing monitoring, DMAHS or its
                  agents shall have the right to monitor and evaluate on an
                  on-going basis, through inspection or other means, the
                  contractor's provision of health care services and operations
                  including, but not limited to, the quality, appropriateness,

                                                                           IV-78
<PAGE>
                  and timeliness of services provided under this contract and
                  the contractor's compliance with its internal QM program.
                  DMAHS shall establish the scope of review, review sites,
                  relevant time frames for obtaining information, and the
                  criteria for review, unless otherwise provided or permitted by
                  applicable laws, rules, or regulations.

         B.       The contractor shall cooperate with and provide reasonable
                  assistance to DMAHS in monitoring and evaluation of the
                  services provided under this contract.

         C.       The contractor hereby agrees to medical audits in accordance
                  with the protocols for care specified in this contract, in
                  accordance with medical community standards for care, and of
                  the quality of care provided all enrollees, as may be required
                  by appropriate regulatory agencies.

         D.       The contractor shall cooperate with DMAHS in carrying out the
                  provisions of applicable statutes, regulations, and guidelines
                  affecting the administration of this contract.

         E.       The contractor shall distribute to all subcontractors
                  providing services to enrollees, informational materials
                  approved by DMAHS that outlines the nature, scope, and
                  requirements of this contract.

         F.       The contractor, with the prior written approval of DMAHS,
                  shall print and distribute reporting forms and instructions,
                  as necessary whenever such forms are required by this
                  contract.

         G.       The contractor shall make available to DMAHS copies of all
                  standards, protocols, manuals and other documents used to
                  arrive at decisions on the provision of care to its DMAHS
                  enrollees.

         H.       The contractor shall use appropriate clinicians to evaluate
                  the clinical data, and must use multi-disciplinary teams to
                  analyze and address systems issues.

         I.       Contractor shall develop an incentive system for providers to
                  assure submission of encounter data. At a minimum, the system
                  shall include:

                  1.       Mandatory provider profiling that includes complete
                           and timely submissions of encounter data. Contractor
                           shall set specific requirements for profile elements
                           based on data from encounter submissions.

                  2.       Contractor shall set up data submission requirements
                           based on encounter data elements for which compliance
                           performance will be both rewarded and/or sanctioned.

         J.       The contractor shall include in its quality management system
                  reviews/audits which focus on the special dental needs of
                  enrollees with developmental

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<PAGE>
                  disabilities. Using encounter data reflecting the utilization
                  of dental services and other data sources, the contractor
                  shall measure clinical outcomes; have these outcomes evaluated
                  by clinical experts; identify quality management tools to be
                  applied; and recommend changes in clinical practices intended
                  to improve the quality of dental care to enrollees with
                  developmental disabilities.

4.7.2    EVALUATION AND REPORTING - CONTRACTOR RESPONSIBILITIES

         A.       The contractor shall collect data and report to the State its
                  findings on the following:

                  1.       Encounter Data: The contractor shall prepare and
                           submit encounter data to DMAHS. Instructions and
                           formats for this report are specified in Section
                           B.3.3 of the Appendices of this contract.

                  2.       Grievance Reports: The contractor shall provide to
                           DMAHS quarterly reports of all grievances in
                           accordance with Articles 5.15 and the contractor's
                           approved grievance process included in this contract.
                           See Section A.7.5 of the Appendices (Table 3).

                  3.       Appointment Availability Studies: The contractor
                           shall conduct a review of appointment availability
                           and submit a report to DMAHS semi-annually. The
                           report must list the average time that enrollees wait
                           for appointments to be scheduled in each of the
                           following categories: baseline physical, routine,
                           specialty, and urgent care appointments. DMAHS must
                           approve the methodology for this review in advance in
                           writing. The contractor shall assess the impact of
                           appointment waiting times on the health status of
                           enrollees with special needs.

                  4.       Twenty-four (24) Hour Access Report: The contractor
                           shall submit to DMAHS an annual report describing its
                           twenty-four (24) hour access procedures for
                           enrollees. The report must include the names and
                           addresses of any answering services that the
                           contractor uses to provide twenty-four (24) hour
                           access.

                  5.       The contractor shall submit to DMAHS, on a quarterly
                           basis, records of early discharge information which
                           pertain to hospital stays for newborns and mothers.

                  6.       The contractor shall monitor, evaluate, and submit an
                           annual report to DMAHS on the incidence of HIV/AIDS
                           patients, the impact of the contractor's program to
                           promote HIV prevention (Article 4.5.7), counseling,
                           treatment and quality of life outcomes, mortality
                           rates.

                  7.       Additional Reports: The contractor shall prepare and
                           submit such other reports as DMAHS may request.
                           Unless otherwise required by law or

                                                                           IV-80
<PAGE>
                           regulation, DMAHS shall determine the timeframe for
                           submission based on the nature of the report and give
                           the contractor the opportunity to discuss and comment
                           on the proposed requirements before the contractor is
                           required to submit such additional reports.

                  8.       The contractor shall submit to the Division, on a
                           quarterly basis, documentation of its ongoing
                           internal quality assurance activities. Such
                           documentation shall include at a minimum:

                           a.       Agenda of quality assurance meetings of its
                                    medical professionals; and

                           b.       Attendance sheets with attendee signatures.

         B.       Clinical areas requiring improvement shall be identified and
                  documented with a corrective action plan developed and
                  monitored by the State.

                  1.       Implementation of remedial/corrective action. The
                           QAPI shall include written procedures for taking
                           appropriate remedial action whenever, as determined
                           under the QAPI, inappropriate or substandard services
                           are furnished, or services that should have been
                           furnished were not. Quality assurance actions which
                           result in the termination of a medical provider shall
                           be immediately forwarded by the contractor to DMAHS.
                           Written remedial/corrective action procedures shall
                           include:

                           a.       Specification of the types of problems
                                    requiring remedial/corrective action;

                           b.       Specification of the person(s) or body
                                    responsible for making the final
                                    terminations regarding quality problems;

                           c.       Specific actions to be taken;

                           d.       Provision of feedback to appropriate health
                                    professionals, providers and staff;

                           e.       The schedule and accountability for
                                    implementing corrective actions;

                           f.       The approach to modifying the corrective
                                    action if improvements do not occur; and

                           g.       Procedures for notifying a primary care
                                    physician/provider group that a particular
                                    physician/provider is no longer eligible to
                                    provide services to enrollees.

                  2.       Assessment of effectiveness of corrective actions.
                           The contractor shall monitor and evaluate corrective
                           actions taken to assure that appropriate changes have
                           been made. In addition, the contractor shall track
                           changes in practice patterns.

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                  3.       The contractor shall assure follow-up on identified
                           issues to ensure that actions for improvement have
                           been effective and provide documentation of same.

                  4.       The findings, conclusions, recommendations, actions
                           taken, and results of the actions taken as a result
                           of QM activity, shall be documented and reported to
                           appropriate individuals within the organization and
                           through the established QM channels. The contractor
                           shall document coordination of QM activities and
                           other management activities.

         C.       The contractor shall conduct an annual satisfaction survey of
                  a statistically valid sample of its participating providers
                  who provide services to DMAHS enrollees. The contractor shall
                  submit a copy of the survey instrument and methodology to
                  DMAHS. The survey should include as a minimum questions that
                  address provider opinions of the impact of the referral, prior
                  authorization and provider appeals processes on his/her
                  practice/services, reimbursement methodologies, care
                  management assistance from the contractor. The contractor
                  shall communicate the findings of the survey to DMAHS in
                  writing within one hundred twenty (120) days after conducting
                  the survey. The written report shall also include
                  identification of any corrective measures that need to be
                  taken by the contractor as a result of the findings, a time
                  frame in which such corrective action will be taken by the
                  contractor and recommended changes as needed for subsequent
                  use.

4.7.3    MONITORING AND EVALUATION - DEPARTMENT ACTIVITIES

The contractor shall permit the Department and the United States Department of
Health and Human Services or its agents to have the right to inspect, audit or
otherwise evaluate the quality, appropriateness and timeliness of services
performed under this contract, including through a medical audit. Medical audit
by Department staff shall include, at a minimum, the review of:

         A.       Health care delivery system for patient care;

         B.       Utilization data;

         C.       Medical evaluation of care provided and patient outcomes for
                  specific enrollees as well as for a statistical representative
                  sample of enrollee records;

         D.       Health care data elements submitted electronically to DMAHS;

         E.       Annual, on-site review of the contractor's operations with
                  necessary follow-up reviews and corrective actions;

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         F.       The grievances and complaints (recorded in a separately
                  designated complaint log for DMAHS enrollees) relating to
                  medical care including their disposition;

         G.       Minutes of all quality assurance committee meetings conducted
                  by the contractor's medical staff. Such reviews will be
                  conducted on-site at the contractor's facilities or
                  administrative offices.

4.7.4    INDEPENDENT EXTERNAL REVIEW ORGANIZATION REVIEWS

         A.       The contractor shall cooperate with the external review
                  organization (ERO) audits and provide the information
                  requested and in the time frames specified (generally within
                  sixty (60) days or as indicated in the notice), including
                  medical and dental records, QAPI reports and documents, and
                  financial information. Contractors shall submit a plan of
                  action to correct, evaluate, respond to, resolve, and follow-
                  up on any identified problems reported by such activities.

         B.       The scope of the ERO reviews shall be as follows:

                  1.       Annual, onsite review of contractor's operations with
                           necessary follow-up reviews and corrective actions.

                  2.       The contractor's quality management plan and
                           activities.

                  3.       Individual medical record reviews.

                  4.       Randomly selected studies.

                  5.       Focus studies utilizing where possible HEDIS
                           measurements and comparison to Healthy People 2010
                           Objectives and/or Healthy New Jersey 2010 standards
                           and/or EPSDT or HealthStart standards as appropriate.

                  6.       Validation review of the contractor's QM/HEDIS
                           studies required in this contract.

                  7.       Validation and evaluation of encounter data.

                  8.       Health care data analysis.

                  9.       Monitoring to ensure enrollees are issued written
                           determinations, including appeal rights and
                           notification of their right to a Medicaid Fair
                           Hearing as well as a review by the DHSS IURO.

                  10.      Ad hoc studies and reviews.

                  11.      ERO reviews for dental services include but are not
                           limited to:

                           a.       New Jersey licensed Dental Consultants of
                                    the ERO will review a random sample of
                                    patient charts and conduct provider
                                    interviews. A random number of patients will
                                    receive screening examinations.

                           b.       Auditors will review appointment logs,
                                    referral logs, health education material,
                                    and conduct staff interviews.

                           c.       Audit documents will be completed by
                                    appropriate consultant/auditor.

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4.8      PROVIDER NETWORK

4.8.1    GENERAL PROVISIONS

         A.       The contractor shall establish and maintain at all times a
                  complete provider network consisting of traditional providers
                  for primary and specialty care, including primary care
                  physicians, other approved non-physician primary care
                  providers, physician specialists, non-physician practitioners,
                  hospitals (including teaching hospitals), Federally Qualified
                  Health Centers and other essential community
                  providers/safety-net providers, and ancillary providers. The
                  provider network shall be reviewed and approved by DMAHS and
                  the sufficiency of the number of participating providers shall
                  be determined by DMAHS in accordance with the standards found
                  in Article 4.8.8 "Provider Network Requirements."

         B.       The contractor shall ensure that its provider network
                  includes, at a minimum:

                  1.       Sufficient number, available and physically
                           accessible, of physician and non-physician providers
                           of health care to cover all services in the amount,
                           duration, and scope included in the benefits package
                           under this contract. The number of enrollees assigned
                           to a PCP shall be decreased by the contractor if
                           necessary to maintain the appointment availability
                           standards. The contractor's network, at a minimum,
                           shall be sufficient to serve at least 33 percent of
                           all individuals eligible for managed care in each
                           urban county it serves. The contractor's network, at
                           a minimum, shall be sufficient to serve at least 50
                           percent of all individuals eligible for managed care
                           in the remaining non-urban counties it serves, i.e.,
                           Cape May, Hunterdon, Salem, Sussex, and Warren.

                  2.       A number and distribution of Primary Care Physicians
                           shall be such as to accord to all enrollees a ratio
                           of at least one (1) full time equivalent Primary Care
                           Physician who will serve no more than 1,500 enrollees
                           and one FTE primary care dentist for 1,500 enrollees.
                           Exemption to the 1:1,500 ratio limit may be granted
                           by DMAHS if criteria specified further below are met.

                  3.       Providers who can accommodate the different languages
                           of the enrollees including bilingual capability for
                           any language which is the primary language of five
                           (5) percent or more of the enrolled DMAHS population.

                  4.       Providers, including dentists, pediatricians,
                           physiatrists, gynecologists, family practitioners,
                           internists, neurologists, nurse practitioners or
                           other individual specialists, who are experienced in
                           treating enrollees with special needs. This includes
                           dentists who provide service to persons with
                           developmental disabilities and who may have to take
                           additional time in providing a specific service. Each
                           contractor shall demonstrate the availability and
                           accessibility of institutional facilities and
                           professional

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                           allied personnel, home care and community based
                           services to perform the agreed upon services.

                  5.       Medical primary care network shall include
                           internists, pediatricians, family and general
                           practice physicians. The contractor shall have the
                           option to include obstetricians/gynecologists as PCPs
                           as well as other physician specialists as primary
                           care providers for enrollees with special needs who
                           will supervise and coordinate their care via a team
                           approach providing that the contract with the
                           physician specialist is, at a minimum, the same as
                           for all other PCPs and that enrollees are enrolled
                           with the physician specialist in the same manner and
                           with the same physician/enrollee ratio requirements
                           as for all other primary care physicians. The
                           contractor shall include certified nurse midwives in
                           its provider network where they are available and
                           willing to participate in accordance with 1905
                           (a)(17) of the Social Security Act. CNPs/CNSs
                           included as PCPs or specialists in the network may
                           provide a scope of services that comply with their
                           licensure requirements.

                  6.       A CNP/CNS to enrollee ratio may not exceed one CNP or
                           one CNS to 1000 enrollees per contractor or 1500
                           enrollees cumulative across plans.

                  7.       Compliance with the standards delineated in Article
                           4.8.

         C.       All providers and subcontractors shall, at a minimum, meet
                  Medicaid provider requirements and standards as well as all
                  other federal and State requirements. For example, a home
                  health agency subcontractor shall meet Medicare certification
                  participation requirements and be licensed by the Department
                  of Health and Senior Services; hospice providers shall meet
                  Medicare certification participation requirements; providers
                  for mammography services shall meet the Food and Drug
                  Administration (FDA) requirements.

         D.       The contractor shall include in its network at least one (1)
                  hospital located in the inner city urban area and at least 1
                  non-urban-based hospital in every county. For those counties
                  with only one (1) hospital, the contractor shall include that
                  hospital in its network subject to good faith negotiations.

         E.       The contractor shall offer a choice of two specialists in each
                  county where available. If only one or no providers of a
                  particular specialty is available, the contractor shall
                  provide documentation of the lack of availability and propose
                  alternative specialty providers in neighboring counties.

         F.       The contractor shall include in its network mental
                  health/substance abuse providers for Medicaid covered MH/SA
                  services with expertise to serve enrollees who are clients of
                  the Division of Developmental Disabilities.

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         G.       Changes in large provider groups, IPAs or subnetworks such as
                  pharmacy benefits manager, vision network, or dental network
                  shall be submitted to DMAHS for review and prior approval at
                  least ninety (90) days before the anticipated change. The
                  submission shall include contracts, provider network files,
                  enrollee/provider notices and any other pertinent information.

         H.       Requirement to contract with FQHC. The contractor shall
                  contract for primary care services with at least one Federally
                  Qualified Health Center (FQHC) located in each enrollment area
                  based on the availability and capacity of the FQHCs in that
                  area. FQHC providers shall meet the contractor's credentialing
                  and program requirements.

4.8.2    PRIMARY CARE PROVIDER REQUIREMENTS

         A.       The contractor shall offer each enrollee a choice of two (2)
                  or more primary care physicians furnished by the contractor.
                  Where applicable, this offer can be made to an authorized
                  person. An enrollee with special needs shall be given the
                  choice of a primary care provider which must include a
                  pediatrician, general/family practitioner, and internist, and
                  may include physician specialists and nurse practitioners. The
                  PCP shall supervise the care of the enrollee with special
                  needs who requires a team approach. Subject to any limitations
                  in the benefits package, each primary care provider shall be
                  responsible for overall clinical direction, serve as a central
                  point of integration and coordination of covered services
                  listed in Article 4.1, provide a minimum of twenty (20) hours
                  per week of personal availability as a primary care provider;
                  provide health counseling and advice; conduct baseline and
                  periodic health examinations; diagnose and treat covered
                  conditions not requiring the referral to and services of a
                  specialist; arrange for inpatient care, for consultation with
                  specialists, and for laboratory and radiological services when
                  medically necessary; coordinate referrals for dental care,
                  especially in accordance with EPSDT requirements; coordinate
                  the findings of laboratories and consultants; and interpret
                  such findings to the enrollee and the enrollee's family (or,
                  where applicable, an authorized person), all with emphasis on
                  the continuity and integration of medical care; and, as
                  needed, shall participate in care management and specialty
                  care management team processes. The primary care provider
                  shall also be responsible, subject to any limitations in the
                  benefits package, for determining the urgency of a
                  consultation with a specialist and, if urgent, shall arrange
                  for the consultation appointment.

                  Justification to include a specialist as a PCP or
                  justification for a physician practicing in an academic
                  setting for less than twenty (20) hours per week must be
                  provided to DMAHS. Include in the justification for the
                  specialist as a PCP the number of enrollees to be served as a
                  PCP and as a specialist, full details of the services and
                  scope of services to be provided, and coverage arrangements
                  documenting twenty-four (24) hours/seven (7) days a week
                  coverage.

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<PAGE>
         B.       The PCP shall be responsible for supervising, coordinating,
                  managing the enrollee's health care, providing initial and
                  primary care to each enrollee, for initiating referrals for
                  specialty care, maintaining continuity of each enrollee's
                  health care and maintaining the enrollee's comprehensive
                  medical record which includes documentation of all services
                  provided to the enrollee by the PCP, as well as any specialty
                  or referral services. The contractor shall establish policies
                  and procedures to ensure that PCPs are adequately notified of
                  specialty and referral services. PCPs who provide professional
                  inpatient services to the contractor's enrollees shall have
                  admitting and treatment privileges in a minimum of one general
                  acute care hospital that is under subcontract with the
                  contractor and is located within the contractor's service
                  area. The PCP shall be an individual, not a facility, group or
                  association of persons, although he/she may practice in a
                  facility, group or clinic setting.

                  1.       The PCP shall provide twenty-four (24) hour, seven
                           (7) day a week access; and

                  2.       Make referrals for specialty care and other medically
                           necessary services, both in-network and out-of-
                           network.

                  3.       Enrollees with special needs requiring very complex,
                           highly specialized health care services over a
                           prolonged period of time, and by virtue of their
                           nature and complexity would be difficult for a
                           traditional PCP to manage or with a life-threatening
                           condition or disease, or with a degenerative and/or
                           disabling condition or disease may be offered the
                           option of selecting an appropriate physician
                           specialist (where available) in lieu of a traditional
                           PCP. Such physicians having the clinical skills,
                           capacity, accessibility, and availability shall be
                           specially credentialed and contractually obligated to
                           assume the responsibility for overall health care
                           coordination and assuring that the special needs
                           person receives all necessary specialty care related
                           to their special need, as well as providing for or
                           arranging all routine preventive care and health
                           maintenance services, which may not customarily be
                           provided by or the responsibility of such specialist
                           physicians.

                  4.       Where a specialist acting as a PCP is not available
                           for chronically ill persons or enrollees with complex
                           health care needs, those enrollees shall have the
                           option to select a traditional PCP upon enrollment,
                           with the understanding that the contractor may permit
                           a more liberal, direct specialty access (See section
                           4.5.2) to a specific specialist for the explicit
                           purpose of meeting those specific specialty service
                           needs. The PCP shall in this case retain all
                           responsibility for provision of primary care services
                           and for overall coordination of care, including
                           specialty care.

                  5.       If the enrollee's existing PCP is a participating
                           provider in the contractor's network, and if the
                           enrollee wishes to retain the PCP, contractor shall

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<PAGE>
                           ensure that the PCP is assigned, even if the PCP's
                           panel is otherwise closed at the time of the
                           enrollee's enrollment.

         C.       In addition to offering, at a minimum, a choice of two or more
                  primary care physicians, the contractor shall also offer an
                  enrollee or, where applicable, an authorized person the option
                  of choosing a certified nurse midwife, certified nurse
                  practitioner or clinical nurse specialist whose services must
                  be provided within the scope of his/her license. The
                  contractor shall submit to DMAHS for review a detailed
                  description of the CNP/CNS's responsibilities and health care
                  delivery system within the contractor's plan.

4.8.3    PROVIDER NETWORK FILE REQUIREMENTS

         The contractor shall provide a provider network file, to be reported by
         hard copy and diskette in a format and software application system
         determined by DMAHS that will include the names and addresses of every
         provider in the contractor's network. The format for computer diskette
         submission is found in Section A.4.1 of the Appendices.

         A.       The contractor shall provide the DMAHS a full network,
                  monthly, on computer diskette in accordance with the
                  specifications provided in Section A.4.1 of the Appendices.
                  The network file shall include an indicator for new additions
                  and deletions and shall include:

                  1.       Any and all changes in participating primary care
                           providers, including, for example, additions,
                           deletions, or closed panels, must be reported monthly
                           to DMAHS;

                  2.       Any and all changes in participating physician
                           specialists, health care providers, CNPs/CNSs,
                           ancillary providers, and other subcontractors must be
                           reported to DMAHS on a monthly basis; and

         B.       The contractor shall provide the HBC with a full network on a
                  monthly basis in accordance with the specifications found in
                  Section A.4.1 of the Appendices. The diskettes shall be sent
                  to OMHC, DMAHS for distribution.

4.8.4    PROVIDER DIRECTORY REQUIREMENTS

         The contractor shall prepare a provider directory which shall be
         presented in the following manner. Fifty (50) copies of the provider
         directory, and any updates, shall be provided to the HBC, and one copy
         shall be provided to DMAHS.

         A.       Primary care providers who will serve enrollees listed by

                  -        County, by city, by specialty

                  -        Provider name and degree; specialty board
                           eligibility/certification status; office address(es)
                           (actual street address); telephone number; fax number
                           if

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                           available; office hours at each location; indicate if
                           a provider serves enrollees with disabilities and how
                           to receive additional information such as type of
                           disability; hospital affiliations; transportation
                           availability; special appointment instructions if
                           any; languages spoken; disability access; and any
                           other pertinent information that would assist the
                           enrollee in choosing a PCP.

         B.       Contracted specialists and ancillary services providers who
                  will serve enrollees

                  -        Listed by county, by city, by physician specialty, by
                           non-physician specialty, and by adult specialist and
                           by pediatric specialist for those specialties
                           indicated in Section 4.8.8.C.

         C.       Subcontractors

                  -        Provide, at a minimum, a list of all other health
                           care providers by county, by service specialty, and
                           by name. The contractor shall demonstrate its ability
                           to provide all of the services included under this
                           contract.

4.8.5    CREDENTIALING/RECREDENTIALING REQUIREMENTS/ISSUES

         The contractor shall develop and enforce credentialing and
         recredentialing criteria for all provider types which should follow the
         HCFA's credentialing criteria, as delineated in the NJ modified
         QARI/QISMC standards found in Article 4.6.1 and Section B.4.14 of the
         Appendices.

4.8.6    LABORATORY SERVICE PROVIDERS

         A.       The contractor shall ensure that all laboratory testing sites
                  providing services under this contract, including those
                  provided by primary care physicians, specialists, other health
                  care practitioners, hospital labs, and independent
                  laboratories have either a Clinical Laboratory Improvement
                  Amendment (CLIA) certificate of waiver or a certificate of
                  registration along with a CLIA identification number. Those
                  laboratory service providers with a certificate of waiver
                  shall provide only those tests permitted under the terms of
                  their waiver. Laboratories with certificates of registration
                  may perform a full range of laboratory tests.

                  1.       The contractor shall provide to DMAHS, on request,
                           copies of certificates that its own laboratory or any
                           other laboratory it conducts business with, has a
                           CLIA certificate for the services it is performing as
                           fulfillment of requirements in 42 C.F.R. Section
                           493.1809.

                  2.       If the contractor has its own laboratory, the
                           contractor shall submit at the time of initial
                           contracting a written list of all diagnostic tests
                           performed in

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                           its own laboratory if applicable and those tests
                           which are referred to other laboratories annually and
                           within fifteen (15) working days of any changes.

                  3.       The contractor shall inform DMAHS if it contracts
                           with a new laboratory subcontractor 30 days prior to
                           the effective date of the subcontractor's contract
                           and shall notify DMAHS of a termination of a
                           laboratory subcontractor 90 days prior to the
                           effective date of the subcontractor's termination.
                           The contractor shall provide a copy of a new
                           subcontractor's certificate of waiver or certificate
                           of registration within ten (10) days of operation.

         B.       The contractor shall contract with clinical diagnostic
                  laboratories that have implemented a compliance plan to help
                  avoid activities that might be regarded as fraudulent. The
                  compliance plan shall, at a minimum, include the following:

                  1.       Written standards of conduct for employees;

                  2.       Development and distribution of written policies that
                           promote the laboratory's commitment to compliance and
                           that address specific areas of potential fraud, such
                           as billing, marketing, and claims processing;

                  3.       The designation of a chief compliance officer or
                           other appropriate high-level corporate structure or
                           official who is charged with the responsibility of
                           operating the compliance program;

                  4.       The development and offering of education and
                           training programs to all employees;

                  5.       The use of audits and/or other evaluation techniques
                           to monitor compliance and ensure a reduction in
                           identified problem areas;

                  6.       The development of a code of improper/illegal
                           activities and the use of disciplinary action against
                           employees who have violated internal compliance
                           policies or applicable laws or who have engaged in
                           wrongdoing;

                  7.       The investigation and remediation of identified
                           systemic and personnel problems;

                  8.       The promotion of and adherence to compliance as an
                           element in evaluating supervisors and managers;

                  9.       The development of policies addressing the non-
                           employment or retention of sanctioned individuals;

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<PAGE>
                  10.      The maintenance of a hotline to receive complaints
                           and the adoption of procedures to protect the
                           anonymity of complainants; and

                  11.      The adoption of requirements applicable to record
                           creation and retention.

         C.       The contractor shall maintain a sufficient network of
                  drawing/specimen collection stations (may include independent
                  lab stations, hospital outpatient departments, provider
                  offices, etc.) to ensure ready access for all enrollees.

4.8.7    SPECIALTY PROVIDERS AND CENTERS (ALSO ADDRESSED IN 4.5)

         A.       The contractor shall include in its network pediatric medical
                  subspecialists, pediatric surgical specialists, and
                  consultants. Access to these services shall be provided when
                  referred by a pediatrician.

         B.       The contractor shall include in its provider network Centers
                  of Excellence (designated by the DHSS; See Appendix B.4.10)
                  for children with special health care needs. Inclusion of such
                  agencies or their equivalent may be by direct contracting,
                  consultant, or on a referral basis. Payment mechanism and
                  rates shall be negotiated directly with the center.

         C.       The contractor shall include primary care providers
                  experienced in caring for enrollees with special needs.

         D.       The contractor shall include providers who have knowledge and
                  experience in identifying child abuse and neglect and should
                  include Child Abuse Regional Diagnostic Centers or their
                  equivalent through either direct contracting, consultant or on
                  a referral basis. A list of Child Abuse Regional Diagnostic
                  Centers is in Section B.4.16 of the Appendices.

         E.       The contractor shall have a procedure by which an enrollee who
                  needs ongoing care from a specialist may receive a standing
                  referral to such specialist. If the contractor, or the primary
                  care provider in consultation with the medical director of the
                  contractor and specialist, if any, determines that such a
                  standing referral is appropriate, the organization shall make
                  such a referral to a specialist. The contractor shall not be
                  required to permit an enrollee to elect to have a
                  nonparticipating specialist if network provider of equivalent
                  expertise is available. Such referral shall be pursuant to a
                  treatment plan approved by the contractor in consultation with
                  the primary care provider, the specialist, the care manager,
                  and the enrollee or, where applicable, authorized person. Such
                  treatment plan may limit the number of visits or the period
                  during which such visits are authorized and may require the
                  specialist to provide the primary care provider with regular
                  updates on the specialty care provided, as well as all
                  necessary medical information.

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<PAGE>
         F.       The contractor shall have a procedure by which an enrollee as
                  described in Articles 4.5.2D may receive a referral to a
                  specialist or specialty care center with expertise in treating
                  such conditions in lieu of a traditional PCP.

         G.       If the contractor determines that it does not have a health
                  care provider with appropriate training and experience in its
                  panel or network to meet the particular health care needs of
                  an enrollee, the contractor shall make a referral to an
                  appropriate out-of-network provider, pursuant to a treatment
                  plan approved by the contractor in consultation with the
                  primary care provider, the non-contractor participating
                  provider and the enrollee or where applicable, authorized
                  person, at no additional cost to the enrollee. The contractor
                  shall provide for a review by a specialist of the same or
                  similar specialty as the type of physician or provider to whom
                  a referral is requested before the contractor may deny a
                  referral.

4.8.8    PROVIDER NETWORK REQUIREMENTS

         Provider networks and all provider types within the network shall be
         reviewed on a county basis, i.e., must be located within the county
         except where indicated. The contractor shall monitor the capacity of
         each of its providers and decrease ratio limits as needed to maintain
         appointment availability standards.

         A.       Primary Care Provider Ratios

                  PCP ratios shall be reviewed and calculated by provider
                  specialty on a county basis and on an index city basis, i.e.,
                  the major city of each county where the majority of the
                  Medicaid and NJ FamilyCare beneficiaries reside.

                  Physician

                  A primary care physician shall be a General Practitioner,
                  Family Practitioner, Pediatrician, or Internist.
                  Obstetricians/Gynecologists and other physician specialists
                  may also participate as primary care providers providing they
                  participate on the same contractual basis as all other PCPs
                  and contractor enrollees are enrolled with the specialists in
                  the same manner and with the same PCP/enrollee ratio
                  requirements applied.

                  1.       1 FTE PCP per 1500 enrollees per contractor; 1 FTE
                           per 2000 enrollees, cumulative across all
                           contractors.

                  2.       1 FTE PCP per 1000 DD enrollees per contractor; 1 FTE
                           per 1500 DD enrollees cumulative across all
                           contractors.

                                                                           IV-92
<PAGE>
                  Dentist

                  The contractor shall include and make available sufficient
                  number of primary care dentists from the time of initial
                  enrollment in the contractor's plan. Pediatric dentists shall
                  be included in the network and may be both primary care and
                  specialty care providing primary care ratio limits are
                  maintained.

                  1.       1 FTE primary care dentist per 1500 enrollees per
                           contractor; 1 FTE per 2000 enrollees, cumulative
                           across all contractors.

                  Certified Nurse Midwife (CNM)

                  If the contractor includes CNMs in its provider network as
                  PCPs, it shall utilize the following ratios for CNMs as PCPs.

                  1.       1 FTE CNM per 1000 enrollees per contractor; 1 FTE
                           CNM per 1500 enrollees across all contractors.

                  2.       A minimum of two (2) providers shall be initially
                           available for selection at the enrollee's option.
                           Additional providers shall be included as capacity
                           limits are needed.

                  Certified Nurse Practitioner/Clinical Nurse Specialist
                  (CNP/CNS)

                  If the contractor includes CNPs/CNSs in the provider network
                  as PCPs, it shall utilize the following ratios.

                  1.       1 FTE CNP or 1 CNS per 1000 enrollees per contractor;
                           1 FTE CNP or 1 FTE CNS per 1500 enrollees cumulative
                           across all contractors.

                  2.       A minimum of two (2) providers where available shall
                           be initially available for selection at the
                           enrollee's option. Additional providers shall be
                           included as capacity limits are reached.

         B.       Primary Care Providers [Non-Institutional File]

                  The contractor shall contract with the following primary care
                  providers. All provider types within the network shall be
                  located within the enrollment area, i.e., county, except where
                  indicated.

                  1.       The contractor shall include contracted providers
                           for:

                           a.       General/Family Practice Physicians

                           b.       Internal Medicine Physicians

                           c.       Pediatricians

                           d.       Dentists - adult and pediatric

                                                                           IV-93
<PAGE>
                  2.       Certified Nurse Midwives and Nurse Practitioners
                           [Non-Institutional File]

                           The contractor shall include in the network and
                           provide access to CNMs/CNPs/CNSs at the enrollee's
                           option. If there are no contracted CNMs/CNPs/CNSs in
                           the contractor's network in an enrollment area, then
                           the contractor shall reimburse for these services out
                           of network.

                           a.       Certified Nurse Midwife

                           b.       Clinical Nurse Specialist

                           c.       Certified Nurse Practitioner

                  3.       Optional Primary Care Provider Designations

                           The contractor may include as primary care providers:

                           a.       OB/GYNs who will provide such services in
                                    accordance with the requirements and
                                    responsibilities of a primary care provider.

                           b.       Other physician specialists who have agreed
                                    to provide primary care to enrollees with
                                    special needs and will provide such services
                                    in accordance with the requirements and
                                    responsibilities of a primary care provider.

                           c.       Physician Assistants in accordance with
                                    their licensure and scope of practice
                                    provisions.

         C.       Physician Specialists [Non-Institutional File]

                  The contractor shall contract with physician specialists,
                  listed below, and should include two (2) providers per
                  specialty to permit enrollee choice. All specialty types
                  within the enrollment area network are reviewed on a county
                  basis, i.e., must be located within the county. Where certain
                  specialists are not available within the county, the
                  contractor shall provide written documentation (not just a
                  statement that there are no specialists available) of the lack
                  of a specialist located in the county and a detailed
                  description of how, by whom, and where the specialty care will
                  be provided. The contractor shall utilize an official
                  resource, such as the Board of Medical Examiners, for
                  determining presence or absence of specialists with offices
                  located in the county. Specialists shall have admitting
                  privileges in at least one participating hospital in the
                  county in which the specialist will be seeing enrollees.

                                                                           IV-94
<PAGE>
                  The contractor shall submit prior to execution of this
                  contract and semi-annually thereafter, a capacity assessment
                  (form found in Section A.4.2 of the Appendices) demonstrating
                  adequate capacity. Access standards shall be maintained at all
                  times.

                  The contractor shall provide a detailed description of
                  accessibility and capacity for each physician who will serve
                  as both a PCP and a specialist; and/or who will serve with
                  more than one specialty. The description shall include at a
                  minimum a certification that the physician is actively
                  practicing in each specialty, has been credentialed in each
                  specialty, and a description of the provider's availability in
                  each specialty (i.e. percent of time and number of hours per
                  week in each specialty). The credentialing criteria used to
                  determine a provider's appropriateness for a specialty shall
                  indicate whether the provider is board eligible, board
                  certified, or has completed an accredited fellowship in the
                  specialty.

                  The contractor shall include contracted providers for:

                  1.       Allergy/Immunology

                  2.       Anesthesiology

                  3.       Cardiology - adult and pediatric

                  4.       Cardiovascular surgery

                  5.       Colorectal surgery

                  6.       Dermatology

                  7.       Emergency Medicine

                  8.       Endocrinology - adult and pediatric

                  9.       Gastroenterology - adult and pediatric

                  10.      General Surgery - adult and pediatric

                  11.      Geriatric Medicine

                  12.      Hematology - adult and pediatric

                  13.      Infectious Disease - adult and pediatric

                  14.      Neonatology

                  15.      Nephrology - adult and pediatric

                  16.      Neurology - adult and pediatric

                  17.      Neurological surgery

                  18.      Obstetrics/gynecology

                  19.      Oncology - adult and pediatric

                  20.      Ophthalmology

                  21.      Orthopedic Surgery

                  22.      Otology, Rhinology, Laryngology (ENT)

                  23.      Physical Medicine (for inpatient rehabilitation
                           services)

                  24.      Plastic Surgery

                  25.      Psychiatry (for clients of DDD)

                  26.      Pulmonary Disease - adult and pediatric

                  27.      Radiation Oncology

                  28.      Radiology

                                                                           IV-95
<PAGE>
                  29.      Rheumatology - adult and pediatric

                  30.      Thoracic surgery

                  31.      Urology

         D.       Non-Physician Providers [Non-Institutional File]

                  The contractor shall include contracted providers for:

                  1.       Chiropractor

                  2.       Dentists (including primary care, prosthodontia and
                           specialists for endodontia, orthodontia, periodontia,
                           and oral/maxillary surgery)

                  3.       Optometrist

                  4.       Podiatrist

                  5.       Audiologist

                  6.       Psychologist (for clients of DDD)

         E.       Ancillary Providers [Institutional File]

                  The contractor shall include contracted providers for:

                  1.       Durable Medical Equipment

                  2.       Federally Qualified Health Centers

                  3.       Hearing Aid Providers

                  4.       Home Health Agency - must be approved on a county-
                           specific basis

                  5.       Hospice Agency

                  6.       Hospitals - inpatient and outpatient services; at
                           least two per county with one urban where the
                           majority of Medicaid beneficiaries reside

                  7.       Laboratory with one (1) drawing station per every
                           five mile radius within a county

                  8.       Medical Supplier

                  9.       Optical appliance providers

                  10.      Organ Transplant Providers/Centers

                  11.      Pharmacy

                  12.      Private Duty Nursing Agency (service area which
                           includes a 50 mile radius from its home
                           administrative base office must be approved on a
                           county-specific basis)

                  13.      Prosthetist, Orthotist, and Pedorthist

                  14.      Radiology centers including diagnostic and
                           therapeutic

                  15.      Transportation providers (ambulance, MICUs, invalid
                           coach)

         F.       The contractor shall also establish relationships with
                  physician specialists and subspecialists [Non-Institutional
                  File] for:

                  1.       Pain Management

                  2.       Medical Toxicology

                  3.       Adolescent Medicine

                                                                           IV-96
<PAGE>
                  4.       Maternal and Fetal Medicine

                  5.       Medical Genetics

                  6.       Developmental and Behavioral Pediatrics

         G.       Specialty Centers (Centers of Excellence) shall be included in
                  the network [Institutional File]

                  1.       Providers and health care facilities for the care and
                           treatment of HIV/AIDS (list of available centers
                           found in Section B.4.13 of the Appendices).

                  2.       Special Child Health Services Network Agencies for:

                           a.       Pediatric Ambulatory Tertiary Centers

                           b.       Regional Cleft Lip/Palate Centers

                           c.       Pediatric HIV Treatment Centers

                           d.       Comprehensive Regional Sickle
                                    Cell/Hemoglobinpathies Treatment Centers

                           e.       PKU Treatment Centers

                           f.       Other as designated from time to time by the
                                    Department of Health and Senior Services.

                  3.       Other:

                           a.       Genetic Testing and Counseling Centers

                           b.       Hemophilia Treatment Centers

         H.       Other Specialty Centers/Providers [Institutional File]

                  Contractor should establish relationships with the following
                  providers/centers on a consultant or referral basis.

                  1.       Spina Bifida Centers/providers
                  2.       Adult Scoliosis
                  3.       Autism and Attention Deficits
                  4.       Spinal Cord Injury
                  5.       Lead Poisoning Treatment Centers
                  6.       Child Abuse Regional Diagnostic Centers
                  7.       County Case Management Units

                                                                           IV-97
<PAGE>
         I.       Provider Network Access Standards and Ratios

<TABLE>
<CAPTION>
Specialty                A - Miles per 2      B - Miles per 1            Min. No.                       Capacity Limit
                        Urban   Non-Urban    Urban   Non-urban      Required per County                  Per Provider
-------------------------------------------------------------------------------------------------------------------------
<S>                     <C>     <C>          <C>     <C>            <C>                             <C>
PCP Children GP           6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
              FP          6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
              Peds        6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
   Adults     GP          6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
              FP          6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
              IM          6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
CNP/CNS                   6        15          2         10                 2                                      1: 800
-------------------------------------------------------------------------------------------------------------------------
CNM                       12       25          6         15                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
Dentist, Primary Care     6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
Allergy                   15       25          10        15                 2                                   1: 75,000
-------------------------------------------------------------------------------------------------------------------------
Anesthesiology            15       25          10        15                 2                                   1: 17,250
-------------------------------------------------------------------------------------------------------------------------
Cardiology                15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Cardiovascular surgery    15       25          10        15                 2                                  1: 166,000
-------------------------------------------------------------------------------------------------------------------------
Chiropractor              15       25          10        15                 2                                   1: 10,000
-------------------------------------------------------------------------------------------------------------------------
Colorectal surgery        15       25          10        15                 2                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Dermatology               15       25          10        15                 2                                   1: 75,000
-------------------------------------------------------------------------------------------------------------------------
Emergency Medicine        15       25          10        15                 2                                   1: 19,000
-------------------------------------------------------------------------------------------------------------------------
Endocrinology             15       25          10        15                 2                                  1: 143,000
-------------------------------------------------------------------------------------------------------------------------
Endodontia                15       25          10        15                 1                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Gastroenterology          15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
General Surgery           15       25          10        15                 2                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Geriatric Medicine        6        15          2         10                 2                                    1: 1,500
-------------------------------------------------------------------------------------------------------------------------
Hematology                15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Infectious Disease        15       25          10        15                 2                                  1: 125,000
-------------------------------------------------------------------------------------------------------------------------
Neonatology               15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Nephrology                15       25          10        15                 2                                  1: 125,000
-------------------------------------------------------------------------------------------------------------------------
Neurology                 15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Neurological Surgery      15       25          10        15                 2                                  1: 166,000
-------------------------------------------------------------------------------------------------------------------------
Obstetrics/Gynecology     15       25          10        15                 2                                    1: 7,100
-------------------------------------------------------------------------------------------------------------------------
Oncology                  15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Ophthalmology             15       25          10        15                 2                                   1: 60,000
-------------------------------------------------------------------------------------------------------------------------
Optometrist               15       25          10        15                 2                                    1: 8,000
-------------------------------------------------------------------------------------------------------------------------
Oral Surgery              15       25          10        15                 2                                   1: 20,000
-------------------------------------------------------------------------------------------------------------------------
Orthodontia               15       25          10        15                 1                                   1: 20,000
-------------------------------------------------------------------------------------------------------------------------
Orthopedic Surgery        15       25          10        15                 2                                   1: 28,000
-------------------------------------------------------------------------------------------------------------------------
Otolaryngology (ENT)      15       25          10        15                 2                                   1: 53,000
-------------------------------------------------------------------------------------------------------------------------
Periodontia               15       25          10        15                 1                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Physical Medicine         15       25          10        15                 2                                   1: 75,000
-------------------------------------------------------------------------------------------------------------------------
Plastic Surgery           15       25          10        15                 2                                  1: 250,000
-------------------------------------------------------------------------------------------------------------------------
Podiatrist                15       25          10        15                 2                                   1: 20,000
-------------------------------------------------------------------------------------------------------------------------
Prosthodontia             15       25          10        15                 1 (where available)                 1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Psychiatrist              15       25          10        15                 2                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Psychologist              15       25          10        15                 2                                   1: 30,000
-------------------------------------------------------------------------------------------------------------------------
Pulmonary Disease         15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Radiation Oncology        15       25          10        15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Radiology                 15       25          10        15                 2                                   1: 25,000
-------------------------------------------------------------------------------------------------------------------------
Rheumatology              15       25          10        15                 2                                  1: 150,000
-------------------------------------------------------------------------------------------------------------------------
Ther. - Audiology         12       25          6         15                 2                                  1: 100,000
-------------------------------------------------------------------------------------------------------------------------
Thoracic Surgery          15       25          10        15                 2                                  1: 150,000
-------------------------------------------------------------------------------------------------------------------------
Urology                   15       25          10        15                 2                                   1: 60,000
-------------------------------------------------------------------------------------------------------------------------
Fed Qual Health Ctr                                                         1                       1/county if available
-------------------------------------------------------------------------------------------------------------------------
Hospital                  20       35          10        15                 2                                2 per county
-------------------------------------------------------------------------------------------------------------------------
Pharmacies                10       15          5         12                                                      1: 1,000
-------------------------------------------------------------------------------------------------------------------------
Laboratory                N/A      N/A         5         12
-------------------------------------------------------------------------------------------------------------------------
DME/Med Supplies          12       25          6         15                 1                                   1: 50,000
-------------------------------------------------------------------------------------------------------------------------
Hearing Aid               12       25          6         15                 1                                   1: 50,000
-------------------------------------------------------------------------------------------------------------------------
Optical Appliance         12       25          6         15                 2                                   1: 50,000
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                           IV-98
<PAGE>
         J.       Geographic Access

                  The following lists guidelines for urban geographic access for
                  the DMAHS population. (Standards for non-urban areas are
                  included in the table in H. above.) The State shall review
                  (and approve) exceptions on a case-by-case basis to determine
                  appropriateness for each situation.

                  For each contractor and for each municipality in each county
                  in which the contractor is operational, the access shall be
                  reviewed in accordance with the number and percentage of:

                  1.       Beneficiary children who reside within 6 miles of 2
                           PCPs whose specialty is Family Practice, General
                           Practice or Pediatrics or 2 CNPs/CNSs; within 2 miles
                           of 1 PCP whose specialty is Family Practice, General
                           Practice or Pediatrics or 1 CNP or 1 CNS

                  2.       Beneficiary adults who reside within 6 miles of 2
                           PCPs whose specialty is Family Practice, General
                           Practice or Internal Medicine or 2 CNPs or 2 CNSs;
                           within 2 miles of 1 PCP whose specialty is Family
                           Practice, General Practice or Internal Medicine or 1
                           CNP or 1 CNS

                  3.       Beneficiaries who reside within 6 miles of 2
                           providers of general dentistry services; within 2
                           miles of 1 provider of general dentistry services

                  4.       Beneficiaries who reside within 10 miles of 2
                           pharmacies; within 5 miles of 1 pharmacy

                  5.       Beneficiaries who reside within 15 miles of at least
                           2 specialists in each of the following specialties:
                           all physician and dental specialists, Podiatry,
                           Optometry, Chiropractic; within 10 miles of at least
                           1 provider in each type of specialty noted above

                  6.       Beneficiaries who reside within 15 miles of 2 acute
                           care hospitals; within 10 miles of one acute care
                           hospital

                  7.       Beneficiaries who reside within 12 miles of 2 of each
                           of the following provider types: durable medical
                           equipment, medical supplier, hearing aid supplier,
                           optical appliance supplier, certified nurse midwife;
                           within 6 miles of one of each type of provider

                  8.       Beneficiaries who reside within 5 miles of a
                           laboratory/drawing station.

                  9.       Beneficiaries with desired access and average
                           distance to 1, 2 or more providers

                                                                           IV-99
<PAGE>
                  10.      Beneficiaries without desired access and average
                           distance to 1, 2 or more providers

                  Access Standards

                  1.       90% of the enrollees must be within 6 miles of 2 PCPs
                           in an urban setting

                  2.       85% of the enrollees must be within 15 miles of 2
                           PCPs in a non-urban setting

                  3.       Covering physicians must be within 15 miles in urban
                           areas and 25 miles in non-urban areas.

                  Travel Time Standards

                  The contractor shall adhere to the 30 minute standard, i.e.,
                  enrollees will not live more than 30 minutes away from their
                  PCPs, PCDs or CNPs/CNSs. The following guidelines shall be
                  used in determining travel time.

                  1.       Normal conditions/primary roads - 20 miles

                  2.       Rural or mountainous areas/secondary routes - 20
                           miles

                  3.       Flat areas or areas connected by interstate highways
                           - 25 miles

                  4.       Metropolitan areas such as Newark, Camden, Trenton,
                           Paterson, Jersey City - 30 minutes travel time by
                           public transportation or no more than 6 miles from
                           PCP

                  5.       Other medical service providers must also be
                           geographically accessible to the enrollees.

                  6.       Exception: SSI or New Jersey Care-ABD enrollees and
                           clients of DDD may choose to see network providers
                           outside of their county of residence.

         K.       Conditions for Granting Exceptions to the 1:1500 Ratio Limit
                  for Primary Care Physicians

                  1.       A physician must demonstrate increased office hours
                           and must maintain (and be present for) a minimum of
                           20 hours per week in each office.

                  2.       In private practice settings where a physician
                           employs or directly works with nurse practitioners
                           who can provide patient care within the scope of
                           their practices, the capacity may be increased to 1
                           PCP FTE to 2500 enrollees. The PCP must be
                           immediately available for consultation, supervision
                           or to take over treatment as needed. Under no
                           circumstances

                                                                          IV-100
<PAGE>
                           will a PCP relinquish or be relieved of direct
                           responsibility for all aspects of care of the
                           patients enrolled with the PCP.

                  3.       In private practice settings where a primary care
                           physician employs or is assisted by other licensed
                           physicians, the capacity may be increased to 1 PCP
                           FTE to 2500 enrollees.

                  4.       In clinic practice settings where a PCP provides
                           direct personal supervision of medical residents with
                           a New Jersey license to practice medicine in good
                           standing with State Board of Medical Examiners, the
                           capacity may be increased with the following ratios:
                           1 PCP to 1500 enrollees; 1 licensed medical resident
                           per 1000 enrollees. The PCP must be immediately
                           available for consultation, supervision or to take
                           over treatment as needed. Under no circumstances will
                           a PCP relinquish or be relieved of direct
                           responsibility for all aspects of care of the
                           patients enrolled with the PCP.

                  5.       Each provider (physician or nurse practitioner) must
                           provide a minimum of 15 minutes of patient care per
                           patient encounter and be able to provide four visits
                           per year per enrollee.

                  6.       The contractor shall submit for prior approval by
                           DMAHS a detailed description of the PCP's delivery
                           system to accommodate an increased patient load, work
                           flow, professional relationships, work schedules,
                           coverage arrangements, 24 hour access system.

                  7.       The contractor shall provide information on total
                           patient load across all plans, private patients,
                           Medicaid fee-for-service patients, other.

                  8.       The contractor shall adhere to the access standards
                           required in the contractor's contract with the
                           Department.

                  9.       There will be no substantiated complaints or
                           demonstrated evidence of access barriers due to an
                           increased patient load.

                  10.      The Department will make the final decision on the
                           appropriateness of increasing the ratio limits and
                           what the limit will be.

         L.       Conditions for Granting Exceptions to the 1:1500 Ratio Limit
                  for Primary Care Dentists.

                  1.       A PCD must provide a minimum of 20 hours per week per
                           office.

                  2.       In clinic practice settings where a PCD provides
                           direct personal supervision of dental residents who
                           have a temporary permit from the State Board of
                           Dentistry in good standing and also dental students,
                           the

                                                                          IV-101
<PAGE>
                           capacity may be increased with the following ratios:
                           1 PCD to 1500 enrollees per contractor; 1 dental
                           resident per 1000 enrollees per contractor; 1 FTE
                           dental student per 200 enrollees per contractor. The
                           PCD shall be immediately available for consultation,
                           supervision or to take over treatment as needed.
                           Under no circumstances shall a PCD relinquish or be
                           relieved of direct responsibility for all aspects of
                           care of the patients enrolled with the PCD.

                  3.       In private practice settings where a PCD employs or
                           is assisted by other licensed dentists, the capacity
                           may be increased to 1 PCD FTE to 2500 enrollees.

                  4.       In private practice settings where a PCD employs
                           dental hygienists or is assisted by dental
                           assistants, the capacity may be increased to 1 PCD to
                           2500 enrollees. The PCD shall be immediately
                           available for consultation, supervision or to take
                           over treatment as needed. Under no circumstances
                           shall a PCD relinquish or be relieved of direct
                           responsibility for all aspects of care of the
                           patients enrolled with the PCD.

                  5.       Each PCD shall provide a minimum of 15 minutes of
                           patient care per patient encounter.

                  6.       The contractor shall submit for prior approval by the
                           DMAHS a detailed description of the PCD's delivery
                           system to accommodate an increased patient load, work
                           flow, professional relationships, work schedules,
                           coverage arrangements, 24 hour access system.

                  7.       The contractor shall provide information on total
                           patient load across all plans, private patients,
                           Medicaid fee-for-service patients, other.

                  8.       The contractor shall adhere to the access standards
                           required in the contractor's contract with the
                           Department.

                  9.       There must be no substantiated complaints or
                           demonstrated evidence of access barriers due to an
                           increased patient load.

                  10.      The Department will make the final decision on the
                           appropriateness of increasing the ratio limits and
                           what the limit will be.

4.8.9    DENTAL PROVIDER NETWORK REQUIREMENTS

         A.       The contractor shall establish and maintain a dental provider
                  network, including primary and specialty care dentists, which
                  is adequate to provide the full scope of benefits. The
                  contractor shall include general dentists and pediatric
                  dentists as primary care dentists (PCDs). A system whereby the
                  PCD initiates and

                                                                          IV-102
<PAGE>
                  coordinates any consultations or referrals for specialty care
                  deemed necessary for the treatment and care of the enrollee is
                  preferred.

         B.       The dental provider network shall include sufficient providers
                  able to meet the dental treatment requirements of patients
                  with developmental disabilities. (See Article 4.5.2E for
                  details.)

         C.       The contractor shall ensure the participation of traditional
                  and safety-net providers within an enrollment area.
                  Traditional providers include private practitioners/entities
                  who provide treatment to the general population or have
                  participated in the regular Medicaid program. Safety-net
                  providers include dental education institutions,
                  hospital-based dental programs, and dental clinics sponsored
                  by governmental agencies as well as dental clinics sponsored
                  by private organizations in urban/under-served areas.

4.8.10   GOOD FAITH NEGOTIATIONS

         The State shall, in its sole discretion, waive the contractor's
         specific network requirements in circumstances where the contractor has
         engaged, or attempted to engage in good faith negotiations with
         applicable providers. If the contractor asks to be waived from a
         specific networking requirement on this basis, it shall document to the
         State's satisfaction that good faith negotiations were offered and/or
         occurred. Nothing in this Article will relieve the contractor of its
         responsibility to furnish the service in question if its is medically
         necessary, using qualified providers.

4.8.11   PROVIDER NETWORK ANALYSIS

         The contractor shall submit prior to execution of this contract and
         annually thereafter a provider network accessibility analysis, using
         geographic information system software, in accordance with the
         specifications found in Section A.4.3 of the Appendices.

4.9      PROVIDER CONTRACTS AND SUBCONTRACTS

4.9.1    GENERAL PROVISIONS

         A.       Each generic type of provider contract form shall be submitted
                  to the DMAHS for review and prior approval to ensure required
                  elements are included and shall have regulatory approval prior
                  to the effective date of the contract. Any proposed changes to
                  an approved contract form shall be reviewed and prior approved
                  by the DMAHS and shall have regulatory approval from DHSS and
                  DOBI prior to the effective date. The contractor shall comply
                  with all DMAHS procedures for contract review and approval
                  submission. Letters of Intent are not acceptable. Memoranda of
                  Agreement (MOAs) shall be permitted only if the MOA
                  automatically converts to a contract within six (6) months of
                  the effective date and incorporates by reference all
                  applicable contract provisions contained herein, including but
                  not limited to Appendix B.7.2, which shall be attached to all
                  MOAs.

                                                                          IV-103
<PAGE>
         B.       Each proposed subcontracting arrangement or substantial
                  contractual relationship including all contract documents and
                  any subcontractor contracts including all provider contract
                  forms shall be submitted to the DMAHS for review and prior
                  approval to ensure required elements are included and shall
                  have regulatory approval prior to the effective date. Any
                  proposed change(s) to an approved subcontracting arrangement
                  including any proposed changes to approved contract forms
                  shall be reviewed and prior approved by the DMAHS and shall
                  have regulatory approval from DHSS and DOBI prior to the
                  effective date. The contractor shall comply with all DMAHS
                  procedures for contract review and approval submissions.

         C.       The contractor shall at all times have satisfactory written
                  contracts and subcontracts with a sufficient number of
                  providers in and adjacent to the enrollment area to ensure
                  enrollee access to all medically necessary services listed in
                  Article 4.1. All provider contracts and subcontracts shall
                  meet established requirements, form and contents approved by
                  DMAHS.

         D.       The contractor, in performing its duties and obligations
                  hereunder, shall have the right either to employ its own
                  employees and agents or, for the provision of health care
                  services, to utilize the services of persons, firms, and other
                  entities by means of sub-contractual relationships.

         E.       No provider contract or subcontract shall terminate or in any
                  way limit the legal responsibility of the contractor to the
                  Department to assure that all activities under this contract
                  are carried out. The contractor is not relieved of its
                  contractual responsibilities to the Department by delegating
                  responsibility to a subcontractor.

         F.       All provider contracts and subcontracts shall be in writing
                  and shall fulfill the requirements of 42 C.F.R. Part 434 that
                  are appropriate to the service or activity delegated under the
                  subcontract.

                  1.       Provider contracts and subcontracts shall contain
                           provisions allowing DMAHS and HHS to evaluate through
                           inspection or other means, the quality,
                           appropriateness and timeliness of services performed
                           under a subcontract to provide medical services (42
                           C.F.R. Section 434.6(a)(5)).

                  2.       Provider contracts and subcontracts shall contain
                           provisions pertaining to the maintenance of an
                           appropriate record system for services to enrollees.
                           (42 C.F.R. Section 434.6(a)(7))

                  3.       Each provider contract and subcontract shall contain
                           sufficient provisions to safeguard all rights of
                           enrollees and to ensure that the subcontract complies
                           with all applicable State and federal laws, including
                           confidentiality. See Section B.7.2 of the Appendices.

                                                                          IV-104
<PAGE>
                  4.       Provider contracts and subcontracts shall include the
                           specific provisions and verbatim language found in
                           Appendix B.7.2. The verbatim language requirements
                           shall be used when entering into new provider
                           contracts, new subcontracts, and when renewing,
                           renegotiating or recontracting with providers and
                           subcontractors with existing contracts.

         G.       The contractor shall submit lists of names, addresses,
                  ownership/control information of participating providers and
                  subcontractors, and individuals or entities, which shall be
                  incorporated in this contract. Such information shall be
                  updated every quarter.

                  1.       The contractor shall obtain prior DMAHS review and
                           written approval of any proposed plan for merger,
                           reorganization or change in ownership of the
                           contractor and approval by the appropriate State
                           regulatory agencies.

                  2.       The contractor shall comply with Article 4.9.1G.1 to
                           ensure uninterrupted and undiminished services to
                           enrollees, to evaluate the ability of the modified
                           entity to support the provider network, and to ensure
                           that any such change has no adverse effects on
                           DMAHS's managed care program and shall comply with
                           the Departments of Banking and Insurance, and Health
                           and Senior Services statutes and regulations.

         H.       The contractor shall demonstrate its ability to provide all of
                  the services included under this contract through the approved
                  network composition and accessibility.

         I.       The contractor shall not oblige providers to violate their
                  state licensure regulations.

         J.       The contractor shall provide its providers and subcontractors
                  with a schedule of fees and relevant policies and procedures
                  at least 30 days prior to implementation.

         K.       The contractor shall arrange for the distribution of
                  informational materials to all its providers and
                  subcontractors providing services to enrollees, outlining the
                  nature, scope, and requirements of this contract.

4.9.2    CONTRACT SUBMISSION

         The contractor shall submit to DMAHS one complete, fully executed
         contract for each type of provider, i.e., primary care physician,
         physician specialist, non-physician practitioner, hospital and other
         health care providers/services covered under the benefits package,
         subcontract and the form contract of any subcontractor's provider
         contracts. The use of a signature stamp is not permitted and shall not
         be considered a fully executed contract. Contracts shall be submitted
         with all attachments, appendices, rate schedules, etc. A copy of the
         appropriate completed contract checklist for DHS, DHSS, and DOBI shall
         be attached to each contract form. Regulatory approval and approval by
         the

                                                                          IV-105
<PAGE>
         Department is required for each provider contract form and subcontract
         prior to use. Submission of all other contracts shall follow the format
         and procedures described below:

         A.       Copies of the complete fully executed contract with every
                  FQHC. Certification of the continued in force contracts
                  previously submitted will be permitted.

         B.       Hospital contracts shall list each specific service to be
                  covered including but not limited to:

                  1.       Inpatient services;

                  2.       Anesthesia and whether professional services of
                           anesthesiologists and nurse anesthetists are
                           included;

                  3.       Emergency room services

                           a.       Triage fee - whether facility and
                                    professional fees are included;

                           b.       Medical screening fee - whether facility and
                                    professional fees are included;

                           c.       Specific treatment rates for:

                                    (1)     Emergent services

                                    (2)     Urgent services

                                    (3)     Non-urgent services

                                    (4)     Other

                           d.       Other - must specify

                  4.       Neonatology - facility and professional fees

                  5.       Radiology

                           a.       Diagnostic

                           b.       Therapeutic

                           c.       Facility fee

                           d.       Professional services

                  6.       Laboratory - facility and professional services

                  7.       Outpatient/clinic services must be specific and
                           address

                           a.       Physical and occupational therapy and
                                    therapists

                           b.       Speech therapy and therapists

                           c.       Audiology therapy and therapists

                  8.       AIDS Centers

                  9.       Any other specialized service or center of excellence

                  10.      Hospice services if the hospital has an approved
                           hospice agency that is Medicare certified.

                  11.      Home Health agency services if hospital has an
                           approved home health agency license from the
                           Department of Health and Senior Services that meets
                           licensing and Medicare certification participation
                           requirements.

                  12.      Any other service.

         C.       FQHC contracts:

                  1.       Shall list each specific service to be covered.

                  2.       Shall include reimbursement schedule and methodology.

                  3.       Shall include the credentialing requirements for
                           individual practitioners.

                                                                          IV-106
<PAGE>
                  4.       Shall include assurance that continuation of the FQHC
                           contract is contingent on maintaining quality
                           services and maintaining the Primary Care Evaluation
                           Review (PCER) review by the federal government at a
                           good quality level. FQHCs must make available to the
                           contractor the PCER results annually which shall be
                           considered in the contractor's QM reviews for
                           assessing quality of care.

         D.       For those providers for whom a complete contract is not
                  required, the contractor shall submit a list of their names,
                  addresses, Social Security Numbers, and Medicaid provider
                  numbers (if available). The contractor shall attach to this
                  list a completed, signed "Certification of Contractor Provider
                  Network" form (See Section A.4.4 of the Appendices). This form
                  must be completed and signed by the contractor's attorney or
                  high-ranking officer with decision-making authority.

4.9.3    PROVIDER CONTRACT AND SUBCONTRACT TERMINATION

         A.       The contractor shall comply with all the provisions of the New
                  Jersey HMO regulations at N.J.A.C. 8:38 et seq. regarding
                  provider termination, including but not limited to 30 day
                  prior written notice to enrollees and continuity of care
                  requirements.

         B.       The contractor shall notify DMAHS at least 30 days prior to
                  the effective date of suspension, termination, or voluntary
                  withdrawal of a provider or subcontractor from participation
                  in this program. If the termination was "for cause," the
                  contractor's notice to DMAHS shall include the reasons for the
                  termination.

                  1.       Provider resource consumption patterns shall not
                           constitute "cause" unless the contractor can
                           demonstrate it has in place a risk adjustment system
                           that takes into account enrollee health-related
                           differences when comparing across providers.

                  2.       The contractor shall assure immediate coverage by a
                           provider of the same specialty, expertise, or service
                           provision and shall submit a new contract with a
                           replacement provider to DMAHS within 30 days of being
                           finalized.

         C.       If a primary care provider ceases participation in the
                  contractor's organization, the contractor shall provide
                  written notice at least thirty (30) days from the date that
                  the contractor becomes aware of such change in status to each
                  enrollee who has chosen the provider as their primary care
                  provider. If an enrollee is in an ongoing course of treatment
                  with any other participating provider who becomes unavailable
                  to continue to provide services to such enrollee and
                  contractor is aware of such ongoing course of treatment, the
                  contractor shall provide written notice within fifteen days
                  from the date that the contractor becomes aware of such
                  unavailability to such enrollee. Each notice shall also
                  describe the procedures for continuing care and choice of
                  other providers who can continue to care for the enrollee.

                                                                          IV-107
<PAGE>
         D.       All provider contracts shall contain a provision that states
                  that the contractor shall not terminate the contract with a
                  provider because the provider expresses disagreement with a
                  contractor's decision to deny or limit benefits to a covered
                  person or because the provider assists the covered person to
                  seek reconsideration of the contractor's decision; or because
                  a provider discusses with a current, former, or prospective
                  patient any aspect of the patient's medical condition, any
                  proposed treatments or treatment alternatives, whether covered
                  by the contractor or not, policy provisions of a plan, or a
                  provider's personal recommendation regarding selection of a
                  health plan based on the provider's personal knowledge of the
                  health needs of such patients. Nothing in this Article shall
                  be construed to prohibit the contractor from:

                  1.       Including in its provider contracts a provision that
                           precludes a provider from making, publishing,
                           disseminating, or circulating directly or indirectly
                           or aiding, abetting, or encouraging the making,
                           publishing, disseminating, or circulating of any oral
                           or written statement or any pamphlet, circular,
                           article, or literature that is false or maliciously
                           critical of the contractor and calculated to injure
                           the contractor; or

                  2.       Terminating a contract with a provider because such
                           provider materially misrepresents the provisions,
                           terms, or requirements of the contractor.

4.9.4    PROHIBITION OF INTERFERENCE WITH CERTAIN MEDICAL COMMUNICATIONS

         A.       Any contract between the contractor in relation to health
                  coverage and a health care provider (or group of health care
                  providers) shall not prohibit or restrict the provider from
                  engaging in medical communications with the provider's
                  patient, either explicit or implied, nor shall any provider
                  manual, newsletters, directives, letters, verbal instructions,
                  or any other form of communication prohibit medical
                  communication between the provider and the provider's patient.
                  Providers shall be free to communicate freely with their
                  patients about the health status of their patients, medical
                  care or treatment options regardless of whether benefits for
                  that care or treatment are provided under the contract, if the
                  professional is acting within the lawful scope of practice.
                  The health care providers shall be free to practice their
                  respective professions in providing the most appropriate
                  treatment required by their patients and shall provide
                  informed consent within the guidelines of the law including
                  possible positive and negative outcomes of the various
                  treatment modalities.

         B.       Nothing in this Article shall be construed:

                  1.       To prohibit the enforcement, as part of a contract or
                           agreement to which a health care provider is a party,
                           of any mutually agreed upon terms and conditions,
                           including terms and conditions requiring a health
                           care provider

                                                                          IV-108
<PAGE>
                           to participate in, and cooperate with, all programs,
                           policies, and procedures developed or operated by the
                           contractor to assure, review, or improve the quality
                           and effective utilization of health care services (if
                           such utilization is according to guidelines or
                           protocols that are based on clinical or scientific
                           evidence and the professional judgment of the
                           provider) but only if the guidelines or protocols
                           under such utilization do not prohibit or restrict
                           medical communications between providers and their
                           patients; or

                  2.       To permit a health care provider to misrepresent the
                           scope of benefits covered under this contract or to
                           otherwise require the contractor to reimburse
                           providers for benefits not covered.

         C.       The contractor shall not have to provide, reimburse, or
                  provide coverage of a counseling service or referral service
                  if the contractor objects to the provision of a particular
                  service on moral or religious grounds and if the contractor
                  makes available information in its policies regarding that
                  service to prospective enrollees before or during enrollment.
                  Notices shall be provided to enrollees within 90 days after
                  the date that the contractor adopts a change in policy
                  regarding such a counseling or referral service.

4.9.5    ANTIDISCRIMINATION

         The contractor shall not discriminate with respect to participation,
         reimbursement, or indemnification against 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 licensure or
         certification. The contractor may, however, include providers only to
         the extent necessary to meet the needs of the organization's enrollees
         or establish any measure designed to maintain quality and control costs
         consistent with the responsibilities of the contractor.

4.10     EXPERT WITNESS REQUIREMENTS AND COURT OBLIGATIONS

         The contractor shall comply with the following provisions concerning
         expert witness testimony and court-ordered services:

         A.       The contractor shall bear the sole responsibility to provide
                  expert witness services within the State of New Jersey for any
                  hearings, proceedings, or other meetings and events relative
                  to services provided by the contractor.

         B.       These expert witness services shall be provided in all actions
                  initiated by the Department, providers, enrollees, or any
                  other party(ies) and which involve the Department and the
                  contractor.

         C.       The contractor shall designate and identify staff person(s)
                  immediately available to perform the expert witness function,
                  subject to prior approval by the

                                                                          IV-109
<PAGE>
                  Department. The Department shall exercise, at its sole
                  discretion, a request for additional or substitute employees
                  other than the designated expert witness.

         D.       The contractor shall notify the Department prior to the
                  delivery of all expert witness services, and/or response(s) to
                  subpoenas. The notification shall be no later than twenty-four
                  (24) hours after the contractor is aware of the need to appear
                  or of the subpoena.

         E.       The contractor shall provide written analysis and expert
                  witness services in Fair Hearings and in court regarding any
                  actions the contractor has taken. In the case of a
                  contractor's denial, modification, or deferral of a prior
                  authorization request, the contractor shall present its
                  position for the denial, modification, or deferral of
                  procedures during Fair Hearing proceedings.

         F.       The Department will notify the contractor in a timely manner
                  of the nature of the subject matter to be covered and the
                  testimony to be presented and the date, time and location of
                  the hearing, proceeding, or other meeting or event at which
                  specific expert witness services are to be provided.

         G.       The contractor shall coordinate and provide court ordered
                  medical services (except sexual abuse evaluations). It is the
                  responsibility of the contractor to inform the courts about
                  the availability of its providers. If the court orders a
                  noncontractor source to provide the treatment or evaluation,
                  the contractor shall be liable for the cost up to the Medicaid
                  rate if the contractor could not have provided the service
                  through its own provider network or arrangements.

4.11     ADDITIONS, DELETIONS, AND/OR CHANGES

         The contractor shall submit any significant and material changes
         regarding policies, procedures, changes to health care delivery system
         and substantial changes to contractor operations, providers, provider
         networks, subcontractors, and reports to DMAHS for final approval at
         least 90 days prior to being published, distributed, and/or
         implemented.

                                                                        IV - 110
<PAGE>
ARTICLE FIVE: ENROLLEE SERVICES

5.1      GEOGRAPHIC REGIONS

         A.       Service Area. The geographic region(s) for which the
                  contractor has been awarded a contract to establish and
                  maintain operations for the provision of services to Medicaid
                  and NJ FamilyCare beneficiaries are indicated below. The
                  contractor shall have complete provider networks for each of
                  the counties included in the region(s) approved for this
                  contract. Coverage for partial regions shall only be permitted
                  through a prior approval process by DMAHS. The contractor
                  shall submit a phase-in plan to DMAHS. See Article 2 for
                  details.

                  _________Region 1:     Bergen, Hudson, Hunterdon, Morris,
                                         Passaic, Somerset, Sussex, and Warren

                  _________Region 2:     Essex, Union, Middlesex, and Mercer

                  _________Region 3:     Atlantic, Burlington, Camden, Cape May,
                                         Cumberland, Gloucester, Monmouth,
                                         Ocean, and Salem

         B.       Enrollment Area. For the purposes of this contract, the
                  contractor's enrollment area(s) and maximum enrollment limits
                  (cumulative during the term of the contract) shall be as
                  follows:

<TABLE>
<CAPTION>
                          Maximum
                          Enrollment
County:                   Limit:
<S>       <C>             <C>
______    Atlantic
______    Bergen
______    Burlington
______    Camden
______    Cape May
______    Cumberland
______    Essex
______    Gloucester
______    Hudson
______    Hunterdon
______    Mercer
______    Middlesex
______    Monmouth
______    Morris
______    Ocean
______    Passaic
______    Salem
______    Somerset
______    Sussex
______    Union
______    Warren
</TABLE>

                                                                            V-1
<PAGE>
5.2      AID CATEGORIES ELIGIBLE FOR CONTRACTOR ENROLLMENT

         A.       Except as specified in Article 5.3, all persons who are not
                  institutionalized, belong to one of the following eligibility
                  categories, and reside in any of the enrollment areas, as
                  identified in Article 5.1, are in mandatory aid categories and
                  shall be eligible for enrollment in the contractor's plan in
                  the manner prescribed by this contract.

                  1.       Aid to Families with Dependent Children
                           (AFDC)/Temporary Assistance for Needy Families
                           (TANF);

                  2.       AFDC/TANF-Related, New Jersey Care...Special Medicaid
                           Program for Pregnant Women and Children;

                  3.       SSI-Aged, Blind, Disabled, and Essential Spouses;

                  4.       New Jersey Care...Special Medicaid programs for Aged,
                           Blind, and Disabled;

                  5.       Division of Developmental Disabilities Clients
                           including the Division of Developmental Disabilities
                           Community Care Waiver;

                  6.       Medicaid only or SSI-related Aged, Blind, and
                           Disabled;

                  7.       Uninsured parents/caretakers and children who are
                           covered under NJ FamilyCare;

                  8.       Uninsured adults and couples without dependent
                           children under the age of 23 who are covered under NJ
                           FamilyCare.

         B.       The contractor shall enroll the entire Medicaid case, i.e.,
                  all individuals included under the ten digit Medicaid
                  identification number.

         C.       DYFS. Individuals who are eligible through the Division of
                  Youth and Family Services may enroll voluntarily. All
                  individuals eligible through DYFS shall be considered a unique
                  Medicaid case and shall be issued an individual 12 digit
                  Medicaid identification number, and may be enrolled in his/her
                  own contractor.

         D.       The contractor shall be responsible for keeping its network of
                  providers informed of the enrollment status of each enrollee.

         E.       Dual eligibles (Medicaid-Medicare) may voluntarily enroll.

5.3      EXCLUSIONS AND EXEMPTIONS

         Persons who belong to one of the eligible populations (defined in 5.2B)
         shall not be subject to mandatory enrollment if they meet one or more
         criteria defined in this Article. Persons who fall into an "excluded"
         category (Article 5.3.1A) shall not be eligible to enroll in the
         contractor's plan. Persons falling into the categories under Article
         5.3.1B are eligible to enroll on a voluntary basis. Persons falling
         into a category under Article 5.3.2 may be eligible for enrollment
         exemption, subject to the Department's review.

                                                                            V-2
<PAGE>
5.3.1    ENROLLMENT EXCLUSIONS

         A.       The following persons shall be excluded from enrollment in the
                  managed care program:

                  1.       Individuals in the following Home and Community-based
                           Waiver programs: Model Waiver I, Model Waiver II,
                           Model Waiver III, Enhanced Community Options Waiver,
                           Aids Community Care Alternative Program (ACCAP),
                           Community Care Program for Elderly and Disabled
                           (CCPED), assisted living programs, ABC Waiver for
                           Children, Traumatic Brain Injury (TBI), and DYFS Code
                           65 children.

                  2.       Individuals in a Medicaid demonstration program.

                  3.       Individuals who are institutionalized in an inpatient
                           psychiatric institution, long term care nursing
                           facility or in a residential facility including
                           Intermediate Care Facilities for the Mentally
                           Retarded. However, individuals who are eligible
                           through DYFS and are placed in a DYFS residential
                           center/facility or individuals in a mental health or
                           substance abuse residential treatment facility are
                           not excluded from enrolling in the contractor's plan.

                  4.       Individuals in the Medically Needy, Presumptive
                           Eligibility for pregnant women, Presumptive
                           Eligibility for NJ FamilyCare, Home Care Expansion
                           Program, or PACE program.

                  5.       Infants of inmates of a public institution living in
                           a prison nursery.

                  6.       Individuals already enrolled in or covered by a
                           Medicare or private HMO that does not have a contract
                           with the Department to provide Medicaid services.

                  7.       Individuals in out-of-state placements.

                  8.       Full time students attending school and residing out
                           of the country will be excluded from New Jersey Care
                           2000+ participation while in school.

                  9.       The following types of dual beneficiaries: Qualified
                           Medicare Beneficiaries (QMBs) not otherwise eligible
                           for Medicaid; Special Low- Income Medicare
                           Beneficiaries (SLMBs); Qualified Disabled and Working
                           Individuals (QDWIs); and Qualifying Individuals 1 and
                           2.

         B.       The following individuals shall be excluded from the Automatic
                  Assignment process described in Article 5.4C but may
                  voluntarily enroll:

                                                                            V-3
<PAGE>
                  1.       Individuals whose Medicaid eligibility will terminate
                           within three (3) months or less after the projected
                           date of effective enrollment.

                  2.       Individuals in mandatory eligibility categories who
                           live in a county where mandatory enrollment is not
                           yet required based on a phase-in schedule determined
                           by DMAHS.

                  3.       Individuals enrolled in or covered by either a
                           Medicare or commercial HMO will not be enrolled in
                           New Jersey Care 2000+ contractor unless the New
                           Jersey Care 2000+ contractor and the
                           Medicare/commercial HMO are the same.

                  4.       Individuals in the Pharmacy Lock-in or Provider
                           Warning or Hospice programs.

                  5.       Individuals in eligibility categories other than
                           AFDC/TANF, AFDC/TANF-related New Jersey Care,
                           SSI-Aged, Blind and Disabled populations, the
                           Division of Developmental Disabilities Community Care
                           Waiver population, New Jersey Care - Aged, Blind and
                           Disabled, or NJ FamilyCare Plan A.

                  6.       Children awaiting adoption through a private agency.

                  7.       Individuals identified as having more than one active
                           eligible Medicaid number.

                  8.       DYFS Population.

         C.       The following individuals shall be excluded from the Automatic
                  Assignment process:

                  1.       Individuals included under the same Medicaid Case
                           Number where one or more household member(s) are
                           exempt.

                  2.       Individuals participating in NJ FamilyCare Plans B,
                           C, and D [Managed Care is the only program option
                           available for these individuals].

5.3.2    ENROLLMENT EXEMPTIONS

         The contractor, its subcontractors, providers or agents shall not
                  coerce individuals to disenroll because of their health care
                  needs which may meet an exemption reason, especially when the
                  enrollees want to remain enrolled. Exemptions do not apply to
                  NJ FamilyCare Plan B, Plan C, or Plan D individuals or to
                  individuals who have been enrolled in any contractor for
                  greater than one hundred and eighty (180) days. All exemption
                  requests are reviewed by DMAHS on a case by case

                                                                            V-4
<PAGE>
                  basis. Individuals may be exempted by DMAHS from enrollment in
                  a contractor for the following reasons:

         A.       First-time Medicaid/NJ FamilyCare Plan A beneficiaries who are
                  pregnant women, beyond the first trimester, who have an
                  established relationship with an obstetrician who is not a
                  participating provider in any contractor. These individuals
                  will be tracked and enrolled after sixty (60) days postpartum.

         B.       Individuals with a terminal illness and who have an
                  established relationship with a physician who is not a
                  participating provider in any contractor's plan.

         C.       Individuals with a chronic, debilitating illness or disability
                  who have received treatment from a physician and/or team of
                  providers with expertise in treating that illness with whom
                  the individuals have an established relationship (greater than
                  12 months) and who are not participating in any contractor;
                  and there is no other reasonable alternative as determined by
                  DMAHS at its sole discretion. Such requests shall be reviewed
                  by DMAHS on a case by case basis. The individuals or
                  authorized persons must provide written documentation
                  identifying all of the providers who provide regular, ongoing
                  care and who will certify their continued involvement in the
                  care of these individuals; also provide documentation
                  detailing how and who will provide medical management for the
                  individual.

                  1.       Temporary exemption may be granted by DMAHS to allow
                           the contractor time to contract with a specific
                           specialist needed by an enrollee with whom there is a
                           long-standing established relationship (greater than
                           twelve (12) months) and there is no equivalent
                           specialist available in the network. The contractor
                           shall establish appropriate contractual/referral
                           relationships with any or all specialists needed to
                           accommodate the needs of enrollees with special
                           needs.

         D.       Individuals who do not speak English or Spanish and who meet
                  the following criteria: i) have an illness requiring on-going
                  treatment; ii) have an established relationship with a
                  physician who speaks their primary language; and iii) there is
                  no available primary care physician in any participating
                  contractor who speaks the beneficiary's language. These cases
                  shall be reviewed by DMAHS on a case-bycase basis with no
                  automatic exemption from initial enrollment.

         E.       Individuals who do not have a choice of at least two (2) PCPs
                  within thirty (30) miles of their residence.

5.4      ENROLLMENT OF MANAGED CARE ELIGIBLES

         A.       Enrollment. The health benefits coordinator (HBC), an agent of
                  DMAHS, shall enroll Medicaid and NJ FamilyCare applicants. The
                  HBC will explain the contractors' programs, answer any
                  questions, and assist eligible individuals or, where
                  applicable, an authorized person in selecting a contractor.
                  The contractor

                                                                            V-5
<PAGE>
                  may also enroll and directly market to individuals eligible
                  for Aged, Blind, and Disabled (ABD) benefits. The contractor
                  shall not enroll any other Medicaid-eligible beneficiary
                  except as described in Article 5.16.A.2. Except as provided in
                  5.16, the contractor shall not directly market to or assist
                  managed care eligibles in completing enrollment forms. The
                  duties of the HBC will include, but are not limited to,
                  education, enrollment, disenrollment, transfers, assistance
                  through the contractor's grievance process and other problem
                  resolutions with the contractor, and communications. The
                  duties of the contractor, when enrolling ABD beneficiaries
                  will include education and enrollment, as well as other
                  activities required within this contract. The contractor shall
                  cooperate with the HBC in developing information about its
                  plan for dissemination to Medicaid/NJ FamilyCare
                  beneficiaries.

         B.       Individuals eligible under NJ FamilyCare Plan A and NJ
                  FamilyCare Plan B, Plan C, and Plan D may request an
                  application via a toll-free number operated under contract for
                  the State, through an outreach source, or from the contractor.
                  The applications, including ABD applications taken by the
                  contractor, may be mailed back to a State vendor. Individuals
                  eligible under Plan A also have the option of completing the
                  application either via a mail-in process or on site at the
                  county welfare agency. Individuals eligible under Plan B, Plan
                  C, and Plan D have the option of requesting assistance from
                  the State vendor, the contractor or one of the registered
                  servicing centers in the community. Assistance will also be
                  made available at State field offices (e.g. the Medicaid
                  District Offices) and county offices (e.g. Offices on Aging
                  for grandparent caretakers).

         C.       Automatic Assignment. Medicaid eligible persons who reside in
                  enrollment areas that have been designated for mandatory
                  enrollment, who qualify for AFDC/TANF, New Jersey
                  Care...Special Medicaid programs eligibility categories, NJ
                  FamilyCare Plan A, and SSI populations, who do not meet the
                  exemption criteria, and who do not voluntarily choose
                  enrollment in the contractor's plan, shall be assigned
                  automatically by DMAHS to a contractor.

5.5      ENROLLMENT AND COVERAGE REQUIREMENTS

         A.       General. The contractor shall comply with DMAHS enrollment
                  procedures. The contractor shall accept for enrollment any
                  individual who selects or is assigned to the contractor's
                  plan, whether or not they are subject to mandatory enrollment,
                  without regard to race, ethnicity, gender, sexual or
                  affectional preference or orientation, age, religion, creed,
                  color, national origin, ancestry, disability, health status or
                  need for health services.

         B.       Coverage commencement. Coverage of enrollees shall commence at
                  12:00 a.m., Eastern Time, on the first day of the calendar
                  month as specified by the DMAHS with the exceptions noted in
                  Article 5.5. The day on which coverage commences shall be the
                  enrollee's effective date of enrollment.

                                                                            V-6
<PAGE>
         C.       The contractor shall accept enrollment of Medicaid/NJ
                  FamilyCare eligible persons within the defined enrollment
                  areas in the order in which they apply or are auto-assigned to
                  the contractor (on a random basis with equal distribution
                  among all participating contractors) without restrictions,
                  within contract limits. Enrollment shall be open at all times
                  except when the contract limits have been met. A contractor
                  shall not deny enrollment of a person with an SSI disability
                  or New Jersey Care Disabled category who resides outside of
                  the enrollment area. However, such enrollee with a disability
                  shall be required to utilize the contractor's established
                  provider network. The contractor shall accept enrollees for
                  enrollment throughout the duration of this contract.

         D.       Enrollment timeframe. As of the effective date of enrollment,
                  and until the enrollee is disenrolled from the contractor's
                  plan, the contractor shall be responsible for the provision
                  and cost of all care and services covered by the benefits
                  package listed in Article 4.1. Enrollees who become eligible
                  to receive services between the 1st through the end of the
                  month shall be eligible for Managed Care services in that
                  month. When an enrollee is shown on the enrollment roster as
                  covered by a contractor's plan, the contractor shall be
                  responsible for providing services to that person from the
                  first day of coverage shown to the last day of the calendar
                  month of the effective date of disenrollment. DMAHS will pay
                  the contractor a capitation rate during this period of time.

         E.       Hospitalizations. For any eligible person who applies for
                  participation in the contractor's plan, but who is
                  hospitalized prior to the time coverage under the plan becomes
                  effective, such coverage shall not commence until the date
                  after such person is discharged from the hospital and DMAHS
                  shall be liable for payment for the hospitalization, including
                  any charges for readmission within forty-eight (48) hours of
                  discharge for the same diagnosis. If an enrollee's
                  disenrollment or termination becomes effective during a
                  hospitalization, the contractor shall be liable for
                  hospitalization until the date such person is discharged from
                  the hospital, including any charges for readmission within
                  fortyeight (48) hours of discharge for the same diagnosis. The
                  contractor shall notify DMAHS within 180 days of initial
                  hospital admission.

         F.       Unless otherwise required by statute or regulation, the
                  contractor shall not condition any Medicaid/NJ FamilyCare
                  eligible person's enrollment upon the performance of any act
                  or suggest in any way that failure to enroll may result in a
                  loss of Medicaid/NJ FamilyCare benefits.

         G.       There shall be no retroactive enrollment in Managed Care.
                  Services for those beneficiaries during any retroactive period
                  will remain fee-for-service, except for individuals eligible
                  under NJ FamilyCare Plans B, C, and D who are not eligible
                  until enrolled in an MCE. Coverage shall continue indefinitely
                  unless this contract expires or is terminated, or the enrollee
                  is no longer eligible or is deleted from the contractor's list
                  of eligible enrollees.

                                                                            V-7
<PAGE>
                  1.       Exceptions and Clarifications

                           a.       The contractor shall be responsible for
                                    providing services to an enrollee unless
                                    otherwise notified by DMAHS. In certain
                                    situations, retroactive re-enrollments may
                                    be authorized by DMAHS.

                           b.       Deceased enrollees. If an enrollee is
                                    deceased and appears on the recipient file
                                    as active, the contractor shall promptly
                                    notify DMAHS. DMAHS shall recover capitation
                                    payments made on a prorated basis after the
                                    date of death.

                           c.       Newborn infants. Newborn infants shall be
                                    the responsibility of the contractor that
                                    covered the mother on the date of birth. The
                                    contractor shall notify DMAHS when a newborn
                                    has not been accreted to its enrollment
                                    roster after eight weeks from the date of
                                    birth. DMAHS will take action with the
                                    appropriate CWA to have the infant accreted
                                    to the eligibility file and subsequently the
                                    enrollment roster following this
                                    notification. (See Section B.5.1 of the
                                    Appendices, for the applicable Notification
                                    of Newborns form and amendments thereto).
                                    The mother's MCE shall be responsible for
                                    the hospital stay for the newborn following
                                    delivery and for subsequent services based
                                    on enrollment in the contractor's plan.
                                    Capitation payments shall be prorated to
                                    cover newborns from the date of birth.

                                    i.      SSI. Newborns born to an SSI mother
                                            who never applies for or may not be
                                            eligible for AFDC/TANF remain the
                                            responsibility of the mother's MCE
                                            from the date of birth. The
                                            contractor shall be responsible for
                                            notifying DMAHS when a newborn has
                                            not been accreted to its enrollment
                                            roster after eight weeks from the
                                            date of birth.

                                    ii.     DYFS. Newborns who are placed under
                                            the jurisdiction of the Division of
                                            Youth and Family Services are the
                                            responsibility of the MCE that
                                            covered the mother on the date of
                                            birth for medically necessary
                                            newborn care. Such children shall
                                            become FFS upon their placement in a
                                            DYFS-approved out-of-home placement.

                                    iii.    NJ FamilyCare. Newborn infants born
                                            to NJ FamilyCare Plans B, C, and D
                                            mothers shall be the responsibility
                                            of the MCE that covered the mother
                                            on the date of birth for a minimum
                                            of 60 days after the birth through
                                            the period ending at the end of the
                                            month in which the 60th day falls
                                            unless the child is determined
                                            eligible beyond this time

                                                                            V-8
<PAGE>
                                            period. The contractor shall notify
                                            DMAHS of the birth immediately in
                                            order to assure payment for this
                                            period.

                           d.       Enrollee no longer in contract area. If an
                                    enrollee moves out of the contractor's
                                    enrollment area and would otherwise still be
                                    eligible to be enrolled in the contractor's
                                    plan, the contractor shall continue to
                                    provide or arrange benefits to the enrollee
                                    until the DMAHS can disenroll him/her. The
                                    contractor shall ask DMAHS to disenroll the
                                    enrollee due to the change of residence as
                                    soon as it becomes aware of the enrollee's
                                    relocation. This provision does not apply to
                                    persons with disabilities, who may elect to
                                    remain with the contractor, or to NJ
                                    FamilyCare Plans B, C, and D enrollees, who
                                    remain enrolled until the end of the month
                                    in which the 60th day after the request
                                    falls.

         H.       Enrollment Roster. The enrollment roster and weekly
                  transaction register generated by DMAHS shall serve as the
                  official contractor enrollment list. However, enrollment
                  changes can occur between the time when the monthly roster is
                  produced and capitation payment is made. The contractor shall
                  only be responsible for the provision and cost of care for an
                  enrollee during the months on which the enrollee's name
                  appears on the roster, except as indicated in Article 8.8.
                  DMAHS shall make available data on eligibility determinations
                  to the contractor to resolve discrepancies that may arise
                  between the roster and contractor enrollment files. If DMAHS
                  notifies the contractor in writing of changes in the roster,
                  the contractor shall rely upon that written notification in
                  the same manner as the roster. Corrective action shall be
                  limited to one (1) year from the date that the change was
                  effective.

         I.       Enrollment of Medicaid case. Enrollment shall be for the
                  entire Medicaid case, i.e., all individuals included under the
                  ten-digit Medicaid identification number (or 12-digit ID
                  number in the case of DYFS population). The contractor shall
                  not enroll a partial case except at the DMAHS' sole
                  discretion.

         J.       Weekly Enrollment Transactions. In keeping with a schedule
                  established by DMAHS, DMAHS will process and forward
                  enrollment transactions to the contractor on a weekly basis.

         K.       Capitation Recovery. Capitation payments for a full month
                  coverage shall be recovered from the contractor on a prorated
                  basis when an enrollee is admitted to a nursing facility,
                  psychiatric care facility or other institution including
                  incarceration and the individual is disenrolled from the
                  contractor's plan on the day prior to such admission.

         L.       Adjustments to Capitation. The monthly capitation payments
                  shall include all adjustments made by DMAHS for reasons such
                  as but not limited to retroactive validation as for newborns
                  or retroactive termination of eligibility as for death,

                                                                            V-9
<PAGE>
                  incarceration or institutionalization. These adjustments will
                  be documented by DMAHS by means of a remittance tape. With the
                  exception of newborns, DMAHS shall be responsible for
                  fee-for-service payments incurred by the enrollee during the
                  period prior to actual enrollment in the contractor's plan.

         M.       The contractor shall cooperate with established procedures
                  whereby DMAHS and the HBC shall monitor enrollment and
                  disenrollment practices.

         N.       Nothing in this Article or contract shall be construed to
                  limit or in any way jeopardize a Medicaid beneficiary's
                  eligibility for New Jersey Medicaid.

         O.       DMAHS shall arrange for the determination of eligibility of
                  each potential enrollee for covered services under this
                  contract and to arrange for the provision of complete
                  information to the contractor with respect to such
                  eligibility, including notification whenever an enrollee's
                  Medicaid/NJ FamilyCare eligibility is discontinued.

5.6      VERIFICATION OF ENROLLMENT

         A.       The contractor shall be responsible for keeping its network of
                  providers informed of the enrollment status of each enrollee.
                  The contractor shall be able to report and ensure enrollment
                  to network providers through electronic means.

         B.       The contractor shall maintain procedures to ensure that each
                  individual's enrollment in the contractor's plan may be
                  verified with the use of the Medicaid/NJ FamilyCare
                  Eligibility Identification Card issued by the State and/or
                  card issued by the contractor through:

                  1.       Point of Service Device (POS)

                  2.       Claims and Eligibility Real Time System (CERTS)

                  3.       Automated Eligibility Verification System (AEVS)

         C.       Providers should not wait more than three (3) minutes to
                  verify enrollment.

5.7      MEMBER SERVICES UNIT

         A.       Defined. The contractor shall have in place a Member Services
                  Unit to coordinate and provide services to Medicaid/NJ
                  FamilyCare managed care enrollees. The services as described
                  in this Article include, but are not limited to enrollee
                  selection, changes, assignment, and/or reassignment of a PCP,
                  explanation of benefits, assistance with filing and resolving
                  inquiries, billing problems, grievances and appeals,
                  referrals, appointment scheduling and cultural and/or
                  linguistic needs. This unit shall also provide orientation to
                  contractor operations and assistance in accessing medical and
                  dental care.

                                                                           V-10
<PAGE>
         B.       Staff Training. The contractor shall develop a system to
                  ensure that new and current Member Services staff receive
                  basic and ongoing training and have expertise necessary to
                  provide accurate information to all Medicaid/NJ FamilyCare
                  enrollees regarding program benefits and contractor's
                  procedures.

         C.       Communication-Affecting Conditions. The contractor shall
                  ensure that Member Services staff have training and experience
                  needed to provide effective services to enrollees with special
                  needs, and are able to communicate effectively with enrollees
                  who have communication-affecting conditions, in accordance
                  with this Article.

         D.       Language Requirements. The Member Services staff shall include
                  individuals who speak English, Spanish and any other language
                  which is spoken as a primary language by a population that
                  exceeds five (5) percent of the contractor's Medicaid/NJ
                  FamilyCare enrollees or two hundred (200) enrollees in the
                  contractor's plan, whichever is greater.

         E.       Member Services Manual. The contractor shall maintain a
                  current Member Services Manual to serve as a resource of
                  information for Member Services staff. A copy shall be
                  provided to the Department during the readiness site visit. On
                  an annual basis, all changes to the Member Services Manual
                  shall be incorporated into the master used for making
                  additional distribution copies of the manual.

         F.       The contractor shall provide an after-hours call-in system to
                  triage urgent care and emergency calls from enrollees.

         G.       The contractor shall have written policies and procedures for
                  member services to refer enrollees to a health professional to
                  triage urgent care and emergencies during normal hours of
                  operation.

         H.       The Contractor shall submit any significant and material
                  changes to its member services policies and procedures to the
                  Department prior to being implemented.

5.8      ENROLLEE EDUCATION AND INFORMATION

5.8.1    GENERAL REQUIREMENTS

         A.       Written Material Submission to DMAHS. The contractor shall
                  submit the format and content of all written
                  materials/notifications and orientations described in this
                  contract to DMAHS for review and approval prior to enrollee
                  contact/distribution. All appropriate materials shall be
                  submitted by DMAHS to the State Medical Advisory Committee for
                  review.

         B.       The contractor shall prepare and distribute with prior
                  approval by DMAHS, bilingual marketing and informational
                  materials to Medicaid/NJ FamilyCare beneficiaries, enrollees
                  (or, where applicable, an authorized person), and

                                                                           V-11
<PAGE>
                  providers, and shall include basic information about its plan.
                  Information must be in language that ensures that all
                  beneficiaries can understand each process. Written information
                  shall be culturally and linguistically sensitive.

         C.       The contractor shall establish a mechanism and present to
                  DMAHS how its enrollees will be continually educated about its
                  policies and procedures; the role of participants in the
                  education process including contractor administration, member
                  and provider services, care managers, and network providers;
                  how the "educators" are made aware of their education role;
                  and how the contractor will assure the State this process will
                  be monitored to assure successful outcomes for all enrollees,
                  particularly enrollees with special needs and the homeless.

5.8.2    ENROLLEE NOTIFICATION/HANDBOOK

         Prior to the effective date of enrollment, the contractor shall provide
         each enrolled case or, where applicable, authorized person, with a
         bilingual (English/Spanish) member handbook and an Identification Card.
         The handbook shall be written at the fifth grade reading level or at an
         appropriate reading level for enrollees with special needs. The
         handbook shall also be available on request in other languages and
         alternative formats, e.g., large print, Braille, audio cassette, or
         diskette for enrollees with sensory impairments or in a modality that
         meets the needs of enrollees with special needs. The content and format
         of the handbook shall have the prior written approval of DMAHS and
         shall describe all services covered by the contractor, exclusions or
         limitations on coverage, the correct use of the contractor's plan, and
         other relevant information, including but not limited to the following:

         A.       Cover letter, explaining the member handbook, expected
                  effective date of enrollment, and when identification card
                  will be received (if not sent with the handbook);

                  1.       The enrollee's expected effective date of enrollment;
                           provided that, if the actual effective date of
                           enrollment is different from that given to the
                           enrollee or, where applicable, an authorized person,
                           at the time of enrollment, the contractor shall
                           notify the enrollee or, where applicable, an
                           authorized person of the change;

         B.       A clear description of benefits included in this contract with
                  exclusions, restrictions, and limitations. Clarification that
                  enrollees who are clients of the Division of Developmental
                  Disabilities will receive mental health/substance abuse
                  services through the contractor (may be addressed through a
                  separate insert to the basic handbook);

         C.       An explanation of the procedures for obtaining covered
                  services;

         D.       An explanation of the use of the contractor's toll free
                  telephone number (staffed for twenty-four (24) hours per
                  day/seven (7) days per week communication);

                                                                           V-12
<PAGE>
         E.       A listing of primary care practitioners (in the format
                  described in Article 4.8.4);

         F.       An identification card clearly indicating that the bearer is
                  an enrollee of the contractor's plan; and the name of the
                  primary care practitioner and telephone number on the card; a
                  description of the enrollee identification card to be issued
                  by the contractor; and an explanation as to its use in
                  assisting beneficiaries to obtain services;

         G.       An explanation that beneficiaries shall obtain all covered
                  non-emergency health care services through the contractor's
                  providers;

         H.       An explanation of the process for accessing emergency services
                  and services which require or do not require referrals;

         I.       A definition of the term "emergency medical condition" and an
                  explanation of the procedure for obtaining emergency services,
                  including the need to contact the PCP for urgent care
                  situations and prior to accessing such services in the
                  emergency room;

         J.       An explanation of the importance of contacting the PCP
                  immediately for an appointment and appointment procedures;

         K.       An explanation of where and how twenty-four (24) hour per day,
                  seven (7) day per week, emergency services are available,
                  including out-of-area coverage, and procedures for emergency
                  and urgent health care service;

         L.       A list of the Medicaid and/or NJ FamilyCare services not
                  covered by the contractor and an explanation of how to receive
                  services not covered by this contract including the fact that
                  such services may be obtained through the provider of their
                  choice according to regular Medicaid program regulations. The
                  contractor may also assist an enrollee or, where applicable,
                  an authorized person, in locating a referral provider;

         M.       A notification of the enrollee's right to obtain family
                  planning services from the contractor or from any appropriate
                  Medicaid participating family planning provider (42 C.F.R.
                  Sections 431.51(b)); as well as an explanation that
                  enrollees covered under NJ FamilyCare Plan D may only obtain
                  family planning services through the contractor's provider
                  network, and that family planning services outside the
                  contractor's provider network are not covered services.

         N.       A description of the process for referral to specialty and
                  ancillary care providers and second opinions;

                                                                           V-13
<PAGE>
         O.       An explanation of the reasons for which an enrollee may
                  request a change of PCP, the process of effectuating that
                  change, and the circumstances under which such a request may
                  be denied;

         P.       The reasons and process by which a provider may request an
                  enrollee to change to a different PCP;

         Q.       An explanation of an enrollee's rights to disenroll or
                  transfer at any time for cause; disenroll or transfer in the
                  first 90 days after the latter of the date the individual
                  enrolled or the date they receive notice of enrollment and at
                  least every twelve (12) months thereafter without cause and
                  that the lock-in period does not apply to ABD, DDD or DYFS
                  individuals;

         R.       Complaints and Grievances

                  1.       Procedures for resolving complaints, as approved by
                           the DMAHS;

                  2.       A description of the grievance procedures to be used
                           to resolve disputes between a contractor and an
                           enrollee, including: the name, title, or department,
                           address, and telephone number of the person(s)
                           responsible for assisting enrollees in grievance
                           resolutions; the time frames and circumstances for
                           expedited and standard grievances; the right to
                           appeal a grievance determination and the procedures
                           for filing such an appeal; the time frames and
                           circumstances for expedited and standard appeals; the
                           right to designate a representative; a notice that
                           all disputes involving clinical decisions will be
                           made by qualified clinical personnel; and that all
                           notices of determination will include information
                           about the basis of the decision and further appeal
                           rights, if any;

                  3.       The contractor shall notify all enrollees in their
                           primary language of their rights to file grievances
                           and appeal grievance decisions by the contractor;

         S.       An explanation that Medicaid/NJ FamilyCare Plan A enrollees
                  have the right to a Medicaid Fair Hearing with DMAHS and the
                  appeal process through the DHSS for Medicaid and NJ FamilyCare
                  enrollees, including instructions on the procedures involved
                  in making such a request;

         T.       Title, addresses, phone numbers and a brief description of the
                  contractor for contractor management/service personnel;

         U.       The interpretive, linguistic, and cultural services available
                  through the contractor's personnel;

         V.       An explanation of the terms of enrollment in the contractor's
                  plan, continued enrollment, disenrollment procedures, time
                  frames for each procedure, default procedures, enrollee's
                  rights and responsibilities and causes for which an enrollee

                                                                           V-14
<PAGE>
                  shall lose entitlement to receive services under this
                  contract, and what should be done if this occurs;

         W.       A statement strongly encouraging the enrollee to obtain a
                  baseline physical and dental examination, and to attend
                  scheduled orientation sessions and other educational and
                  outreach activities;

         X.       A description of the EPSDT program, and language encouraging
                  enrollees to make regular use of preventive medical and dental
                  services;

         Y.       Provision of information to enrollees or, where applicable, an
                  authorized person, to enable them to assist in the selection
                  of a PCP;

         Z.       Provision of assistance to clients who cannot identify a PCP
                  on their own;

         AA.      An explanation of how an enrollee may receive mental health
                  and substance abuse services;

         BB.      An explanation of how to access transportation services;

         CC.      An explanation of service access arrangements for home bound
                  enrollees;

         DD.      A statement encouraging early prenatal care and ongoing
                  continuity of care throughout the pregnancy;

         EE.      A notice that an enrollee may obtain a referral to a health
                  care provider outside of the contractor's network or panel
                  when the contractor does not have a health care provider with
                  appropriate training and experience in the network or panel to
                  meet the particular health care needs of the enrollee and
                  procedure by which the enrollee can obtain such referral;

         FF.      A notice that an enrollee with a condition which requires
                  ongoing care from a specialist may request a standing referral
                  to such a specialist and the procedure for requesting and
                  obtaining such a specialist referral;

         GG.      A notice that an enrollee with (i) a life-threatening
                  condition or disease or (ii) a degenerative and/or disabling
                  condition or disease, either of which requires specialized
                  medical care over a prolonged period of time may request a
                  specialist or specialty care center responsible for providing
                  or coordinating the enrollee's medical care and the procedure
                  for requesting and obtaining such a specialist or access to
                  the center;

         HH.      A notice of all appropriate mailing addresses and telephone
                  numbers to be utilized by enrollees seeking information or
                  authorization;

         II.      A notice of pharmacy Lock-In program and procedures;

                                                                           V-15
<PAGE>
         JJ.      An explanation of the time delay of thirty (30) to forty-five
                  (45) days between the date of initial application and the
                  effective date of enrollment; however, during this interim
                  period, prospective Medicaid enrollees will continue to
                  receive health care benefits under the regular fee-for-service
                  Medicaid program or the HMO with which the person is currently
                  enrolled. Enrollment is subject to verification of the
                  applicant's eligibility for the Medicaid program and New
                  Jersey Care 2000+ enrollment; and the time delay of thirty
                  (30) to forty-five (45) days between the date of request for
                  disenrollment and the effective date of disenrollment;

         KK.      An explanation of the appropriate uses of the Medicaid/NJ
                  FamilyCare identification card and the contractor
                  identification card;

         LL.      A notification, whenever applicable, that some primary care
                  physicians may employ other health care practitioners, such as
                  nurse practitioners or physician assistants, who may
                  participate in the patient's care;

         MM.      The enrollee's or, where applicable, an authorized person's
                  signed authorization on the enrollment application allows
                  release of medical records;

         NN.      Notification that the enrollee's health status survey
                  (obtained only by the HBC) will be sent to the contractor by
                  the Health Benefits Coordinator;

         OO.      A notice that enrollment and disenrollment is subject to
                  verification and approval by DMAHS;

         PP.      An explanation of procedures to follow if enrollees receive
                  bills from providers of services, in or out of network;

         QQ.      An explanation of the enrollee's financial responsibility for
                  payment when services are provided by a health care provider
                  who is not part of the contractor's organization or when a
                  procedure, treatment or service is not a covered health care
                  benefit by the contractor and/or by Medicaid;

         RR.      A written explanation at the time of enrollment of the
                  enrollee's right to terminate enrollment, and any other
                  restrictions on the exercise of those rights, to conform to 42
                  U.S.C. Section 1396b(m)(2)(F)(ii). The initial enrollment
                  information and the contractor's member handbook shall be
                  adequate to convey this notice and shall have DMAHS approval
                  prior to distribution;

         SS.      An explanation that the contractor will contact or facilitate
                  contact with, and require its PCPs to use their best efforts
                  to contact, each new enrollee or, where applicable, an
                  authorized person, to schedule an appointment for a complete,
                  age/sex specified baseline physical, and for enrollees with
                  special needs who have been identified through a Complex Needs
                  Assessment as having complex needs,

                                                                           V-16
<PAGE>
                  the development of an Individual Health Care Plan at a time
                  mutually agreeable to the contractor and the enrollee, but not
                  later than ninety (90) days after the effective date of
                  enrollment for children under twenty-one (21) years of age,
                  and not later than one hundred eighty (180) days after initial
                  enrollment for adults; for adult clients of DDD, no later than
                  ninety (90) days after the effective date of enrollment; and
                  encourage enrollees to contact the contractor and/or their PCP
                  to schedule an appointment;

         TT.      An explanation of the enrollee's rights and responsibilities
                  which should include, at a minimum, the following, as well as
                  the provisions found in Standard X in NJ modified QARI/QISMC
                  in Section B.4.14 of the Appendices.

                  1.       Provision for "Advance Directives," pursuant to 42
                           C.F.R. Part 489, Subpart I;

                  2.       Participation in decision-making regarding their
                           health care;

                  3.       Provision for the opportunity for enrollees or, where
                           applicable, an authorized person to offer suggestions
                           for changes in policies and procedures; and

                  4.       A policy on the treatment of minors.

         UU.      Notification that prior authorization for emergency services,
                  either in-network or out-of-network, is not required;

         VV.      Notification that the costs of emergency screening
                  examinations will be covered by the contractor when the
                  condition appeared to be an emergency medical condition to a
                  prudent layperson;

         WW.      For beneficiaries subject to cost-sharing (i.e., those
                  eligible through NJ FamilyCare Plan C and D; See Section B.5.2
                  of the Appendices), information that specifically explains:

                  1.       The limitation on cost-sharing;

                  2.       The dollar limit that applies to the family based on
                           the reported income;

                  3.       The need for the family to keep track of the
                           cost-sharing amounts paid; and

                  4.       Instructions on what to do if the cost-sharing
                           requirements are exceeded.

         XX.      An explanation on how to access WIC services;

                                                                           V-17
<PAGE>
         YY.      Any other information essential to the proper use of the
                  contractor's plan as may be required by the Division; and

         ZZ.      Inform enrollees of the availability of care management
                  services.

         AAA.     Enrollee right to adequate and timely information related to
                  physician incentives.

         BBB.     An explanation that Medicaid benefits received after age 55
                  may be reimbursable to the State of New Jersey from the
                  enrollee's estate. The recovery may include premium payments
                  made on behalf of the beneficiary to the managed care
                  organization in which the beneficiary enrolls.

5.8.3    ANNUAL INFORMATION TO ENROLLEES

         The contractor shall distribute an updated handbook which will include
         the information specified in Article 5.8.2 to each enrollee or
         enrollee's family unit and to all providers at least once every twelve
         (12) months.

5.8.4    NOTIFICATION OF CHANGES IN SERVICES

         The contractor shall revise and distribute the information specified in
         Article 5.8 at least thirty (30) calendar days prior to any changes
         that the contractor makes in services provided or in the locations at
         which services may be obtained, or other changes of a program nature or
         in administration, to each enrollee and all providers affected by that
         change.

5.8.5    ID CARD

         A.       Except as set forth in Section 5.9.1C. the contractor shall
                  deliver to each new enrollee prior to the effective enrollment
                  date but no later than seven (7) days after the enrollee's
                  effective date of enrollment a contractor Identification Card
                  for those enrollees who have selected a PCP. The
                  Identification Card shall have at least the following
                  information:

                  1.       Name of enrollee

                  2.       Issue Date for use in automated card replacement
                           process

                  3.       Primary Care Provider Name (may be affixed by
                           sticker)

                  4.       Primary Care Provider Phone Number (may be affixed by
                           sticker)

                  5.       What to do in case of an emergency and that no prior
                           authorization is required

                  6.       Relevant copayments/Personal Contributions to Care

                  7.       Contractor 800 number - emergency message

                  Any additional information shall be approved by DMAHS prior to
                  use on the ID card.

                                                                           V-18
<PAGE>
         B.       For children and individuals eligible solely through the NJ
                  FamilyCare Program, the identification card must clearly
                  indicate "NJ FamilyCare"; for children and individuals who are
                  participating in NJ FamilyCare Plans C and D the cost-sharing
                  amount shall be listed on the card. However, if the family
                  limit for cost-sharing has been reached, the identification
                  card shall indicate a zero cost-sharing amount. The State will
                  notify the contractor when such limits have been reached.

5.8.6    ORIENTATION AND WELCOME LETTER

         A.       Welcome Letter. The contractor shall mail a welcome letter to
                  each new enrollee or authorized person prior to the enrollee's
                  effective date of coverage. The welcome letter shall explain
                  the member handbook, the enrollee's expected effective date of
                  enrollment, and when the enrollee's identification card will
                  be received.

         B.       Individual or Group Orientation. The contractor shall offer
                  barrier free individual or group orientation, by telephone or
                  in person, to enrollees, family members, or, where applicable,
                  authorized persons who are able to be contacted regarding the
                  delivery system. Orientation shall normally occur within
                  thirty (30) days of the date of enrollment, except that the
                  contractor shall attempt to provide orientation within ten
                  (10) days to each enrollee who has been identified as having
                  special needs. The contractor shall provide orientation
                  education that includes at least the following:

                  1.       Specific information listed within the member
                           handbook.

                  2.       The circumstances under which a team of professionals
                           (e.g., care management) is convened, the role of the
                           team, and the manner in which it functions.

         C.       Prior to conducting the first orientation, the contractor
                  shall submit for the readiness on-site review a curriculum
                  that meets the requirements of this provision to DMAHS for
                  approval.

5.9      PCP SELECTION AND ASSIGNMENT

         The contractor shall place a high emphasis on ensuring that enrollees
         are informed and have access to enroll with traditional and safety net
         providers. The contractor shall place a high priority on enrolling
         enrollees with their existing PCP. If an enrollee does not select a
         PCP, the enrollee shall be assigned to his/her PCP of record (based
         upon prior history information) if that PCP is still a participating
         provider with the contractor. All contract materials shall provide
         equal information about enrollment with traditional and safety net
         providers as that provided about contractor operated offices. All
         materials, documents, and phone scripts shall be reviewed and approved
         by the Department before use.

                                                                           V-19
<PAGE>
5.9.1    INITIAL SELECTION/ASSIGNMENT

         A.       General. Each enrollee in the contractor's plan shall be given
                  the option of choosing a specific PCP in accordance with
                  Articles 4.5 and 4.8 within the contractor's provider network
                  who will be responsible for the provision of primary care
                  services and the coordination of all other health care needs
                  through the mechanisms listed in this Article.

                  The HBC will provide the contractor with information, when
                  available, of existing PCP relationships via the Plan
                  Selection Form. The contractor shall, at the enrollee's
                  option, maintain the PCP-patient relationship.

         B.       PCP Selection. The contractor shall provide enrollees with
                  information to facilitate the choice of an appropriate PCP.
                  This information shall include, where known, the name of the
                  enrollee's provider of record, and a listing of all
                  participating providers in the contractor's network. (See
                  Article 4.8.4 for a description of the required listing.)

         C.       PCP Assignment. If the contractor has not received an
                  enrollee's PCP selection within ten (10) calendar days from
                  the enrollee's effective date of coverage or the selected
                  PCP's panel is closed, the contractor shall assign a PCP and
                  deliver an ID card by the fifteenth (15th) calendar day after
                  the effective date of enrollment. The assignment shall be made
                  according to the following criteria, in hierarchical order:

                  1.       The enrollee shall be assigned to his/her current
                           provider, if known, as long as that provider is a
                           part of the contractor's provider network.

                  2.       The enrollee shall be assigned to a PCP whose office
                           is within the travel time/distance standards, as
                           defined in Article 4.8.8. If the language and/or
                           cultural needs of the enrollee are known to the
                           contractor, the enrollee shall be assigned to a PCP
                           who is or has office staff who are linguistically and
                           culturally competent to communicate with the enrollee
                           or have the ability to interpret in the provision of
                           health care services and related activities during
                           the enrollee's office visits or contacts.

5.9.2    PCP CHANGES

         A.       Enrollee Request. Any enrollee or, where applicable,
                  authorized person dissatisfied with the PCP selected or
                  assigned shall be allowed to reselect or be assigned to
                  another PCP. Such reassignment shall become effective no later
                  than the beginning of the first month following a full month
                  after the request to change the enrollee's PCP. Except for
                  DYFS enrollees, this reselection or reassignment for any cause
                  may be limited, at the contractor's discretion, to two (2)
                  times per year. However, in the event there is reasonable
                  cause following policies and

                                                                           V-20
<PAGE>
                  procedures as determined by the contractor and approved by the
                  Department, the enrollee or, where applicable, authorized
                  person may reselect or be reassigned at any time, regardless
                  of the number of times the enrollee has previously changed
                  PCPs.

                  In the event an enrollee becomes non-eligible and then
                  re-eligible within six (6) months in the same region, said
                  enrollee shall, if at all possible, be assigned to the same
                  PCP. In such a circumstance, the contractor may count previous
                  PCP changes toward the annual two-change limit.

         B.       PCP Request. The contractor shall develop policies and
                  procedures, which shall be prior approved by the Department,
                  for allowing a PCP to request reassignment of an enrollee,
                  e.g., for irreconcilable differences, for when an enrollee has
                  taken legal action against the provider, or if an enrollee
                  fails to comply with health care instructions and such
                  non-compliance prevents the provider from safely and/or
                  ethically proceeding with that enrollee's health care
                  services. The contractor shall approve any reassignments and
                  require documentation of the reasons for the request for
                  reassignment. For example, if a PCP requests reassignment of
                  an enrollee for failure to comply with health care
                  instructions, the contractor shall take into consideration
                  whether the enrollee has a physical or developmental
                  disability that may contribute to the noncompliance, and
                  whether the provider has made reasonable efforts to
                  accommodate the enrollee's needs. In the case of DYFS-eligible
                  children, copies of such requests shall be sent to the
                  Division of Youth and Family Services, c/o Medicaid Liaison,
                  PO Box 717, Trenton, NJ 08625-0717.

         C.       PCP Change Form. If a change form is used, by the contractor,
                  the contractor shall immediately provide the PCP Change Form
                  to an enrollee wishing a change, if such request is made in
                  person, or by mail if requested by telephone or in writing.
                  The contractor shall mail the form within three (3) business
                  days of receiving a telephone or written request for a form.

         D.       Processing of PCP Change Forms. If a change form is used by
                  the contractor, enrollees shall submit the PCP change form to
                  the contractor for processing. The contractor shall process
                  the form and return the enrollee identification card or
                  self-adhering sticker to the enrollee within ten (10) calendar
                  days of the postmark date on the mailing envelope or, if not
                  received by mail, the date received by the contractor.

         E.       Verbal Requests for PCP Change. The contractor may accept
                  verbal requests from enrollees or authorized persons to change
                  PCPs. However, the contractor shall document the verbal
                  request including at a minimum name of caller, date of call,
                  and selected PCP. The contractor shall process the request and
                  return the enrollee identification card or self-adhering
                  sticker to the enrollee within ten (10) calendar days of the
                  request for PCP change.

                                                                           V-21
<PAGE>
5.10     DISENROLLMENT FROM CONTRACTOR'S PLAN

5.10.1   GENERAL PROVISIONS

         A.       Non-discrimination. Disenrollment from contractor's plan shall
                  not be based in whole or in part on an adverse change in the
                  enrollee's health, on any of the factors listed in Article
                  7.8, or on amounts payable to the contractor related to the
                  enrollee's participation in the contractor's plan.

         B.       Coverage. The contractor shall not be responsible for the
                  provision and cost of care and services for an enrollee after
                  the effective date of disenrollment unless the enrollee is
                  admitted to a hospital prior to the expected effective date of
                  disenrollment, in which case the contractor is responsible for
                  the provision and cost of care and services covered under this
                  contract until the date on which the enrollee is discharged
                  from the hospital, including any charge for the enrollee
                  readmitted within forty-eight (48) hours of discharge for the
                  same diagnosis.

         C.       Notification of Disenrollment Rights. The contractor shall
                  notify through personalized, written notification the enrollee
                  or, where applicable, authorized person of the enrollee's
                  disenrollment rights at least sixty (60) days prior to the end
                  of his/her twelve (12)-month enrollment period. The contractor
                  shall notify the enrollee of the effective disenrollment date

         D.       Release of Medical Records. The contractor shall transfer or
                  facilitate the transfer of the medical record (or copies of
                  the medical record), upon the enrollee's or, where applicable,
                  an authorized person's request, to either the enrollee, to the
                  receiving provider, or, in the case of a child eligible
                  through the Division of Youth and Family Services, to a
                  representative of the Division of Youth and Family Services or
                  to an adoptive parent receiving subsidy through DYFS, at no
                  charge, in a timely fashion, i.e., no later than ten days
                  prior to the effective date of transfer. The contractor shall
                  release medical records of the enrollee, and/or facilitate the
                  release of medical records in the possession of participating
                  providers as may be directed by DMAHS authorized personnel and
                  other appropriate agencies of the State of New Jersey, or the
                  federal government. Release of medical records shall be
                  consistent with the provisions of confidentiality as expressed
                  in Article 7.40 of this contract and the provisions of 42
                  C.F.R. Section 431.300. For individuals being served through
                  the Division of Youth and Family Services, release of medical
                  records must be in accordance with the provisions under
                  N.J.S.A. 9:6-8.10a and 9:6-8.40 and consistent with the need
                  to protect the individual's confidentiality.

         E.       In the event the contract, or any portion thereof, is
                  terminated, or expires, the contractor shall assist DMAHS in
                  the transition of enrollees to other contractors. Such
                  assistance and coordination shall include, but not be limited
                  to, the forwarding of medical and other records and the
                  facilitation and scheduling of medically necessary
                  appointments for care and services. The cost of reproducing

                                                                           V-22
<PAGE>
                  and forwarding medical charts and other materials shall be
                  borne by the contractor. The contractor shall be responsible
                  for providing all reports set forth in this contract. The
                  contractor shall make provision for continuing all management
                  and administrative services until the transition of enrollees
                  is completed and all other requirements of this contract are
                  satisfied. The contractor shall be responsible for the
                  following:

                  1.       Identification and transition of chronically ill,
                           high risk and hospitalized enrollees, and enrollees
                           in their last four weeks of pregnancy.

                  2.       Transfer of requested medical records.

5.10.2   DISENROLLMENT FROM THE CONTRACTOR'S PLAN AT THE ENROLLEE'S REQUEST

         A.       An individual enrolled in a contractor's plan may be subject
                  to the enrollment Lock-In period provided for in this Article.
                  The enrollment Lock-In provision does not apply to SSI and New
                  Jersey Care ABD individuals, clients of DDD or to individuals
                  eligible to participate through the Division of Youth and
                  Family Services.

                  1.       An enrollee subject to the enrollment Lock-In period
                           may initiate disenrollment or transfer for any reason
                           during the first ninety (90) days after the latter of
                           the date the individual is enrolled or the date they
                           receive notice of enrollment with a new contractor
                           and at least every twelve (12) months thereafter
                           without cause. NJ FamilyCare Plans B, C, or D
                           enrollees will be subject to a twelve (12)-month
                           Lock-In period.

                           a.       The period during which an individual has
                                    the right to disenroll from the contractor's
                                    plan without cause applies to an
                                    individual's initial period of enrollment
                                    with the contractor. If that individual
                                    chooses to re-enroll with the contractor,
                                    his/her initial date of enrollment with the
                                    contractor will apply.

                  2.       An enrollee subject to the Lock-In period may
                           initiate disenrollment for good cause at any time.

                           a.       Good cause reasons for disenrollment or
                                    transfer shall include, unless otherwise
                                    defined by DMAHS:

                                    i.      Failure of the contractor to provide
                                            services including physical access
                                            to the enrollee in accordance with
                                            the terms of this contract;

                                    ii.     Enrollee has filed a grievance with
                                            the contractor pursuant to the
                                            applicable grievance procedure and
                                            has not received

                                                                           V-23
<PAGE>
                                            a response within the specified time
                                            period stated therein,or in a
                                            shorter time period required by
                                            federal law;

                                    iii.    Documented grievance, by the
                                            enrollee against the contractor's
                                            plan without satisfaction.

                                    iv.     Enrollee is subject to enrollment
                                            exemption as set forth in Article
                                            5.3.2. If an exemption situation
                                            exists within the contractor's plan
                                            but another contractor can
                                            accommodate the individual's needs,
                                            a transfer may be granted.

                                    v.      Enrollee has substantially more
                                            convenient access to a primary care
                                            physician who participates in
                                            another MCE in the same enrollment
                                            area.

         B.       Voluntary Disenrollment. The contractor shall assure that
                  enrollees who disenroll voluntarily are provided with an
                  opportunity to identify, in writing, their reasons for
                  disenrollment. The contractor shall further:

                  1.       Require the return, or invalidate the use of the
                           contractor's identification card; and

                  2.       Forward a copy of the disenrollment request or refer
                           the beneficiary to DMAHS/HBC by the eighth (8th) day
                           of the month prior to the month in which
                           disenrollment is to become effective.

         C.       HBC Role. All enrollee requests to disenroll must be made
                  through the Health Benefits Coordinator. The contractor may
                  not induce, discuss or accept disenrollments. Any enrollee
                  seeking to disenroll should be directed to contact the HBC.
                  This applies to both mandatory and voluntary enrollees.
                  Disenrollment shall be completed by the HBC at facilities and
                  in a manner so designated by DMAHS.

         D.       Effective Date. The effective date of disenrollment or
                  transfer shall be no later than the first day of the month
                  immediately following the full calendar month the
                  disenrollment is initiated by DMAHS. Notwithstanding anything
                  herein to the contrary, the remittance tape, along with any
                  changes reflected in the weekly register or agreed upon by
                  DMAHS and the contractor in writing, shall serve as official
                  notice to the contractor of disenrollment of an enrollee.

5.10.3   DISENROLLMENT FROM THE CONTRACTOR'S PLAN AT THE CONTRACTOR'S REQUEST

         A.       Criteria for Contractor Disenrollment Request. The contractor
                  may recommend, with written documentation to DMAHS, the
                  disenrollment of an enrollee. In no

                                                                           V-24
<PAGE>
                  event may an enrollee be disenrolled due to health status or
                  need for health services. Enrollees may be disenrolled in any
                  of the following circumstances:

                  1.       The contractor determines that the willful actions of
                           the enrollee are inconsistent with membership in the
                           contractor's plan, and the contractor has made and
                           provides DMAHS with documentation of at least three
                           attempts to reconcile the situation. Examples of
                           inconsistent actions include but are not limited to:
                           persistent refusal to cooperate with any
                           participating provider regarding procedures for
                           consultations or obtaining appointments (this does
                           not preclude an enrollee's right to refuse
                           treatment), intentional misconduct, willful refusal
                           to receive prior approval for non-emergency care;
                           willful refusal to comply with reasonable
                           administrative policies of the contractor, fraud, or
                           making a material misrepresentation to the
                           contractor. In no way can this provision be applied
                           to individuals on the basis of their physical
                           condition, utilization of services, age,
                           socio-economic status or mental disability.

                  2.       The contractor becomes aware that the enrollee falls
                           into an aid category that is not set forth in Article
                           5.2 of this contract, has become ineligible for
                           enrollment pursuant to Article 5.3.1 of this
                           contract, or has moved to a residence outside of the
                           enrollment area covered by this contract.

         B.       Reasonable Efforts Prior to Disenrollment. Prior to
                  recommending disenrollment of an enrollee, the contractor
                  shall make a reasonable effort to identify for the enrollee
                  or, where applicable, an authorized person those actions that
                  have interfered with effective provision of covered medical
                  care and services, and to explain what actions or procedures
                  are acceptable. The contractor must allow the enrollee or,
                  where applicable, an authorized person sufficient opportunity
                  to comply with acceptable procedures prior to recommending
                  disenrollment. The contractor shall provide at least one
                  verbal and at least one written warning to the enrollee
                  regarding the implications of his/her actions.

                  If the enrollee, or, where applicable, an authorized person
                  fails to comply with acceptable procedures, the contractor
                  shall give at least thirty (30) days prior written notice to
                  the enrollee, or, where applicable, an authorized person, of
                  its intent to recommend disenrollment. The notice shall
                  include a written explanation of the reason the contractor
                  intends to request disenrollment, and advise the enrollee or,
                  where applicable, an authorized person of his/her right to
                  file a disenrollment grievance. The contractor shall give
                  DMAHS a copy of the notice and advise DMAHS immediately if the
                  enrollee or, where applicable, an authorized person files a
                  disenrollment grievance.

         C.       Disenrollment Appeals. The contractor shall notify DMAHS of
                  decisions related to all appeals filed by an enrollee or,
                  where applicable, an authorized person as a result of the
                  contractor's notice to an enrollee of its intent to recommend
                  disenrollment. If the enrollee has not filed an appeal or if
                  the contractor

                                                                           V-25
<PAGE>
                  determines that the appeal is unfounded, the contractor may
                  submit to the Office of Managed Health Care of DMAHS a
                  recommendation for disenrollment of the enrollee. The
                  contractor shall notify the enrollee in writing of such
                  request at the time it is filed with DMAHS.

                  DMAHS will decide within ten (10) business days after receipt
                  of the contractor's recommendation whether to disenroll the
                  enrollee and will provide a written determination and
                  notification of the right to a Fair Hearing to the enrollee
                  or, where applicable, an authorized person and the contractor.

         D.       The DMAHS shall review each involuntary disenrollment and may
                  require an in-depth review by State staff, including but not
                  limited to patient and provider interviews, medical record
                  review, and home assessment to determine with the enrollee
                  what plan of action would serve the best interests of the
                  enrollee (and family as applicable.)

5.10.4   TERMINATION

         A.       Enrollees shall be terminated from the contractor's plan
                  whenever:

                  1.       The contract between the contractor and DMAHS is
                           terminated for any reason;

                  2.       The enrollee loses Medicaid/NJ FamilyCare
                           eligibility;

                  3.       Nonpayment of premium for individuals eligible
                           through the NJ FamilyCare Program occurs;

                  4.       DMAHS is notified that the enrollee has moved outside
                           of the enrollment area that the contractor does not
                           service;

                  5.       The enrollee requires more than thirty (30) days of
                           service from a post-acute facility, in which case the
                           contractor shall provide health care services to the
                           enrollee through the last day of the month following
                           the enrollee's admission to the facility.

         B.       For enrollees covered by the contractor's plan who are
                  eligible through the Division of Youth and Family Services and
                  who move to a residence outside of the enrollment area covered
                  by this contract:

                  1.       The DYFS representative will immediately contact the
                           HBC.

                  2.       The HBC will process the enrollee's disenrollment and
                           transfer the enrollee to a new contractor; or
                           disenroll the enrollee to the fee-for-service
                           coverage under DMAHS.

                                                                           V-26
<PAGE>
                  3.       The contractor shall continue to provide services to
                           the enrollee until the enrollee is disenrolled from
                           the contractor's plan.

         C.       Loss of Medicaid or NJ FamilyCare Eligibility. When an
                  enrollee's coverage is terminated due to a loss of Medicaid or
                  NJ FamilyCare eligibility, the contractor shall offer to the
                  enrollee the opportunity to convert the enrollee's membership
                  to a non-group, non-Medicaid enrollment, consistent with
                  conversion privileges offered to other groups enrolled in the
                  contractor.

         D.       In no event shall an enrollee be disenrolled due to health
                  status, need for health services, or pre-existing medical
                  conditions.

5.11     TELEPHONE ACCESS

         A.       Twenty-Four Hour Coverage. The contractor shall maintain a
                  twenty-four (24) hours per day, seven (7) days per week
                  toll-free telephone answering system that will respond in
                  person (not voice mail) and will include Telecommunication
                  Device for the Deaf (TDD) or Tech Telephone (TT) systems.
                  Telephone staff shall be adequately trained and staffed and
                  able to promptly advise enrollees of procedures for emergency
                  and urgent care. The telephone answering system must be
                  available at no cost to the enrollees for local and
                  long-distance calls from within or out-of-state.

         B.       The contractor shall maintain toll-free telephone access to
                  the contractor for the enrollees at a minimum from 8:00 a.m.
                  to 5:00 p.m. on Monday through Friday, for calls concerning
                  administrative or routine care services.

         C.       After Hours Response. The contractor shall have standards for
                  PCP and on-call medical/dental professional response to after
                  hours phone calls from enrollees or other medical/dental
                  professionals providing services to an enrollee (including,
                  but not limited to emergency department staff). The telephone
                  response time shall not exceed two (2) hours, except for
                  emergencies which require immediate response from the PCP.

         D.       Protocols.

                  1.       Contractor. The contractor shall develop and use
                           telephone protocols for all of the following
                           situations:

                           a.       Answering the volume of enrollee telephone
                                    inquiries on a timely basis.

                                    i.      Enrollees shall wait no more than
                                            five (5) minutes on hold.

                           b.       Identifying special enrollee needs e.g.,
                                    wheelchair and interpretive linguistic
                                    needs. (See also Article 4.5.)

                                                                           V-27
<PAGE>
                           c.       Triage for medical and dental conditions and
                                    special behavioral needs for non-compliant
                                    individuals who are mentally deficient.

                           d.       Response time for telephone call-back
                                    waiting times: after hours telephone care
                                    for non-emergent, symptomatic issues -
                                    within thirty (30) to forty-five (45)
                                    minutes; same day for non-symptomatic
                                    concerns; fifteen (15) minutes for crisis
                                    situations.

                  2.       Providers. The contractor shall monitor and require
                           its providers to develop and use telephone protocols
                           for all of the following situations:

                           a.       Answering the enrollee telephone inquiries
                                    on a timely basis.

                           b.       Prioritizing appointments.

                           c.       Scheduling a series of appointments and
                                    follow-up appointments as needed by an
                                    enrollee.

                           d.       Identifying and rescheduling broken and
                                    no-show appointments.

                           e.       Identifying special enrollee needs while
                                    scheduling an appointment, e.g., wheelchair
                                    and interpretive linguistic needs. (See also
                                    Article 4.5.)

                           f.       Triage for medical and dental conditions and
                                    special behavioral needs for non-compliant
                                    individuals who are mentally deficient.

                           g.       Response time for telephone call-back
                                    waiting times: after hours telephone care
                                    for non-emergent, symptomatic issues -
                                    within thirty (30) to forty-five (45)
                                    minutes; same day for non-symptomatic
                                    concerns; fifteen (15) minutes for crisis
                                    situations.

                           h.       Scheduling continuous availability and
                                    accessibility of professional, allied, and
                                    supportive medical/dental personnel to
                                    provide covered services within normal
                                    working hours. Protocols shall be in place
                                    to provide coverage in the event of a
                                    provider's absence.

         E.       The contractor shall maintain a P-Factor of P7 or less for
                  calls to Member Services and shall submit the P-Factor report
                  in Section A.5.1 of the Appendices.

5.12     APPOINTMENT AVAILABILITY

         The contractor shall have policies and procedures to ensure the
         availability of medical, mental health/substance abuse (for DDD
         clients) and dental care appointments in accordance with the following
         standards:

                                                                           V-28
<PAGE>
         A.       Emergency Services. Immediately upon presentation at a service
                  delivery site.

         B.       Urgent Care. Within twenty-four (24) hours. An urgent,
                  symptomatic visit is an encounter with a health care provider
                  associated with the presentation of medical signs that require
                  immediate attention, but are not life-threatening.

         C.       Symptomatic Acute Care. Within seventy-two (72) hours. A
                  non-urgent, symptomatic office visit is an encounter with a
                  health care provider associated with the presentation of
                  medical signs, but not requiring immediate attention.

         D.       Routine Care. Within twenty-eight (28) days. Non-symptomatic
                  office visits shall include but shall not be limited to:
                  well/preventive care appointments such as annual gynecological
                  examinations or pediatric and adult immunization visits.

         E.       Specialist Referrals. Within four (4) weeks or shorter as
                  medically indicated. A specialty referral visit is an
                  encounter with a medical specialist that is required by the
                  enrollee's medical condition as determined by the enrollee's
                  Primary Care Provider (PCP). Emergency appointments must be
                  provided within 24 hours of referral.

         F.       Urgent Specialty Care. Within twenty-four (24) hours of
                  referral.

         G.       Baseline Physicals for New Adult Enrollees. Within one
                  hundred-eighty (180) calendar days of initial enrollment.

         H.       Baseline Physicals for New Children Enrollees and Adult
                  Clients of DDD. Within ninety (90) days of initial enrollment,
                  or in accordance with EPSDT guidelines.

         I.       Prenatal Care. Enrollees shall be seen within the following
                  timeframes:

                  1.       Three (3) weeks of a positive pregnancy test (home or
                           laboratory)

                  2.       Three (3) days of identification of high-risk

                  3.       Seven (7) days of request in first and second
                           trimester

                  4.       Three (3) days of first request in third trimester

         J.       Routine Physicals. Within four (4) weeks for routine physicals
                  needed for school, camp, work or similar.

         K.       Lab and Radiology Services. Three (3) weeks for routine
                  appointments; fortyeight (48) hours for urgent care.

                                                                           V-29
<PAGE>
         L.       Waiting Time in Office. Less than forty-five (45) minutes.

         M.       Initial Pediatric Appointments. Within three (3) months of
                  enrollment. The contractor shall attempt to contact and
                  coordinate initial appointments for all pediatric enrollees.

         N.       For dental appointments, the contractor shall be able to
                  provide:

                  1.       Emergency dental treatment no later than forty-eight
                           (48) hours, or earlier as the condition warrants, of
                           injury to sound natural teeth and surrounding tissue
                           and follow-up treatment by a dental provider.

                  2.       Urgent care appointments within three days of
                           referral.

                  3.       Routine non-symptomatic appointments within thirty
                           (30) days of referral.

         O.       For MH/SA appointments, the contractor shall provide:

                  1.       Emergency services immediately upon presentation at a
                           service delivery site.

                  2.       Urgent care appointments within twenty-four (24)
                           hours of the request.

                  3.       Routine care appointments within ten (10) days of the
                           request.

         P.       Maximum Number of Intermediate/Limited Patient Encounters.
                  Four (4) per hour for adults and four (4) per hour for
                  children.

         Q.       For SSI and New Jersey Care - ABD elderly and disabled
                  enrollees, the contractor shall ensure that each new enrollee
                  or, as appropriate, authorized person is contacted to offer an
                  Initial Visit to the enrollee's selected PCP. Each new
                  enrollee shall be contacted within forty-five (45) days of
                  enrollment and offered an appointment date according to the
                  needs of the enrollee, except that each enrollee who has been
                  identified through the enrollment process as having special
                  needs shall be contacted within ten (10) business days of
                  enrollment and offered an expedited appointment.

5.13     APPOINTMENT MONITORING PROCEDURES

         A.       Contractor shall monitor the adequacy of its appointment
                  processes and reduce the unnecessary use of alternative
                  methods such as emergency room visits. Contractor shall
                  monitor and institute policies that an enrollee's waiting time
                  at the PCP or specialist office is no more than forty-five
                  (45) minutes, except when the provider is unavailable due to
                  an emergency. Contractor shall have written policies and
                  procedures, about which it educates its provider network,
                  about appointment time requirements. Contractor shall have
                  established written

                                                                           V-30
<PAGE>
                  procedures for disseminating its appointment standards to the
                  network, shall monitor compliance with appointment standards,
                  and shall have a corrective action plan when appointment
                  standards are not met.

         B.       The contractor shall have established policies and procedures
                  for monitoring and evaluating appointment scheduling for all
                  PCPs which shall include, but is not limited to, the
                  following:

                  1.       A methodology for monitoring:

                           a.       Enrollee waiting time for receipt of both
                                    urgent and routine appointments

                           b.       Availability of appointments

                           c.       Providers with whom enrollees regularly
                                    experience long waiting times

                           d.       Broken and no-show appointments

                  2.       A description of the policies and procedures for
                           addressing appointment problems that may occur and
                           the plan for corrective action if any of the
                           above-referenced items are not met.

5.14     CULTURAL AND LINGUISTIC NEEDS

         The contractor shall participate in the Department's Cultural and
         Linguistic Competency Task Force, and cooperate in a study to review
         the provision of culturally competent services.

         The contractor shall address the relationship between culture,
         language, and health care outcomes through, at a minimum, the following
         Cultural and Linguistic Service requirements.

         A.       Physical and Communication Access. The contractor shall
                  provide documentation regarding the availability of and access
                  procedures for services which ensure physical and
                  communication access to: providers and any contractor related
                  services (e.g. office visits, health fairs); customer service
                  or physician office telephone assistance; and, interpreter,
                  TDD/TT services for individuals who require them in order to
                  communicate. Document availability of interpreter, TDD/TT
                  services.

         B.       Twenty-four (24)-Hour Interpreter Access. The contractor shall
                  provide Twentyfour (24)-hour access to interpreter services
                  for all enrollees including the deaf or hard of hearing at
                  provider sites within the contractor's network, either through
                  telephone language services or in-person interpreters to
                  ensure that enrollees are

                                                                           V-31
<PAGE>
                  able to communicate with the contractor and providers and
                  receive covered benefits. The contractor shall identify and
                  report the linguistic capability of interpreters or bilingual
                  employed and contracted staff (clinical and non-clinical). The
                  contractor shall provide professional interpreters when needed
                  where technical, medical, or treatment information is to be
                  discussed, or where use of a family member or friend as
                  interpreter is inappropriate. Family members, especially
                  children, should not be used as interpreters in assessments,
                  therapy and other situations where impartiality is critical.
                  The contractor shall provide for training of its health care
                  providers on the utilization of interpreters.

         C.       Interpreter Listing. Throughout the term of this contract, the
                  contractor shall maintain a current list of interpreter
                  agencies/interpreters who are "on call" to provide interpreter
                  services.

         D.       Language Threshold. In addition to interpreter services, the
                  contractor will provide other linguistic services to a
                  population of enrollees if they exceed five (5) percent of
                  those enrolled in the contractor's Medicaid/NJ FamilyCare line
                  of business or two hundred (200) enrollees in the contractor's
                  plan, whichever is greater.

         E.       The contractor shall provide the following services to the
                  enrollee groups identified in D above.

                  1.       Key Points of Contact

                           a.       Medical/Dental: Advice and urgent care
                                    telephone, face to face encounters with
                                    providers

                           b.       Non-medical: Enrollee assistance,
                                    orientations, and appointments

                  2.       Types of Services

                           a.       Translated signage

                           b.       Translated written materials

                           c.       Referrals to culturally and linguistically
                                    appropriate community services programs

         F.       Community Advisory Committee. Contractor shall implement and
                  maintain community linkages through the formation of a
                  Community Advisory Committee (CAC) with demonstrated
                  participation of consumers (with representatives of each
                  Medicaid/NJ FamilyCare eligibility category- See Article 5.2),
                  community advocates, and traditional and safety net providers.
                  The contractor shall ensure that the committee
                  responsibilities include advisement on educational and

                                                                           V-32
<PAGE>
                  operational issues affecting groups who speak a primary
                  language other than English and cultural competency.

         G.       Group Needs Assessment. Contractor shall assess the linguistic
                  and cultural needs of its enrollees who speak a primary
                  language other than English. The findings of the assessment
                  shall be submitted to DMAHS in the form of a plan entitled,
                  "Cultural and Linguistic Services Plan" at the end of year one
                  of the contract. In the plan, the contractor will summarize
                  the methodology, findings, and outline the proposed services
                  to be implemented, the timeline for implementation with
                  milestones, and the responsible individual. The contractor
                  shall ensure implementation of the plan within six months
                  after the beginning of year two of the contract. The
                  contractor shall also identify the individual with overall
                  responsibility for the activities to be conducted under the
                  plan. The DMAHS approval of the plan is required prior to its
                  implementation.

         H.       Policies and Procedures. The contractor shall address the
                  special health care needs of all enrollees. The contractor
                  shall incorporate in its policies and procedures the values of
                  (1) honoring enrollees' beliefs, (2) being sensitive to
                  cultural diversity, and (3) fostering respect for enrollees'
                  cultural backgrounds. The contractor shall have specific
                  policy statements on these topics and communicate them to
                  providers and subcontractors.

         I.       Mainstreaming. The contractor shall be responsible for
                  ensuring that its network providers do not intentionally
                  segregate DMAHS enrollees from other persons receiving
                  services. Examples of prohibited practices, based on race,
                  color, creed, religion, sex, age, national origin, ancestry,
                  marital status, sexual preference, income status, program
                  membership or physical or mental disability, include, but may
                  not be limited to, the following:

                  1.       Denying or not providing to an enrollee any covered
                           service or access to a facility.

                  2.       Providing to an enrollee a similar covered service in
                           a different manner or at a different time from that
                           provided to other enrollees, other public or private
                           patients or the public at large.

                  3.       Subjecting an enrollee to segregation or separate
                           treatment in any manner related to the receipt of any
                           covered service.

                  4.       Assigning times or places for the provision of
                           services.

                  5.       Closing a provider panel to DMAHS beneficiaries but
                           not to other patients.

                                                                           V-33
<PAGE>
         J.       Resolution of Cultural Issues. The contractor shall
                  investigate and resolve access and cultural sensitivity issues
                  identified by contractor staff, State staff, providers,
                  advocate organizations, and enrollees.

5.15     ENROLLEE COMPLAINTS AND GRIEVANCES

5.15.1   GENERAL REQUIREMENTS

         A.       DMAHS Approval. The contractor shall draft and disseminate a
                  system and procedure which has the prior written approval of
                  DMAHS for the receipt and adjudication of complaints and
                  grievances by enrollees. The grievance policies and procedures
                  shall be in accordance with N.J.A.C. 8:38 et seq. and with the
                  modifications that are incorporated in the contract. The
                  contractor shall not modify the grievance procedure without
                  the prior approval of DMAHS, and shall provide DMAHS with a
                  copy of the modification. The contractor's grievance
                  procedures shall provide for expeditious resolution of
                  grievances by contractor personnel at a decision-making level
                  with authority to require corrective action, and will have
                  separate tracks for administrative and utilization management
                  grievances. (For the utilization management
                  complaints/grievance process, see Article 4.6.4C.)

                  The contractor shall review the grievance procedure at
                  reasonable intervals, but no less than annually, for the
                  purpose of amending same as needed, with the prior written
                  approval of the DMAHS, in order to improve said system and
                  procedure.

                  The contractor's system and procedure shall be available to
                  both Medicaid beneficiaries and NJ FamilyCare beneficiaries.
                  All enrollees have available the complaint and grievance
                  process under the contractor's plan, the Department of Health
                  and Senior Services and, for Medicaid beneficiaries, the
                  Medicaid Fair Hearing process. Individuals eligible solely
                  through NJ FamilyCare Plans B, C, and D do not have the right
                  to a Medicaid Fair Hearing.

         B.       Complaints. The contractor shall have procedures for
                  receiving, responding to, and documenting resolution of
                  enrollee complaints that are received orally and are of a less
                  serious or formal nature. Complaints that are resolved to the
                  enrollee's satisfaction on the day of receipt do not require a
                  formal written response or notification. The contractor shall
                  call back an enrollee within twenty-four hours of the initial
                  contact if the contractor is unavailable for any reason or the
                  matter cannot be readily resolved during the initial contact.
                  Any complaint that is not resolved timely shall be treated as
                  a grievance, in accordance with requirements defined in
                  Article 5.15.3.

         C.       HBC Coordination. The contractor shall coordinate its efforts
                  with the health benefits coordinator including referring the
                  enrollee to the HBC for assistance as needed in the management
                  of the complaint/grievance procedures.

                                                                           V-34
<PAGE>
         D.       DMAHS Intervention. DMAHS shall have the right to intercede on
                  an enrollee's behalf at any time during the contractor's
                  complaint/grievance process whenever there is an indication
                  from the enrollee, or, where applicable, authorized person, or
                  the HBC that a serious quality of care issue is not being
                  addressed timely or appropriately. Additionally, the enrollee
                  may be accompanied by a representative of the enrollee's
                  choice to any proceedings and grievances.

         E.       Legal Rights. Nothing in this Article shall be construed as
                  removing any legal rights of enrollees under State or federal
                  law, including the right to file judicial actions to enforce
                  rights.

5.15.2   NOTIFICATION TO ENROLLEES OF GRIEVANCE PROCEDURE

         A.       The contractor shall provide all enrollees or, where
                  applicable, an authorized person, upon enrollment in the
                  contractor's plan, and annually thereafter, pursuant to this
                  contract, with a concise statement of the contractor's
                  grievance procedure and the enrollees' rights to a hearing by
                  the Independent Utilization Review Organization (IURO) per
                  NJAC 8:38-8.7 as well as their right to pursue the Medicaid
                  Fair Hearing process described in N.J.A.C. 10:49-10.1 et seq.
                  The information shall be provided through an annual mailing, a
                  member handbook, or any other method approved by DMAHS. The
                  contractor shall prepare the information orally and/or in
                  writing in English, Spanish, and other bilingual translations
                  and a format accessible to the visually impaired, such as
                  Braille, large print, or audio tapes.

         B.       Written information to enrollees regarding the grievance
                  process shall include at a minimum:

                  1.       Notification that copies of written grievances will
                           be sent to DMAHS for monitoring

                  2.       Identification of who is responsible for processing
                           and reviewing grievances

                  3.       Information to enrollees on how to file
                           complaints/grievances

                  4.       Local or toll-free telephone number for filing of
                            complaints/grievances

                  5.       Information on obtaining grievance forms and copies
                           of grievance procedures for each primary
                           medical/dental care site

                  6.       Expected timeframes for acknowledgment of receipt of
                           grievances

                  7.       Expected timeframes for disposition of grievances

                  8.       Extensions of the grievance process if needed and
                           time frames

                                                                           V-35
<PAGE>
                  9.       Fair hearing procedures including the Medicaid
                           enrollee's right to access the Medicaid Fair Hearing
                           process at any time to request resolution of a
                           grievance

                  10.      DHSS process for use of Independent Utilization
                           Review Organization (IURO)

         C.       A description of the process under which an enrollee may
                  appeal denials of authorization shall include at a minimum:

                  1.       Title of person responsible for processing appeal

                  2.       Title of person(s) responsible for resolution of
                           appeal

                  3.       Time deadlines for notifying enrollee of appeal
                           resolution

                  4.       The right to request a Medicaid Fair Hearing/DHSS
                           IURO processes where applicable to specific enrollee
                           eligibility categories

5.15.3   GRIEVANCE PROCEDURES

         A.       Availability. The contractor's grievance procedure shall be
                  available to all enrollees or, where applicable, an authorized
                  person, or permit a provider acting on behalf of an enrollee
                  and with the enrollee's consent, to challenge the denials of
                  coverage of services or denials of payment for services. The
                  procedure shall assure that grievances may be filed verbally
                  directly with the contractor.

         B.       The grievance procedure shall be in accordance with N.J.A.C.
                  8:38 et seq.

         C.       DMAHS shall have the right to submit comments to the
                  contractor regarding the merits or suggested resolution of any
                  grievance.

                  By the first and the fifteenth of every month the contractor
                  shall mail/fax all enrollee grievance/appeal requests directly
                  to the DMAHS. DMAHS will log and monitor the grievance process
                  through each stage. In case of verbal filing, the contractor
                  shall submit a written statement of the grievance to DMAHS.

                  By the first and the fifteenth of every month the contractor
                  shall send a copy to DMAHS of the dates of each stage of the
                  grievance/appeal process as well as its findings at each stage
                  of the grievances/appeals process simultaneously with
                  notification to the enrollee. If the contractor finds against
                  the enrollee, the denial shall present the enrollee's appeal
                  rights to the contractor, as well as the right to a Medicaid
                  Fair Hearing (except for NJ FamilyCare Plans B, C and D) and
                  the right to the DHSS' IURO process.

                                                                           V-36
<PAGE>
         D.       Time Limits to File. The contractor may provide reasonable
                  time limits within which enrollees must file grievances, but
                  such time period shall not be less than sixty (60) days from
                  the date of the incident giving rise to the grievance.

5.15.4   PROCESSING GRIEVANCES

         A.       Staffing. The contractor shall have an adequate number of
                  staff to receive and assist with enrollee grievances by phone,
                  in person and by mail. All staff involved in the receipt,
                  investigation and resolution of complaints shall be trained on
                  the contractor's policies and procedures and shall treat all
                  enrollees with dignity and respect.

         B.       Grievance Forms. If the contractor uses a grievance form, the
                  contractor must make available written grievance forms in the
                  enrollee's primary language in accordance with the
                  multilingual definition. Such forms shall be readily available
                  through the contractor upon request by telephone or in
                  writing. The contractor shall mail the form within five (5)
                  work days of receiving a telephone or written request for a
                  form. The contractor shall permit grievances to be filed in
                  writing, either on the contractor's form or in any other
                  written format, by fax, or verbally. For purposes of this
                  section the contractor may use an approved translation service
                  to translate grievance forms in an enrollee's primary language
                  in order to meet the timeframes of this contract provision. A
                  copy of the translated form shall be sent to DMAHS for post
                  review.

         C.       Confidentiality. The contractor shall have written policies
                  and procedures to assure enrollee confidentiality and
                  reasonable privacy throughout the complaint and grievance
                  process.

         D.       Non-discrimination. The contractor shall have written policies
                  and procedures to assure that the contractor or any provider
                  or agent of the contractor shall not discriminate against an
                  enrollee or attempt to disenroll an enrollee for filing a
                  complaint or grievance against the contractor.

         E.       Documentation. Upon receipt of a grievance, the contractor's
                  staff shall record the date of receipt, a written summary of
                  the problem, the response given, the resolution effected, if
                  any, and the department or staff personnel to whom the
                  grievance has been routed. See Article 5.15.5 for further
                  information on records maintenance.

         F.       Tracking System. The contractor shall maintain a separate
                  complaint log as well as a grievance tracking and resolution
                  system for Medicaid/ NJ FamilyCare enrollees. The tracking
                  system shall categorize complaints or grievances according to
                  type of issue, standardize a system for routing complaints or
                  grievances to operational department(s) for the dual purpose
                  of resolving specific complaints or grievances and for
                  improving the contractor's operating procedures, indicate the
                  status and locus of each open grievance, send all requisite
                  notices to

                                                                           V-37
<PAGE>
                  enrollees within the appropriate timeframe, and log in the
                  final resolution of each grievance. The tracking system shall
                  differentiate between medical/dental and administrative
                  complaints and grievances.

5.15.5   RECORDS MAINTENANCE

         A.       The contractor shall develop and maintain a separate complaint
                  log tracking and resolution system for Medicaid and NJ
                  FamilyCare enrollees for issues not requiring a formal
                  grievance hearing. The system shall be made accessible to the
                  State for review.

         B.       A grievance log to document all verbal (telephone or in
                  person) and written grievances and resolutions shall be
                  maintained. The grievance log shall be available in the office
                  of the contractor. The grievance log shall include the
                  following information:

                  1.       A log number

                  2.       The date and time the grievance is filed with the
                           contractor or provider

                  3.       The name of the enrollee filing the grievance

                  4.       The name of the contractor, provider or staff person
                           receiving the grievance

                  5.       A description of the grievance or problem

                  6.       A description of the action taken by the contractor
                           or provider to investigate and resolve the grievance

                  7.       The proposed resolution by the contractor or provider

                  8.       The name of the contractor, provider or staff person
                           responsible for resolving the grievance

                  9.       The date of notification to the enrollee of the
                           proposed resolution

         C.       The contractor shall develop and maintain policies for the
                  following:

                  1.       Collection and analysis of grievance data

                  2.       Frequency of review of the grievance system

                  3.       File maintenance

                  4.       Protecting the anonymity of the grievant.

                                                                           V-38
<PAGE>
5.16     MARKETING

5.16.1   GENERAL PROVISIONS - CONTRACTOR'S RESPONSIBILITIES

         A.       The DMAHS' enrollment agent, health benefits coordinator
                  (HBC), will outreach and educate Medicaid and NJ FamilyCare
                  beneficiaries (or, where applicable, an authorized person),
                  and assist eligible beneficiaries (or, where applicable, an
                  authorized person), in selection of a MCE. Direct marketing or
                  discussion by the contractor to a Medicaid or NJ FamilyCare
                  beneficiary already enrolled in another contractor shall not
                  be permitted; direct marketing to non-enrolled Medicaid
                  beneficiaries will be limited and only allowed in locations
                  specified by DMAHS. The duties of the HBC will include, but
                  are not limited to, education, enrollment, disenrollment,
                  transfers, assistance through the contractor's grievance
                  process and other problem resolutions with the contractor, and
                  communications. The contractor shall cooperate with the HBC in
                  developing information about its plan for dissemination to
                  Medicaid/NJ FamilyCare beneficiaries.

                  1.       Active face-to-face marketing is prohibited:

                           a.       To New Jersey Care...Special Medicaid
                                    Programs for Pregnant Women and Children;

                           b.       To DYFS-supervised individuals;

                           c.       At County Welfare Agency offices;

                           d.       At open areas (other than designated
                                    events); and

                           e.       To AFDC/TANF beneficiaries and
                                    AFDC/TANF-related beneficiaries.

                  2.       Active face-to-face marketing will be allowed:

                           a.       Only at times, events, and locations
                                    specified and approved by DMAHS. Examples of
                                    permissible venues include provider sites,
                                    health fairs, and community centers.

                           b.       To NJ FamilyCare populations.

                           c.       To the ABD population.

         B.       Marketing activities that shall be permitted include:

                  1.       Media advertising limited to billboards, bus and
                           newspaper advertisements, posters, literature display
                           stands, radio and television advertising.

                                                                           V-39
<PAGE>
                  2.       Fulfillment of potential enrollee requests to the
                           contractor for general information, brochure and/or
                           provider directories that will be mailed to the
                           beneficiary.

         C.       All marketing plans, procedures, presentations, and materials
                  shall be accurate and shall not mislead, confuse, or defraud
                  either the enrollee, providers or DMAHS. If such
                  misrepresentation occurs, the contractor shall hold harmless
                  the State in accordance with Article 7.33 and shall be subject
                  to damages described in Article 7.16.

         D.       The contractor shall be required to submit to DMAHS for prior
                  written approval a complete marketing plan that adheres to
                  DMAHS' policies and procedures. Written or audio-visual
                  marketing materials, e.g., ads, flyers, posters,
                  announcements, and letters, and marketing scripts, public
                  information releases to be distributed to or prepared for the
                  purpose of informing Medicaid beneficiaries, and subsequent
                  revisions thereto, and promotional items shall be approved by
                  DMAHS prior to their use. If the contractor develops new or
                  revised marketing materials, it shall submit them to DMAHS for
                  review and approval prior to any dissemination. The contractor
                  shall not, under any circumstances, use marketing material
                  that has not been approved by DMAHS.

         E.       The DMAHS will consult with a medical care advisory committee
                  in the review of pertinent marketing materials and will
                  respond within 45 days with either an approval, denial, or
                  request for additional information or modifications.

         F.       The contractor shall distribute all approved marketing
                  materials throughout all enrollment areas for which it is
                  contracted to provide services.

         G.       All marketing materials that will be used by marketing agents
                  for every type of marketing presentation shall be prior
                  approved by DMAHS. The contractor shall coordinate and submit,
                  on a quarterly basis, to DMAHS and its agents, all of its
                  schedules, plans, activities by month and informational
                  materials for community education and outreach programs. The
                  contractor shall work in cooperation with community-based
                  groups and shall participate in such activities as health
                  fairs and other community events. The contractor shall make
                  every effort to ensure that all materials and outreach
                  provided by them provide both physical and communication
                  accessibility. This outreach should go beyond traditional
                  venues and any health fairs or community events should be held
                  in accessible facilities.

                  1.       For those instances where marketing is allowed,
                           contractors shall submit schedules to the DMAHS at
                           least five (5) days prior to the activity taking
                           place. The schedules can be submitted in any format,
                           but must include the full name of the marketing
                           representative, the name and full address of the
                           location where marketing is being conducted, the
                           date(s) and beginning and ending times of the
                           activity. All schedules will be reviewed and must

                                                                           V-40
<PAGE>
                           be approved in writing by the DMAHS. PLANS MAY NOT
                           COMMENCE ANY MARKETING ACTIVITY WITHOUT PRIOR DMAHS
                           APPROVAL.

         H.       With the exception allowed under Article 5.16.1I, neither the
                  contractor nor its marketing representatives may put into
                  effect a plan under which compensation, reward, gift, or
                  opportunity are offered to eligible enrollees as an inducement
                  to enroll in the contractor's plan other than to offer the
                  health care benefits from the contractor pursuant to this
                  contract. The contractor is prohibited from influencing an
                  individual's enrollment with the contractor in conjunction
                  with the sale of any other insurance.

         I.       The contractor may offer promotional give-aways that shall not
                  exceed a combined total of $10 to any one individual or family
                  for marketing purposes. Giveaways and premiums that have DMAHS
                  approval may be distributed at approved events. These items
                  shall be limited to items that promote good health behavior
                  (e.g., toothbrushes, immunization schedules). For NJ
                  FamilyCare, other promotional items shall be considered with
                  prior approval by DMAHS.

         J.       The contractor shall ensure that marketing representatives are
                  appropriately trained and capable of performing marketing
                  activities in accordance with terms of this contract, N.J.A.C.
                  11:17, 11:2-11, 11:4-17, 8:38-13.2, N.J.S.A. 17:22 A-1,
                  26:2J-16, and the marketing standards described in Article
                  5.16.

         K.       The contractor shall ensure that marketing representatives are
                  versed in and adhere to Medicaid policy regarding beneficiary
                  enrollment and disenrollment as stated in 42 C.F.R. Section
                  434.27. This policy includes, but is not limited to,
                  requirements that enrollees do not experience unreasonable
                  barriers to disenroll, and that the contractor shall not act
                  to discriminate on the basis of adverse health status or
                  greater use or need for health care services.

         L.       Door-to-door canvassing, telephone, telemarketing, or "cold
                  call" marketing of enrollment activities, by the contractor
                  itself or an agent or independent contractor thereof, shall
                  not be permitted. For NJ FamilyCare (Plans B, C, D),
                  telemarketing shall be permitted after review and prior
                  approval by DMAHS of the contractor's marketing plan, scripts
                  and methods to use this approach.

         M.       Contractor employees or agents shall not present themselves
                  unannounced at an enrollee's home for marketing or
                  "educational" purposes. This shall not limit such visits for
                  medical emergencies, urgent medical care, clinical outreach,
                  and health promotion for known enrollees.

         N.       Under no conditions shall a contractor use DMAHS's
                  client/enrollee data base or a provider's patient/customer
                  database to identify and market its plan to Medicaid or NJ
                  FamilyCare beneficiaries. No lists of Medicaid/NJ FamilyCare
                  beneficiary names, addresses, telephone numbers, or
                  Medicaid/NJ FamilyCare numbers of potential Medicaid/NJ
                  FamilyCare enrollees shall be obtained by a contractor

                                                                           V-41
<PAGE>
                  under any circumstances. Neither shall the contractor violate
                  confidentiality by sharing or selling enrollee lists or
                  enrollee/beneficiary data with other persons or organizations
                  for any purpose other than performance of the contractor's
                  obligations pursuant to this contract. For NJ FamilyCare and
                  ABD marketing only, general population lists such as census
                  tracts are permissible for marketing outreach after review and
                  prior approval by DMAHS.

         O.       The contractor shall allow unannounced, on-site monitoring by
                  DMAHS of its enrollment presentations to prospective
                  enrollees, as well as to attend scheduled, periodic meetings
                  between DMAHS and contractor marketing staff to review and
                  discuss presentation content, procedures, and technical
                  issues.

         P.       The contractor shall explain that all health care benefits as
                  specified in Article 4.1 must be obtained through a PCP.

         Q.       The contractor shall periodically review and assess the
                  knowledge and performance of its marketing representatives.

         R.       The contractor shall assure culturally competent presentations
                  by having alternative mechanisms for disseminating information
                  and must receive acknowledgment of the receipt of such
                  information by the beneficiary.

         S.       Individual Medicaid beneficiaries shall be able to contact the
                  contractor for information, and the contractor may respond to
                  such a request.

         T.       Incentives.

                  1.       The contractor may provide an incentive program to
                           its enrollees based on health/educational activities
                           or for compliance with health related
                           recommendations. The incentive program may include,
                           but is not limited to:

                           a.       Health related gift items

                           b.       Gift certificates in exchange for
                                    merchandise

                           Cash or redeemable coupons with a cash value are
                           prohibited.

                  2.       The contractor's incentive program shall be proposed
                           in writing and prior approved by DMAHS.

         U.       Periodic Survey of Enrollees.

                  1.       The contractor shall quarterly survey and report
                           results to DMAHS of new enrollees, in person, by
                           phone, or other means, on a random basis to verify

                                                                           V-42
<PAGE>
                           the enrollees' understanding of the contractor's
                           procedures and services availability.

                  2.       The contractor shall quarterly survey enrollees on
                           reasons for disenrollment who voluntarily
                           disenroll/transfer at time of disenrollment/transfer
                           from contractor's plan.

         V.       All marketing materials, plans and activities shall be prior
                  approved by DMAHS.

5.16.2   STANDARDS FOR MARKETING REPRESENTATIVES

         A.       General Requirements

                  1.       Only a trained marketing representative of the
                           contractor's plan who meets the DHS, DHSS, and DBI
                           requirements shall be permitted to market and to
                           enroll prospective NJ FamilyCare and ABD enrollees.
                           All marketing representatives shall be registered
                           with both the Department of Banking and Insurance
                           (DBI) and the Division of Medical Assistance and
                           Health Services (DMAHS). Delegation of enrollment
                           functions, such as to the office staff of a
                           subcontracting provider of service, shall not be
                           permitted.

                  2.       The contractor shall submit to DMAHS no less
                           frequently than once a month, a listing of the
                           contractor's marketing representatives. Marketing
                           schedules shall be submitted at least five days in
                           advance of marketing activities. Information on each
                           marketing representative shall include the names,
                           three digit Identification Numbers, and marketing
                           locations.

                  3.       All marketing representatives shall wear an
                           identification tag that has been prior approved by
                           DMAHS with a photo identification that must be
                           prominently displayed when the marketing
                           representative is performing marketing activities.
                           The tag shall be at least three inches (3") by five
                           inches (5") and shall display the marketing
                           representative's name, the name of the contractor,
                           and a three-digit identification number.

                  4.       In those counties where enrollment is in a voluntary
                           stage, marketing representatives shall not state or
                           imply that enrollment may be made mandatory in the
                           future in an attempt to coerce enrollment.

                  5.       Canvassing shall not be permitted.

                  6.       Outbound telemarketing shall not be permitted. For NJ
                           FamilyCare (Plans B, C, D), telemarketing shall be
                           permitted after review and prior approval by DMAHS of
                           the contractor's marketing plan, script, and methods
                           to use this approach.

                                                                           V-43
<PAGE>
                  7.       Marketing in or around a County Welfare Agency (CWA)
                           office shall not be permitted. The term "in and
                           around the CWA" is defined as being in an area where
                           the marketing representative can be seen from the CWA
                           office and/or where the CWA facility can be seen. The
                           fact that an obstructed view prohibits the marketing
                           activities from being seen shall not mitigate this
                           prohibition.

                  8.       No more than two (2) marketing representatives shall
                           approach a Medicaid/NJ FamilyCare beneficiary at any
                           one time.

                  9.       Marketing representatives shall not encourage clients
                           to disenroll from another contractor's plan or assist
                           an enrollee of another MCE in completing a
                           disenrollment form from the other MCE.

                  10.      Marketing representatives shall ask the prospective
                           enrollee about existing relationships with physicians
                           or other health care providers. The prospective
                           enrollees shall be clearly informed as to whether
                           they will be able to continue to go to those
                           providers as enrollees of the contractor's plan
                           and/or if the Medicaid program will pay for continued
                           services with such providers.

                  11.      Marketing representatives shall secure the signature
                           of new enrollees (head of household) on a statement
                           indicating that an explanation has been provided to
                           them regarding the important points of the
                           contractor's plan and have understood its procedures.
                           A parent or, where applicable, an authorized person,
                           shall enroll minors and ABD beneficiaries, when
                           appropriate, and sign the statement of understanding.
                           However, the contractor may accept an application
                           from pregnant minors and minors living totally on
                           their own who have their own Medicaid ID numbers as
                           head of their own household.

                  12.      Prior to approval of this contract by HCFA, the
                           contractor's staff or agents are prohibited from
                           marketing to, contacting directly or indirectly, or
                           enrolling Medicaid beneficiaries.

                  13.      Marketing representatives shall not state or imply
                           that continuation of Medicaid benefits is contingent
                           upon enrollment in the contractor's plan.

                  14.      Attendance by the contractor's marketing
                           representatives at State-sponsored training sessions
                           is required at the contractor's own expense.

         B.       Commissions/Incentive Payments

                  1.       Commissions/incentive payments may not be based on
                           enrollment numbers alone but shall include other
                           criteria, such as but not limited to,

                                                                           V-44
<PAGE>
                           the retention period of enrollees enrolled (at least
                           three (3) months), member satisfaction, and education
                           by the marketing representative.

                           a.       The contractor shall also review
                                    disenrollment information/surveys and all
                                    complaints/grievances specifically
                                    referencing marketing staff.

                  2.       Marketing commissions (including cash, prizes,
                           contests, trips, dinners, and other incentives) shall
                           not exceed thirty (30) percent of the
                           representative's monthly salary.

         C.       Enrollment Inducements

                  1.       The contractor's marketing representatives and other
                           contractor's staff are prohibited from offering or
                           giving cash or any other form of compensation to a
                           Medicaid beneficiary as an inducement or reward for
                           enrolling in the contractor's plan.

                  2.       Promotional items, gifts, "give-aways" for marketing
                           purposes shall be permitted, but will be limited to
                           items that promote good health behavior (e.g.,
                           toothbrushes, immunization schedules). However, the
                           combined total of such gifts or gift package shall
                           not exceed an amount of $10 to any one individual or
                           family. Such items:

                           a.       Shall be offered to the general public for
                                    marketing purposes whether or not an
                                    individual chooses to enroll in the
                                    contractor's plan.

                           b.       Shall only be given at the time of marketing
                                    presentations and may not be a continuous,
                                    periodic activity for the same individual,
                                    e.g., monthly or quarterly give-aways, as an
                                    inducement to remain enrolled.

                           c.       Shall not be in the form of cash.

                           For NJ FamilyCare, other promotional items shall be
                           considered with prior approval by DMAHS.

                  3.       Raffles shall not be allowed.

         D.       Sanctions

                  Violations of any of the above may result in any one or
                  combination of the following:

                  1.       Cessation or reduction of enrollment including auto
                           assignment.

                                                                           V-45
<PAGE>
                  2.       Reduction or elimination of marketing and/or
                           community event participation.

                  3.       Enforced special training/re-training of marketing
                           representatives including, but not limited to,
                           business ethics, marketing policies, effective sales
                           practices, and State marketing policies and
                           regulations.

                  4.       Referral to the Department of Banking and Insurance
                           for review and suspension of commercial marketing
                           activities.

                  5.       Application of assessed damages by the State.

                  6.       Referral to the Secretary of the United States
                           Department of Health and Human Services for civil
                           money penalties.

                  7.       Termination of contract.

                  8.       Referral to the New Jersey Division of Criminal
                           Justice Department of Justice as warranted.

                                                                           V-46
<PAGE>
ARTICLE SIX: PROVIDER INFORMATION

6.1      GENERAL

         The contractor shall provide information to all contracted providers
         about the Medicaid/NJ FamilyCare managed care program in order to
         operate in full compliance with the contract and all applicable federal
         and State regulations. The contractor shall monitor provider knowledge
         and understanding of program requirements, and take corrective actions
         to ensure compliance with such requirements.

6.2      PROVIDER PUBLICATIONS

         A.       Provider Manual. The contractor shall issue a Provider Manual
                  and Bulletins or other means of provider communication to the
                  providers of medical/dental services. The manual and bulletins
                  shall serve as a source of information to providers regarding
                  Medicaid covered services, policies and procedures, statutes,
                  regulations, telephone access and special requirements to
                  ensure all contract requirements are being met. Alternative to
                  provider manuals shall be prior approved by DMAHS.

                  The contractor shall provide all of its providers with, at a
                  minimum, the following information:

                  1.       Description of the Medicaid/NJ FamilyCare managed
                           care program and covered populations

                  2.       Scope of Benefits

                  3.       Modifications to Scope of Benefits

                  4.       Emergency Services Responsibilities, including
                           responsibility to educate enrollees regarding the
                           appropriate use of emergency services

                  5.       EPSDT program services and standards

                  6.       Grievance procedures for both enrollee and provider

                  7.       Medical necessity standards as well as practice
                           guidelines or other criteria that will be used in
                           making medical necessity decisions. Medical necessity
                           decisions must be in accordance with the definition
                           in Article 1 and based on peer-reviewed publications,
                           expert medical opinion, and medical community
                           acceptance.

                  8.       Practice protocols/guidelines, including in
                           particular guidelines pertaining to treatment of
                           chronic/complex conditions common to the enrolled
                           populations if utilized by the contractor to monitor
                           and/or evaluate

                                                                           VI-1
<PAGE>
                           provider performance. Practice guidelines may be
                           included in a separate document.

                  9.       The contractor's policies and procedures

                  10.      PCP responsibilities

                  11.      Other provider/subcontractors' responsibilities

                  12.      Prior authorization and referral procedures

                  13.      Description of the mechanism by which a provider can
                           appeal a contractor's service decision through the
                           DHSS' Independent Utilization Review Organization
                           process

                  14.      Protocol for encounter data element reporting/records

                  15.      Procedures for screening and referrals for the MH/SA
                           services

                  16.      Medical records standards

                  17.      Payment policies

         B.       Bulletins. The contractor shall develop and disseminate
                  bulletins as needed to incorporate any and all changes to the
                  Provider Manual. All bulletins shall be mailed to the State at
                  least three (3) calendar days prior to publication or mailing
                  to the providers or as soon as feasible. The Department shall
                  have the right to issue and/or modify the bulletins at any
                  time. If the DHS determines that there are factual errors or
                  misleading information, the contractor shall be required to
                  issue corrected information in the manner determined by the
                  DHS.

         C.       Timeframes. Within twenty (20) calendar days after the
                  contractor places a newly enrolled provider in an active
                  status, the contractor shall furnish the provider with a
                  current Provider Manual, all related bulletins and the
                  contractor's methodology for supplying encounter data.

         D.       The contractor shall provide a Provider Manual to the
                  Department. All updates of the manual shall also be provided
                  to the Department on a timely basis.

         E.       The Provider Manual and all policies and procedures shall be
                  reviewed at least annually to ensure that the contractor's
                  current practices and contract requirements are reflected in
                  the written policies and procedures.

                                                                           VI-2
<PAGE>
6.3      PROVIDER EDUCATION AND TRAINING

         A.       Initial Training. The contractor shall ensure that all
                  providers receive sufficient training regarding the managed
                  care program in order to operate in full compliance with
                  program standards and all applicable federal and State
                  regulations. At a minimum, all providers shall receive initial
                  training in managed care services, the contractor's policies
                  and procedures, and information about the needs of enrollees
                  with special needs. Ongoing training shall be provided as
                  deemed necessary by either the contractor or the State in
                  order to ensure compliance with program standards.

         Subjects for provider training shall be tailored to the needs of the
                  contractor's plan's target groups. Listed below are some
                  examples of topics for training:

                  1.       Identification and management of polypharmacy.

                  2.       Identification and treatment of depression among
                           elderly people and people with disabilities.

                  3.       Identification and treatment of alcohol/substance
                           abuse.

                  4.       Identification of abuse and neglect.

         5.       Coordination of care with long-term services, mental health
                  and substance abuse providers, including instruction regarding
                  policies and procedures for maintaining the centralized member
                  record.

                  6.       Skills to assist elderly people and people with
                           disabilities in coping with loss.

                  7.       Cultural sensitivity to providing health care to
                           various ethnic groups.

         B.       Ongoing Training. The contractor shall continue to provide
                  communications and guidance for PCPs, specialty providers, and
                  others about the health care needs of enrollees with special
                  needs and foster cultural sensitivity to the diverse
                  populations enrolled with the contractor.

6.4      PROVIDER TELEPHONE ACCESS

         A.       The contractor shall maintain a mechanism by which providers
                  can access the contractor by telephone. The contractor shall
                  maintain policies and procedures for staffing and training the
                  allocated personnel, including the hours of operation, days of
                  the week and numbers of personnel available, and the telephone
                  number to the providers. Telephone access to the contractor
                  shall be available to providers, at a minimum, from 8:00 a.m.
                  to 5:00 p.m., Monday through Friday.

                                                                           VI-3
<PAGE>
         B.       Response time. The contractor shall respond to after hours
                  telephone calls regarding medical care within the following
                  timeframes: fifteen (15) minutes for crisis situations;
                  forty-five (45) minutes for non-emergent, symptomatic issues;
                  same day for non-symptomatic concerns.

         C.       At no time shall providers wait more than five (5) minutes on
                  hold.

6.5      PROVIDER GRIEVANCES AND APPEALS

         A.       Payment Disputes. The contractor shall establish and utilize a
                  procedure to resolve billing, payment, and other
                  administrative disputes between health care providers and the
                  contractor for any reason including, but not limited to: lost
                  or incomplete claim forms or electronic submissions; requests
                  for additional explanation as to services or treatment
                  rendered by a health care provider; inappropriate or
                  unapproved referrals initiated by the providers; or any other
                  reason for billing disputes. The procedure shall include an
                  appeal process and require direct communication between the
                  provider and the contractor and shall not require any action
                  by the enrollee.

         B.       Complaint, Grievances and Appeal. The contractor shall
                  establish and maintain provider complaint, grievance and
                  appeals procedures for any provider who is not satisfied with
                  the contractor's policies and procedures, or with a decision
                  made by the contractor, or disagrees with the contractor as to
                  whether a service, supply, or procedure is a covered benefit,
                  is medically necessary, or is performed in the appropriate
                  setting. The contractor procedure shall satisfy the following
                  minimum standards:

                  1.       The contractor shall have in place an informal
                           complaint process which network providers can use to
                           make verbal complaints, to ask questions, and get
                           problems resolved without going through the formal,
                           written grievance process.

                  2.       The contractor shall have in place a formal grievance
                           and appeal process which network providers and
                           non-participating providers can use to complain in
                           writing.

                  3.       Such procedures shall not be applicable to any
                           disputes that may arise between the contractor and
                           any provider regarding the terms, conditions, or
                           termination or any other matter arising under
                           contract between the provider and contractor.

         C.       The contractor shall log, track and respond to provider
                  complaints and grievances.

         D.       The contractor shall submit quarterly a Provider
                  Grievances/Complaints Report. All provider grievances shall be
                  summarized, with actions and recommendations of the Medical or
                  Dental Director and QA Committee (if involved) clearly stated.

                                                                           VI-4
<PAGE>
                  The summary report shall include, but not be limited to, the
                  following data elements:

                  1.       Total number of all provider grievances and
                           complaints received

                  2.       Number of unresolved (pending) grievances and
                           complaints

                  3.       Category of the grievance or complaint, including,
                           but not limited to:

                           a.       Denials of requested services prior
                                    authorizations

                           b.       Denials of specialty referrals

                           c.       Enrollee allocation inequities

         E.       The contractor shall notify providers of the mechanism to
                  appeal a contractor service decision on behalf of an enrollee,
                  with the enrollee's consent, through the DHSS' Independent
                  Utilization Review Organization process and that the provider
                  is not entitled to request a Medicaid administrative law
                  hearing.

                                                                           VI-5
<PAGE>
ARTICLE SEVEN: TERMS AND CONDITIONS (ENTIRE CONTRACT)

7.1      CONTRACT COMPONENTS

         The Contract, Attachments, Schedules, Appendices, Exhibits, and any
         amendments determine the work required of the contractor and the terms
         and conditions under which said work shall be performed.

         No other contract, oral or otherwise, regarding the subject matter of
         this contract shall be deemed to exist or to bind any of the parties or
         vary any of the terms contained in this contract.

7.2      GENERAL PROVISIONS

         A.       HCFA Approval. This contract is subject to approval by the
                  Health Care Financing Administration (HCFA) and shall not be
                  effective absent such approval. In addition, this contract is
                  subject to HCFA's grant of a 1915(b) waiver to mandate
                  enrollment of children with special health care needs.

         B.       General. The contractor agrees that it shall carry out its
                  obligations as herein provided in a manner prescribed under
                  applicable federal and State laws, regulations, codes, and
                  guidelines including New Jersey licensing regulations, the
                  Medicaid, NJ KidCare and NJ FamilyCare State Plans, and in
                  accordance with procedures and requirements as may from time
                  to time be promulgated by the United States Department of
                  Health and Human Services. These include:

                  1.       42 U.S.C. Section 1396 et seq.

                  2.       42 C.F.R., Parts 417, 434, 440, 455, 1000

                  3.       45 C.F.R., Part 74

                  4.       N.J.S.A. 30:4D-1 et seq.

                  5.       N.J.S.A. 30:4I-1 et seq.

                  6.       N.J.S.A. 30:4J-1 et seq.

                  7.       N.J.S.A. 26:2J-1 et seq.

                  8.       N.J.A.C. 10:74 et seq.

                  9.       N.J.A.C. 10:49 et seq.

                  10.      N.J.A.C. 10:79 et seq.

                                                                         VII-1
<PAGE>
                  11.      N.J.A.C. 10:78-11

                  12.      New Jersey Medicaid, NJ KidCare, and NJ FamilyCare
                           State Plans

                  13.      1915(b) Waiver

                  14.      N.J.A.C. 8:38 et seq. and amendments thereof, and the
                           contractor shall comply with the higher standard
                           contained in N.J.A.C. 8:38 et seq. or this contract.

                  15.      N.J.S.A. 59:13 et seq.

                  16.      The federal and State laws and regulations above have
                           been cited for reader ease. They are available for
                           review at the New Jersey State Library, 185 West
                           State Street, Trenton, New Jersey 08625. However,
                           whether cited or not, the contractor is obligated to
                           comply with all applicable laws and regulations and,
                           in turn, is responsible for ensuring that its
                           providers and subcontractors comply with all laws and
                           regulations.

                  17.      Neither the contractor nor its employees, providers,
                           or subcontractors shall violate, or induce others to
                           violate, any federal or state laws or regulations, or
                           professional licensing board regulations.

         C.       Applicable Law and Venue. This contract and any and all
                  litigation arising there from or related thereto shall be
                  governed by the applicable laws, regulations, and rules of
                  evidence of the State of New Jersey without reference to
                  conflict of laws principles. The contractor shall agree and
                  submit to the jurisdiction of the courts of the State of New
                  Jersey should any dispute concerning this contract arise, and
                  shall agree that venue for any legal proceeding against the
                  State shall be in Mercer County.

         D.       Medicaid Provider. The contractor shall be a Medicaid provider
                  and a health maintenance organization with a Certificate of
                  Authority to operate government programs in New Jersey.

         E.       Significant Changes. The contractor shall report to the
                  Contracting Officer (See Article 7.5) immediately all
                  significant changes that may affect the contractor's
                  performance under this contract.

         F.       Provider Enrollment Process. The contractor shall comply with
                  the Medicaid provider enrollment process including the
                  submission of the HCFA 1513 Form.

         G.       Conflicts in Provisions. The contractor shall advise DMAHS of
                  any conflict of any provision of this contract with any
                  federal or State law or regulation. The contractor is required
                  to comply with the provisions of the federal or State law or

                                                                         VII-2
<PAGE>
                  regulation until such time as the contract may be amended.
                  (See also Article 7.11.)

                  Any provision of this contract that is in conflict with the
                  above laws, regulations, or federal Medicaid statutes,
                  regulations, or HCFA policy guidance is hereby amended to
                  conform to the provisions of those laws, regulations, and
                  federal policy. Such amendment of the contract shall be
                  effective on the effective date of the statutes or regulations
                  necessitating it and will be binding on the parties even
                  though such amendment may not have been reduced to writing and
                  formally agreed upon and executed by the parties.

         H.       Compliance with Codes. The contractor shall comply with the
                  requirements of the New Jersey Uniform Commercial Code, the
                  latest National Electrical Code, the Building Officials & Code
                  Administrators International, Inc. (B.O.C.A.) Basic Building
                  Code, and the Occupational Safety and Health Administration to
                  the extent applicable to the contract.

         I.       Corporate Authority. All New Jersey corporations shall obtain
                  a Certificate of Incorporation from the Office of the New
                  Jersey Secretary of State prior to conducting business in the
                  State of New Jersey.

                  If a contractor is a corporation incorporated in a state other
                  than New Jersey, the contractor shall obtain a Certificate of
                  Authority to do business from the Office of the Secretary of
                  State of New Jersey prior to execution of the contract. The
                  contractor shall provide either a certification or
                  notification of filing with the Secretary of State.

                  If the contractor is an individual, partnership or joint
                  venture not residing in this State or a partnership organized
                  under the laws of another state, then the contractor shall
                  execute a power of attorney designating the Secretary of State
                  as his true and lawful attorney for the sole purpose of
                  receiving process in any civil action which may arise out of
                  the performance of this contract or agreement. This
                  appointment of the Secretary of State shall be irrevocable and
                  binding upon the contractor, his heirs, executors,
                  administrators, successors or assigns. Within ten (10) days of
                  receipt of this service, the Secretary of State shall forward
                  same to the contractor at the address designated in the
                  contract.

         J.       Contractor's Warranty. By signing this contract, the
                  contractor warrants and represents that no person or selling
                  agency has been employed or retained to solicit or secure the
                  contract upon an agreement or understanding for a commission,
                  percentage, brokerage or contingent fee, except bona fide
                  employees or bona fide established commercial or selling
                  agencies maintained by the contractor for the purpose of
                  securing business. The penalty for breach or violation of this
                  provision may result in termination of the contract without
                  the State being liable for damages, costs and/or attorney fees
                  or, in the Department's

                                                                         VII-3
<PAGE>
                  discretion, a deduction from the contract price or
                  consideration the full amount of such commission, percentage,
                  brokerage or contingent fee.

         K.       MacBride Principles. The contractor shall comply with the
                  MacBride principles of nondiscrimination in employment and
                  have no business operations in Northern Ireland as set forth
                  in N.J.S.A. 52:34-12.1.

         L.       Ownership of Documents. All documents and records, regardless
                  of form, prepared by the contractor in fulfillment of the
                  contract shall be submitted to the State and shall become the
                  property of the State.

         M.       Publicity. Publicity and/or public announcements pertaining to
                  the project shall be approved by the State prior to release.
                  See Article 5.16 regarding Marketing.

         N.       Taxes. Contractor shall maintain, and produce to the
                  Department upon request, proof that all appropriate federal
                  and State taxes are paid.

7.3      STAFFING

         In addition to complying with the specific administrative requirements
         specified in Articles Two through Six and Eight, the contractor shall
         adhere to the standards delineated below.

         A.       The contractor shall have in place the organization,
                  management and administrative systems necessary to fulfill all
                  contractual arrangements. The contractor shall demonstrate to
                  DMAHS' satisfaction that it has the necessary staffing, by
                  function and qualifications, to fulfill its obligations under
                  this contract which include at a minimum:

                  -        A designated administrative liaison for the Medicaid
                           contract who shall be the main point of contact
                           responsible for coordinating all administrative
                           activities for this contract ("Contractor's
                           Representative"; See also Article 7.5 below)

                  -        A medical director who shall be a New Jersey licensed
                           physician (M.D. or D.O.)

                  -        Financial officer(s) or accounting and budgeting
                           officer

                  -        QM/UR coordinator who is a New Jersey-licensed
                           registered nurse or physician

                  -        Prior authorization staff sufficient to authorize
                           medical care twenty-four (24) hours per day/seven (7)
                           days per week

                                                                         VII-4
<PAGE>
                  -        Designated Medicaid care manager(s) who shall be
                           available to DMAHS medical staff to respond to
                           medically related problems, complaints, and emergent
                           or urgent situations

                  -        A full-time Care Management Supervisor who is a New
                           Jersey-licensed physician or has a Bachelor's degree
                           in nursing and has a minimum of four (4) years of
                           experience serving enrollees with special needs. The
                           Care Management Supervisor shall be responsible for
                           the management and supervision of the Care Management
                           staff.

                  -        Member services staff

                  -        Provider services staff

                  -        Encounter reporting staff/claims processors

                  -        Grievance coordinator

                  -        Adequate administrative and support staff

         B.       Staff Changes. The contractor shall inform the DMAHS, in
                  writing, within seven (7) days of key administrative staffing
                  changes (listed in A) in any of the positions noted in this
                  Article.

         C.       Training. The contractor shall ensure that all staff have
                  appropriate training, education, experience, and orientation
                  to fulfill the requirements of the positions they hold and
                  shall verify and document that it has met this requirement.

         D.       DMAHS Meetings. The contractor's CEO, president, or
                  DHS-approved representative shall be required to attend
                  DHS-sponsored contractor CEO dinners. No substitutes will be
                  permitted. The Contractor's Representative, as hereinafter
                  defined, shall be required to attend DHS-sponsored contractor
                  Roundtable sessions.

7.4      RELATIONSHIPS WITH DEBARRED OR SUSPENDED PERSONS PROHIBITED

         Pursuant to Section 1932(d)(a) of the Social Security Act (42 U.S.C.
         Section 1396u-2(d)(a)):

         A.       The contractor shall not have a director, officer, partner, or
                  person with beneficial ownership of more than five (5) percent
                  of the contractor's equity who has been debarred or suspended
                  from participating in procurement activities under the Federal
                  Acquisition Regulation or from participating in nonprocurement
                  activities under regulations issued pursuant to Executive
                  Order No. 12549 or under guidelines implementing such order.

                                                                         VII-5
<PAGE>
         B.       The contractor shall not have an employment, consulting, or
                  any other agreement with a debarred or suspended person (as
                  defined in Article 7.4A above) for the provision of items or
                  services that are significant and material to the contractor's
                  contractual obligation with the State.

         C.       The contractor shall certify to DMAHS that it meets the
                  requirements of this Article prior to initial contracting with
                  the Department and at any time there is a changed circumstance
                  from the last such certification. The contractor shall, among
                  other sources, consult with the Excluded Parties List, which
                  can be obtained from the General Services Administration.

         D.       If the contractor is found to be non-compliant with the
                  provisions concerning affiliation with suspended or debarred
                  individuals, DMAHS:

                  1.       Shall notify the Secretary of the US Department of
                           Health and Human Services of such non-compliance;

                  2.       May continue the existing contract with the
                           contractor unless the Secretary (in consultation with
                           the Inspector General of the US Department of Health
                           and Human Services [DHHS]) directs otherwise; and

                  3.       May not renew or otherwise extend the duration of an
                           existing contract with the contractor unless the
                           Secretary (in consultation with the Inspector General
                           of the DHHS) provides to DMAHS and to Congress a
                           written statement describing compelling reasons that
                           exist for renewing or extending the contract.

         E.       The contractor shall agree and certify it does not employ or
                  contract, directly or indirectly, with:

                  1.       Any individual or entity excluded from Medicaid
                           participation under Sections 1128 (42 U.S.C. Section
                           1320a-7) or 1128A (42 U.S.C. Section 1320a-7a) of the
                           Social Security Act for the provision of health care,
                           utilization review, medical social work, or
                           administrative services or who could be excluded
                           under Section 1128(b)(8) of the Social Security Act
                           as being controlled by a sanctioned individual;

                  2.       Any entity for the provision of such services
                           (directly or indirectly) through an excluded
                           individual or entity;

                  3.       Any individual or entity excluded from Medicaid or NJ
                           FamilyCare participation by DMAHS;

                  4.       Any individual or entity discharged or suspended from
                           doing business with the State of New Jersey; or

                                                                         VII-6
<PAGE>
                  5.       Any entity that has a contractual relationship
                           (direct or indirect) with an individual convicted of
                           certain crimes as described in Section 1128(b)(8) of
                           the Social Security Act.

         F.       The contractor shall obtain, whenever issued, available State
                  listings and notices of providers, their contractors,
                  subcontractors, or any of the aforementioned individuals or
                  entities, or their owners, officers, employees, or associates
                  who are suspended, debarred, disqualified, terminated, or
                  otherwise excluded from practice and/or participation in the
                  fee-for-service Medicaid program. Upon verification of such
                  suspension, debarment, disqualification, termination, or other
                  exclusion, the contractor shall immediately act to terminate
                  the provider from participation in this program. Termination
                  for loss of licensure, criminal convictions, or any other
                  reason shall coincide with the effective date of termination
                  of licensure or the Medicaid program's termination effective
                  date whichever is earlier.

7.5      CONTRACTING OFFICER AND CONTRACTOR'S REPRESENTATIVE

         A.       The Department shall designate a single administrator,
                  hereafter called the "Contracting Officer." The Contracting
                  Officer shall be appointed by the Commissioner of DHS. The
                  Contracting Officer shall make all determinations and take all
                  actions as are appropriate under this contract, subject to the
                  limitations of applicable federal and New Jersey laws and
                  regulations. The Contracting Officer may delegate his/her
                  authority to act to an authorized representative through
                  written notice to the contractor.

         B.       The contractor shall designate a single administrator,
                  hereafter called the Contractor's Representative, who shall be
                  an employee of the contractor. The Contractor's Representative
                  shall make all determinations and take all actions as are
                  appropriate to implement this contract, subject to the
                  limitations of the contract, and to federal and New Jersey
                  laws and regulations. The Contractor's Representative may
                  delegate his or her authority to act to an authorized
                  representative through written notice to the Contracting
                  Officer. The Contractor's Representative shall have direct
                  managerial and administrative responsibility and control over
                  all aspects of the contract and shall be empowered to legally
                  bind the contractor to all agreements reached with the
                  Department.

         C.       The Contractor's Representative shall be designated in writing
                  by the contractor no later than the first day on which the
                  contract becomes effective.

         D.       The Department shall have the right to approve or disapprove
                  the Contractor's Representative.

                                                                         VII-7
<PAGE>
7.6      AUTHORITY OF THE STATE

The State is the ultimate authority under this contract to:

         A.       Establish, define, or determine the reasonableness, the
                  necessity and the level and scope of covered benefits under
                  the managed care program administered in this contract or
                  coverage for such benefits, or the eligibility of enrollees or
                  providers to participate in the managed care program, or any
                  aspect of reimbursement to providers, or of operations.

         B.       Establish or interpret policy and its application related to
                  the above.

7.7      EQUAL OPPORTUNITY EMPLOYER

         The contractor shall, in all solicitations or advertisements for
         employees placed by or on behalf of the contractor, state that it is an
         equal opportunity employer, and shall send to each labor union or
         representative of workers with which it has a collective bargaining
         agreement or other contract or understanding, a notice to be provided
         by the Department advising the labor union or workers' representative
         of the contractor's commitments as an equal opportunity employer and
         shall post copies of the notice in conspicuous places available to
         employees and applicants for employment.

7.8      NONDISCRIMINATION REQUIREMENTS

         The contractor shall comply with the following requirements regarding
         nondiscrimination:

         A.       The contractor shall and shall require its providers and
                  subcontractors to accept assignment of an enrollee and not
                  discriminate against eligible enrollees because of race,
                  color, creed, religion, ancestry, marital status, sexual
                  orientation, national origin, age, sex, physical or mental
                  handicap in accordance with Title VI of the Civil Rights Act
                  of 1964, 42 U.S.C. Section 2000d, Section 504 of the
                  Rehabilitation Act of 1973, 29 U.S.C. Section 794, the
                  Americans with Disabilities Act of 1990 (ADA), 42 U.S.C.
                  Section 12131 and rules and regulations promulgated pursuant
                  thereto, or as otherwise provided by law or regulation.

         B.       ADA Compliance. The contractor shall and shall require its
                  providers or subcontractor to comply with the requirements of
                  the Americans with Disabilities Act (ADA). In providing health
                  care benefits, the contractor shall not directly or
                  indirectly, through contractual, licensing, or other
                  arrangements, discriminate against Medicaid/NJ FamilyCare
                  beneficiaries who are qualified disabled individuals covered
                  by the provisions of the ADA (See also Article 4.5.2 for a
                  description of the contractor's ADA compliance plan).

                  A "qualified individual with a disability" defined pursuant to
                  42 U.S.C. Section 12131 is an individual with a disability
                  who, with or without reasonable modifications to

                                                                         VII-8
<PAGE>
                  rules, policies, or practices, the removal of architectural,
                  communication, or transportation barriers, or the provision of
                  auxiliary aids and services, meets the essential eligibility
                  requirements for the receipt of services or the participation
                  in programs or activities provided by a public entity (42
                  U.S.C. Section 12131).

                  The contractor shall submit to DMAHS a written certification
                  that it is conversant with the requirements of the ADA, that
                  it is in compliance with the law, and that it has assessed its
                  provider network and certifies that the providers meet ADA
                  requirements to the best of the contractor's knowledge. The
                  contractor shall survey its providers of their compliance with
                  the ADA using a standard survey document that will be
                  developed by the State. Survey attestation shall be kept on
                  file by the contractor and shall be available for inspection
                  by the DMAHS. The contractor warrants that it will hold the
                  State harmless and indemnify the State from any liability
                  which may be imposed upon the State as a result of any failure
                  of the contractor to be in compliance with the ADA. Where
                  applicable, the contractor shall abide by the provisions of
                  Section 504 of the federal Rehabilitation Act of 1973, as
                  amended, 29 U.S.C. Section 794, regarding access to programs
                  and facilities by people with disabilities.

         C.       The contractor shall and shall require its providers and
                  subcontractors to not discriminate against eligible persons or
                  enrollees on the basis of their health or mental health
                  history, health or mental health status, their need for health
                  care services, amount payable to the contractor on the basis
                  of the eligible person's actuarial class, or pre-existing
                  medical/health conditions.

         D.       The contractor shall and shall require its providers and
                  subcontractors to comply with the Civil Rights Act of 1964 (42
                  U.S.C. Section 2000d), the regulations (45 C.F.R. Parts 80 &
                  84) pursuant to that Act, and the provisions of Executive
                  Order 11246, Equal Opportunity, dated September 24, 1965, the
                  New Jersey anti-discrimination laws including those contained
                  within N.J.S.A. 10:2-1 through N.J.S.A. 10:2-4, N.J.S.A.
                  10:5-1 et seq. and N.J.S.A. 10:5-38, and all rules and
                  regulations issued thereunder, and any other laws,
                  regulations, or orders which prohibit discrimination on
                  grounds of age, race, ethnicity, mental or physical
                  disability, sexual or affectional orientation or preference,
                  marital status, genetic information, source of payment, sex,
                  color, creed, religion, or national origin or ancestry. The
                  contractor shall not discriminate against any employee engaged
                  in the work required to produce the services covered by this
                  contract, or against any applicant for such employment because
                  of race, creed, color, national origin, age, ancestry, sex,
                  marital status, religion, disability or sexual or affectional
                  orientation or preference.

         E.       The contractor 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 paragraph
                  shall not be construed to prohibit an organization from
                  including providers only to the extent necessary to meet the

                                                                         VII-9
<PAGE>
                  needs of the organization's enrollees or from establishing any
                  measure designed to maintain quality and control costs
                  consistent with the responsibilities of the organization.

         F.       Scope. This non-discrimination provision shall apply to but
                  not be limited to the following: recruitment or recruitment
                  advertising, hiring, employment upgrading, demotion, or
                  transfer, lay-off or termination, rates of pay or other forms
                  of compensation, and selection for training, including
                  apprenticeship included in PL 1975, Chapter 127 as attached
                  hereto and made a part hereof.

         G.       Grievances. The contractor shall forward to the Department
                  copies of all grievances alleging discrimination against
                  enrollees because of race, color, creed, sex, religion, age,
                  national origin, ancestry, marital status, sexual or
                  affectional orientation, physical or mental handicap for
                  review and appropriate action within three (3) business days
                  of receipt by the contractor.

7.9      INSPECTION RIGHTS

         The contractor shall allow the New Jersey Department of Human Services,
         the US Department of Health and Human Services (DHHS), and other
         authorized State agencies, or their duly authorized representatives, to
         inspect or otherwise evaluate the quality, appropriateness, and
         timeliness of services performed under the contract, and to inspect,
         evaluate, and audit any and all books, records, and facilities
         maintained by the contractor and its providers and subcontractors,
         pertaining to such services, at any time during normal business hours
         (and after business hours when deemed necessary by DHS or DHHS) at a
         New Jersey site designated by the Contracting Officer. Pursuant to
         N.J.S.A. 10:49-9.8m inspections of contractors may be unannounced with
         or without cause, and inspections of providers and subcontractors may
         be unannounced for cause. Books and records include, but are not
         limited to, all physical records originated or prepared pursuant to the
         performance under this contract, including working papers, reports,
         financial records and books of account, medical records, dental
         records, prescription files, provider contracts and subcontracts,
         credentialing files, and any other documentation pertaining to medical,
         dental, and nonmedical services to enrollees. Upon request, at any time
         during the period of this contract, the contractor shall furnish any
         such record, or copy thereof, to the Department or the Department's
         External Review Organization within thirty (30) days of the request. If
         the Department determines, however, that there is an urgent need to
         obtain a record, the Department shall have the right to demand the
         record in less than thirty (30) days, but no less than twenty-four (24)
         hours.

         Access shall be undertaken in such a manner as to not unduly delay the
         work of the contractor and/or its provider(s) or subcontractor(s). The
         right of access herein shall include onsite visits by authorized
         designees of the State.

         The contractor shall also permit the State, at its sole discretion, to
         conduct onsite inspections of facilities maintained by the contractor,
         its providers and subcontractors, prior to approval of their use for
         providing services to enrollees.

                                                                        VII-10
<PAGE>
7.10     NOTICES/CONTRACT COMMUNICATION

         All notices or contract communication under this contract shall be in
         writing and shall be validly and sufficiently served by the State upon
         the contractor, and vice versa, if addressed and mailed by certified
         mail, delivered by overnight courier or hand-delivered to the following
         addresses:

         For DHS:

                  Contracting Officer
                  Division of Medical Assistance and Health Services
                  P.O. Box 712
                  Trenton, NJ 08625-0712

         The contractor shall specify the name of the Contractor's
         Representative and official mailing address for all formal
         communications. The name and address of the individual appears in
         Appendix D.6 and is incorporated herein by reference.

7.11     TERM

7.11.1   CONTRACT DURATION AND EFFECTIVE DATE

         The performance, duties, and obligations of the parties hereto shall
         commence on the effective date, provided that at the effective date the
         Director and the contractor agree that all procedures necessary to
         implement this contract are ready and shall continue for a period of
         nine (9) months thereafter unless suspended or terminated in accordance
         with the provisions of this contract. The initial nine (9) month period
         shall be known as the "original term" of the contract. The effective
         date of the contract shall be October 1, 2000.

7.11.2   AMENDMENT, EXTENSION, AND MODIFICATION

         A.       The contract may be amended, extended, or modified by written
                  contract duly executed by the Director and the contractor. Any
                  such amendment, extension or modification shall be in writing
                  and executed by the parties hereto. It is mutually understood
                  and agreed that no amendment of the terms of the contract
                  shall be valid unless reduced to writing and executed by the
                  parties hereto, and that no oral understandings,
                  representations or contracts not incorporated herein nor any
                  oral alteration or variations of the terms hereof, shall be
                  binding on the parties hereto. Every such amendment,
                  extension, or modification shall specify the date its
                  provisions shall be effective as agreed to by the Department
                  and the contractor. Any amendment, extension, or modification
                  is not effective or binding unless approved, in writing, by
                  duly authorized officials of DHS, HCFA, and any other entity,
                  as required by law or regulation.

                                                                         VII-11
<PAGE>
         B.       This contract may be extended for successive twelve (12) month
                  periods beyond the original term of the contract whenever the
                  Division supplies the contractor with at least ninety (90)
                  days advance notice of such intent and if a written amendment
                  to extend the contract is obtained from both parties. This
                  successive twelve (12) month period shall be known as an
                  "extension period" of the contract. In addition, ninety (90)
                  days prior to the contract expiration, the Director shall
                  provide the contractor with the proposed capitation rates for
                  the extension period.

         C.       In the event that the capitation rates for the extension
                  period are not provided ninety (90) days prior to the contract
                  expiration, the contract will be extended at the existing rate
                  which shall be an interim rate. After the execution of the
                  succeeding rate amendment, a retroactive rate adjustment will
                  be made to bring the interim rate to the level established by
                  that amendment.

         D.       The contractor shall begin providing services to all
                  populations covered under this contract on October 1, 2000.
                  The State shall pay the contractor the capitation rates set
                  forth in Appendix C, except for the following premium groups:

                  1.       DDD With Medicare

                  2.       DDD Without Medicare (ABD)

                  3.       DDD Without Medicare (non-ABD)

                  4.       AIDS - ABD With Medicare

                  5.       AIDS & DDD - ABD With Medicare

                  6.       AFDC - AIDS

                  7.       AFDC - AIDS & DDD

                  8.       Blind/Disabled With Medicare, < 45 M & F

                  9.       Blind/Disabled With Medicare, 45+ M & F

                  For those enrollees who are members of the contractor's plan
                  as of October 1, 2000 and who are subsequently identified by
                  the State as members of one of the above premium groups, the
                  State may initially pay the contractor the following
                  capitation rates:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
PREMIUM GROUP                                   INTERIM RATE
-------------------------------------------------------------------------------------
<S>                                             <C>
DDD With Medicare                               Aged with Medicare
-------------------------------------------------------------------------------------
DDD Without Medicare (ABD)                      ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
DDD Without Medicare (non-ABD)                  ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
AIDS - ABD With Medicare                        ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
AIDS & DDD - ABD With Medicare                  ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
AFDC - AIDS                                     ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
AFDC - AIDS & DDD                               ABD (including AIDS) Without Medicare
-------------------------------------------------------------------------------------
Blind/Disabled With Medicare, < 45 M & F        Aged With Medicare
-------------------------------------------------------------------------------------
Blind/Disabled With Medicare, 45+ M & F         Aged With Medicare
-------------------------------------------------------------------------------------
</TABLE>

                  The State shall retroactively adjust these payments to reflect
                  the premium rate for these enrollees.

                                                                         VII-12
<PAGE>
         E.       Nothing in this Article shall be construed to prevent the
                  Director by amendment to the contract from extending the
                  contract on a month to month basis under the existing rates
                  until such a time that the Director provides revised
                  capitation rates pursuant to Article 7.11.2B.

7.12     TERMINATION

         A.       Change of Circumstances. Where circumstances and/or the needs
                  of the State significantly change or the contract is otherwise
                  deemed by the Director to no longer be in the public interest,
                  the DMAHS may terminate this contract upon no less than thirty
                  (30) days notice to the contractor.

         B.       Emergency Situations. In cases of emergency the Department may
                  shorten the time periods of notification.

         C.       For Cause. DMAHS shall have the right to terminate this
                  contract, without liability to the State, in whole or in part
                  if the contractor:

                  1.       Takes any action or fails to prevent an action that
                           threatens the health, safety or welfare of any
                           enrollee, including significant marketing abuses;

                  2.       Takes any action that threatens the fiscal integrity
                           of the Medicaid program;

                  3.       Has its certification suspended or revoked by DOBI,
                           DHSS, and/or any federal agency or is federally
                           debarred or excluded from federal procurement and
                           non-procurement contracts;

                  4.       Materially breaches this contract or fails to comply
                           with any term or condition of this contract that is
                           not cured within twenty (20) working days of DMAHS'
                           request for compliance;

                  5.       Violates state or federal law;

                  6.       Becomes insolvent; or

                  7.       Brings a proceeding voluntarily, or has a proceeding
                           brought against it involuntarily, under the
                           Bankruptcy Act.

         D.       Notice and Hearing. Except as provided in A and B above, DMAHS
                  shall give the contractor ninety (90) days advance, written
                  notice of termination of this contract, with an opportunity to
                  protest said termination and/or request an informal hearing.
                  This notice shall specify the applicable provisions of this
                  contract and the effective date of termination, which shall
                  not be less than will

                                                                         VII-13
<PAGE>
                  permit an orderly disenrollment of enrollees to the Medicaid
                  fee-for-service program or transfer to another managed care
                  program.

         E.       Contractor's Right to Terminate for Material Breach. The
                  contractor shall have the right to terminate this contract in
                  the event that DMAHS materially breaches this contract or
                  fails to comply with any material term or condition of this
                  contract that is not cured within twenty (20) working days of
                  the contractor's request for compliance. In such event, the
                  contractor shall give DMAHS written notice specifying the
                  reason for and the effective date of the termination, which
                  shall not be less than will permit an orderly disenrollment of
                  enrollees to the Medicaid fee-for-service program or transfer
                  to another managed care program and in no event shall be less
                  than ninety (90) days from the end of the twenty (20) day
                  working day cure period. The effective date of termination is
                  subject to DMAHS concurrence and approval.

         F.       Contractor's Right to Terminate for Act of God. The contractor
                  shall have the right to terminate this contract if the
                  contractor is unable to provide services pursuant to this
                  contract because of a natural disaster and/or an Act of God to
                  such a degree that enrollees cannot obtain reasonable access
                  to services within the contractor's organization, and, after
                  diligent efforts, the contractor cannot make other provisions
                  for the delivery of such services. The contractor shall give
                  DMAHS, within forty-five (45) days after the disaster, written
                  notice of any such termination that specifies:

                  1.       The reasons for the termination, with appropriate
                           documentation of the circumstances arising from a
                           natural disaster or Act of God that precludes
                           reasonable access to services;

                  2.       The contractor's attempts to make other provisions
                           for the delivery of services; and

                  3.       The requested effective date of the termination,
                           which shall not be less time than will permit an
                           orderly disenrollment of enrollees to the Medicaid
                           fee-for-service program or transfer to another
                           managed care program. The effective date of
                           termination is subject to DMAHS concurrence and
                           approval.

         G.       Reduction in Funding. In the event that State and federal
                  funding for the payment of services under this contract is
                  reduced so that payments to the contractor cannot be made in
                  full, this contract shall terminate, without liability to the
                  State, unless both parties agree to a modification of the
                  obligations under this contract. The effective date of such
                  termination shall be ninety (90) days after the contractor
                  receives written notice of the reduction in payment, unless
                  available funds are insufficient to continue payments in full
                  during the ninety (90) day period, in which case the
                  Department shall give the contractor written notice of the
                  earlier date upon which the contract shall terminate.

                                                                         VII-14
<PAGE>
         H.       It is hereby understood and agreed by both parties that this
                  contract shall be effective and payments by DMAHS made to the
                  contractor subject to the availability of State and federal
                  funds. It is further agreed by both parties that this contract
                  can be renegotiated or terminated, without liability to the
                  State in order to comply with state and federal requirements
                  for the purpose of maximizing federal financial participation.

         I.       Upon termination of this contract, the contractor shall comply
                  with the closeout procedures in Article 7.13.

         J.       Rights and Remedies. The rights and remedies of the Department
                  provided in this Article shall not be exclusive and are in
                  addition to all other rights and remedies provided by law or
                  under this contract.

7.13     CLOSEOUT REQUIREMENTS

         A.       A closeout period shall begin one hundred-twenty (120) days
                  prior to the last day the contractor is responsible for
                  operating under this contract. During the closeout period, the
                  contractor shall work cooperatively with, and supply program
                  information to, any subsequent contractor and DMAHS. Both the
                  program information and the working relationships between the
                  two contractors shall be defined by DMAHS.

         B.       The contractor shall be responsible for the provision of
                  necessary information and records, whether a part of the MCMIS
                  or compiled and/or stored elsewhere, to the new contractor
                  and/or DMAHS during the closeout period to ensure a smooth
                  transition of responsibility. The new contractor and/or DMAHS
                  shall define the information required during this period and
                  the time frames for submission. Information that shall be
                  required includes but is not limited to:

                  1.       Numbers and status of complaints and grievances in
                           process;

                  2.       Numbers and status of hospital authorizations in
                           process, listed by hospital;

                  3.       Daily hospital logs;

                  4.       Prior authorizations approved and disapproved;

                  5.       Program exceptions approved;

                  6.       Medical cost ratio data;

                  7.       Payment of all outstanding obligations for medical
                           care rendered to enrollees;

                                                                         VII-15
<PAGE>
                  8.       All encounter data required by this contract; and

                  9.       Information on beneficiaries in treatment plans who
                           will require continuity of care consideration.

         C.       All data and information provided by the contractor shall be
                  accompanied by letters, signed by the responsible authority,
                  certifying to the accuracy and completeness of the materials
                  supplied. The contractor shall transmit the information and
                  records required under this Article within the time frames
                  required by the Department. The Department shall have the
                  right, in its sole discretion, to require updates to these
                  data at regular intervals.

         D.       The new contractor shall reimburse any reasonable costs
                  associated with the contractor providing the required
                  information or as mutually agreed upon by the two contractors.
                  The contractor shall not charge more than a cost mutually
                  agreed upon by the contractor and DMAHS or as mutually agreed
                  upon by the two contractors. If program operations are
                  transferred to DMAHS, no such fees shall be charged by the
                  contractor nor paid by DMAHS. Under no circumstances shall a
                  Medicaid beneficiary be billed for any record transfer.

         E.       The contractor shall continue to be responsible for provider
                  and enrollee toll free numbers and after-hours calls until the
                  last day of the closeout period. The new contractor shall bear
                  financial responsibility for costs incurred in modifying the
                  toll free number telephone system. The contractor shall, in
                  good faith, negotiate a contract with the new contractor to
                  coordinate/transfer the toll free number responsibilities, and
                  will provide space at the contractor's current business
                  address including access to necessary records, and information
                  for the new contractor during a due diligence review period.

         F.       Effective two (2) weeks prior to the last day of the closeout
                  period, the contractor shall work cooperatively with the new
                  contractor to process service authorization requests received.
                  The contractor shall be financially responsible for approved
                  requests when the service is provided on or before the last
                  day of the closeout period or if the service is provided
                  through the date of discharge or thirty-one (31) days after
                  the cancellation or termination of this contract for enrollees
                  who remain hospitalized after the last day of the transition
                  period. Disputes between the contractor and the new contractor
                  regarding service authorizations shall be resolved by DMAHS.

         G.       The contractor shall continue to provide all required reports
                  during the closeout period.

         H.       Runout Requirements - General. Runout for this Managed Care
                  Contract shall consist of the processing, payment and monetary
                  reconciliation(s) necessary regarding all enrollees, claims
                  for payment from the contractor's provider

                                                                         VII-16
<PAGE>
                  network, appeals by both providers and/or enrollees, and final
                  reports which identify all expenditures, up to and including
                  the last month of capitated payment made to the contractor.

         I.       The contractor shall complete the processing and payment of
                  claims generated during the life of the contract.

         J.       Runout Requirements - Items of Concern.

                  1.       Information and documentation that the Department
                           deems necessary under this Article, to effect a
                           smooth Turnover to a successor contractor, shall be
                           required to be submitted on a monthly basis. The
                           Department shall have the right to require updates to
                           this data at regular intervals.

                  2.       Any other information or data, within the parameters
                           of this Managed Care Contract, deemed necessary by
                           the Department to assist in the reprocurement of the
                           contract including where applicable, but not limited
                           to, duplicate copies of x-rays, charting and lab
                           reports, and copies of actual documents and
                           supporting documentation, etc., relevant to access,
                           quality of care, and enrollee history shall be
                           provided to DMAHS.

         K.       Runout Requirements - Final Transition. During the final
                  forty-five (45) days before the end of the closeout period,
                  the terminating and successor contractors shall share
                  operational responsibilities, as delineated below:

                  1.       Record Sharing. The contractor shall make available
                           and/or require its providers to make available to the
                           Department copies of medical/dental records, patient
                           files, and any other pertinent information, including
                           information maintained by any subcontractor or
                           sub-subcontractor, necessary for efficient care
                           management of enrollees, as determined by the
                           Director. Under no circumstances shall a Medicaid
                           enrollee be billed for this service.

                  2.       Enrollee Notification. The terminating and successor
                           contractors shall notify enrollees of the pending
                           transition, with all notices to be submitted to DMAHS
                           for review and approval before mail out.

         L.       Post-Operations Period. The post-operations period shall begin
                  at 12:00 a.m. the day after the last day of the closeout
                  period. During the post-operations period, the contractor
                  shall no longer be responsible for the operation of the
                  program. Obligations of the contractor under this contract
                  that are applicable to the post-operations period will apply
                  whether or not they are enumerated in this Article.

                  1.       The contractor shall maintain local telephone access
                           for providers during the first six (6) months of the
                           post-operations period.

                                                                         VII-17
<PAGE>
                  2.       The contractor shall be financially responsible for
                           the resolution of beneficiary complaints and
                           grievances timely filed prior to the last day of the
                           post-operations period.

                  3.       The contractor shall have a continuing obligation to
                           provide any required reports during the closeout and
                           post-operations periods.

                  4.       The contractor shall refill prescriptions to cover a
                           minimum of ten (10) days beyond the contract
                           termination date, unless other arrangements are made
                           with the receiving contractor and approved by DMAHS.

                  5.       The contractor shall provide DME for a minimum of the
                           first thirty (30) days of the post-operations period,
                           unless other arrangements are made with the receiving
                           contractor and approved by DMAHS.

                           a.       Customized DME is considered to belong to
                                    the enrollee and stays with the enrollee
                                    when there is a change of contractors.

                           b.       Non-customized DME may be reclaimed by the
                                    contractor when the enrollee no longer
                                    requires the equipment if a system is in
                                    place for refurbishing and reissuing the
                                    equipment. If no such system is in place,
                                    the non-customized DME shall be considered
                                    the property of the enrollee.

                  6.       The contractor shall, within sixty days after the end
                           of the closeout period, account for and return any
                           and all funds advanced by the Department for coverage
                           of enrollees for periods subsequent to the effective
                           date of post-operations.

                  7.       The contractor shall submit to the Department within
                           ninety (90) days after the end of the closeout period
                           an annual report for the period through which
                           services are rendered, and a final financial
                           statement and audit report including at a minimum,
                           revenue and expense statements relating to this
                           contract, and a complete financial statement relating
                           to the overall lines of business of the contractor
                           prepared by a Certified Public Accountant or a
                           licensed public accountant.

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

                                                                         VII-18
<PAGE>
7.14     MERGER/ACQUISITION REQUIREMENTS

         A.       General Information. In addition to any other information
                  otherwise required by the State, a contractor that intends to
                  merge with or be acquired by another entity ("non-surviving
                  contractor") shall provide the following information and
                  documents to DHS, and copies to DHSS and DOBI, one
                  hundred-twenty (120) days prior to the effective date of the
                  merger/acquisition:

                  1.       The basic details of the sale, including the name of
                           the acquiring legal entity, the date of the sale and
                           a list of all owners with five (5) percent or more
                           ownership.

                  2.       The source of funds for the purchase.

                  3.       A Certificate of Authority modification.

                  4.       Any changes in the provider network, including but
                           not limited to a comparison of hospitals that no
                           longer will be available under the new network, and
                           comparison of PCPs and specialists participating and
                           not participating in both HMOs.

                  5.       Submit a draft of the asset purchase agreement to
                           DHS, DHSS, and DOBI for prior approval prior to
                           execution of the document.

                  6.       The closing date for the merger/acquisition, which
                           shall occur prior to the required notification to
                           enrollees, i.e. no later than forty-five (45) days
                           prior to effective date of transition of enrollees.

                  7.       Submit a copy of all information, including all
                           financials, sent to/required by DHSS and DOBI.

         B.       General Requirements. The non-surviving contractor shall:

                  1.       Comply with the provisions of Article 7.13, Closeout;
                           and

                  2.       Meet and complete all outstanding issues, reporting
                           requirements (including but not limited to encounter
                           data reporting, quality assurance studies, financial
                           reports, etc.)

         C.       Medicaid Beneficiary Notification. By no later than sixty (60)
                  days, the non-surviving contractor shall prepare and submit,
                  in English and Spanish, to the DMAHS, letters and other
                  materials which shall be mailed to its enrollees no later than
                  forty-five (45) days prior to the effective date of transfer
                  in order to assist them in making an informed decision about
                  their health and needs. Separate notices shall be prepared for
                  mandatory populations and voluntary populations. The letter
                  should contain the following, at a minimum:

                                                                         VII-19
<PAGE>
                  1.       From the non-surviving contractor:

                           a.       The basic details of the sale, including the
                                    name of the acquiring legal entity, and the
                                    date of the sale.

                           b.       Any major changes in the provider network,
                                    including at minimum a comparison of
                                    hospitals that no longer will be available
                                    under the network, if that is the case.

                           c.       For each enrollee, a representation whether
                                    that individual's primary care provider
                                    under the non-surviving contractor's plan
                                    will be available under the acquiring
                                    contractor's plan. When the PCP is no longer
                                    available under the acquiring contractor's
                                    plan, the enrollee shall be advised to call
                                    the HBC to see what other MCE the PCP
                                    participates in.

                           d.       In those cases where a primary dentist is
                                    selected under the non-surviving
                                    contractor's plan, a representation whether
                                    each individual's primary dentist under the
                                    non-surviving contractor's plan will be
                                    available under the acquiring contractor's
                                    plan.

                           e.       Information on beneficiaries in treatment
                                    plans and the status of any continuing
                                    medical care being rendered under the
                                    non-surviving contractor's plan, how that
                                    treatment will continue, and time frames for
                                    transition from the non-surviving
                                    contractor's plan to the acquiring
                                    contractor's plan.

                           f.       Any changes in the benefits/procedures
                                    between the non-surviving contractor's plan
                                    and the acquiring contractor's plan,
                                    including for example, eye care and glasses
                                    benefits, over-the-counter drugs, and
                                    referral procedures, etc.

                           g.       Toll free telephone numbers for the HBC and
                                    the acquiring entity where enrollees'
                                    questions can be answered.

                           h.       A time frame of not less than two weeks
                                    (fourteen days) for the beneficiary to make
                                    a decision about staying in the acquiring
                                    contractor's plan, or switching to another
                                    MCE (for mandatory beneficiaries). The time
                                    frame should incorporate the monthly cutoff
                                    dates established by the DMAHS and the HBC
                                    for the timely and accurate production of
                                    Medicaid identification cards.

                           i.       For voluntary populations, the letter should
                                    indicate the option to revert to the
                                    fee-for-service system.

                                                                         VII-20
<PAGE>
                  2.       From the acquiring contractor:

                           a.       If the acquiring contractor wishes to send
                                    welcoming letters, it shall submit for prior
                                    approval to DMAHS, all welcoming letters and
                                    information it will send to the new
                                    enrollees no later than thirty (30) days
                                    prior to the effective date of transfer.

                           b.       The acquiring contractor may not, either
                                    directly or indirectly, contact the
                                    enrollees of the non-surviving contractor,
                                    prior to the enrollees conversion
                                    (approximately ten (10) days prior to the
                                    effective date of transfer).

                  Any returned mail should be re-sent two additional times. If
                  the mail to a beneficiary is returned three times, the name,
                  the Medicaid identification number and last know address
                  should be submitted to the DMAHS for research to determine a
                  more current address.

         D.       Provider Notification. By no later than ninety (90) days prior
                  to the effective date of transfer, the non-surviving
                  contractor shall notify its providers of the pending sale or
                  merger, and of hospitals, specialists and laboratories that
                  will no longer be participating as a result of the
                  merger/acquisition.

         E.       Marketing/Outreach.

                  1.       The acquiring contractor may not make any unsolicited
                           home visits or telephone calls to enrollees of the
                           non-surviving contractor, before the effective date
                           of coverage under the acquiring contractor's plan.

                  2.       Coincident with the date that enrollee notification
                           letters are sent to those enrollees affected by the
                           merger/acquisition, the non-surviving contractor
                           shall no longer be offered as an option to either new
                           enrollees or to those seeking to transfer from other
                           plans. DMAHS shall approve all enrollee notification
                           letters, and they shall be mailed by the
                           non-surviving contractor. Marketing by the
                           non-surviving contractor shall also cease on that
                           date.

         F.       Provider Network. The acquiring contractor shall supply the
                  DMAHS and the HBC with an updated provider network fifty (50)
                  days prior to the effective date of transfer on a diskette
                  formatted in accordance with the procedures set forth in
                  Section A.4.1 of the Appendices. Additionally, the acquiring
                  contractor shall furnish to the DMAHS individual provider
                  capacity analyses and how the provider/enrollee ratio limits
                  will be maintained in the new entity. This network information
                  shall be furnished before the enrollee notification letters
                  are to be sent. Such letters shall not be mailed until there
                  is a clear written notification by the DMAHS that the provider
                  network information meets all of the DMAHS

                                                                         VII-21
<PAGE>
                  requirements. The network submission shall include all
                  required provider types listed in Article 4, shall be
                  formatted in accordance with specifications in Article 4 and
                  Section A.4.1 of the Appendices, and shall include a list of
                  all providers who decline participation with the acquiring
                  contractor and new providers who will participate with the
                  acquiring contractor. The acquiring contractor shall submit
                  weekly updates through the ninety (90) day period following
                  the effective date of transfer.

         G.       Administrative.

                  1.       The non-surviving contractor shall inform DMAHS of
                           the corporate structure it will assume once all
                           enrollees are transitioned to the acquiring
                           contractor. Additionally, an indication of the time
                           frame that this entity will continue to exist shall
                           be provided.

                  2.       The contract of the non-surviving contractor is not
                           terminated until the transaction (acquisition or
                           merger) is approved, enrollees are placed, and all
                           outstanding issues with DOBI, DHSS, and DHS are
                           resolved. Some infrastructure shall exist for up to
                           one year beyond the last date of services to
                           enrollees in order to fulfill remaining contractual
                           requirements.

                  3.       The acquiring contractor and the non-surviving
                           contractor shall maintain their own separate
                           administrative structure and staff until the
                           effective date of transfer.

7.15     SANCTIONS

         In the event DMAHS finds the contractor to be out-of-compliance with
         program standards, performance standards or the terms or conditions of
         this contract, the Department shall issue a written notice of
         deficiency, request a corrective action plan and/or specify the manner
         and timeframe in which the deficiency is to be cured. If the contractor
         fails to cure the deficiency as ordered, the Department shall have the
         right to exercise any of the administrative sanction options described
         below, in addition to any other rights and remedies that may be
         available to the Department. The type of action taken shall be in
         relation to the nature and severity of the deficiency:

         A.       Suspend enrollment of beneficiaries in contractor's plan.

         B.       Notify enrollees of contractor non-performance and permit
                  enrollees to transfer to another MCE.

         C.       Reduce or eliminate marketing and/or community event
                  participation.

         D.       Terminate the contract, under the provisions of the preceding
                  Article.

         E.       Cease auto-assignment of new enrollees.

                                                                         VII-22
<PAGE>
         F.       Refuse to renew the contract.

         G.       Impose and maintain temporary management in accordance with
                  Section 1932(e)(2) of the Social Security Act during the
                  period in which improvements are made to correct violations.

         H.       In the case of inappropriate marketing activities, referral
                  may also be made to the Department of Banking and Insurance
                  for review and appropriate enforcement action.

         I.       Require special training or retraining of marketing
                  representatives including, but not limited to, business
                  ethics, marketing policies, effective sales practices, and
                  State marketing policies and regulations, at the contractor's
                  expense.

         J.       In the event the contractor becomes financially impaired to
                  the point of threatening the ability of the State to obtain
                  the services provided for under the contract, ceases to
                  conduct business in the normal course, makes a general
                  assignment for the benefit of creditors, or suffers or permits
                  the appointment of a receiver for its business or its assets,
                  the State may, at its option, immediately terminate this
                  contract effective the close of business on the date
                  specified.

         K.       Refuse to consider for future contracting a contractor that
                  fails to submit encounter data on a timely and accurate basis.

         L.       Refer the matter to the US Department of Justice, the US
                  Attorney's Office, the New Jersey Division of Criminal
                  Justice, and/or the New Jersey Division of Law as warranted.

         M.       Refer the matter to the applicable federal agencies for civil
                  money penalties.

         N.       Refer the matter to the New Jersey Division of Civil Rights
                  where applicable.

         O.       Exclude the contractor from participation in the Medicaid
                  program.

         P.       Refer the matter to the New Jersey Division of Consumer
                  Affairs.

         The contractor may appeal the imposition of sanctions or damages in
         accordance with Article 7.18.

                                                                         VII-23
<PAGE>
7.16     LIQUIDATED DAMAGES PROVISIONS

7.16.1   GENERAL PROVISIONS

         It is agreed by the contractor that:

         A.       If contractor does not provide or perform the requirements
                  referred to or listed in this provision, damage to the State
                  may result.

         B.       Proving such damages shall be costly, difficult, and
                  time-consuming.

         C.       Should the State choose to impose liquidated damages, the
                  contractor shall pay the State those damages for not providing
                  or performing the specified requirements; if damages are
                  imposed, collection shall be from the date the State placed
                  the contractor on notice or as may be specified in the written
                  notice.

         D.       Additional damages may occur in specified areas by prolonged
                  periods in which contractor does not provide or perform
                  requirements.

         E.       The damage figures listed below represent a good faith effort
                  to quantify the range of harm that could reasonably be
                  anticipated at the time of the making of the contract.

         F.       The Department may, at its discretion, withhold capitation
                  payments in whole or in part, or offset with advanced notice
                  liquidated damages from capitation payments owed to the
                  contractor.

         G.       The DHS shall have the right to deny payment or recover
                  reimbursement for those services or deliverables which have
                  not been performed and which due to circumstances caused by
                  the contractor cannot be performed or if performed would be of
                  no value to the State. Denial of the amount of payment shall
                  be reasonably related to the amount of work or deliverable
                  lost to the State.

         H.       The DHS shall have the right to recover incorrect payments to
                  the contractor due to omission, error, fraud or abuse, or
                  defalcation by the contractor. Recovery to be made by
                  deduction from subsequent payments under this contract or
                  other contracts between the State and the contractor, or by
                  the State as a debt due to the State or otherwise as provided
                  by law.

         I.       Whenever the State determines that the contractor failed to
                  provide one (1) or more of the medically necessary covered
                  contract services, the State shall have the right to withhold
                  a portion of the contractor's capitation payments for the
                  following month or subsequent months, such portion withheld to
                  be equal to the amount of money the State shall pay to provide
                  such services along with administrative costs of making such
                  payment. Any other harm to the State or the

                                                                         VII-24
<PAGE>
                  beneficiary/enrollee shall be calculated and applied as a
                  damage. The contractor shall be given written notice prior to
                  the withholding of any capitation payment.

         J.       The contractor shall submit a written corrective action plan
                  for any deficiency identified by the Department in writing
                  within five (5) business days from the date of receipt of the
                  Department's notification or within a time determined by the
                  Department depending on the nature of the issue. For each day
                  beyond that time that the Department has not received an
                  acceptable corrective action plan, monetary damages in the
                  amount of one hundred dollars ($100) per day for five (5) days
                  and two hundred fifty ($250) per day thereafter will be
                  deducted from the capitation payment to the contractor. The
                  contractor shall implement the corrective action plan
                  immediately from time of Department notification of the
                  original problem pending approval of the final corrective
                  action plan. The damages shall be applied for failure to
                  implement the corrective action plan from the date of original
                  State notification of the problem. Corrective action plans
                  apply to each of the areas in this Article for potential
                  liquidated damages and the time period allowed shall be at the
                  sole discretion of the DMAHS.

         K.       Self-Reporting of Failures and Noncompliance. Any monetary
                  damages that otherwise would be assessed pursuant to this
                  Article of this contract, may be reduced, at the State's
                  option, if the contractor reports the failure or noncompliance
                  in written detail to DMAHS prior to notice of the
                  noncompliance from the Department. The amount of the reduction
                  shall be no more than ninety (90) percent of the total value
                  of the monetary damages.

         L.       Nothing in this provision shall be construed as relieving the
                  contractor from performing any other contract duty not listed
                  herein, nor is the State's right to enforce or to seek other
                  remedies for failure to perform any other contract duty hereby
                  diminished.

7.16.2   MANAGED CARE OPERATIONS, TERMS AND CONDITIONS, AND PAYMENT PROVISIONS

         During the life of the contract, the contractor shall provide or
         perform each of the requirements as stated in the contract.

         Except as provided for elsewhere in this Article (i.e., the other
         liquidated damages provisions in this Article take precedence), for
         each and every contractor requirement not provided or performed as
         scheduled, or if a requirement is provided or performed inaccurately or
         incompletely, the Department, if it intends to impose liquidated
         damages, shall notify the contractor in writing that the requirement
         was not provided or performed as specified and that liquidated damages
         will be assessed accordingly.

         The contractor shall have fifteen (15) business days from the date of
         such written notice from the Department, or longer if the Department so
         allows, or through a corrective action plan approved by DHS to provide
         or perform the requirement as specified.

                                                                         VII-25
<PAGE>
         Liquidated Damages:

         If the contractor does not provide or perform the requirement within
         fifteen (15) business days of the written notice, or longer if allowed
         by the Department, or through an approved corrective action plan, the
         Department may impose liquidated damages of $250 per requirement per
         day for each day the requirement continues not to be provided or
         performed. If after fifteen (15) additional days from the date the
         Department imposes liquidated damages, the requirement still has not
         been provided or performed, the Department, after written notice to the
         contractor, may increase the liquidated damages to $500 per requirement
         per day for each day the requirement continues to be unprovided or
         unperformed.

7.16.3   TIMELY REPORTING REQUIREMENTS

         The contractor shall produce and deliver timely reports within the
         specified timeframes and descriptions in the contract including
         information required by the ERO. Reports shall be produced and
         delivered on both a scheduled and mutually agreed upon on-request basis
         according to the schedule established by DMAHS.

         Liquidated Damages:

         For each late report, the Department shall have the right to impose
         liquidated damages of $250 per day per report until the report is
         provided. For any late report that is not delivered after thirty (30)
         days or such longer period as the Department shall allow, the
         Department, after written notice, shall have the right to increase the
         liquidated damages assessment to $500 per day per report until the
         report is provided.

7.16.4   ACCURATE REPORTING REQUIREMENTS

         Every report due the State shall contain sufficient and accurate
         information and in the approved media format to fulfill the State's
         purpose for which the report was generated.

         If the Department imposes liquidated damages, it shall give the
         contractor written notice of a report that is either insufficient or
         inaccurate and that liquidated damages will be assessed accordingly.
         After such notice, the contractor shall have fifteen (15) business
         days, or such longer period as the Department may allow, to correct the
         report.

         Encounter data shall be accurate and complete, i.e., have no missing
         encounters or required data elements.

         Liquidated Damages:

         If the contractor fails to correct the report within the fifteen (15)
         business days, or such longer period as the Department may allow, the
         Department shall have the right to impose liquidated damages of $250
         per day per report until the corrected report is

                                                                         VII-26
<PAGE>
         delivered. If the report remains uncorrected for more than thirty (30)
         days from the date liquidated damages are imposed, the Department,
         after written notice, shall have the right to increase the liquidated
         damages assessment to $500 per day per report until the report is
         corrected.

         An amount of $1 may be assessed for each missing or omitted encounter.
         In addition, $1 per encounter or encounter data element may be assessed
         for any pending encounter or error that is not corrected and returned
         to DMAHS within thirty (30) days after notification by DMAHS that the
         data are incomplete or incorrect. The Department shall have the right
         to calculate the total number of missing or omitted encounters and
         encounter data by extrapolating from a sample of missing or omitted
         encounters and encounter data.

7.16.5   TIMELY PAYMENTS TO MEDICAL PROVIDERS

         The contractor shall process claims in accordance with New Jersey laws
         and regulations and shall be subject to damages pursuant to such laws
         and regulations. In addition, pursuant to this contract the Department
         may assess liquidated damages if the contractor does not process (pay
         or deny) claims within the following timeframes: ninety (90) percent of
         all claims (the totality of claims received whether contested or
         uncontested) submitted electronically by medical providers within
         thirty (30) days of receipt; ninety (90) percent of all claims filed
         manually within forty (40) days of receipt; ninety-nine (99) percent of
         all claims, whether submitted electronically or manually, within sixty
         (60) days of receipt; and one hundred (100) percent of all claims
         within ninety (90) days of receipt. Claims processed for providers
         under investigation for fraud or abuse and claims suppressed pursuant
         to Article 8.9 (regarding PIPs) are not subject to these requirements.

         The amount of time required to process a paid claim shall be computed
         in days by comparing the initial date of receipt with the check mailing
         date. The amount of time required to process a denied claim (whether
         all or part of the claim is denied) shall be computed in days by
         comparing the date of initial receipt with the denial notice mailing
         date. Claims processed during the quarter shall be reported in required
         categories through the Claims Lag report (See Section A.7.6 of the
         Appendices (Table 4A and B)). Table 4A shall be used to report claims
         submitted manually and Table 4B shall be used to report claims
         submitted electronically.

         Liquidated Damages:

         Liquidated damages may be assessed if the contractor does not meet the
         above requirements on a quarterly basis. Based on the
         contractor-reported information on the claims lag reports, the
         Department shall determine for each time period (thirty (30)/forty
         (40), sixty (60), and ninety (90) days) the actual percentage of claims
         processed (electronic and manual claims shall be added together). This
         number shall be subtracted from the percentage of claims the contractor
         should have processed in the particular time period. The difference
         shall be expressed in points. For example, if the contractor only
         processed eighty-eight (88) percent of electronic claims within thirty
         (30) days and

                                                                         VII-27
<PAGE>
         eighty-eight (88) percent of manual claims within forty (40) days, it
         shall be considered to be two (2) points short for that time period.
         The points that the contractor is short for each of the three time
         periods shall be added together. This sum shall then be multiplied
         times .0004 times the capitation payments received by the contractor
         during the quarter at issue to arrive at the liquidated damages amount.

         No offset shall be given if a criterion is exceeded. DMAHS reserves the
         right to audit and/or request detail and validation of reported
         information. DMAHS shall have the right to accept or reject the
         contractor's report and may substitute reports created by DMAHS if
         contractor fails to submit reports or the contractor's reports are
         found to be unacceptable.

7.16.6   CONDITIONS FOR TERMINATION OF LIQUIDATED DAMAGES

         Except as waived by the Contracting Officer, no liquidated damages
         imposed on the contractor shall be terminated or suspended until the
         contractor issues a written notice of correction to the Contracting
         Officer certifying the correction of condition(s) for which liquidated
         damages were imposed and until all contractor corrections have been
         subjected to system testing or other verification at the discretion of
         the Contracting Officer. Liquidated damages shall cease on the day of
         the contractor's certification only if subsequent testing of the
         correction establishes that, indeed, the correction has been made in
         the manner and at the time certified to by the contractor.

         A.       The contractor shall provide the necessary system time to
                  system test any correction the Contracting Officer deems
                  necessary.

         B.       The Contracting Officer shall determine whether the necessary
                  level of documentation has been submitted to verify
                  corrections. The Contracting Officer shall be the sole judge
                  of the sufficiency and accuracy of any documentation.

         C.       System corrections shall be sustained for a reasonable period
                  of at least ninety (90) days from State acceptance; otherwise,
                  liquidated damages may be reimposed without a succeeding grace
                  period within which to correct.

         D.       Contractor use of resources to correct deficiencies shall not
                  be allowed to cause other system problems.

7.16.7   EPSDT & LEAD SCREENING PERFORMANCE STANDARDS

         A.       EPSDT Screening

                  1.       The contractor shall ensure that it has achieved an
                           eighty (80) percent participation rate for the twelve
                           (12)-month contract period. "Participation" is
                           defined as one initial or periodicity visit and will
                           be measured using encounter data. If the contractor
                           has not achieved the eighty (80) percent
                           participation rate by the end of the twelve-month

                                                                         VII-28
<PAGE>
                           period, it shall submit a corrective action plan to
                           DMAHS within thirty (30) days of notification by
                           DMAHS of its actual participation rate. DMAHS shall
                           have the right to conduct a follow-up onsite review
                           and/or impose financial damages for non-compliance.

                  a.       Mandatory Sanction. Failure of the contractor to
                           achieve the minimum screening rate shall require the
                           following refund of capitation paid:

                           i.       Achievement of a 50 percent to less than 60
                                    percent EPSDT screening, dental visit and
                                    immunization rate (the lowest measured rate
                                    of each of the components of EPSDT
                                    screening, i.e., periodic exam, immunization
                                    rate, and dental screening rate, shall be
                                    considered to be the rate for EPSDT
                                    participation and the basis for the
                                    sanction): refund of $1 per enrollee for all
                                    enrollees under age 21 not screened.

                           ii.      Achievement of a 40 percent to less than 50
                                    percent EPSDT screening, dental visit, and
                                    immunization rate: refund of $2 per enrollee
                                    for all enrollees under age 21 not screened.

                           iii.     Achievement of a 30 percent to less than 40
                                    percent EPSDT screening, dental visit and
                                    immunization rate: refund of $3 per enrollee
                                    for all enrollees under age 21 not screened.

                           iv.      Achievement of less than 30 percent: refund
                                    of $4 per enrollee for all enrollees under
                                    age 21 not screened.

                  b.       Discretionary Sanction. The DMAHS shall have the
                           right to impose a financial or administrative
                           sanction if the contractor's performance screening
                           rate is between sixty (60) - seventy (70) percent.
                           The DMAHS, in its sole discretion, may impose a
                           sanction after review of the contractor's corrective
                           action plan and ability to demonstrate good faith
                           efforts to improve compliance.

                  2.       Failure to achieve and maintain the required
                           screening rate shall result in the Local Health
                           Departments being permitted to screen the
                           contractor's pediatric members. The cost of these
                           screenings shall be paid by the DMAHS to the LHD, and
                           the screening cost shall be deducted from the
                           contractor's capitation rate in addition to the
                           damages imposed as a result of failure to achieve
                           EPSDT performance standards.

                  3.       Mandatory sanctions may be offset when the contractor
                           demonstrates improved compliance. The Division, in
                           its sole discretion, may reduce the sanction amount
                           by $1 for each twelve (12) point improvement over
                           prior reporting period performance rate. Offsets
                           shall not reduce the financial sanction amount to
                           below $1 per enrollee not screened.

                                                                          VII-29
<PAGE>
         B.       Blood Lead Screening

                  1.       The contractor shall ensure that it has achieved an
                           eighty (80) percent blood lead screening rate of
                           its enrollees under three years of age during a
                           twelve (12)- month contract period. Blood lead
                           screening is described in Article 4 and shall be
                           measured using encounter data. If the contractor
                           has not achieved the eighty (80) percent blood lead
                           screening rate by the end of the twelve (12)-month
                           period, it shall submit a corrective action plan to
                           DMAHS within thirty (30) days of notification by
                           DMAHS of its actual blood lead level screening
                           rate. DMAHS shall have the right to conduct a
                           follow-up onsite review and/or impose financial
                           damages for non-compliance.

                  a.       Mandatory sanction. Failure of the contractor to
                           achieve sixty (60) percent screening rate shall
                           require the following refund of capitation paid:

                           i        Achievement of a 50 percent to less than 60
                                    percent lead screening rate: refund of $2
                                    per enrollee for all enrollees under age 3
                                    not screened.

                           ii       Achievement of a 40 percent to less than 50
                                    percent lead screening rate: refund of $3
                                    per enrollee for all enrollees under age 3
                                    not screened.

                           iii      Achievement of a 30 percent to less than 40
                                    percent lead screening rate: refund of $4
                                    per enrollee for all enrollees under age 3
                                    not screened.

                           iv       Achievement of less than 30 percent lead
                                    screening rate: refund of $5 per enrollee
                                    for all enrollees under age 3 not screened.

                  b.       Discretionary sanction. The DMAHS shall have the
                           right to impose a financial or administrative
                           sanction if the contractor's performance screening
                           rate is between sixty (60) - seventy (70) percent.
                           The DMAHS, in its sole discretion, may impose a
                           sanction after review of the contractor's corrective
                           action plan and ability to demonstrate good faith
                           efforts to improve compliance.

         C.       The contractor must demonstrate continuous quality improvement
                  in achieving the performance standards for EPSDT and lead
                  screenings as stated in Article 4. The Division shall, in its
                  sole discretion, determine the appropriateness of contractor
                  proposed corrective action and the imposition of any other
                  financial or administrative sanctions in addition to those set
                  out above.

                                                                          VII-30
<PAGE>
7.16.8   DEPARTMENT OF HEALTH AND HUMAN SERVICES CIVIL MONEY PENALTIES

7.16.8.1 FEDERAL STATUTES

         Pursuant to 42 U.S.C. Section 1396b(m)(5)(A), the Secretary of the
         Department of Health and Human Services may impose substantial monetary
         and/or criminal penalties on the contractor when the contractor:

         A.       Fails to substantially provide an enrollee with required
                  medically necessary items and services, required under law or
                  under contract to be provided to an enrolled beneficiary, and
                  the failure has adversely affected the enrollee or has
                  substantial likelihood of adversely affecting the enrollees.

         B.       Imposes premiums or charges on enrollees in violation of this
                  contract, which provides that no premiums, deductibles,
                  co-payments or fees of any kind may be charged to Medicaid
                  enrollees.

         C.       Engages in any practice that discriminates among enrollees on
                  the basis of their health status or requirements for health
                  care services by expulsion or refusal to re-enroll an
                  individual or engaging in any practice that would reasonably
                  be expected to have the effect of denying or discouraging
                  enrollment by eligible persons whose medical condition or
                  history indicates a need for substantial future medical
                  services.

         D.       Misrepresents or falsifies information that is furnished to 1)
                  the Secretary, 2) the State, or 3) to any person or entity.

         E.       Fails to comply with the requirements for physician incentive
                  plans found in 42 U.S.C. Section 1876(i)(8), Section B.7.1 of
                  the Appendices, and at 42 C.F.R. Section 417.479, or fails to
                  submit to the Division its physician incentive plans as
                  required or requested in 42 C.F.R. Section 434.70.

7.16.8.2 FEDERAL PENALTIES

         A.       The Secretary may provide, in addition to any other remedies
                  available under the law, for any of the following remedies:

                  1.       Civil money penalties of not more than $25,000 for
                           each determination above; or,

                           with respect to a determination under Article
                           7.16.8.1C or 1D, above, of not more than $100,000
                           for each such determination; plus,

                                                                          VII-31
<PAGE>
                           with respect to a determination under Article
                           7.16.8.1B above, double the amount charged in
                           violation of such Article (and the excess amount
                           charged shall be deducted from the penalty and
                           returned to the individual concerned); and the
                           Secretary may seek criminal penalties; and plus,

                           with respect to a determination under Article
                           7.16.8.1C above, $15,000 for each individual not
                           enrolled as a result of a practice described in such
                           Article.

                  2.       Suspension of enrollment of individuals after the
                           date the Secretary notifies the Division of a
                           determination to assess damages as described in
                           Article 7.16.8.2A above, and until the Secretary is
                           satisfied that the basis for such determination has
                           been corrected and is not likely to recur, or

                  3.       Suspension of payment to the contractor for
                           individuals enrolled after the date the Secretary
                           notifies the Division of a determination under
                           Article 7.16.8.2A above and until the Secretary is
                           satisfied that the basis for such determination has
                           been corrected and is not likely to recur.

         B.       The contractor shall be responsible to pay any costs incurred
                  by the State as a result of the Secretary denying payment to
                  the State under 42 U.S.C. Section 1396(m)(5)(B)(ii). The State
                  shall have the right to offset such costs from amounts
                  otherwise due to the contractor.

         C.       Determination by the Division/Secretary regarding the amount
                  of the penalty and assessment for failure to comply with
                  physician incentive plans shall be in accordance with 42
                  C.F.R. Section 1003.106, i.e., the extent to which the failure
                  to provide medically necessary services could be attributed to
                  a prohibited inducement to reduce or limit services under a
                  physician incentive plan and the harm to the enrollee which
                  resulted or could have resulted from such failure. It would be
                  considered an aggravating factor if the contracting
                  organization knowingly or routinely engaged in any prohibited
                  practice which acted as an inducement to reduce or limit
                  medically necessary services provided with respect to a
                  specific enrollee in the contractor's plan.

7.17     STATE SANCTIONS

         DMAHS shall have the right to impose any of the sanctions and damages
         authorized or required by N.J.S.A. 30:4D-1 et seq., N.J.A.C. 10:49-1 et
         seq., or federal statute or regulation against the contractor or its
         providers or subcontractors pursuant to this contract. The DMAHS shall
         have the right to withhold and/or offset any payments otherwise due to
         the contractor pursuant to such sanctions and damages.

                                                                          VII-32
<PAGE>
7.18     APPEAL PROCESS

         In order to appeal the DMAHS imposition of any sanctions or damages,
         the contractor shall request review by and submit supporting
         documentation first to the Executive Director, Office of Managed Health
         Care (OMHC), within twenty (20) days of receipt of notice. The
         Executive Director, OMHC, shall issue a response within thirty (30)
         days of receipt of the contractor's submissions. Thereafter, the
         contractor may obtain a second review by the Director by filing the
         request for review with supporting documentation and copy of the
         Executive Director's decision within twenty (20) days of the
         contractor's receipt of the Executive Director's decision. The
         imposition of sanctions and damages is not automatically stayed pending
         appeal. Pending final determination of any dispute hereunder, the
         contractor shall proceed diligently with the performance of this
         contract and in accordance with the Contracting Officer's direction.

7.19     ASSIGNMENTS

         The contractor shall not, without the Department's prior written
         approval, assign, delegate, transfer, convey, sublet, or otherwise
         dispose of this contract; of the contractor's administrative or
         management operations/service under this contract; of the contractor's
         right, title, interest, obligations or duties under this contract; of
         the contractor's power to execute the contract; or, by power of
         attorney or otherwise, of any of the contractor's rights to receive
         monies due or to become due under this contract. The contractor shall
         retain obligations and responsibilities as stated under this contract
         or under state or federal law or regulations.

         All requests shall be submitted in writing, including all
         documentation, contracts, agreements, etc., at least 90 days prior to
         the anticipated implementation date, to DMAHS for prior approval. DMAHS
         approval shall also be contingent on regulatory agency review and
         approval. Any assignment, transfer, conveyance, sublease, or other
         disposition without the Department's consent shall be void and subject
         this contract to immediate termination by the Department without
         liability to the State of New Jersey.

7.20     CONTRACTOR CERTIFICATIONS

7.20.1   GENERAL PROVISIONS

         With respect to any report, invoice, record, papers, documents, books
         of account, or other contract-required data submitted to the Department
         in support of an invoice or documents submitted to meet contract
         requirements, including, but not limited to, proofs of insurance and
         bonding, Lobbying Certifications and Disclosures, Conflict of Interest
         Disclosure Statements and/or Conflict of Interest Avoidance Plans,
         pursuant to the requirements of this contract, the Contractor's
         Representative or his/her designee shall certify that the report,
         invoice, record, papers, documents, books of account or other contract
         required data is current, accurate, complete and in full compliance
         with legal and contractual requirements to the best of that
         individual's knowledge and belief.

                                                                          VII-33
<PAGE>
7.20.2   CERTIFICATION SUBMISSIONS

         Where in this contract there is a requirement that the contractor
         "certify" or submit a "certification," such certification shall be in
         the form of an affidavit or declaration under penalty of perjury dated
         and signed by the Contractor's Representative or his/her designee.

7.20.3   ENVIRONMENTAL COMPLIANCE

         The contractor shall comply with all applicable environmental laws,
         rules, directives, standards, orders, or requirements, including but
         not limited to, Section 306 of the Clean Air Act (42 U.S.C. Section
         1857(h)), Section 508 of the Clean Water Act (33 U.S.C. Section 1368),
         Executive Order 11738, and the Environmental Protection Agency (EPA)
         regulations (40 C.F.R., Part 15) that prohibit the use of the
         facilities included on the EPA List of Violating Facilities.

7.20.4   ENERGY CONSERVATION

         The contractor shall comply with any applicable mandatory standards and
         policies relating to energy efficiency that are contained in the state
         energy conservation plan issued in compliance with the Energy Policy
         and Conservation Act of 1975 (Public L. 94- 165) and any amendments to
         the Act.

7.20.5   INDEPENDENT CAPACITY OF CONTRACTOR

         The parties agree that the contractor is an independent contractor, and
         that the contractor, its agents, officers, and employees act in an
         independent capacity and not as officers or employees or agents of the
         State, the Department or any other government entity.

7.20.6   NO THIRD PARTY BENEFICIARIES

         Nothing in this contract is intended or shall confer upon anyone, other
         than the parties hereto, any legal or equitable right, remedy or claim
         against any of the parties hereto.

7.20.7   PROHIBITION ON USE OF FEDERAL FUNDS FOR LOBBYING

         A.       The contractor agrees, pursuant to 31 U.S.C. Section 1352 and
                  45 C.F.R. Part 93, that no federal appropriated funds have
                  been paid or will be paid to any person by or on behalf of the
                  contractor for the purpose of influencing or attempting to
                  influence an officer or employee of any agency, a member of
                  Congress, an officer or employee of Congress, or an employee
                  of a member of Congress in connection with the award of any
                  federal contract, the making of any federal grant, the making
                  of any federal loan, the entering into of any cooperative
                  contract, or the extension, continuation, renewal, amendment,
                  or modification of any federal contract, grant loan, or
                  cooperative contract. The contractor shall complete and

                                                                          VII-34
<PAGE>
                  submit the "Certification Regarding Lobbying", as attached in
                  Section A.7.1 of the Appendices.

         B.       If any funds other than federal appropriated funds have been
                  paid or will be paid by the contractor to any person for the
                  purpose of influencing or attempting to influence an officer
                  or employee of any agency, a member of Congress, an officer or
                  employee of Congress, or an employee of a member of Congress
                  in connection with the award of any federal contract, the
                  making of any federal grant, the making of any federal loan,
                  the entering into of any cooperative contract, or the
                  extension, continuation, renewal, amendment, or modification
                  of any federal contract, grant, loan, or cooperative contract,
                  and the contract exceeds $100,000, the contractor shall
                  complete and submit Standard Form LLL-"Disclosure of Lobbying
                  Activities" in accordance with its instructions.

         C.       The contractor shall include the provisions of this Article in
                  all provider and subcontractor contracts under this contract
                  and require all participating providers or subcontractors
                  whose contracts exceed $100,000 to certify and disclose
                  accordingly to the contractor.

7.21     REQUIRED CERTIFICATE OF AUTHORITY

         During the term of the contract, the contractor shall maintain a
         Certificate of Authority (COA) from the Department of Health and Senior
         Services and the Department of Banking and Insurance and function as a
         Health Maintenance Organization in each of the counties in the
         region(s) it is contracted to serve or for each of the counties as
         approved in accordance with Article 2.H.

7.22     SUBCONTRACTS

         In carrying out the terms of the contract, the contractor may elect to
         enter into subcontracts with other entities for the provision of health
         care services and/or administrative services as defined in Article 1.
         In doing so, the contractor shall, at a minimum, be responsible for
         adhering to the following criteria and procedures.

         A.       All subcontracts shall be in writing and shall be submitted to
                  DMAHS for prior approval at least 90 days prior to the
                  anticipated implementation date. DMAHS approval shall also be
                  contingent on regulatory agency review and approval.

         B.       The Department shall prior approve all provider contracts and
                  all subcontracts.

         C.       All provider contracts and all subcontracts shall include the
                  terms in Section B.7.2 of the Appendices,
                  Provider/Subcontractor Contract Provisions.

         D.       The contractor shall monitor the performance of its
                  subcontractors on an ongoing basis and ensure that performance
                  is consistent with the contract between the contractor and the
                  Department.

                                                                          VII-35
<PAGE>
         E.       Unless otherwise provided by law, contractor shall not cede or
                  otherwise transfer some or all financial risk of the
                  contractor to a subcontractor.

7.23     SET-OFF FOR STATE TAXES AND CHILD SUPPORT

         Pursuant to N.J.S.A 54:49-19, if the contractor is entitled to payment
         under the contract at the same time as it is indebted for any State tax
         (or is otherwise indebted to the State) or child support, the State
         Treasurer may set off payment by the amount of the indebtedness.

7.24     CLAIMS

         The contractor shall have the right to request an informal hearing
         regarding disputes under this contract by the Director, or the designee
         thereof. This shall not in any way limit the contractor's or State's
         right to any remedy pursuant to New Jersey law.

7.25     MEDICARE RISK CONTRACTOR

         To maximize coordination of care for dual eligibles while promoting the
         efficient use of public funds, the contractor:

         A.       Is recommended to be a Medicare+Choice contractor.

         B.       Shall serve all eligible populations.

7.26     TRACKING AND REPORTING

         As a condition of acceptance of a managed care contract, the contractor
         shall be held to the following reporting requirements:

         A.       The contractor shall develop, implement, and maintain a system
                  of records and reports which include those described below and
                  shall make available to DMAHS for inspection and audit any
                  reports, financial or otherwise, of the contractor and require
                  its providers or subcontractors to do the same relating to
                  their capacity to bear the risk of potential financial losses
                  in accordance with 42 C.F.R. Section 434.38. Except where
                  otherwise specified, the contractor shall provide reports on
                  hard copy, computer diskette or via electronic media using a
                  format and commonly-available software as specified by DMAHS
                  for each report.

         B.       The contractor shall maintain a uniform accounting system that
                  adheres to generally accepted accounting principles for
                  charging and allocating to all funding resources the
                  contractor's costs incurred hereunder including, but not
                  limited to, the American Institute of Certified Public
                  Accountants (AICPA) Statement of Position 89-5 "Financial
                  Accounting and Reporting by Providers of Prepaid Health Care
                  Services".

                                                                          VII-36
<PAGE>
         C.       The contractor shall submit financial reports including, among
                  others, rate cell grouping costs, in accordance with the
                  timeframes and formats contained in Section A of the
                  Appendices.

         D.       The contractor shall provide its primary care practitioners
                  with quarterly utilization data within forty-five (45) days of
                  the end of the program quarter comparing the average medical
                  care utilization data of their enrollees to the average
                  medical care utilization data of other managed care enrollees.
                  These data shall include, but not be limited to, utilization
                  information on enrollee encounters with PCPs, children who
                  have not received an EPSDT examination or a blood lead
                  screening, specialty claims, prescriptions, inpatient stays,
                  and emergency room use.

         E.       The contractor shall collect and analyze data to implement
                  effective quality assurance, utilization review, and peer
                  review programs in which physicians and other health care
                  practitioners participate. The contractor shall review and
                  assess data using statistically valid sampling techniques
                  including, but not limited to, the following:

                  Primary care practitioner audits; specialty audits; inpatient
                  mortality audits; quality of care and provider performance
                  assessments; quality assurance referrals; credentialing and
                  recredentialing; verification of encounter reporting rates;
                  quality assurance committee and subcommittee meeting agendas
                  and minutes; enrollee complaints, grievances, and follow-up
                  actions; providers identified for trending and sanctioning,
                  including providers with low blood lead screening rates;
                  special quality assurance studies or projects; prospective,
                  concurrent, and retrospective utilization reviews of inpatient
                  hospital stays; and denials of off-formulary drug requests.

         F.       The contractor shall prepare and submit to DMAHS quarterly
                  reports to be reported by hard copy and diskette in a format
                  and software application system determined by DMAHS,
                  containing summary information on the contractor's operations
                  for each quarter of the program (See Section A.7 of the
                  Appendices, Tables 1 through 18). These reports shall be
                  received by DMAHS no later than forty-five (45) calendar days
                  after the end of the quarter. After a grace period of five (5)
                  calendar days, for each calendar day after a due date that
                  DMAHS has not yet received at a prescribed location a report
                  that fulfills the requirements of any one item, assessment for
                  damages equal to one half month's negotiated blended
                  capitation rate that would normally be owed by DMAHS to the
                  contractor for one recipient shall be applied. The damages
                  shall be applied as an offset to subsequent payments to the
                  contractor.

                  The contractor shall be responsible for continued reporting
                  beyond the term of the contract because of lag time in
                  submitting source documents by providers.

                                                                          VII-37
<PAGE>
         G.       The contractor may submit encounter reports daily but must
                  submit encounter reports at least quarterly. However,
                  encounter reports will be processed by DMAHS' fiscal agent no
                  more frequently than monthly. All encounters shall be reported
                  to DMAHS within seventy-five (75) days of the end of the
                  quarter in which they are received by the contractor and
                  within one year plus seventy-five (75) days from the date of
                  service.

         H.       The contractor shall semi-annually report its staffing
                  positions including the names of supervisory personnel
                  (Director level and above and the QM/UR personnel),
                  organizational chart, and any position vacancies in these
                  major areas.

         I.       The contractor shall report, semi-annually, number of appeals
                  received from hospitals, physicians, other providers and
                  enrollees and, for enrollees, average call waiting times, and
                  number of abandoned calls.

         J.       The contractor shall submit, quarterly, information pertaining
                  to the obstetrical HealthStart programs, as specified by the
                  Department of Health and Senior Services.

         K.       DMAHS shall have the right to create additional reporting
                  requirements at any time as required by applicable federal or
                  State laws and regulations, as they exist or may hereafter be
                  amended and incorporated into this contract.

         L.       Reports that shall be submitted on an annual or semi-annual
                  basis, as specified in this contract, shall be due within
                  sixty (60) days of the close of the reporting period, unless
                  specified otherwise.

7.27     FINANCIAL STATEMENTS

7.27.1   AUDITED FINANCIAL STATEMENTS (GAAP BASIS)

         The contractor shall submit audited annual financial statements
         prepared in accordance with Generally Accepted Accounting Principles
         (GAAP) certified by an independent public accountant, no later than
         June 1, for the immediately preceding calendar year for the contractor
         and any company that is a financial guarantor for the contractor
         completed in accordance with N.J.S.A. 8:38-11.6, "Financial Reporting
         Requirements." In addition to meeting requirements as stated in
         N.J.S.A. 8:38-11.6, the audited financial statements of the contractor
         shall include an opinion supported by adequate testing by the
         independent public accountant as to the accuracy and accounting
         principles used in reporting Medicaid specific financial information
         required by this contract. This includes but is not limited to
         quarterly expense statements, Medical Cost Ratio information, cost
         allocations made to the Medicaid contract, and claims processing
         information reported to the DMAHS. The contractor shall authorize the
         independent accountant to allow representatives of the Department, upon
         written request, to inspect any and all working papers related to the
         preparation of the audit report.

                                                                          VII-38
<PAGE>
7.27.2   FINANCIAL STATEMENTS (SAP)

         Contractor shall submit to DMAHS all quarterly and annual financial
         statements and annual supplements in accordance with Statutory
         Accounting Principles (SAP) required in N.J.A.C. 8:38-11.6. Submissions
         to DMAHS shall be on the same time frame described in N.J.A.C. 8:38-14,
         i.e., quarterly reports are due the fifteenth (15th)day of the second
         month following the quarter end and statutory unaudited statement and
         the annual supplemental are due March 1 covering the preceding calendar
         year. Such information shall be subject to the confidentiality
         provisions in Article 7.40.

7.28     FEDERAL APPROVAL AND FUNDING

         This managed care contract shall not be implemented until and unless
         all necessary federal approval and funding have been obtained.

7.29     CONFLICT OF INTEREST

         A.       No contractor shall pay, offer to pay, or agree to pay, either
                  directly or indirectly, any fee, commission, compensation,
                  gift, gratuity, or other thing of value of any kind to any
                  State officer or employee or special State officer or
                  employee, as defined by N.J.S.A. 52:13D-13b and e, in the
                  Department or any other agency with which such contractor
                  transacts or offers or proposes to transact business, or to
                  any member of the immediate family, as defined by N.J.S.A.
                  52:13D-13i, of any such officer or employee, or partnership,
                  firm or corporation with which they are employed or
                  associated, or in which such officer or employee has an
                  interest within the meaning of N.J.S.A. 52:13D-13g.

         B.       The solicitation of any fee, commission, compensation, gift,
                  gratuity or other thing of value by any State officer or
                  employee or special State officer or employee from any State
                  contractor shall be reported in writing forthwith by the
                  contractor to the Attorney General and the Executive
                  Commission on Ethical Standards.

         C.       No contractor may, directly or indirectly, undertake any
                  private business, commercial or entrepreneurial relationship
                  with, whether or not pursuant to employment, contract or other
                  agreement, express or implied, or sell any interest in such
                  contractor to any State officer or employee or special State
                  officer or employee having any duties or responsibilities in
                  connection with the purchase, acquisition or sale of any
                  property or services by or to any State agency or any
                  instrumentality thereof, or with any person, firm or entity
                  with which he is employed or associated or in which he has an
                  interest within the meaning of N.J.S.A. 52:13D-13g. Any
                  relationships subject to this provision shall be reported in
                  writing forthwith to the Executive Commission on Ethical
                  Standards which may grant a waiver of this restriction upon
                  application of the State officer or employee or special State
                  officer or employee upon a finding that the present or

                                                                          VII-39
<PAGE>
                  proposed relationship does not present the potential, actual
                  or appearance, of a conflict of interest.

         D.       No contractor shall influence, or attempt to influence or
                  cause to be influenced, any State officer or employee or
                  special State officer or employee in his official capacity in
                  any manner which might tend to impair the objectivity or
                  independence of judgment of said officer or employee.

         E.       No contractor shall cause or influence, or attempt to cause or
                  influence, any State officer or employee or special State
                  officer or employee to use, or attempt to use, his official
                  position to secure unwarranted privileges or advantages for
                  the contractor or any other person.

         F.       The provisions cited above in this Article shall not be
                  construed to prohibit a State officer or employee or special
                  State officer or employee from receiving gifts from or
                  contracting with the contractor under the same terms and
                  conditions as are offered or made available to members of the
                  general public subject to any guidelines the Executive
                  Commission on Ethical Standards may promulgate.

7.30     RECORDS RETENTION

         A.       The contractor hereby agrees to maintain an appropriate
                  recordkeeping system (See Section B.4.14 of the Appendices)
                  for services to enrollees and further require its providers
                  and subcontractors to do so. Such system shall collect all
                  pertinent information relating to the medical management of
                  each enrolled beneficiary; and make that information readily
                  available to appropriate health professionals and the
                  Department. Records shall be retained for the later of

                  1.       Five (5) years from the date of service, or

                  2.       Three (3) years after final payment is made under the
                           contract or subcontract and all pending matters are
                           closed.

         B.       If an audit, investigation, litigation, or other action
                  involving the records is started before the end of the
                  retention period, the records shall be retained until all
                  issues arising out of the action are resolved or until the end
                  of the retention period, whichever is later. Records shall be
                  made accessible at a New Jersey site, and on request to
                  agencies of the State of New Jersey and the federal
                  government. For enrollees covered by the contractor's plan who
                  are eligible through the Division of Youth and Family
                  Services, records shall be kept in accordance with the
                  provisions under N.J.S.A. 9:6-8.10a and 9:6-8:40 and
                  consistent with need to protect the enrollee's
                  confidentiality. All providers and subcontractors shall comply
                  with, and all provider contracts and subcontracts shall
                  contain the requirements stated in this paragraph. (See also
                  Article 7.40, "Confidentiality".)

                                                                          VII-40
<PAGE>
         C.       If contractor's enrollees disenroll from the contractor's
                  plan, the contractor shall require participating providers to
                  release medical records of enrollees as may be directed by the
                  enrollee, authorized representatives of the Department and
                  appropriate agencies of the State of New Jersey and of the
                  federal government. Release of records shall be consistent
                  with the provision of confidentiality expressed in Article
                  7.40 and at no cost to the enrollee.

7.31     WAIVERS

         Nothing in the contract shall be construed to be a waiver by the State
         of any warranty, expressed or implied, except as specifically and
         expressly stated in writing executed by the Director. Further, nothing
         in the contract shall be construed to be a waiver by the State of any
         remedy available to the State under the contract, at law or equity
         except as specifically and expressly stated in writing executed by the
         Director. A waiver by the State of any default or breach shall not
         constitute a waiver of any subsequent default or breach.

7.32     CHANGE BY THE CONTRACTOR

         The contractor shall not make any enhancements, limitations, or changes
         in benefits or benefits coverage; any changes in definition or
         interpretation of benefits; or any changes in the administration of the
         managed care program related to the scope of benefits, allowable
         coverage for those benefits, eligibility of enrollees or providers to
         participate in the program, reimbursement methods and/or schedules to
         providers, or substantial changes to contractor operations without the
         express, written direction or approval of the State. The State shall
         have the sole discretion for determining whether an amendment is
         required to effect a change (e.g., to provide additional services).

7.33     INDEMNIFICATION

         A.       The contractor agrees to indemnify and hold harmless the
                  State, its officers, agents and employees, and the enrollees
                  and their eligible dependents from any and all claims or
                  losses accruing or resulting from contractor's negligence to
                  any participating provider or any other person, firm, or
                  corporation furnishing or supplying work, services, materials,
                  or supplies in connection with the performance of this
                  contract.

         B.       The contractor agrees to indemnify and hold harmless the
                  State, its officers, agents, and employees, and the enrollees
                  and their eligible dependents from liability deriving or
                  resulting from the contractor's insolvency or inability or
                  failure to pay or reimburse participating providers or any
                  other person, firm, or corporation furnishing or supplying
                  work, services, materials, or supplies in connection with the
                  performance of this contract.

         C.       The contractor agrees further that it shall require under all
                  provider contracts that, in the event the contractor becomes
                  insolvent or unable to pay the participating

                                                                          VII-41
<PAGE>
                  provider, the participating provider shall not seek
                  compensation for services rendered from the State, its
                  officers, agents, or employees, or the enrollees or their
                  eligible dependents.

         D.       The contractor agrees further that it shall indemnify and hold
                  harmless the State, its officers, agents, and employees, and
                  the enrollees and their eligible dependents from any and all
                  claims for services for which the contractor receives monthly
                  capitation payments, and shall not seek payments other than
                  the capitation payments from the State, its officers, agents,
                  and/or employees, and/or the enrollees and/or their eligible
                  dependents for such services, either during or subsequent to
                  the term of the contract.

         E.       The contractor agrees further to indemnify and hold harmless
                  the State, its officers, agents and employees, and the
                  enrollees and their eligible dependents, from all claims,
                  damages, and liability, including costs and expenses, for
                  violation of any proprietary rights, copyrights, or rights of
                  privacy arising out of the contractor's or any participating
                  provider's publication, translation, reproduction, delivery,
                  performance, use, or disposition of any data furnished to it
                  under this contract, or for any libelous or otherwise unlawful
                  matter contained in such data that the contractor or any
                  participating provider inserts.

         F.       The contractor shall indemnify the State, its officers, agents
                  and employees, and the enrollees and their eligible dependents
                  from any injury, death, losses, damages, suits, liabilities
                  judgments, costs and expenses and claim of negligence or
                  willful acts or omissions of the contractor, its officers,
                  agents and employees, subcontractors, participating providers,
                  their officers, agents or employees, or any other person for
                  any claims arising out of alleged violation of any State or
                  federal law or regulation. The contractor shall also indemnify
                  and hold the State harmless from any claims of alleged
                  violations of the Americans with Disabilities Act by the
                  contractor, its subcontractors or providers.

         G.       The contractor agrees to pay all losses, liabilities, and
                  expenses under the following conditions:

                  1.       The parties who shall be entitled to enforce this
                           indemnity of the contractor shall be the State, its
                           officials, agents, employees, and representatives,
                           including attorneys or the State Attorney General,
                           other public officials, Commissioner and DHS
                           employees, any successor in office to any of the
                           foregoing individuals, and their respective legal
                           representatives, heirs, and beneficiaries.

                  2.       The losses, liabilities and expenses that are
                           indemnified shall include but not be limited to the
                           following examples: judgments, court costs, legal
                           fees, the costs of expert testimony, amounts paid in
                           settlement, and all other costs of any type whether
                           or not litigation is commenced. Also covered are
                           investigation expenses, including but not limited to,
                           the costs

                                                                          VII-42
<PAGE>
                           of utilizing the services of the contracting agency
                           and other State entities incurred in the defense and
                           handling of said suits, claims, judgments, and the
                           like, and in enforcing and obtaining compliance with
                           the provisions of this paragraph whether or not
                           litigation is commenced.

                  3.       Nothing in this contract shall be considered to
                           preclude an indemnified party from receiving the
                           benefits of any insurance the contractor may carry
                           that provides for indemnification for any loss,
                           liability, or expense that is described in this
                           contract.

                  4.       The contractor shall do nothing to prejudice the
                           State's right to recover against third parties for
                           any loss, destruction of, or damage to the
                           contracting agency's property. Upon the request of
                           the DHS or its officials, the contractor shall
                           furnish the DHS all reasonable assistance and
                           cooperation, including assistance in the prosecution
                           of suits and the execution of instruments of
                           assignment in favor of the contracting agency in
                           obtaining recovery.

                  5.       Indemnification includes but is not limited to, any
                           claims or losses arising from the promulgation or
                           implementation of the contractor's policies and
                           procedures, whether or not said policies and
                           procedures have been approved by the State, and any
                           claims of the contractor's wrong doing in
                           implementing DHS policies.

7.34     INVENTIONS

         Inventions, discoveries, or improvements of computer programs developed
         pursuant to this contract by the contractor, and paid for by DMAHS in
         whole or in part, shall be the property of DMAHS.

7.35     USE OF CONCEPTS

         The ideas, knowledge, or techniques developed and utilized through the
         course of this contract by the contractor, or jointly by the contractor
         and DMAHS, for the performance under the contract, may be used by
         either party in any way they may deem appropriate. However, such use
         shall not extend to pre-existing intellectual property of the
         contractor or DMAHS that is patented, copyrighted, trademarked or
         service marked, which shall not be used by another party unless a
         license is granted.

7.36     PREVAILING WAGE

         The New Jersey Prevailing Wage Act, PL 1963, Chapter 150, is hereby
         made a part of this contract, unless it is not within the contemplation
         of the Act. The contractor's signature on the contract is a guarantee
         that neither the contractor nor any providers or subcontractors it
         might employ to perform the work covered by this contract is listed or
         is on record in the Office of the Commissioner of the New Jersey
         Department of Labor and

                                                                          VII-43
<PAGE>
         Industry as one who has failed to pay prevailing wages in accordance
         with the provisions of this Act.

7.37     DISCLOSURE STATEMENT

         The contractor shall report ownership and related information to DMAHS
         at the time of initial contracting, and yearly thereafter, and upon
         request, to the Secretary of DHHS and the Inspector General of the
         United States in accordance with federal and state law.

         A.       The contractor shall include full and complete information as
                  to the name and address of each person or corporation with a
                  five (5) percent or more ownership or controlling interest in
                  the contractor's plan, or any provider or subcontractor in
                  which the contractor has a five (5) percent or more ownership
                  interest (Section 1903(m)(2)(A) of the Social Security Act and
                  N.J.A.C. 10:49-19.2)

                  The contractor shall comply with this disclosure requirement
                  through submission of the HCFA-1513 Form whether federally
                  qualified or not.

         B.       If the contractor is not federally qualified, it shall
                  disclose to DMAHS at the time of contracting (and within ten
                  days of any change) information on types of transactions with
                  a "party in interest" as defined in Section 1318(b) of the
                  Public Health Service Act (Section 1903(m)(4)(A) of the Social
                  Security Act).

                  1.       All contractor business transactions shall be
                           reported. This requirement shall not be limited to
                           transactions related only to serving the Medicaid
                           enrollees and applies at least to the following
                           transactions:

                           a.       Any sale, exchange, or leasing of property
                                    between the contractor and a "party in
                                    interest";

                           b.       Any furnishing for consideration of goods,
                                    services or facilities between the
                                    contractor and a "party in interest" (not
                                    including salaries paid to employees for
                                    services provided in the normal course of
                                    their employment);

                           c.       Any lending of money or other extension of
                                    credit between the contractor and a "party
                                    in interest"; and

                           d.       Transactions or series of transactions
                                    during any one fiscal year that are expected
                                    to exceed the lesser of $25,000 or five (5)
                                    percent of the total operating expenses of
                                    the contractor.

                  2.       The information that shall be disclosed regarding
                           transactions listed in B.1 above between the
                           contractor and a "party in interest" includes:

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

                                                                          VII-44
<PAGE>
                           b.       A description of each transaction and the
                                    quantity or units involved;

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

                           d.       The justification of the reasonableness of
                                    each transaction.

                  3.       This information shall be reported annually to DMAHS
                           and shall also be made available, upon request, to
                           the Office of the Inspector General, the Comptroller
                           General and to the contractor's enrollees. DMAHS may
                           request that the information be in the form of a
                           consolidated financial statement for the organization
                           and entity (N.J.A.C. 10:49-19.2).

         C.       The contractor shall disclose the identity of any person who
                  has been convicted of certain offenses, as defined in Section
                  1126 of the Social Security Act. This includes any person who
                  has ownership or control interest in the contractor, or is an
                  agent or managing employee of the contractor and:

                  1.       Has been convicted of a criminal offense related to
                           the delivery of an item or service under Medicare,
                           Medicaid, or title XXI;

                  2.       Has been convicted of a criminal offense relating to
                           neglect or abuse of patients in connection with the
                           delivery of a health care item or service;

                  3.       Has been convicted for an offense that occurred after
                           the date of the enactment of the Health Insurance
                           Portability and Accountability Act of 1996, in
                           connection with the delivery of a health care item or
                           service or omission in a health care program operated
                           by or financed in whole or in part by any Federal,
                           State, or local government agency, of a criminal
                           offense consisting of a felony relating to fraud,
                           theft, embezzlement, breach of fiduciary
                           responsibility, or other financial misconduct; or

                  4.       Has been convicted for an offense that occurred after
                           the date of the enactment of the Health Insurance
                           Portability and Accountability Act of 1996 of a
                           criminal offense consisting of a felony relating to
                           the unlawful manufacture, distribution, prescription,
                           or dispensing of a controlled substance.

7.38     FRAUD AND ABUSE

7.38.1   ENROLLEES

         A.       Policies and Procedures. The contractor shall establish
                  written policies and procedures for identifying potential
                  enrollee fraud and abuse. Proven cases are to

                                                                          VII-45
<PAGE>
                  be referred to the Department for screening for advice and/or
                  assistance on follow-up actions to be taken. Referrals are to
                  be accompanied by all supporting case documentation.

         B.       Typical Cases. The most typical cases of fraud or abuse
                  include but are not limited to: the alteration of an
                  identification card for possible expansion of benefits; the
                  loaning of an identification card to others; use of forged or
                  altered prescriptions; and mis-utilization of services.

7.38.2   PROVIDERS

         A.       Policies and Procedures. The contractor shall establish
                  written policies and procedures for identifying,
                  investigating, and taking appropriate corrective action
                  against fraud and abuse (as defined in 42 C.F.R. Section
                  455.2) in the provision of health care services. The policies
                  and procedures will include, at a minimum:

                  1.       Written notification to DMAHS within five (5)
                           business days of intent to conduct an investigation
                           or to recover funds, and approval from DMAHS prior to
                           conducting the investigation or attempting to recover
                           funds. Details of potential investigations shall be
                           provided to DMAHS and include the data elements in
                           Section A.7.2.B of the Appendices. Representatives of
                           the contractor may be required to present the case to
                           DMAHS. DMAHS, in consultation with the contractor,
                           will then determine the appropriate course of action
                           to be taken.

                  2.       Incorporation of the use of claims and encounter data
                           for detecting potential fraud and abuse of services.

                  3.       Reporting investigation results within twenty (20)
                           business days to DMAHS.

                  4.       Specifications of, and reports generated by, the
                           contractor's prepayment and postpayment surveillance
                           and utilization review systems, including prepayment
                           and postpayment edits.

         B.       Distinct Unit. The contractor shall establish a distinct fraud
                  and abuse unit, separate from the contractor's utilization
                  review and quality of care functions. The unit can either be
                  part of the contractor's corporate structure, or operate under
                  contract with the contractor. The unit shall be staffed with
                  individuals with the qualifications and an
                  investigator-to-beneficiary ratio consistent, at a minimum,
                  with the Department of Banking and Insurance requirements for
                  fraud units within health insurance carriers or greater ratio
                  as needed to meet the demands.

         C.       Prepayment Monitoring. The contractor shall conduct prepayment
                  monitoring of its own network providers and subcontractors
                  when it believes fraud or abuse may be occurring.

                                                                          VII-46
<PAGE>
         D.       It shall be the responsibility of the contractor to report in
                  writing to DMAHS' Office of Program Integrity Administration
                  the following:

                  1.       All cases of suspected fraud and abuse, using the
                           format described in Section A.7.2 of the Appendices;

                  2.       Inappropriate or inconsistent practices by providers,
                           subcontractors, enrollees or employees or anyone who
                           can order or refer services, and related parties; and

                  3.       Prepayment monitoring of a provider or a
                           subcontractor by the contractor.

         E.       DMAHS shall have the right to withhold from a contractor's
                  capitation payments an appropriate amount if DMAHS determines
                  that evidence of fraud or abuse exists relating to the
                  contractor, its providers, subcontractors, enrollees,
                  employees, or anyone who can order or refer services, and
                  related parties.

         F.       When DMAHS has withheld payment and/or initiated a recovery
                  action against one of the contractor's providers or
                  subcontractors or a withholding of payments action pursuant to
                  42 C.F.R. Section 455.23, DMAHS may require the contractor to
                  withhold payments to that provider or subcontractor and/or
                  forward those payments to DMAHS.

         G.       DMAHS may direct the contractor to monitor one of its
                  providers or subcontractors, or take such corrective action
                  with respect to that provider or subcontractor as DMAHS deems
                  appropriate, when, in the opinion of DMAHS, good cause exists.

         H.       Sanctions. Failure of the contractor to investigate and
                  correct fraud and abuse problems relating to its enrollees,
                  network providers or subcontractors, and to notify DMAHS
                  timely of same, may result in sanctions. Timely notification
                  is defined as within five (5) business days of identification
                  of the fraud and/or abuse and within twenty (20) business days
                  of the completion of an investigation. For purposes of this
                  subsection, the term "investigation" shall include prepayment
                  monitoring as described above.

                  DMAHS shall have the right to also impose sanctions and/or
                  withhold payments to the contractor (in accordance with
                  provisions of 42 C.F.R. Section 455.23) if it has reliable
                  evidence of fraud or willful misrepresentation relating to the
                  contractor's participation in the New Jersey Medicaid or NJ
                  FamilyCare program or if the contractor fails to initiate its
                  investigation of an identified fraud and/or abuse within one
                  year of identification.

                                                                          VII-47
<PAGE>
7.38.3   NOTIFICATION TO DMAHS

         The contractor shall submit quarterly the report in Section A.7.2 of
         the Appendices, Fraud & Abuse.

7.39     EQUALITY OF ACCESS AND TREATMENT/DUE PROCESS

         A.       Unless a higher standard is required by this contract, the
                  contractor shall provide and require its subcontractors and
                  its providers to provide the same level of medical care and
                  health services to DMAHS enrollees as to enrollees in the
                  contractor's plan under private or group contracts unless
                  otherwise required in this contract.

         B.       Enrollees shall be given equitable access, i.e., equal
                  opportunity and consideration for needed services without
                  exclusionary practices of providers or system design because
                  of gender, age, race, ethnicity, color, creed, religion,
                  ancestry, national origin, marital status, sexual or
                  affectional orientation or preference, mental or physical
                  disability, genetic information, or source of payment.

         C.       DMAHS shall assure that all due process safeguards that are
                  otherwise available to Medicaid/NJ FamilyCare beneficiaries
                  remain available to enrollees under this contract.

         D.       The contractor shall assure the provision of services,
                  notifications, preparation of educational materials in
                  appropriate alternative formats, for enrollees including the
                  blind, hearing impaired, people with cognitive or
                  communication impairments, and individuals who do not speak
                  English.

7.40     CONFIDENTIALITY

         A.       General. The contractor hereby agrees and understands that all
                  information, records, data, and data elements collected and
                  maintained for the operation of the contractor and the
                  Department and pertaining to enrolled persons, shall be
                  protected from unauthorized disclosure in accordance with the
                  provisions of 42 U.S.C. Section 1396(a)(7)(Section 1902(a)(7)
                  of the Social Security Act), 42 C.F.R. Part 431, subpart F,
                  N.J.S.A. 30:4D-7 (g) and N.J.A.C. 10:49-9.4. Access to such
                  information, records, data and data elements shall be
                  physically secured and safeguarded and shall be limited to
                  those who perform their duties in accordance with provisions
                  of this contract including the Department of Health and Human
                  Services and to such others as may be authorized by DMAHS in
                  accordance with applicable law. For enrollees covered by the
                  contractor's plan that are eligible through the Division of
                  Youth and Family Services, records shall be kept in accordance
                  with the provisions under N.J.S.A. 9:6-8.10a and 9:6-8:40 and
                  consistent with the need to protect the enrollee's
                  confidentiality.

                                                                          VII-48
<PAGE>
         B.       Enrollee-Specific Information. With respect to any
                  identifiable information concerning an enrollee under the
                  contract that is obtained by the contractor or its providers
                  or subcontractors, the contractor: (1) shall not use any such
                  information for any purpose other than carrying out the
                  express terms of this contract; (2) shall promptly transmit to
                  the Department all requests for disclosure of such
                  information; (3) shall not disclose except as otherwise
                  specifically permitted by the contract, any such information
                  to any party other than the Department without the
                  Department's prior written authorization specifying that the
                  information is releasable under 42 C.F.R. Section 431.300 et
                  seq., and (4) shall, at the expiration or termination of the
                  contract, return all such information to the Department or
                  maintain such information according to written procedures sent
                  the contractor by the Department for this purpose.

         C.       Employees. The contractor shall instruct its employees to keep
                  confidential information concerning the business of DMAHS, its
                  financial affairs, its relations with its enrollees and its
                  employees, as well as any other information which may be
                  specifically classified as confidential by law.

         D.       Medical records and management information data concerning
                  Medicaid/NJ FamilyCare beneficiaries enrolled pursuant to this
                  contract shall be confidential and shall be disclosed to other
                  persons within the contractor's organization only as necessary
                  to provide medical care and quality, peer, or grievance review
                  of medical care under the terms of this contract.

         E.       The provisions of this Article shall survive the termination
                  of this contract and shall bind the contractor so long as the
                  contractor maintains any individually identifiable information
                  relating to Medicaid/NJ FamilyCare beneficiaries.

         F.       If DMAHS receives a request pursuant to the Right To Know Law
                  for release of information concerning the contractor, DMAHS
                  shall determine what information is required by law to be
                  released and retain authority over the release of that
                  information. Prior to release of information that was
                  previously labeled by the contractor as "confidential" or
                  "proprietary," DMAHS shall notify the contractor, who may
                  apply to the Superior Court of New Jersey for a protective
                  order if the contractor opposes the release of information.

7.41     SEVERABILITY

         If this contract contains any unlawful provision that is not an
         essential part of the contract and that was not a controlling or
         material inducement to enter into the contract, the provision shall
         have no effect and, upon notice by either party, shall be deemed
         stricken from the contract without affecting the binding force of the
         remainder of the contract.

                                                                          VII-49
<PAGE>
7.42     CONTRACTING OFFICER AND CONTRACTOR'S REPRESENTATIVE

         It is agreed that __________________, Director of DMAHS, or her
         representative, shall serve as the Contracting Officer for the State
         and that __________________ shall serve as the Contractor's
         Representative. The Contracting Officer and the Contractor's
         Representative each reserve the right to delegate such duties as may be
         appropriate to others in the DMAHS's or contractor's employ.

         Each party shall provide timely written notification of any change in
         Contracting Officer or Contractor's Representative.

                                                                          VII-50
<PAGE>
ARTICLE EIGHT: FINANCIAL PROVISIONS

8.1      GENERAL INFORMATION

         This Article includes financial requirements (including solvency and
         insurance), medical cost ratio requirements, information on rates set
         by the State, third party liability (TPL) requirements, general
         capitation requirements, and provider payment requirements.

8.2      FINANCIAL REQUIREMENTS

8.2.1    COMPLIANCE WITH CERTAIN CONDITIONS

         The contractor shall remain in compliance with the following conditions
         which shall satisfy the Departments of Human Services, Banking and
         Insurance (DOBI) and Health and Senior Services prior to this contract
         becoming effective:

         A.       Provider Contracts Executed. The contractor has entered into
                  written contracts with providers in accordance with Article
                  Four of this contract.

         B.       No Judgment Preventing Implementation. No court order,
                  administrative decision, or action by any other
                  instrumentality of the United States government or the State
                  of New Jersey or any other state which prevents implementation
                  of this contract is outstanding.

         C.       Approved Certificate of Authority. The contractor has and
                  maintains an approved certificate of authority to operate as a
                  health maintenance organization in New Jersey from the DOBI
                  and the Department of Health and Senior Services for the
                  Medicaid population.

         D.       Compliance with All Solvency Requirements. The contractor
                  shall comply with and remain in compliance with minimum net
                  worth and fiscal solvency and reporting requirements of the
                  DOBI and the Department of Human Services, the federal
                  government, and this contract.

8.2.2    SOLVENCY REQUIREMENTS

         The contractor shall maintain a minimum net worth in accordance with
         N.J.A.C. 8:38-11 et seq.

         The Department shall have the right to conduct targeted financial
         audits of the contractor's Medicaid line of business. The contractor
         shall provide the Department with financial data, as requested by the
         Department, within a timeframe specified by the Department.

                                                                          VIII-1
<PAGE>
8.2.3    GENERAL PROVISIONS AND CONTRACTOR COMPLIANCE

         The contractor shall comply with the following financial operations
         requirements:

         A.       The contractor must establish and maintain (1) an office in
                  New Jersey, and (2) premium and claims accounts in a bank with
                  a principal office in New Jersey.

         B.       The contractor shall have a fiscally sound operation as
                  demonstrated by:

                  1.       Maintenance of minimum net worth in accordance with
                           DOBI requirements (total line of business) and the
                           requirements outlined in Article 8.2.2.

                  2.       Maintenance of a net operating surplus for Medicaid
                           line of business. If the contractor fails to earn a
                           net operating surplus during the most recent calendar
                           year, or does not maintain minimum net worth
                           requirements on a quarterly basis, it shall submit a
                           corrective plan of action within the time specified
                           by the Department. The plan is subject to the
                           approval of DMAHS. It must demonstrate how and when
                           minimum net worth requirements will be replenished
                           and present marketing and financial projections.
                           These must be supported by suitable back-up material.
                           The discussion must include possible alternative
                           funding sources, including the invoking of a parental
                           guarantee.

                           This plan shall include:

                           a.       A detailed marketing plan with enrollment
                                    projections for the next two years.

                           b.       A projected balance sheet for the next two
                                    years.

                           c.       A projected statement of revenue and
                                    expenses on an accrual basis for the next
                                    two years.

                           d.       A statement of cash flow projected for the
                                    next two years.

                           e.       A description of how to maintain capital
                                    requirements and replenish net worth.

                           f.       Sources and timing of new capital must be
                                    specifically identified.

                  3.       The contractor shall demonstrate it has sufficient
                           cash and adequate liquidity set aside (i.e.,
                           restricted) but accessible to the DOBI to meet
                           obligations as they become due, and which are
                           acceptable to DMAHS. The contractor shall comply with
                           DOBI requirements regarding cash

                                                                          VIII-2
<PAGE>
                           reserves and where restricted funds will be held (See
                           N.J.A.C. 8:38-11.3, Reserve Requirements).

8.3      INSURANCE REQUIREMENTS

         The contractor shall maintain general comprehensive liability
         insurance, products/completed operations insurance, premises/operations
         insurance, unemployment compensation coverage, workmen's compensation
         insurance, reinsurance, and malpractice insurance in such amounts as
         determined necessary in accordance with state and federal statutes and
         regulations, insuring all claims which may arise out of contractor
         operations under the terms of this contract. The DMAHS shall be an
         additional named insured with sixty (60) days prior written notice in
         event of default and/or non-renewal of the policy. Proof of such
         insurance shall be provided to and approved by DMAHS prior to the
         provision of services under this contract and annually thereafter. No
         policy of insurance provided or maintained under this Article shall
         provide for an exclusion for the acts of officers.

8.3.1    INSURANCE CANCELLATION AND/OR CHANGES

         In the event that any carrier of any insurance described in 8.4 or
         8.4.2 exercises cancellation and/or changes, or cancellation or change
         is initiated by the contractor, notice of such cancellation and/or
         change shall be sent immediately to DMAHS for approval. At State's
         option upon cancellation and/or change or lapse of such insurance(s),
         DMAHS may withhold all or part of payments for services under this
         contract until such insurance is reinstated or comparable insurance
         purchased. The contractor is obligated to provide any services during
         the period of such lapse or termination.

8.3.2    STOP-LOSS INSURANCE

         At the discretion of the Departments of Banking and Insurance, Human
         Services, and Health and Senior Services and notwithstanding the
         requirements of N.J.A.C. 8:38-11.5 (b), the contractor may be required
         to obtain, prior to this contract, and maintain "stop-loss" insurance
         from a reinsurance company authorized to do business in New Jersey that
         will cover medical costs that exceed a threshold per case for the
         duration of the contract period. Any coverage other than stipulated
         must be based on an actuarial review, taking into account geographic
         and demographic factors, the nature of the clients, and state solvency
         safeguard requirements.

         All "stop-loss" insurance arrangements, including modifications, shall
         be reviewed and prior approved by the Departments of Banking and
         Insurance, Human Services, and Health and Senior Services. The
         "stop-loss" insurance underwriter must meet the standards of financial
         stability as set forth by the DOBI.

                                                                          VIII-3
<PAGE>
         Contractors with sufficient reserves may choose self-insurance, subject
         to approval by the Department of Human Services and the DOBI where
         appropriate.

8.4      MEDICAL COST RATIO

8.4.1    MEDICAL COST RATIO STANDARD

         The contractor shall maintain direct medical expenditures for enrollees
         equal to or greater than eighty (80) percent of premiums paid in all
         forms from the State. This medical cost ratio (MCR) shall apply to
         annual periods from the contract effective date (if the contract ends
         before the completion of an annual period, the MCR shall apply to that
         shorter period). The MCR shall be based on reports completed by the
         contractor and acceptable to the Department.

         A.       Direct Medical Expenditures. Direct medical expenditures are
                  the incurred costs of providing direct care to enrollees for
                  covered health care services as stated in Article 4.1. Costs
                  related to information and materials for general education and
                  outreach and/or administration are not considered direct
                  medical expenditures.

                  Personnel costs are generally considered to be administrative
                  in nature and must be reported as an administrative expense on
                  Tables 6a and 6b (Statement of Revenues and Expenses) on line
                  30 (Compensation). However, a portion of these costs may
                  qualify as direct medical expenditures, subject to prior
                  review and approval by the State. Those activities that the
                  contractor expects to generate these costs must be specified
                  and detailed in a Medical Cost Ratio - Direct Medical
                  Expenditures Plan which must be reviewed and approved by the
                  State. At the end of the reporting period, the contractor's
                  reporting shall be based only on the approved Medical Cost
                  Ratio - Direct Medical Expenditures Plan. In order to consider
                  these costs as Direct Medical Expenditures, the contractor
                  must complete Table 6c, entitled "Allowable Direct Medical
                  Expenditures," which will be used by the State to determine
                  the allowable portion of costs. The allowable components of
                  these personnel costs include the following activities:

                  1.       Care Management. Allowable direct medical
                           expenditures for care management include: 1)
                           assessment(s) of an enrollee's risk factors; and 2)
                           development of Individual Health Care Plans. The
                           costs of performing these two allowable components
                           may be considered a direct medical expenditure for
                           purposes of calculating MCR.

                  2.       The cost associated with the provision of a
                           face-to-face home visit by the contractor's clinical
                           personnel for the purpose of medical education or
                           anticipatory guidance can be considered a direct
                           medical expenditure.

                  3.       Costs for activities required to achieve compliance
                           standards for EPSDT participation, lead screening,
                           and prenatal care as specified in Article IV may be
                           considered direct medical expenditures. The
                           contractor's reporting shall be

                                                                          VIII-4
<PAGE>
                           based only on the approved Medical Cost Ratio --
                           Direct Medical Expenditures Plan.

         B.       Calculation of MCR. The calculation of MCR will be made using
                  information submitted by each contractor on the quarterly
                  reports - Statement of Revenues and Expenses (Section A.7.8 of
                  the Appendices (Table 6)). The costs related to 8.4.1.A are to
                  be reported on Table 6c and the allowable amount will be added
                  to the calculation of Medical and Hospital Expenses. The sum
                  of all applicable quarters for Total Medical and Hospital
                  Expenses (line 28) less Coordination of Benefits (COB) (line
                  6) and less reinsurance recoveries (line 7) will be divided by
                  the sum of all applicable quarters of Medicaid/NJ FamilyCare
                  premiums (line 4) to arrive at the ratio.

8.4.2    EXEMPTIONS

         An exemption may be granted to reduce the eighty (80) percent MCR
         requirement to no lower than seventy-five (75) percent. Under no
         circumstances will an exemption be granted to a contractor for MCR
         below seventy-five (75) percent. An exemption may be granted if the
         contractor meets all of the following established criteria:

         A.       Has no unresolved quality of care issues;

         B.       Has not received any pending or imposed sanctions;

         C.       Is in compliance with all reporting requirements;

         D.       Had no vacancies in key administrative positions for longer
                  than sixty (60) days;

         E.       Is in compliance with all corrective plans of action relating
                  to Medicaid activity imposed by the Departments of Human
                  Services, Banking and Insurance, or Health and Senior
                  Services;

         F.       Has demonstrated timely processing of claims during the
                  two-year contract period immediately prior to the reporting
                  period and has had no substantiated pattern of complaints from
                  providers for late payments; and

         G.       Has produced evidence to demonstrate compliance with education
                  and outreach provisions of the contract.

8.4.3    DAMAGES

         The Department shall have the right to impose damages on a contractor
         that has failed to maintain an appropriate MCR. The formula for
         imposing damages follows:

                                                                          VIII-5
<PAGE>
<TABLE>
<CAPTION>
   ACTUAL MCR                 1ST OFFENSE              2ND OFFENSE
----------------           ----------------        -------------------
<S>                        <C>                     <C>
80% or above               NONE                    NONE

78.00-79.99%               .15 times               .15 times
                           underexpenditure        underexpenditure

75.00-77.99%               .50 times               .50 times
                           underexpenditure        underexpenditure

74.99 or below             .90 times               1.00 times
                           underexpenditure        underexpenditure
</TABLE>

         If the contractor fails to meet the MCR requirement and a penalty is
         applied, a plan of corrective action will be required.

8.5      REGIONS, PREMIUM GROUPS, AND SPECIAL PAYMENT PROVISIONS

8.5.1    REGIONS

         Rates for DYFS, NJ FamilyCare Plan A Parents/caretaker relatives with
         children and adults without dependent children under the age of 19, NJ
         FamilyCare Plans B, C and D, and the non risk-adjusted rates for AIDS
         and clients of DDD are statewide. All other rates for each premium
         group have been set for each of the following regions:

         -        Region 1: Bergen, Hudson, Hunterdon, Morris, Passaic,
                  Somerset, Sussex, and Warren counties

         -        Region 2: Essex, Union, Middlesex, and Mercer counties

         -        Region 3: Atlantic, Burlington, Camden, Cape May, Cumberland,
                  Gloucester, Monmouth, Ocean, and Salem counties

         Contractors may contract for one or more regions but, except as
         provided in Article 2, may not contract for part of a region.

8.5.2    AFDC/TANF AND NJ FAMILYCARE PLAN A CHILDREN

         The capitation rates for Aid to Families with Dependent Children
         (AFDC)/Temporary Assistance for Needy Families (TANF) includes New
         Jersey Care Pregnant Women and NJ FamilyCare Plan A children (age <19)
         but excludes individuals who have AIDS or are clients of DDD. Rates
         have been set for the following premium groups:

         A.       Males and females < 1 year

                                                                          VIII-6
<PAGE>
         B.       Males and females 1 year to 1.99 years

         C.       Males 2 to 20.99 years and females 2 to 14.99 years

         D.       Females 15 to 44.99 years

         E.       Males 21 to 44.99 years

         F.       Males and females 45 years and older

8.5.3    NJ FAMILYCARE PLAN A PARENTS/CARETAKERS

         The capitation rates for NJ FamilyCare Plan A parents/caretakers,
         excluding individuals with AIDS and clients of DDD, are in the
         following premium groups:

         A.       Males 19 to 44.99 years

         B.       Females 19 to 44.99 years

         C.       Males and females 45 years and older

8.5.4    NJ FAMLYCARE PLAN A ADULTS WITHOUT DEPENDENT CHILDREN UNDER 19 YEARS OF
         AGE

         The capitation rates for NJ FamilyCare Plan A adults without dependent
         children under 19 years of age, excluding individuals with AIDS and
         clients of DDD, are in the following premium groups:

         A.       Males 19 to 44.99 years

         B.       Females 19 to 44.99 years

         C.       Males and females 45 years and older

8.5.5    NJ FAMILYCARE PLANS B & C

         The capitation rates for NJ FamilyCare Plans B and C enrollees,
         excluding individuals with AIDS are in the following premium groups:

         A.       Males and females < 1 year

         B.       Males and females 1 year to 1.99 years

                                                                          VIII-7
<PAGE>
         C.       Males and females 2 to 18.99 years

8.5.6    NJ FAMILYCARE PLAN D CHILDREN

         The capitation rates for NJ FamilyCare Plan D children, excluding
         individuals with AIDS, are in the following premium groups:

         A.       Males and females < 1 year

         B.       Males and females 1 year to 1.99 years

         C.       Males and females 2 to 18.99 years

8.5.7    NJ FAMILYCARE PLAN D PARENTS/CARETAKERS

         The capitation rates for NJ FamilyCare Plan D parents/caretakers,
         excluding individuals with AIDS, are in the following premium groups:

         A.       Males 19 to 44.99 years

         B.       Females 19 to 44.99 years

         C.       Males and Females 45 years and older

8.5.8    NJ FAMILYCARE PLAN D ADULTS WITHOUT DEPENDENT CHILDREN UNDER 23 YEARS
         OLD

         The capitation rates for NJ FamilyCare Plan D adults without dependent
         children under 23 years old, excluding individuals with AIDS, are in
         the following premium groups:

         A.       Males 19 to 44.99 years

         B.       Females 19 to 44.99 years

         C.       Males and Females 45 years and older

8.5.9    PREMIUM GROUPS FOR DYFS AND AGING OUT FOSTER CHILDREN

         The capitation rates for Division of Youth and Family Services,
         excluding individuals with AIDS and clients of DDD, are in the
         following premium groups:

         A.       Males and females < 1 year

         B.       Males and females 1 year to 1.99 years

         C.       Males and females 2 to 20.99 years

                                                                          VIII-8
<PAGE>
8.5.10   ABD WITHOUT MEDICARE

         Compensation to the contractor for the ABD without Medicare will be
         risk-adjusted using the Health Based Payments System (HBPS), which is
         described in Article 8.6. Since the HBPS adjusts for regional
         variations, a separate rate for each region is not necessary. In
         addition, the HBPS adjusts for the diagnosis of AIDS; therefore,
         separate AIDS rates are not necessary for this population. Finally, the
         HBPS adjusts for age and sex so separate rates for age and sex within
         this population are not necessary. Accordingly, the base rates to be
         used for this population are as follows:

         A.       ABD without Medicare (non-DDD)

         B.       ABD-DDD without Medicare

8.5.11   ABD WITH MEDICARE

         The capitation rates for the ABD with Medicare population, excluding
         individuals with AIDS and clients of DDD, are in the following premium
         groups:

         A.       Aged

         B.       Blind/Disabled <45

         C.       Blind/Disabled 45+

         These rates are set by region and will not be risk-adjusted using the
         HBPS.

8.5.12   CLIENTS OF DDD

         The contractor shall be paid separate, statewide rates for subgroups of
         the DDD population, excluding individuals with AIDS. These rates
         include MH/SA services for the following premium groups:

         A.       ABD-DDD with Medicare

         B.       AFDC-DDD (includes DYFS, New Jersey Care Pregnant Women, and
                  NJ FamilyCare Plan A)

         These rates will not be risk-adjusted using the HBPS.

8.5.13   PREMIUM GROUPS FOR ENROLLEES WITH AIDS

                                                                          VIII-9
<PAGE>
         A.       In an effort to more appropriately match payment to risk, the
                  contractor shall be paid capitation rates according to the
                  following statewide premium groups for enrollees with AIDS:

                  1.       AFDC-AIDS (includes DYFS, New Jersey Care Pregnant
                           Women, and NJ FamilyCare Plans A (children and
                           parents/caretakers), B, and C individuals, NJ
                           FamilyCare Plan D children)

                  2.       NJ FamilyCare AIDS Plan D parents/caretakers and
                           adults without dependent children under 23 years old
                           and Plan A adults without dependent children under 19
                           years old

                  3.       ABD-AIDS with Medicare

                  4.       ABD-DDD-AIDS with Medicare (includes a MH/SA add on
                           to the ABD-AIDS rate)

                  5.       AFDC-DDD-AIDS (includes a MH/SA add on to the
                           AFDC-AIDS rate) Other eligible groups include DYFS,
                           New Jersey Care Pregnant Women and NJ FamilyCare Plan
                           A (children and parents/caretakers).

                  6.       NJ FamilyCare Plan A adults without dependent
                           children under 19 years old, DDD-AIDS (includes MH/SA
                           add on to the NJ FamilyCare AIDS rate).

         B.       The contractor will be reimbursed double the AIDS rate, once
                  in a member lifetime, in the first month of payment for a
                  recorded diagnosis of AIDS, prospective and newly diagnosed.
                  This is a one-time-only-per-member payment, regardless of MCE.

8.5.14   SUPPLEMENTAL PAYMENT PER PREGNANCY OUTCOME

         Because costs for pregnancy outcomes were not included in the
         capitation rates, the contractor shall be paid supplemental payments
         for pregnancy outcomes for all eligibility categories.

         Payment for pregnancy outcome shall be a single, predetermined lump sum
         payment. This amount shall supplement the existing capitation rate
         paid. The Department will make a supplemental payment to contractors
         following pregnancy outcome. For purposes of this Article, pregnancy
         outcome shall mean each live birth, still birth or miscarriage
         occurring at the thirteenth (13th) or greater week of gestation. This
         supplemental payment shall reimburse the contractor for its inpatient
         hospital, antepartum, and postpartum costs incurred in connection with
         delivery. Costs for care of the baby are not included. Payment shall be
         made by the State to the contractor based on submission of appropriate
         encounter data and use of a special indicator on the claim as specified
         by DMAHS.

                                                                         VIII-10
<PAGE>
8.5.15   PAYMENT FOR CERTAIN BLOOD CLOTTING FACTORS

         The contractor shall be paid separately for factor VIII and IX blood
         clotting factors. Payment will be made by DMAHS to the contractor based
         on: 1) submission of appropriate encounter data; and 2) prior
         notification from the contractor to DMAHS of identification of
         individuals with factor VIII or IX hemophilia. Payment for these
         products will be the lesser of: 1) Average Wholesale Price (AWP) minus
         10% and 2) rates paid by the contractor.

8.5.16   PAYMENT FOR HIV/AIDS DRUGS

         The contractor shall be paid separately for protease inhibitors (First
         Data Bank Specific Therapeutic Class Code W5C) and other
         anti-retroviral agents (First Data Bank Specific Therapeutic Class Code
         W5B) for all eligibility groups with the exception of NJ FamilyCare
         Plan A adults without dependent children under the age of 19 and NJ
         Family Care Plan D parents/caretakers and adults without dependent
         children under the age of 23. Payment for protease inhibitors shall be
         made by DMAHS to the contractor based on: 1) submission of appropriate
         encounter data; and 2) prior notification from the contractor to DMAHS
         of identification of individuals with HIV/AIDS. Payment for these
         products will be the lesser of: 1) Average Wholesale Price (AWP) minus
         10% and 2) rates paid by the contractor.

         Individuals eligible through NJ FamilyCare with a program status code
         of 380 and all children groups shall receive protease inhibitors and
         other anti-retroviral agents under the contractor's plan. All other
         individuals eligible through NJ FamilyCare with program status codes of
         497-498, 300-301, 700-701 and 761-763 shall receive protease inhibitors
         (First Data Bank Specific Therapeutic Class Code W5C) and other
         anti-retrovirals (First Data Bank Specific Therapeutic Class Code W5B)
         through Medicaid fee-for-service and the AIDS Drug Distribution Program
         (ADDP).

8.5.17   EPSDT INCENTIVE PAYMENT

         The contractor shall be paid separately, $10 for every documented
         encounter record for an EPSDT screening examination. The contractor
         shall be required to pass the $10 amount directly to the screening
         provider.

         The incentive payment shall be reimbursed for EPSDT encounter records
         submitted in accordance with 1) procedure codes specified by DMAHS, and
         2) EPSDT periodicity schedule.

                                                                         VIII-11
<PAGE>
8.5.18   ADMINISTRATIVE COSTS

         The capitation rates, effective July 1, 2001, recognize costs for
         anticipated contractor administrative expenditures due to Balanced
         Budget Act regulations.

8.6      HEALTH BASED PAYMENT SYSTEM (HBPS) FOR THE ABD WITHOUT MEDICARE
         POPULATION

         A.       The capitation rates for the ABD without Medicare population
                  account for the potential of the contractor receiving a
                  disproportionate number of higher cost beneficiaries. If a
                  traditional age and sex capitation model were used, the rates
                  may not adequately account for the difference in risk assumed
                  by each contractor. In order to account for this problem
                  diagnostic information, as well as age, sex, and
                  regional/geographic information, will be used to adjust the
                  capitation payments. This process is known as health based
                  capitation. By using this additional information, capitation
                  rates can more adequately match the payment with the risk of
                  the enrolled population.

                  In order to incorporate diagnostic information into the
                  analysis, a health-based system categorizes beneficiaries into
                  different diagnostic groups. The Chronic- Disability Payment
                  System (CDPS) grouper will be used to categorize the
                  beneficiaries. This information is then used to create a
                  unique case score for each individual. This individual
                  information is then aggregated to measure the health risk for
                  the contractor.

         B.       The following narrative describes the implementation plan for
                  a health-based capitation model in New Jersey:

                  1.       Develop demographic capitation rates.

                  2.       Develop payment weights for the diagnostic
                           categories. In order to estimate the prospective
                           medical cost for each beneficiary, a payment weight
                           for each diagnostic category is developed. These
                           payment weights identify how much an individual will
                           cost relative to an average beneficiary. For example,
                           an average cost beneficiary will have a case score of
                           1.0, while a higher cost beneficiary - for example, a
                           beneficiary with a high cost pulmonary condition -
                           will have a score of 1.26.

                  3.       Compile a case score for each beneficiary. Using the
                           most recent historical FFS and managed care encounter
                           information, a look-up file will be created that
                           links each eligible beneficiary with a unique case
                           score. In order to develop this unique case score,
                           historical claims information will be run through the
                           CDPS grouper. The output from this process will
                           identify the beneficiaries' diagnostic categories.
                           Using this information and the payment weights
                           estimated in step 2, a case score is then

                                                                         VIII-12
<PAGE>
                           computed for each beneficiary. The following example
                           describes the process for an ABD beneficiary who is
                           not a client of DDD, is a forty-five (45) to
                           sixty-four (64) year old male beneficiary, and lives
                           in Region 3, with a medium-cost central nervous
                           system disorder and a high-cost pulmonary condition:

<TABLE>
<S>          <C>
 .45         Baseline (costs assigned to all beneficiaries - including
               those in no diagnostic group)
 .08         Male 45 - 64
 .78         Medium Cost Central Nervous System Disorder
-.10         Region 3
1.26         High Cost Pulmonary Condition
----
2.47         Total Case Score
</TABLE>

                           In this case, the beneficiary would have projected
                           medical costs 2.47 times the cost of an average
                           beneficiary.

                  4.       Compute case mix values for each contractor and the
                           FFS program. After completing the preceding task, the
                           individual case scores are used to compute an
                           aggregate case mix for each contractor. This is done
                           by matching the individuals in the eligibility file
                           for each contractor with individuals' case scores. In
                           matching the eligibility files, some beneficiaries
                           may have either been eligible for an incomplete time
                           period or have not been eligible during the most
                           recent time period and would not have a computed
                           score. HMO beneficiaries without scores will be
                           assigned the contractor's average case mix. FFS
                           beneficiaries without scores will be assigned the
                           average case mix of 1.0.

                           After matching the eligibility file for the
                           contractor and the FFS program with the individual
                           case scores, an average case mix for the contractor
                           and the FFS program will be calculated. These
                           aggregate case mix values are then normalized to
                           ensure the program will be budget neutral. The
                           following chart describes the normalization process:

<TABLE>
<CAPTION>
------------------------------------------------------------------------
                      CASE MIX                        NORMALIZED
CONTRACTOR             SCORE        POPULATION      CASE MIX RATE
------------------------------------------------------------------------
<S>                   <C>           <C>             <C>
Contractor A              1.3          1,000        1.3/1.07  = 1.21
------------------------------------------------------------------------
Contractor B              1.1          4,000        1.1/1.07  = 1.03
------------------------------------------------------------------------
Contractor C               .9          4,000         .90/1.07 =  .84
------------------------------------------------------------------------
FFS                       1.4          1,000        1.4/1.07  = 1.31
------------------------------------------------------------------------
Total                    1.07         10,000
                      (weighted
                       average)
------------------------------------------------------------------------
</TABLE>

                           By normalizing the case mix scores, the State can
                           ensure the average cost for each beneficiary will not
                           exceed the average prospective cost estimated in step
                           1.

                                                                         VIII-13
<PAGE>
                           In order to determine the payment for the contractor,
                           the case mix rates for the contractor will be
                           multiplied by the base rate calculated in step 1. The
                           case mix rates will be updated periodically, as
                           deemed necessary.

                  5.       Collect and validate contractor encounter data. The
                           following encounter information will be required to
                           develop individual case scores for each enrollee:

                           -        Unique identifier code for each enrollee

                           -        ICD-9 diagnosis code(s) for each encounter

                  6.       Credibility adjustment. There may not be complete
                           confidence in the contractor's relative case mix
                           produced by encounter data. In this case, a
                           credibility rating can be used to blend the
                           contractor's case mix with the State's risk
                           assumption. For example, if the State assigns a
                           contractor a case mix credibility of fifty (50)
                           percent, the following formula is used to develop a
                           case mix rate for the contractor:

                           (.5)*(the contractor's relative case mix) +
                           (.5)*(State's risk adjustment)

                           The credibility factor will be based primarily on the
                           number of beneficiaries enrolled with the contractor.

8.7      THIRD PARTY LIABILITY

         A.       General. The contractor, and by extension its providers and
                  subcontractors, hereby agree to utilize, whenever available,
                  other public or private sources of payment for services
                  rendered to enrollees in the contractor's plan. "Third party",
                  for the purposes of this Article, shall mean any person or
                  entity who is or may be liable to pay for the care and
                  services rendered to a Medicaid beneficiary (See N.J.S.A.
                  30:4D-3m). Examples of a third party include a beneficiary's
                  health insurer, casualty insurer, a managed care organization,
                  Medicare, or an employer-administered ERISA plan. Federal and
                  State law requires that Medicaid payments be last dollar
                  coverage and should be utilized only after all other sources
                  of third party liability (TPL) are exhausted, subject to the
                  exceptions in Section F below.

         B.       Third Party Coverage Unknown. If coverage through health or
                  casualty insurance is not known or is unavailable at the time
                  the claim is filed, then the claim must be paid and
                  postpayment recovery must be initiated within six months from
                  the date of service.

         C.       Capitation Rates. The State has taken into account historical
                  and/or anticipated cost avoidance and recovery due to the
                  existence of liable third parties in setting

                                                                         VIII-14
<PAGE>
                  capitation rates and determining the payment amounts. These
                  factors do not include any reductions due to tort recoveries,
                  or to recoveries made by the State from the estates of
                  deceased Medicaid beneficiaries. In addition, future rates may
                  be based upon the contractor's actual or expected performance
                  involving TPL. Consequently, it is in the interests of both
                  the State and the contractor for the contractor to maximize
                  its revenue by fully exhausting all sources of available third
                  party coverage.

         D.       Categories. Third party resources are categorized as 1) health
                  insurance, 2) casualty insurance, 3) legal causes of action
                  for damages, and 4) estate recoveries.

                  1.       Health Insurance. The contractor shall pursue and
                           collect payments from health insurers when health
                           insurance coverage is available, unless prior
                           approval to take other action is obtained from the
                           State. "Health insurance" shall include, but not be
                           limited to, coverage by any health care insurer, HMO,
                           Medicare, or an employer-administered ERISA plan.
                           Funds so collected shall be retained by the
                           contractor. In pursuing such recoveries, the
                           contractor may utilize the State's assignment and
                           subrogation authority to the extent permitted by
                           State law.

                           a.       The State shall have the right to pursue,
                                    collect, and retain payments from liable
                                    health insurers if the contractor has failed
                                    to initiate collection from the health
                                    insurer within six (6) months from the date
                                    of service. The contractor shall cooperate
                                    with the State in all such collection
                                    efforts, and shall also direct its providers
                                    to do so.

                  2.       Casualty Insurance. The contractor shall pursue and
                           collect payment from casualty insurance available to
                           the enrollee, unless prior approval to take other
                           action is obtained from the State. "Casualty
                           insurance" shall include, but not be limited to, no
                           fault auto insurance benefits, worker's compensation
                           benefits, and medical payments coverage through a
                           homeowner's insurance policy. Funds so collected
                           shall be retained by the contractor. In pursuing such
                           recoveries, the contractor may utilize the State's
                           assignment and subrogation authority to the extent
                           permitted by State law.

                           a.       The State shall have the right to pursue,
                                    collect, and retain casualty insurance
                                    payments where the contractor has failed to
                                    initiate collection within six (6) months
                                    from the date of service.

                  3.       Legal Causes of Action for Damages. The State shall
                           have the sole and exclusive right to pursue and
                           collect payments made by the contractor when a legal
                           cause of action for damages is instituted on behalf
                           of a Medicaid enrollee against a third party or when
                           the State receives notice that legal counsel has been
                           retained by or on behalf of any enrollee. The

                                                                         VIII-15
<PAGE>
                           contractor shall cooperate with the State in all
                           collection efforts, and shall also direct its
                           providers to do so. State collections identified as
                           contractor-related resulting from such legal actions
                           will be retained by the State.

                  4.       Estate Recoveries. The State shall have the sole and
                           exclusive right to pursue and recover correctly paid
                           benefits from the estate of a deceased Medicaid
                           enrollee in accordance with federal and State law.
                           Such recoveries will be retained by the State.

         E.       Cost Avoidance.

                  1.       When the contractor is aware of health or casualty
                           insurance coverage prior to paying for a health care
                           service, it shall avoid payment by rejecting a
                           provider's claim and directing that the claim be
                           submitted first to the appropriate third party, or by
                           directing its provider to withhold payments to a
                           subcontractor.

                  2.       If insurance coverage is not available, or if one of
                           the exceptions to the cost avoidance rule discussed
                           below applies, then payment must be made and a claim
                           made against the third party, if it is determined
                           that the third party is or may be liable.

         F.       Exceptions to the Cost Avoidance Rule.

                  1.       In the following situations, the contractor must
                           first pay its providers and then coordinate with the
                           liable third party, unless prior approval to take
                           other action is obtained from the State.

                           a.       The coverage is derived from a parent whose
                                    obligation to pay support is being enforced
                                    by the Department of Human Services.

                           b.       The claim is for prenatal care for a
                                    pregnant woman or for preventive pediatric
                                    services (including EPSDT services) that are
                                    covered by the Medicaid program.

                           c.       The claim is for labor, delivery, and
                                    post-partum care and does not involve
                                    hospital costs associated with the inpatient
                                    hospital stay.

                           d.       The claim is for a child who is in a DYFS
                                    supported out of home placement.

                           e.       The claim involves coverage or services
                                    mentioned in 1.a, 1.b, 1.c, or 1.d, above in
                                    combination with another service.

                  2.       If the contractor knows that the third party will
                           neither pay for nor provide the covered service, and
                           the service is medically necessary, the contractor

                                                                         VIII-16
<PAGE>
                           shall neither deny payment for the service nor
                           require a written denial from the third party.

                  3.       If the contractor does not know whether a particular
                           service is covered by the third party, and the
                           service is medically necessary, the contractor shall
                           contact the third party and determine whether or not
                           such service is covered rather than requiring the
                           enrollee to do so. Further, the contractor shall
                           require the provider or subcontractor to bill the
                           third party if coverage is available.

                  4.       Postpayment recovery rather than cost avoidance is
                           necessary in cases where the contractor was not aware
                           of third party coverage at the time that services
                           were rendered or paid for, or was unable to cost
                           avoid, in accordance with the provisions of this
                           Article as applicable. Under these circumstances, the
                           contractor shall identify all potentially liable
                           third parties and pursue reimbursement from them,
                           unless prior approval to take other action is
                           obtained from the State. In pursuing such recoveries,
                           the contractor may utilize the State's assignment and
                           subrogation authority to the extent permitted by
                           State law. This provision shall not apply in the case
                           of any tort matter but rather the provisions of
                           Article 8.7D.3 shall be applicable.

         G.       Sharing of TPL Information by the State.

                  1.       By the fifteenth (15th) day of every month, the State
                           may provide the contractor with a list of all known
                           health insurance coverage information for the purpose
                           of updating the contractor's files.

                  2.       Additionally, the State may provide a quarterly
                           health insurer file to the contractor that will
                           contain all of the health insurers that the State has
                           on file and related information that is needed in
                           order to file TPL claims.

         H.       Sharing of TPL Information by the Contractor.

                  1.       The contractor shall notify the State within thirty
                           (30) days after it learns that an enrollee has health
                           insurance coverage not reflected in the State's
                           health insurance coverage file, or casualty insurance
                           coverage, or of any change in an enrollee's health
                           insurance coverage. (See Section A.8.1 of the
                           Appendices.) The contractor shall impose a
                           corresponding requirement upon its servicing
                           providers to notify it of any newly discovered
                           coverage, or of any changes in an enrollee's health
                           insurance coverage.

                  2.       When the contractor becomes aware that an enrollee
                           has retained counsel, who either may institute or has
                           instituted a legal cause of action for damages
                           against a third party, the contractor shall notify
                           the State in

                                                                         VIII-17
<PAGE>
                           writing, including the enrollee's name and Medicaid
                           identification number, date of accident/incident,
                           nature of injury, name and address of enrollee's
                           legal representative, copies of pleadings, and any
                           other documents related to the action in the
                           contractor's possession or control. This shall
                           include, but not be limited to (for each service date
                           on or subsequent to the date of the
                           accident/incident), the name of the provider,
                           practitioner or subcontractor, the enrollee's
                           diagnosis, the nature of the service provided to the
                           enrollee, and the amount paid to the provider (or to
                           a provider's authorized subcontractor) by the
                           contractor for each service. A form is available for
                           this purpose and is included in Section A.8.2 of the
                           Appendices.

                  3.       The contractor shall notify the State within thirty
                           (30) days of the date it becomes aware of the death
                           of one of its Medicaid enrollees age fifty-five (55)
                           or older, giving the enrollee's full name, Social
                           Security Number, Medicaid identification number, and
                           date of death. The State will then determine whether
                           it can recover correctly paid Medicaid benefits from
                           the enrollee's estate.

                  4.       The contractor agrees to cooperate with the State's
                           efforts to maximize the collection of third party
                           payments by providing to the State updates to the
                           information required by this Article.

         I.       Enrollment Exclusions and Contractor Liability for the Costs
                  of Care.

                  1.       Any Medicaid beneficiary enrolled in or covered by
                           either a Medicare or commercial HMO will not be
                           enrolled by the contractor. The only exception to
                           this exclusion from enrollment is when the contractor
                           and the beneficiary's Medicare/commercial HMO are the
                           same. When beneficiaries are enrolled under this
                           exception, appropriate reductions will be made in the
                           State's capitation payments to the contractor.

                  2.       If the contractor and the Medicaid beneficiary's
                           Medicare or commercial HMO are the same, the
                           contractor will be responsible for either:

                           a.       Paying all cost-sharing expenses of the
                                    Medicaid beneficiary; or

                           b.       Addressing cost sharing in the contracts
                                    with its providers in such a way that the
                                    Medicaid beneficiary is not liable for any
                                    cost-sharing expenses, subject to
                                    subarticle 3 below.

                  3.       If a Medicaid beneficiary otherwise covered by the
                           provisions of subarticle 2 above wishes to utilize a
                           provider outside of the Medicare or commercial HMO's
                           network, the HMO's rules apply. Failure to follow the
                           HMO's rules relieves both the contractor and the
                           State of any liability

                                                                         VIII-18
<PAGE>
                           for the cost of the care and services rendered to the
                           beneficiary, subject to subarticle 4 below.

                  4.       The only exception to subarticle 3 above is if the
                           HMO's rules cannot be followed solely because
                           emergency services were provided by a non-
                           participating provider, practitioner, or
                           subcontractor because the services were immediately
                           required due to sudden or unexpected onset of a
                           medical condition. In this circumstance, the
                           contractor remains responsible for the cost of the
                           care and services rendered to the beneficiary.

                  5.       If a Medicaid beneficiary enrolled with the
                           contractor is also enrolled in or covered by a health
                           or casualty insurer other than a Medicare or
                           commercial HMO, the contractor is fully responsible
                           for coordinating benefits so as to maximize the
                           utilization of third party coverage in accordance
                           with the provisions of this Article. The contractor
                           shall be responsible for payment of the enrollee's
                           coinsurance, deductibles, copayments, and other
                           cost-sharing expenses, but the contractor's total
                           liability shall not exceed what it would have paid in
                           the absence of TPL. The contractor shall coordinate
                           benefits and payments with the health or casualty
                           insurer for services authorized by the contractor,
                           but provided outside the contractor's plan. The
                           contractor remains responsible for the costs incurred
                           by the beneficiary with respect to care and services
                           which are included in the contractor's capitation
                           rate, but which are not covered or payable under the
                           health or casualty insurer's plan.

                  6.       The State will continue to pay Medicare Part A and
                           Part B premiums for Medicare/Medicaid dual eligibles
                           and Qualified Medicare Beneficiaries.

                  7.       Any references to Medicare coverage in this Article
                           shall apply to both Medicare/Medicaid dual eligibles
                           and Qualified Medicare Beneficiaries.

         J.       Other Protections for Medicaid Enrollees.

                  1.       The contractor shall not impose, or allow its
                           participating providers or subcontractors to impose,
                           cost-sharing charges of any kind upon Medicaid
                           beneficiaries enrolled in the contractor's plan
                           pursuant to this contract. This Article does not
                           apply to individuals eligible solely through the NJ
                           FamilyCare Program Plan C or D, for whom providers
                           will be required to collect cost-sharing for certain
                           services.

                  2.       The contractor's obligations under this Article shall
                           not be imposed upon the enrollees, although the
                           contractor shall require enrollees to cooperate in
                           the identification of any and all other potential
                           sources of payment for services. Instances of
                           non-cooperation shall be referred to the State.

                                                                         VIII-19
<PAGE>
                  3.       The contractor shall neither encourage nor require a
                           Medicaid enrollee to reduce or terminate TPL
                           coverage.

                  4.       Unless otherwise permitted or required by federal and
                           State law, health care services cannot be denied to a
                           Medicaid enrollee because of a third party's
                           potential liability to pay for the services, and the
                           contractor shall ensure that its cost avoidance
                           efforts do not prevent an enrollee from receiving
                           medically necessary services.

8.8      COMPENSATION/CAPITATION CONTRACTUAL REQUIREMENTS

         A.       Contractor Compensation. Compensation to the contractor shall
                  consist of monthly capitation payments, supplemental payments
                  per pregnancy outcome/delivery, certain blood products for
                  hemophilia factors VIII & IX disorders, and payment for
                  certain HIV/AIDS drugs. Contractors must agree to enroll all
                  non-exempt Aged, Blind and Disabled and NJ FamilyCare
                  beneficiaries to qualify to serve AFDC/TANF beneficiaries.

         B.       Capitation Payment Schedule. DMAHS hereby agrees to pay the
                  capitation by the fifteenth (15th) day of any month during
                  which health care services will be available to an enrollee;
                  provided that information pertaining to enrollment and
                  eligibility, which is necessary to determine the amount of
                  said payment, is received by DMAHS within the time limitation
                  contained in Article 5 of this contract.

         C.       Upper Payment Limit and Cost-Effectiveness. The contractor
                  shall receive monthly capitation payments, for a defined scope
                  of services to be furnished to a defined number of enrollees,
                  for providing the services contained in the Benefits Package
                  described in Article 4.1 of this contract. Such payments will
                  not exceed the upper payment limit, established by DMAHS,
                  pursuant to 42 C.F.R. Part 447, which is the cost of providing
                  those services on a fee-for-service basis to an actuarially
                  equivalent, non-enrolled population group. The contractor is
                  not entitled to receive payments that exceed the upper payment
                  limit. In addition, the contractor is not entitled to payments
                  that would cause the State to exceed the cost-effectiveness
                  established in its 1915(b) waiver.

         D.       Adjustments and Renegotiation of Capitation Rates. Capitation
                  rates are prospective in nature and will not be adjusted
                  retroactively or subject to renegotiation during the contract
                  period except as explicitly noted in the contract. Capitation
                  rates will be paid only for eligible beneficiaries enrolled
                  during the period for which the adjusted capitation payments
                  are being made. Payments provided for under the contract will
                  be denied for new enrollees when, and for so long as, payments
                  for those enrollees is denied by HCFA under 42 C.F.R.
                  434.67(e).

                                                                         VIII-20
<PAGE>
         E.       Payment by State Fiscal Agent. The State fiscal agent will
                  make payments to the contractor.

         F.       Payment in Full. The monthly capitation payments plus
                  supplemental payments for pregnancy outcomes and payment for
                  certain HIV/AIDS drugs and blood clotting factors VIII and IX
                  to the contractor shall constitute full and complete payment
                  to the contractor and full discharge of any and all
                  responsibility by the Division for the costs of all services
                  that the contractor provides pursuant to this contract.

         G.       Payments to Providers. Payments shall not be made on behalf of
                  an enrollee to providers of health care services other than
                  the contractor for the benefits covered in Article Four and
                  rendered during the term of this contract.

         H.       Time Period for Capitation Payment per Enrollee. The monthly
                  capitation payment per enrollee is due to the contractor from
                  the effective date of an enrollee's enrollment until the
                  effective date of termination of enrollment or termination of
                  this contract, whichever occurs first.

         I.       Payment If Enrollment Begins after First Day of Month. When
                  DMAHS' capitation payment obligation is computed, if an
                  enrollee's coverage begins after the first day of a month,
                  DMAHS will pay the contractor a fractional capitation payment
                  that is proportionate to the part of the month during which
                  the contractor provides coverage. Payments are calculated and
                  made to the last day of a calendar month except as noted in
                  this Article.

         J.       Risk Assumption. The capitation rates shall not include any
                  amount for recoupment of any losses suffered by the contractor
                  for risks assumed under this contract or any prior contract
                  with the Department.

         K.       Hospitalizations. For any eligible person who applies for
                  participation in the contractor's plan, but who is
                  hospitalized prior to the time coverage under the plan becomes
                  effective, such coverage shall not commence until the date
                  after such person is discharged from the hospital and DMAHS
                  shall be liable for payment for the hospitalization, including
                  any charges for readmission within forty-eight (48) hours of
                  discharge for the same diagnosis. If an enrollee's
                  disenrollment or termination becomes effective during a
                  hospitalization, the contractor shall be liable for
                  hospitalization until the date such person is discharged from
                  the hospital, including any charges for readmission within
                  forty-eight (48) hours of discharge for the same diagnosis.
                  The contractor must notify DMAHS of these occurrences to
                  facilitate payment to appropriate providers.

         L.       Continuation of Benefits. The contractor shall continue
                  benefits for all enrollees for the duration of the contract
                  period for which capitation payments have been made, including
                  enrollees in an inpatient facility until discharge. The
                  contractor shall notify DMAHS of these occurrences.

                                                                         VIII-21
<PAGE>
8.9      CONTRACTOR ADVANCED PAYMENTS AND PIPS TO PROVIDERS

                  A.       The contractor shall make advance payments to its
                           providers, capitation, FFS, or other financial
                           reimbursement arrangement, based on a provider's
                           historical billing or utilization of services if the
                           contractor's claims processing systems become
                           inoperational or experience any difficulty in making
                           timely payments. Under no circumstances shall the
                           contractor default on the claims payment timeliness
                           provisions of this contract. Advance payments shall
                           also be made when compliance with claims payment
                           timeliness is less than ninety (90) percent for two
                           (2) quarters. Such advance payments will continue
                           until the contractor is in full compliance with
                           timely payment provisions for two (2) successive
                           quarters.

                  B.       Periodic Interim Payments (PIPs) to Hospitals. The
                           contractor shall provide periodic interim payments to
                           participating, PIP-qualifying hospitals.

                           1.       Designation of PIP-Qualifying Hospitals.
                                    Each quarter, DMAHS shall determine which
                                    hospitals qualify for monthly PIPs.

                                                                         VIII-22
<PAGE>
                           2.       When Contractor is Required to Make PIPs.
                                    The contractor shall make PIPs to a
                                    participating (network provider), qualifying
                                    hospital when the average monthly payment
                                    from the contractor to the hospital is at
                                    least $100,000 for the most recent six-month
                                    period excluding outliers. An outlier is
                                    defined as a single admission for which the
                                    payment to the hospital exceeds $100,000. It
                                    should be noted that outlier claims paid are
                                    included in the establishment of the monthly
                                    PIPs and the reconciliation of the PIPs.

                           3.       Methodologies to Establish Amount of PIPs.

                                    a.       The contractor may work out a
                                             mutually agreeable arrangement with
                                             the participating PIP-qualifying
                                             hospitals for developing a
                                             methodology for determining the
                                             amount of the PIPs and reconciling
                                             the PIP advances to paid claims. If
                                             a mutually agreeable arrangement
                                             cannot be reached, the contractor
                                             shall make PIPs in accordance with
                                             the methodology described in 3.b.
                                             below.

                                    b.       Beginning August 1, 2000, the
                                             contractor shall provide a
                                             participating, PIP-qualifying
                                             hospital with an initial 60-day PIP
                                             (representing two 30-day cash
                                             advances) which shall be reconciled
                                             using a claims offset process, with
                                             the first 30-day PIP reconciled to
                                             claims adjudicated during the first
                                             month following the initial PIP
                                             (August), and the second 30-day PIP
                                             reconciled to claims adjudicated
                                             during the second month following
                                             the initial PIP (September). In
                                             September 2000 and all subsequent
                                             months, the hospital shall receive
                                             a 30-day PIP which shall be offset
                                             against claims adjudicated at the
                                             end of the following month. At
                                             reconciliation, any excess claims
                                             adjudicated above the PIP amount
                                             shall result in an additional
                                             payment to the hospital equal to
                                             the value of any excess claims
                                             above the PIP. If the value of
                                             claims adjudicated is less than the
                                             PIP, the shortage shall be offset
                                             against the next PIP made to the
                                             hospital. An example of how this
                                             methodology shall work is as
                                             follows:

                                                                         VIII-23
<PAGE>
         EXAMPLE:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                     PIP             Claims         Reconciliation        Net
                   Payment         Adjudicated        Adjustment        Payment        Balance
-----------------------------------------------------------------------------------------------
<S>              <C>               <C>              <C>                 <C>            <C>
Aug 1            300,000 (A)
-----------------------------------------------------------------------------------------------
Aug 1            300,000 (B)                                                           600,000
-----------------------------------------------------------------------------------------------
Aug 1-31                             180,000                                           420,000
-----------------------------------------------------------------------------------------------
Sept 1           300,000 (C)                        (120,000) (A)       180,000        600,000
-----------------------------------------------------------------------------------------------
Sept 1-30                            270,000                                           330,000
-----------------------------------------------------------------------------------------------
Oct 1            300,000 (D)                         (30,000) (B)       270,000        600,000
-----------------------------------------------------------------------------------------------
Oct 1-31                             320,000                                           280,000
-----------------------------------------------------------------------------------------------
Nov 1            300,000 (E)                          20,000 (C)        320,000        600,000
-----------------------------------------------------------------------------------------------
</TABLE>

8.10     FEDERALLY QUALIFIED HEALTH CENTERS

         A.       Standards for Contractor FQHC Rates. The contractor shall not
                  reimburse FQHCs less than the level and amount of payment
                  which the contractor would make for a similar set of services
                  if the services were furnished by a non-FQHC. The contractor
                  may pay the FQHCs on a fee-for-service or capitated basis. The
                  contractor shall make payments for primary care equal to, or
                  greater than, the average amounts paid to other primary care
                  providers. Non-primary care services may be included if
                  mutually agreeable between the contractor and FQHC. For
                  non-primary care services, payments shall be equal to, or
                  greater than, the average amounts paid to other non-primary
                  care providers for equivalent services.

         B.       DMAHS Reimbursement to FQHCs. Under Title XIX, an FQHC shall
                  be paid reasonable cost reimbursement by DMAHS. At the end of
                  each fiscal year the contractor and the FQHC will complete
                  certain reporting requirements specified that will enable
                  DMAHS to determine reasonable costs and compare that to what
                  was actually paid by the contractor to the FQHC. DMAHS will
                  reimburse the FQHC for the difference (i.e., difference
                  between the determined reasonable cost per encounter and the
                  payments to the FQHC made by the contractor and DMAHS) if the
                  payments by the contractor to the FQHC are less than
                  reasonable costs. DMAHS will recoup payments from the FQHC in
                  excess of reasonable costs. FQHC providers must meet the
                  contractor's credentialing and program requirements.

         C.       Contractor Participation in Reconciliation Process. The
                  contractor shall participate in the reconciliation processes
                  if there is a dispute between what the contractor reported
                  (See Section A.7.20 of the Appendices (Table 18)) and what the
                  FQHC reported as valid encounters or payments. This
                  participation may include appearances in the Office of
                  Administrative Law, as well as meeting with DMAHS staff.

                                                                         VIII-24


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.28A
<SEQUENCE>11
<FILENAME>c74739exv10w28a.txt
<DESCRIPTION>AMENDMENT TO CONTRACT INCLUDED AS EXHIBIT 10.28
<TEXT>
<PAGE>

                                                                  Exhibit 10.28a



                              STATE OF NEW JERSEY

                          DEPARTMENT OF HUMAN SERVICES


               DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES

                                      AND

                         UNIVERSITY HEALTH PLANS, INC.


                       AGREEMENT TO PROVIDE HMO SERVICES




In accordance with Article 7, section 7.11.2A and 7.11.2B of the contract

between University Health Plans, Inc. and the State of New Jersey, Department

of Human Services, Division of Medical Assistance and Health Services (DMAHS),

effective date October 1, 2000, all parties agree that the contract shall

be amended, effective July 1, 2002, as follows:

<PAGE>
 1.  ARTICLE 1, "DEFINITIONS" SECTION - for the following definitions:
     Assignment; Centers for Medicare and Medicaid Services (new definition);
     Complaint; Department; Division of Disability Services (new definition);
     DHSS or HHS; Drug Utilization Review (new definition);  Early and Periodic
     Screening, Diagnosis and Treatment/Private Duty Nursing (EPSDT/PDN) (new
     definition); GA (deleted); GAAP (deleted);  HCFA; Incurred But Not Reported
     (IBNR) (moved from A.7.21);  Maternity Outcome (moved from A.7.21);
     Medicare + Choice Organization; New Jersey State Plan or State Plan; NJ
     FamilyCare Plan A;  NJ FamilyCare Plan C;  NJ FamilyCare Plan D;  PMPD
     (moved from A.7.21); PMPM (moved from A.7.21); Private Duty Nursing (PDN);
     and Risk Pool (moved from A.7.21) shall be amended as reflected in the
     relevant pages of Article 1 attached hereto and incorporated herein.

 2.  ARTICLE 2, "CONDITIONS PRECEDENT", Sections 2.G.1; 2.H; 2.J.2; and 2.K.2(b)
     shall be amended as reflected in Article 2, Sections 2.G.1; 2.H; 2.J.2;
     2.K.2(b) attached hereto and incorporated herein.

 3.  ARTICLE 3, "MANAGED CARE MANAGEMENT INFORMATION SYSTEM", paragraph one; and
     Sections 3.4.2(A), 3.4.2(B), 3.4.2(C), 3.4.2(E) and 3.9.1(C) shall be
     amended as reflected in Article 3, paragraph one; Sections 3.4.2(A),
     3.4.2(B), 3.4.2(C), 3.4.2(E), 3.9.1(C) attached hereto and incorporated
     herein.

 4.  ARTICLE 4, "PROVISION OF HEALTH CARE SERVICES", Section 4.1.1(D), 4.1.1(E),
     and 4.1.1(J); Section 4.1.5(A); Section 4.1.6(B)3, 4.1.6(C)33; Section
     4.1.8(E), remaining items re-lettered; and
          Section 4.2.4(B)5(b) and (f), 4.2.4(B)6, 4.2.4(B)6(b) and (c);
     Section 4.2.4(E) (new); Section 4.2.6(A)4; Section 4.2.7(D)1; and
          Section 4.5.4(B), 4.5.4(C)1 and 4.5.4(E); Section 4.5.7(B)4 (new),
     and 4.5.7(B)5 (new); and
<PAGE>
     Section 4.6.2(F); 4.6.2(P), 4.6.2(Q), 4.6.2(Q)1, 4.6.2(R)1, 4.6.2(R)1(g),
4.6.2(R)2, 4.6.2(R)3, 4.6.2(R)3(c)i, 4.6.2(S), 4.6.2(T), 4.6.2(W)-paragraph 2,
4.6.2(Z) and 4.6.2(AA); Section 4.6.4(C)5, 4.6.4(D), 4.6.4(D)4 (new), 4.6.4(D)5
(new), 4.6.4(D)6 (new), 4.6.4(D)7 (new); and Section 4.6.5(C)2; and

     Section 4.7.2(A)3, and 4.7.2(A)5; Section 4.7.4(B)5(a) through (m); and

     Section 4.8.2(A); Section 4.8.3, and 4.8.3(B); Section 4.8.4; Section
4.8.5; Section 4.8.6(A); Section 4.8.8(A)2(a), 4.8.8(J), 4.8.8(K)3, 4.8.8(L)3,
4.8.8(L)4, 4.8.8(L)8, 4.8.8(L)10 (new), 4.8.8(L)11 (new); and

     Section 4.9.1(G), 4.9.1(L) (new); Section 4.9.2(E); Section 4.9.3(B),
4.9.3(B)2; and Section 4.10(E)

shall be amended as reflected in Article 4, Section 4.1.1(D), 4.1.1(E),
4.1.1(J); Section 4.1.5(A); Section 4.1.6(B)3, 4.1.6(C)33; Section 4.1.8(E),
remaining items re-lettered; Section 4.2.4(B)5(b) and (f), 4.2.4(B)6,
4.2.4(B)6(b) and (c); Section 4.2.4(E) (new); Section 4.2.6(A)4; Section
4.2.7(D)1; Section 4.5.4(B), 4.5.4(C)1, 4.5.4(E); Section 4.5.7(B)4 (new),
4.5.7(B)5 (new); Section 4.6.2(F), 4.6.2(P), 4.6.2(Q), 4.6.2(Q)1, 4.6.2(R)1,
4.6.2(R)1(g), 4.6.2(R)2, 4.6.2(R)3, 4.6.2(R)3(c)i, 4.6.2(S), 4.6.2(T),
4.6.2(W)-paragraph 2, 4.6.2(Z), 4.6.2(AA); Section 4.6.4(C)5, 4.6.4(D),
4.6.4(D)4 new, 4.6.4(D)5 new, 4.6.4(D)6 new, 4.6.4(D)7 new; Section 4.6.5(C)2;
Section 4.7.2(A)3, 4.7.2(A)5; Section 4.7.4(B)5(a) through (m); Section
4.8.2(A); Section 4.8.3, 4.8.3(B); Section 4.8.4; Section 4.8.5; Section
4.8.6(A); Section 4.8.8(A)2(a), 4.8.8(J), 4.8.8(K)3, 4.8.8(L)3, 4.8.8(L)4,
4.8.8(L)8, 4.8.8(L)10 (new), 4.8.8(L)11 (new); Section 4.9.1(G), 4.9.1(L) (new);
Section 4.9.2(E); Section 4.9.3(B) 4.9.3(B)2; and Section 4.10(E) attached
hereto and incorporated herein.
<PAGE>

5. ARTICLE 5,"ENROLLEE SERVICES", Section 5.3.2 and Section 5.4(A); and
           Section 5.8.2(R), 5.8.2(R)2 and Section 5.8.5(B); and
           Section 5.10.2(A)2(a)ii and iii; Section 5.10.3(A)3; Section
           5.10.4(A)5; and

           Section 5.15 (title); Section 5.15.1(A), 5.15.1(B), 5.15.1(C),
   5.15.1(D), Section 5.15.2 (title); Section 5.15.2(A), 5.15.2(B), 5.15.2(B)1
   through 9; Section 5.15.3 (title); Section 5.15.3(A), 5.15.3(B), 5.15.3(C),
   5.15.3(D); Section 5.15.4 (title); Section 5.15.4(A), 5.15.4(B), 5.15.4(C),
   5.15.4(D), 5.15.4(E), 5.15.4(F); Section 5.15.5(A), 5.15.5(B), 5.15.5(B)2
   through 8; 5.15.5(C)1 and 2; and

           Section 5.16.1(A), 5.16.1(G), 5.16.1(U)2 (deleted); and Section
   5-16.2(A)2 shall be amended as reflected in Article 5, Section 5.3.2; Section
   5.4(A); Section 5.8.2(R), 5.8.2(R)2; Section 5.8.5(B); Section
   5.10.2(A)2(a)ii and iii; Section  5.10.3(A)3;  Section  5.10.4(A)5;  Section
   5.15 (title);  Section 5.15.1(A), 5.15.1(B), 5.15.1(C), 5.15.1(D), Section
   5.15.2 (title); Section 5.15.2(A), 5.15.2(B), 5.15.2(B)1 through 9; Section
   5.15.3 (title); Section 5.15.3(A), 5.15.3(B), 5.15.3(C), 5.15.3(D); Section
   5.15.4 (title); Section 5.15.4(A), 5.15.4(B), 5.15.4(C), 5.15.4(D),
   5.15.4(E), 5.15.4(F);  Section 5.15.5(A), 5.15.5(B), 5.15.5(B)2 through  8;
   5.15.5(C)1  and  2;   Section 5.16.1(A), 5.16.1(G), 5.16.1(U)2 (deleted), and
   Section 5.16.2(A)2 attached hereto and incorporated herein.

6. ARTICLE 6, "PROVIDER INFORMATION", Section  6.2(A)6;  Section  6.5  (title);
   Section 6.5(B),  6.5(B)1,  6.5(B)2,  6.5(C),  6.5(D),  6.5(D)1,  6.5(D)2, and
   6.5(D)3 shall be amended as reflected in Article 6, Section 6.2(A)6, Section
   6.5(title); Section 6.5(B), 6.5(B)1, 6.5(B)2, 6.5(C), 6.5(D), 6.5(D)1,
   6.5(D)2, 6.5(D)3, attached hereto and incorporated herein.

<PAGE>
 7.  ARTICLE 7, "TERMS AND CONDITIONS", Section 7.2(A), 7.2(B)1, 7.2(B)5,
     (re-number remaining items); Section 7.3(A); Section 7.9; Section 7.11.2(D)
     (deleted), remaining items re-lettered; and

          Section 7.14(A)4, 7.14(C), 7.14(C)1(h), 7.14(C)2(c); Section 7.16.4;
     Section 7.16.8.2(D) (new); and

          Section 7.22(F); Section 7.26(F), 7.26(H), 7.26(I), and 7.26(J);
     Section 7.27.1; and Section 7.42 shall be amended as reflected in Article
     7, Section 7.2(A), 7.2(B)1, 7.2(B)5, re-number remaining items; Section
     7.3(A); Section 7.9; Section 7.11.2(D); Section 7.14(A)4, 7.14(C),
     7.14(C)1(h), 7.14(C)2(c); Section 7.16.4; Section 7.16.8.2(D) (new);
     Section 7.22(F); Section 7.26(F); 7.26(H), 7.26(I), 7.26(J);
     Section 7.27.1; and Section 7.42 attached hereto and incorporated herein.

 8.  ARTICLE 8, "FINANCIAL PROVISIONS", Section 8.4.1(A), 8.4.1(A)1, 8.4.1(A)2,
     8.4.1(A)3, 8.4.1(B); Section 8.4.2; Section 8.4.3; Section 8.5.16, Section
     8.5.18; and Section 8.6 shall be amended as reflected in Article 8, Section
     8.4.1(A), 8.4.1(A)1, 8.4.1(A)2, 8.4.1(A)3, 8.4.1(B); Section 8.4.2; Section
     8.4.3; Section 8.5.16; Section 8.5.18; and Section 8.6 attached hereto and
     incorporated herein.

 9.  APPENDICES, TABLE OF CONTENTS - SECTION A: "REPORTS", A.7.7 - "Table 5 -
     Hospital Specific Data"; A.7.19 - "Table 17 - Number of Enrollees by
     Diagnosis" (deleted Table 17 and reserved section); A.7.21 - "Table 19 -
     Income Statement by Rate Cell Grouping"(added to Table of Contents); A.7.22
     - Table 20 - Lag Reports" (added to Table of Contents) shall be amended as
     reflected in Appendices, Table of Contents - Section A: "Reports", A.7.7 -
     "Table 6 - Hospital Specific Data"; A.7.19 - "Table 17 - "Number of
     Enrollees by Diagnosis" (deleted Table 17 and reserved section); A.7.21 -
     "Table 19 - Income Statement by Rate Cell Grouping"
<PAGE>
     (added to Table of Contents); A.7.22 - "Table 20 - Lag Reports" (added to
     Table of Contents) attached hereto and incorporated herein.

10.  TABLE OF CONTENTS - SECTION B: "REFERENCE MATERIALS", B.2.1 - "ABD
     Phase-in" (deleted "ABD Phase-in" and reserved section); B.4.4 - "VFC
     Vaccines" (deleted "VFC Vaccines" and reserved section); B.4.17 - "DUR
     Standards" (added); B.7.3 - "Financial Guide" (added) shall be amended as
     reflected in Table of Contents - Section B: "Reference Materials", B.2.1
     "ABD Phase-in" (deleted "ABD Phase-in" and reserved section); B.4.4 - "VFC
     Vaccines" (deleted "VFC Vaccines" and reserved section); B.4.17 - "DUR
     Standards" (added); B.7.3 - "Financial Guide" (added) attached hereto and
     incorporated herein.

11.  SECTION A, "REPORTS", A.3.1 - "Electronic Media Provider File (deleted
     reference to diskette, added electronic format); A.3.1 - "Attachment A -
     Non-Institutional Provider File" (modified field names); A.7.7 - Table 5 -
     "Hospital Specific Data" (replaced previous report tables); A.7.8 - Table 6
     - "Statement of Revenues and Expenses" (deleted language in #21 and #24);
     A.7.16 - Table 14 - "EPSDT Services" (added #2(d) and (e) and clarified
     language in #3 and #4(g)); A.7.19 - Table 17 - "Number of Enrollees by
     Diagnosis" (deleted Table 17 and reserved section); A.7.21 - Table 19 -
     "Income Statement by Rate Cell Grouping" (deleted definitions, moved to
     Article 1 and changed timeframes of reports due from semi-annually to
     quarterly); A.7.22 - Table 20 - "Lag Reports" (changed timeframes of
     reports from semi-annually to quarterly) shall be amended as reflected in
     Section A, "Reports", A.3.1 - "Electronic Media Provider File" (deleted
     reference to diskette, added electronic format); A.3.1 - "Attachment A -
     Non-Institutional Provider File" (modified field names); A.7.7 - Table 5 -
     "Hospital Specific Data"(replaced previous report tables); A.7.8 - Table 6
     "Statement of Revenues and Expenses" (deleted language in #21 and #24);
     A.7.16 - Table
<PAGE>
    14 "EPSDT Services" (added #2(d) and (e) and clarified language in #3 and
    #4(g)); A.7.19 - Table 17 "Number of Enrollees by Diagnosis" (deleted Table
    17 and reserved section); A.7.21 - Table 19 "Income Statement by Rate Cell
    Grouping" (deleted definitions, moved to Article 1 and changed timeframes of
    reports due from semi-annually to quarterly); A.7.22 - Table 20 "Lag
    Reports" (changed timeframes of reports from semi-annually to quarterly)
    attached hereto and incorporated herein.


12. APPENDICES, SECTION B, "REFERENCE MATERIALS", B.2.1 - "ABD Phase in"
    (deleted and reserved section); B.4.1 - "Benefit Package" (clarified
    definition of EPSDT/PDN, revised definition of post-acute care); B.4.3 -
    "ACIP Recommended Childhood and Adolescent Immunization Schedule" (included
    updated schedule); B.4.4 - "VFC Vaccines" (deleted and reserved section);
    B.4.9 - "Mental Health/ Substance Abuse Screening Tool" (replaced with
    revised tool); B.4.10 - "Centers of Excellence" (updated list); B.4.11 -
    "County Case Management Units" (updated list); B.4.14 - "New Jersey Modified
    QARI/QISMC Standards", Standard IX.F.1 (changed recredentialing cycle from
    two to three years) and Standard IX.J.4 (included language regarding
    reporting to Health Care Integrity and Protection Data Bank); B.4.17 - "DUR
    Standards" (added new standards); B.5.2 - "Cost-Sharing Requirements for NJ
    FamilyCare Plans C & D" (added language clarifying no cost-sharing for
    certain groups); B.7.2 "Provider Contract/Subcontract Provisions" (corrected
    citation in 2.J and added school based services language in 4.7) and B.7.3 -
    "Financial Guide for Reporting Medicaid/NJ FamilyCare Rate Cell Grouping
    Costs" (added guide) shall be amended as reflected in Appendices, Section B,
    "Reference Materials", B.2.1 - "ABD Phase In" (deleted and reserved
    section); B.4.1 - "Benefit Package" (clarified definition of EPSDT/PDN,
    revised definition of post-acute care); B.4.3 - "ACIP Recommended Childhood
    and Adolescent Immunization Schedule" (included updated schedule); B.4.4 -
    "VFC

<PAGE>
     Vaccines" (deleted and reserved section); B.4.9 - "Mental Health/Substance
     Abuse Screening Tool" (replaced with revised tool); B.4.10 - "Centers of
     Excellence" (updated list); B.4.11 - "County Case Management Units"
     (updated list); B.4.14 - "New Jersey Modified QARI/QISMC Standards",
     Standard IX.F.1 (changed recredentialing cycle from two to three years) and
     Standard IX.J.4 (included language regarding reporting to Health Care
     Integrity and Protection Data Bank); B.4.17 - "DUR Standards" (added new
     standards); B.5.2 - "Cost-Sharing Requirements for NJ FamilyCare Plans C &
     D" (added language clarifying no cost-sharing for certain groups); B.7.2
     "Provider Contract/Subcontract Provisions" (corrected citation in 2.J and
     added school based services language in 4.7) and B.7.3 - "Financial Guide
     for Reporting Medicaid/NJ FamilyCare Rate Cell Grouping Costs" (added
     guide) attached hereto and incorporated herein.

13.  APPENDICES, SECTION C, "CAPITATION RATES", shall be revised as reflected in
     SFY 2003 Capitation Rates attached hereto and incorporated herein
<PAGE>


All other terms and conditions of the October 1, 2000 contract and subsequent
amendments remain unchanged except as noted above.

The contracting parties indicate their agreement by their signatures.


      UNIVERSITY HEALTH PLANS, INC.            STATE OF NEW JERSEY

                                               DEPARTMENT OF HUMAN SERVICES


BY: /s/ Alexander H. McLean                    BY: /s/ Kathryn A. Plant
   _________________________                      ________________________

                                                   KATHRYN A. PLANT


TITLE: President & CEO                         TITLE: ACTING DIRECTOR, DMAHS
      ______________________

DATE: 5/7/02                                   DATE: 5/23/02
     _______________________                        _______________________




APPROVED AS TO FORM ONLY


ATTORNEY GENERAL

STATE OF NEW JERSEY


BY: /s/ David Samson
   _________________

   DEPUTY ATTORNEY GENERAL


DATE: 5/20/02
     _______________

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>12
<FILENAME>c74739exv21.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
                                                                      EXHIBIT 21

                              LIST OF SUBSIDIARIES


Centene Management Corporation, a Wisconsin corporation

Superior HealthPlan, Inc., a Texas corporation

Centene Corporation of Texas, a Texas corporation

Managed Health Services Illinois, Inc., an Illinois corporation*

Coordinated Care Corporation Indiana, Inc. d/b/a/ Managed Health services, an
Indiana corporation

Managed Health Services Insurances Corp., a Wisconsin insurance corporation

MHS Consulting Corporation, a Wisconsin corporation

MHS Behavioral Health Texas, Inc., a Texas corporation*

Bankers Reserve Insurance Company of Wisconsin, a Wisconsin corporation

Cenphiny, a Delaware corporation

University Health Plans, Inc. a New Jersey corporation

Centene Management LLC, a Delaware corporation*

NurseWise Holdings LLC, a Delaware corporation*

NurseWise LP, a Delaware corporation

----------

*Inactive Subsidiary



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>13
<FILENAME>c74739exv99w1.txt
<DESCRIPTION>CERTIFICATIONS
<TEXT>
<PAGE>
                                                                   EXHIBIT 99.1


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the annual report on Form 10-K of Centene Corporation
(the "Company") for the period ended December 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, Michael F. Neidorff, President and Chief Executive Officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

     (1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and

     (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


                                            /s/ Michael F. Neidorff
                                     ------------------------------------------
                                     Michael F. Neidorff
                                     President and Chief Executive Officer
                                     (principal executive officer)
Dated: February 24, 2003



                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the annual report on Form 10-K of Centene Corporation
(the "Company") for the period ended December 31, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, Karey L. Witty, Senior Vice President, Chief Financial Officer and
Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350,
that:

     (1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities and Exchange Act of 1934; and

     (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


                                                  /s/ Karey L. Witty
                                         --------------------------------------
                                         Karey L. Witty
                                         Senior Vice President, Chief Financial
                                         Officer and Treasurer
                                         (principal financial and accounting
                                         officer)
Dated: February 24, 2003



</TEXT>
</DOCUMENT>
</SUBMISSION>
