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(1)

Estimated solely for the purpose of calculating the registration fee pursuant to rule 457(a) of the Securities Act of 1933.

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maintain our focus on serving low-income families and individuals,

·

increase our membership through internal growth, development of new plans and acquisitions,

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maintain our low medical costs, and

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leverage our operational efficiencies.

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·

1,087,800 shares of common stock issuable upon the exercise of vested stock options with a weighted average exercise price of $1.47 per share,

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405,760 shares of common stock issuable upon the exercise of unvested stock options with a weighted average exercise price of $4.45 per share,

·

1,600,000 shares of common stock reserved for issuance under our stock option plans,

·

600,000 shares of common stock reserved for issuance under the 2002 Employee Stock Purchase Plan, and

·

the proposed redemption of approximately $20.0 million in common stock prior to the closing of this offering from certain of our stockholders, some of which are trusts, the remainder beneficiaries of which include directors and executive officers.

·

a 40-for-1 stock split of our outstanding common stock and recapitalization as a result of the exchange in the reincorporation merger to occur prior to the effectiveness of our registration statement with the Securities and Exchange Commission, and

·

no exercise of the underwriters’ over-allotment option.

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(1)

The operating results of the Washington health plan have been included in the consolidated statements of income for periods after December 31, 1999, the date of acquisition.

(2)

The weighted average number of common shares and potential dilutive common shares outstanding for 1999 has been adjusted to reflect a share exchange in 1999 in which each share of Molina Healthcare of California (formerly Molina Medical Centers) was exchanged for 5,000 shares of Molina Healthcare, Inc. (formerly American Family Care, Inc.), and Molina Healthcare, Inc. became the parent company.

(3)

Medical care ratio represents medical care costs as a percentage of premium and other operating revenue. Other operating revenue includes revenues related to our California clinics and reimbursements under various risks and savings sharing programs.

(4)

Marketing, general and administrative expense ratio represents such expenses as a percentage of total operating revenue.

(5)

Number of members at end of period.

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(1)

The as adjusted data give effect to our receipt of the net proceeds from the sale of                 shares of common stock offered by us at an assumed offering price of $            per share (the mid-point of the range) after deducting estimated underwriting discounts and commissions and estimated offering expenses.

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how we do business,

·

revenue and enrollment growth, and

·

our marketing efforts.

·

impose additional capital requirements,

·

increase or change our liability,

·

limit our ability to acquire other health plans or increase the cost of making such acquisitions,

·

increase our administrative and other costs,

·

increase or decrease mandated benefits,

·

force us to restructure our relationships with providers within our network,

·

require us to implement additional or different programs and systems,

·

further restrict or prohibit inducements to enroll or retain an enrollee,

·

restrict or prohibit physician incentives designed to promote the delivery of quality care in a cost-effective manner, and

·

impact the terms and conditions of our centralized service contracts that are critical to our administrative efficiency.

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additional employees who are not familiar with our operations,

·

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

·

additional members, who may decide to transfer to other health care providers or health plans,

·

disparate information, claims processing and record keeping systems, and

·

accounting policies, including those which require judgmental and complex estimation processes, such as IBNR, accounting for goodwill and intangible assets, stock-based compensation and income tax matters.

·

the time and costs associated with obtaining an HMO license, if necessary, to operate in the area,

·

our inability to develop a network of physicians, hospitals and other health care providers which meets our requirements and those of government regulators,

·

the cost of providing health care services in that area,

·

demographics and population density,

·

additional capital needed to increase net equity requirements associated with growth, and

·

competition, which increases the costs of recruiting and retaining members.

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power loss, telecommunications or network failures, operator negligence, improper operation by employees, physical break-ins and other similar events,

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unauthorized access or electronic break-ins, or “hacking,” and

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computer viruses.

·

state and federal budget decreases,

·

adverse publicity regarding HMOs and other managed care organizations,

·

government action regarding eligibility,

·

changes in government payment levels,

·

changes in state mandatory programs,

·

changes in expectations as to our future financial performance or changes in financial estimates, if any, of public market analysts,

·

announcements relating to our business or the business of our competitors,

·

conditions generally affecting the managed care industry or our provider networks,

·

the success of our operating or acquisition strategy,

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the operating and stock price performance of other comparable companies,

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the termination of our Medicaid or SCHIP contracts with state or county agencies, or subcontracts with other Medicaid managed care organizations that contract with such state or county agencies,

·

regulatory or legislative change, and

·

general economic conditions, including inflation and unemployment rates.

·

you will pay a price per share that exceeds by $            the per share pro forma net tangible book value of our assets immediately following the offering (on a pro forma basis as of September 30, 2002), after giving effect to the exercise of vested options to purchase shares of common stock, and

·

the investors in the offering will have contributed        % of the total amount to fund us but will own only        % of our outstanding shares of our common stock.

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a staggered board of directors, so that it would take three successive annual meetings to replace all directors,

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prohibition of stockholder action by written consent,

·

advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting, and

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a stockholder rights plan.

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pursue selective acquisitions of health plans and contracts for government sponsored health programs in existing and new markets,

·

increase our enrollment in existing markets through enrollment initiatives, and

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general corporate purposes, including working capital.

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on an actual basis, unadjusted for any exercise of outstanding options, and

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on an as adjusted basis to reflect the issue and sale of                  shares of common stock by us in this offering at an assumed initial offering price of $            per share less estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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(1)

The balance sheet and operating results of the Washington health plan have been included in the consolidated balance sheet as of December 31, 1999, the date of acquisition, and in each of the consolidated statements of income for periods thereafter.

(2)

The weighted average number of common shares and potential dilutive common shares outstanding for 1999 and prior has been adjusted to reflect a share exchange in 1999 in which each share of Molina Healthcare of California (formerly Molina Medical Centers) was exchanged for 5,000 shares of Molina Healthcare, Inc. (formerly American Family Care, Inc.), and Molina Healthcare, Inc. became the parent company.

(3)

Medical care ratio represents medical care costs as a percentage of premium and other operating revenue. Other operating revenue includes revenues related to our California clinics and reimbursements under various risks and savings sharing programs.

(4)

Marketing, general and administrative expense ratio represents such expenses as a percentage of total operating revenue.

(5)

Number of members at end of period.

(6)

The as adjusted data give effect to our receipt of the net proceeds from the sale of         shares of common stock offered by us at an assumed offering price of $            per share (the mid-point of the range) after deducting estimated underwriting discounts and commissions and estimated offering expenses.

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(1)

We acquired the Washington health plan on December 31, 1999, which had approximately 60,000 members on the date of acquisition.

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Expand within existing markets.    We expect to grow in existing markets by expanding our service area and provider network, increasing awareness of the Molina brand name, and maintaining positive provider relationships.

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Enter new markets.    We intend to enter new markets by acquiring existing businesses or building our own operations. We will focus our expansion on markets with strong provider dynamics, a fragmented competitive landscape, significant size and mandated Medicaid managed care enrollment.

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(1)

Includes premium and other operating revenue for the twelve months ended September 30, 2002.

(2)

On December 16, 2002, our Washington health plan’s contract was extended to December 31, 2003.

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Multi-Product Managed Care Organizations—National and regional multi-product managed care organizations that have Medicaid members in addition to members in Medicare and private commercial plans.

·

Medicaid HMOs—Managed care organizations that focus principally on providing health care services to Medicaid beneficiaries, many of which operate in only one city or state.

·

Prepaid Health Plans—Health plans that provide less comprehensive services on an at-risk basis or that provide benefit packages on a non-risk basis.

·

Primary Care Case Management Programs—Programs established by the states through contracts with primary care providers to provide primary care services to Medicaid beneficiaries, as well as provide limited oversight of other services.

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establishes its own eligibility standards,

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determines the type, amount, duration and scope of services,

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sets the rate of payment for services, and

·

administers its own program.

·

we must measure provider access and availability in terms of the time needed to reach the doctor’s office using public transportation,

·

our quality improvement programs must emphasize member education and outreach and include measures designed to promote utilization of preventive services,

·

we must have linkages with schools, city or county health departments, and other community-based providers of health care, in order to demonstrate our ability to coordinate all of the sources from which our members may receive care,

·

we must have the capability to meet the needs of the disabled and others with “special needs,”

·

our providers and member service representatives must be able to communicate with members who do not speak English or who are deaf, and

·

our member handbook, newsletters and other communications must be written at the prescribed reading level, and must be available in languages other than English.

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establish the capability to receive and transmit electronically certain administrative health care transactions, like claims payments, in a standardized format,

·

afford privacy to patient health information, and

·

protect the privacy of patient health information through physical and electronic security measures.

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(1)

Member of the Audit Committee.

(2)

Member of the Compensation Committee.

(3)

Member of the Nominating Committee.

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·

Class I, whose term will expire at the annual meeting of the stockholders to be held in 2003,

·

Class II, whose term will expire at the annual meeting of the stockholders to be held in 2004, and

·

Class III, whose term will expire at the annual meeting of the stockholders to be held in 2005.

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(1)

Auto allowances

(2)

Options granted to each named executive officer during 2001 to purchase the Company’s common shares.

(3)

Estimated fair value of the options on the date of grant.

(4)

All other compensation includes employer matching contributions under the Company’s 401(k) plan and the portion of premiums on life insurance benefits in excess of $50,000.

(5)

401(k) contributions of $6,800 and insurance premiums of $300.

(6)

401(k) contributions of $6,800 and insurance premiums of $213.

(7)

401(k) contributions of $6,800 and insurance premiums of $1,847.

(8)

401(k) contributions of $6,800 and insurance premiums of $237.

(9)

401(k) contributions of $6,800 and insurance premiums of $694.

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(1)

Calculated based on the estimated fair market value of $10.125 per share on the date of grant as determined by our board of directors based on comparable market values of similar companies and discounted cash flows valuation techniques.

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Options to purchase 640,000 shares were settled on November 7, 2002 through a cash payment of $7,660,000 resulting in a fourth quarter 2002 compensation charge of $6,880,000.

(2)

Options to purchase 95,200 shares were settled on November 7, 2002 through a cash payment of $1,023,400, resulting in a fourth quarter 2002 compensation charge of $915,500.

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each person, entity or group known by us to own beneficially more than 5% of our outstanding common stock,

·

each of our named executive officers and directors, and

·

all of our executive officers and directors as a group.

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Denotes less than 1%.

(1)

As required by SEC regulation, the number of shares shown as beneficially owned includes shares which could be purchased within 60 days after December 15, 2002.

(2)

Includes 645,692 shares owned by J. Mario Molina, M.D. as to which Dr. Molina has sole voting and investment power; and 14,681 shares owned by Dr. Molina and Therese A. Molina as community property as to which Dr. Molina has shared voting and investment power. Dr. Molina is a Director and our President and Chief Executive Officer.

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(3)

Includes 426,029 shares owned by John C. Molina; 17,481 shares owned by Mr. Molina and Michelle A. Molina as community property as to which Mr. Molina has shared voting and investment power; 192,303 shares owned by the John C. Molina Trust (1995), of which Mr. Molina and Mr. Dentino are co-trustees with shared investment power and Mr. Molina is the beneficiary, and as to which Mr. Molina has sole voting power pursuant to a proxy; 62,933 shares owned by the Molina Children’s Trust for John C. Molina (1997), of which Mr. Molina and Mr. Dentino are co-trustees with shared voting and investment power and Mr. Molina is the beneficiary; 3,356,000 shares owned by the Molina Siblings Trust, of which Mr. Molina is the trustee with sole voting and investment power and J. Mario Molina, M. Martha Bernadett, Josephine M. Battiste, Janet M. Watt and Mr. Molina are the beneficiaries; 1,114,419 shares owned by the MRM GRAT 301/2, of which Mr. Molina is the trustee with sole voting and investment power, Mary R. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; 1,193,451 shares owned by the MRM GRAT 301/3, of which Mr. Molina is the trustee with sole voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; 425,167 shares owned by the MRM GRAT 502/2, of which Mr. Molina is the trustee with sole voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; and 50,394 shares owned by the M/T Molina Children’s Education Trust, of which Mr. Molina is the trustee with sole voting and investment power and J. Mario Molina’s children are the beneficiaries. Mr. Molina is a Director and our Executive Vice President, Financial Affairs, and Treasurer.

(4)

Includes 6,675,388 shares owned by the Mary R. Molina Living Trust, of which Mr. Dentino and Curtis Pedersen are co-trustees with shared voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; 3,647,069 shares owned by the Molina Marital Trust, of which Mr. Dentino and Mr. Pedersen are co-trustees with shared voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; 192,303 shares owned by the John C. Molina Trust (1995), of which Mr. Molina and Mr. Dentino are co-trustees with shared investment power and Mr. Molina is the beneficiary, and as to which Mr. Molina has sole voting power pursuant to a proxy; 192,303 shares owned by the Mary Martha Molina Trust (1995), of which Dr. Bernadett and Mr. Dentino are co-trustees with shared investment power and Dr. Bernadett is the beneficiary, as to which Dr. Bernadett has sole voting power pursuant to a proxy; 384,578 shares owned by the Janet M. Watt Trust (1995), of which Ms. Watt and Mr. Dentino are co-trustees with shared investment power and Ms. Watt is the beneficiary, as to which Ms. Watt has sole voting power pursuant to a proxy; 384,578 shares owned by the Josephine M. Molina Trust (1995), of which Ms. Battiste and Mr. Dentino are co-trustees with shared investment power and Ms. Battiste is the beneficiary, as to which Ms. Battiste has sole voting power pursuant to a proxy; 62,933 shares owned by the Molina Children’s Trust for M. Martha Molina (1997) of which Mr. Dentino and M. Martha Bernadett, M.D. are co-trustees with shared voting and investment power and Dr. Bernadett is the beneficiary; 62,933 shares owned by the Molina Children’s Trust for John C. Molina (1997), of which Mr. Molina and Mr. Dentino are co-trustees with shared voting and investment power and Mr. Molina is the beneficiary; 125,867 shares owned by the Molina Children’s Trust for Janet M. Watt (1997), of which Mr. Dentino and Janet M. Watt are co-trustees with shared voting and investment power and Ms. Watt is the beneficiary; and 125,867 shares owned by the Molina Children’s Trust for Josephine M. Molina (1997), of which Mr. Dentino and Josephine M. Battiste are co-trustees with shared voting and investment power and Ms. Battiste is the beneficiary. Mr. Dentino is counsel to Mary R. Molina, our former director and the mother of J. Mario Molina, M.D., John C. Molina and M. Martha Bernadett, M.D., and has provided legal services to various Molina family members and entities in which they have interests. His address is 555 Capitol Mall, Suite 1500, Sacramento, California 95814.

(5)

Includes 6,675,388 shares owned by the Mary R. Molina Living Trust, of which Mr. Pedersen and Mr. Dentino are co-trustees with shared voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries; and 3,647, 069 shares owned by the Molina Marital Trust, of which Mr. Pedersen and Mr. Dentino are co-trustees with shared voting and investment power, Mrs. Molina is the income beneficiary and J. Mario Molina, M.D., John C. Molina, M. Martha Bernadett, M.D., Janet M. Watt and Josephine M. Battiste are the remainder beneficiaries. Mr. Pedersen is the uncle of J. Mario Molina, M.D., John C. Molina, J.D. and M. Martha Bernadett, M.D. Mr. Pedersen’s address is 6218 East 6th Street, Long Beach, California 90803.

(6)

Includes 160,000 shares which may be purchased pursuant to options. Dr. Goldstein is our Director and Executive Vice President, Health Plan Operations.

(7)

Includes 176,800 shares which may be purchased pursuant to options. Mr. Andrews is our Executive Vice President, Legal Affairs, General Counsel and Corporate Secretary.

(8)

Includes 57,120 shares which may be purchased pursuant to options. Dr. Helmer is our Vice President and Chief Medical Officer.

(9)

Includes all shares beneficially owned or which may be purchased by J. Mario Molina, M.D., John C. Molina, J.D., George S. Goldstein, Ph.D., Mark L. Andrews, Esq., M. Martha Bernadett, M.D., Ronna Romney Ronald Lossett, CPA, D.B.A., and Charles Z. Fedak, CPA.

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restricting dividends on the common stock,

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diluting the voting power of the common stock,

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impairing the liquidation rights of the common stock, or

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delaying or preventing a change of control of our company.

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receipt and acceptance of our common stock by the underwriters, and

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the right to reject orders in whole or in part.

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the history of, and prospects for, our company and the industry in which we compete,

·

the past and present financial performance of our company,

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an assessment of our management,

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the present state of our development,

·

the prospects for our future earnings,

·

the prevailing market conditions of the applicable United States securities market at the time of this offering, market valuations of publicly traded companies that we and the representatives of the underwriters believe to be comparable to our company, and

·

other factors deemed relevant.

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(1)

Adjusted to reflect the share exchange in 1999 (see Note 1. The Reporting Entity)  and a 40-for-1 stock split of the outstanding shares as a result of the exchange in the reincorporation merger (see Note 10. Restatement of Capital Accounts).

(2)

All options to purchase common shares were included in the calculation of diluted earnings per share because their exercise prices were below the average fair value of the common shares for each of the periods presented.

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(1)

Amount includes equity in net income of subsidiaries from May 26, 1999 (date of incorporation of the Registrant) to December 31, 1999.

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(1)

The Registrant was incorporated on May 26, 1999 to operate as the parent company of the healthcare subsidiaries. Upon incorporation, the common stock of Molina Healthcare of California was transferred to the Registrant.

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*

To be completed by amendment

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*

To be filed by amendment.

**

Confidential treatment has been requested for a portion of this Exhibit pursuant to Rule 406 promulgated under the Securities Act.

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                                                                     EXHIBIT 3.1

                            ARTICLES OF INCORPORATION
                                       OF
                           AMERICAN FAMILY CARE, INC.

[SEAL]

                                        I

               The name of the Corporation is American Family Care, Inc.

                                       II

               The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.

                                       III

               The name and address in the State of California of the
Corporation's initial agent for service of process are:

                             Mark L. Andrews
                             One Golden Shore Drive
                             Long Beach, CA 90802

                                       IV

               The Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock", respectively. The number of
shares of Common Stock authorized to be issued is 5,000,000 and the number of
shares of Preferred Stock authorized to be issued is 1,000,000.

               The Board of Directors of the Corporation is authorized to (i)
determine the number of series into which shares of Preferred Stock may be
divided and the designation of any such series, (ii) determine the rights,
preferences, privileges and restrictions granted to or imposed upon the
Preferred Stock or any series thereof or any holders thereof, (iii) determine
and alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly-unissued series of Preferred Stock or the holders
thereof and (iv) fix the number of

                                       1.



shares constituting any series prior to the issue of shares of that series, and
to increase or decrease, within the limits stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series (but not below the number of shares of such series then
outstanding), the number of shares of any such series subsequent to the issue of
shares of that series.

                                        V

               The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the Corporation and its shareholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.

Dated: MAY 4, 1999                                       /s/
                                                         -----------------------
                                                         Incorporator

                                       2.



                            CERTIFICATE OF AMENDMENT

                                       OF

                            ARTICLES OF INCORPORATION

                                       OF

                           AMERICAN FAMILY CARE, INC.

[SEAL]

     JOSEPH M. MOLINA and MARK L. ANDREWS, certify that:

     1. They are the President and Secretary, respectively, of American Family
Care, Inc, a California corporation.

     2. Article I, of the Articles of Incorporation of this Corporation is
amended and restated to read as follows:

                                       I.

             The name of the Corporation is Molina Healthcare, Inc.

     3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.

     4. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the Corporation is 499,999.999. The number of shares voting in favor of the
amendment equaled or exceeded the vote requirement. The percentage vote required
was more than fifty percent (50%).

     5. We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true, correct,
and of our own knowledge.

                                                  /s/
Date:3/16/2000                                    ------------------------------
                                                  Joseph M.Molina, President

Date:3/16/2000                                    /s/
                                                  ------------------------------
                                                  Mark L.Andrews, Secretary

[SEAL]

                                                                     EXHIBIT 3.2

[SEAL]

                          CERTIFICATE OF INCORPORATION

                                       OF

                             MOLINA HEALTHCARE, INC.

                                    ARTICLE I

               The name of this Corporation shall be: Molina Healthcare, Inc.

                                   ARTICLE II

               The name of the registered office of the Corporation in the State
of Delaware is The Corporation Trust Company, and the address of the registered
agent at that address is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware.

                                   ARTICLE III

               The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware Corporation Law").

                                   ARTICLE IV

               A. The total number of shares of all classes of capital stock
which the Corporation shall have the authority to issue is 100,000,000 shares,
consisting of (a) 80,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), and (b) 20,000,000 shares of Preferred Stock, par value $0.001
per share ("Preferred Stock").

               B. Preferred Stock.

                    1.   The Board of Directors of the Corporation (the "Board
of Directors") is authorized to provide, by resolution, for one or more series
of Preferred Stock to be comprised of authorized but unissued shares of
Preferred Stock. Except as may be required by law, the shares in any series of
Preferred Stock need not be identical to any other series of Preferred Stock.
Before any shares of any such series of Preferred Stock are issued, the Board of
Directors shall fix, and is hereby expressly empowered to fix, by resolution,
rights, preferences and privileges of, and qualifications, restrictions and
limitations applicable to such series, including the following:

                    (a)  The designation of such series, the number of shares to
               constitute such series and the stated value thereof (if different
               from the par value thereof);

                    (b)  Whether the shares of such series shall have voting
               rights (and, if so, the terms of such voting rights, which may be
               full, special or limited) and whether or not such series is to be
               entitled to vote as a separate class either alone or together
               with the holders of one or more other series or class of capital
               stock;



                    (c)  The preferences and relative, participating, optional
               or other special rights, if any, and the qualifications,
               limitations or restrictions, if any, with respect to such series;

                    (d)  The dividends, if any, payable on such series, whether
               any such dividends shall be cumulative (and, if so, from what
               dates), whether any such dividends are payable in cash, stock of
               the Corporation or other property or a combination thereof, the
               conditions and dates upon which such dividends shall be payable
               and the preference or relation which such dividends shall bear to
               the dividends payable on any shares of capita] stock of any other
               class or any other series of Preferred Stock;

                    (e)  Whether the shares of such series shall be subject to
               redemption by the Corporation or upon the happening of any
               specified event, and, if so, the times, prices (which may be
               payable in the form of cash, notes, securities or other property
               or rights) and other conditions relating to such redemption;

                    (f)  The amounts payable in respect of shares of such
               series, and the other rights and preferences of the holders of
               such shares, in the event of the voluntary or involuntary
               liquidation, dissolution or winding up, or upon any distribution
               of the assets, of the Corporation;

                    (g) Whether the shares of such series shall be subject to a
               retirement or sinking fund (and, if so, the extent to and manner
               in which any such retirement or sinking fund shall be applied to
               the purchase or redemption of the shares of such series for
               retirement or other corporate purposes and the other terms and
               provisions relating thereto);

                    (h)  Whether the shares of such series shall be convertible
               into, or exchangeable for, shares of Common Stock or any other
               series of Preferred Stock, any other securities (whether or not
               issued by the Corporation) or any other property of the
               Corporation (and, if so, the price or prices or the rate or rates
               of such conversion or exchange, and any other terms and
               conditions of such conversion or exchange);

                    (i)  The limitations and restrictions, if any, to be
               effective upon the payment of dividends or the making of other
               distributions on, or upon the purchase, redemption or other
               acquisition by the Company of, Common Stock or other shares of
               capital stock of any other class or any other series of Preferred
               Stock; and

                    (j)  The conditions (if any) applicable to, or restrictions
               (if any) on, the creation of indebtedness of the Corporation or
               upon the issuance of any additional capital stock, including
               additional shares of such series or any other series of Preferred
               Stock or any other class of capital stock.

                                        2



                    2.   The Board of Directors is authorized to increase the
number of shares of the Preferred Stock designated for any existing series of
Preferred Stock by a resolution adding to such series authorized and unissued
shares of the Preferred Stock not designated for any other series of Preferred
Stock. The Board of Directors is authorized to decrease the number of shares of
the Preferred Stock designated for any existing series of Preferred Stock by a
resolution, subtracting from such series unissued shares of the Preferred Stock
designated for such series.

               C.   Common Stock

                    1.   Except as otherwise required by law, and subject to any
special voting rights which may be granted to any series of Preferred Stock in
the Board of Directors resolutions which create such series, each holder of
Common Stock shall be entitled to one vote for each share of Common Stock
standing in such holder's name on the records of the Corporation on each matter
submitted to a vote of the stockholders. Holders of Common Stock shall not have
the right to cumulative voting in the election of directors of the Corporation.

                    2.   Subject to the rights of the holders of the Preferred
Stock, the holders of the Common Stock shall be entitled to receive such
dividends and other distributions, in cash, securities or property of the
Corporation, as may be declared thereon from time to time by the Board of
Directors, out of the assets and funds of the Corporation legally available
therefor.

                    3.   Upon any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock shall be entitled to receive,
ratably in accordance with the shares of Common Stock held by them, any amounts
remaining after payment of the holders of the Preferred Stock.

               D.   General.

                    1.   Subject to the foregoing provisions of this Certificate
of Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (in any form, but not less
in value than the par value thereof) as may be fixed by the Board of Directors,
which is expressly authorized to fix such consideration in its absolute and
uncontrolled discretion subject to the foregoing conditions. Shares of Preferred
Stock or Common Stock so issued for which the consideration shall have been paid
or delivered to the Corporation shall be deemed fully paid stock and shall not
be subject to any further call or assessment thereon, and the holders of such
shares shall not be liable for any further payments in respect of such shares.

                    2.   The Corporation shall have authority to create and
grant rights and options entitling their holders to purchase or otherwise
acquire shares of any class or series of the Corporation's capital stock or
other securities of the Corporation, and such rights and options shall be
evidenced by instruments approved by the Board of Directors. The Board of
Directors shall be empowered to set the exercise price, duration, times for
exercise and other terms of such options or rights; provided, however, that the
consideration to be

                                        3



received (which may be in any form permitted by the Board of Directors) for any
shares of capital stock subject thereto shall have a value not less than the par
value thereof.

                                    ARTICLE V

          A.   The management of the business and the conduct of the affairs of
the Corporation shall be vested in the Board of Directors of the Corporation.
The number of directors which shall constitute the entire Board of Directors
shall be fixed by, or in the manner provided in, the Bylaws of the Corporation,
subject to any restrictions that may be set forth in this Certificate.

          B.   The directors of the Corporation shall be classified, with
respect to the time for which they hold office, into three classes as nearly
equal in number as possible: one class the term of which expires at the first
annual meeting of stockholders that is held after the first organizational
meeting of the Board of Directors, a second class the term of which expires at
the second annual meeting of stockholders that it held after the first
organizational meeting of the Board of Directors and a third class the term of
which expires at the third annual meeting of stockholders that is held after the
first organizational meeting of the Board of Directors, with the directors in
each such class to hold office until their successors are elected and qualified.
If the number of directors is changed by the Board of Directors, then any
newly-created directorships or any decrease in directorships shall be so
apportioned among such classes as to make all such classes as nearly equal in
number as possible; provided, however, that no decrease in the number of
directors shall shorten the term of any incumbent director. At each annual
meeting of the stockholders of the Corporation, subject to the rights of the
holders of any class or series of capital stock having a preference over Common
Stock as to dividends or upon liquidation, the successors of the class of
directors the term of which expires at such meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders of the
Corporation held in the third year following the year of such election.

                                   ARTICLE V1

          In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind the Bylaws of the Corporation; provided, however, that the
stockholders may change or repeal any Bylaw adopted by the Board of Directors by
the affirmative vote of the percentage of holders of capital stock as set forth
therein.

                                   ARTICLE VII

          The election of directors at an annual or special meeting of
stockholders of the Corporation need not be by written ballot unless the Bylaws
of the Corporation shall so provide.

                                        4



                                  ARTICLE VIII

          A.   The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or an
officer of the Corporation against expenses (including, without limitation,
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred thereby in connection with such action, suit or proceeding
to the fullest extent permitted by the Delaware Corporation Law and any other
applicable law as shall be from time to time in effect. Such right of
indemnification shall not be deemed to be exclusive of any rights to which any
such director or officer may otherwise be entitled. The provisions of this
Article VIII--Section A shall be deemed to constitute a contract between the
Corporation and each director and officer of the Corporation serving in such
capacity at any time while this Article VIII--Section A is in effect, and any
repeal or modification thereof shall not affect any right or obligation then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts.

          B.   The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise including
service with respect to an employee benefit plan, against expenses (including,
without limitation, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred thereby in connection with such
action, suit or proceeding to the extent permitted by and in the manner set
forth in the Delaware Corporation Law and any other applicable law as shall be
from time to time in effect. Such right of indemnification shall not be deemed
to be exclusive of any other rights to which any such person may otherwise be
entitled.

                                   ARTICLE IX

          To the fullest extent permitted by the Delaware Corporation Law, a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. In
furtherance thereof, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Corporation
Law, as currently in existence or hereafter amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
Corporation Law hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of directors shall
be eliminated or limited to the full extent authorized by the Delaware
Corporation Law, as so amended.

                                        5



                                    ARTICLE X

          A.   Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the President or Chief
Executive Officer of the Corporation, the Chairperson of the Board of Directors
or the Board of Directors or a Committee of the Board of Directors which has
been duly designated by the Board of Directors and the powers and authority of
which, as provided in a resolution of the Board of Directors or in the Bylaws of
the Corporation, include the power to call special meetings of the stockholders.
Such special meetings may not be called by any other person or persons.

          B.   So long as the Corporation has more than one stockholder, no
action required to be taken or which may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken without such a
meeting, and the power of the stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.

                                   ARTICLE XI

          Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law, this Certificate of Incorporation or any designation of the Preferred
Stock, the affirmative vote of at least fifty percent (50%) of the voting power
of all of the then outstanding shares of the capital stock, voting together as a
single class, shall be required to amend, alter or appeal any provision
contained in this Certificate of Incorporation.

                                   ARTICLE XII

          The  name and mailing address of the incorporator of the Corporation
is:

                             Elliot Hinds
                             McDermott. Will & Emery
                             2049 Century Park East, 34th Floor
                             Los Angeles, California 90067

          THE  UNDERSIGNED, being the sole incorporator herein named, for the
purpose of forming a corporation pursuant to the Delaware Corporation Law, does
make this certificate, hereby declaring and certifying that the facts stated
herein are true, and accordingly have hereunto set my hand as of July 24, 2002.

                                            /s/
                                            ------------------------------------
                                            Elliot Hinds, Sole Incorporator

                                        6

                                                                     EXHIBIT 3.3

                                     BYLAWS

                                       OF

                            MOLINA HEALTHCARE, INC.,
                            a California corporation

                                    ARTICLE I

                                  Applicability

Section 1. Applicability of Bylaws.

           Except as otherwise provided by statute or its Articles of
Incorporation, these Bylaws govern the management of the business and the
conduct of the affairs of the Corporation.

                                   ARTICLE II

                                     Offices

Section 1. Principal Executive Office.

           The Board of Directors shall fix the location of the principal
executive office of the Corporation within or outside the State of California.
If the principal executive office is located outside the State of California,
and the Corporation has one or more business offices within California, the
Board of Directors shall fix and designate a principal business office within
the State of California.

Section 2. Other Offices.

           The Board of Directors may establish other offices at any place or
places within or without the State of California.

Section 3. Change in Location or Number of Offices.

           The Board of Directors may change any office from one location to
another or eliminate any office or offices.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001



                                   ARTICLE III

                            Meetings of Shareholders

Section 1. Place of Meetings.

           Meetings of the shareholders shall be held at any place within or
without the State of California designated by the Board of Directors or, in the
absence of such designation, at the principal executive office of the
Corporation.

Section 2. Annual Meetings.

           An annual meeting of the shareholders shall be held following the end
of the fiscal year of the Corporation at a date and time designated by the Board
of Directors. Directors shall be elected at each annual meeting and any other
proper business may be transacted at such annual meeting.

Section 3. Special Meetings.

           (a) Special meetings of the shareholders may be called by adoption of
an appropriate resolution of a majority of the Board of Directors or upon the
request of the Chairman of the Board, the President or the holders of shares
entitled to cast not less than 10% of the votes at such meeting.

           (b) Any officer or shareholder request for the calling of a special
meeting of the shareholders shall (1) be in writing, (2) specify the date, which
shall be not less than 35 or more than 60 days after the receipt of the request,
and the time thereof, (3) specify the general nature of the business to be
transacted at such special meeting and (4) be given either personally or by
first-class mail, postage prepaid, or other means of written communication to
the Chairman of the Board, President, any vice president or Secretary of the
Corporation. The officer receiving a proper request to call a special meeting of
the shareholders shall, within 20 days after receipt of such request, cause
notice to be given pursuant to the provisions of Section 4 of this Article to
the shareholders entitled to vote at such special meeting that a meeting will be
held at the date and time specified by the person or persons calling the
meeting.

           (c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       2.



Section 4. Notice of Annual, Special or Adjourned Meetings.

           (a) Whenever any meeting of the shareholders is to be held, a written
notice of such meeting shall be given in the manner described in subdivision (d)
of this Section not less than 10 (or, if sent by third-class mail, 30) nor more
than 60 days before the date thereof to each shareholder entitled to vote at
such meeting. The notice shall state the place, date and hour of the meeting and
(1) in the case of a special meeting, the general nature of the business to be
transacted or (2) in the case of the annual meeting, those matters which the
Board of Directors, at the time of the giving of the notice, intend to present
for action by the shareholders including, whenever directors are to be elected
at a meeting, the names of nominees intended at the time of giving of the notice
to be presented by the Board of Directors for election.

           (b) Any proper matter may be presented at an annual meeting for
action, except as is provided in subdivision (f) of Section 601 of the
Corporations Code of the State of California.

           (c) Notice need not be given of an adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken;
provided that, if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at such adjourned meeting.

           (d) Notice of any meeting of the shareholders or any report shall be
given either personally or by first-class mail or by other means of written
communication, addressed to the shareholder at such shareholder's address
appearing on the books of the Corporation or given by such shareholder to the
Corporation for the purpose of notice. If no such address appears or is given,
notice shall be deemed to be given if sent to that shareholder by first-class
mail to the Corporation's principal executive office or if published at least
once in a newspaper of general circulation in the county in which the principal
executive office is located. The notice or report shall be deemed to have been
given at the time when delivered personally to the recipient or deposited in the
mail or sent by other means of written communication. An affidavit of mailing of
any notice or report in accordance with the provisions of these Bylaws or the
General Corporation Law of the State of California, executed by the Secretary,
assistant secretary or any transfer agent of the Corporation, shall be prima
facie evidence of the giving of the notice or report.

           (e) If any notice or report addressed to the shareholder at such
shareholder's address appearing on the books of the Corporation is returned to
the Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the shareholder
upon such shareholder's written demand at the Corporation's principal executive
office for a period of one year from the date of the giving of the notice to all
other shareholders.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       3.



Section 5. Record Date.

           (a) The Board of Directors may fix a time in the future as a record
date for the determination of the shareholders (1) entitled to notice of any
meeting or to vote at such meeting, (2) entitled to receive payment of any
dividend or other distribution or allotment of any rights or (3) entitled to
exercise any rights in respect of any other lawful action. The record date so
fixed shall be not more than 60 nor less than 10 days prior to the date of any
meeting of the shareholders nor more than 60 days prior to any other action.

           (b) In the event no record date is fixed:

               (1) The record date for determining the shareholders entitled to
           notice of or to vote at a meeting of shareholders shall be at the
           close of business on the business day next preceding the day on which
           notice is given or, if the notice is waived, at the close of business
           on the business day next preceding the day on which the meeting is
           held;

               (2) The record date for determining shareholders entitled to give
           consent to corporate action in writing without a meeting, when no
           prior action by the Board of Directors has been taken, shall be the
           day on which the first written consent is given;

               (3) The record date for determining shareholders for any other
           purpose shall be at the close of business on the day on which the
           Board of Directors adopts the resolution relating thereto, or the
           60th day prior to the date of such other action, whichever is later.

           (c) Only shareholders of record on the close of business on the
record date are entitled to notice of and to vote at the relevant meeting of
shareholders, or to receive a dividend, distribution or allotment of rights or
to exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.

           (d) A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.

Section 6. Quorum.

           (a) A majority of the shares entitled to vote at a meeting of the
shareholders, represented in person or by proxy, shall constitute a quorum for
the transaction of business at such meeting.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       4.



           (b) Except as provided in Section 6(c) below, the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute at least
a majority of the required quorum) shall be the act of the shareholders, unless
the vote of a greater number is required by law or the Articles of
Incorporation.

           (c) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, provided that any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum.

Section 7. Adjournment.

           Any meeting of the shareholders may be adjourned from time to time
whether or not a quorum is present by the vote of a majority of the shares
represented at such meeting either in person or by proxy. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.

Section 8. Validation of Defectively Called, Noticed or Held Meetings.

           (a) The actions taken at any meeting of the shareholders, however
called and noticed, and wherever held, are as valid as though taken at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy, and if, either before or after the meeting, each of the persons
entitled to vote at such meeting and not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.

           (b) Attendance of a person at a meeting shall constitute a waiver of
notice of that meeting, except (1) when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and (2) that attendance at a meeting is not a
waiver of any right to object to the consideration of any matter required by the
General Corporation Law of the State of California to be included in the notice
but not so included, if that objection is expressly made at the meeting.

           (c) Any written waiver of notice shall comply with subdivision (f) of
Section 601 of the Corporations Code of the State of California.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       5.



Section 9.  Voting for Election of Directors.

            (a) Every shareholder complying with subdivision (b) of this section
and entitled to vote at any election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
shareholder's shares are normally entitled, or distribute such shareholder's
votes on the same principle among as many candidates as such shareholder thinks
fit.

            (b) No shareholder shall be entitled to cumulate such shareholder's
votes (i.e., cast for any candidate a number of votes greater than the number of
votes which such shareholder's shares are normally entitled to cast) unless the
candidate's or candidates' names for which such shareholder desires to cumulate
such shareholder's votes have been placed in nomination prior to the voting and
the shareholder has given notice at the meeting prior to the voting of such
shareholder's intention to cumulate such shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination.

            (c) Election for directors may be by voice vote or by ballot unless
any shareholder entitled to vote demands election by ballot at the meeting prior
to the voting, in which case the vote shall be by ballot.

            (d) In any election of directors, the candidates receiving the
highest number of affirmative votes of the shares entitled to be voted, up to
the number of directors to be elected by such shares, shall be elected as
directors; votes against any director and votes withheld shall have no legal
effect.

Section 10. Proxies.

            (a) Every person entitled to vote shares may authorize another
person or persons to act with respect to such shares by a written proxy signed
by such shareholder or such shareholder's attorney-in-fact and filed with the
Secretary of the Corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by such shareholder or such
shareholder's attorney-in-fact.

            (b) Any duly executed proxy shall continue in full force and effect
until the expiration of the term specified therein or upon its earlier
revocation by the person executing it prior to the vote pursuant thereto (1) by
a writing delivered to the Corporation stating that it is revoked, (2) by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or (3) as to any meeting by attendance at the meeting and voting
in person by the

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       6.



person executing the proxy. No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. The date
contained on the form of proxy shall be deemed to be the date of its execution.

            (c) A proxy which states that it is irrevocable is irrevocable for
the period specified therein subject to the provisions of subdivisions (e) and
(f) of Section 705 of the Corporations Code of the State of California.

Section 11. Inspectors of Election.

            (a) In advance of any meeting of the shareholders, the Board of
Directors may appoint either any one or three persons (other than nominees for
the office of director) as inspectors of election to act at such meeting or any
adjournments thereof. If inspectors of election are not so appointed, or if any
person so appointed fails to appear or refuses to act, the Chairman of any such
meeting may, and on the request of any shareholder or such shareholder's proxy
shall, appoint inspectors of elections (or persons to replace those who so fail
or refuse to act) at the meeting. If appointed at a meeting on the request of
one or more shareholders or the proxies thereof, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.

            (b) The duties of inspectors of election and the manner of
performance thereof shall be as prescribed in Section 707 of the Corporations
Code of the State of California.

Section 12. Action by Written Consent.

            (a) Subject to  subdivisions (b) and (c) of this section, any action
which may be taken at any annual or special meeting of the shareholders may be
taken without a meeting, without a vote and without prior notice, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes which would
have been necessary to authorize or take such action at a meeting in which all
shares entitled to vote thereon were present and voted. All such consents shall
be filed with the Secretary of the Corporation and maintained with the corporate
records.

            (b) Except for the election of a director by written consent to fill
a vacancy (other than a vacancy created by removal), directors may be elected by
written consent only by the unanimous written consent of all shares entitled to
vote for the election of directors. In the case of an election of a director by
written consent to fill a vacancy (other than a vacancy created by removal), any
such election requires the consent of a majority of the outstanding shares
entitled to vote.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       7.



           (c) Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval without a meeting
by less than unanimous written consent shall be given as provided in subdivision
(b) of Section 603 of the Corporations Code of the State of California.

           (d) Any shareholder giving a written consent, or such shareholder's
proxy holders, or a personal representative of the shareholder or their
respective proxy holders, may revoke the consent by a writing received by the
Corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the Corporation.

                                   ARTICLE IV

                                    Directors

Section 1. Number and Qualification of Directors.

           (a) The authorized number of directors shall be not less than five
(5) nor more than nine (9). The exact number of directors shall be fixed from
time to time, within the limits specified in this subdivision, by an amendment
of subdivision (b) of this Section adopted by the Board of Directors.

           (b) The exact number of directors shall be seven (7) until changed as
provided in subdivision (a) of this Section.

           (c) The maximum or minimum authorized number of directors may only be
changed by an amendment of this Section approved by the vote or written consent
of a majority of the outstanding shares entitled to vote; provided, however,
that in no case shall the stated maximum number of authorized directors exceed
two times the stated minimum number of authorized directors minus one; provided,
further, that an amendment reducing the minimum number of directors to a number
less than five shall not be adopted if the votes cast against its adoption at a
meeting (or the shares not consenting in the case of action by written consent)
exceed 16-2/3% of the outstanding shares entitled to vote.

Section 2. Election of Directors.

           Directors shall be elected at each annual meeting of the
shareholders.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       8.



Section 3. Term of Office.

           Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which he is elected and until a
successor has been elected.

Section 4. Vacancies.

           (a) A vacancy in the Board of Directors exists whenever any
authorized position of director is not then filled by a duly elected director,
whether caused by death, resignation, removal, change in the authorized number
of directors or otherwise.

           (b) Except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the directors
then in office, whether or not less than a quorum, or by a sole remaining
director. A vacancy created by the removal of a director shall be filled only by
shareholders.

           (c) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent other
than to fill a vacancy created by removal requires the consent of a majority of
the outstanding shares entitled to vote.

Section 5. Removal.

           (a) The Board of Directors may declare vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony.

           (b) Any or all of the directors may be removed without cause if such
removal is approved by a majority of the outstanding shares entitled to vote;
provided, however, that no director may be removed (unless the entire Board of
Directors is removed) if the votes cast against removal, or not consenting in
writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes were cast
(or, if such action is taken by written consent, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of such
shareholder's most recent election were then being elected.

           (c) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of such director's term of office.

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                                       9.



Section 6. Resignation.

           Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.

Section 7. Fees and Compensation.

           Directors may be reimbursed for their expenses, if any, for
attendance at each meeting of the Board of Directors and may be paid a fixed sum
determined by resolution of the Board of Directors for attendance at each such
meeting. No such payments shall preclude any director from serving the
Corporation in any other capacity and receiving compensation in any manner
therefor.

Section 8. Approval of Loans to Officers

           The Corporation may, upon the approval of the Board of Directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer of the Corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guaranties provided that (i) the Board of Directors determines that such a loan
or guaranty or plan may reasonably be expected to benefit the corporation, and
(ii) the approval of the Board of Directors is by a sufficient vote without
counting the vote of any interested director or directors.

                                    ARTICLE V

                      Committees of the Board of Directors

Section 1. Designation of Committees.

           The Board of Directors may, by resolution adopted by a majority of
the authorized number of directors, designate (1) one or more committees, each
consisting of two or more directors and (2) one or more directors as alternate
members of any committee, who may replace any absent member at any meeting of
the committee. The appointment of members or alternative members of a committee
requires the vote of a majority of the authorized number of directors. Any
member or alternate member of a committee shall serve at the pleasure of the
Board.

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                                       10.



Section 2. Powers of Committees.

           Any committee, to the extent provided in the resolution of the Board
of Directors designating such committee, shall have all the authority of the
Board, except with respect to:

               (a) The approval of any action for which the General Corporation
           Law of the State of California also requires approval by the
           shareholders;

               (b) The filling of vacancies on the Board or in any committee
           thereof;

               (c) The fixing of compensation of the directors for serving on
           the Board or on any committee thereof;

               (d) The amendment or repeal of these bylaws or the adoption of
           new bylaws;

               (e) The amendment or repeal of any resolution of the Board which
           by its express terms is not so amendable or repealable;

               (f) A distribution to the shareholders of the Corporation, except
           at a rate or in a periodic amount or within a price range determined
           by the Board of Directors; or

               (g) The  designation of other committees of the Board or the
           appointment of members or alternate members thereof.

                                   ARTICLE VI

                       Meetings of the Board of Directors
                             and Committees Thereof

Section 1. Place of Meetings.

           Regular meetings of the Board of Directors shall be held at any place
within or without the State of California which has been designated from time to
time by the Board or, in the absence of such designation, at the principal
executive office of the Corporation. Special meetings of the Board shall be held
either at any place within or without the State of California which has

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       11.



been designated in the notice of the meeting or, if not stated in the notice or
there is no notice, at the principal executive office of the Corporation.

Section 2. Organization Meeting.

           Immediately following each annual meeting of the shareholders, the
Board of Directors shall hold a regular meeting for the purpose of organization
and the transaction of other business. Notice of any such meeting is not
required.

Section 3. Other Regular Meetings.

           Other regular meetings of the Board of Directors shall be held
without call at such time as shall be designated from time to time by the Board.
Notice of any such meeting is not required.

Section 4. Special Meetings.

           Special meetings of the Board of Directors may be called at any time
for any purpose or purposes by the Chairman of the Board or the President or any
vice president or the Secretary or any two directors. Notice shall be given of
any special meeting of the Board.

Section 5. Notice of Special Meetings.

           (a) Notice of the time and place of special meetings of the Board of
Directors shall be delivered personally or by telephone to each director or sent
to each director by first-class mail or telegraph, charges prepaid. Such notice
shall be given four days prior to the holding of the special meeting if sent by
mail or 48 hours prior to the holding thereof if delivered personally or given
by telephone or telegraph. The notice shall be deemed to have been given at the
time when delivered personally to the recipient or deposited in the mail or sent
by other means of written communication.

           (b) Notice of any special meeting of the Board of Directors need not
specify the purpose thereof and need not be given to any director who signs a
waiver of notice or a consent to holding the meeting or an approval of minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes.

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                                       12.



Section 6. Quorum; Action at Meetings; Telephone Meetings.

           (a) A majority of the authorized number of directors shall constitute
a quorum for the transaction of business. Every act or decision done or made by
a majority of the directors present at a meeting held duly at which a quorum is
present is the act of the Board of Directors, unless action by a greater
proportion of the directors is required by law or the Articles of Incorporation.

           (b) A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.

           (c) Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment, so long
as all members participating in such meeting can hear one another. A member who
participates in a meeting pursuant to this subdivision (c) shall be deemed
'present' at such meeting for purposes of these Bylaws.

Section 7. Adjournment.

           A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than 24 hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of the adjournment.

Section 8. Action Without a Meeting.

           Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all members of the Board
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.

Section 9. Meetings of and Action by Committees.

           The provisions of this Article apply to committees of the Board of
Directors and incorporators and action by such committees and incorporators with
such changes in the language as are necessary to reflect the applicability of
such provisions to such committees and incorporators.

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       13.



                                   ARTICLE VII

                                    Officers

Section 1. Officers.

           The Corporation shall have as officers, a President, a Secretary and
a Treasurer. The Treasurer is the Chief Financial Officer of the Corporation
unless the Board of Directors has by resolution designated another person to be
the Chief Financial Officer. The Corporation may also have at the discretion of
the Board, a Chairman of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.

Section 2. Election of Officers.

           The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen by the Board of Directors.

Section 3. Subordinate Officers, Etc.

           The Board of Directors may appoint by resolution, and may empower the
Chairman of the Board, if there be such an officer, or the President, to appoint
such other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are determined from time to time by resolution of the Board or, in the
absence of any such determination, as are provided in these Bylaws. Any
appointment of an officer shall be evidenced by a written instrument filed with
the Secretary of the Corporation and maintained with the corporate records.

Section 4. Removal and Resignation.

           (a) Subject to the provisions of any employment or other agreement,
any officer may be removed, either with or without cause, by the Board of
Directors or, except in case of any officer chosen by the Board, by any officer
upon whom such power of removal be conferred by resolution of the Board.

           (b) Any officer may resign at any time effective upon giving written
notice to the Chairman of the Board, President, any Vice President or Secretary
of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation.

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                                       14.



Section 5. Vacancies.

           A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to such office.

Section 6. Chairman of the Board.

           If there is a Chairman of the Board, he or she shall preside at all
meetings of the Board of Directors and shareholders and exercise and perform
such other powers and duties as may be from time to time assigned to the
Chairman by resolution of the Board.

Section 7. President.

           Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer and general manager of the
Corporation and shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. In the absence of the Chairman of the Board, or if there be none,
the President shall preside at all meetings of the shareholders and at all
meetings of the Board. He or she shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed from time to time by
resolution of the Board.

Section 8. Vice President.

           In the absence or disability of the President, the Vice Presidents in
order of their rank as fixed by the Board of Directors or, if not ranked, the
Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or as the President may from time
to time delegate.

Section 9. Secretary.

           (a) The Secretary shall keep or cause to be kept the minute book, the
 share register and the seal, if any, of the Corporation.

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                                       15.



           (b) The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board.

Section 10. Treasurer.

           (a) The Treasurer of the Corporation shall keep, or cause to be kept,
the books and records of account of the Corporation.

           (b) The Treasurer shall deposit all monies and other valuables in the
name and to the credit of the Corporation with such depositories as may be
designated from time to time by resolution of the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and the Board, whenever they request
it, an account of all of such officer's transactions as Treasurer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed from time to time by the Board or
as the President may from time to time delegate.

                                  ARTICLE VIII

                               Records and Reports

Section 1. Minute Book Maintenance and Inspection.

           The Corporation shall keep or cause to be kept in written form at its
principal executive office, or such other place as the Board of Directors may
order, a minute book which shall contain a record of all actions by its
shareholders, Board or committees of the Board including the time, date and
place of each meeting; whether a meeting is regular or special and, if special,
how called; the manner of giving notice of each meeting and a copy thereof; the
names of those present at each meeting of the Board or committees thereof; the
number of shares present or represented at each meeting of the shareholders; the
proceedings of all meetings; any written waivers of notice, consents to the
holding of a meeting or approvals of the minutes thereof; and, written consents
for action without a meeting.

Section 2. Share Register - Maintenance and Inspection.

           The Corporation shall keep or cause to be kept at its principal
executive office, or if so provided by resolution of the Board of Directors,
with the Corporation's transfer agent or

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       16.



registrar, a share register, or a duplicate share register, which shall contain
the names of the shareholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued for the same and
the number and date of cancellation of every certificate surrendered for
cancellation.

Section 3. Books and Records of Account - Maintenance and Inspection.

           The Corporation shall keep or cause to be kept at its principal
executive office, or such other place as the Board of Directors may order,
adequate and correct books and records of account.

Section 4. Bylaws - Maintenance and Inspection.

           The Corporation shall keep at its principal executive office, or in
the absence of such office in the State of California, at its principal business
office in that state, the original or a copy of the Bylaws as amended to date.

Section 5. Annual Report to Shareholders.

           The Board of Directors shall cause the Corporation to send an annual
report to the shareholders not later than 120 days after the close of the fiscal
year of the Corporation; provided, however, that the Corporation shall not be
obligated to send such annual report so long as it has fewer than 100 holders of
record of its shares. Any such report shall comply with the provisions of
Section 1501 of the California Corporations Code and shall be sent in a manner
specified in Section 4(d) of Article III of these Bylaws at least 15 days prior
to the annual meeting of shareholders to be held during the next fiscal year.

                                   ARTICLE IX

              Indemnification of Directors, Officers and Employees

           The Corporation shall, to the maximum extent permitted by the General
Corporation Law of the State of California, and as the same from time to time
may be amended, indemnify each of its agents against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding to which such person was or is a party or is threatened to
be made a party arising by reason of the fact that such person is or was an
agent of the Corporation. For purposes of this Article IX, an "agent" of the
Corporation

BYLAWS - MOLINA HEALTHCARE, INC.                                  01/25/2001

                                       17.



includes any person who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, and includes an action or proceeding by or in
the right of the Corporation to procure a judgment in its favor; and "expenses"
includes attorneys' fees and any expenses of establishing a right to
indemnification under this paragraph.

           The right of indemnification provided in this Article IX shall inure
to each person referred to herein, and shall extend to such person's legal
representatives in the event of such person's death. The right of
indemnification provided herein shall not be exclusive of any other rights to
which any such person, or any other individual, may be entitled as a matter of
law, or pursuant to any agreement, vote of directors or shareholders or
otherwise.

           The Corporation shall, if and to the extent the Board of Directors so
determines by resolution, purchase and maintain insurance in an amount and on
behalf of such agents of the Corporation as the Board may specify in such
resolution against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not the
Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this Article IX. Expenses incurred in
defending any proceeding described in this Article IX may be advanced by the
Corporation prior to the final disposition of such proceeding upon receipt of an
undertaking by or on behalf of the agent to repay such amount, if it is
ultimately determined that the agent is not entitled to be indemnified as
authorized in this Article IX.

                                    ARTICLE X

                                  Miscellaneous

Section 1. Checks, Drafts, Etc.

           All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, and any assignment or endorsement thereof,
issued in the name or payable to the Corporation, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.

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                                       18.



Section 2. Contracts, Etc. - How Executed.

           The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.

Section 3. Certificates of Stock.

           All certificates shall be signed in the name of the Corporation by
the Chairman of the Board or the President or a Vice President and by the
Treasurer or an assistant treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares and the class or series thereof owned by the
shareholder. Any or all of the signatures on a certificate may be by facsimile
signature. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.

Section 4. Lost Certificates.

           Except as provided in this section, no new certificate for shares
shall be issued at any time. The Board of Directors may, in case any share
certificate or certificate for any other security is lost, stolen or destroyed,
authorize the issuance of a new certificate in lieu thereof, upon such terms and
conditions as the Board may require, including provision for indemnification of
the Corporation secured by a bond or other adequate security sufficient to
protect the Corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of such certificate or the issuance of such new certificate.

Section 5. Representation of Shares of Other Corporations.

           Any person designated by resolution of the Board of Directors or, in
the absence of such designation, the Chairman of the Board, the President or any
Vice President or the Secretary, or any other person authorized by any of the
foregoing, is authorized to vote on behalf of the Corporation any and all shares
of any other corporation or corporations, foreign or domestic, owned by the
Corporation.

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                                       19.



Section 6. Construction and Definitions.

           Unless the context otherwise requires, the general provisions, rules
of construction and definitions contained in the Corporations Code of the State
of California shall govern the construction of these Bylaws.

                                   ARTICLE XI

                                   Amendments

Section 1. Amendment by Shareholders.

           New Bylaws may be adopted or these Bylaws may be amended or repealed
by the affirmative vote of a majority of the outstanding shares entitled to
vote, except as otherwise provided by law or in the Articles of Incorporation.

Section 2. Amendment by Directors.

           Subject to the rights of the shareholders as provided in Section 1 of
this Article XI to adopt, amend or repeal Bylaws, and subject to the provisions
of the Articles of Incorporation, Bylaws may be adopted, amended or repealed by
the Board of Directors; provided, however, that the Board of Directors may not
adopt a Bylaw amendment changing the authorized number of Directors without the
consent of the shareholders.

BYLAWS - MOLINA HEALTHCARE. INC.                                  01/25/2001

                                       20.



                             SECRETARY'S CERTIFICATE

     I, the undersigned, do hereby certify:

     1. That I am the duly elected Secretary of Molina Healthcare, Inc., a
California corporation.

     2. That the foregoing Bylaws constitute the Bylaws of said corporation
conformed to reflect an amendment duly adopted by the Board of Molina
Healthcare, Inc., at the regularly scheduled board meeting held on December 14,
2000 and ratified by unanimous vote of the shareholders at the annual
shareholder meeting held on December 18, 2000.

     IN WITNESS WHEREOF, I have hereunto subscribed my name this 25th day of
January, 2001.

                                                        /s/
                                                        ------------------------
                                                        Mark L. Andrews
                                                        Corporate Secretary

                                                                     EXHIBIT 3.4

                                     BYLAWS
                                       OF
                            MOLINA HEALTHCARE, INC.,
                             a Delaware corporation



                                TABLE OF CONTENTS



                                                                                       PAGE
                                                                                 
ARTICLE I     OFFICES.................................................................  1
Section 1.1.  Registered Office.......................................................  1
Section 1.2.  Other Offices...........................................................  1

ARTICLE II    STOCKHOLDERS' MEETINGS..................................................  1
Section 2.1.  Place of Meetings.......................................................  1
Section 2.2.  Annual Meetings.........................................................  1
Section 2.3.  Notice of Annual Meeting................................................  3
Section 2.4.  Stockholders' List......................................................  3
Section 2.5.  Special Meetings........................................................  4
Section 2.6.  Notice of Special Meetings..............................................  5
Section 2.7.  Quorum; Adjournment.....................................................  5
Section 2.8.  Order of Business.......................................................  5
Section 2.9.  Voting..................................................................  5
Section 2.10. Proxies.................................................................  6
Section 2.11. Inspectors..............................................................  6

ARTICLE III   DIRECTORS...............................................................  6
Section 3.1.  General Powers..........................................................  6
Section 3.2.  Number and Qualifications of Directors..................................  7
Section 3.3.  Vacancies; Resignation and Removal of Directors.........................  7
Section 3.4.  Place of Meetings.......................................................  8
Section 3.5.  Compensation of Directors...............................................  8
Section 3.6.  Regular Meetings........................................................  8
Section 3.7.  Special Meetings........................................................  8
Section 3.8.  Action Without Meeting; Use of Communications Equipment.................  9
Section 3.9.  Quorum and Manner of Acting.............................................  9

ARTICLE IV    EXECUTIVE AND OTHER COMMITTEES.......................................... 10
Section 4.1.  Executive Committee..................................................... 10
Section 4.2.  Other Committees........................................................ 10
Section 4.3.  Procedure; Meeting; Quorum.............................................. 11

ARTICLE V     OFFICERS................................................................ 11


                                       -i-



                                TABLE OF CONTENTS
                                   (continued)



                                                                                      PAGE
                                                                                 
Section 5.1.  Executive Officers...................................................... 11
Section 5.2.  Election, Term of Office and Eligibility................................ 11
Section 5.3.  Subordinate Officers.................................................... 12
Section 5.4.  Removal................................................................. 12
Section 5.5.  Chairman of the Board................................................... 12
Section 5.6.  The President........................................................... 12
Section 5.7.  The Executive Vice Presidents........................................... 12
Section 5.8.  The Secretary........................................................... 12
Section 5.9.  The Treasurer........................................................... 13
Section 5.10. Salaries................................................................ 13
Section 5.11. Delegation of Duties.................................................... 13

ARTICLE VI    SHARES OF STOCK......................................................... 14
Section 6.1.  Regulation.............................................................. 14
Section 6.2.  Stock Certificates...................................................... 14
Section 6.3.  Restriction on Transfer of Securities................................... 14
Section 6.4.  Transfer of Shares...................................................... 15
Section 6.5.  Fixing Date for Determination of Stockholders of Record................. 15
Section 6.6.  Lost Certificate........................................................ 15

ARTICLE VII   BOOKS AND RECORDS....................................................... 16
Section 7.1.  Location................................................................ 16
Section 7.2.  Inspection.............................................................. 16
Section 7.3.  Corporate Seal.......................................................... 16

ARTICLE VIII  DIVIDENDS AND RESERVES.................................................. 16
Section 8.1.  Dividends............................................................... 16
Section 8.2.  Reserves................................................................ 17

ARTICLE IX    MISCELLANEOUS PROVISIONS................................................ 17
Section 9.1.  Fiscal Year............................................................. 17
Section 9.2.  Depositories............................................................ 17
Section 9.3.  Checks, Drafts and Notes................................................ 17
Section 9.4.  Contracts and Other Instruments......................................... 17


                                       ii



                                TABLE OF CONTENTS
                                   (continued)



                                                                                      PAGE
                                                                                 
Section 9.5.  Notices................................................................. 17
Section 9.6.  Waivers of Notice....................................................... 17
Section 9.7.  Stock in Other Corporations............................................. 18
Section 9.8.  Indemnification......................................................... 18
Section 9.9.  Amendment of Bylaws..................................................... 19


                                       iii



                                     BYLAWS
                                       OF
                             MOLINA HEALTHCARE, INC.

                                    ARTICLE I

                                     OFFICES

          Section 1.1.   Registered Office. The registered office of the
Corporation shall be maintained in the County of New Castle, State of Delaware,
and the registered agent in charge thereof is The Corporation Trust Company.

          Section 1.2.   Other Offices. The Corporation may also have offices
and keep the books and records of the Corporation, except as may otherwise be
required by law, at such other places both within and outside the State of
Delaware as the Board of Directors of the Corporation (the "Board of Directors")
may from time to time determine or the business of the Corporation may require.

                                   ARTICLE II

                             STOCKHOLDERS' MEETINGS

          Section 2.1.   Place of Meetings. All meetings of the stockholders,
whether annual or special, shall be held at an office of the Corporation or at
such other place, within or outside the State of Delaware, as may be fixed from
time to time by the Board of Directors.

          Section 2.2.   Annual Meetings.

               (a)       An annual meeting of the stockholders shall be held on
the [first Tuesday of April] each year commencing in the year 2003, but if such
date is a legal holiday then on the next business day following, at One Golden
Shore Drive, Long Beach, California 90802, at which such stockholders shall
elect members to the Board of Directors and transact such other business as may
properly be brought before such meeting. Nominations of persons for election to
the Board of Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting of stockholders, (ii) by or
at the direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in Section 2.2(b), who is entitled to vote at such meeting and who
complied with the notice procedures set forth in Section 2.2(b).

               (b)       At an annual meeting of the stockholders, only such
business as shall have been properly brought before such meeting shall be
conducted. For

                                        1



nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to Section 2.2(c) of these Bylaws, (i) such stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation, (ii) such other business must be a proper matter for stockholder
action under the General Corporation Law of the State of Delaware, (iii) if such
stockholder, or the beneficial owner on whose behalf any such nomination or
proposal is made, has provided the Corporation with a Solicitation Notice (as
such term is hereinafter defined), such stockholder or beneficial owner must, in
the case of a nomination or nominations, have delivered a proxy statement and
form of proxy to holders of a percentage of the Corporation's voting shares
reasonably believed by such stockholder or beneficial owner to be sufficient to
elect the nominee or nominees proposed to be nominated by such stockholder, and
must, in either case, have included in such materials the Solicitation Notice
or, in the case of a proposal, have delivered a proxy statement and form of
proxy to holders of at least the percentage of the Corporation's voting shares
required under applicable law to carry any such proposal and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
Section 2.2(b), the stockholder or beneficial owner proposing such nomination or
business must not have solicited a number of proxies sufficient to have required
the delivery of such a Solicitation Notice under this Section 2.2. To be timely,
a stockholder's notice shall be delivered to the Secretary of the Corporation at
the principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting of the stockholders; provided, however, that in
the event that the date of the annual meeting is scheduled more than thirty (30)
days prior to the anniversary of the preceding year's annual meeting, notice by
the stockholder, to be timely, must be so delivered not earlier than the close
of business on the one hundred twentieth (120th) day prior to such annual
meeting and not later than the close of business on the later of the ninetieth
(90th) day prior to such annual meeting or the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made. In
no event shall the public announcement of an adjournment of an annual meeting of
the stockholders commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice in connection with an
annual meeting shall set forth (A) as to each person that the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for the election of directors in an election contest or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected), (B) as to any other business that such
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before such meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf such proposal is
made and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf such stockholder's nomination or proposal is made (i)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner, (ii) the class and number of shares of
capital stock of the Corporation which are owned

                                        2



beneficially and of record by such stockholder and such beneficial owner and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a nomination or
nominations, a sufficient number of holders of the Corporation's voting shares
to elect such nominee or nominees or, in the case of the proposal, at least the
percentage of the Corporation's voting shares required under applicable law to
carry the proposal (an affirmative statement of such intent, a "Solicitation
Notice").

               (c)       Notwithstanding anything in the second sentence of
Section 2.2(b) of these Bylaws to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least one hundred (100) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by Corporation.

               (d)       Only persons who are nominated, accordance with the
procedures set forth in this Section 2.2 shall be eligible to serve as directed
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section 2.2. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action a the meeting and shall be disregarded.

               (e)       Notwithstanding the foregoing provisions of this
Section 2.2, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.

               (f)       For purposes of this Section 2.2, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.

          Section 2.3.   Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting, shall be given not less
than ten nor more

                                        3



than sixty days before the date of the meeting to each stockholder entitled to
vote at such meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.

          Section 2.4.   Stockholders' List. At least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared by the Secretary. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

          Section 2.5.   Special Meetings.

               (a)       Pursuant to the Certificate of Incorporation, special
meetings of the stockholders of the Corporation for any purpose or purposes may
be called at any time by the President or Chief Executive Officer of the
Corporation, the Chairperson of the Board of Directors, the Board of Directors
or by a committee of the Board of Directors which has been duly designated by
the Board of Directors and the powers and authority of which, as provided in a
resolution of the Board of Directors or in the Bylaws of the Corporation,
include the power to call such meetings. Such special meetings may not be called
by any other person or persons.

               (b)       If a special meeting is properly called by any person
or persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors the Chief
Executive Officer, or the Secretary of the Corporation. No business may be
transacted at such special meeting, otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty- five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 2.6 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

               (c)       Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
of the direction of the Board of

                                        4



Directors or (ii) by any stockholder of the Corporation who is a stockholder of
record at the time of giving notice provided for in these Bylaws who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 2.5(c). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the stockholder's notice required by Section
2.2(b) of these Bylaws shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the close of business on
the one hundred twentieth (120th) day prior to such special meeting and not
later than the close of business on the later of the ninetieth (90th) day prior
to such meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.

          Section 2.6.   Notice of Special Meetings. Written notice of a special
meeting, stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.

          Section 2.7.   Quorum; Adjournment. The holders of a majority of the
shares issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute, by the Certificate of Incorporation or by these Bylaws. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, of the place, date
and hour of the adjourned meeting, until a quorum shall again be present or
represented by proxy. At the adjourned meeting at which a quorum shall be
present or represented by proxy, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment, a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting. Shares of
its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including, without limitation, its own stock, held by it in a fiduciary
capacity.

                                        5



          Section 2.8.   Order of Business. At each meeting of the stockholders,
such business may be transacted as may be properly brought before such meeting,
whether or not such business is stated in the notice of such meeting or in a
waiver thereof, except as otherwise required by law or expressly provided
therein. The order of business at the meetings of the stockholders shall be as
determined by the Chairman of the Board.

          Section 2.9.   Voting. When a quorum is present at any meeting, and
subject to the provisions of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or by these Bylaws in respect of the
vote that shall be required for a specified action, the vote of the holders of a
majority of the shares having voting power, present in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the statutes or of the
Certificate of Incorporation or of these Bylaws, a different vote is required in
which case such express provision shall govern and control the decision of such
question. Each stockholder shall have one vote for each share of stock having
voting power registered in his name on the books of the Corporation, except as
otherwise provided in the Certificate of Incorporation.

          Section 2.10.  Proxies.

               (a)       Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.

               (b)       A stockholder may issue a valid proxy by (i) executing
a written authorization therefor identifying the person or persons authorized to
act for such stockholder by proxy or (ii) transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission,
provided that the telegram, cablegram or other means of electronic transmission
either sets forth or is submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. A copy, facsimile transmission or other reliable
reproduction of a written or electronically-transmitted proxy authorized by this
Section 2.10 may be substituted for or used in lieu of the original writing or
electronic transmission. Each proxy shall be delivered to the inspectors of
election prior to or at the meeting.

          Section 2.11.  Inspectors. Either the Board of Directors or, in the
absence of designation of inspectors by the Board of Directors, the chairman of
any meeting of the stockholders may, in its or such person's discretion, appoint
two (2) or more inspectors to act at any meeting of the stockholders. Such
inspectors shall perform such duties as shall be specified by the Board of
Directors or the chairman of the meeting. Inspectors need not be Stockholders,
employees, officers or directors of the Corporation. No director or nominee for
the office of director shall be appointed as any such inspector.

                                        6



                                   ARTICLE III

                                    DIRECTORS

          Section 3.1.   General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such acts and
things as are not, by the General Corporation Law of the State of Delaware nor
by the Certificate of Incorporation nor by these Bylaws, directed or required to
be exercised or done by the stockholders.

          Section 3.2.   Number and Qualifications of Directors.

               (a)       The number of directors which shall constitute the
whole Board of Directors shall be no less than seven and no more than eleven;
provided that until changed by resolution of the Board of Directors, the number
of directors shall be fixed at seven. With the exception of the first Board of
Directors, which shall be elected by the Sole Incorporator, and except as
provided in the Corporation's Certificate of Incorporation or in Section 3.3 of
this Article III, the directors shall be elected at the annual meeting of the
stockholders by a plurality vote of the shares represented in person or by proxy
and each director elected shall hold office until his successor is elected and
qualified unless he shall resign, become disqualified, disabled, or otherwise
removed. Directors need not be stockholders.

               (b)       Each of the directors of the Corporation shall hold
office until (i) the next annual meeting of the stockholders following such
director's election and until such director's successor shall have been elected
and qualified or (ii) his earlier death, resignation or removal in the manner
that the directors of the Corporation other than those who may be elected
pursuant to the terms of any series of Preferred Stock or any other securities
of the Corporation other than Common Stock may determine from time to time. In
accordance with the Certificate of Incorporation, the directors of the
Corporation shall be classified, with respect to the time for which they hold
office, into three classes containing three directors each: one class whose term
expires at the first annual meeting of stockholders that is held after the first
organizational meeting of the Board of Directors, another class whose term
expires at the second annual meeting of stockholders that is held after the
first organizational meeting of the Board of Directors and another class whose
term expires at the third annual meeting of stockholders that is held after the
first organizational meeting of the Board of Directors, with the directors in
each class to hold office until their successors are elected and qualified. If
the number of directors is changed by the Board of Directors, then any
newly-created directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in number
as possible; provided, however, that no decrease in the number of directors
shall shorten the term of

                                        7



any incumbent director. At each annual meeting of the stockholders, subject to
the rights of the holders of any class or series of capital stock having a
preference over Common Stock as to dividends or upon liquidation, the successors
of the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third (3rd) year following the year of their election.

          Section 3.3.   Vacancies; Resignation and Removal of Directors.

               (a)       If the office of any director or directors becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office, or otherwise, or a new directorship is created, the Board of
Directors shall choose a successor or successors, or a director to fill the
newly created directorship, who shall hold office for the unexpired term (in the
case of a vacancy) or until the next election of directors (in the case of a new
directorship).

               (b)       Any director of the Corporation may at any time resign
by giving written notice to the Board of Directors, the Chairman of the Board,
the President or the Secretary of the Corporation. Such resignation shall take
effect upon receipt thereof by the Corporation, or such later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

               (c)       Any director may be removed at any time only for cause
by an affirmative vote of the holders of sixty-six and two-thirds percent
(66-2/3%) of the shares then entitled to vote in the election of directors.

          Section 3.4.   Place of Meetings. The Board of Directors may hold its
meetings inside or outside of the State of Delaware, at the office of the
Corporation or at such other places as they may from time to time determine, or
as shall be fixed in the respective notices or waivers of notice of such
meetings.

          Section 3.5.   Compensation of Directors. Directors who are not at the
time also a salaried officer or employee of the Corporation or any of its
subsidiaries may receive such stated salary for their services and/or such fixed
sums and expenses of attendance for attendance at each regular or special
meeting of the Board of Directors as may be established by resolution of the
Board; provided that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings. Each director, whether or
not a salaried officer or employee of the Corporation or any of its
subsidiaries, shall be entitled to receive from the Corporation reimbursement
for the reasonable expenses incurred by such person in connection with the
performance of such person's duties as a director.

          Section 3.6.   Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board shall from time to
time by resolution determine, except that the annual meeting of the Board to
elect officers of the Corporation

                                        8



for the ensuing year shall be held within ten (10) days after the annual meeting
of stockholders. If any day fixed for a regular meeting shall be a legal holiday
under the laws of the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at the same hour on the
next succeeding business day.

          Section 3.7.   Special Meetings. Special meetings of the Board of
Directors may be held at any time on the call of the President or at the request
in writing of a majority of the directors. Notice of any such meeting, unless
waived, shall be given to directors personally, by telephone, by first-class
United States mail, postage prepaid or by facsimile transmission to each
director at his or her address as the same appears on the records of the
Corporation not less than two days prior to the day on which such meeting is to
be held if such notice is delivered personally, by telephone or by facsimile
transmission, and not less than four days prior to the day on which the meeting
is to be held if such notice is by first-class United States mail. If the
Secretary shall fail or refuse to give such notice, then the notice may be given
by the officer or any one of the directors calling the meeting. Any such meeting
may be held at such place as the Board may fix from time to time or as may be
specified or fixed in such notice or waiver thereof. Any meeting of the Board of
Directors shall be a legal meeting without any notice thereof having been given,
if all the directors shall be present thereat, and no notice of a meeting shall
be required to be given to any director who shall attend such meeting.

          Section 3.8.   Action Without Meeting; Use of Communications
Equipment.

               (a)       Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting, if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board of Directors.

               (b)       Members of the Board of Directors, or any committee
designated by the Board, may participate in a meeting of the Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.

          Section 3.9.   Quorum and Manner of Acting.

               (a)       Except as otherwise provided in these Bylaws, a
majority of the total number of directors as at the time specified by the Bylaws
shall constitute a quorum at any regular or special meeting of the Board of
Directors. Except as otherwise provided by statute, by the Certificate of
Incorporation or by these Bylaws, the vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting need not be given, except that notice
shall be given to all

                                        9



directors if the adjournment is for more than thirty days or if after the
adjournment a new record date is fixed for the adjourned meeting.

               (b)       The Board of Directors may adopt such rules and
regulations not inconsistent with the provisions of these Bylaws for the conduct
of its meetings and management of the affairs of the Corporation as the Board
may deem to be proper. In the absence of the Chairman of the Board, such person
designated by the Board shall preside at Board meetings.

                                   ARTICLE IV

                         EXECUTIVE AND OTHER COMMITTEES

          Section 4.1.   Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the entire Board of Directors, designate
annually three (3) or more of the directors to constitute members or alternate
members of an Executive Committee, which Executive Committee shall have and may
exercise, between the meetings of the Board of Directors, all of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, including, without limitation, if such Executive
Committee is so empowered and authorized by resolution adopted by a majority of
the entire Board of Directors, the power and authority to declare a dividend and
to authorize the issuance of stock, and may authorize the seal of the
Corporation to be affixed to all papers which may require it, except that such
Executive Committee shall not have such power or authority in reference to:

          (a) amending the Certificate of Incorporation;

          (b) adopting an agreement of merger or consolidation involving the
          Corporation;

          (c) recommending to the stockholders the sale, lease or exchange of
          all or substantially all of the property and assets of the
          Corporation;

          (d) recommending to the stockholders a dissolution of the Corporation
          or a revocation of a dissolution;

          (e) taking any action related to the approval or determination of any
          matter in connection with any business combination;

          (f) filling vacancies on the Board of Directors or on any committee of
          the Board of Directors, including, but not limited to, the Executive
          Committee; or

          (g) amending or repealing any resolution of the Board of Directors
          which by its terms may be amended or repealed only by the Board of
          Directors.

                                       10



     The Board of Directors shall have the power at any time to change the
membership of the Executive Committee, to fill all vacancies in it and to
discharge it, either with or without cause.

          Section 4.2.   Other Committees. The Board of Directors may, by
resolution adopted by a majority of the entire Board of Directors (except to the
extent prohibited by law), designate from among the directors one or more other
committees, each of which shall have such authority of the Board of Directors as
may be specified in the resolution of the Board of Directors designating such
committee; provided that no committee shall have the power or authority in
reference to the matters described in Section 4.1(a) through 4.1(g) above. A
majority of all of the members of such committee may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have the power at any time to
change the membership of, to fill all vacancies in and to discharge any such
committee, either with or without cause. The committees shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.

          Section 4.3.   Procedure; Meeting; Quorum. Regular meetings of the
Executive Committee or of any other committee of the Board of Directors, of
which no notice shall be necessary, may be held at such times and places as
shall be fixed by resolution adopted by a majority of the members thereof.
Special meetings of the Executive Committee or any other committee of the Board
of Directors shall be called at the request of any member thereof. Notice of
each special meeting of the Executive Committee or of any other committee of the
Board of Directors shall be delivered personally, by telephone, by first-class
United States mail, postage prepaid or by facsimile transmission to each member
thereof not later than one day prior to the day on which such meeting is to be
held if such notice is delivered personally, by telephone or by facsimile
transmission and not less than four days prior to the day on which such meeting
is to be held if such notice is delivered by first-class United States mail;
provided, however, that notice of any such special meeting need not be given to
any such member who shall, either before or after such special meeting, submit a
signed waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of such notice to such
member. Any special meeting of the Executive Committee or any other committee of
the Board of Directors shall be a valid meeting without any notice thereof
having been given if all of the members thereof shall be present thereat. Notice
of any adjourned meeting of any committee of the Board of Directors need not be
given. Each of the Executive Committee and each other committee of the Board of
Directors may adopt such rules and regulations that are not inconsistent with
the provisions of law, the Certificate of Incorporation or these Bylaws for the
conduct of its meetings as the Executive Committee or each other committee of
the Board of Directors, as the case may be, may deem to be proper. A majority of
the members of the Executive Committee or of any other committee of the Board of
Directors shall constitute a quorum for the transaction of business at any
meeting thereof, and the vote of a majority of the members thereof present at
any meeting thereof at which such a quorum is present shall be the act of the
Executive Committee or such other committee, as the case may be. Each of the
Executive Committee and each other committee of the Board of Directors shall
keep

                                       11



written minutes of its proceedings and shall report on such proceedings to the
Board of Directors.

                                    ARTICLE V

                                    OFFICERS

          Section 5.1.   Executive Officers. The executive officers of the
Corporation shall be a President, such number of Executive Vice Presidents, if
any, as the Board of Directors may determine, a Secretary and a Treasurer. One
person may hold any number of said offices.

          Section 5.2.   Election, Term of Office and Eligibility. The executive
officers of the Corporation shall be elected annually by the Board of Directors
at its annual meeting; provided that new or additional officers may be elected
at any meeting of the Board. Each officer, except such officers as may be
appointed in accordance with the provisions of Section 5.3, shall hold office
until the next annual election of officers or until his death, resignation or
removal. The Chairman of the Board shall be and remain a member of the Board of
Directors. None of the other officers need be members of the Board.

          Section 5.3.   Subordinate Officers. The Board of Directors may
appoint a Controller, such Vice Presidents, Assistant Secretaries, Assistant
Treasurers and such other officers, and such agents as the Board may determine,
to hold office for such period and with such authority and to perform such
duties as the Board may from time to time determine. The Board may, by specific
resolution, empower the chief executive officer of the Corporation or the
Executive Committee to appoint any such subordinate officers or agents.

          Section 5.4.   Removal. The President, any Executive Vice President,
the Secretary and/or the Treasurer may be removed at any time, either with or
without cause, but only by the affirmative vote of the majority of the total
number of directors as at the time specified by the Bylaws. Any subordinate
officer appointed pursuant to Section 5.3 may be removed at any time, either
with or without cause, by the majority vote of the directors present at any
meeting of the Board or by any committee or officer empowered to appoint such
subordinate officers.

          Section 5.5.   Chairman of the Board. The Chairman of the Board shall,
if present, preside at meetings of the Board of Directors and, if present,
preside at meetings of the stockholders.

          Section 5.6.   The President. The President shall be the chief
executive officer of the Corporation. He shall have executive authority to see
that all orders and resolutions of the Board of Directors are carried into
effect and, subject to the control vested in the Board of Directors by statute,
by the Certificate of Incorporation, or by these

                                       12



Bylaws, shall administer and be responsible for the management of the business
and affairs of the Corporation. He shall preside at all meetings of the
stockholders and the Board of Directors; and in general shall perform all duties
incident to the office of the President and such other duties as from time to
time may be assigned to him by the Board of Directors.

          Section 5.7.   The Executive Vice Presidents. In the event of the
absence or disability of the President, each Executive Vice President, in the
order designated, or in the absence of any designation, then in the order of
their election, shall perform the duties of the President. The Executive Vice
Presidents shall also perform such other duties as from time to time may be
assigned to them by the Board of Directors or by the chief executive officer of
the Corporation.

          Section 5.8.   The Secretary. The Secretary shall:

          (a) Keep the minutes of the meetings of the stockholders and of the
          Board of Directors;

          (b) See that all notices are duly given in accordance with the
          provisions of these Bylaws or as required by law;

          (c) Be custodian of the records and of the seal of the Corporation and
          see that the seal or a facsimile or equivalent thereof is affixed to
          or reproduced on all documents, the execution of which on behalf of
          the Corporation under its seal is duly authorized;

          (d) Have charge of the stock record books of the Corporation;

          (e) In general, perform all duties incident to the office of
          Secretary, and such other duties as are provided by these Bylaws and
          as from time to time are assigned to him by the Board of Directors or
          by the chief executive officer of the Corporation.

          Section 5.9.   The Treasurer. The Treasurer shall:

          (a) Receive and be responsible for all funds of and securities owned
          or held by the Corporation and, in connection therewith, among other
          things: keep or cause to be kept full and accurate records and
          accounts for the Corporation; deposit or cause to be deposited to the
          credit of the Corporation all moneys, funds and securities so received
          in such bank or other depositary as the Board of Directors or an
          officer designated by the Board may from time to time establish; and
          disburse or supervise the disbursement of the funds of the Corporation
          as may be properly authorized.

                                       13



          (b) Render to the Board of Directors at any meeting thereof, or from
          time to time when ever the Board of Directors or the chief executive
          officer of the Corporation may require, financial and other
          appropriate reports on the condition of the Corporation;

          (c) In general, perform all the duties incident to the office of
          Treasurer and such other duties as from time to time may be assigned
          to him by the Board of Directors or by the chief executive officer of
          the Corporation.

          Section 5.10.  Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors, and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.

          Section 5.11.  Delegation of Duties. In case of the absence of any
officer of the Corporation or for any other reason which may seem sufficient to
the Board of Directors, the Board of Directors may, for the time being, delegate
his powers and duties, or any of them, to any other officer or to any director.

                                   ARTICLE VI

                                 SHARES OF STOCK

          Section 6.1.   Regulation. Subject to the terms of any contract of the
Corporation, the Board of Directors may make such rules and regulations as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the stock of the Corporation, including the issue of
new certificates for lost, stolen or destroyed certificates, and including the
appointment of transfer agents and registrars.

          Section 6.2.   Stock Certificates. Certificates for shares of the
stock of the Corporation shall be respectively numbered serially for each class
of stock, or series thereof, as they are issued, shall be impressed with the
corporate seal or a facsimile thereof, and shall be signed by the President or a
Vice President, and by the Secretary or Treasurer, or an Assistant Secretary or
an Assistant Treasurer, provided that such signatures may be facsimiles on any
certificate countersigned by a transfer agent other than the Corporation or its
employee. Each certificate shall exhibit the name of the Corporation, the class
(or series of any class) and number of shares represented thereby, and the name
of the holder. Each certificate shall be otherwise in such form as may be
prescribed by the Board of Directors.

          Section 6.3.   Restriction on Transfer of Securities. A restriction on
the transfer or registration of transfer of securities of the Corporation may be
imposed either by the Certificate of Incorporation or by these Bylaws or by an
agreement among any number of security holders or among such holders and the
Corporation. No restriction so imposed shall be binding with respect to
securities issued prior to the adoption of the

                                       14



restriction unless the holders of the securities are parties to an agreement or
voted in favor of the restriction.

          A restriction on the transfer of securities of the Corporation is
permitted by this Section if it:

          (a) Obligates the holder of the restricted securities to offer to the
          Corporation or to any other holders of securities of the Corporation
          or to any other person or to any combination of the foregoing a prior
          opportunity, to be exercised within a reasonable time, to acquire the
          restricted securities; or

          (b) Obligates the Corporation or any holder of securities of the
          Corporation or any other person or any combination of the foregoing to
          purchase the securities which are the subject of an agreement
          respecting the purchase and sale of the restricted securities; or

          (c) Requires the Corporation or the holders of any class of securities
          of the Corporation to consent to any proposed transfer of the
          restricted securities or to approve the proposed transferee of the
          restricted securities; or

          (d) Prohibits the transfer of the restricted securities to designated
          persons or classes of persons; and such designation is not manifestly
          unreasonable; or

          (e) Restricts transfer or registration of transfer in any other lawful
          manner.

          Unless noted conspicuously on the security, a restriction, even though
permitted by this Section, is ineffective except against a person with actual
knowledge of the restriction.

          Section 6.4.   Transfer of Shares. Subject to the restrictions
permitted by Section 6.3, shares of the capital stock of the Corporation shall
be transferable on the books of the Corporation by the holder thereof in person
or by his duly authorized attorney, upon the surrender or cancellation of a
certificate or certificates for a like number of shares. As against the
Corporation, a transfer of shares can be made only on the books of the
Corporation and in the manner hereinabove provided, and the Corporation shall be
entitled to treat the registered holder of any share as the owner thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the statutes of the State
of Delaware.

          Section 6.5.   Fixing Date for Determination of Stockholders of
Record.

                                       15



               (a)       In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

          (b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.

          Section 6.6.   Lost Certificate. Any stockholder claiming that a
certificate representing shares of stock has been lost, stolen or destroyed may
make an affidavit or affirmation of the fact and, if the Board of Directors so
requires, advertise the same in a manner designated by the Board, and give the
Corporation a bond of indemnity in form and with security for an amount
satisfactory to the Board (or an officer or officers designated by the Board),
whereupon a new certificate may be issued of the same tenor and representing the
same number, class and/or series of shares as were represented by the
certificate alleged to have been lost, stolen or destroyed.

                                   ARTICLE VII

                                BOOKS AND RECORDS

          Section 7.1.   Location. The books, accounts and records of the
Corporation may be kept at such place or places within or outside the State of
Delaware as the Board of Directors may from time to time determine.

          Section 7.2.   Inspection. The books, accounts, and records of the
Corporation shall be open to inspection by any member of the Board of Directors
at all times; and open to inspection by the stockholders at such times, and
subject to such regulations as the Board of Directors may prescribe, except as
otherwise provided by statute.

                                       16



          Section 7.3.   Corporate Seal. The corporate seal shall contain two
concentric circles between which shall be the name of the Corporation and the
word "Delaware" and in the center shall be inscribed the words "Corporate Seal."

                                  ARTICLE VIII

                             DIVIDENDS AND RESERVES

          Section 8.1. Dividends. The Board of Directors of the Corporation,
subject to any restrictions contained in the Certificate of Incorporation and
other lawful commitments of the Corporation, may declare and pay dividends upon
the shares of its capital stock either out of the surplus of the Corporation, as
defined in and computed in accordance with the General Corporation Law of the
State of Delaware, or in case there shall be no such surplus, out of the net
profits of the Corporation for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. If the capital of the Corporation, computed in
accordance with the General Corporation Law of the State of Delaware, shall have
been diminished by depreciation in the value of its property, or by losses, or
otherwise, to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, the Board of Directors of the
Corporation shall not declare and pay out of such net profits any dividends upon
any shares of any classes of its capital stock until the deficiency in the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets shall have been repaired.

          Section 8.2. Reserves. The Board of Directors of the Corporation may
set apart, out of any of the funds of the Corporation available for dividends, a
reserve or reserves for any proper purpose and may abolish any such reserve.

                                   ARTICLE IX

                            MISCELLANEOUS PROVISIONS

          Section 9.1. Fiscal Year. The fiscal year of the Corporation shall end
on the 31st day of December of each year.

          Section 9.2. Depositories. The Board of Directors or an officer
designated by the Board shall appoint banks, trust companies, or other
depositories in which shall be deposited from time to time the money or
securities of the Corporation.

          Section 9.3. Checks, Drafts and Notes. All checks, drafts, or other
orders for the payment of money and all notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers or agent or agents as

                                       17



shall from time to time be designated by resolution of the Board of Directors or
by an officer appointed by the Board.

          Section 9.4. Contracts and Other Instruments. The Board of Directors
may authorize any officer or agent to enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation and such
authority may be general or confined to specific instances.

          Section 9.5. Notices. In addition to other means of notice permitted
herein, whenever under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws notice is required to be given to any director
or stockholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, by depositing the same in a post office
or letter box, in a postpaid sealed wrapper, or by delivery to a telegraph
company, addressed to such director or stockholder at such address as appears on
the records of the Corporation, or, in default of other address, to such
director or stockholder at the General Post Office in the City of Dover,
Delaware, and such notice shall be deemed to be given at the time when the same
shall be thus mailed or delivered to a telegraph company.

          Section 9.6. Waivers of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.

          Section 9.7. Stock in Other Corporations. Any shares of stock in any
other Corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of shareholders of such Corporation by the
President or a Vice President, or by any other person or persons thereunto
authorized by the Board of Directors, or by any proxy designated by written
instrument of appointment executed in the name of this Corporation by its
President or a Vice President. Shares of stock belonging to the Corporation need
not stand in the name of the Corporation, but may be held for the benefit of the
Corporation in the individual name of the Treasurer or of any other nominee
designated for the purpose by the Board of Directors. Certificates for shares so
held for the benefit of the Corporation shall be endorsed in blank or have
proper stock powers attached so that said certificates are at all times in due
form for transfer, and shall be held for safekeeping in such manner as shall be
determined from time to time by the Board of Directors.

          Section 9.8. Indemnification.

                                       18



          (a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to, or is otherwise involved in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director or an officer of the Corporation, against all
judgments, fines, amounts paid in settlement and other liability and loss
suffered, and all expenses (including, without limitation, attorneys' fees)
reasonably incurred thereby in connection with such action, suit or proceeding
to the fullest extent permitted by the General Corporation Law of the State of
Delaware and any other applicable law as from time to time in effect. Such right
of indemnification shall not be deemed to be exclusive of any rights to which
any such director or officer may otherwise be entitled. The foregoing provisions
of this Section 9.8(a) shall be deemed to be a contract between the Corporation
and each director and officer of the Corporation serving in such capacity at any
time while this Section 9.8(a) is in effect, and any repeal or modification
thereof shall not affect any right or obligation then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.

          (b)  The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to, or is otherwise involved in, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was an employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
against all judgments, fines, amounts paid in settlement and other liability and
loss suffered, and all expenses (including, without limitation, attorneys' fees)
reasonably incurred thereby in connection with such action, suit or proceeding
to the extent permitted by and in the manner set forth in and permitted by the
General Corporation Law of the State of Delaware and any other applicable law as
from time to time in effect. Such right of indemnification shall not be deemed
to be exclusive of any other rights to which any such person may otherwise be
entitled.

          (c) If a claim under subsection (a) or (b) of this Section is not paid
in full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expense of prosecuting such claim. It shall be a defense to any action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking has been tendered to the Corporation) that the claimant has failed
to meet a standard of conduct which makes it permissible under Delaware law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he has met such standard of conduct, nor an actual determination by the
Corporation (including its Board of Directors, independent legal

                                       19



counsel, or its stockholders) that the claimant has not met such standard of
conduct, nor the termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall be a
defense to the action or create a presumption that the claimant has failed to
meet the required standard of conduct.

          (d) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.

          (e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another Corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under Delaware law.

          (f) To the extent that any director, officer, employee or agent of the
Corporation is by reason of such position, or a position with another entity at
the request of the Corporation, a witness in any proceeding, he shall be
indemnified against all costs and expenses actually and reasonably incurred by
him or on his behalf in connection therewith.

          (g) Any amendment, repeal or modification of any provision of this
Section by the stockholders or the directors of the Corporation shall not
adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment, repeal or modification.

          Section 9.9. Amendment of Bylaws.

               (a)       The stockholders, by the affirmative vote of the
holders of a majority of the stock issued and outstanding and having voting
power may, at any annual or special meeting if notice of such alteration or
amendment of the Bylaws is contained in the notice of such meeting, adopt,
amend, or repeal these Bylaws, and alterations or amendments of Bylaws made by
the stockholders shall not be altered or amended by the Board of Directors.

               (b)       The Board of Directors, by the affirmative vote of a
majority of the whole Board, may adopt, amend, or repeal these Bylaws at any
meeting, except as provided in the above paragraph. Bylaws made by the Board of
Directors may be altered or repealed by the stockholders.

                                    * * * * *

                                       20

                                                                    EXHIBIT 10.1

STATE OF CALIFORNIA

STANDARD AGREEMENT -- APPROVED BY THE                CONTRACT NUMBER     AM. NO.
STD.2(REV.5-91)       ATTORNEY GENERAL               95-23637
                                                     TAXPAYER'S FEDERAL
                                                     EMPLOYER IDENTIFICATION NO.
                                                     33-0342719

THIS AGREEMENT, made and entered into this 2nd day of April, 1996 in the State
  of California, by and between State of California, through its duly elected
  or appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE      AGENCY
Chief, Program Support Branch          Department of Health Services,
                                       hereafter called the State, and

CONTRACTOR'S NAME
Molina Medical Centers, hereafter called the Contract:

WTTNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter express does
hereby agree to furnish to the State services and materials as follows: (Set
forth service to be rendered by Contractor, amount to be paid Contract time for
performance or completion, and attach plans and specifications, if any.)

                              ARTICLE 1 - PREAMBLE

     This Contract is entered into under the provisions of Section 14087.3,
     Welfare and Institutions (W&I) Code.

     WHERE AS, it is the best interest of all parties to enter into this
     Contract,

     NOW THEREFORE, this contract is amended as follows:

                                                                          [SEAL]

CONTINUED ON 125 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



- -------------------------------------------------------------------------------------------------------------------------------
          STATE OF CALIFORNIA                                              CONTRACTOR
- -------------------------------------------------------------------------------------------------------------------------------
                                     
AGENCY                                  CONTRACTOR (If other than an individual, state whether a corporation, partnership, etc.)
  Department of Health Service          Molina Medical Centers
- -------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)               BY (AUTHORIZED SIGNATURE)
/s/                                     /s/
- -------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING          PRINTED NAME AND TITLE OF PERSON SIGNING
  Edward E. Stahlberg                   John Molina, J.D. - Chief Administrative Officer
- -------------------------------------------------------------------------------------------------------------------------------
TITLE                                   ADDRESS
  Chief, Program Support Branch         One Golden Shore, Long Beach, CA 90802
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS               PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE               Department of General
DOCUMENT                                Section 14157 W&I Code                   Care Deposit               Services Use Only
$ 32,080,630                  ----------------------------------------------------------------------      Exempt From PCC per
- ------------------------------          (OPTIONAL USE)                                                     W&I Code 14087.4
PRIOR AMOUNT ENCUMBERED FOR             Federal Cat. 93778 4260-101-001 & 890    50% Fed & 50% State
THIS CONTRACT                           ------------------------------------------------------------
$ -0-                                   ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------          4260-601-912          303           1995         1995-96
TOTAL AMOUNT ENCUMBERED TO              ------------------------------------------------------------
$ 32,080,630                            OBJECT OF EXPENDITURE (CODE AND TITLE)
                                                        N/A
- ----------------------------------------------------------------------------------------------------
I hereby certify upon my own personal   T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- ----------------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/                                                        4/2/96
- ----------------------------------------------------------------------------------------------------


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE)

     1. The Contractor agrees to indemnify, defend and save harmless the State,
        its officers, agents and employees from any and all claims and losses
        accruing or resulting to any and all contractors, subcontracters
        materialmen, laborers and any other person, firm or corporation
        furnishing or supplying work services, materials or supplies in
        connection with the performance of this contract, and from any and all
        claims losses accruing or resulting to any person, firm or corporation
        who may be injured or damaged by Contractor in the performance of this
        contract

     2. The Contractor, and the agents and employees of Contractor, in the
        performance of the agreement, shall act in an independent capacity and
        not as officers or employees or agents of State of California.

     3. The State may terminate this agreement and be relieved of the payment
        of any consideration to Contractor should Contractor fail to perform
        the covenants herein contained at the time and in the manner herein
        provided. In the event of such termination the State may proceed with
        the work in any manner deemed proper by the State. The cost to the
        State shall be deducted from any sum due the Contractor under this
        agreement, and the balance, if any, shall be paid the Contractor upon
        demand.

     4. Without the written consent of the State, this agreement is not
        assignable by Contractor either in whole or in part.

     5. Time is of the essence in this agreement.

     6. No alteration or variation of the terms of this contract shall be valid
        unless made in writing and signed the parties hereto, and no oral
        understanding or agreement not incorporated herein, shall be binding on
        any of the parties hereto.

     7. The consideration to be paid Contractor, as provided herein, shall be in
        compensation for all of Contractor's expenses incurred in the
        performance hereof, including travel and per diem, unless otherwise
        expressly so provided.




Molina Medical Centers                                                  95-23637
                                                                     Article  VI

                                TABLE OF CONTENTS

ARTICLE I   -   PREAMBLE                                                   Pg  1

ARTICLE II  -   DEFINITIONS                                                Pg  2

ARTICLE III  GENERAL TERMS AND CONDITIONS                                  Pg 14

     3.1      Delegation of Authority                                      Pg 14
     3.2      Governing Authorities                                        Pg 14
     3.3      Authority of the State                                       Pg 15
     3.4      Fulfillment of Obligations                                   Pg 15
     3.5      Compliance with Protocols                                    Pg 16
     3.6      Equal Opportunity Employer                                   Pg 16
     3.7      Nondiscrimination Clause Compliance                          Pg.16
     3.8      Discrimination Prohibition                                   Pg 17
     3.9      Discrimination Complaints                                    Pg 18
     3.10     Membership Diversity                                         Pg 18
     3.11     Inspection Rights                                            Pg 18
     3.12     Notices                                                      Pg 19
     3.13     Contractor's National Labor Relations Board Declaration      Pg 19
     3.14     Term                                                         Pg 19
     3.15     Contract Extension                                           Pg 20

     3.16     Turnover and Phaseout Requirements                           Pg 20
     3.16.1   Objectives for Turnover and Phaseout Period                  Pg 20
     3.16.2   Turnover Requirements                                        Pg 21
     3.16.3   Phaseout Requirements                                        Pg 21
     3.16.4   Turnover and Phaseout Period                                 Pg 21

     3.17     Termination                                                  Pg 21
     3.17.1   Termination - State or Director                              Pg 21
     3.17.2   Termination - Contractor                                     Pg 22
     3.17.3   Mandatory Termination                                        Pg 22
     3.17.4   Termination of Obligations                                   Pg 23
     3.17.5   Notice to Members of Transfer of Care                        Pg 23

     3.18     Sanctions                                                    pg 23

     3.19     Liquidated Damages Provisions                                Pg 23
     3.19.1   General                                                      Pg 23

                                        i



Molina Medical Centers                                                  95-23637
                                                                      Article VI

     3.19.2   Liquidated Damages for Violation of Contract Terms
              Regarding the Implementation Period                          Pg 25
     3.19.3   Liquidated Damages for Violation of Contract Terms or
              Regulations Regarding the Operations Period                  Pg 25
     3.19.4   Annual Medical Reviews                                       Pg 26
     3.19.5   Conditions for Termination of Liquidated Damages             Pg 26
     3.19.6   Severability of Individual Liquidated Damages Clauses        Pg 26

     3.20     Assignments                                                  Pg 26

     3.21     Disputes and Appeals                                         Pg 27
     3.21.1   Disputes Resolution by Negotiation                           Pg 27
     3.21.2   Notification of Dispute                                      Pg 27
     3.21.3   Contracting Officers Decision                                Pg 28
     3.21.4   Contractor Duty to Perform                                   Pg 29
     3.21.5   Waiver of Claims                                             Pg 29

     3.22     Enrollment                                                   Pg 29
     3.22.1   Enrollment - General                                         Pg 30
     3.22.2   Enrollment Totals                                            Pg 30
     3.22.3   Coverage                                                     Pg 30
     3.22.4   Enrollment Restriction                                       Pg 30
     3.22.5   Disenrollment                                                Pg 30

     3.23     Standards                                                    Pg 31
     3.24     Pharmaceutical Services and Prescribed Drugs                 Pg 32
     3.25     Facilities                                                   Pg 32
     3.26     Laboratory Certification                                     Pg 32

     3.27     Subcontracts                                                 Pg 33
     3.27.1   Knox-Keene and Regulations                                   Pg 33
     3.27.2   Subcontract Requirements                                     Pg 33
     3.27.3   Departmental Approval - Non-Federally Qualified HMOs         Pg 35
     3.27.4   Departmental Approval - Federally Qualified HMOs             Pg 35
     3.27.5   Compensation                                                 Pg 35
     3.27.6   Federally Qualified Health Centers                           Pg 35
     3.27.7   Public Records                                               Pg 36
     3.27.8   Disclosures                                                  Pg 36
     3.27.9   Payment                                                      Pg 37

                                       ii



Molina Medical Centers                                                  95-23637
                                                                      Article VI

     3.28     Confidentiality of Data                                      Pg 37
     3.28.1   Confidentiality of Information                               Pg 37
     3.28.2   Contractor's Duties to Maintain Confidentiality              Pg 37
     3.29     Key Personnel (Disclosure Form)                              Pg 38
     3.30     Conflict of Interest - Current and Former State Employees    Pg 38

     3.31     Records Keeping, Audit/Inspection of Records                 Pg 38
     3.31.1   Books and Records                                            Pg 39
     3.31.2   Records Retention                                            Pg 39

     3.32     Amendment of Contract                                        Pg 39
     3.33     Contractor Certifications                                    Pg 39

     3.34     Change Requirements                                          Pg 40
     3.34.1   General Provisions                                           Pg 40
     3.34.2   Contractor's Obligation to Implement                         Pg 40

     3.35     Minority/Women//Disabled Veteran Business Enterprises
              (M/W/DVBE)                                                   Pg 40
     3.36     Drug Free Workplace Act of 1990                              Pg 41

     3.37     Indemnification                                              Pg 41
     3.37.1   Indemnification by Contractor                                Pg 41

     3.38     Americans with Disabilities Act of 1990 Requirements         Pg 41
     3.39     Newborn Child Coverage                                       Pg 41
     3.40     Recovery from Other Sources or Providers                     Pg 41
     3.41     Third-Party Tort Liability                                   Pg 42
     3.42     Obtaining DHS Approval                                       Pg 43
     3.43     Pilot Projects                                               Pg 44

ARTICLE IV      DUTIES OF THE STATE                                        Pg 45

     4.1      Payment for Services                                         Pg 45
     4.2      Medical Reviews                                              Pg 45
     4.3      Facility Inspections                                         Pg 45
     4.4      Enrollment Processing                                        Pg 45
     4.5      Disenrollment Processing                                     Pg 46
     4.6      Testing and Certification of Enrollment Representatives      Pg 46
     4.7      Approval Process                                             Pg 46
     4.8      Program Information                                          Pg 46
     4.9      Sanctions                                                    Pg 46

                                       iii



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     4.10     Catastrophic Coverage Limitation                             Pg 46
     4.11     Risk Limitation                                              Pg 47
     4.12     Notice of Termination of Contract                            Pg 47
     4.13     Access Requirements and State's Right to Monitor             Pg 47

ARTICLE V     PAYMENT PROVISIONS                                           Pg 48

     5.0      Payment Provisions                                           Pg 48
     5.1      Contractor Risk in Providing Services                        Pg 48
     5.2      Amounts Payable                                              Pg 48
     5.3      Capitation Rates                                             Pg 49
     5.4      Capitation Rates Constitute Payment in Full                  Pg 49
     5.5      Determination of Rates                                       Pg 50
     5.6      Redetermination of Rates - Obligation Changes                Pg 51
     5.7      Reinsurance                                                  Pg 51
     5.8      Catastrophic Coverage Limitation                             Pg 53
     5.9      Financial Security                                           Pg 53
     5.10     Limitation to Federal Financial Participation                Pg 53
     5.11     Recovery of Capitation Payments                              Pg 54

ARTICLE VI    SCOPE OF WORK                                                Pg 55

     6.0      Organization                                                 Pg 55
     6.1      Legal Capacity                                               Pg 55

     6.2      Administration/Staffing                                      Pg 55
     6.2.1    Contract Performance                                         Pg 55
     6.2.2    Medical Director                                             Pg 55
     6.2.3    Medical Decisions                                            Pg 56
     6.2.4    Medical Director Changes                                     Pg 56
     6.2.5    Administrative Duties/Responsibilities                       Pg 56
     6.2.6    Member Representation                                        Pg 57

     6.3      Financial Information                                        Pg 57
     6.3.1    Financial Viability/Standards Compliance                     Pg 57
     6.3.2    Financial Audit/Reports                                      Pg 57
     6.3.3    Monthly Financial Statements                                 Pg 59
     6.3.4    Compliance with Audit Requirements                           Pg 59
     6.3.5    Submittal of Financial Information                           Pg 59

     6.4      Management Information System                                Pg 59
     6.4.1    Management Information System (MIS) Capability               Pg 59

                                       iv



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     6.4.2    Encounter Data Submittal                                     Pg 60
     6.4.3    Access to MIS                                                Pg 60
     6.4.4    Late Reports                                                 Pg 60
     6.4.5    Inaccurate/Insufficient Reports                              Pg 60

     6.5      Quality Improvement System                                   Pg 60
     6.5.1    General Requirement                                          Pg 60
     6.5.1.1  Written Description                                          Pg 61
     6.5.2    QIP Administrative Services                                  Pg 62
     6.5.2.1  Accountability                                               Pg 62
     6.5.2.2  Governing Body                                               Pg 62
     6.5.2.3  Quality Improvement Committee                                Pg 63
     6.5.2.4  Medical Director                                             Pg 63
     6.5.2.5  Provider Participation                                       Pg 63
     6.5.2.6  Delegation of QIP Activities                                 Pg 63
     6.5.2.7  Coordination With Other Management Activities                Pg 64

     6.5.3    Systematic Process of Quality Improvement                    Pg 64
     6.5.3.1  General Requirement                                          Pg 64
     6.5.3.2  Quality of Care Studies                                      Pg 65
     6.5.3.3  Standards and Guidelines                                     Pg 65
     6.5.3.4  Quality Indicators                                           Pg 66
     6.5.3.5  Reports                                                      Pg 67

     6.5.4    Credentialing and Recredentialing                            Pg 68
     6.5.4.1  General Requirements                                         Pg 68
     6.5.4.2  Credentialing                                                Pg 68
     6.5.4.3  Recredentialing                                              Pg 69
     6.5.4.4  Delegated Credentialing                                      Pg 69
     6.5.4.5  Disciplinary Actions                                         Pg 69

     6.5.5    Facility Review                                              Pg 69
     6.5.5.1  General Requirement                                          Pg 69
     6.5.5.2  Facility Review Procedures                                   Pg 70
     6.5.5.3  Number of Sites to be Reviewed Prior to Operation            Pg 71
     6.5.5.4  Number of Sites to be Reviewed After Operations Begin        Pg 71
     6.5.5.5  DHS Facility Inspections                                     Pg 71
     6.5.5.6  Corrective Actions                                           Pg 71
     6.5.5.7  Continuing Oversight                                         Pg 71

     6.5.6    Members Rights and Responsibilities                          Pg 72
     6.5.6.1  General Requirement                                          Pg 72

                                        v



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     6.5.6.2  Written Policy: Member's Rights                              Pg 72
     6.5.6.3  Written Policy: Member's Responsibilities                    Pg 72
     6.5.6.4  Member's Grievance System                                    Pg 72
     6.5.6.5  Member's Right to Confidentiality                            Pg 73
     6.5.6.6  Minor's Rights and Services                                  Pg 73
     6.5.6.7  Member Satisfaction Surveys                                  Pg 73

     6.5.7    Availability and Accessibility                               Pg 74
     6.5.7.1  General Requirement                                          Pg 74
     6.5.7.2  Emergency Care                                               Pg 74
     6.5.7.3  Urgent Care                                                  Pg 74
     6.5.7.4  First Prenatal Visit                                         Pg 74
     6.5.7.5  Waiting Times                                                Pg 74
     6.5.7.6  Telephone Procedures                                         Pg 74
     6.5.7.7  After Hours Calls                                            Pg 74
     6.5.7.8  Sensitive Services                                           Pg 75
     6.5.7.9  Access for Disabled Members                                  Pg 75
     6.5.7.10 Unusual Specialty Services                                   Pg 75

     6.5.8    Medical Records                                              Pg 75
     6.5.8.1  General Requirement                                          Pg 75
     6.5.8.2  Medical Records Procedures                                   Pg 75
     6.5.8.3  On-Site Medical Records                                      Pg 76
     6.5.8.4  Member Medical Records                                       Pg 76
     6.5.8.5  Medical Records Review                                       Pg 77

     6.5.9    Utilization Management                                       Pg 77
     6.5.9.1  General Requirement                                          Pg 77
     6.5.9.2  Under and Over-Utilization                                   Pg 77
     6.5.9.3  Pre-Authorization/Review Procedures                          Pg 78
     6.5.9.4  Exceptions to Prior Authorization Requirement                Pg 78
     6.5.9.5  Delegating UM Activities                                     Pg 78

     6.5.10   Continuity of Care and Case Management                       Pg 78
     6.5.10.1 Medical Case Management                                      Pg 78
     6.5.10.2 Initial Health Assessment                                    Pg 78
     6.5.10.3 Referrals and Follow-Up Care                                 Pg 79
     6.5.10.4 Coordination of Care                                         Pg 79
     6.5.10.5 Missed/Broken Appointments                                   Pg 79
     6.5.10.6 Continuity of Care                                           Pg 79

     6.5.11   Inpatient Care                                               Pg 79

                                       vi



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     6.5.11.1 General Requirement                                          Pg 79
     6.5.12   Infection Control                                            Pg 79
     6.5.12.1 Infection Control Plan                                       Pg 79
     6.5.12.2 Infection Control Policies & Procedures                      Pg 80
     6.5.12.3 Review of Patient Infections                                 Pg 80
     6.5.12.4 Reporting Procedures                                         Pg 80
     6.5.12.5 Subcontractors                                               Pg 80

     6.6      Provider Network and Geographic Access                       Pg 80
     6.6.1    Time and Distance Standard                                   Pg 80
     6.6.2    Network Capacity                                             Pg 81
     6.6.3    Network Composition                                          Pg 81
     6.6.4    Access Requirements                                          Pg 81
     6.6.5    Specialists                                                  Pg 81
     6.6.6    Provider to Member Ratios                                    Pg 81
     6.6.7    Physician Supervisor to Non-Physician Medical
              Practitioner Ratios                                          Pg 82
     6.6.8    Subcontracts                                                 Pg 82
     6.6.9    Traditional and Safety-Net Provider Participation            Pg 82
     6.6.10   Traditional and Safety-Net Provider Capacity                 Pg 82
     6.6.11   Existing Patient-Physician Relationships                     Pg 82
     6.6.12   Monthly Report                                               Pg 83
     6.6.13   Contract and Employment Terminations                         Pg 83
     6.6.14   Utilization of DSH Hospitals                                 Pg 83
     6.6.15   Adequate Facilities and Personnel                            Pg 83
     6.6.16   Emergency Service Providers                                  Pg 83
     6.6.17   Users Manual and Bulletins                                   Pg 84
     6.6.18   Provider Training                                            Pg 85
     6.6.19   FQHC Services                                                Pg 85
     6.6.20   FQHC Subcontracts                                            Pg 85
     6.6.21   Indian Health Services Facilities                            Pg 86
     6.6.22   Vision Care Services                                         Pg 86
     6.6.23   Subcontractor Services                                       Pg 86
     6.6.24   Emergency Department Protocols                               Pg 86

     6.7      Scope of Services/Medical Standards/ Health Education        Pg 87

     6.7.1    Covered Services                                             Pg 87
     6.7.1.1  General Requirement                                          Pg 87
     6.7.1.2  Referral Services                                            Pg 87

                                       vii



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     6.7.2    Excluded Services: Circumstances Under Which Member
              Disenrolled                                                  Pg 87
     6.7.2.1  Major Organ Transplants                                      Pg 88
     6.7.2.2  Waiver Programs                                              Pg 88
     6.7.2.3  Long Term Care (LTC)                                         Pg 89

     6.7.3    Excluded Services: Circumstances Under Which Member
              Enrolled with Service Carve Out                              Pg 89
     6.7.3.1  Miscellaneous Service Carve Outs                             Pg 89
     6.7.3.2  California Children Services                                 Pg 90
     6.7.3.3  Mental Health                                                Pg 90
     6.7.3.4  Alcohol and Drug Treatment                                   Pg 90
     6.7.3.5  Dental                                                       Pg 91
     6.7.3.6  Vision Care - Lenses                                         Pg 91
     6.7.3.7  Direct Observed Therapy (DOT) for Treatment of
              Tuberculosis                                                 Pg 91
     6.7.3.8  Department of Developmental Services Administered
              Medicaid Home and Community Based Services Waiver            Pg 91

     6.7.4    Capitated Services: Services with Special Arrangements
              and/or Payment of Out-Of-Plan Providers                      Pg 92
     6.7.4.1  School Linked CHDP Services: Coordination of Care            Pg 92
     6.7.4.2  School Linked CHDP Services: Cooperative Arrangements        Pg 92
     6.7.4.3  School Linked CHDP Services: Subcontracts                    Pg 93
     6.7.4.4  Early and Periodic Screening, Diagnosis and Treatment
              EPSDT Supplemental Services, Excluding Case Management
              Services                                                     Pg 93
     6.7.4.5  Family Planning: General Requirement                         Pg 93
     6.7.4.6  Family Planning: Informed Consent                            Pg 94
     6.7.4.7  Family Planning: Out-Of-Network Reimbursement                Pg 94
     6.7.4.8  Family Planning: Reimbursement Rate                          Pg 95
     6.7.4.9  Sexually Transmitted Diseases (STD)                          Pg 95
     6.7.4.10 Early Intervention Services                                  Pg 95
     6.7.4.11 Services for Persons with Developmental Disabilities         Pg 95
     6.7.4.12 Confidential HIV Testing                                     Pg 96
     6.7.4.13 Immunizations                                                Pg 96
     6.7.4.14 Nurse Midwife Services                                       Pg 96

     6.7.5    Required Referral Arrangements                               Pg 96
     6.7.5.1  Women, Infants, and Children WIC Supplemental Food

                                      viii



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

              Program: General Requirements                                Pg 96
     6.7.5.2  WIC Supplemental Food Program: Medical Records               Pg 97

     6.7.6    Medical Standards - Clinical Preventive Service              Pg 97
     6.7.6.1  Initial Health Assessment                                    Pg 97
     6.7.6.2  Children                                                     Pg 97
     6.7.6.3  Pregnant Women: Minimum Standards                            Pg 99
     6.7.6.4  Pregnant Women: Provider Credentialing Standards             Pg 99
     6.7.6.5  Pregnant Women: Risk Assessment                              Pg 99
     6.7.6.6  Pregnant Women: Referrals to Specialists                     Pg 99
     6.7.6.7  Adults                                                      Pg 100
     6.7.6.8  Tuberculosis (Tb)                                           Pg 101

     6.7.7    Health Education                                            Pg 101
     6.7.7.1  General Requirements                                        Pg 101
     6.7.7.2  Health Educator                                             Pg 102
     6.7.7.3  Behavioral Assessments                                      Pg 102
     6.7.7.4  Health Education Policies and Procedures                    Pg 103
     6.7.7.5  Health Education Standards                                  Pg 103
     6.7.7.6  Health Education and QIP                                    Pg 103
     6.7.7.7  Group Needs Assessment                                      Pg 103
     6.7.7.8  Health Education Workplan                                   Pg 103
     6.7.7.9  Health Education Reading Level                              Pg 104

     6.7.8    Local Health Department Coordination                        Pg 104
     6.7.8.1  Subcontract                                                 Pg 104

     6.8      Marketing and Enrollment                                    Pg 105
     6.8.1    Marketing Representatives                                   Pg 105
     6.8.2    Liability                                                   Pg 105
     6.8.3    Certification of Marketing Representatives                  Pg 105
     6.8.4    Enrollment Program                                          Pg 106
     6.8.5    Disenrollment Forms                                         Pg 106
     6.8.6    Marketing Plan                                              Pg 106
     6.8.7    DHS Approval                                                Pg 106

     6.9      Member Services/Grievance System                            Pg 106
     6.9.1    System Capacity                                             Pg 106
     6.9.2    Member Services Employee Training                           Pg 106
     6.9.3    Disclosure Forms                                            Pg 106
     6.9.4    Member Identification Card                                  Pg 107
     6.9.5    Membership Services Guide                                   Pg 107

                                       ix



Molina Medical Centers                                                  95-23637
                                                                     Article  VI

     6.9.6    Enrollee Information                                        Pg 109
     6.9.7    Distribution of Member Services Information                 Pg 110
     6.9.8    Changes in Availability or Location of Covered Services     Pg 110
     6.9.9    Primary Care Physician Selection                            Pg 110
     6.9.10   Primary Care Physician Assignment                           Pg 110
     6.9.11   Continuity of Care                                          Pg 110
     6.9.12   Disclosure                                                  Pg 110
     6.9.13   Member Compliant/Grievance System                           Pg 110
     6.9.14   Disenrollments                                              Pg 110
     6.9.15   Denial, Deferral or Modifications of Prior Authorization    Pg 111
              Requests

     6.10     Cultural and Linguistic Services Requirement                Pg 112
     6.10.1   Civil Rights Act of 1964                                    Pg 112
     6.10.2   Linguistic Services                                         Pg 112
     6.10.3   Linguistic Capability of Employees                          Pg 113
     6.10.4   Subcontracts                                                Pg 113
     6.10.5   Community Advisory Committee                                Pg 113
     6.10.6   Cultural and Linguistic Services Plan                       Pg 114
     6.10.7   Implementation Workplan                                     Pg 114
     6.10.8   Standards and Performance Requirements                      Pg 114
     6.10.9   Interpreter Coordination                                    Pg 115

     6.11     Implementation Plans                                        Pg 115
     6.11.1   Time Frames                                                 Pg 115
     6.11.2   Implementation Plan Oversight                               Pg 115
     6.11.3   Monthly Progress Reports                                    Pg 115

                                        x



Molina Medical Centers                                                  95-23637
                                                                     Article  II

                            ARTICLE II - DEFINITIONS

As used in this Contract, unless otherwise expressly provided or the context
otherwise requires, the following definitions of terms will govern the
construction of this Contract:

A.   Administrative Costs means only those costs which arise out of the
     operation of the plan excluding direct and overhead costs incurred in the
     furnishing of health care services which would ordinarily be incurred in
     the provision of these services whether or not through a plan.

B.   Affiliate means an organization or person that directly, or indirectly
     through one or more intermediaries controls or is controlled by, or is
     under control with the Contractor and that provides services to or receives
     services from the Contractor.

C.   Allied Health Personnel means specially trained, licensed, or credentialed
     health workers other than Physicians, podiatrists and Nurses.

D.   Ambulatory Care means the type of health services that are provided on an
     outpatient basis. While many inpatients may be ambulatory, the term,
     "Ambulatory Care" usually implies that the Member has come to a location
     such as a clinic, health center, or Physician's office to receive services
     and has departed the same day.

E.   Beneficiary Identification Card (BIC) means a permanent plastic card issued
     by the State to recipients of entitlement programs which is used by
     contractors to verify health plan eligibility. Files are updated monthly.

F.   California Children Services (CCS) means those services authorized by the
     CCS program for the diagnosis and treatment of the CCS eligible conditions
     of a specific Member.

G.   California Children Services (CCS) Eligible Conditions means a physically
     handicapping condition defined in Title 22, CCR, Section 41800.

H.   California Children Services (CCS) Program means the public health program
     which assures the delivery of specialized diagnostic, treatment, and
     therapy services to financially and medically eligible children under the
     age of 21 years who have CCS eligible conditions.

I.   Claims and Eligibility Real-Time System (CERTS) means the mechanism for
     verifying a recipient's Medi-Cal or County Medical Services Program (CMSP)
     eligibility by computer.

                                        2



Molina Medical Centers                                                  95-23637
                                                                     Article  II

J.   Confidential Information means specific facts or documents identified as
     "confidential" by either law, regulations or contractual language.

K.   Contract means this written agreement between DHS and the Contractor.

L.   Contracting Providers means a Physician, Nurse, technician, teacher,
     researcher, hospital, home health agency, nursing home, or any other
     individual or institution that contracts with a health plan to provide
     medical services to plan Members.

M.   Corrective Actions means specific identifiable activities or undertakings
     of the Contractor which address program deficiencies or problems identified
     by formal audits or DHS monitoring activities.

N.   County Department means the County Department of Social Services (DSS), or
     other county agency responsible for determining the initial and continued
     eligibility for the Medi-Cal program.

O.   Covered Services means those services set forth in Title 22, CCR, Division
     3, Subdivision 1, Chapter 3, beginning with Section 51301, and Title 17,
     CCR, Chapter 4, Subchapter 13, Article 4, beginning with Section 6840.
     Covered Services do not include:

     1.   Services for major organ transplants as specified in Section 6.7.2.1.

     2.   Long term care services as specified in Section 6.7.2.3.

     3.   Home and community based services as specified in Section 6.7.3.8

     4.   California Children Services (CCS) as specified in Section 6.7.3.2.

     5.   Mental health services as specified in Section 6.7.3.3.

     6.   Alcohol and drug treatment services as specified in Section 6.7.3.4.

     7.   Fabrication of optical lenses as specified in Section 6.7.3.6.

     8.   Direct observed treatment for tuberculosis as specified in Section
          6.7.3.7.

     9.   Dental services as specified in Title 22, CCR, Section 51307.

     10.  Acupuncture services as specified in Title 22, CCR, Section 51308.5.

                                        3



Molina Medical Centers                                                  95-23637
                                                                     Article  II

     11.  Chiropractic services as specified in Title 22, CCR, Section 51308.

     12.  Prayer or spiritual healing as specified in Title 22, CCR, Section
          51312.

     13.  Local Education Agency (LEA) assessment services as specified in Title
          22, CCR, Section 51360(b)(l) provided to a Member who qualifies for
          LEA services based on Title 22, CCR, Section 51190.1(a).

     14.  Any LEA services as specified in Title 22, CCR, Section 51360 provided
          pursuant to an Individualized Education Plan (IEP) as set forth in
          Education Code, Section 56340 et seq. or an Individualized Family
          Service Plan (IFSP) as set forth in Government Code Section 95020.

     15.  Laboratory services provided under the State serum alphafetoprotein
          testing program administered by the Genetic Disease Branch of DHS.

P.   Credentialing means the recognition of professional or technical
     competence. The process involved may include registration, certification,
     licensure and professional association membership.

Q.   DOC means the State Department of Corporations which is responsible for
     administering the Knox-Keene Act of 1975.

R.   DMH means the Department of Mental Health, the State agency, in
     consultation with the California Mental Health Directors Association
     (CMHDA) and California Mental Health Planning Council, which sets policy
     and administers for the delivery of community based public mental health
     services statewide.

S.   DHS means the Department of Health Services single State Department
     responsible for administration of the Medi-Cal, CMSP, CCS, GHPP, CHDP, and
     other health related programs.

T.   DHHS means the Department of Health and Human Services, the federal agency
     responsible for management of the Medicaid program.

U.   Dietitian/Nutritionist means a person who is registered or eligible for
     registration as a Registered Dietitian by the Commission on Dietetic
     Registration (Business and Professions Code, Chapter 5.65, Sections 2585
     and 2586).

V.   Director means the Director of the State of California Department of Health
     Services.

                                        4



Molina Medical Centers                                                  95-23637
                                                                     Article  II

W.   Disproportionate Share Hospital (DSH) means a health Facility licensed
     pursuant to Chapter 2, Division 2, Health and Safety Code, to provide acute
     inpatient hospital services, which is eligible to receive payment
     adjustments from the State pursuant to W&I Code, Section 14105.98.

X.   Eligible Beneficiary means any Medi-Cal beneficiary who is residing in the
     Contractor's Service Area with one of the following aid codes: Aid to
     Families with Dependent Children - aid codes 30,32,33,35,38,39,3A,3C,40,
     42,4C,54,59,3P,3R; Medically Needy Family - aid code 34; Public Assistance
     Aged - aid codes 10,16,18; Medically Needy Aged - aid code 14; Public
     Assistance Blind - aid codes 20,26,28,6A; Medically Needy Blind - aid code
     24; Public Assistance Disabled - aid codes 36,60,66,68,6C; Medically Needy
     Disabled - aid code 64; Medically Indigent Child - aid codes 03,04,4K,5K,
     45,82; Medically Indigent Adult - aid code 86; and Refugees - aid codes
     01,02, and 08, with the following exclusions:

     1.   Individuals who have been approved by the Medi-Cal Field Office or the
          California Children Services Program for bone marrow, heart,
          heart-lung, liver, lung, combined liver and kidney, or combined liver
          and small bowel transplants.

     2.   Individuals who elect and are accepted to participate in the following
          Medi-Cal waiver programs: In-Home Medical Care Waiver Program, the
          Skilled Nursing Facility Waiver Program, the Model Waiver Program, the
          Acquired Immune Deficiency (AIDS) and AIDS Related Conditions Waiver
          Program, and the Multipurpose Senior Services Waiver Program.

     3.   Individuals determined by the Medi-Cal Field Office to be in need of
          long term care and residing in a Skilled Nursing Facility (SNF) for 30
          days past the month of admission.

Y.   Emergency Conditions means those medical conditions requiring immediate
     medical care to avoid disability or death.

Z.   Emergency Services means those health services required for alleviation of
     severe pain or immediate diagnosis and treatment of unforeseen medical
     conditions, which if not immediately diagnosed and treated, could lead to
     disability or death.

AA.  Encounter means a single "face-to-face" visit or medically related service
     rendered by (a) provider(s) in an Ambulatory Care setting to a Member
     enrolled in the health plan during the date of service. It includes, but
     not limited to, all services for which the Contractor incurred any
     financial liability.

                                        5



Molina Medical Centers                                                  95-23637
                                                                     Article  II

BB.  Enrollment means the process by which an Eligible Beneficiary becomes a
     Member of the Contractor's plan.

CC.  Facility means any premise that is:

     1.   Owned, leased, used or operated directly or indirectly by or for the
          Contractor or its Affiliates for purposes related to this Contract or

     2.   Maintained by a provider to provide services on behalf of the
          Contractor.

DD.  Federal Financial Participation means federal expenditures provided to
     match proper State expenditures made under approved State Medicaid plans.

EE.  Federally Qualified HMO means a prepaid health delivery plan that has
     fulfilled the requirements of the HMO Act, along with its amendments and
     regulations, and has obtained the Federal Government's qualification status
     under Section 1310(d) of the Public Health Service Act (42 USC S300e).

FF.  Fee-For-Service (FFS) means a method of charging based upon billing for a
     specific number of units of services rendered to an Eligible Beneficiary.
     Fee-For-Service is the traditional method of reimbursement used by
     Physicians and payment almost always occurs retrospectively (i.e., after
     the service has been rendered).

GG.  Fee-For-Service Mental Health Services (FFS/MC) means the mental health
     services covered through Fee-For-Service Medi-Cal which include outpatient
     services and acute care inpatient services. These services are provided
     through Primary Care Physicians as well as psychiatrists and psychologists.

HH.  Financial Security means cash or cash equivalents which are immediately
     redeemable upon demand by DHS, in an amount determined by DHS, which shall
     not be less than one full month's capitation. This is required when
     prepayment of capitation is agreed upon by DHS and the Contractor.

II.  Financial Statements means the Financial Statements as defined by Generally
     Accepted Accounting Principles (GAAP) which includes a Balance Sheet,
     Income Statement, Statement of Cash Flows, Statement of Equity and
     accompanying footnotes. All documents are prepared in accordance with GAAP.

JJ.  Fiscal Year (FY) means any 12-month period for which annual accounts are
     kept. The State Fiscal Year is July 1 through June 30, the federal Fiscal
     Year is October 1 through September 30.

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Molina Medical Centers                                                  95-23637
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KK.  Grievance means a complaint filed by either a Member or a provider.

LL.  Health Maintenance Organization (HMO) means an organization that, through
     a coordinated system of health care, provides or assures the delivery of an
     agreed upon set of comprehensive health maintenance and treatment services
     for an enrolled group of persons through a predetermined periodic fixed
     prepayment.

MM.  Indian Health Service (IHS) Facilities means Facilities operated with funds
     from the IHS under the Indian Self-Determination Act and the Indian Health
     Care Improvement Act, through which services are provided, directly or by
     contract, to the eligible Indian population within a defined geographic
     area.

NN.  Intermediate Care Facility (ICF) means a Facility which is licensed as an
     ICF by DHS or a hospital or Skilled Nursing Facility which meets the
     standards specified in Title 22, CCR, Section 51212 and has been certified
     by DHS for participation in the Medi-Cal program.

OO.  Joint Commission On Accreditation of Hospitals (JCAHO) means the
     composition of representatives of the American Hospital Association,
     American Medical Association, American College of Physicians and American
     College of Surgeons, JCAHO establishes guidelines for the operation of
     hospitals and other health Facilities and accreditation programs.

PP.  Knox-Keene Health Care Service Plan Act of 1975 means the law which
     regulates HMOs and is administrated by the Department of Corporations
     (DOC), commencing with Section 1340, Health & Safety Code.

QQ.  Local Authority means a health care organization in which local
     stakeholders share governance responsibility for administrating Medi-Cal
     managed care.

RR.  Marketing means any activity conducted on behalf of the Contractor where
     information regarding the services offered by the Contractor is
     disseminated in order to persuade Eligible Beneficiaries to enroll.
     Marketing also includes any similar activity to secure the endorsement of
     any individual or organization on behalf of the Contractor.

SS.  Marketing Organization means any subcontractor or entity who agrees to
     provide Marketing services for the Contractor.

TT.  Marketing Representative means a person who is engaged in Marketing
     activities on behalf of the Contractor either through direct employment by
     the Contractor or through a Marketing Organization.

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Molina Medical Centers                                                  95-23637
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UU.  Medi-Cal Eligibility Data System (MEDS) means the automated eligibility
     information processing system operated by the State which provides on-line
     access for recipient information, update of recipient eligibility data and
     on-line printing of immediate need beneficiary identification cards. The
     MEDS also produces Beneficiary Identification Cards (BIC) and maintains
     data on federal SSI/SSP and Medicare buy-in beneficiaries.

VV.  Medical Case Management Services means services provided by a Primary Care
     Provider to ensure the coordination of Medically Necessary health care
     services, assuring the provision of preventive services in accordance with
     established standards and periodicity schedules and ensuring continuity of
     care for Medi-Cal enrollees. It includes health risk assessment, treatment
     planning, coordination, referral, follow-up, and monitoring of appropriate
     services and resources required to meet an individual's health care needs.

WW.  Medical Records means written documentary evidence of treatments rendered
     to plan Members.

XX.  Medically Necessary means reasonable and necessary services to protect
     life, to prevent significant illness or significant disability, or to
     alleviate severe pain through the diagnosis or treatment of disease,
     illness, or injury.

YY.  Member means any Eligible Beneficiary who has enrolled in the Contractor's
     plan.

ZZ.  Minor Consent Services means those treatment services of a sensitive nature
     for which minors do not need parental consent to access. Such services
     include pregnancy, abortion, mental health services.

A1.  Newborn Child means a child born to a Member during her membership or the
     month prior to her membership.

B1.  Non-Emergency Medical Transportation means inclusion of services outlined
     in Title 22, CCR, Sections 51231.1 and 51231.2 rendered by licensed
     providers.

C1.  Non-Medical Transportation means transportation of Members to medical
     services by passenger car, taxicabs, or other forms of public or private
     conveyances provided by persons not registered as Medi-Cal providers. Does
     not include the transportation of sick, injured, invalid, convalescent,
     infirm, or otherwise incapacitated Members by ambulances, litter vans, or
     wheelchair vans licensed, operated and equipped in accordance with state
     and local statutes, ordinances or regulations.

                                        8



Molina Medical Centers                                                  95-23637
                                                                     Article  II

D1.  Non-Physician Medical Practitioners (Mid-Level Practitioner) means a nurse
     practitioner, certified nurse midwife, or physician assistant authorized to
     provide Primary Care under Physician supervision.

E1.  Nurse means a person licensed by the California Board of Nursing as, at
     least, a Registered Nurse (RN).

F1.  Outpatient Care means treatment provided to an Member who is not confined
     in a health care Facility. Outpatient care is associated with treatment in
     a hospital that does not necessitate an overnight stay, e.g., emergency
     treatment.

G1.  Pediatric Subacute Care means health care services needed by a person under
     21 years of age who uses a medical technology that compensates for the loss
     of vital bodily function. Medical necessity criteria are described in the
     Physician's Manual of Criteria for Medi-Cal Authorization.

H1.  Physician means a person duly licensed as a Physician by the Medical Board
     of California.

I1.  Policy Letter means a document which has been dated, numbered and issued by
     the Medi-Cal Managed Care Division. It clarifies regulatory or contractual
     requirements.

J1.  Prepaid Person means a person entitled to receive health care services from
     the Contractor in consideration of a predetermined periodic, fixed
     subscription premium, or capitation payment.

K1.  Preventive Care means health care designed to prevent disease and /or its
     consequences. There are three levels of Preventive Care; primary, such as
     immunizations, aimed at preventing disease; secondary, such as disease
     screening programs, aimed at early detection of disease; and tertiary, such
     as physical therapy, aimed at restoring function after the disease has
     occurred.

L1.  Primary Care means a basic level of health care usually rendered in
     ambulatory settings by general practitioners, family practitioners,
     internists, obstetricians, pediatricians, and mid-level practitioners. This
     type of care emphasizes caring for the Member's general health needs as
     opposed to specialists focusing on specific needs.

                                        9



Molina Medical Centers                                                  95-23637
                                                                     Article  II

M1.  Primary Care Physician means a Physician responsible for supervising,
     coordinating, and providing initial and Primary Care to patients; for
     initiating referrals for specialist care; and for maintaining the
     continuity of patient care. A Primary Care Physician has focused the
     delivery of medicine to general practice or is a board certified or board
     eligible internist, pediatrician, obstetrician/gynecologist, or family
     practitioner.

N1.  Primary Care Provider means a person responsible for supervising,
     coordinating, and providing initial and Primary Care to Members; for
     initiating referrals and for maintaining the continuity of Member care. A
     Primary Care Provider may be a Primary Care Physician or non-physician
     medical practitioner.

O1.  Prior Authorization means the process by which contractors approve, usually
     in advance of the rendering, requested medical services. This is part of
     the Utilization management system.

P1.  Prior Authorization Request means a method by which practitioners seek
     approval from Contractor to render medical services. The Contractor's
     Utilization Review (UR) Coordinator is responsible for granting approval to
     providing specific, non-emergency medical services in advance of rendering
     such services.

Q1.  Quality Assurance (QA) means a formal set of activities to assure the
     quality of clinical and non-clinical services provided. Quality Assurance
     includes quality assessment and Corrective Actions taken to remedy any
     deficiencies identified through the assessment process. Comprehensive
     Quality Assurance includes mechanisms to assess and assure the quality of
     both health services and administrative and support services.

R1.  Quality Improvement (QI) means the result of an effective QA program, which
     objectively and systematically monitors and evaluates the quality and
     appropriateness of care and services to Members through Quality of Care
     studies and other health related activities.

S1.  Quality Improvement Plan (QIP) means consisting of systematic activities to
     monitor and evaluate the medical care delivered to Members according to the
     standards set forth in regulations and Contract language. The plan must
     have processes in place which measure the effectiveness of care, identify
     problems, and implement improvement on a continuing basis.

T1.  Quality of Care means the degree to which health services for individuals
     and populations increase the likelihood of desired health outcomes and are
     consistent with current professional knowledge.

                                       10



Molina Medical Centers                                                  95-23637
                                                                     Article  II

U1.  Quality Indicators means the referral to measurable variables relating to a
     specific clinic or health services delivery area which are reviewed over a
     period of time to screen delivered health care and to monitor the process
     or outcome of care delivered in that clinical area.

V1.  Sensitive Services means those services related to:

     1.   Sexual Assault

     2.   Drug or alcohol abuse for children 12 years of age or older.

     3.   Pregnancy

     4.   Family Planning

     5.   Sexually transmitted diseases designated by the Director for children
          12 years of age or older.

W1.  Service Area means the geographic area comprised of those areas designated
     by the U.S. Postal Service ZIP Codes that have been proposed by the
     Contractor and approved in writing by DHS.

X1.  Service Location means any location at which a Member obtains any health
     care service provided by the Contractor under the terms of this Contract.

Y1.  Service Site means the location designated by the Contractor at which
     Members shall receive Primary Care Physician services.

Z1.  Short-Doyle Medi-Cal Mental Health Services (SD/MC) means as defined in
     Title 22, CCR, Section 51341, SD/MC Mental Health Services include: crisis
     intervention, crisis sterilization, inpatient hospital services, crisis
     residential treatment case management, adult residential treatment, day
     treatment intensive, rehabilitation, outpatient therapy, medication and
     support services.

A2.  Short-Doyle Program means as defined in Title 22, CCR, Section 51341, the
     program administered by the Department of Mental Health to provide
     community mental health services and the program administered by the
     Department of Alcohol and Drug Programs to provide drug and alcohol
     treatment services.

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Molina Medical Centers                                                  95-23637
                                                                     Article  II

B2.  Skilled Nursing Facility (SNF) means, as defined in Title 22, CCR, Section
     51121(a), any institution, place, building, or agency which is licensed as
     a Skilled Nursing Facility by DHS or is a distinct part or unit of a
     hospital, meets the standard specified in Section 51215 of these
     regulations (except that the distinct part of a hospital does not need to
     be licensed as a Skilled Nursing Facility) and has been certified by DHS
     for participation as a Skilled Nursing Facility in the Medi-Cal program.
     Section 51121(b) further defines the term "Skilled Nursing Facility" as
     including terms "skilled nursing home", "convalescent hospital", "nursing
     home", or "nursing Facility".

C2.  State means the State of California.

D2.  Subacute Care means, as defined in Title 22, CCR, Section 51124.5, a level
     of care needed by a patient who does not require hospital acute care but
     who requires more intensive licensed skilled nursing care than is provided
     to the majority of patients in a Skilled Nursing Facility (SNF).

E2.  Subcontract means a written agreement entered into by the Contractor with
     any of the following:

     1.   A provider of health care services who agrees to furnish Covered
          Services to Members.

     2.   A Marketing Organization.

     3.   Any other organization or person(s) who agree(s) to perform any
          administrative function or service for the Contractor specifically
          related to fulfilling the Contractor's obligations to DHS under the
          terms of this Contract.

F2.  Sub-Subcontractor means party to an agreement with a subcontractor
     descending from and subordinate to a Subcontract, which is entered into for
     the purpose of providing any goods or services connected with the
     obligations under this Contract.

G2.  Supplemental Security Income (SSI) means the program authorized by Title
     XVI of the Social Security Act for aged, blind, and disabled persons.

H2.  Third Party Liability (TPL) means the responsibility of persons other than
     the Contractor or the Member for payment of claims for injuries or trauma
     sustained by Members. This may be contractual, a legal obligation or as a
     result of or the fault or negligence of third parties (e.g., auto accidents
     or other personal injury casualty claims or work compensation appeals). DHS
     is responsible for follow up and collection of Third Party Liability
     payments where it has paid for related care.

                                       12



Molina Medical Centers                                                  95-23637
                                                                     Article  II

I2.  Urgent Care means services required to prevent serious deterioration of
     health following the onset of an unforeseen condition or injury (i.e., sore
     throats, fever, minor lacerations, and some broken bones).

J2.  Utilization means the rate patterns of service usage or types of service
     occurring within a specified time. Inpatient Utilization is generally
     expressed in rates per unit of population-at-risk for a given period; e.g.,
     the number of hospital admissions per 1,000 persons enrolled in an HMO/per
     year.

K2.  Utilization Review means the process of evaluating the necessity,
     appropriateness, and efficiency of the use of medical services, procedures
     and Facilities.

                                       13



Molina Medical Centers                                                  95-23637
                                                                     Article III

                   ARTICLE III - GENERAL TERMS AND CONDITIONS

3.1       DELEGATION OF AUTHORITY

     DHS intends to implement this Contract through a single administrator,
     called the "Contracting Officer". The Contracting Officer will be appointed
     by the Director of DHS. The Contracting Officer, on behalf of DHS, will
     make all determinations and take all actions as are appropriate under this
     Contract, subject to the limitations of applicable federal and State laws
     and regulations. The Contracting Officer may delegate his/her authority to
     act to an authorized representative through written notice to the
     Contractor.

     The Contractor will designate a single administrator, hereafter called the
     "Contractor's Representative". The Contractor's Representative, on behalf
     of the Contractor, will make all determinations and take all actions as are
     appropriate to implement this Contract, subject to the limitations of the
     Contract, federal and State laws and regulations. The Contractor's
     Representative may delegate his/her authority to act to an authorized
     representative through written notice to the Contracting Officer. The
     Contractor's Representative will be empowered to legally bind the
     Contractor to all agreements reached with DHS.

     The Contractor's Representive will be designated in writing by the
     Contractor. Such designation will be submitted to the Contracting Officer
     in accordance with Section 3.3, Authority of the State.

3.2       GOVERNING AUTHORITIES

     This Contract will be governed and construed in accordance with:

     Chapter 7 and 8 (commencing with Section 14000), Part 3, Division 9, W&I
     Code;

     Division 3, Title 22, CCR;

     Health and Safety Code Section 1340 et seq.

     Title 10, CCR, Section 1300 et seq.

     Title 42, Code of Federal Regulations (CFR);

     Title 42, United States Code, Section 1396 et seq.;

                                       14



Molina Medical Centers                                                  95-23637
                                                                     Article III

     Title 45, CFR, Part 74;

     Subchapter 13 (commencing with Section 6800), Chapter 4, Part 1, Title 17,
     CCR, and;

     All other applicable laws and regulations.

     Any provision of this Contract which is in conflict with the above laws,
     regulations and federal Medicaid statutes is hereby amended to conform to
     the provisions of those laws and regulations. Such amendment of the
     Contract will 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.

     This amendment will constitute grounds for termination of this Contract in
     accordance with the provisions of Section 3.17.1, Termination by the State,
     and 3.17.2, Termination by the Contractor. The parties will be bound by the
     terms of the amendment until the effective date of the termination.

3.3       AUTHORITY OF THE STATE

     A.   Sole authority to establish, define, or determine the reasonableness,
          the necessity and level and scope of covered benefits under the
          Medi-Cal Managed Care program administered in this Contract or
          coverage for such benefits, or the eligibility of the beneficiaries or
          providers to participate in the Medi-Cal Managed Care Program reside
          with DHS.

     B.   Sole authority to establish or interpret policy and its application
          related to the above areas will reside with DHS.

     C.   The Contractor may not make any limitations, exclusions, or changes in
          benefits or benefit coverage; any changes in definition or
          interpretation of benefits; or any changes in the administration of
          the Contract related to the scope of benefits, allowable coverage for
          those benefits, or eligibility of beneficiaries or providers to
          participate in the program, without the express, written direction or
          approval of the Contracting Officer.

3.4       FULFILLMENT OF OBLIGATIONS

     No covenant, condition, duty, obligation, or undertaking continued or made
     a part of this Contract will be waived except by written agreement of the
     parties hereto, and forbearance or indulgence in any other form or manner
     by either party in any regard

                                       15



Molina Medical Centers                                                  95-23637
                                                                     Article III

     whatsoever will not constitute a waiver of the covenant, condition, duty,
     obligation, or undertaking to be kept, performed or discharged by the party
     to which the same may apply; and, until performance or satisfaction of all
     covenants, conditions, duties, obligations, and undertakings is complete,
     the other party will have the right to invoke any remedy available under
     this contract, or under law, notwithstanding such forbearance or
     indulgence.

3.5       COMPLIANCE WITH PROTOCOLS

     The Contractor will develop and comply with all protocols and procedures
     within 30 days of their approval by DHS. All subsequent revisions thereof
     will be approved by DHS and implemented by the Contractor within 30 days of
     such approval. The Contractor will not implement protocols, procedures or
     revisions thereof prior to approval by DHS.

3.6       EQUAL OPPORTUNITY EMPLOYER

     The Contractor will, in all solicitations or advertisements for employees
     placed by or on behalf of the Contractor, state that it is an equal
     opportunity employer, and will 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 DHS, advising the
     labor union or workers' representative of the Contract's commitments as an
     equal opportunity employer and will post copies of the notice in
     conspicuous places available to employees and applicants for employment.

3.7       NONDISCRIMINATION CLAUSE COMPLIANCE

     A.   During the performance of this Contract, Contractor and its
          subcontractors will not unlawfully discriminate, harass, or allow
          harassment, against any employee or applicant for employment because
          of sex, race, color, ancestry, religious creed, national origin,
          physical disability (including HIV and AIDS), mental disability,
          medical condition (including Cancer), age (over 40), marital status,
          and denial of family care leave. Contractors and subcontractors will
          insure that the evaluation and treatment of their employees and
          applicants for employment are free from discrimination and
          harassment. Contractor and subcontractors will comply with the
          provisions of the Fair Employment and Housing Act (Government Code,
          Section 12900 et seq.) and the applicable regulations promulgated
          thereunder (California Code of Regulations, Title 2, Section 7285.0
          et seq.). The applicable regulations of the Fair Employment and
          Housing Commission implementing Government Code, Section 12990
          (a-f), set forth in Chapter 5 of Division 4 of Title 2 of the
          California Code of Regulations are incorporated into this Contract
          by reference and made a part

                                       16



Molina Medical Centers                                                  95-23637
                                                                     Article III

            hereof as if set forth in full. Contractor and its subcontractors
            will give notice of their obligations under this clause to labor
            organizations with which they have a collective bargaining or other
            agreement.

     B.     The Contractor will include the nondiscrimination and compliance
            provisions of this clause in all Subcontracts to perform work under
            this Contract.

3.8       DISCRIMINATION PROHIBITION

     The Contractor will not discriminate against Members or Eligible
     Beneficiaries because of race, color, creed, religion, ancestry, marital
     status, sexual orientation, national origin, age, sex, or physical or
     mental handicap in accordance with Title VI of the Civil Rights Act of
     1964, 42 USC Section 2000d, rules and regulations promulgated pursuant
     thereto, or as otherwise provided by law or regulations. For the purpose of
     this Contract discriminations on the grounds of race, color, creed,
     religion, ancestry, age, sex, national origin, marital status, sexual
     orientation, or physical or mental handicap include but are not limited to
     the following: denying any Member any Covered Services or availability of a
     Facility; providing to a Member any Covered Service which is different, or
     is provided in a different manner or at a different time from that provided
     to other Members under this Contract except where medically indicated;
     subjecting a Member to segregation or separate treatment in any manner
     related to the receipt of any Covered Service; restricting a Member in any
     way in the enjoyment of any advantage or privilege enjoyed by others
     receiving any Covered Service, treating a Member or Eligible Beneficiary
     differently from others in determining whether he or she satisfies any
     admission, Enrollment, quota, eligibility, membership, or other requirement
     or condition which individuals must meet in order to be provided any
     Covered Service; the assignment of times or places for the provision of
     services on the basis of the race, color, creed, religion, age, sex,
     national origin, ancestry, marital status, sexual orientation, or the
     physical or mental handicap of the participants to be served. The
     Contractor will take affirmative action to ensure that Members are provided
     Covered Services without regard to race, color, creed, religion, sex,
     national origin, ancestry, marital status, sexual orientation, or physical
     or mental handicap, except where medically indicated. For the purposes of
     this section, physical handicap includes the carrying of a gene which may,
     under some circumstances, be associated with disability in that person's
     offspring, but which causes no adverse effects on the carrier. Such genes
     will include, but are not limited to, Tay-Sachs trait, sickle cell trait,
     thalassemia trait, and X-linked hemophilia.

                                       17



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.9       DISCRIMINATION COMPLAINTS

     The Contractor agrees that copies of all Grievances alleging discrimination
     against Members or Eligible Beneficiaries because of race, color, creed,
     sex, religion, age, national origin, ancestry, marital status, sexual
     orientation, or physical or mental handicap will be forwarded to DHS for
     review and appropriate action.

3.10      MEMBERSHIP DIVERSITY

     The Contractor agrees to serve a population broadly representative of the
     various age, social, and income groups within the Service Area, and that
     less than 75 percent (75 %) of its Prepaid Person population is of
     individuals receiving benefits under Title XVIII, Social Security Act, and
     individuals receiving benefits under Title XIX, Social Security Act
     (Section 1903(m), SSA).

     DHS on request of the Contractor will apply to the Secretary, United States
     Department of Health and Human Services (DHHS) for a waiver of the 75
     percent (75%) requirement, based on good cause. If that waiver is granted,
     then the 75 percent (75%) requirement under this Contract is waived as of
     the effective date of that federal waiver and for the time period granted
     by the waiver.

3.11      INSPECTION RIGHTS

     The Contractor will allow DHS, DHHS, the Comptroller General of the United
     States, Department of Justice, (DOJ), Bureau of Medi-Cal Fraud, Department
     of Corporations (DOC) and other authorized state agencies, or their duly
     authorized representatives, to inspect or otherwise evaluate the quality,
     appropriateness, and timeliness of services performed under this Contract,
     and to inspect, evaluate, and audit any and all books, records, and
     Facilities maintained by the Contractor and subcontractors pertaining to
     these services at any time during normal business hours. 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,
     prescription files, Subcontracts, and any other documentation pertaining to
     medical and nonmedical services for Members. Upon request, at any time
     during the period of this Contract, the Contractor will furnish any record,
     or copy of it, to DHS or DHHS.

                                       18



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.12      NOTICES

     All notices to be given under this Contract will be in writing and will be
     deemed to have been given when mailed to DHS or the Contractor:

     State Department of Health Services       John Molina, J.D.
     Medi-Cal Managed Care Division            Chief Administrative Officer
     714 P Street, Room 650                    Molina Medical Centers, Inc.
     P.O. Box 942732                           One Golden Shore
     Sacramento, CA 94234-7320                 Long Beach, CA 90802
     Attn: Contracting Officer

3.13      CONTRACTOR'S NATIONAL LABOR RELATIONS BOARD (NLRB) DECLARATION

     The Contractor, by signing this agreement, does swear under penalty of
     perjury that, no more than one final unappealable finding of contempt of
     court by a federal court has been issued against Contractor within the
     immediately preceding two-year period because of the Contractor's failure
     to comply with an order of a federal court which orders the Contractor to
     comply with an order of the NLRB.

3.14      TERM

     The Contract will become effective April 2, 1996 and will continue in full
     force and effect through March 31, 2002 subject to the provisions of
     Article V, Sections 5.2 and 5.10 because the State has currently
     appropriated and available for encumbrance only funds to cover costs
     through June 30, 1996.

     The term of the Contract consists of the following three periods: 1) The
     Implementation Period will extend from April 2, 1996; 2) The Operations
     Period will extend from October 2, 1996, subject to the termination
     provisions of Section 3.17, Termination and subject to the limitation
     provisions of Article V, Payment Provisions Section 5.2; and 3) The
     Turnover/Phaseout Period will extend from October 1, 2001 through March 31,
     2002, subject to the provisions of Section 3.15, Contract Extension, in
     which case the Turnover/Phaseout Period will apply to the six (6) month
     period beginning the first day after the end of the Operations Period of
     the extension.

     The Operations Period will commence subject to DHS acceptance of the
     Contractor's readiness to begin the Operations Period.

                                       19



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.15      CONTRACT EXTENSION

     DHS will have the exclusive option to extend the term of the Contract
     during the last twelve (12) months of the Contract, as determined by the
     original termination date or by a new termination date if an extension
     option has been exercised. DHS may invoke up to three (3) separate
     extensions of one (1) year each. The Contractor will be given at least nine
     (9) months prior written notice of DHS' decision on whether or not it will
     exercise this option to extend the Contract.

     The Contractor will notify DHS of its intent to accept or reject the
     extension within five (5) State working days of the receipt of the notice
     from DHS.

3.16      TURNOVER AND PHASEOUT REQUIREMENTS

     DHS will withhold an amount equal to 10% or one million dollars
     ($1,000,000), whichever is greater unless provided otherwise by the
     Financial Security agreement, from the capitation payment of the last month
     of the Operations Period until all activities required during the Turnover
     and Phaseout Period are completed.

     If all Turnover and Phaseout activities are completed by the end of the
     Turnover and Phaseout Period, the withhold will be paid to the Contractor.
     If the Contractor fails to meet any requirement(s) by the end of the
     Turnover and Phaseout Period, DHS will deduct the costs of the remaining
     activities proportionately from the withhold amount and continue to
     withhold payment until all activities are completed.

3.16.1         OBJECTIVES FOR TURNOVER AND PHASEOUT PERIOD

     The objective of the Turnover Period is to ensure that, at the termination
     of this Contract, the orderly transfer of necessary data and history
     records is made from the Contractor to DHS or to a successor Contractor.
     The orderly transfer is to ensure the continuity of access and Quality of
     Care to Members.

     The objective of the Phaseout Period is to ensure that, at the termination
     of this Contract, the Contractor completes any and all of its remaining
     contractual obligations under the Contract.

     Given the uncertainties associated with the Turnover and Phaseout Periods
     that will occur at the end of this Contract, the Contractor will be
     flexible to changing requirements.

     If DHS exercises its option(s) to extend this Contract, all Turnover and
     Phaseout activities will be delayed a commensurate period of time.

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3.16.2         TURNOVER REQUIREMENTS

     Prior to the termination or expiration of this Contract and upon request by
     DHS, the Contractor will assist DHS in the orderly transfer of Member
     medical care. In doing this, the Contractor will make available to DHS
     copies of Medical Records, patient files, and any other pertinent
     information, including information maintained by any subcontractor,
     necessary for efficient case management of Members, as determined by the
     Director. Costs of reproduction will be borne by DHS. In no circumstances
     will a Medi-Cal Member be billed for this service.

3.16.3         PHASEOUT REQUIREMENTS

     Phaseout for this Contract will consist of the processing, payment and
     monetary reconciliation(s) necessary regarding claims for payment for
     Covered Services.

     Phaseout for the Contract will consist of the resolution of all financial
     and reporting obligations of the Contractor. The Contractor will remain
     liable for the processing and payment of invoices and other claims for
     payment for Covered Services and other services provided to Members
     pursuant to this Contract prior to the expiration or termination. The
     Contractor will submit to DHS all reports required in Article VI, Scope of
     Work, for the period from the last submitted report through the expiration
     or termination date.

     All data and information provided by the Contractor will be accompanied by
     letter, signed by the responsible authority, certifying, under penalty of
     perjury, to the accuracy and completeness of the materials supplied.

3.16.4         TURNOVER AND PHASEOUT PERIOD

     Turnover and Phaseout Periods will occur during the same six (6) month time
     period and this period will commence on the date the Operations Period of
     the Contract or Contract extension ends. Turnover and Phaseout related
     activities are non-payable items.

3.17      TERMINATION

3.17.1         TERMINATION - STATE OR DIRECTOR

     DHS may terminate performance of work under this Contract in whole, or in
     part, whenever for any reason DHS determines that the termination is in the
     best interest of the State.

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     Notification will be given at least nine (9) months prior to the effective
     date of termination, except in cases where the Director determines the
     health and welfare of Members is jeopardized by continuation of this
     Contract, in which case the Contract will be immediately terminated.
     Notification will state the effective date of, and the reason for, the
     termination.

     In addition to other grounds for termination, failure to comply with any of
     the terms of this Contract will constitute cause for termination.

3.17.2         TERMINATION - CONTRACTOR

     If mutual agreement between DHS and the Contractor cannot be attained on
     capitation rates for rate years subsequent to September 30, 1997, the
     Contractor will retain the right to terminate the Contract, no earlier than
     September 30, 1998, by giving at least nine (9) months written notice to
     DHS to that effect. The effective date of any termination under this
     section will be September 30.

     Grounds for contract termination by a Contractor are limited to its
     unwillingness to accept the capitation rates determined by DHS, or if DHS
     decides to negotiate rates, there is a failure to reach mutual agreement on
     rates.

3.17.3         MANDATORY TERMINATION

     DHS will terminate this Contract in the event that: (1) the Secretary,
     DHHS, determines that the Contractor does not meet the requirements for
     participation in the Medicaid program, Title XIX of the Social Security
     Act, or (2) the Department of Corporations finds that the Contractor no
     longer qualifies for licensure under the Knox-Keene Health Care Service
     Plan Act by giving written notice to the Contractor. Notification will be
     given by DHS at least sixty (60) days prior to the effective date of
     termination, except in cases where the Director determines the health and
     welfare of Members is jeopardized by continuation of the Contract, in which
     case the Contract will be immediately terminated. Notification will state
     the effective date of, and the reason for, the termination.

     Under these circumstances, termination of the Operations period will be
     effective on the last day of the month in which the Secretary, DHHS, or DOC
     makes such determination, provided that DHS provides the Contractor with at
     least 60 days notice of termination. The termination of this Contract will
     be effective on the last day of the second full month from the date of the
     notice of termination. The Contractor agrees that 60 days notice is
     reasonable. Termination under this section does not relieve the Contractor
     of its obligations under the Turnover and Phaseout Requirements, Sections
     3.16.2 and 3.16.3.

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3.17.4         TERMINATION OF OBLIGATIONS

     All obligations to provide Covered Services under this Contract or Contract
     extension will automatically terminate on the date the Operations Period
     ends.

3.17.5         NOTICE TO MEMBERS OF TRANSFER OF CARE

     No later than sixty (60) days prior to the termination or expiration of the
     Contract, DHS will notify Members about their medical benefits and
     available options.

3.18      SANCTIONS

     In the event DHS finds Contractor non-compliant with the standards and
     requirements prescribed in this Contract, DHS will have the power and
     authority to impose sanctions provided in Welfare and Institutions Code,
     Section 14304 and Title 22, CCR, Section 53350. In addition, DHS may
     require the following:

     The Contractor to ensure providers or subcontractors cease activities which
     include, but are not limited to, referrals, assignment of beneficiaries,
     and reporting, until new activities are approved by DHS and the Contractor
     is again in compliance.

3.19      LIQUIDATED DAMAGES PROVISIONS

3.19.1         GENERAL

     It is agreed by the State and Contractor that:

          A.   If Contractor does not provide or perform the requirements of
               this Contract or applicable laws and regulations, damage to the
               State will result;

          B.   Proving such damages will be costly, difficult, and
               time-consuming;

          C.   Should the State choose to impose liquidated damages, the
               Contractor will pay the State those damages for not providing or
               performing the specified requirements;

          D.   Additional damages may occur in specified areas by prolonged
               periods in which Contractor does not provide or perform
               requirements;

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          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.   DHS may, at its discretion, offset liquidated damages from
               capitation payments owed to the Contractor;

          G.   Imposition of liquidated damages as specified in Sections 3.19.2,
               3.19.3, and 3.19.4 will follow the administrative processes
               described below;

          H.   DHS will provide the Contractor with written notice specifying
               the Contractor requirement(s), contained in the Contract or as
               required by federal and State law or regulation, not provided or
               performed;

          I.   During the Implementation Period, the Contractor will submit or
               complete the outstanding requirement(s) specified in the written
               notice within five (5) State working days from the date of the
               notice, unless, subject to the Contracting Officer's written
               approval, the Contractor submits a written request for an
               extension. The request must include the following: the
               requirement(s) requiring an extension; the reason for the delay;
               and the proposed date of the submission of the requirement;

          J.   During the Implementation Period, if the Contractor has not
               performed or completed an Implementation Period requirement or
               secured an extension for the submission of the outstanding
               requirement, DHS may impose liquidated damages for the amount
               specified in Section 3.19.2;

          K.   During the Operations Period, the Contractor will demonstrate the
               provision or performance of the Contractor's requirement(s)
               specified in the written notice within a thirty (30) calendar day
               Corrective Action period from the date of the notice, unless a
               request for an extension is submitted to the Contracting Officer,
               subject to DHS' approval, within five (5) days from the end of
               the Corrective Action period. If Contractor has not demonstrated
               the provision or performance of the Contractor's requirement(s)
               specified in the written notice during the Corrective Action
               period, DHS may impose liquidated damages for each day the
               specified Contractor's requirement is not performed or provided
               for the amount specified in Section 3.19.3.

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          L.   During the Operations Period, if the Contractor has not performed
               or provided the Contractor's requirement(s) specified in the
               written notice or secured the written approval for an extension,
               after thirty (30) days from the first day of the imposition of
               liquidated damages, DHS will notify the Contractor in writing of
               the increase of the liquidated damages to the amount specified in
               Section 3.19.3.

     Nothing in this provision will 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.

3.19.2         LIQUIDATED DAMAGES FOR VIOLATION OF CONTRACT TERMS REGARDING THE
                              IMPLEMENTATION PERIOD

     DHS may impose liquidated damages of $5,000 per requirement specified in
     the written notice for each day of the delay in completion or submission of
     Implementation Period requirements beyond the periods defined in the
     Contract.

     If DHS determines that a delay or other non-performance was caused in part
     by the State, DHS will reduce the liquidated damages proportionately.

3.19.3         LIQUIDATED DAMAGES FOR VIOLATION OF CONTRACT TERMS OR REGULATIONS
                              REGARDING THE OPERATIONS PERIOD

     DHS may impose liquidated damages of $1,000 per Contractor requirement not
     performed or provided during the Operations Period. If after thirty (30)
     days or such longer period as DHS may allow, the Contractor has not
     demonstrated the provision or performance of the Contractor requirement
     specified in the written notice, DHS may issue a written notice that the
     liquidated damages will be increased to $2,000 per day per Contractor
     requirement until the Contractor requirement is performed or provided.

     If DHS determines that delay of the Contractor requirement was caused in
     part by the State, DHS will reduce the liquidated damages proportionately.

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Molina Medical Centers                                                  95-23637
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3.19.4         ANNUAL MEDICAL REVIEWS

     DHS may impose liquidated damages of not less than $10,000 and not to
     exceed $50,000 for each major deficiency determined during the annual
     medical review. If, after notice, the Contractor does not correct the
     deficiency to the satisfaction of DHS within thirty (30) days, or longer if
     authorized by DHS in writing, DHS may impose an additional liquidated
     damages of $5,000 per day per major deficiency that the major deficiency is
     not corrected as determined by DHS medical review staff.

     If DHS determines that non-performance of the requirement was caused in
     part by the State, DHS will reduce the liquidated damages proportionately.

3.19.5         CONDITIONS FOR TERMINATION OF LIQUIDATED DAMAGES

     Except as waived by the Contracting Officer, no liquidated damages imposed
     on the Contractor will be terminated or suspended until the Contractor
     issues a written notice of correction to the Contracting Officer
     certifying, under penalty of perjury, the correction of condition(s) for
     which liquidated damages were imposed. Liquidated damages will cease on the
     day of the Contractor's certification only if subsequent verification of
     the correction by DHS establishes that the correction has been made in the
     manner and at the time certified to by the Contractor.

     The Contracting Officer will determine whether the necessary level of
     documentation has been submitted to verify corrections. The Contracting
     Officer will be the sole judge of the sufficiency and accuracy of any
     documentation. Corrections must be sustained for a reasonable period of at
     least ninety (90) days from DHS acceptance; otherwise, liquidated damages
     may be reimposed without a succeeding grace period within which to correct.
     The Contractor's use of resources to correct deficiencies will not be
     allowed to cause other contract compliance problems.

3.19.6         SEVERABILITY OF INDIVIDUAL LIQUIDATED DAMAGES CLAUSES

     If any portion of these liquidated damages provisions is determined to be
     unenforceable, the other portions will remain in full force and effect.

3.20      ASSIGNMENTS

     The Contractor will not assign the Contract, in whole or in part, without
     the prior written approval of DHS.

                                       26



Molina Medical Centers                                                  95-23637
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3.21      DISPUTES AND APPEALS

     This Disputes and Appeals section will be used by the Contractor as the
     means of seeking resolution of disputes on contractual issues.

     Filing a dispute will not preclude DHS from recouping the value of the
     amount in dispute from the Contractor or from offsetting this amount from
     subsequent capitation payment(s). If the amount to be recouped exceeds 25
     percent of the capitation payment, amounts of up to 25 percent will be
     withheld from successive capitation payments until the amount in dispute is
     fully recouped. If a recoupment or offset is later found to be
     inappropriate, DHS will repay the Contractor the full amount of recoupment
     or offset, plus interest at the Pooled Money Investment Rate pursuant to
     Government Code Section 16480 et seq.

3.21.1         DISPUTES RESOLUTION BY NEGOTIATION

     DHS and Contractor agree to try to resolve all contractual issues by
     negotiation and mutual agreement at the Contracting Officer level without
     litigation. The parties recognize that the implementation of this policy
     depends on open-mindedness, and the need for both sides to present adequate
     supporting information on matters in question.

     Before issuance of a Contracting Officer's decision, informal discussions
     between the parties by individuals who have not participated substantially
     in the matter in dispute will be considered by the parties in efforts to
     reach mutual agreement.

3.21.2         NOTIFICATION OF DISPUTE

     Within fifteen (15) days of the date the dispute concerning performance of
     this Contract arises or otherwise becomes known to the Contractor, the
     Contractor will notify the Contracting Officer in writing of the dispute,
     describing the conduct (including actions, inactions, and written or oral
     communications) which it is disputing.

     The Contractor's notification will state, on the basis of the most accurate
     information then available to the Contractor, the following:

     A.   That it is a dispute pursuant to this section.

     B.   The date, nature, and circumstances of the conduct which is subject of
          the dispute.

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Molina Medical Centers                                                  95-23637
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     C.   The names, phone numbers, function, and activity of each Contractor,
          Subcontractor, DHS/State official or employee involved in or
          knowledgeable about the conduct.

     D.   The identification of any documents and the substances of any oral
          communications involved in the conduct. Copies of all identified
          documents will be attached.

     E.   The reason why the Contractor is disputing the conduct.

     F.   The cost impact to the Contractor directly attributable to the alleged
          conduct, if any.

     G.   The Contractor's desired remedy.

     The required documentation, including cost impact data, will be carefully
     prepared and submitted with substantiating documentation by the Contractor.
     This documentation will serve as the basis for any subsequent appeal.

     Following submission of the required notification, with supporting
     documentation, the Contractor will diligently continue performance of this
     Contract, including matters identified in the Notification of Disputes, to
     the maximum extent possible.

3.21.3         CONTRACTING OFFICERS DECISION

     Any disputes concerning performance of this Contract will be decided by the
     Contracting Officer in a written decision stating the factual basis for the
     decision. The Contracting Officer will serve a copy of the decision on the
     Contractor. The decision of the Contracting Officer will be rendered within
     thirty (30) days of receipt of a Notification of Dispute or any additional
     substantiating documentation requested by the Contracting Officer, unless
     the Contracting Officer provides a written explanation to the Contractor
     why a longer period is necessary. The decision will be final and conclusive
     unless within thirty (30) days from the date of service of that decision
     the Contractor files with the Contracting Officer a written appeal
     addressed to the Director, DHS, State of California.

     The Contracting Officer's decision will:

     A.   Find in favor of the Contractor, in which case the Contracting Officer
          may:

          1.   Countermand the earlier conduct which caused the Contractor to
               file a dispute; or

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Molina Medical Centers                                                  95-23637
                                                                     Article III

          2.   Reaffirm the conduct and, if there is a cost impact sufficient to
               constitute a change in obligations pursuant to the payment
               provisions contained in Article V, direct DHS to comply with that
               section.

     B.   Deny the Contractor's dispute and, where necessary direct the manner
          of future performance; or

     C.   Request additional substantiating documentation in the event the
          information in the Contractor's notification is inadequate to permit a
          decision to be made under A. or B. above, and will advise the
          Contractor as to what additional information is required, and
          establish how that information will be furnished. The Contractor will
          have thirty (30) days to respond to the Contracting Officer's request
          for further information. Upon receipt of this additional requested
          information, the Contracting Officer will have thirty (30) days to
          respond with a decision. Failure to supply additional information
          required by the Contracting Officer within the time period specified
          above will constitute waiver by the Contractor of all claims in
          accordance with Section 3.21.5.

3.21.4         CONTRACTOR DUTY TO PERFORM

     Pending final determination of any dispute hereunder, the Contractor will
     proceed diligently with the performance of this Contract and in accordance
     with the Contracting Officer's decision.

3.21.5         WAIVER OF CLAIMS

     If the Contractor fails to submit a Notification of Dispute, supporting and
     substantiating documentation, or any additionally required information in
     the manner and within the time specified in the Disputes and Appeals
     sections, that failure will constitute a waiver by the Contractor of all
     claims arising out of that conduct, whether direct or consequential in
     nature.

3.22      ENROLLMENT

     The Contractor will accept as Members Medi-Cal beneficiaries in the
     mandatory and voluntary aid categories as defined in Article II, Section X,
     Eligible Beneficiaries, including beneficiaries in Aid Codes who elect to
     enroll with the Contractor or are assigned to the Contractor.

                                       29



Molina Medical Centers                                                  95-23637
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3.22.1         ENROLLMENT - GENERAL

     Eligible Beneficiaries residing within the Service Area of the Contractor
     may be enrolled at any time during the term of this Contract. Eligible
     Beneficiaries will be accepted by the Contractor up to the limits imposed
     in Section 3.22.2, Enrollment Totals, and without regard to physical or
     mental condition, age, sex, race, religion, creed, color, national origin,
     marital status, sexual orientation or ancestry.

3.22.2         ENROLLMENT TOTALS

     *    Enrollment under this contract in San Bernardino County will not
          exceed 136,332.

     *    Enrollment under this contract in Riverside County will not exceed
          83,038.

     Total Enrollment under this Contract will not exceed 219,370 Members.

3.22.3         COVERAGE

     Member coverage will begin at 12:01 a.m. on the first day of the calendar
     month for which the Eligible Beneficiary's name is added to the approved
     list of Members furnished by DHS to the Contractor. The term of membership
     will continue indefinitely unless this Contract expires, is terminated, or
     the Member is disenrolled under the conditions described in Section 3.22.5.

3.22.4         ENROLLMENT RESTRICTION

     Enrollment may proceed to the plan's maximum total number of Members unless
     restricted by DHS. Such restrictions will be defined in writing and the
     Contractor notified at least 10 days prior to the start of the period of
     restriction. Release of restrictions will be in writing and transmitted to
     the Contractor at least 10 days prior to the date of the release.

3.22.5         DISENROLLMENT

     Disenrollment will take place under the following conditions subject to
     approval by DHS in accordance with the provisions of Title 22, CCR, Section
     53440(b):

     A.   Disenrollment of a Member is mandatory when:

          1.   The Member requests Disenrollment

          2.   The Member's eligibility for Enrollment with the Contractor is

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Molina Medical Centers                                                  95-23637
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               terminated or eligibility for Medi-Cal is ended, including the
               death of the Member.

          3.   Enrollment was in violation of Title 22, CCR, Sections 53400 or
               53402, or requirements of this Contract regarding Marketing, and
               DHS or Member requests Disenrollment.

          4.   Disenrollment is requested in accordance with Welfare and
               Institutions Code Sections 14303.1 or 14303.2.

          5.   There is a change of a Member's place of residence to outside the
               Contractor's Service Area.

     B.   Disenrollment is based on the circumstances described in Article VI,
          Section 6.7.2, Excluded Services: Circumstances Under Which Member
          Disenrolled.

          Such Disenrollments will become effective on the first day of the
          second month following authorization for Disenrollment, provided
          Disenrollment was requested at least 30 days prior to that date.

     C.   The Contractor will have the right to recommend to DHS the
          Disenrollment of any Member in the event of a breakdown in the
          "doctor-patient relationship" which makes it impossible for the
          Contractor's providers to render services adequately to a Member.

     D.   Except as provided in subsection B, Membership will cease at midnight
          on the last day of the calendar month in which the Member's
          Disenrollment request is approved by DHS. On the first day of the
          month following the approval of the Disenrollment request, the
          Contractor is relieved of all obligations to provide Covered Services
          to the Member under the terms of this Contract. The Contractor agrees
          in turn to return to DHS any capitation payment forwarded to the
          Contractor for persons no longer enrolled under this Contract.

3.23      STANDARDS

     Each provider who delivers Covered Services to Members will meet applicable
     requirements established under Titles XVIII and XIX of the Social Security
     Act, unless exempted from those provisions; applicable requirements of
     Chapters 3 and 4, Subdivision 1, Division 3, Title 22, CCR; and the
     standards expressed in this Contract. All providers of Covered Services
     must be qualified in accordance with current applicable legal,
     professional, and technical standards and appropriately

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Molina Medical Centers                                                  95-23637
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     licensed, certified or registered.

3.24      PHARMACEUTICAL SERVICES AND PRESCRIBED DRUGS

     The Contractor will provide pharmaceutical services and prescribed drugs,
     either directly or through Subcontracts, in accordance with all laws and
     regulations regarding the provision of pharmaceutical services and
     prescription drugs to Medi-Cal beneficiaries, including, but not limited
     to, Title 22, CCR, Section 53214. As a minimum, such pharmaceutical
     services and drugs will be available to Members during Service Site hours.
     When in the course of treatment provided to a Member by a Contractor
     provider under emergency circumstances requires the use of drugs, a
     sufficient quantity of such drugs will be provided to the Member to last
     until the Member can reasonably be expected to have a prescription filled.

3.25      FACILITIES

     Facilities used by the Contractor for providing Covered Services will
     comply with the provisions of Title 22, CCR, Section 53230.

3.26      LABORATORY CERTIFICATION

     A.   To ensure that each laboratory used to perform services under this
          Contract or by Subcontract complies with federal and State law, each
          location at which any test or examination on materials derived from
          the human body for the purpose of providing information for the
          diagnosis, prevention, treatment or assessment of any disease,
          impairment, or health of a human being is performed shall have in
          effect:

          1.   A current, unrevoked or unsuspended certificate, certificate for
               provider-performed microscopy procedures, certificate of
               accreditation, certificate of registration or certificate of
               waiver issued under the requirements of 42 United States Code
               Section 263a and the regulations adopted thereunder and found at
               42 Code of Federal Regulations, Part 493; and, either

               a.   A current, unrevoked or unsuspended license or registration
                    issued under the requirements of Chapter 3 (commencing with
                    Section 1200) of Division 2 of the California Business and
                    Professions Code and the regulations adopted thereunder; or,

               b.   Be operated in conformity with Chapter 7 (commencing with
                    Section 1000) of Division 1 of the California Health and
                    Safety

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Molina Medical Centers                                                  95-23637
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                  Code and the regulations adopted thereunder.

     B.   All places used to perform tests or examinations on human biological
          specimens (materials derived from the human body) are, by definition,
          "laboratories" under State and federal law.

     C.   Laboratories may exist, therefore, at Nurses' stations within
          hospitals, clinics, Skilled Nursing Facilities, operating rooms,
          surgical centers, rural health clinics, Physician offices, Planned
          Parenthood clinics, mobile labs, health fairs, and city, county or
          State labs.

     D.   Any laboratory that does not comply with the appropriate federal and
          State law is not eligible for participation in, or reimbursement from,
          the Medicare, Medicaid, or Medi-Cal programs.

3.27      SUBCONTRACTS

     The Contractor may elect to enter into Subcontracts with other entities in
     order to fulfill the obligations of the Contract. In doing so, the
     Contractor will meet the subcontracting requirements as stated in Title 22,
     CCR, Section 53250 and this Contract.

3.27.1         KNOX-KEENE AND REGULATIONS

     All Subcontracts will be in writing, and will be entered into in accordance
     with the requirements of the Knox-Keene Health Care Services Plan Act of
     1975, Health and Safety Code Section 1340 et seq.; Title 10, CCR, Section
     1300 et seq.; W&I Code Section 14200 et seq.; Title 22, CCR, Section 53000
     et seq.; and applicable federal and State laws and regulations.

3.27.2         SUBCONTRACT REQUIREMENTS

     Each Subcontract will contain:

     A.   The subcontractor's agreement to make all of its books and records,
          pertaining to the goods and services furnished under the terms of the
          Subcontract, available for inspection, examination or copying:

          1.   By DHS, DHHS, DOJ, and DOC.

          2.   At all reasonable times at the subcontractor's place of business
               or at such other mutually agreeable location in California.

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Molina Medical Centers                                                  95-23637
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          3.   In a form maintained in accordance with the general standards
               applicable to such book or record keeping.

          4.   For a term of at least five years from the close of DHS' fiscal
               year in which the Subcontract was in effect.

          5.   Including all Encounter data for a period of at least five years.

     B.   Full disclosure of the method and amount of compensation or other
          consideration to be received by the subcontractor from the Contractor.

     C.   Subcontractor's agreement to maintain and make available to DHS, upon
          request, copies of all sub-subcontracts and to ensure that all
          sub-subcontracts are in writing and require that the
          Sub-subcontractor:

          1.   Make all applicable books and records available at all reasonable
               times for inspection, examination, or copying by DHS, DHHS, DOJ
               and DOC.

          2.   Retain such books and records for a term of at least five years
               from the close of DHS' fiscal year in which the sub-subcontract
               is in effect.

     D.   Subcontractor's agreement to assist the Contractor in the transfer of
          care pursuant to Section 3.16.2, in the event of Contract termination.

     E.   Subcontractor's agreement to notify DHS in the event the agreement
          with the Contractor is amended or terminated. Notice is considered
          given when properly addressed and deposited in the United States
          Postal Service as first-class registered mail, postage attached.

     F.   Subcontractor's agreement that assignment or delegation of the
          Subcontract will be void unless prior written approval is obtained
          from DHS.

     G.   Subcontractor's agreement to hold harmless both the State and plan
          Members in the event the Contractor cannot or will not pay for
          services performed by the subcontractor pursuant to the Subcontract.

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Molina Medical Centers                                                  95-23637
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3.27.3         DEPARTMENTAL APPROVAL - NON-FEDERALLY QUALIFIED HMOs

     Except as provided in Section 3.27.6, Federally Qualified Health Centers, a
     provider or management Subcontract entered into by a Contractor which is
     not a federally qualified HMO will become effective upon approval by DHS in
     writing, or by operation of law where DHS has acknowledged receipt of the
     proposed Subcontract, and has failed to approve or disapprove the proposed
     Subcontract within 60 days of receipt.

     Subcontract amendments will be submitted to DHS for prior approval at least
     30 days before the effective date of any proposed changes governing
     compensation, services, or term. Proposed changes which are neither
     approved or disapproved by DHS, will become effective by operation of law
     30 days after DHS has acknowledged receipt or upon the date specified in
     the Subcontract amendment, whichever is later.

3.27.4         DEPARTMENTAL APPROVAL - FEDERALLY QUALIFIED HMOs

     Except as provided in Section 3.27.6, Subcontracts entered into by a plan
     which is a federally qualified HMO will be:

     A.   Exempt from prior approval by DHS.

     B.   Submitted to DHS upon request.

3.27.5         COMPENSATION

     Contractor will not enter into any Subcontract if the compensation or other
     consideration which the subcontractor will receive under the terms of the
     Subcontract is determined by a percentage of the Contractor's payment from
     DHS. This subsection will not be construed to prohibit Subcontracts in
     which compensation or other consideration is determined on a capitation
     basis.

3.27.6         FEDERALLY QUALIFIED HEALTH CENTERS

     Contractor will not enter into a Subcontract with a Federally Qualified
     Health Center unless DHS approves the provisions regarding rates, which
     will be subject to the standard that they be reasonable, as determined by
     DHS, in relation to the services to be provided. In Subcontracts where the
     Federally Qualified Health Center has made the election to be reimbursed on
     a reasonable cost basis by the State, provisions will be included that
     require the subcontractor to keep a record of the number of visits by plan
     Members separate from Fee-For-Service Medi-Cal beneficiaries, in addition
     to any other data reporting requirements of the Subcontract.

                                       35



Molina Medical Centers                                                  95-23637
                                                                     Article III

     Subcontracts with FQHCs will also meet Contract requirements of Article VI,
     Sections 6.6.19 and 6.6.20.

     In Subcontracts where a negotiated capitation rate or Fee-For-Service
     reimbursement rate is agreed to as total payment, a provision that the rate
     constitutes total payment will be explicitly stated in the Subcontract.

3.27.7         PUBLIC RECORDS

     Subcontracts entered into by the Contractor and all information received in
     accordance with this subsection will be public records on file with DHS,
     except as specifically exempted in statute. The names of the officers and
     owners of the subcontractor, stockholders owning more than 10 percent of
     the stock issued by the subcontractor and major creditors holding more than
     5 percent of the debt of the subcontractor will be attached to the
     Subcontract at the time the Subcontract is presented to DHS.

3.27.8         DISCLOSURES

     Each Subcontract will contain at least the elements required by Section
     3.27.2, Subcontract Requirements, and the following:

     A.   Full disclosure of the method and amount of compensation or other
          consideration to be received by the subcontractor from the plan.

     B.   Specification of the services to be provided.

     C.   Specification that the Subcontract will be governed by and construed
          in accordance with all laws, regulations, and contractual obligations
          of the Contractor.

     D.   Specification that the Subcontract or Subcontract amendments will
          become effective only as set forth in Sections 3.27.3 or 3.27.4.

     E.   Specification of the term of the Subcontract including the beginning
          and ending dates as well as methods of extension, renegotiation and
          termination.

     F.   Subcontractor's agreement to submit reports as required by the
          Contractor.

                                       36



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.27.9         PAYMENT

     Contractor will timely pay provider claims within thirty (30) working days
     after receipt, unless the Contractor is a federally qualified health
     maintenance organization, in which case the requirement is forty-five (45)
     working days from receipt. Notice must be provided to providers in the case
     of contested claims within thirty (30) working days after receipt, unless
     the Contractor is a federally qualified health maintenance organization, in
     which case the requirement is forty-five (45) working days from receipt.
     Contractor will have sufficient claims processing/payment systems to timely
     process and pay provider claims and to reasonably determine the status of
     received claims and calculate provisions for Incurred But Not Reported
     Claims.

3.28      CONFIDENTIALITY OF DATA

     The Contractor will perform the following duties and responsibilities with
     respect to confidentiality of information and data.

3.28.1         CONFIDENTIALITY OF INFORMATION

     Notwithstanding any other provision of this Contract, names of persons
     receiving public social services are confidential and are to be protected
     from unauthorized disclosure in accordance with Title 42, CFR, Section
     431.300 et seq., Section 14100.2, W&I Code, and regulations adopted
     thereunder. For the purpose of this Contract, all information, records,
     data, and data elements collected and maintained for the operation of the
     Contract and pertaining to Members will be protected by the Contractor from
     unauthorized disclosure.

     The Contractor may release Medical Records in accordance with applicable
     law pertaining to the release of this type of information.

3.28.2         CONTRACTOR'S DUTIES TO MAINTAIN CONFIDENTIALITY

     With respect to any identifiable information concerning a Member under this
     Contract that is obtained by the Contractor or its subcontractors, the
     Contractor: (1) will not use any such information for any purpose other
     than carrying out the express terms of this Contract, (2) will promptly
     transmit to DHS all requests for disclosure of such information, except
     requests for Medical Records in accordance with applicable law, (3) will
     not disclose except as otherwise specifically permitted by this Contract,
     any such information to any party other than DHS without DHS' prior written
     authorization specifying that the information is releasable under Title 42,
     CFR, Section 431.300 et seq., Section 14100.2, W&I Code, and regulations
     adopted thereunder, and (4) will, at the expiration or termination of this
     Contract, return all

                                       37



Molina Medical Centers                                                  95-23637
                                                                     Article III

     such information to DHS or maintain such information according to written
     procedures sent to the Contractor by DHS for this purpose.

3.29      KEY PERSONNEL (DISCLOSURE FORM)

     A.   Contractor will file an annual statement with DHS disclosing any
          purchases or leases of services, equipment, supplies, or real property
          from an entity in which any of the following persons have a
          substantial financial interest:

          1.   Any person also having a substantial financial interest in the
               Contractor.

          2.   Any director, officer, partner, trustee, or employee of the
               Contractor.

          3.   Any member of the immediate family of any person designated in 1
               or 2 above.

     B.   Comply with federal regulations 42 CFR 455.104 (Disclosure by
          providers and fiscal agents: Information on ownership and control), 42
          CFR 455.105 (Disclosure by providers: Information related to business
          transactions), and 42 CFR 455.106.

3.30      CONFLICT OF INTEREST - CURRENT AND FORMER STATE EMPLOYEES

     Contractor will not utilize in the performance of this Contract any State
     officer or employee in the State civil service or other appointed State
     official unless the employment, activity, or enterprise is required as a
     condition of the officer's or employee's regular state employment. Employee
     in the State civil service is defined to be any person legally holding a
     permanent or intermittent position in the State civil service.

3.31      RECORD KEEPING, AUDIT/INSPECTION OF RECORDS

     The Contractor will maintain such books and records necessary to disclose
     how the Contractor discharged its obligations under this Contract. These
     books and records will disclose the quantity of Covered Services provided
     under this contract, the quality of those services, the manner and amount
     of payment made for those services, the persons eligible to receive Covered
     Services, the manner in which the Contractor administered its daily
     business, and the cost thereof.

                                       38



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.31.1         BOOKS AND RECORDS

     These books and records will include, but are not limited to, all physical
     records originated or prepared pursuant to the performance under this
     Contract including working papers; reports submitted to DHS; financial
     records; all Medical Records, medical charts and prescription files; and
     other documentation pertaining to medical and non-medical services rendered
     to Members.

3.31.2         RECORDS RETENTION

     These books and records will be maintained for a minimum of five years from
     the end of the Fiscal Year in which the Contract expires or is terminated,
     or, in the event the Contractor has been duly notified that DHS, DHHS, DOJ,
     or the Comptroller General of the United States, or their duly authorized
     representatives, have commenced an audit or investigation of the Contract,
     until such time as the matter under audit or investigation has been
     resolved, whichever is later.

3.32      AMENDMENT OF CONTRACT

     Should either party during the life of this Contract desire a change in
     this Contract, that change will be proposed in writing to the other party.
     The other party will acknowledge receipt of the proposal within 10 days of
     receipt of the proposal. The party proposing any such change will have the
     right to withdraw the proposal any time prior to acceptance or rejection by
     the other party. Any proposal will set forth a detailed explanation of the
     reason and basis for the proposed change, a complete statement of cost and
     benefits of the proposed change and the text of the desired amendment to
     this Contract which would provide for the change. If the proposal is
     accepted, this Contract will be amended to provide for the change mutually
     agreed to by the parties on the condition that the amendment is approved by
     DHHS, and the State Department of Finance, if necessary.

3.33      CONTRACTOR CERTIFICATIONS

     With respect to any report, invoice, record, papers, documents, books of
     account, or other Contract required data submitted, pursuant to the
     requirements of this Contract, the Contractor's Representative or his/her
     designee will certify, under penalty of perjury, 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, unless the requirement for such certification is expressly waived
     by DHS in writing.

                                       39



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.34      CHANGE REQUIREMENTS

3.34.1         GENERAL PROVISIONS

     The parties recognize that during the life of this Contract, the Medi-Cal
     Managed Care program will be a dynamic program requiring numerous changes
     to its operations and that the scope and complexity of changes will vary
     widely over the life of the Contract. The parties agree that the
     development of a system which has the capability to implement such changes
     in an orderly and timely manner is of considerable importance.

3.34.2         CONTRACTOR'S OBLIGATION TO IMPLEMENT

     The Contractor will make changes mandated by DHS. In the case of mandated
     changes in policy, regulations, statutes, or judicial interpretation, DHS
     may direct the Contractor to immediately begin implementation of any change
     by issuing a Change Order. If DHS issues a Change Order, the Contractor
     will be obligated to implement the required changes while discussions
     relevant to any capitation rate adjustment, if applicable, are taking
     place.

     DHS may, at any time, within the general scope of the Contract, by written
     notice, issue Change Orders to the Contract. This process will make use of
     the following documents:

     Medi-Cal Managed Care Division (MMCD) Policy Letters - This document will
     be utilized to notify the Contractor of clarifications made to the Medi-Cal
     Managed Care Program. This document will include instructions to the
     Contractor regarding implementation. This document will also be used to
     initiate various ongoing changes required of the Contractor throughout the
     Contract, the performance of which falls within the Contract's agreed upon
     capitated rate.

     Change Orders will be used when an Annual Capitation Rate, if applicable,
     is adjusted (See Article V, Payment Provisions). Change Orders may also be
     used to amend the Contractor's responsibilities.

3.35      MINORITY/WOMEN/DISABLED VETERAN BUSINESS ENTERPRISES (M/W/DVBE)

     Contractor will comply with applicable requirements of California law
     relating to Minority/Women/Disabled Veteran Business Enterprises (M/W/DVBE)
     commencing at Section 10115 of the Public Contract Code.

                                       40



Molina Medical Centers                                                  95-23637
                                                                     Article III

3.36      DRUG FREE WORKPLACE ACT OF 1990

     Contractor will comply with applicable requirements of the Drug Free
     Workplace Act of 1990 (Government Code Section 8355).

3.37      INDEMNIFICATION

3.37.1         INDEMNIFICATION BY CONTRACTOR

     Contractor agrees to indemnify, defend, and save harmless the State, its
     officers, agents, and employees:

     A.   From any and all claims and losses accruing or resulting to any and
          all Contractors, Subcontractors, materialmen, laborers, and any other
          person, firm, corporation, or other entity furnishing or supplying
          work services, materials, or supplies in connection with the
          performance of this Contract;

     B.   From any and all claims and losses accruing or resulting to any
          person, firm, corporation, or other entity injured or damaged by the
          Contractor, its officers, employees, or Subcontractors in the
          performance of this Contract.

3.38      AMERICANS WITH DISABILITIES ACT OF 1990 REQUIREMENTS

     The Contractor will comply with all applicable federal requirements in
     Section 504 of the Rehabilitation Act of 1973 and the Americans with
     Disabilities Act of 1990 (42 USC, Section 12100 et seq.), Title 45, Code of
     Federal Regulations (CFR), Part 84 and Title 28, CFR, Part 36.

3.39      NEWBORN CHILD COVERAGE

     The Contractor will provide Covered Services to a child born to a Member
     for the month of birth and the following month. For a child born in the
     month immediately preceding the mother's membership, the Contractor will
     provide Covered Services to the child during the mother's first month of
     Enrollment. No additional capitation payment will be made to the Contractor
     by DHS.

3.40      RECOVERY FROM OTHER SOURCES OR PROVIDERS

     Contractor will make reasonable efforts to recover the value of Covered
     Services rendered to Members whenever the Members are covered for the same
     services, either fully or partially, under any other State or federal
     medical care program or under other contractual or legal entitlement
     including, but not limited to, a private

                                       41



Molina Medical Centers                                                  95-23637
                                                                     Article III

     group or indemnification program, but excluding instances of the tort
     liability of a third party. Contractor will coordinate benefits with other
     programs or entitlement, recognizing the other coverage as primary and
     Medi-Cal as the payor of last resort. Such monies recovered are retained by
     the Contractor.

3.41      THIRD-PARTY TORT LIABILITY

     Contractor will make no claim for recovery of the value of Covered Services
     rendered to a Member when such recovery would result from an action
     involving the tort liability of a third party or casualty liability
     insurance including Workers' Compensation awards and uninsured motorists
     coverage. The Contractor will identify and notify DHS of cases in which an
     action by the Medi-Cal Member involving the tort or Workers' Compensation
     liability of a third party could result in recovery by the Member of funds
     to which DHS has lien rights under Article 3.5 (commencing with Section
     14124.70), Part 3, Division 9, Welfare and Institutions Code. Such cases
     will be referred to DHS within 10 days of discovery. To assist DHS in
     exercising its responsibility for such recoveries, Contractor will meet the
     following requirements:

     A.   If DHS requests payment information and/or copies of paid
          invoices/claims for Covered Services to an individual Member,
          Contractor will deliver the requested information within 10-30 days of
          the request. The value of the Covered Services will be calculated as
          the usual, customary and reasonable charge made to the general public
          for similar services or the amount paid to subcontracted providers or
          out of plan providers for similar services.

     B.   Information to be delivered will contain the following data items:

          1.   Member name.

          2.   Full 14 digit Medi-Cal number.

          3.   Social Security Number.

          4.   Date of birth.

          5.   Contractor name.

          6.   Provider name (if different from Contractor).

          7.   Dates of service.

                                       42



Molina Medical Centers                                                  95-23637
                                                                     Article III

          8.   Diagnosis code and/or description of illness/injury.

          9.   Procedure code and/or description of services rendered.

          10.  Amount billed by a subcontractor or out of plan provider to
               Contractor (if applicable).

          11.  Amount paid by other health insurance to Contractor or
               subcontractor.

          12.  Amount and date paid by Contractor to subcontractor or out of
               plan provider (if applicable).

          13.  Date of denial and reasons (if applicable).

     C.   Contractor will identify to DHS the name, address and telephone number
          of the person responsible for receiving and complying with requests
          for mandatory and/or optional at-risk service information.

     D.   If Contractor receives any requests by subpoena from attorneys,
          insurers, or beneficiaries for copies of bills, Contractor will
          provide DHS with a copy of any document released as a result of such
          request, and will provide the name and address and telephone number of
          the requesting party.

3.42      OBTAINING DHS APPROVAL

     Contractor will obtain written approval from DHS prior to implementing or
     using the following:

     A.   Providers of Covered Services, except for providers of seldom used or
          unusual services as determined by DHS.

     B.   Facilities.

     C.   Subcontracts and sub-subcontracts with providers or for management
          services if the Contractor is not a federally qualified HMO.

     D.   Marketing activities.

     E.   Marketing materials, promotional materials, and public information
          releases relating to performance under this Contract, Member service
          guides; Member newsletters; and provider claim forms unique to the
          Contract.

                                       43



Molina Medical Centers                                                  95-23637
                                                                     Article III

     F.   Member Grievance procedure.

     G.   Member Disenrollment procedure.

     H.   Enrollment, Disenrollment and Grievance forms.

     Revisions to these items must be approved by DHS prior to taking effect.


3.43      PILOT PROJECTS

     DHS, pursuant to W&I Code Section 14094.3(c)(2), may establish pilot
     projects to test alternative managed care models tailored to the special
     health care needs of children under the California Children Services (CCS)
     Program. These pilot projects may affect the Contractor's obligations under
     the Contract in the areas of Covered Services, eligible enrollees, and
     administrative systems. These pilot projects will be implemented through
     Contract amendment pursuant to Section 3.32 and, if necessary, Change Order
     pursuant to Section 3.34. DHS will not require the Contractor to cover CCS
     services under the capitation rate as part of a pilot project unless the
     Contractor is a voluntary participant in the project.

                                       44



Molina Medical Centers                                                  95-23637
                                                                      Article IV

                        ARTICLE IV - DUTIES OF THE STATE

     In discharging its obligations under this Contract, the State will perform
     the following duties:

4.1       PAYMENT FOR SERVICES

     Pay the appropriate capitation payments set forth in Article V, Payment
     Provisions, to the Contractor for each eligible Member under this Contract,
     and ensure that such payments are reasonable and do not exceed the amount
     set forth in 42 CFR, Section 447.361. Payments will be made monthly for the
     duration of this Contract.

4.2       MEDICAL REVIEWS

     Conduct medical reviews at least once every 12 months in accordance with
     the provisions of Section 14456, Welfare and Institutions Code, and issue
     medical review reports to the Contractor detailing findings,
     recommendations, Corrective Action and liquidated damages, as appropriate.

4.3       FACILITY INSPECTIONS

     Conduct random on-site inspections, at the discretion of DHS of health
     Facilities and review and approve, in writing, the required Site Inspection
     Forms prior to their use for providing services to Members under the terms
     of this Contract. Inspections for continuing Facility adequacy will be
     conducted periodically thereafter.

4.4       ENROLLMENT PROCESSING

     Review applications for Enrollment submitted timely by the Enrollment
     Contractor, and check the eligibility of applicants for services under this
     Contract. For those applications for Enrollment received prior to the
     specified deadlines, DHS will provide to the Contractor a list of Members
     on a monthly basis, effective the first of the following month.

     Those applications for Enrollment received after the specified submission
     deadlines will become effective the first day of the second month following
     the receipt of the late application.

                                       45



Molina Medical Centers                                                  95-23637
                                                                      Article IV

4.5       DISENROLLMENT PROCESSING

     Review and process requests for Disenrollment and notify the Contractor and
     the Member of its decision.

4.6       TESTING AND CERTIFICATION OF MARKETING REPRESENTATIVES

     Test all Contractor Marketing Representatives for knowledge of the program
     prior to their engaging in Marketing or Medi-Cal Managed Care information
     activities on behalf of the Contractor. Certify as qualified Marketing
     Representatives, those persons demonstrating adequate knowledge of the
     program, provided they are of good moral character.

4.7       APPROVAL PROCESS

     Acknowledge in writing, within five working days of receipt, the receipt of
     any material sent to DHS by the Contractor under the provisions of Article
     III, Section 3.42, Obtaining Departmental Approval. Within 60 days of
     receipt, approve in writing the use of such material or provide the
     Contractor with a written explanation why its use is not approved.

4.8       PROGRAM INFORMATION

     Provide the Contractor with complete and current information with respect
     to pertinent policies, procedures, and guidelines affecting the operation
     of this Contract.

4.9       SANCTIONS

     Apply sanctions, in accordance with Title 22, CCR, Section 53350, to the
     Contractor for violations of the terms of this Contract, applicable federal
     and State laws and regulations.

4.10      CATASTROPHIC COVERAGE LIMITATION

     Limit the Contractor's liability to provide or arrange and pay for care for
     illness of, or injury to, Members which results from or is greatly
     aggravated by, a catastrophic occurrence or disaster.

                                       46



Molina Medical Centers                                                  95-23637
                                                                      Article IV

4.11      RISK LIMITATION

     Agree,  that there will be no risk limitation and that Contractor will have
full financial liability to provide covered services to enrolled beneficiaries.

4.12      NOTICE OF TERMINATION OF CONTRACT

     Notify Members of their health care benefits and options available upon
     termination or expiration of this Contract.

4.13      ACCESS REQUIREMENTS AND STATE'S RIGHT TO MONITOR

     The State will have the right to monitor all aspects of the Contractor's
     operation for compliance with the provisions of this Contract and
     applicable federal and State laws and regulations. Such monitoring
     activities will include, but are not limited to, inspection and auditing of
     Contractor, subcontractor, and provider Facilities, management systems and
     procedures, and books and records as the Director deems appropriate, at any
     time during the Contractor's or other Facility's normal business hours. The
     monitoring activities will be either announced or unannounced.

     To assure compliance with the Contract and for any other reasonable
     purpose, the State and its authorized representatives and designees will
     have the right to premises access, with or without notice to the
     Contractor. This will include the MIS operations site or such other place
     where duties under the Contract are being performed.

     Staff designated by the State or DHS will have access to all security areas
     and the Contractor will provide, and will require any and all of its
     subcontractors to provide, reasonable facilities, cooperation and
     assistance to State representative(s) in the performance of their duties.
     Access will be undertaken in such a manner as to not unduly delay the work
     of the Contractor and/or the subcontractor(s).

                                       47



Molina Medical Centers                                                  95-23637
                                                                       ARTICLE V

                         ARTICLE V - PAYMENT PROVISIONS

5.0       PAYMENT PROVISIONS

5.1       CONTRACTOR RISK IN PROVIDING SERVICES

     Contractor will assume the total risk of providing the Covered Services on
     the basis of the periodic capitation payment for each Member, except as
     otherwise allowed in this Contract. Any monies not expended by the
     Contractor after having fulfilled obligations under this Contract will be
     retained by the Contractor.

5.2       AMOUNTS PAYABLE

     The maximum amount payable for the 1995-96 Fiscal Year ending June 30, 1996
     will not exceed $32,080,630. Any requirement of performance by DHS and the
     Contractor for the period of the Contract subsequent to June 30, 1996 will
     be dependent upon the availability of future appropriations by the
     Legislature for the purpose of this Contract. If funds become available for
     purposes of this Contract from future appropriations by the Legislature,
     the maximum amount payable under this Contract in the 1996-97 Fiscal Year
     ending June 30, 1997 will not exceed $194,472,680. If funds become
     available for purposes of this Contract from future appropriations by the
     Legislature, the maximum amount payable under this Contract in the 1997-98
     Fiscal Year ending June 30, 1998 will not exceed $194,472,680. If funds
     become available for purposes of this Contract from future appropriations
     by the Legislature, the maximum amount payable under this Contract in the
     1998-99 Fiscal Year ending June 30, 1999 will not exceed $194,472,680. If
     funds become available for purposes of this Contract from future
     appropriations by the Legislature, the maximum amount payable under this
     Contract in the 1999-2000 Fiscal Year ending June 30, 2000 will not exceed
     $194,472,680. If funds become available for purposes of this Contract from
     future appropriations by the Legislature, the maximum amount payable under
     this Contract in the 2000-01 Fiscal Year ending June 30, 2001 will not
     exceed $194,472,680. If funds become available for purposes of this
     Contract from future appropriations by the Legislature, the maximum amount
     payable under this Contract in the 2001-02 Fiscal Year ending June 30, 2002
     will not exceed $145,854,520. The maximum amount payable under this
     Contract will not exceed $1,150,298,550.

                                       48



Molina Medical Centers                                                  95-23637
                                                                       ARTICLE V

5.3       CAPITATION RATES

     DHS will remit to the Contractor a capitation payment each month for each
     Medi-Cal Member that appears on the approved list of Members supplied to
     the Contractor by DHS. The capitation rate shall be the amount specified in
     this Article. The payment period for health care services will commence on
     the first day of operations, as determined by DHS. Capitation payments will
     be made in accordance with the following schedule of capitation payment
     rates:

     AID CODE CATEGORIES

     Family: 01,02,08,30,32,33,34,35,38,39,3A,3C,3P,3R,40,42,4C,4K,54,59,5K;
     Aged : 10,14,16,18; Disabled: 20,24,26,28,36,60,64,66,68,6A,6C;
     Child : 03,04,45,82; Adult : 86

     SAN BERNARDINO COUNTY 7/95 - 5/96       SAN BERNARDINO COUNTY 6/96 - 9/97

     Family           $  70.01               Family           $  71.59
     Child            $  67.91               Child            $  67.17
     Aged             $ 117.66               Aged             $ 121.76
     Disabled         $ 177.15               Disabled         $ 174.45
     Adult            $ 536.02               Adult            $ 554.73

     RIVERSIDE COUNTY 7/95 - 5/96            RIVERSIDE COUNTY 6/96 - 9/97

     Family           $  74.70               Family           $  76.39
     Child            $  68.51               Child            $  67.74
     Aged             $ 110.37               Aged             $ 114.62
     Disabled         $ 181.61               Disabled         $ 178.77
     Adult            $ 492.78               Adult            $ 509.94

5.4       CAPITATION RATES CONSTITUTE PAYMENT IN FULL

     Capitation rates for each rate period, as calculated by DHS, are
     prospective rates and constitute payment in full, subject to any stop loss
     reinsurance provisions, on behalf of a Member for all Covered Services
     required by such Member and for all Administrative Costs incurred by the
     Contractor in providing or arranging for such services, but do not include
     payment for the recoupment of current or previous losses incurred by the
     Contractor. DHS is not responsible for making payments for recoupment of
     losses. The basis for the determination of the capitation payment rates is
     outlined in Attachment I (consisting of 20 pages).

                                       49



Molina Medical Centers                                                  95-23637
                                                                       ARTICLE V

5.5       DETERMINATION OF RATES

     DHS will determine the capitation rates for the initial period December 1,
     1995, or the Contract effective date of operations if later, through
     September 30, 1997. Subsequent to September 30, 1997 and through the
     duration of the Contract, DHS will make an annual redetermination of rates
     for each rate year defined as the 12 month period from October 1, through
     September 30. DHS reserves the right to redetermine rates on an actuarial
     basis or move to a negotiated rate for each rate year. All payments beyond
     June 1996 and rate adjustments beyond September 1997 are subject to future
     appropriations of funds by the Legislature and the Department of Finance
     approval. Further, all payments are subject to the availability of Federal
     congressional appropriation of funds.

     If DHS redetermines rates on an actuarial basis, DHS will determine whether
     the rates will be increased, decreased, or remain the same. If it is
     determined by DHS that the Contractor's capitation rates will be increased
     or decreased, that increase or decrease will be effectuated through a
     Change Order to this Contract in accordance with the provisions of Article
     III, Section 3.34, Change Requirements, subject to the following
     provisions:

     A.   The Change Order will be effective as of October 1 of each year
          covered by this Contract.

     B.   In the event there is a any delay in a determination to increase or
          decrease capitation rates, so that a Change Order may not be
          processed in time to permit payment of new rates commencing October 1,
          the payment to the Contractor will continue at the rates then in
          effect. Those continued payments will constitute interim payment
          only. Upon final approval of the Change Order providing for the rate
          change, DHS will make adjustments for those months for which interim
          payment was made.

     C.   Notwithstanding paragraph B, payment of the new annual rates will
          commence no later than December 1, provided that a Change Order
          providing for the new annual rates has been issued by DHS. By
          accepting payment of new annual rates prior to full approval by all
          control agencies of the Change Order to this Contract implementing
          such new rates, the Contractor stipulates to a confession of judgment
          for any amounts received in excess of the final approved rate. If the
          final approved rate differs from the rates agreed upon by the
          Contractor and DHS:

          1.   Any underpayment by the State will be paid to the Contractor
               within 30 days after final approval of the new rates.

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          2.   Any overpayment to the Contractor will be recaptured by the
               State's withholding the amount due from the Contractor's next
               capitation check.

               If the amount to be withheld from that capitation check exceeds
               25 percent of the capitation payment for that month, amounts up
               to 25 percent will be withheld from successive capitation
               payments until the overpayment is fully recovered by the State.

5.6       REDETERMINATION OF RATES - OBLIGATION CHANGES

     The Capitation rates may be adjusted during the rate year to provide for a
     change in obligations which results in an increase or decrease of more than
     one percent of cost (as defined in Title 22, CCR, Section 53322) to the
     Contractor. Any adjustments will be effectuated through a Change Order to
     the Contract subject to the following provisions:

     A.   The Change Order will be effective as of the first day of the month in
          which the change in obligations is effective, as determined by DHS.

     B.   In the event DHS is unable to process the Change Order in time to
          permit payment of the adjusted rates as of the month in which the
          change in obligations is effective, payment to Contractor will
          continue at the rates then in effect. Continued payment will
          constitute interim payment only. Upon final approval of the Change
          Order providing for the change in obligations, DHS will make
          adjustments for those months for which interim payment was made.

     If mutual agreement between DHS and the Contractor cannot be attained on
     capitation rates for rate years subsequent to September 30, 1997, the
     Contractor will retain the right to terminate the Contract, but no earlier
     than September 30, 1998. Notification of intent to terminate a Contract
     will be in writing and provided to DHS at least nine months prior to the
     effective date of termination. Contract termination due to an inability to
     reach agreement upon capitation rates is limited to termination at the end
     of each rate year, September 30th. Therefore, Contractor must provide
     termination notification by December 31st of the prior year for an
     effective termination date of September 30th. DHS will pay the capitation
     rates last offered for that rate period until the Contract is terminated.

5.7       REINSURANCE

     A.   The Contractor may obtain reinsurance (stop loss coverage) for the
          cost of providing Covered Services under this Contract. Reinsurance
          will not limit

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          the Contractor's liability below $5,000 per Member for any 12-month
          period as specified by DHS. The Contractor may obtain reinsurance for
          the total cost of services provided to Members by non-contractor
          emergency service providers and for 90 percent of all costs exceeding
          115 percent of its income during any Contractor fiscal year.

     B.   If Contractor selects State reinsurance, Contractor will submit a
          reinsurance claim form along with copies of the actual claims upon
          exceeding the reinsurance threshold. As part of the processing, actual
          claims are priced to appropriate Medi-Cal rates and the appropriate
          amount in excess of the reinsurance threshold is remitted to the
          Contractor by DHS.

     C.   Claims submitted will not be paid by DHS unless received by DHS not
          later than the last day of the sixth month following the end of the
          twelve-month period in which they were incurred.

     D.   The time specified for submission of claims may be extended for a
          period not to exceed one year upon a finding of "good cause" by the
          Director in the following circumstances:

          1.   Where the claim involves health coverage, other than Medi-Cal,
               and the delay is necessary to permit the Contractor to obtain
               payment, partial payment, or proof of non-liability of that other
               health coverage.

          2.   Where the claim submission was delayed due to eligibility
               certification or determination by the State or county.

          3.   Where there was substantial interference with claim submission
               due to damage to or destruction of the Contractor's (or
               subcontractor's) business office or records by a natural
               disaster, including fire, flood or earthquake or other similar
               circumstances.

          4.   Where delay in claims submission was due to other circumstances
               that are clearly beyond the control of the Contractor.
               Circumstances that will not be considered beyond the control of
               the Contractor include, but are not limited to:

               a.   Negligence or delay of the Contractor or Contractor's
                    employees, agents, and subcontractors.

               b.   Misunderstanding of or unfamiliarity with Medi-Cal
                    regulations, or the terms of this Contract.

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               c.   Illness, absence or other incapacity of a Contractor's
                    employee, agent, or subcontractor responsible for
                    preparation and submission of claims.

               d.   Delays caused by the United States Postal Service or any
                    private delivery service.

5.8       CATASTROPHIC COVERAGE LIMITATION

     DHS may limit the Contractor's liability to provide or arrange and pay for
     care for illness of, or injury to, Members which results from or is greatly
     aggravated by, a catastrophic occurrence or disaster.

     Contractor will return a prorated amount of the capitation payment
     following the Director's invocation of the catastrophic coverage
     limitation. The amount returned will be determined by dividing the total
     capitation payment by the number of days in the month. The amount will be
     returned to DHS for each day in the month after the Director has invoked
     the catastrophic coverage limitation clause.

5.9       FINANCIAL SECURITY

     If capitation is prepaid, Contractor will provide satisfactory evidence of
     and maintain Financial Security in an amount equal to at least one month's
     capitation payment, in a manner specified by DHS. The Financial Security
     will remain in effect for at least 90 days following termination or
     expiration of this Contract or until, in the judgment of DHS the
     obligations set forth in this Contract are fulfilled.

5.10      LIMITATION TO FEDERAL FINANCIAL PARTICIPATION

     Limitation to Federal Financial Participation is as follows:

     A.   It is mutually understood between the parties that this Contract may
          have been written before ascertaining the availability of
          congressional appropriation of funds, for the mutual benefit of both
          parties in order to avoid program and fiscal delays which would occur
          if the Contract were executed after that determination was made.

     B.   This Contract is valid and enforceable only if sufficient funds are
          made available to the State by the United States government for each
          Fiscal Year for the purpose of this program. In addition, this
          Contract is subject to any additional restrictions, limitations or
          conditions enacted by the Congress or any statute enacted by the
          Congress which may affect the provisions, terms or

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          funding of this Contract in any manner.

     C.   It is mutually agreed that if Congress does not appropriate sufficient
          funds for the program, this Contract will be amended to reflect any
          reduction in funds.

     D.   DHS has the option to terminate the Contract under the 60 day
          termination clause or to amend the Contract to reflect any reduction
          in funds.

5.11      RECOVERY OF CAPITATION PAYMENTS

     DHS will have the right to recover amounts paid to the Contractor in the
     following circumstances as specified:

     A.   DHS determines that a Member has either been improperly enrolled, or
          should have been disenrolled with an effective date in a prior month.
          DHS may recover the capitation payments made to the Contractor for the
          Member and absolve the Contractor from all financial and other risk
          for the provision of services to the Member under the terms of the
          Contract for the month or months in question.

     B.   As a result of the Contractor's failure to perform contractual
          responsibilities to comply with mandatory federal Medicaid
          requirements, the Department of Health and Human Services (DHHS)
          disallows Federal Financial Participation (FFP) for payments made by
          DHS to the Contractor. DHS may recover the amounts disallowed by DHHS
          by an offset to the capitation payment made to the Contractor. If
          recovery of the full amount at one time imposes a financial hardship
          on the Contractor, DHS at its discretion may grant a Contractor's
          request to repay the recoverable amounts in monthly installments over
          a period of consecutive months not to exceed six (6) months.

     C.   If DHS determines that any other erroneous or improper payment not
          mentioned above has been made to the Contractor, DHS may recover the
          amounts determined by an offset to the capitation payment made to the
          Contractor. If recovery of the full amount at one time imposes a
          financial hardship on the Contractor, DHS, at its discretion, may
          grant a Contractor's request to repay the recoverable amounts in
          monthly installments over a period of consecutive months not to exceed
          six (6) months.

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                           ARTICLE VI - SCOPE OF WORK

6.0       ORGANIZATION

6.1         LEGAL CAPACITY

     Contractor will maintain the legal capacity to contract with DHS and
     maintain appropriate licensure as a health care service plan in accordance
     with the Knox-Keene Act.

6.2       ADMINISTRATION/STAFFING

6.2.1          CONTRACT PERFORMANCE

     Contractor will maintain the organization and staffing, for implementing
     and operating the Contract. Contractor will ensure the following:

     A.   The organization has an accountable governing body.

     B.   This Contract is a high priority and that the Contractor is committed
          to supplying any necessary resources to assure full performance of the
          Contract.

     C.   If the Contractor is a subsidiary organization, the attestation of the
          parent organization that this Contract will be a high priority to the
          parent organization, and that the parent organization is committed to
          supplying any necessary resources to assure full performance of the
          Contract.

6.2.2          MEDICAL DIRECTOR

     Contractor will maintain a full time Physician as Medical Director who will
     assume the following responsibilities:

     A.   Ensure that medical decisions are rendered by qualified medical
          personnel, unhindered by fiscal or administrative management.

     B.   Ensure that medical care provided meets the standards for acceptable
          medical care.

     C.   Ensure that medical protocols and rules of conduct for plan medical
          personnel are followed.

     D.   Develop and implement medical policy.

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     E.   Resolve medically related Grievances.

     F.   Have a significant role in monitoring, investigating and hearing
          Grievances.

     G.   Have a  significant  role  in  the  Contractor's  Quality  Improvement
          program.

6.2.3          MEDICAL DECISIONS

     Contractor will ensure that medical decisions are not unduly influenced by
     fiscal management.

6.2.4          MEDICAL DIRECTOR CHANGES

     The Contractor will report to DHS any changes in the status of the Medical
     Director within ten (10) days.

6.2.5          ADMINISTRATIVE DUTIES/RESPONSIBILITIES

     The Contractor will maintain the organizational and administrative
     capabilities to carry out its duties and responsibilities under the
     Contract. This will include as a minimum the following:

     A.   Designated persons, qualified by training or experience, to be
          responsible for the Medical Record service.

     B.   Member and Enrollment reporting systems as specified in Section 6.4,
          Management and Information Systems and Section 6.9, Member Services/
          Grievance Systems.

     C.   A Member Grievance procedure, as specified in Section 6.9, Member
          Services/Grievance System.

     D.   Data reporting capabilities sufficient to provide necessary and timely
          reports to DHS, as required by Section 6.4, Management Information
          Systems.

     E.   Financial records and books of account maintained on the accrual
          basis, in accordance with Generally Accepted Accounting Principles,
          which fully disclose the disposition of all Medi-Cal program funds
          received, as specified in Section 6.3, Financial Information.

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6.2.6          MEMBER REPRESENTATION

     Contractor will ensure that Medi-Cal Members are represented and
     participate in establishing the public policy of the plan, regarding the
     plan's Medi-Cal programs.

6.3       FINANCIAL INFORMATION

6.3.1          FINANCIAL VIABILITY/STANDARDS COMPLIANCE

     The Contractor will demonstrate financial viability/standards compliance to
     DHS' satisfaction for each of the following elements:

     A.   Tangible Net Equity (TNE).

          The Contractor at all times will be in compliance with the TNE
          requirements in accordance with Title 10, CCR, Section 1300.76.

     B.   Administrative Costs.

          Contractor's Administrative Costs will not exceed the guidelines as
          established under Title 10, CCR, Section 1300.78.

     C.   Standards of Organization and Financial Soundness.

          The Contractor will maintain reasonable standards of its organization
          sufficient to conduct the proposed operations and that its financial
          resources are sufficient for sound business operations in accordance
          with Title 10, CCR, Sections 1300.67.3, 1300.75.1, 1300.76, 1300.76.3,
          1300.77.1, 1300.77.2, 1300.77.3, 1300.77.4, 1300.78, and Title 22,
          CCR, Sections 53200, 53251, and 53324.

     D.   Working Capital.

          The Contractor will maintain a working capital ratio of at least 1:1.

6.3.2          FINANCIAL AUDIT/REPORTS

     The Contractor will ensure that an annual audit is performed according to
     Section 14459, W&I Code. Combined Financial Statements will be prepared to
     show the financial position of the overall related health care delivery
     system when delivery of care or other services is dependent upon
     Affiliates. Financial Statements will be presented in a form that clearly
     shows the financial position of the Contractor

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     separately from the combined totals. Inter-entity transactions and profits
     will eliminated if combined statements are prepared. The Contractor will
     have separate certified Financial Statements prepared if an independent
     accountant decides that preparation of combined statements is
     inappropriate.

     A.   The independent accountant will state in writing reasons for not
          preparing combined Financial Statements.

     B.   The Contractor will provide supplemental schedules that clearly
          reflect all inter-entity transactions and eliminations necessary to
          enable DHS to analyze the overall financial status of the entire
          health care delivery system.

          1.   In addition to annual certified Financial Statements the
               Contractor will complete the entire 1989 HMO Financial Report of
               Affairs and Conditions Format, commonly known as the "Orange
               Blank". The Certified Public Accountant's (CPA) audited Financial
               Statements and the "Orange blank" report will be submitted to DHS
               no later than ninety (90) calendar days after the close of the
               Contractor's Fiscal Year.

          2.   On a quarterly basis the Contractor will submit to DHS forty-five
               (45) calendar days after the end of each quarter under this
               Contract financial reports required by Title 22, CCR, Section
               53324(c). The required quarterly financial reports will be
               prepared on the "Orange Blank" format and will include, at a
               minimum, the following reports/schedules:

               a.   Jurat.

               b.   Report 1A and 1B: Balance Sheet.

               c.   Report 2: Statement of Revenue, Expenses, and Net Worth.

               d.   Statement of Cash Flow, prepared in accordance with
                    Financial Accounting Standards Board Statement Number 96
                    (This statement is prepared in lieu of Report #3: Statement
                    of Changes in Financial Position for Generally Accepted
                    Accounting Principles (GAAP) compliance.

               e.   Report 4: Enrollment and Utilization Table.

               f.   Schedule F: Unpaid Claims Analysis.

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               g.   Appropriate footnote disclosures in accordance with GAAP.

     C.   The Contractor will authorize the independent accountant to allow
          representatives of DHS, upon written request, to inspect any and all
          working papers related to the preparation of the audit report.

6.3.3               MONTHLY FINANCIAL STATEMENTS

     The Contractor may be required to file monthly Financial Statements at DHS'
     request. If the Contractor is required to file monthly Financial Statements
     with DOC, they will file monthly Financial Statements with DHS.

6.3.4               COMPLIANCE WITH AUDIT REQUIREMENTS

     The Contractor will cooperate with DHS' own independent audits annually or
     as necessary for good cause, at the discretion of DHS. Such audits may be
     waived upon submission of the financial audit for the same period conducted
     by DOC pursuant to Section 1382 of the Health and Safety Code.

6.3.5               SUBMITTAL OF FINANCIAL INFORMATION

     The Contractor will prepare financial information requested in accordance
     with Generally Accepted Accounting Principles (GAAP) and where Financial
     Statements/projections are requested these statements/projections should be
     prepared on the 1989 HMO Reporting Format (commonly known as the "Orange
     Blank"). Where appropriate, reference has been made to the Knox-Keene
     Health Care Service Plan Act of 1975 Rules, found under Title 10, CCR,
     Section 1300.51 et. seq. Information submitted will be based on current
     operations.

6.4            MANAGEMENT INFORMATION SYSTEM

6.4.1               MANAGEMENT INFORMATION SYSTEM (MIS) CAPABILITY

     The Contractor will maintain an MIS that will provide support for all
     functions of the plan's processes and procedures related to the flow and
     use of data within the plan. The MIS must enable the Contractor to meet the
     contractual requirements contained in this Article. It will have the
     capability to capture and utilize various data elements to develop
     information for plan administration.

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6.4.2               ENCOUNTER DATA SUBMITTAL

     The Contractor will submit Encounter data to DHS on a monthly basis 90 days
     following the end of the reporting month in which the Encounter occurred as
     specified in the Managed Care Encounter Data Reporting Manual. Encounter
     data will include the data elements as outlined in Attachment 9.4-B,
     Managed Care Encounter Data Reporting Elements of the RFA.

6.4.3               ACCESS TO MIS

     The Contractor will provide on-line read-only access to DHS to the
     Contractor's MIS.

6.4.4               LATE REPORTS

     The Contractor will ensure that, upon written notice by DHS of a late
     report, that they will submit the report within five (5) working days from
     the date of the post mark, or longer if allowed by DHS.

6.4.5               INACCURATE/INSUFFICIENT REPORTS

     The Contractor will ensure that the reports submitted to DHS shall contain
     complete and accurate information as outlined in Attachment 9.4-B of the
     RFA.

     Upon written notice by DHS that a report is insufficient or inaccurate, the
     Contractor will ensure that a corrected report is submitted to DHS within
     fifteen (15) days, or longer if allowed by DHS.

6.5            QUALITY IMPROVEMENT SYSTEM

6.5.1               GENERAL REQUIREMENT

     The Contractor will monitor, evaluate, and take effective action to address
     any needed improvements in the Quality of Care delivered by all
     practitioners providing services on its behalf in all types of settings:
     ambulatory, impatient or home setting. The Contractor will be accountable
     for the quality of health care delivered whether it be preventive, primary,
     specialty, emergency, or ancillary care services regardless of the number
     of contracting and subcontracting layers between the Contractor and the
     individual practitioner delivering care to the Member.

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6.5.1.1             WRITTEN DESCRIPTION

     The Contractor will implement and maintain a written description of its QIP
     which will include the following:

     A.   Organizational commitment to deliver quality health care services,
          goals, and objectives including accreditation of its QIP program,
          which are evaluated and updated annually and include a time table for
          implementation and accomplishment.

     B.   Organizational chart showing the key persons, the committees and
          bodies responsible for Quality Improvement, reporting relationships of
          QIP committees within the Contractor's organization, and provisions
          for support staff including reporting relationships.

     C.   Qualifications of staff responsible for Quality Improvement studies
          and activities including appropriate education, experience and
          training.

     D.   The QIP scope of review, which must include:

          1.   Quality of clinical care services including, but not limited to,
               preventive services, prenatal care, and family planning services.

          2.   Quality of nonclinical services including, but not limited to,
               availability, accessibility, coordination and continuity of care.

          3.   Representation of the entire range of care provided by the
               Contractor including all demographic groups, care settings
               (e.g. Emergency Services, inpatient, ambulatory, and home health
               care) and types of services (e.g. preventive, primary, specialty
               and ancillary).

     E.   A description of specific Quality of Care studies and other activities
          to be undertaken over a prescribed period of time, the responsible
          individuals, organizational resources utilized to accomplish them,
          methodologies to be used, including but not limited to those that
          address health outcomes, and mechanisms for tracking issues over time.

     F.   A description of a system for provider review of the QIP which at a
          minimum demonstrates Physicians' and other professionals' involvement
          and provisions for providing feedback to staff and providers regarding
          performance and outcomes.

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     G.   A description of the annual QIP report will include a summary of all
          QIP studies and other activities completed; trending of clinical and
          service indicators and other performance data; areas of deficiency and
          Corrective Actions undertaken; an evaluation of the overall
          effectiveness of the QIP and evidence that activities have contributed
          to significant improvements in care delivered to Members.

6.5.2          QIP ADMINISTRATIVE SERVICES

6.5.2.1             Accountability

     The Contractor will maintain a system of accountability which includes the
     participation of the Governing Body of the Contractor's organization, the
     designation of a Quality Improvement Committee with oversight and
     performance responsibility, the supervision of activities by the Medical
     Director, the inclusion of contracted Physicians and other providers in the
     process of QIP development and performance review.

6.5.2.2             GOVERNING BODY

     The Contractor will implement and maintain policies that specify the
     responsibilities of the Governing Body including at a minimum the
     following:

     A.   Approves the overall QIP and the annual report of the QIP.

     B.   Appoints an accountable entity or entities within the Contractor's
          organization to provide oversight of the QIP.

     C.   Routinely receives written progress reports from the QIP committee
          describing actions taken, progress in meeting QIP objectives, and
          improvements made.

     D.   Formally reviews, (at least annually), a written report on the QIP
          which includes; studies undertaken, results, subsequent actions, and
          aggregate data on Utilization and quality of services rendered; and
          assess the QIP's continuity, effectiveness, and current acceptability.

     E.   Directs the operational QIP to be modified on an ongoing basis, and
          tracks all review findings for follow-up.

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6.5.2.3             QUALITY IMPROVEMENT COMMITTEE

     The Contractor will implement and maintain a Quality Improvement Committee
     designated by, and accountable to the Governing Body. The role, structure,
     function of this committee will be delineated. The committee will meet at
     least quarterly but as frequently as necessary to demonstrate follow-up on
     all findings and required actions. On a scheduled basis the activities,
     findings, recommendations, and actions of the committee are reported to the
     Governing Body in writing. The Contractor will ensure that minutes of
     committee meetings are submitted to DHS quarterly for review.
     Subcontractors, who are representative of the composition of the contracted
     provider network, will actively participate in the Quality Improvement
     Committee. The Contractor will maintain a process to ensure confidentiality
     of QIP discussions as well as avoidance of conflict of interest on the part
     of the reviewer.

6.5.2.4             MEDICAL DIRECTOR

     The Contractor will ensure that the Medical Director will be directly
     involved in the implementation of Quality Improvement activities.

6.5.2.5             PROVIDER PARTICIPATION

     The Contractor will ensure that Physicians and other health care providers
     will be involved as an integral part of the Quality Improvement program.
     The Contractor will maintain and implement appropriate procedures to keep
     providers informed of the written QIP, its activities and outcomes. The
     Contractor will maintain employment agreements and provider contracts which
     include a requirement securing cooperation with the QIP. The Contractor
     will ensure that contracted hospitals and other subcontractors will allow
     the Contractor access to the Medical Records of its Members.

6.5.2.6             DELEGATION OF QIP ACTIVITIES

     The Contractor is accountable for Quality Improvement even when it
     delegates Quality Improvement activities to its subcontractors. The
     Contractor will maintain a system to ensure accountability of delegated QIP
     activities including:

     A.   Maintenance of policies and procedures which describe delegated
          activities, QIP authority, function, and responsibility, how each
          subcontractor will be informed of its scope of QIP responsibilities,
          and the subcontractor's accountability for delegated activities.

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     B.   Establish reporting standards to include findings and actions taken by
          the subcontractor as a result of the QIP activities with the reporting
          frequency to be at least quarterly.

     C.   Maintenance of written procedures and documentation of continuous
          monitoring and evaluation of the delegated functions, evidence that
          the actual Quality of Care being provided meets professionally
          recognized standards.

     D.   Assurance and documentation that the subcontractor has the
          administrative capacity, task experience, and budgetary resources to
          fulfill its responsibilities.

     E.   The Contractor will approve the delegate's QIP, including its policies
          and procedures which will meet standards set forth by the Contractor.

     F.   The Contractor will ensure that the actual Quality of Care being
          provided is being continuously monitored and evaluated.

6.5.2.7             COORDINATION WITH OTHER MANAGEMENT ACTIVITIES

     The Contractor will implement and maintain Quality Improvement channels and
     facilitate coordination with other performance monitoring activities,
     including risk management and resolution and monitoring of Member
     complaints and Grievances. The Contractor's QIP will maintain linkages with
     other management functions such as network changes, medical management
     systems (i.e. pre-certification), practice feedback to Physicians, patient
     education/health education, Member services, and human resources feedback.

6.5.3          SYSTEMATIC PROCESS OF QUALITY IMPROVEMENT

6.5.3.1             GENERAL REQUIREMENTS

     The Contractor's QIP will objectively and systematically monitor and
     evaluate the quality and appropriateness of care and services rendered on
     an ongoing basis. The Contractor will conduct Quality of Care studies that
     address the quality of clinical care as well as the quality of health
     services delivery. The Contractor will ensure that the studies reflect the
     population served in terms of age groups, disease categories and special
     risk status. These studies will continuously monitor care against practice
     guidelines or clinical standards and will use appropriate Quality
     Indicators as measurable variables. The Contractor will ensure that data
     collected will be analyzed by the appropriate health professionals, and
     system issues will be addressed by multi-disciplinary teams. The Contractor
     will undertake Corrective Actions whenever problems are identified. The
     Contractor will maintain a system for tracking the issues

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     over time to ensure that actions for improvement are effective.

6.5.3.2             QUALITY OF CARE STUDIES

     The Contractor will perform eleven (11) focused studies on an ongoing basis
     as listed below:

     A.   Clinical Areas

          1.   Pediatric preventive services: immunizations and health screens.

          2.   Obstetrical care.

          3.   Adult preventive services.

     B.   Health Services Delivery Areas

          1.   Access to care.

          2.   Utilization of services.

          3.   Coordination of care.

          4.   Continuity of care.

          5.   Health Education.

          6.   Emergency Services.

          7.   Member satisfaction surveys.

          8.   Family planning.

6.5.3.3             STANDARDS AND GUIDELINES

     The Contractor will use the following standards and guidelines for
     Preventive Care as designated by DHS. The Contractor will adopt these
     standards and guidelines as a baseline for assessment against which care
     actually delivered can be compared. For Quality of Care studies in the
     health services delivery areas, the Contractor will use the specific
     standards set forth in the pertinent subsections. The Contractor's Quality
     of Care studies may include health services delivery issues other than the
     eleven (11) priority areas identified. For other clinical or health
     services delivery areas where

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     DHS has not specified clinical standards or practice guidelines, the
     Contractor will submit these standards or guidelines to DHS for approval
     six weeks prior to conducting the studies.

     A.   Pediatric:

          Periodic health screen schedule based on recommendations of the
          American Academy of Pediatrics (AAP) as specified in Title 17, CCR,
          Section 6800 et seq. Child Health and Disability Program (CHDP).
          Immunization schedule based on recommendations of either the Advisory
          Committee on Immunization Practices or the AAP will be acceptable.

     B.   Adult:

          Guidelines based on the Report of the United States Preventive
          Services Task Force.

     C.   Obstetric:

          Minimum standards based on recommendations of the American College of
          Obstetrics and Gynecology. Contractors are further required to provide
          risk assessment and interventions consistent with Comprehensive
          Perinatal Services Program (CPSP) requirements as specified in Title
          22, CCR, Sections 51348 and 51348.1.

6.5.3.4             QUALITY INDICATORS

     The Contractor will use the following Quality Indicators for the required
     studies in preventive services indicated in Section 6.5.3.3.

     A.   Pediatric preventive services:

          Medi-Cal children who had received the required number of
          immunizations in the first two years of life.

     B.   Adult preventive services:

          1.   Medi-Cal women aged 52-64 who had at least one mammogram during
               the past two years.

          2.   Medi-Cal women aged 21-64 who had at least one Pap smear during
               the past 3 years.

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          3.   Medi-Cal Members between ages 20 and 64 screened for cholesterol
               at least once in the past five years.

     C.   Pregnant Women

          1.   Medi-Cal pregnant Members who received adequate prenatal care
               based on:

               a.   The month of pregnancy in which the beneficiary became a
                    Member of the health plan.

               b.   The month of pregnancy in which the initial comprehensive
                    medical/OB visit occurred for each pregnant Member.

               c.   The number of pregnancy related medical/OB visits during
                    pregnancy, exclusive of delivery for each pregnant woman.

               d.   The delivery date for each pregnant Member.

          2.   Outcomes:

               a.   Medi-Cal pregnant women who delivered live births (single or
                    multiple), or still born greater than 20 weeks gestation;
                    by age, race/ethnicity, and risk status (high risk vs.
                    others).

               b.   Live born infants greater than or equal to 20 weeks
                    gestation (linked to a Medi-Cal pregnant Member) who weighs:

                    1.   Up to 1499 grams (VLBW).

                    2.   1500 - 2499 grams (LBW).

                    3.   2500 - 4000 grams

                    4.   > 4000 grams

6.5.3.5        REPORTS

     The Contractor will initiate all Quality of Care studies within six months
     of operation and the progress and/or results of these Quality of Care
     studies will be submitted to DHS contract managers six months after
     initiation of the study (due fifteen (15) days after the end of the first
     year of operation) and at least quarterly updates thereafter.

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     Quarterly updates will be due fifteen (15) days after the end of the
     quarter.

6.5.4          CREDENTIALING AND RECREDENTIALING

6.5.4.1             GENERAL REQUIREMENTS

     The Contractor will develop, and maintain written policies and procedures
     which include initial Credentialing, recredentialing, recertification, and
     reappointment of practitioners. Contractor will ensure that policies and
     procedures are reviewed and approved by the Governing Body, or its
     designee. Contractor will ensure that the responsibility for
     recommendations regarding Credentialing decisions will rest with a
     Credentialing committee or other peer review body.

6.5.4.2             CREDENTIALING

     Contractor will ensure that the initial Credentialing process obtains and
     verifies the following information:

     A.   A current valid license, registration or certificate to practice, a
          valid Drug Enforcement Agency registration number as applicable.

     B.   Graduation from a medical school, completion of a residency, Board
          certified or Board eligible as applicable; education as required.

     C.   Clinical privileges in good standing at the hospital designated by the
          practitioner as the primary admitting Facility (this requirement may
          be waived for practices which do not have or do not need access to
          hospitals), includes review of past history of curtailment or
          suspension of medical staff privileges.

     D.   Work history.

     E.   Professional liability claims history.

     F.   Requested information from: National Practitioner Data Bank and the
          Medical Board of California (MBC).

     G.   Any sanctions imposed by Medi-Cal, Medicaid and Medicare.

     H.   A signed statement by the practitioner at time of application
          regarding any physical or mental health problems, any history of
          chemical dependency/substance abuse, history of loss of license and/or
          felony convictions, history of loss or limitation of privileges or
          disciplinary actions.

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     As part of the initial Credentialing procedure, the Contractor will conduct
     site reviews of each potential Primary Care Physician's office.

6.5.4.3             RECREDENTIALING

     The Contractor will develop and maintain policies and procedures
     delineating the process for periodic reverification of clinical
     credentials. The Contractor will ensure that recredentialing occurs at
     least every two years. The Contractor will ensure that the process includes
     a review of all areas reviewed for Credentialing, excluding previously
     researched past history, a performance review which includes data from
     Member complaints, results of quality reviews, Utilization management,
     Member satisfaction surveys, and a site visit to Primary Care Physicians'
     Facilities will also be included in the recredentialing process.

6.5.4.4             DELEGATED CREDENTIALING

     The Contractor will ensure the qualifications of all network practitioners,
     approve new providers and sites, and terminate or suspend individual
     providers. The Contractor may delegate Credentialing and recredentialing
     activities but will monitor the completion and effectiveness of the
     delegated process, If the Contractor delegates Credentialing and
     recredentialing activities, the Contractor will implement and maintain
     policies and procedures which delineate the delegated activities and
     responsibility for these activities.

6.5.4.5             DISCIPLINARY ACTIONS

     The Contractor will implement and maintain a system for the reporting of
     serious quality deficiencies which result in suspension or termination of a
     practitioner to the appropriate authorities. The Contractor will implement
     and maintain policies and procedures for disciplinary actions including,
     reducing, suspending, or terminating a practitioner's privileges.
     Contractor will implement and maintain a provider appeal process. The
     Contractor will ensure that any providers impacted by adverse
     determinations will be provided due process through the Contractor's
     provider appeal process.

6.5.5          FACILITY REVIEW

6.5.5.1             GENERAL REQUIREMENT

     The Contractor will conduct Facility reviews on all Primary Care Provider's
     sites as part of the Credentialing procedures.

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6.5.5.2             REVIEW PROCEDURES

     The Contractor will ensure that its Facility review procedures will be
     submitted to DHS for approval prior to use and will comply with all of DHS
     requirements which include the following categories:

     A.   Front office procedures including:

          1.   Telephone access, triage/advice.

          2.   Appointment scheduling.

          3.   Missed appointment and follow-up.

          4.   Referral appointment and follow-up.

          5.   Referral (consultation) reports, lab and X-ray follow-up.

     B.   Fire and disaster plan.

     C.   Infection control.

     D.   Handling of bio-hazardous wastes.

     E.   Health education.

     F.   Medical emergencies.

     G.   Pharmacy policies (including handling of sample drugs).

     H.   Medical Records storage and filing.

     I.   Medical Records documentation.

     J.   Grievances.

     K.   Laboratory services.

     L.   Radiological services.

     M.   Preventive services for children, adults and pregnant women.

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     N.   Facility access for physically disabled individuals.

     O.   Human sterilization consent procedures.

6.5.5.3             NUMBER OF SITES TO BE REVIEWED PRIOR TO OPERATIONS

     The Contractor will ensure that Facility reviews are completed on at least
     25 % of the total number of Primary Care sites or a minimum of 30 sites
     prior to initiating plan operation or new site expansion. Contractors with
     30 sites or less, will complete Facility reviews on all sites prior to
     initiating operation. The Contractor with NCQA or JCAHO accreditation is
     exempted from this requirement.

6.5.5.4             NUMBER OF SITES TO BE REVIEWED AFTER OPERATIONS BEGIN

     The Contractor, regardless of NCQA or JCAHO accreditation, will complete
     Facility reviews on all (100%) Primary Care sites within 6 months after
     plan operation and will conduct ongoing Facility reviews as part of the
     recredentialing process.

6.5.5.5             DHS FACILITY INSPECTIONS

     Contractor will provide any necessary assistance to DHS in its conduct of
     Facility inspections and medical reviews of the Quality of Care being
     provided to Members. Contractor will ensure correction of deficiencies as
     identified by those inspections and reviews according to the frames
     delineated in the resulting reports.

6.5.5.6             CORRECTIVE ACTIONS

     The Contractor will take Corrective Actions if a DHS inspection finds a
     Primary Care site to be in substantial non-compliance. Contractor will
     ensure that Primary Care sites with major, uncorrected deficiencies are not
     allowed to begin operation.

6.5.5.7             CONTINUING OVERSIGHT

     The Contractor will remain responsible for the oversight and monitoring of
     delegated Facility review activities.

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6.5.6          MEMBERS RIGHTS AND RESPONSIBILITIES

6.5.6.1             GENERAL REQUIREMENT

     The Contractor will develop, implement and maintain written policies that
     address the Member's rights and responsibilities and will communicate these
     to its Members and providers.

6.5.6.2             WRITTEN POLICY: MEMBER'S RIGHTS

     The Contractor's written policy regarding Member rights will include the
     Member's right to be treated with respect, to be provided with information
     about the organization and its services, to be able to choose a Primary
     Care Physician within the Contractor's network, to participate in decision
     making regarding their own health care, to voice Grievances about the
     organization or the care received, to formulate advance directives, to have
     access to family planning services, FQHC, Indian Health, STD services and
     Emergency Services outside the Contractor's network pursuant to the federal
     law, the right to request a fair hearing, to have access to their Medical
     Record, and to disenroll.

6.5.6.3             WRITTEN POLICY: MEMBER'S RESPONSIBILITY

     The Contractor's written policy regarding Member responsibilities will
     include providing accurate information to the professional staff, following
     instructions, and cooperating with the providers.

6.5.6.4             MEMBER'S GRIEVANCE SYSTEM

     The Contractor will implement and maintain procedures to monitor the
     Members' Grievance system which includes:

     A.   Procedure to ensure timely resolution and feedback to complainant. The
          Contractor will acknowledge receipt of the complaint within 5 days and
          resolve the complaint within 30 days or document reasonable efforts to
          resolve the complaint.

     B.   Procedure for systematic aggregation and analysis of the Grievance
          data and use for Quality Improvement.

     C.   Procedure to ensure that the Grievance submitted is reported to an
          appropriate level, i.e., medical issues versus health care delivery
          issues.

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6.5.6.5             MEMBER'S RIGHT TO CONFIDENTIALITY

     The Contractor will implement and maintain policies and procedures to
     ensure the Members' right to confidentiality of medical information.

     A.   The Contractor will ensure that Facilities implement and maintain
          procedures that guard against disclosure of confidential information
          to unauthorized persons inside and outside the network.

     B.   Contractor will counsel Members on their right to confidentiality and
          the Contractor will obtain Member's consent prior to release of
          confidential information.

     C.   The Contractor will implement and maintain procedures to ensure the
          Members' confidentiality when accessing Sensitive Services such as
          family planning, STD, abortion and HIV testing.

6.5.6.6             MINOR'S RIGHTS AND SERVICES

     The Contractor will implement and maintain policies and procedures on
     providing treatment services to minors and their right to access Minor
     Consent Services.

6.5.6.7             MEMBER SATISFACTION SURVEYS

     The Contractor will conduct surveys of Member satisfaction with its
     services, at least annually:

     A.   At a minimum, the surveys will include the following groups of
          Members: Members filing Grievance/complaints, Members requesting
          change of providers or Facilities, groups who speak a primary language
          other than English meeting threshold levels, and Members requesting
          Disenrollment from the Contractor.

     B.   The Contractor's Member survey will identify perceived problems in
          quality, availability and accessibility of care as well as reasons for
          Member's accessing care from an out-of-plan provider, e.g., family
          planning services.

     C.   The Contractor will use the survey to identify sources of
          dissatisfaction, outline action steps to follow up on the findings,
          inform providers of the results, and reevaluate the effects of the
          actions taken.

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6.5.7          AVAILABILITY AND ACCESSIBILITY

6.5.7.1             GENERAL REQUIREMENT

     The Contractor will implement and maintain procedures for Members to obtain
     appointments for routine care, Urgent Care, emergency care, prenatal care,
     CHDP periodic health screens, adult initial health assessments, and
     procedures for obtaining appointments with specialists.

6.5.7.2             EMERGENCY CARE

     The Contractor will ensure that a Member with an Emergency Condition as
     defined in Article II, Definitions, will be seen immediately and Emergency
     Services will be available and accessible within the Service Area 24 hours
     a day. The Contractor will ensure adequate follow-up care for those Members
     who require non-emergent care and who are denied services in the emergency
     room.

6.5.7.3             URGENT CARE

     The Contractor will ensure that a Member needing Urgent Care will be seen
     within 48 hours upon request.

6.5.7.4             FIRST PRENATAL VISIT

     The Contractor will ensure that the first prenatal visit for a pregnant
     Member will be available within a week upon request.

6.5.7.5             WAITING TIMES

     The Contractor will develop, implement, and maintain a procedure to monitor
     waiting times in the providers' offices, telephone calls (to answer and
     return), and in obtaining various types of appointments as indicated in
     Section 6.5.7.1.

6.5.7.6             TELEPHONE PROCEDURES

     The Contractor will maintain a procedure for triaging Members' telephone
     calls and providing telephone medical advice.

6.5.7.7             AFTER HOURS CALLS

     At a minimum, Contractor will ensure that a Physician or a Nurse under his
     (her) supervision will be available for after-hours calls.

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6.5.7.8             SENSITIVE SERVICES

     The Contractor will implement and maintain procedures to ensure ready
     access to Sensitive Services for adult and adolescent Members. Adolescent
     Members will be able to access Sensitive Services without parental consent
     and through a provider other than the Primary Care Physician if so
     requested. Adults will be able to access Sensitive Services in a timely
     manner and without barriers such as Prior Authorization requirements.

6.5.7.9             ACCESS FOR DISABLED MEMBERS

     The Contractor's Facilities will comply with the requirements of Title III
     of the Americans with Disabilities Act of 1990, and will ensure access for
     the disabled which includes, but is not limited to, ramps, elevators,
     restrooms, designated parking spaces, and drinking water provision.

6.5.7.10            UNUSUAL SPECIALTY SERVICES

     The Contractor will arrange for the provision of seldom used or unusual
     specialty services from specialists outside the network when determined
     Medically Necessary.

6.5.8          MEDICAL RECORDS

6.5.8.1             GENERAL REQUIREMENT

     The Contractor will ensure that appropriate Medical Records for the Member
     will be available to health care providers at each Encounter.

6.5.8.2             MEDICAL RECORDS PROCEDURES

     The Contractor will implement and maintain the following:

               A.   Procedures for storage and filing of Medical Records
                    including: collection, processing, maintenance, storage,
                    retrieval identification, and distribution.

               B.   A written policy to ensure that Medical Records are
                    protected and confidential.

               C.   Written procedures for release of information and obtaining
                    consent for treatment.

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               D.   Policies and procedures to ensure maintenance of Medical
                    Records in a legible, current, detailed, organized and
                    comprehensive manner (records may be electronic or hard
                    copy).

6.5.8.3             ON-SITE MEDICAL RECORDS

     The Contractor will ensure that an individual will be delegated the
     responsibility of securing and maintaining Medical Records at each site.

6.5.8.4             MEMBER MEDICAL RECORD

     The Contractor will ensure that a complete Medical Record will be
     maintained for each Member in accordance with Title 22, CCR, Section 53284,
     and it will reflect all aspects of patient care, including ancillary
     services, and at a minimum will include:

     A.   Member identification on each page; personal/biographical data in the
          record.

     B.   All entries dated and author identified; the entries will include at a
          minimum, the subjective complaints, the objective findings, and the
          plan for diagnosis and treatment.

     C.   The record will contain a problem list, a complete record of
          immunizations and health maintenance or preventive services rendered.

     D.   Allergies and adverse reactions are prominently noted in the record.

     E.   All informed consent documentation, including the human sterilization
          consent procedures required by Title 22, CCR, Sections 51305.1
          through 51305.6, if applicable.

     F.   All emergency care provided (directly by the contracted provider or
          through a emergency room) and the hospital discharge summaries for all
          hospital admissions while the patient is enrolled.

     G.   All consultations, referrals, and specialists' reports, and all
          pathology and laboratory reports. Any abnormal results will have an
          explicit notation in the record.

     H.   For Medical Records of adults, documentation of whether the individual
          has been informed and has executed an advanced directive such as a
          Durable Power of Attorney for Health Care.

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     I.   Request or refusal of language/interpretation services.

     J.   Health education behavioral assessment and referrals to health
          education services. For patients 12 years or older, a notation
          concerning use of cigarettes, alcohol, and substance abuse, health
          education or counseling and anticipatory guidance.

6.5.8.5             MEDICAL RECORDS REVIEW

     The Contractor will implement and maintain a system to review records for
     compliance with Medical Records standards, and institute a Corrective
     Action when necessary. The Contractor will ensure that Medical Records will
     be reviewed for:

          A.   Uniformity of forms.

          B.   Legibility (the record is legible to a person other than the
               writer).

          C.   Completeness.

          D.   Quality and appropriateness of services provided.

          E.   Immunizations.

          F.   Preventive health screening.

6.5.9          UTILIZATION MANAGEMENT

6.5.9.1             GENERAL REQUIREMENT

     The Contractor will develop, implement and maintain a Utilization
     Management (UM) program which includes list of services that require Prior
     Authorization, persons responsible for UM and their qualifications,
     procedures to evaluate Medical Necessity, criteria used for approval,
     referral and denial of services, information sources, and the process used
     to review and approve the provision of medical services.

6.5.9.2             UNDER AND OVER-UTILIZATION

     The Contractor will ensure that the UM program has mechanisms to detect
     both under and over-utilization of services.

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6.5.9.3             PRE-AUTHORIZATION/REVIEW PROCEDURES

     The Contractor will ensure that its pre-authorization and concurrent review
     procedures will meet the following minimum requirements:

          A.   Review decisions are supervised by qualified medical
               professionals and all denials will be reviewed by a qualified
               Physician.

          B.   There is a set of written criteria or guidelines for Utilization
               Review that is based on sound medical evidence, is updated
               regularly and consistently applied.

          C.   Reasons for decisions are clearly documented.

          D.   There is a well-publicized appeals procedure for both providers
               and patients.

          E.   Decisions and appeals are made in a timely manner.

6.5.9.4             EXCEPTIONS TO PRIOR AUTHORIZATION REQUIREMENT

     The Contractor will ensure that Prior Authorization requirements are not
     applied to Emergency Services, family planning services, preventive
     services, sensitive and confidential services and basic prenatal care.

6.5.9.5             DELEGATING UM ACTIVITIES

     Contractor will ensure that delegated UM activities to subcontractors are
     approved and regularly evaluated. Contractor will ensure that this process
     is documented.

6.5.10         CONTINUITY OF CARE AND CASE MANAGEMENT

6.5.10.1            MEDICAL CASE MANAGEMENT

     The Contractor will provide basic medical case management to each Member.

6.5.10.2            INITIAL HEALTH ASSESSMENT

     The Contractor will develop, implement, and maintain procedures for the
     performance of initial health assessment for each Member within 120 days of
     Enrollment.

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6.5.10.3            REFERRALS AND FOLLOW-UP CARE

     The Contractor will develop, implement, and maintain an adequate system for
     tracking all referrals and follow-up care.

6.5.10.4            COORDINATION OF CARE

     The Contractor will maintain procedures for monitoring the coordination of
     care provided to the Member, including but not limited to coordination of
     discharge planning from inpatient Facilities, and coordination of all
     Medically Necessary services both within and outside the Contractor's
     provider network.

6.5.10.5            MISSED/BROKEN APPOINTMENTS

     The Contractor will implement and maintain policies and procedures to
     follow-up on missed/broken appointments.

6.5.10.6            CONTINUITY OF CARE

     The Contractor will ensure continuity of care from the Ambulatory Care
     setting to the inpatient care setting.

6.5.11         INPATIENT CARE

6.5.11.1            GENERAL REQUIREMENT

     The Contractor will implement and maintain procedures to monitor Quality of
     Care provided in an inpatient setting to its Members. If the Contractor
     delegates the QI functions to hospitals, the Contractor will maintain
     procedures to monitor the delegated function, including review of services
     provided by its Physicians within the hospital.

6.5.12         INFECTION CONTROL

6.5.12.1            INFECTION CONTROL PLAN

     The Contractor will implement and maintain an effective plan for the
     surveillance, prevention and control of infection. The Contractor will
     ensure that this plan will include the scope (both patient care and support
     services) the persons responsible, the policies and procedures and
     frequency of review (at least every 2 years), the role and responsibilities
     of each service, the monitoring activities, and approval by the Governing
     Body.

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6.5.12.2            INFECTION CONTROL POLICIES AND PROCEDURES

     The Contractor will implement and maintain policies for prevention and
     control of infection transmission in patients and personnel which include:

     A.   Application of universal precaution procedures.

     B.   The availability of adequate infection control devices and supplies in
          the patient areas.

     C.   Infectious or biohazardous waste disposal procedures complying with
          applicable State and federal regulations.

     D.   Isolation precautions and procedures.

     E.   Cleaning and sterilization methods, agents, and schedules; including
          maintenance of autoclave, spore testing, storage of sterile packs,
          etc.

     F.   Training and continuing education of all personnel.

6.5.12.3            REVIEW OF PATIENT INFECTIONS

     The Contractor will ensure the review of patient infections that present
     the potential for prevention or intervention to reduce the risk of future
     occurrence.

6.5.12.4            REPORTING PROCEDURES

     The Contractor will implement and maintain a procedure for reporting
     infectious diseases to public health authorities as required by State law.

6.5.12.5            SUBCONTRACTS

     The Contractor will ensure that its infection control policies are
     communicated to its subcontractors and monitor its subcontractors for
     compliance.

6.6            PROVIDER NETWORK AND GEOGRAPHIC ACCESS

6.6.1               TIME AND DISTANCE STANDARD

     Contractor will maintain a network of Primary Care Physicians which are
     located within thirty (30) minutes or ten (10) miles of a Member's
     residence unless the Contractor has a DHS approved alternative time and
     distance standard.

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6.6.2               NETWORK CAPACITY

     The Contractor will maintain a provider network adequate to serve sixty
     percent (60%) of the Eligible Beneficiaries in the proposed county and
     provide the full scope of benefits. Contractor will increase the capacity
     of the network as necessary to accommodate Enrollment growth beyond the
     sixty percent (60%). However, after the first twelve months of operation,
     if Enrollments do not achieve seventy-five (75%) of the required network
     capacity, the Contractor's total network capacity requirement may be
     renegotiated.

6.6.3               NETWORK COMPOSITION

     The Contractor will maintain an adequate number of inpatient Facilities,
     Service Locations, Service Sites, professional, allied, specialist and
     supportive paramedical personnel within their network to provide Covered
     Services to its Members.

6.6.4               ACCESS REQUIREMENTS

     The Contractor will ensure Members access to all Medically Necessary
     specialists through staffing, subcontracting, or referral. Contractor will
     ensure adequate staff within the Service Area, including Physicians,
     administrative and other support staff directly and/or through
     Subcontracts, sufficient to assure that health services will be provided
     consistent with all specified requirements.

6.6.5               SPECIALISTS

     The Contractor will maintain adequate numbers and types of specialists
     within their network to accommodate the need for specialty care. Contractor
     will provide a recording/tracking mechanism for each authorized, denied, or
     modified referral. In addition, the Contractor will offer second opinions
     by Specialists to any Member upon request.

6.6.6               PROVIDER TO MEMBER RATIOS

     The Contractor will ensure that networks will satisfy the following full
     time equivalent provider to Member ratios:

     A.   Primary Care Physicians               1:2,000
     B.   Total Physicians                      1:1,200
     C.   Non-Physician Medical Practitioner    1:1,000

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6.6.7               PHYSICIAN SUPERVISOR TO NON-PHYSICIAN MEDICAL PRACTITIONER
                    RATIOS

     Contractor will ensure compliance with Title 22, CCR, Sections 51240 and
     51241, and that full time equivalent Physician Supervisor to Non-Physician
     Medical Practitioner ratios do not exceed the following:

     A.   Nurse Practitioners           1:4
     B.   Midwives                      1:3
     C.   Physician Assistants          1:2
     D.   Four (4) Non-Physician Medical Practitioners in any combination that
          does not include more than three nurse midwives or two physician
          assistants and maintains the full time equivalence limits.

6.6.8               SUBCONTRACTS

     The Contractor will execute Subcontracts pursuant to the requirements
     contained in Article III, Section 3.27, Subcontracts and Title 22, CCR,
     Section 53250.

6.6.9               TRADITIONAL AND SAFETY-NET PROVIDERS PARTICIPATION

     The Contractor will ensure the participation and broad representation of
     traditional and safety-net providers within the county. Federally Qualified
     Health Centers meet the definitions of both traditional and safety-net
     providers.

6.6.10              TRADITIONAL AND SAFETY-NET PROVIDER CAPACITY

     The Contractor will maintain the percentage of traditional and safety-net
     provider capacity submitted and approved by DHS.

6.6.11              EXISTING PATIENT-PHYSICIAN RELATIONSHIPS

     The Contractor will ensure that no traditional or safety-net provider, upon
     entry into the Contractor's network, suffers any disruption of existing
     patient-physician relationships, to the maximum extent possible. The
     Contractor will ensure that Members may choose traditional and safety-net
     providers as their Primary Care Physician. Contractor will submit a plan
     that proportionately includes contracting traditional and safety-net
     providers in the assignment process for Members who do not choose a Primary
     Care Physician.

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6.6.12              MONTHLY REPORT

     The Contractor will submit to DHS on a monthly basis, in a format specified
     by DHS, a report summarizing changes in the provider network. The report
     will identify provider deletions and additions and the resulting impact to:
     1) geographic access for the Members; 2) cultural and linguistic services;
     3) the targeted percentage of traditional and safety-net providers; 4) the
     ethnic composition of providers; and 5) the number of Members assigned to
     Primary Care Physicians and the percentage of Members assigned to
     traditional and safety-net providers. The Contractor will submit the report
     thirty (30) days following the end of the reporting month.

6.6.13              CONTRACT AND EMPLOYMENT TERMINATIONS

     Contractor will also ensure that provider contract or employment
     terminations do not adversely affect the ethnic composition of their
     provider network.

6.6.14              UTILIZATION OF DSH HOSPITALS

     The Contractor will increase Utilization of Disproportionate Share
     Hospitals by Members to a level specified by DHS upon notification. DHS
     will only impose this requirement if the Utilization of Disproportionate
     Share Hospitals has decreased in such magnitude as to jeopardize
     disproportionate status of hospitals in the county.

6.6.15              ADEQUATE FACILITIES AND PERSONNEL

     Contractor will demonstrate the continuous availability and accessibility
     of adequate numbers of institutional Facilities, Service Locations, Service
     Sites, and professional, allied, and supportive paramedical personnel to
     provide Covered Services including the provision of all medical care
     necessary under emergency circumstances on a 24-hour-a-day, 7-day-a-week
     basis. The Contractor will ensure that a plan Physician is available 24
     hours a day for timely authorization of Medically Necessary care and to
     coordinate transfer of stabilized Members in the emergency department, if
     necessary. The Contractor will have as a minimum a designated Emergency
     Services Facility, providing care on a 24-hour-a-day, 7-day-a-week basis.
     This designated Emergency Services Facility will have one or more
     Physicians and one Nurse on duty in the Facility at all times.

6.6.16              EMERGENCY SERVICE PROVIDERS

     Contractor will pay for Emergency Services received by a Member from
     non-Contractor providers. Payments to non-Contractor providers will be for
     the treatment of the emergency medical condition including Medically
     Necessary services

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     rendered to a Member until the Member's condition has stabilized
     sufficiently to permit discharge, or referral and transfer in accordance
     with instructions from the Contractor. Emergency Services will not be
     subject to Prior Authorization by the Contractor.

     The Contractor will pay for those services provided by a non-Contractor
     emergency department (ED) that are required to determine whether treatment
     of the Member's condition qualifies as an Emergency Service. At a minimum,
     the Contractor must reimburse the non-Contractor ED and, if applicable, its
     affiliated providers for Physician services at the lowest level of
     evaluation and management CPT (Physician's Current Procedural Terminology)
     codes, unless a higher level is clearly supported by documentation, and for
     the Facility fee and diagnostic services such as laboratory and radiology.

     Payment by the Contractor for properly documented claims for services
     rendered by a non-Contractor provider pursuant to this section will be made
     in accordance with Article III, Section 3.27.9, and will not exceed the
     lower of the following rates applicable at the time the services were
     rendered by the provider:

     A.   The usual charges made to the general public by the provider.

     B.   The maximum Fee-For-Service rates for similar services under the
          Medi-Cal Program.

     Disputed claims may be submitted to DHS for resolution under the provisions
     of Section 14454, W&I Code and Title 22, CCR, Sections 53620 through 53702.
     The Contractor agrees to abide by the findings of DHS in such cases, to
     promptly reimburse the non-Contractor provider within 30 days of the
     effective date of a decision that the Contractor is liable for payment of a
     claim and to provide proof of reimbursement in such form as the Director
     may require. Failure to reimburse the non-Contractor provider and provide
     proof of reimbursement to DHS within 30 days will result in liability
     offsets in accordance with Title 22, CCR, Section 53702.

6.6.17              USERS MANUAL AND BULLETINS

     Contractor will issue a Users Manual and Bulletins (updates) to the
     providers of Medi-Cal services. The manual and bulletins shall serve as a
     source of information to health care providers regarding Medi-Cal services,
     policies and procedures, statutes, regulations, telephone access and
     special requirements.

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6.6.18              PROVIDER TRAINING

     Contractor will ensure that all providers receive training regarding the
     Medi-Cal Managed Care program in order to operate in full compliance with
     the Contract and all applicable Federal and State regulations. Contractor
     will ensure that provider training relates to Medi-Cal Managed Care
     services, policies, procedures and any modifications to existing services,
     policies or procedures. Contractor will conduct training for all providers
     within ten (10) days after the Contractor places a newly contracted
     provider on active status. Contractor will ensure that ongoing training is
     conducted when deemed necessary by either the Contractor or the State.

6.6.19              FQHC SERVICES

     Contractor will meet federal requirements for access and reimbursement for
     FQHC services, including those in 42 United States Code Section 1396 b(m)
     and Medicaid Regional Memorandum 93-13. If FQHC services are not available
     in the provider network of either Medi-Cal managed care contractor in the
     county, the Contractor will reimburse FQHCs for services provided
     out-of-plan to the Contractor's Members at the interim FQHC rate determined
     by DHS.

     For family planning and Emergency Services, the provisions of Sections
     6.6.16 and 6.7.4.5 through 6.7.4.9 apply.

6.6.20              FQHC SUBCONTRACTS

     Any Subcontract with an FQHC will specify reimbursement on the basis of
     reasonable cost or at-risk capitation, and notwithstanding Article III,
     Section 3.27.4, the Contractor will submit it to DHS for approval of the
     reimbursement provision prior to implementation.

     If the Subcontract reimbursement is based on reasonable cost, the
     Contractor will demonstrate that the rate to be paid by the Contractor is a
     reasonable equivalent to the interim FQHC rate determined by DHS. The
     Subcontract will specify that the reimbursement from the Contractor does
     not constitute payment in full to the FQHC and that the FQHC will be
     entitled to cost reconciliation by DHS. The Subcontract will also require
     the FQHC to keep a record of the number of visits by plan Members separate
     from FFS Medi-Cal beneficiaries, in addition to any other data reporting
     requirements. DHS will perform the reconciliation to determine the FQHC's
     reasonable costs and will pay to or recover from the FQHC the difference
     between the amount reimbursed by the Contractor and the FQHC's reasonable
     costs.

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     If the subcontract reimbursement is at-risk capitation, the Subcontract
     must specify that the capitation is total payment. If reimbursement is
     at-risk capitation, DHS will not perform the reconciliation and will not
     pay the FQHC's reasonable costs.

6.6.21              INDIAN HEALTH SERVICES FACILITIES

     The Contractor will reimburse out-of-plan Indian Health Service Facilities
     for services provided to Members who are qualified to receive services from
     an Indian Health Service Facility. The Contractor will reimburse the
     out-of-plan Indian Health Service Facility at the approved Medi-Cal rate
     for that Facility.

     The requirements in Section 6.6.19 apply to any Indian Health Service
     Facility which is also an FQHC.

6.6.22              VISION CARE SERVICES

     Contractor will ensure a vision care services system, consistent with good
     professional practice, which provides that a Member may be seen initially
     by either of the following:

     A.   An optometrist or an ophthalmologist.

     B.   A Primary Care Physician before referral to an optometrist or an
          ophthalmologist.

     Contractor will provide ophthalmic lenses in accordance with Section
     6.7.3.6.

6.6.23              SUBCONTRACTOR SERVICES

     The Contractor will not prohibit any subcontractor from providing services
     to Medi-Cal beneficiaries who are not Members of the Contractor's plan.

6.6.24              EMERGENCY DEPARTMENT PROTOCOLS

     Contractor will develop and maintain protocols for communicating and
     interacting with emergency departments. Protocols will be distributed to
     all emergency departments in the contracted Service Area and will include
     at a minimum the following:

     A.   Description of telephone access, triage and advice systems used by the
          Contractor.

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     B.   A plan contact person responsible for coordinating services that can
          be accessed 24 hours a day.

     C.   Process for rapid interfacing with emergency care systems.

     D.   Referral procedures (including after-hours instruction) which
          emergency department personnel can provide to Medi-Cal Members who
          present at the emergency department for non-emergency services.

     E.   Procedures for emergency departments to report system and/or protocol
          failures and process for ensuring Corrective Action.

6.7            SCOPE OF SERVICES/MEDICAL STANDARDS/HEALTH EDUCATION

6.7.1          COVERED SERVICES

6.7.1.1             GENERAL REQUIREMENTS

     The Contractor will provide or arrange for all Medically Necessary Covered
     Services for Members. Covered Services are those services set forth in
     Title 22, CCR, Chapter 3, Article 4, beginning with Section 51301 and Title
     17, CCR, Division 1, Chapter 4, Subchapter 13, beginning with Section 6840,
     unless otherwise specifically excluded under the terms of this Contract.
     The Contractor will ensure that the medical necessity of Covered Services
     is determined through Utilization control procedures established in
     accordance with Sections 6.5.9.3 and 6.5.9.4, unless specific Utilization
     control requirements are included as a term of the Contract under sections
     applicable to specific services.

6.7.1.2             REFERRAL SERVICES

     The Contractor will arrange for the timely referral and coordination of
     those services to which the Contractor or subcontractor has religious or
     ethical objections to perform or otherwise support and will demonstrate
     ability to arrange, coordinate and ensure provision of services through
     referrals at no additional expense to DHS.

6.7.2          EXCLUDED SERVICES: CIRCUMSTANCES UNDER WHICH MEMBER DISENROLLED

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6.7.2.1             MAJOR ORGAN TRANSPLANTS

     Major organ transplant procedures are not covered under the Contract. These
     procedures are bone marrow transplants, heart transplants, liver
     transplants, lung transplants, heart/lung transplants, combined liver and
     kidney transplants, combined liver and small bowel transplants.

     When a Member is identified as a potential transplant candidate, the
     Contractor will refer the Member to a Medi-Cal approved transplant center.
     If the transplant center Physician considers the Member to be a suitable
     candidate, the Contractor will submit a Prior Authorization Request to
     either the Medi-Cal Field Office (for adults) or the California Children
     Services Program (for children) for approval. The Contractor will initiate
     Disenrollment of the Member when all of the following has occurred:
     referral of the Member to the organ transplant Facility, the Facility's
     evaluation concurred that the Member is a candidate for an organ transplant
     and the transplant is authorized by either DHS' Medi-Cal Field Office (for
     adults) or the California Children Services Program (for children).

     Upon Disenrollment, the Contractor will ensure continuity of care by
     transferring all of the Member's medical documentation to the transplant
     Physician. The effective date of the Disenrollment will be retroactive to
     the beginning of the month in which the transplant is approved. All
     services provided during this month will be billed FFS.

     If the Member is evaluated and determined not to be a candidate for a major
     organ transplant or DHS denies authorization for a transplant, the Member
     will not be disenrolled. The cost of the evaluation and responsibility for
     the continuing treatment of the Member will remain with the Contractor.

6.7.2.2             WAIVER PROGRAMS

     The Contractor will maintain systems for identifying and referring Members
     to the appropriate waiver program. If the agency administering the waiver
     program concurs with the Contractor's assessment of the Member and there is
     available placement in the waiver program, the Contractor will initiate
     Disenrollment for the Member. The Contractor will provide documentation to
     ensure the Member's orderly transfer to the Medi-Cal Fee-For-Service
     program. If the Member does not meet the criteria for the waiver program,
     or if placement is not available, the Contractor will continue to case
     manage and provide all Medically Necessary services to the Member.

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6.7.2.3             LONG TERM CARE (LTC)

     Contractor will ensure that Members, other than Members requesting hospice
     services, in need of nursing Facility services are placed in Facilities
     providing the appropriate level of care commensurate with the Member's
     medical needs. These Facilities include Skilled Nursing Facilities,
     subacute Facilities, pediatric subacute Facilities, and Intermediate Care
     Facilities. The Contractor will base decisions on the appropriate level of
     care on the definitions set forth in Title 22, CCR, Sections 51118, 51120,
     51120.5, 51121, 51124.5, and 51124.6 and the criteria for admission set
     forth in Title 22, CCR, Sections 51335, 51335.5, 51335.6, and 51334 and
     related sections of the Manual of Criteria for Medi-Cal Authorization
     referenced in Title 22, CCR, 51003(e).

     The Contractor will assess the projected length of stay of the Member upon
     admission to an appropriate Facility. If the Member will require long term
     care, care in the Facility for longer than the month of admission plus one
     month, the Contractor will submit a Disenrollment request for the Member
     to DHS for approval. The Contractor will provide all Medically Necessary
     Covered Services to the Member until the Disenrollment is effective. An
     approved Disenrollment request will become effective the first day of the
     second month following the month of the Member's admission to the Facility,
     provided the Contractor submitted the Disenrollment request at least 30
     days prior to that date. If the Contractor submitted the Disenrollment
     request less than 30 days prior to that date, Disenrollment will be
     effective the first day of the month that begins at least 30 days after
     submission of the Disenrollment request. Upon Disenrollment, the
     Contractor will ensure the Member's orderly transfer from the Contractor to
     the Medi-Cal Fee-For-Service program.

     Admission to a nursing Facility of a Member who has elected hospice
     services as described in Title 22, CCR, Section 51349, does not affect the
     Member's eligibility for Enrollment under this Contract. Hospice services
     are Covered Services under this Contract and are not long term care
     services regardless of the Member's expected or actual length of stay in a
     nursing Facility.

6.7.3          EXCLUDED SERVICES: CIRCUMSTANCES UNDER WHICH MEMBER ENROLLED WITH
               SERVICE CARVE OUT

6.7.3.1             MISCELLANEOUS SERVICE CARVE OUTS

     Acupuncture services, adult day health care services, chiropractic
     services, and healing by prayer or spiritual means are not Covered Services
     under this Contract. The Contractor may, upon request, refer Members to
     these services.

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     Local Education Agency (LEA) assessment services provided to any student
     and any LEA services provided pursuant to an Individual Education Plan
     (IEP) or Individual Family Service Plan (IFSP) are not covered under the
     Contract.

6.7.3.2             CALIFORNIA CHILDREN SERVICES (CCS)

     CCS services are not covered under this Contract. The Contractor will
     identify children with CCS eligible conditions, arrange for their referral
     to the local CCS office, and will continue to provide case management of
     the children until eligibility is established with the CCS program. The
     Contractor will provide Primary Care and other services unrelated to the
     CCS eligible condition and will ensure the coordination of services between
     its Primary Care Providers, the CCS specialty providers, and the local CCS
     program.

6.7.3.3             MENTAL HEALTH

     The following mental health services are excluded from the Contract: all of
     SD/MC mental services (inpatient and outpatient); FFS/MC outpatient mental
     health services provided by psychiatrists and psychologists; FFS/MC
     inpatient mental health services. Effective June 1, 1996 all
     psychotherapeutic drugs prescribed by psychiatrists will be excluded.

     The Contractor will provide outpatient mental health services within the
     Primary Care Physician's scope of practice. The Contractor will refer
     Members who need specialty mental health services to the appropriate FFS/MC
     mental health provider or to the appropriate SD/MC provider. The Contractor
     will case manage the physical health of the Member and coordinate services
     with the mental health provider of the Member. Effective June 1, 1996 the
     Contractor will provide all psychotherapeutic drugs prescribed by its
     primary care physicians, but will not longer be responsible for
     psychotherapeutic drugs prescribed by psychiatrists.

6.7.3.4             ALCOHOL AND DRUG TREATMENT SERVICES

     Alcohol and drug treatment services available under the Short-Doyle
     Medi-Cal (SD/MC) program as defined in Title 22, CCR, Section 51341(a) and
     (c) and outpatient heroin detoxification as defined in Title 22, CCR,
     Section 51328 are excluded from this Contract.

     The Contractor will arrange and coordinate Medically Necessary services,
     including referral of Members requiring alcohol and drug treatment to SD/MC
     alcohol and drug treatment programs including outpatient heroin
     detoxification providers. The Contractor will assist Members in locating
     available treatment Service Sites. To the

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     extent that treatment slots are not available within the Contractor's
     geographical Service Area, the Contractor is encouraged to pursue placement
     outside the area.

6.7.3.5             DENTAL

     Dental services are not covered under this Contract. The Contractor will
     perform dental screening for all Members as part of the initial health
     assessment and refer Members to Medi-Cal dental providers. The Contractor
     will ensure referrals to dental providers.

6.7.3.6             VISION CARE - LENSES

     The Contractor will order the fabrication of optical lenses for Members
     from Prison Industry Authority (PIA) optical laboratories. DHS will
     reimburse PIA for these lenses in accordance with the contract between DHS
     and PIA. The Contractor will provide all other Covered Services described
     in Title 22, CCR, Section 51317, including contact lenses and eyeglass
     frames.

6.7.3.7             DIRECT OBSERVED THERAPY (DOT) FOR TREATMENT OF TUBERCULOSIS

     DOT services are not covered under this Contract. DOT services are offered
     by local health departments (LHDs). The Contractor will assess the risk of
     noncompliance for each Member who needs to be placed on anti-TB drugs.
     Members who are determined to be at risk will be referred to the LHD TB
     Control Officer for DOT. The Contractor will follow up and coordinate
     care with the LHD TB Control Officer.

     The Contractor will refer the following groups of Members with active TB
     for DOT: patients with demonstrated multiple drug resistance (defined as
     resistance to Isoniazid and Rifampin), patients whose treatment has failed
     or who have relapsed after completing a prior regimen, children and
     adolescents, and individuals who have demonstrated noncompliance (those who
     failed to keep office appointments).

     The Contractor will assess the following groups of Members for potential
     noncompliance and for consideration for DOT: substance abusers, persons
     with mental illness, the elderly, persons with unmet housing needs, and
     persons with language and/or cultural barriers.

6.7.3.8             DEPARTMENT OF DEVELOPMENTAL SERVICES ADMINISTERED MEDICAID
                    HOME AND COMMUNITY BASED SERVICES WAIVER

     The HCBS waiver services are not covered under this Contract. The
     Contractor will maintain systems for identifying developmentally disabled
     Members who are at risk

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     for institutional placement and refer these Members to the HCBS waiver
     administered by DDS. If DDS concurs with the Contractor's assessment of the
     Member and there is available placement in the waiver program, the Member
     will receive waiver services while enrolled in the plan. The Contractor
     will continue to provide all Primary Care and other Medically Necessary
     Covered Services to a plan Member who is receiving HCBS waiver services. If
     the Member does not meet the criteria for the waiver program, or if
     placement is not available, the Contractor will continue to case manage and
     provide all Medically Necessary Covered Services to the Member.

6.7.4          CAPITATED SERVICES: SERVICES WITH SPECIAL ARRANGEMENTS AND/OR
               PAYMENT OF OUT-OF-PLAN PROVIDERS

6.7.4.1             SCHOOL LINKED CHDP SERVICES: COORDINATION OF CARE

     The Contractor will maintain a "medical home" for the Members and ensure
     the overall coordination of care and case management of Members who obtain
     CHDP services through the local school districts or school sites.

6.7.4.2             SCHOOL LINKED CHDP SERVICES: COOPERATIVE ARRANGEMENTS

     The Contractor will enter into one or a combination of the following
     arrangements with the local school district or school sites:

               A.   Cooperative arrangements (e.g. Subcontracts) with school
                    districts or school sites to directly reimburse schools for
                    the provision of some or all of the CHDP services, including
                    guidelines for sharing of critical medical information. The
                    arrangements will also include guidelines specifying
                    coordination of services, reporting requirements, quality
                    standards, processes to ensure services are not duplicated,
                    and processes for notification to Member/student/parent on
                    where to receive initial and follow up services.

               B.   Cooperative arrangements whereby the Contractor agrees to
                    provide or contribute staff or resources to support the
                    provision of school linked CHDP services.

               C.   Referral protocols/guidelines between the Contractor and
                    the school sites to assure that Members who are identified
                    at school sites as being in need of CHDP services receive
                    those services from the Contractor within the required State
                    and federal time frames. This will include strategies for
                    the Contractor to follow up and document that services

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                    are  provided to the Member.

               D.   Any innovative approach that the Contractor may develop to
                    assure access to CHDP services and coordination with and
                    support for school based health care services.

6.7.4.3             SCHOOL LINKED CHDP SERVICES: SUBCONTRACTS

     The Contractor will ensure that the Subcontracts with the local school
     districts or school sites meet the requirements of Article III, Section
     3.27 and address the following: the population covered, beginning and end
     dates of the agreement, services covered, practitioners covered, outreach,
     information dissemination and educational responsibilities, Utilization
     Review requirements, referral procedures, medical information flows,
     patient information confidentiality, Quality Assurance interface, data
     reporting requirements, Grievances and complaint procedures.

6.7.4.4             EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT
                    (EPSDT) SUPPLEMENTAL SERVICES, EXCLUDING CASE MANAGEMENT
                    SERVICES

     For members under the age of 21 years, the Contractor will provide or
     arrange and pay for EPSDT supplemental services as defined in Title 22,
     CCR, Section 51184, excluding EPSDT case management services, except when
     EPSDT supplemental services are provided as CCS services pursuant to
     Section 6.7.3.2. The Contractor will determine the medical necessity of
     EPSDT supplemental services using the criteria established in Title 22,
     CCR, Section 51340.

     For Members under the age of 21 years, who meet the medical necessity
     criteria for EPSDT case management, pursuant to Title 22, CCR, Section
     51340(f), the Contractor will refer the Member to a targeted case
     management (TCM) provider under contract with a local government agency
     pursuant to Welfare and Institutions Code Section 14132.44 or to entities
     and organizations, including Regional Centers, that provide TCM services
     pursuant to Welfare and Institutions Code Section 14132.48. If EPSDT case
     management services are rendered by these referral providers, the
     Contractor is not required to pay for the EPSDT case management services.
     If EPSDT case management services are not available from these referral
     providers, the Contractor will provide or arrange and pay for the EPSDT
     case management services.

6.7.4.5             FAMILY PLANNING: GENERAL REQUIREMENT

     The Contractor will provide the full array of family planning services
     covered under the Contract without Prior Authorization. Medi-Cal Members
     have the right to access

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     family planning services through any family planning provider. The
     Contractor will inform its Members in writing of their right to access any
     qualified family planning provider without Prior Authorization as required
     in Section 6.9.5(P), Membership Services Guide.

6.7.4.6             FAMILY PLANNING: INFORMED CONSENT

     The Contractor will ensure that informed consent will be obtained from
     Medi-Cal enrollees for all contraceptive methods, including sterilization,
     consistent with requirements of Title 22, CCR, Sections 51305.1 and
     51305.3.

6.7.4.7             FAMILY PLANNING: OUT-OF-NETWORK REIMBURSEMENT

     The Contractor will reimburse out-of-network family planning providers for
     the following services provided to Members of childbearing age to
     temporarily or permanently prevent or delay pregnancy:

          A.   Health education and counseling necessary to make informed
               choices and understand contraceptive methods.

          B.   Limited history and physical examination. Comprehensive physicals
               are the responsibility of the Contractor.

          C.   Laboratory tests if medically indicated as part of decision
               making process for choice of contraceptive methods. The
               Contractor will not be required to reimburse out-of-plan
               providers for pap smears if the Contractor has provided pap
               smears to meet the U.S. Preventive Services Task Force
               guidelines.

          D.   Diagnosis and treatment of STDs if medically indicated.

          E.   Screening testing and counseling of at risk individuals for HIV
               and referral for treatment.

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

          G.   Provision of contraceptive pills, devices, supplies.

          H.   Tubal ligation.

          I.   Vasectomies.

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          J.   Pregnancy testing and counseling.

6.7.4.8             FAMILY PLANNING: REIMBURSEMENT RATE

     The Contractor will reimburse out-of-plan family planning providers at the
     appropriate Medi-Cal FFS rate, unless otherwise negotiated.

6.7.4.9             SEXUALLY TRANSMITTED DISEASES (STDs)

     The Contractor will provide access to STD services without Prior
     Authorization to all Members both within and outside its provider network.
     The reimbursement of out-of-plan STD services is limited to one office
     visit per disease episode for the purposes of: (1) diagnosis and treatment
     of vaginal discharge and urethral discharge, (2) those STDs that are
     amenable to immediate diagnosis and treatment, and this includes syphilis,
     gonorrhea, chlamydia, herpes simplex, chancroid, Trichomoniasis, human
     papilloma virus, non-gonococcal urethritis, lymphogranuloma venereum and
     granuloma inguinale and (3) evaluation and treatment of Pelvic Inflammatory
     Disease (PID). The Contractor will provide follow-up care. The Contractor
     will reimburse STD providers at the Medi-Cal Fee-For-Service (FFS) rate,
     unless otherwise negotiated, and the Contractor will provide reimbursement
     only if STD treatment providers provide treatment records or documentation
     of the Member's refusal to release Medical Records to the Contractor along
     with billing information.

6.7.4.10            EARLY INTERVENTION SERVICES

     The Applicant will refer to the local Early Start program those children in
     need of early intervention services, e.g. those with an established
     condition leading to developmental delay, those in whom a significant
     development delay is suspected, or those whose early health history places
     them at risk for delay. The Contractor will also collaborate with the
     regional center or local Early Start program to provide all Medically
     Necessary diagnostic, preventive and treatment services.

6.7.4.11            SERVICES FOR PERSONS WITH DEVELOPMENTAL DISABILITIES

     The Contractor will provide all screening, preventive, and Medically
     Necessary and therapeutic services covered by the Contract to Members with
     developmental disabilities. The Contractor will coordinate all medical
     services rendered to the Members, including the determination of medical
     necessity. The Contractor will refer enrollees with developmental
     disabilities to the regional centers for those nonmedical services such as
     respite, out-of-home placement, supportive living, etc. for persons with
     substantial disabilities if such services are needed.

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6.7.4.12            CONFIDENTIAL HIV TESTING

     Members may access confidential HIV counseling and testing services through
     the Contractor's provider network and through the out-of-network local
     health department and family planning providers. The Contractor will
     reimburse these providers at the Medi-Cal FFS rate, unless otherwise
     negotiated, for HIV testing and counseling provided that out-of-network
     local health departments and family planning providers make all reasonable
     efforts, consistent with current laws and regulations, to report
     confidential test results to the Contractor.

6.7.4.13            IMMUNIZATIONS

     The Contractor will fully immunize its Members per DHS requirements. The
     Contractor will, upon request, provide updated information on the status of
     Members' immunizations and ensure reimbursement to LHDs for the
     administration fee of immunizations given to Members. However, the
     Contractor will not reimburse the LHD for an immunization provided to a
     Member who was already up to date as required per DHS. The LHD will provide
     immunization records when immunization services are billed to the
     Contractor. Providers other than LHDs will not be reimbursed by the
     Contractor unless they enter into an agreement with the Contractor.

6.7.4.14            NURSE MIDWIFE SERVICES

     The Contractor will meet federal requirements for access and reimbursement
     for Nurse Midwife services as defined in Title 22, CCR, Section 51345.
     Federal guidelines are currently under development. If federal guidelines
     require that Members have a right to go out-of-plan for Nurse Midwife
     services, the Contractor will reimburse Nurse Midwives for services
     provided out-of-plan to the Contractor's Members at the Medi-Cal
     Fee-For-Service rate.

6.7.5          REQUIRED REFERRAL ARRANGEMENTS

6.7.5.1             WOMEN, INFANTS, AND CHILDREN (WIC) SUPPLEMENTAL FOOD
                    PROGRAM: GENERAL REQUIREMENT

     The Contractor, as part of its initial assessment of Members, and as part
     of the initial evaluation of newly pregnant women, will provide and
     document the referral of pregnant, breastfeeding, or postpartum women or a
     parent/guardian of a child under the age of five, as indicated, to the WIC
     program as mandated by Title 42, CFR 431.635(c).

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6.7.5.2             WIC SUPPLEMENTAL FOOD PROGRAM: MEDICAL RECORDS

     The Contractor will conduct the hemoglobin or hematocrit test and use the
     CHDP program Form PM160 to document the laboratory values for eligible
     children and/or a prescription pad written by a Physician to document
     laboratory values for eligible women for referral to the WIC program. The
     Contractor will document such referrals in the Members' Medical Records.

6.7.6          MEDICAL STANDARDS - CLINICAL PREVENTIVE SERVICES

6.7.6.1             INITIAL HEALTH ASSESSMENT

     The Contractor will schedule and provide an initial health assessment
     (complete history and physical examination) to each Member within 120 days
     of the date of Enrollment, unless the Member's Primary Care Physician
     determines that the Member's Medical Record contains complete and current
     information consistent with the assessment requirements stated below. For
     Members age 21 years and older, the assessment will follow the guidelines
     required by Section 6.7.6.7. For Members under the age of 21 years, the
     assessment will follow the requirements of Title 17, CCR, Sections 6846 and
     6847. If the Member fails to keep the scheduled appointment, the Contractor
     will recontact the Member in accordance with the procedures for follow up
     on missed appointments established pursuant to Section 6.5.10.5.

6.7.6.2             CHILDREN

     The Contractor will maintain and operate a system which ensures the
     provision of CHDP services to Members under the age of 21 years in
     accordance with the provisions of the Health and Safety Code, Section 320
     et seq. and Title 17, CCR, Section 6840 through 6850. The system will
     include the following components:

     A.   Initial health assessments as required by Section 6.7.6.1.

     B.   Notification, in writing, of the availability of health assessment
          services, the times and places where these services are available, and
          the method by which appointments for CHDP services may be made will be
          provided upon Enrollment and annually thereafter. Notification may be
          given to the parent(s) or guardian of the Member under the 21 years of
          age, or to the Member directly if the Member is an emancipated minor.

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     C.   Where a request is made for CHDP services by the Member, the Member's
          parent(s) or guardian or through a referral from the local CHDP
          program, an appointment will be made for the Member to be examined
          within two weeks of the request.

     D.   Members under the age of 21 years will be scheduled for periodic
          health assessments in accordance with periodicity schedule recommended
          by the American Academy of Pediatrics and the immunizations will be
          provided following the recommendations of either the Advisory
          Committee on Immunization Practices or the American Academy of
          Pediatrics.

     E.   At each non-emergency Primary Care Encounter with Members under the
          age of 21 years, the Member (if an emancipated minor) or the parent(s)
          or guardian of the Member will be advised of the CHDP services
          available from Contractor, if the Member has not received CHDP
          services in accordance with the CHDP periodicity schedule.
          Documentation will be entered in the Member's Medical Record which
          will indicate the receipt of CHDP services in accordance with the CHDP
          periodicity schedule or proof of voluntary refusal of these services
          in the form of a signed statement by the Member (if an emancipated
          minor) or the parent(s) or guardian of the Member. If the responsible
          party refuses to sign this statement, the refusal will be noted in the
          Member's Medical Record.

     F.   Written notification and explanation of the results of CHDP health
          assessments will be supplied to the Member (if an emancipated minor)
          or the parent(s) or guardian of the Member in a timely manner. Upon
          request by the Member or the parent(s) or the guardian, the Contractor
          will provide for additional discussion or consultation regarding the
          results of the assessment if appropriate.

     G.   Diagnosis and treatment of any medical conditions identified through
          any CHDP assessment will normally be initiated within sixty days of
          the CHDP assessment appointment, consistent with the terms of the
          Contract for the identified services or conditions. Justification for
          delays beyond sixty days will be maintained in the Medical Record.

     H.   The Confidential Screening/Billing Report form, PM 160-PHP, will be
          used to report all CHDP Encounters. The Contractor will submit
          completed forms to DHS and to the local CHDP program within 30 days of
          the end of each month for all Encounters during that month.

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     I.   The Contractor will coordinate its CHDP system with the Local CHDP
          program as required by Section 6.7.8.1.

6.7.6.3             PREGNANT WOMEN: MINIMUM STANDARDS

     The Contractor will follow the American College of Obstetrics and
     Gynecologists (ACOG) standards (currently Seventh edition) as the minimum
     standards for services provided to Medi-Cal pregnant women. Contractor will
     develop and implement standardized risk assessment tools and risk
     intervention protocols which are consistent with CPSP requirements set
     forth in Title 22, CCR, Sections 51348 and 51348.1. Contractor will not
     implement them until they are approved by DHS.

6.7.6.4             PREGNANT WOMEN: PROVIDER CREDENTIALING STANDARDS

     The Contractor will apply its provider Credentialing standards to all
     providers providing perinatal services. These Credentialing standards are
     specified in the Contractor's Quality Improvement document which must be
     approved by DHS. The Contractor's obstetrical providers are exempt from
     the requirement of certification as a Medi-Cal comprehensive perinatal
     services provider.

6.7.6.5             PREGNANT WOMEN: RISK ASSESSMENT

     The Contractor will ensure that an obstetrical record and a comprehensive
     initial risk assessment tool is completed on all pregnant women at the
     initiation of pregnancy-related services. The risk assessment will include
     medical/obstetrical risk assessment; nutritional assessment; psychosocial
     assessment; and health education assessment. Evaluation of the patient's
     risk status will be done at each trimester and at the postpartum visit.
     All identified risk conditions will be followed up by interventions
     designed to ameliorate or remedy the condition or problem in a prioritized
     manner.

6.7.6.6             PREGNANT WOMEN: REFERRALS TO SPECIALISTS

     The Contractor will implement and maintain policies and procedures for
     appropriate referrals of high risk pregnancy women to specialists and have
     procedures for genetic screening and referral, and for admission to the
     appropriate hospitals for delivery.

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6.7.6.7             ADULTS

     Contractor will implement and maintain The Guide to Clinical Preventive
     Services, a report of the U.S. Preventive Service Task Force (USPSTF) as
     the minimum acceptable standard for Adult Preventive Health Services. The
     following are a core set of preventive services that will be provided to
     all asymptomatic, healthy adult Members (age 21 and older): (This is not an
     inclusive list of all appropriate preventive services. The presence of risk
     factors in individual patients will affect the type and quantity of
     preventive services that may be appropriate. A given patient may need
     additional services or core services at more frequent intervals).

     A.   History and physical examination - an initial complete history and
          physical examination will be performed on each adult Member within 120
          days of Enrollment. Targeted history and physical examination focusing
          on the needs and risk factors of each Member will be done every one to
          three years for adults age 21 to 64 years; and annually for
          individuals age 65 and older.

     B.   Blood pressure - persons who are normotensive will have blood pressure
          measurements at least every 2 years.

     C.   Cholesterol - total cholesterol will be measured at least once every 5
          years for adults age 20 and older.

     D.   Clinical breast examination - women over age 40 will have annual
          clinical breast examination.

     E.   Mammogram - all women over age 50 will have a screening mammogram
          every 1 to 2 years, concluding at age 75 unless pathology has been
          demonstrated.

     F.   Pap Smear - beginning at the age of first sexual intercourse, pap
          smears will be performed every one to three years, depending on the
          presence or absence of risk factors.

     G.   Tuberculosis (Tb) screening - all adults will be screened for Tb risk
          factors upon Enrollment and Mantoux skin test will be performed on all
          persons at increased risk of developing Tb.

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6.7.6.8             TUBERCULOSIS (Tb)

     Tb screening, diagnosis, treatment and follow-up are covered under the
     Contract. The Contractor will provide Tb care and treatment in compliance
     with the guidelines recommended by American Thoracic Society and the
     Centers for Disease Control. Following the award, but prior to beginning
     operation, DHS will evaluate the Contractor's capability to deliver Tb
     care. If the Contractor is not capable of providing adequate Tb care, it
     will subcontract for those services. The Contractor will coordinate with
     LHDs in the provision of DOT, contact tracing, and other Tb services.

6.7.7          HEALTH EDUCATION

6.7.7.1             GENERAL REQUIREMENTS

     The Contractor will implement and maintain a system for providing Member
     health education services, clinical preventive services, health education
     and promotion and patient education and counseling. The system will utilize
     one to one and group interventions, written and audio-visual materials. The
     Contractor will ensure that the services are provided directly by the
     Contractor or through Subcontracts or formal agreements with other
     providers specializing in health education services. The Contractor will
     maintain a health education system which includes, at a minimum, the
     following services:

     A.   Member Education

          1.   Use of Clinical Preventive Services.

          2.   Promote Appropriate Use of Managed Care Plan Services.

          3.   Availability of Local Social and Health Care Programs.

     B.   Clinical Preventive Services, Education and Counseling:

          1.   Nutrition

          2.   Tobacco Prevention and Cessation

          3.   HIV/STD Prevention

          4.   Family Planning

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          5.   Exercise

          6.   Dental

          7.   Perinatal

          8.   Age Specific Anticipatory Guidance - EPSDT

          9.   Injury Prevention

          10.  Immunizations

     C.   Patient Education and Clinical Counseling

          1.   Diabetes

          2.   Asthma

          3.   Hypertension

          4.   Substance Abuse

          5.   Tuberculosis

          6.   Inpatient - Condition Specific

          7.   Other Outpatient

6.7.7.2             HEALTH EDUCATOR

     The Contractor will maintain administrative oversight of the program by a
     qualified full time health educator with a masters degree in community or
     public health education (MPH).

6.7.7.3             BEHAVIORAL ASSESSMENTS

     The Contractor will ensure that individual health education behavioral
     assessments are conducted on all Members within 120 days of Enrollment to
     determine health practices, values, behaviors, knowledge, attitudes,
     cultural practices, beliefs, literacy levels, or health education needs.

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6.7.7.4             HEALTH EDUCATION POLICIES AND PROCEDURES

     The Contractor will develop, implement, and maintain standards, policies
     and procedures and ensure provision of the following:

     A.   Member orientation, education regarding health promotion, personal
          health behavior, and patient education and counseling.

     B.   Provider education on health education services.

     C.   Individual health education behavioral assessment, referral, and
          follow-up.

6.7.7.5             HEALTH EDUCATION STANDARDS

     The Contractor will develop and maintain health education services
     standards, policies and procedures, and monitor provider performance to
     ensure the standards for health education services are maintained and
     include methods for formally communicating findings with providers.

6.7.7.6             HEALTH EDUCATION AND QIP

     The Contractor will ensure coordination and integration of the health
     education system with the Quality Improvement program.

6.7.7.7             GROUP NEEDS ASSESSMENT

     The Contractor will conduct a group needs assessment of their Members to
     determine health education needs including literacy level. The Contractor
     will submit to DHS a report summarizing the methodology, findings, proposed
     services, key activities, timeline for implementation and the responsible
     individuals. The Contractor will complete the needs assessment within six
     months after one year of operations under this Contract.

6.7.7.8             HEALTH EDUCATION WORKPLAN

     If the Contractor does not comply with all of the requirements in Sections
     6.7.7.1 through 6.7.7.9 upon implementation of die Contract, the Contractor
     will comply with all of the requirements for the provision of health
     education services except for the requirements in Section 6.7.7.6.
     Contractor will submit for DHS' approval a proposed workplan for meeting
     the full scope of requirements by the end of one year of operations under
     this Contract. Contractor will include in the workplan a description of
     the required activities, a timeline with milestones, and identify the

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     responsible individuals and the individual with overall responsibility. The
     Contractor will entitle the workplan "Health Education Services: Proposed
     Activities".

6.7.7.9             HEALTH EDUCATION READING LEVEL

     The Contractor will ensure that all plan materials used to communicate
     covered benefits are written at the appropriate reading level, as
     determined by the Contractor and approved by DHS.

6.7.8          LOCAL HEALTH DEPARTMENT COORDINATION

6.7.8.1             SUBCONTRACT

     The Contractor will execute a Subcontract for the specified public health
     services with the Local Health Department (LHD) in each county that is
     covered by this Contract. The Subcontract will specify the scope and
     responsibilities of both parties, billing and reimbursements, reporting
     responsibilities, and Medical Record management to ensure coordinated
     health care services. The Subcontract will meet the requirements contained
     in Article III, Sections 3.27 through 3.27.8. The specified public health
     services under the Subcontract are as follows:

     A.   Family Planning Services: as specified in Section 6.7.4.7

     B.   STD services diagnosis and treatment of disease episode of the
          following STDs: syphilis, gonorrhea, chlamydia, herpes simplex,
          chancroid, trichomoniasis, human papilloma virus, non-gonococcal
          urethritis, lymphogranuloma venereum and granuloma inguinale.

     C.   Confidential HIV testing: as specified in Section 6.7.4.12

     D.   Immunizations: as specified in Section 6.7.4.13

     E.   California Children Services (CCS)

     F.   Maternal and Child Health (MCH)

     G.   Child Health and Disability Prevention (CHDP) Program

     H.   Tuberculosis Direct Observed Therapy

     I.   Women, Infants, and Children (WIC) Supplemental Food Program

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     J.   Population based Prevention Programs: collaborate in LHD community
          based prevention programs

     Services A-D require provisions for reimbursement. All services require
     delineation of the roles and responsibilities of the Contractor and the
     local program.

     To the extent that Contractor does not meet this requirement on or before 4
     months after award of this Contract, Contractor will submit documentation
     substantiating reasonable efforts to enter into Subcontracts.

6.8            MARKETING AND ENROLLMENT

6.8.1               MARKETING REPRESENTATIVES

     The Contractor will ensure, in addition to compliance with the requirements
     of Title 22, CCR, Section 53400, that:

     A.   All Marketing Representatives including supervisors, have
          satisfactorily completed the Contractor's Marketing orientation and
          training program and the DHS Marketing Representative Certification
          Examination prior to engaging in Marketing activities on behalf of the
          Contractor.

     B.   A Marketing Representative will not provide Marketing services on
          behalf of more than one Contractor.

     C.   Marketing Representatives do not engage in Marketing practices that
          discriminate against an Eligible Beneficiary because of race, creed,
          age, color, sex, religion, national origin, ancestry, marital
          status, sexual orientation, physical or mental handicap, or health
          status.

6.8.2               LIABILITY

     The Contractor is responsible for all Marketing activity conducted on
     behalf of the Contractor. Contractor will be held liable for any and all
     violations by any Marketing Representatives.

6.8.3               CERTIFICATION OF MARKETING REPRESENTATIVES

     The Contractor will ensure that any office staff of a provider whose
     primary duties are Marketing, are certified as Marketing Representatives.

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6.8.4               ENROLLMENT PROGRAM

     Contractor will cooperate and participate in the DHS Enrollment program and
     will provide to DHS' Enrollment contractor Marketing materials, Evidence of
     Coverage and disclosure forms, Member services guide, list of network
     providers, linguistic and cultural capabilities of the Contractor and other
     information deemed necessary by DHS to assist beneficiaries in making an
     informed choice of health plan.

6.8.5               DISENROLLMENT FORMS

     Contractor will ensure that Disenrollment forms are available at all
     Primary Care sites and that staff at those locations are knowledgeable of
     Enrollment and Disenrollment requirements.

6.8.6               MARKETING PLAN

     Except for door to door Marketing which is prohibited, Contractors will
     implement and maintain a Marketing plan in compliance with MCOB Letter
     93-12.

6.8.7               DHS APPROVAL

     Contractor will not conduct Marketing activities without written approval
     of its Marketing plan from DHS.

6.9            MEMBER SERVICES/GRIEVANCE SYSTEM

6.9.1               SYSTEM CAPACITY

     Contractor will maintain the capability to provide Member services to
     Medi-Cal Members through sufficient assigned staff.

6.9.2               MEMBER SERVICES EMPLOYEE TRAINING

     Contractor will ensure membership services staff are trained on all
     contractually required membership service functions including, policies,
     procedures, and scope of benefits.

6.9.3               DISCLOSURE FORMS

     Contractor will provide to all Members Disclosure Forms and Evidence of
     Coverage materials which constitute a fair disclosure of the provisions of
     the covered health care services.

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6.9.4               MEMBER IDENTIFICATION CARD

     Contractor will provide an identification card to each Member which
     identifies the Member and authorizes the provision of Covered Services to
     the Member. The card will specify that Emergency Services rendered to the
     Member by non-Contracting providers are reimbursable by the Contractor
     without Prior Authorization.

6.9.5               MEMBERSHIP SERVICES GUIDE

     Contractor will develop and distribute a Membership Services Guide that
     includes the following information:

     A.   The name, address and telephone number of the health plan.

     B.   A description of the full scope of Medi-Cal covered benefits and all
          available services including health education, interpretive services,
          and "carve out" services and an explanation of any service limitations
          and exclusions from coverage.

     C.   Procedures for obtaining Covered Services including the address and
          telephone number of each Service Site (locations of hospitals, Primary
          Care Physicians, optometrists, psychologists, pharmacies, Skilled
          Nursing Facilities, Urgent Care Facilities). In the case of a medical
          foundation or independent practice association, the address and
          telephone number of each Physician provider.

          1.   The hours and days when each of these Facilities is open, the
               services and benefits available, and the telephone number to call
               after normal business hours.

     D.   Procedures for selecting or requesting a change in Primary Care
          Physician, including requirements for change in PCP; reasons for which
          a request may be denied; and reasons why a provider may request a
          change.

     E.   The purpose and value of scheduling an initial health assessment
          appointment.

     F.   The appropriate use of health care services in a managed care system.

     G.   The availability and procedures for obtaining after hours services
          (24-hour basis) and care, including the appropriate provider locations
          and telephone numbers.

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      H.  Procedure for obtaining emergency health care both within and outside
          the Contractor's Service Area.

      I.  Process for referral to specialists.

      J.  Procedures for obtaining transportation services if offered by the
          Contractor.

      K.  The causes for which a Member will lose entitlement to receive
          services under this Contract. (See Article III, Section 3.27.5)

      L.  Procedures for filing a complaint/Grievance, including procedures for
          appealing decisions regarding Member's coverage, benefits, or
          relationship to the organization. Include the title, address, and
          telephone number of the person responsible for processing and
          resolving complaints/Grievances.

      M.  Procedures for Disenrollment, including an explanation of the Member's
          right to disenroll without cause at any time.

      N.  Information on the Member's right to the Medi-Cal fair hearing process
          regardless of whether or not a complaint/Grievance has been submitted
          or if the complaint/Grievance has been resolved. The State Department
          of Social Services' Public Inquiry and Response Unit toll free
          telephone number (800) 952-5253.

      O.  Information on the availability of, and procedures for obtaining,
          services at FQHCs and Indian Health Clinics.

      P.  Information on the Member's right to seek family planning services
          from any qualified provider of family planning services such as the
          following statement:

          "Family planning services are provided to Members of child bearing
          age to enable them to determine the number and spacing of children.
          These services include all methods of birth control approved by the
          Federal Food and Drug Administration. As a Member, you pick a doctor
          who is located near you and will give you the services you need. Our
          Primary Care Physicians and OB/GYN specialists are available for
          family planning services. For family planning services, you may also
          pick a doctor or clinic not connected with Molina Medical Centers
          without having to get permission from Molina Medical Centers. Molina
          Medical Centers will pay that doctor or clinic for the family planning
          services you get".

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      Q.  DHS' Office of Family Planning's toll free telephone number
          (1-800-942-1054) providing consultation and referral to family
          planning clinics.

      R.  Any other information determined by DHS to be essential for the proper
          receipt of Covered Services.

6.9.6             ENROLLEE INFORMATION

      The Contractor will provide the following information to the Member or
      Member's family unit either in the form of a cover letter or insert in the
      above prescribed Membership Services Guide:

      A.  Each Member's effective date of Enrollment and term of Enrollment.

      B.  The name, telephone number, and Service Site address of the Primary
          Care Physician chosen by or assigned to the Member.

6.9.7             DISTRIBUTION OF MEMBER SERVICES INFORMATION

      The Contractor will distribute the Member identification card and
      membership services guide to all Members, including family members, no
      later than seven (7) days after the effective date of the Member's
      Enrollment. The Contractor will revise this information, if necessary, and
      distribute it annually to each Member or Member's family unit.

6.9.8             CHANGES IN AVAILABILITY OR LOCATION OF COVERED SERVICES

      Contractor will ensure Medi-Cal Members are notified in writing of
      any changes in the availability or location of Covered Services at least
      thirty (30) days prior to the effective date of such changes, or within
      fourteen (14) days prior to the change in cases of unforeseeable
      circumstances. The notification must be approved by DHS prior to the
      release.

6.9.9             PRIMARY CARE PHYSICIAN SELECTION

      The Contractor will implement and maintain DHS approved procedures to
      ensure that each Member is allowed to select or change a Primary Care
      Physician from the Contractor's network of providers. The Contractor will
      assist Members in making their selection within thirty (30) days of their
      effective date of Enrollment. The Contractor will provide the Member
      sufficient information (verbal and written) in the appropriate language
      and reading level about the selection process and the available

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      providers in the network to ensure their ability to make an informed
      decision.

6.9.10            PRIMARY CARE PHYSICIAN ASSIGNMENT

      If the Member does not select a Primary Care Physician within thirty (30)
      days of the effective date of Enrollment, Contractor will complete the
      assignment of the Member to a Primary Care Provider, notify the Member and
      the assigned Primary Care Physician within forty (40) days from the
      effective date of Enrollment. Contractor will ensure that adverse
      selection does not occur during the assignment process of Members to
      providers.

6.9.11            CONTINUITY OF CARE

      The Contractor will ensure that Members with an established relationship
      with a provider in the network, who have expressed a desire to continue
      their patient/provider relationship, are assigned to their provider
      without disruption in their care.

6.9.12            DISCLOSURE

      The Contractor will disclose to affected Members any reasons for which
      their selection or change in Primary Care Physician could not be made.

6.9.13            MEMBER COMPLAINT/GRIEVANCE SYSTEM

      Contractor will implement and maintain a Member complaint/Grievance system
      in accordance with Title 10, CCR, Section 1300.68, except subsection
      1300.68(g), and Title 22, CCR, Sections 53200 and 53260.

      A.  Contractor will acknowledge receipt of a complaint within 5 days. The
          written acknowledgement will also notify the complainant of a person
          at the plan who may be contacted regarding the complaint. The
          Contractor will resolve the complaint within 30 days.

6.9.14            DISENROLLMENTS

      Contractor will implement and maintain procedures to ensure that requests
      for Disenrollments made under the following circumstances are referred to
      the county Enrollment Contractor immediately and are not processed through
      the Grievance process:

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      A.  The Member's eligibility as a Medi-Cal beneficiary for Enrollment in
          the plan is terminated.

      B.  The Enrollment is in violation of Sections 53400 or 53402.

      C.  The request for Disenrollment is pursuant to Section 53508.

      D.  Change of a Member's place of residence outside the plan's Service
          Area.

6.9.15            DENIAL, DEFERRAL, OR MODIFICATION OF PRIOR AUTHORIZATION
                  REQUESTS

      A.  Contractor will notify Members of denial, deferral, or modification of
          requests for Prior Authorization, in accordance with Title 22, CCR,
          Sections 51014.1 and 53261 by providing written notification to
          Members and/or their authorized representative, regarding any denial,
          deferral or modification of a request for approval to provide a health
          care service. This notification must be provided as specified in Title
          22, CCR, Sections 51014.1 and 53261, when all of the following
          conditions exists:

          1.      The request is made by a health care provider who has a formal
                  arrangement with the Contractor to provide services to
                  Medi-Cal Members.

          2.      The request is made by the provider through the formal Prior
                  Authorization procedures operated by the Contractor.

          3.      The service for which Prior Authorization is requested is a
                  Medi-Cal Covered Service for which the Contractor has
                  established a Prior Authorization requirement.

          4.      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 Member must
                  initiate the Contractor's complaint/Grievance procedure.

      B.  Contractor will provide for a written notification to the Member and
          the Member's representative on a standardized form approved by DHS,
          informing the Member of all the following:

          1.      The Member's right to, and method of obtaining, a fair hearing
                  to contest the denial, deferral or modification action.

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          2.      The Member's right to represent himself/herself at the fair
                  hearing or to be represented by legal counsel, friend or other
                  spokesperson.

          3.      The name and address of the Contractor and the State toll-free
                  telephone number for obtaining information on legal service
                  organizations for representation.

      C.  The notice to the Member may inform the Member that the Member may
          file a complaint/Grievance concerning the Contractor's action using
          the Contractor's complaint/Grievance process prior to or concurrent
          with the initiation of the fair hearing process.

      D.  The Contractor will provide required notification to beneficiaries and
          the representatives in accordance with the time frames set forth in
          Title 22, CCR, Sections 51014.1 and 53261.

6.10              CULTURAL AND LINGUISTIC SERVICES REQUIREMENTS

6.10.1                 CIVIL RIGHTS ACT OF 1964

          The Contractor will ensure compliance with Title 6 of the Civil Rights
          Act of 1964 (42 U.S.C. Section 2000d, 45 C.F.R. Part 80) which
          prohibits recipients of federal financial assistance from
          discriminating against persons based on race, color, or national
          origin.

          The Contractor will provide 24 hour access to interpreter services for
          all Members at all provider sites within the Contractor's network
          either through telephone language services or interpreters.

6.10.2                 LINGUISTIC SERVICES

          The Contractor will provide linguistic services to a population group
          of mandatory Medi-Cal eligibles residing in the proposed Service Area
          who indicate their primary language as other than English and who meet
          a numeric threshold of 3,000, or a population group of mandatory
          Medi-Cal eligibles residing in the proposed Service Area who indicate
          their primary language as other than English and who meet the
          concentration standards of 1,000 in a single ZIP code or 1,500 in two
          contiguous ZIP codes.

          The Contractor will provide the following services to those Member
          groups at these key points of contact:

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      A.  Key Points of Contact

          1.      Medical: Advice and Urgent Care telephone, face to face
                   Encounters with providers.

          2.      Non-medical: membership services, orientations, and
                   appointments.

      B.  Types of Services

          1.      Interpreters.

          2.      Translated signage.

          3.      Translated written materials.

          4.      Referrals to culturally and linguistically appropriate
                  community services programs.

6.10.3            LINGUISTIC CAPABILITY OF EMPLOYEES

      The Contractor will assess, identify and report the linguistic capability
      of interpreters or bilingual employed and contracted staff (clinical and
      non-clinical).

6.10.4            SUBCONTRACTS

      The Contractor will document in the Subcontracts with Traditional and
      Safety-Net providers the linguistic services to be provided and the
      individuals who will provide the linguistic services to Members within the
      proposed Service Area.

6.10.5            COMMUNITY ADVISORY COMMITTEE

      Contractor will implement and maintain community linkages through the
      formation of a Community Advisory Committee (CAC) with demonstrated
      participation of consumers, community advocates, and Traditional and
      Safety-Net providers. The Contractor will ensure that the committee
      responsibilities include advisement on educational and operational issues
      affecting groups who speak a primary language other than English and
      cultural competency.

                                       113



Molina Medical Centers                                                  95-23637
                                                                      Article VI

6.10.6            CULTURAL AND LINGUISTIC SERVICES PLAN

      Contractor will ensure that a group needs assessment is conducted to
      identify the linguistic and cultural needs of the groups who speak a
      primary language other than English. The findings of the assessment will
      be submitted to DHS in the form of a plan entitled "Cultural and
      Linguistic Services Plan" at the end of the first year of operations. 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 will ensure implementation of the Cultural and Linguistic
      Services Plan within six months after the beginning of year two of
      operations. The Contractor will also identify the individual with overall
      responsibility for the activities to be conducted under the plan. DHS
      approval of the plan is required prior to its implementation.

6.10.7            IMPLEMENTATION PLAN

      If a Contractor does not comply with all of the Cultural and Linguistic
      Services requirements in Sections 6.10 through 6.10.9 upon implementation
      of the Contract, the Contractor will comply with the threshold
      requirements in Sections 6.10.1, 6.10.2, 6.10.2-A through 6.10.2-B(1),
      6.10.2-B(4), 6.10.4 and 6.10.7 for the provision of oral interpretation
      services to the groups who speak a primary language other than English
      meeting the thresholds.

      The Contractor will submit for DHS approval a proposed workplan for
      meeting the full scope of requirements. In the workplan, the Contractor
      will include a description of the required activities, a timeline with
      milestones, and identify the individuals responsible for the activity. The
      Contractor will identify the individual with overall responsibility and
      ensure that the activities identified in the workplan approved by DHS will
      be fully operational within six months of the beginning of year two of
      operations under the Contract. The Contractor will entitle the workplan
      "Cultural and Linguistic Services: Proposed Activities".

6.10.8            STANDARDS AND PERFORMANCE REQUIREMENTS

      Contractor will develop and implement standards and performance
      requirements for the provision of linguistic services, and will monitor
      the performance of the individuals who provide linguistic services.

                                       114



Molina Medical Centers                                                  95-23637
                                                                      Article VI

6.10.9            INTERPRETER COORDINATION

      Contractor will develop and implement standards for appointment scheduling
      and a system for coordinating interpreters, to ensure continuity in the
      assignment of interpreters to Members when follow-up care is required.

6.11          IMPLEMENTATION PLANS

6.11.1            TIME FRAMES

      The Contractor will submit deliverables within the timeframes specified on
      the Implementation Plan approved by DHS. Compliance with the schedule is
      mandatory unless otherwise approved by DHS. (See Article III, Section
      3.19, Liquidated Damages Provisions). Unless otherwise specified, all
      completion dates listed for the deliverables are calculated from the
      Contract effective date.

6.11.2            IMPLEMENTATION PLAN OVERSIGHT

      The Contractor will identify a single individual to be responsible for
      oversight of the Implementation Plan.

6.11.3            MONTHLY PROGRESS REPORTS

      The Contractor will submit monthly written progress reports to DHS at the
      request of DHS.

      The progress reports will contain the following:

      A.      Any discrepancies with the Implementation Plan.

      B.      Activity number and name the Contractor assigns to each
              deliverable/milestone.

      C.      Description of current activities that have taken place toward
              achieving the deliverable/milestone.

      D.      Summary of activities yet to be accomplished toward completion of
              the deliverable/milestone.

      E.      Due date in the Implementation Plan.

      F.      Current estimated due date.

                                       115



Molina Medical Centers                                                  95-23637
                                                                      Article VI

      G.  If the estimated due date in later than the Implementation Plan due
          date, then:

          1.  Identify reasons why the activity is not on schedule, and

          2.  Identify actions the Contractor is taking to remedy the activity
              and meet the due date.

                                       116



Molina Medical Centers                                        Attachment I
                                                              95-23637

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   7/95 - 5/96
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Family



                                                       Phys     Pharm        HIP       HOP        LTC      Other      Total
                                                                                              
              Units per 1,000 eligibles               3.816     4.223       .370     2.232       .000      3.330
              Age/sex Adjustment                      1.026      .997      1.040     1.019      1.000      1.010
              Aid Code Adjustment                      .989      .990       .985      .995      1.000       .976
                        Adjusted Units                3.872     4.168       .379     2.263       .000      3.283
              Average Cost Per Unit                   71.93     14.73     880.94     21.79     369.03      28.02
              Area Adjustment                         1.013     1.000      1.000     1.000      1.000      1.000
                        Adjusted Cost              $  72.87   $ 14.73   $ 880.94   $ 21.79   $ 369.03   $  28.02
              Interest Adjustment                      .997     1.000       .994      .997       .997       .997
              Contract Cost per Eligible           $ 281.31   $ 61.39   $ 331.87   $ 49.16   $    .00   $  91.71   $ 815.44

              Benefit Adjustments
                        FY 94/95                      1.003      .852      1.030     1.003      1.042      1.013
                        FY 95/96                      1.000      .724      1.018     1.000      1.020       .975
              Trend Adjustment 7/93 - 1/96            1.027     1.220      1.043      .945      1.000      1.317          *

Annual Cost Per Eligible                           $ 289.77   $ 46.20   $ 362.94   $ 46.60   $    .00   $ 119.42   $ 864.93

Mental Health Adjustment                                1.4%       .0%       6.6%      5.0%       1.5%       4.5%
Eyewear Adjustment                                                                                           1.5%
Cost Excluding Mental Health                       $ 285.71   $ 46.20   $ 338.99   $ 44.27   $    .00   $ 112.34   $ 827.51

Preliminary Monthly Rate                                                                                           $  68.96

Adj. for Fee-for-Service Limitation                              -2.0%                                             $  -1.38

CHDP                                                                                                                   2.43

Final Rate                                                                                                         $  70.01


                                        1



                                                              Attachment I

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   7/95 - 5/96
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Child



                                                       Phys     Pharm        HIP       HOP        LTC      Other      Total
                                                                                              
              Units per 1,000 eligibles               3.791     3.907       .361     1.620       .000      1.882
              Age/sex Adjustment                      1.184     1.019      1.227     1.087      1.000      1.109
              Aid Code Adjustment                     1.011      .993      1.025     1.010      1.000       .998
                        Adjusted Units                4.538     3.953       .454     1.779       .000      2.083
              Average Cost Per Unit                   69.47     11.05     901.25     22.20        .00      40.13
              Area Adjustment                         1.013     1.000      1.000     1.000      1.000      1.000
                        Adjusted Cost              $  70.37   $ 11.05   $ 901.25   $ 22.20   $    .00   $  40.13
              Interest Adjustment                      .996      .999       .990      .994       .998       .995
              Contract Cost per Eligible           $ 318.06   $ 43.64   $ 405.08   $ 39.26   $    .00   $  83.17   $ 889.21

              Benefit Adjustments
                        FY 94/95                      1.003      .852      1.031     1.003      1.042      1.001
                        FY 95/96                      1.000      .724      1.018     1.000      1.020       .976
              Trend Adjustment 7/93 - 1/96            1.040     1.238       .853      .906      1.000      1.210

Annual Cost Per Eligible                           $ 331.77   $ 33.33   $ 362.66   $ 35.68   $    .00   $  98.32   $ 861.76

Mental Health Adjustment                                1.6%       .0%      13.4%      2.9%       3.4%       3.6%
Eyewear Adjustment                                                                                            .9%
Cost Excluding Mental Health                       $ 326.46   $ 33.33   $ 314.06   $ 34.65   $    .00   $  93.93   $ 802.43

Preliminary Monthly Rate                                                                                           $  66.87

Adj. for Fee-for-Service Limitation                              -2.0%                                             $  -1.34

CHDP                                                                                                                   2.38

Final Rate                                                                                                         $  67.91


                                        2



                                                              Attachment I

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   7/95 - 5/96
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Aged



                                                     Phys       Pharm        HIP       HOP        LTC      Other        Total
                                                                                              
              Units per 1,000 eligibles             4.280      19.624      1.476     1.310      2.880     14.314
              Age/sex Adjustment                     .986       1.004       .995      .987      1.031      1.005
              Aid Code Adjustment                    .936       1.021       .968      .931      1.007      1.016
                        Adjusted Units              3.950      20.116      1.422     1.204      2.990     14.616
              Average Cost Per Unit                 44.28       28.65     265.64     16.35      76.99       6.95
              Area Adjustment                       1.013       1.000      1.000     1.000      1.000      1.000
                        Adjusted Cost            $  44.86   $   28.65   $ 265.64   $ 16.35   $  76.99   $   6.95
              Interest Adjustment                    .994       1.000       .990      .991       .998       .996
              Contract Cost per Eligible         $ 176.13   $  576.32   $ 373.96   $ 19.51   $ 229.74   $ 101.17   $ 1,476.83


              Benefit Adjustments
                        FY 94/95                    1.003        .852      1.036     1.003      1.042      1.001
                        FY 95/96                    1.000        .724      1.018     1.000      1.020      1.000
              Trend Adjustment 7/93 - 1/96          1.347       1.194       .925     1.091      1.054      1.404

Annual Cost Per Eligible                         $ 237.96   $  424.47   $ 364.82   $ 21.35   $ 257.36   $ 142.18   $ 1,448.14

Mental Health Adjustment                               .3%         .0%        .7%       .9%        .4%        .0%
Eyewear Adjustment                                                                                           2.1%
Cost Excluding Mental Health                     $ 237.25   $  424.47   $ 362.27   $ 21.16   $ 256.33   $ 139.19   $ 1,440.67

Preliminary Monthly Rate                                                                                           $   120.06

Adj. for Fee-for-Service Limitation                              -2.0%                                             $    -2.40

CHDP                                                                                                                      .00

Final Rate                                                                                                         $   117.66


                                        3



                                                              Attachment I

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   7/95 - 5/96
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Disabled



                                                     Phys       Pharm        HIP       HOP        LTC      Other        Total
                                                                                              
              Units per 1,000 eligibles             7.452      23.494      1.498     4.212      1.440     28.577
              Age/sex Adjustment                    1.005        .979       .990     1.001      1.011      1.008
              Aid Code Adjustment                    .994       1.003       .983      .993       .999      1.004
                        Adjusted Units              7.444      23.070      1.458     4.229      1.454     28.921
              Average Cost Per Unit                 43.31       32.19     511.29     18.05     108.27      10.65
              Area Adjustment                       1.013       1.000      1.000     1.000      1.000      1.000
                        Adjusted Cost            $  43.87   $   32.19   $ 511.29   $ 18.05   $ 108.27   $  10.65
              Interest Adjustment                    .995        .999       .991      .993       .999       .996
              Contract Cost per Eligible         $ 324.94   $  741.88   $ 738.75   $ 75.80   $ 157.27   $ 306.78   $ 2,345.42

              Benefit Adjustments
                        FY 94/95                    1.003        .852      1.036     1.003      1.042      1.001
                        FY 95/96                    1.000        .724      1.018     1.000      1.020      1.000
              Trend Adjustment 7/93 - 1/96          1.115       1.190       .986     1.047       .992      1.233

Annual Cost Per Eligible                         $ 363.40   $  544.58   $ 768.21   $ 79.60   $ 165.82   $ 378.64   $ 2,300.25

Mental Health Adjustment                              7.8%         .0%      11.7%      2.4%       1.3%       1.4%
Eyewear Adjustment                                                                                            .9%
Cost Excluding Mental Health                     $ 335.05   $  544.58   $ 678.33   $ 77.69   $ 163.66   $ 369.98   $ 2,169.29

Preliminary Monthly Rate                                                                                           $   180.77

Adj. for Fee-for-Service Limitation                              -2.0%                                             $    -3.62

CHDP                                                                                                                      .00

Final Rate                                                                                                         $   177.15


                                        4



                                                              Attachment I

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   7/95 - 5/96
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Adult



                                                     Phys       Pharm          HIP         HOP       LTC        Other        Total
                                                                                                   
              Units per 1,000 eligibles            22.752       5.069        3.590       4.465      .000       20.412
              Age/sex Adjustment                    1.000       1.000        1.000       1.000     1.000        1.000
              Aid Code Adjustment                   1.000       1.000        1.000       1.000     1.000        1.000
                        Adjusted Units             22.752       5.069        3.590       4.465      .000       20.412
              Average Cost Per Unit                 59.80       16.00       960.30       20.51       .00        43.66
              Area Adjustment                       1.013       1.000        1.000       1.000     1.000        1.000
                        Adjusted Cost          $    60.58   $   16.00   $   960.30   $   20.51   $   .00   $    43.66
              Interest Adjustment                    .996        .999         .995        .993      .996         .995
              Contract Cost per Eligible       $ 1,372.80   $   81.02   $ 3,430.24   $   90.94   $   .00   $   886.73   $ 5,861.73

              Benefit Adjustments
                        FY 94/95                    1.003        .852        1.035       1.003     1.042        1.013
                        FY 95/96                    1.000        .724        1.018       1.000     1.020        1.000
              Trend Adjustment 7/93 - 1/96          1.076       1.020        1.086       1.122     1.000        1.139

Annual Cost Per Eligible                       $ 1,481.56   $   50.98   $ 3,925.30   $  102.34   $   .00   $ 1,023.12   $ 6,583.03

Mental Health Adjustment                               .1%         .0%          .3%        1.1%       .0%          .1%
Eyewear Adjustment                                                                                                 .4%
Cost Excluding Mental Health                   $ 1,480.08   $   50.98   $ 3,913.25   $  101.21   $   .00   $ 1,018.01   $ 6,563.53

Preliminary Monthly Rate                                                                                                $   546.96

Adj. for Fee-for-Service Limitation                              -2.0%                                                  $   -10.94

CHDP                                                                                                                           .00

Final Rate                                                                                                              $   536.02


                                        5



                                                              Attachment I

Plan Name:    Mainstream                              Base Period:  CY '93
Plan Number:                                          Rate Period:   6/96 - 9/97
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Family



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            3.816       4.223         .370       2.232        .000        3.330
              Age/sex Adjustment                   1.026        .997        1.040       1.019       1.000        1.010
              Aid Code Adjustment                   .989        .990         .985        .995       1.000         .976
                        Adjusted Units             3.872       4.168         .379       2.263        .000        3.283
              Average Cost Per Unit                71.93       14.73       880.94       21.79      369.03        28.02
              Area Adjustment                      1.013       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    72.87   $   14.73   $   800.94   $   21.79   $  369.03   $    28.02
              Interest Adjustment                   .997       1.000         .994        .997        .997         .997
              Contract Cost per Eligible      $   281.31   $   61.39   $   331.87   $   49.16   $     .00   $    91.71   $   815.44

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.030       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/97         1.036       1.313        1.060        .925       1.000        1.454

Annual Cost Per Eligible                      $   292.31   $   49.72   $   368.86   $   45.61   $     .00   $   131.84   $   888.34

Mental Health Adjustment                             1.4%        6.0%         6.6%        5.0%        l.5%         4.5%
Eyewear Adjustment                                                                                                 1.5%
Cost Excluding Mental Health                  $   288.22   $   46.74   $   344.52   $   43.33   $     .00   $   124.02   $   846.83

Preliminary Monthly Rate                                                                                                 $    70.57

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.41

CHDP                                                                                                                           2.43

Final Rate                                                                                                               $    71.59


                                        6



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Child



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            3.791       3.907         .361       1.620        .000        1.882
              Age/sex Adjustment                   1.184       1.019        1.227       1.087       1.000        1.109
              Aid Code Adjustment                  1.011        .993        1.025       1.010       1.000         .998
                        Adjusted Units             4.538       3.953         .454       1.779        .000        2.083
              Average Cost Per Unit                69.47       11.05       901.25       22.20         .00        40.13
              Area Adjustment                      1.013       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    70.37   $   11.05   $   901.25   $   22.20   $     .00   $    40.13
              Interest Adjustment                   .996        .999         .990        .994        .998         .995
              Contract Cost per Eligible      $   318.06   $   43.64   $   405.08   $   39.26   $     .00   $    83.17   $   889.21

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.031       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1,018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/97         1.047       1.330         .807        .878       1.000        1.285

Annual Cost Per Eligible                      $   334.01   $   35.80   $   343.10   $   34.57   $     .00   $   104.41   $   851.89

Mental Health Adjustment                             1.6%        4.6%        13.4%        2.9%        3.4%         3.6%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   328.67   $   34.15   $   297.12   $   33.57   $     .00   $    99.75   $   793.26

Preliminary Monthly Rate                                                                                                 $    66.11

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.32

CHDP                                                                                                                           2.38

Final Rate                                                                                                               $    67.17


                                        7



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Aged



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            4.280      19.624        1.476       1.310       2.880       14.314
              Age/sex Adjustment                    .986       1.004         .995        .987       1.031        1.005
              Aid Code Adjustment                   .936       1.021         .968        .931       1.007        1.016
                        Adjusted Units             3.950      20.116        1.422       1.204       2.990       14.616
              Average Cost Per Unit                44.28       28.65       265.64       16.35       76.99         6.95
              Area Adjustment                      1.013       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    44.86   $   28.65   $   265.64   $   16.35   $   76.99   $     6.95
              Interest Adjustment                   .994       1.000         .990        .991        .998         .996
              Contract Cost per Eligible      $   176.13   $  576.32   $   373.96   $   19.51   $  229.74   $   101.17   $ 1,476.83

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/97         1.486       1.278         .896       1.127       1.075        1.565

Annual Cost Per Eligible                      $   262.51   $  454.33   $   353.38   $   22.05   $  262.49   $   158.49   $ 1,513.25

Mental Health Adjustment                              .3%        3.2%          .7%         .9%         .4%          .0%
Eyewear Adjustment                                                                                                 2.1%
Cost Excluding Mental Health                  $   261.72   $  439.79   $   350.91   $   21.85   $  261.44   $   155.16   $ 1,490.87

Preliminary Monthly Rate                                                                                                 $   124.24

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -2.48

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   121.76


                                        8



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Disabled



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            7.452      23.494        1.498       4.212       1.440       28.577
              Age/sex Adjustment                   1.005        .979         .990       1.011       1.011        1.008
              Aid Code Adjustment                   .994       1.003         .983        .993        .999        1.004
                        Adjusted Units             7.444      23.070        1.458       4.229       1.454       28.921
              Average Cost Per Unit                43.31       32.19       511.29       18.05      108.27        10.65
              Area Adjustment                      1.013       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    43.87   $   32.19   $   511.29   $   18.05   $  108.27   $    10.65
              Interest Adjustment                   .995        .999         .991        .993        .999         .996
              Contract Cost per Eligible      $   324.94   $  741.88   $   738.75   $   75.80   $  157.27   $   306.78   $ 2,345.42

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/97         1.160       1.270         .981       1.065        .991        1.327

Annual Cost Per Eligible                      $   378.06   $  581.19   $   764.32   $   80.97   $  165.65   $   407.50   $ 2,377.69

Mental Health Adjustment                             7.8%       18.8%        11.7%        2.4%        1.3%         1.4%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   348.57   $  471.93   $   674.89   $   79.03   $  163.50   $   398.18   $ 2,136.10

Preliminary Monthly Rate                                                                                                 $   178.01

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -3.56

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   174.45


                                        9



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       San Bernardino
                                              Capitation Payable: End of Month
Aid Code:     Adult



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles           22.752       5.069        3.590       4.465        .000       20.412
              Age/sex Adjustment                   1.000       1.000        1.000       1.000       1.000        1.000
              Aid Code Adjustment                  1.000       1.000        1.000       1.000       1.000        1.000
                        Adjusted Units            22.752       5.069        3.590       4.465        .000       20.412
              Average Cost Per Unit                59.80       16.00       960.30       20.51         .00        43.66
              Area Adjustment                      1.013       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    60.58   $   16.00   $   960.30   $   20.51   $     .00   $    43.66
              Interest Adjustment                   .996        .999         .995        .993        .996         .995
              Contract Cost per Eligible      $ 1,372.80   $   81.02   $ 3,430.24   $   90.94   $     .00   $   886.73   $ 5,861.73

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.035       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/97         1.099       1.023        1.126       1.169       1.000        1.195

Annual Cost Per Eligible                      $ 1,513.23   $   51.13   $ 4,069.59   $  106.63   $     .00   $ 1,073.42   $ 6,814.00

Mental Health Adjustment                              .1%        2.2%          .3%        1.1%         .0%          .1%
Eyewear Adjustment                                                                                                  .4%
Cost Excluding Mental Health                  $ 1,511.72   $   50.01   $ 4,057.38   $  105.46   $     .00   $ 1,068.06   $ 6,792.63

Preliminary Monthly Rate                                                                                                 $   566.05

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $   -11.32

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   554.73


                                       10



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   7/95 - 5/96
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Family



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            3.816       4.223         .370       2.232        .000        3.330
              Age/sex Adjustment                   1.062        .994        1.094       1.032       1.000        1.021
              Aid Code Adjustment                  1.029        .998        1.098       1.042       1.000        1.020
                        Adjusted Units             4.170       4.189         .444       2.400        .000        3.468
              Average Cost Per Unit                71.93       14.73       828.49       21.79      369.03        28.02
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    70.92   $   14.73   $   828.49   $   21.79   $  369.03   $    28.02
              Interest Adjustment                   .997       1.000         .994        .997        .997         .997
              Contract Cost per Eligible      $   294.85   $   61.70   $   365.64   $   52.14   $     .00   $    96.88   $   871.21

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.030       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/96         1.027       1.220        1.043        .945       1.000        1.317

Annual Cost Per Eligible                      $   303.72   $   46.43   $   399.87   $   49.42   $     .00   $   126.15   $   925.59

Mental Health Adjustment                             1.4%         .0%         6.6%        5.0%        1.5%         4.5%
Eyewear Adjustment                                                                                                 1.5%
Cost Excluding Mental Health                  $   299.47   $   46.43   $   373.48   $   46.95   $     .00   $   118.67   $   885.00

Preliminary Monthly Rate                                                                                                 $    73.75

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.48

CHDP                                                                                                                           2.43

Final Rate                                                                                                               $    74.70


                                       11



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   7/95 - 5/96
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Child



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            3.791       3.907         .361       1.620        .000        1.882
              Age/sex Adjustment                   1.193        .991        1.245       1.064       1.000        1.114
              Aid Code Adjustment                  1.020       1.035        1.048       1.013       1.000        1.025
                        Adjusted Units             4.613       4.007         .471       1.746        .000        2.149
              Average Cost Per Unit                69.47       11.05       890.67       22.20         .00        40.13
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    68.50   $   11.05   $   890.67   $   22.20   $     .00   $    40.13
              Interest Adjustment                   .996        .999         .990        .994        .998         .995
              Contract Cost per Eligible      $   314.73   $   44.23   $   415.31   $   38.53   $     .00   $    85.81   $   898.61

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.031       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/96         1.040       1.238         .853        .906       1.000        1.210

Annual Cost Per Eligible                      $   328.30   $   33.78   $   371.82   $   35.01   $     .00   $   101.44   $   870.35

Mental Health Adjustment                             1.6%         .0%        13.4%        2.9%        3.4%         3.6%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   323.05   $   33.78   $   322.00   $   33.99   $     .00   $    96.91   $   809.73

Preliminary Monthly Rate                                                                                                 $    67.48

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.35

CHDP                                                                                                                           2.38

Final Rate                                                                                                               $    68.51


                                       12



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   7/95 - 5/96
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Aged



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            4.280      19.624        1.476       1.310       2.880       14.314
              Age/sex Adjustment                    .991       1.002        1.000        .991       1.034        1.006
              Aid Code Adjustment                   .941       1.015         .969        .932       1.004        1.003
                        Adjusted Onits             3.991      19.958        1.430       1.210       2.990       14.443
              Average Cost Per Unit                44.28       28.65       205.53       16.35       76.99         6.95
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    43.66   $   28.65   $   205.53   $   16.35   $   76.99   $     6.95
              Interest Adjustment                   .994       1.000         .990        .991        .998         .996
              Contract Cost per Eligible      $   173.20   $  571.80   $   290.97   $   19.61   $  229.74   $    99.98   $ 1,385.30

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/96         1.347       1.194         .925       1.091       1.054        1.404

Annual Cost Per Eligible                      $   234.00   $  421.14   $   283.86   $   21.46   $  257.36   $   140.51   $ 1,358.33

Mental Health Adjustment                              .3%         .0%          .7%         .9%         .4%          .0%
Eyewear Adjustment                                                                                                 2.1%
Cost Excluding Mental Health                  $   233.30   $  421.14   $   281.87   $   21.27   $  256.33   $   137.56   $ 1.351.47

Preliminary Monthly Rate                                                                                                 $   112.62

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -2.25

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   110.37


                                       13



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   7/95 - 5/96
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Disabled



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            7.452      23.494        1.498       4.212       1.440       28.577
              Age/sex Adjustment                   1.003        .992         .992       1.003       1.012        1.005
              Aid Code Adjustment-                 1.002       1.003        1.018       1.006        .997        1.005
                        Adjusted Units             7.489      23.376        1.513       4.250       1.453       28.863
              Average Cost Per Unit                43.31       32.19       532.47       18.05      108.27        10.65
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    42.70   $   32.19   $   532.47   $   18.05   $  108.27   $    10.65
              Interest Adjustment                   .995        .999         .991        .993        .999         .996
              Contract Cost per Eligible      $   318.18   $  751.72   $   798.38   $   76.18   $  157.16   $   306.16   $ 2,407.78

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/96         1.115       1.190         .986       1.047        .992        1.233

Annual Cost Per Eligible                      $   355.84   $  551.80   $   830.22   $   80.00   $  165.70   $   377.87   $ 2,361.43

Mental Health Adjustment                             7.8%         .0%        11.7%        2.4%        1.3%         1.4%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   328.08   $  551.80   $   733.08   $   78.08   $  163.55   $   369.23   $ 2,223.82

Preliminary Monthly Rate                                                                                                 $   185.32

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -3.71

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   181.61


                                       14



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   7/95 - 5/96
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Adult



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles           22.752       5.069        3.590       4.465        .000       20.412
              Age/sex Adjustment                   1.000       1.000        1.000       1.000       1.000        1.000
              Aid Code Adjustment                  1.000       1.000        1.000       1.000       1.000        1.000
                        Adjusted Units            22.752       5.069        3.590       4.465        .000       20.412
              Average Cost Per Unit                59.80       16.00       840.07       20.51         .00        43.66
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    58.96   $   16.00   $   840.07   $   20.51   $     .00   $    43.66
              Interest Adjustment                   .996        .999         .995        .993        .996         .995
              Contract Cost per Eligible      $ 1,336.09   $   81.02   $ 3,000.77   $   90.94   $     .00   $   886.73   $ 5,395.55

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.035       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/96         1.076       1.020        1.086       1.122       1.000        1.139

Annual Cost Per Eligible                      $ 1,441.95   $   50.98   $ 3,433.61   $  102.34   $     .00   $ 1,023.12   $ 6,052.00

Mental Health Adjustment                              .1%         .0%          .3%        1.1%         .0%          .1%
Eyewear Adjustment                                                                                                  .4%
Cost Excluding Mental Health                  $ 1.440.51   $   50.98   $ 3,423.31   $  101.21   $     .00   $ 1,018.01   $ 6,034.02

Preliminary Monthly Rate                                                                                                 $   502.84

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $   -10.06

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   492.78


                                       15



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Family



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            8.816       4.223         .370       2.232        .000        3.330
              Age/sex Adjustment                   1.062        .994        1.094       1.032       1.000        1.021
              Aid Code Adjustment                  1.029        .998        1.098       1.042       1.000        1.020
                        Adjusted Units             4.170       4.189         .444       2.400        .000        3.468
              Average Cost Per Unit                71.93       14.73       828.49       21.79      369.03        28.02
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    70.92   $   14.73   $   828.49   $   21.79   $  369.03   $    28.02
              Interest Adjustment                   .997       1.000         .994        .997        .997         .997
              Contract Cost per Eligible      $   294.85   $   61.70   $   365.64   $   52.14   $     .00   $    96.88   $   871.21

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.030       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/97         1.036       1.313        1.060        .925       1.000        1.454

Annual Cost Per Eligible                      $   306.38   $   49.97   $   406.39   $   48.37   $     .00   $   139.27   $   950.38

Mental Health Adjustment                             1.4%        6.0%         6.5%        5.0%        1.5%         4.5%
Eyewear Adjustment                                                                                                 1.5%
Cost Excluding Mental Health                  $   302.09   $   46.97   $   379.57   $   45.95   $     .00   $   131.01   $   905.59

Preliminary Monthly Rate                                                                                                 $    75.47

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.51

CHDP                                                                                                                           2.43

Final Rate                                                                                                               $    76.39


                                       16



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Child



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            3.791       3.907         .361       1.620        .000        1.882
              Age/sex Adjustment                   1.193        .991        1.245       1.064       1.000        1.114
              Aid Code Adjustment                  1.020       1.035        1.048       1.013       1.000        1.025
                        Adjusted Units             4.613       4.007         .471       1.746        .000        2.149
              Average Cost Per Unit                69.47       11.05       890.67       22.20         .00        40.13
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    68.50   $   11.05   $   890.67   $   22.20   $     .00   $    40.13
              Interest Adjustment                   .996        .999         .990        .994        .998         .995
              Contract Cost per Eligible      $   314.73   $   44.23   $   415.31   $   38.53   $     .00   $    85.81   $   898.61

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.031       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020         .976
              Trend Adjustment 7/93 - 1/97         1.047       1.330         .807        .878       1.000        1.285

Annual Cost Per Eligible                      $   330.51   $   36.29   $   351.76   $   33.93   $     .00   $   107.73   $   860.22

Mental Health Adjustment                             1.6%        4.6%        13.4%        2.9%        3.4%         3.6%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   325.22   $   34.62   $   304.62   $   32.95   $     .00   $   102.92   $   800.33

Preliminary Monthly Rate                                                                                                 $    66.69

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -1.33

CHDP                                                                                                                           2.38

Final Rate                                                                                                               $    67.74


                                       17



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Aged



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1.000 eligibles            4.280      19.624        1.476       1.310       2.880       14.314
              Age/sex Adjustment                    .991       1.002        1.000        .991       1.034        1.006
              Aid Code Adjustment                   .941       1.015         .969        .932       1.004        1.003
                        Adjusted Units             3.991      19.958        1.430       1.210       2.990       14.443
              Average Cost Per Unit                44.28       28.65       205.53       16.35       76.99         6.95
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    43.66   $   28.65   $   205.53   $   16.35   $   76.99   $     6.95
              Interest Adjustment                   .994       1.000         .990        .991        .998         .996
              Contract Cost per Eligible      $   173.20   $  571.80   $   290.97   $   19.61   $  229.74   $    99.98   $ 1,385.30

              Benefit Adjustments
                        FT 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/97         1.486       1.278         .896       1.127       1.075        1.565

Annual Cost Per Eligible                      $   258.15   $  450.77   $   274.96   $   22.17   $  262.49   $   156.63   $ 1,425.17

Mental Health Adjustment                              .3%        3.2%          .7%         .9%         .4%          .0%
Eyewear Adjustment                                                                                                 2.1%
Cost Excluding Mental Health                  $   257.38   $  436.35   $   273.04   $   21.97   $  261.44   $   153.34   $ 1,403.52

Preliminary Monthly Rate                                                                                                 $   116.96

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -2.34

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   114.62


                                       18



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Disabled



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles            7.452      23.494        1.498       4.212       1.440       28.577
              Age/sex Adjustment                   1.003        .992         .992       1.003       1.012        1.005
              Aid Code Adjustment                  1.002       1.003        1.018       1.006        .997        1.005
                        Adjusted Units             7.489      23.376        1.513       4.250       1.453       28.863
              Average Cost Per Unit                43.31       32.19       532.47       18.05      108.27        10.65
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    42.70   $   32.19   $   532.47   $   18.05   $  108.27   $    10.65
              Interest Adjustment                   .995        .999         .991        .993        .999         .996
              Contract Cost per Eligible      $   318.18   $  751.72   $   798.38   $   76.18   $  157.16   $   306.16   $ 2,407.78

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.036       1.003       1.042        1.001
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        l.000
              Trend Adjustment 7/93 - 1/97         1.160       1.270         .981       1.065        .991        1.327

Annual Cost Per Eligible                      $   370.20   $  588.90   $   826.01   $   81.38   $  165.53   $   406.68   $ 2.438.70

Mental Health Adjustment                             7.8%       18.8%        11.7%        2.4%        1.3%         1.4%
Eyewear Adjustment                                                                                                  .9%
Cost Excluding Mental Health                  $   341.32   $  478.19   $   729.37   $   79.43   $  163.38   $   397.38   $ 2,189.07

Preliminary Monthly Rate                                                                                                 $   182.42

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $    -3.65

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   178.77


                                       19



                                                                    Attachment I

Plan Name:    Mainstream                            Base Period:  CY '93
Plan Number:                                        Rate Period:   6/96 - 9/97
County:       Riverside
                                              Capitation Payable: End of Month
Aid Code:     Adult



                                                    Phys       Pharm          HIP         HOP         LTC        Other        Total
                                                                                                    
              Units per 1,000 eligibles           22.752   $   5.069        3.590       4.465        .000       20.412
              Age/sex Adjustment                   1.000       1.000        1.000       1.000       1.000        1.000
              Aid Code Adjustment                  1.000       1.000        1.000       1.000       1.000        1.000
                        Adjusted Units            22.752       5.069        3.590       4.465        .000       20.412
              Average Cost Per unit                59.80       16.00       840.07       20.51         .00        43.66
              Area Adjustment                       .986       1.000        1.000       1.000       1.000        1.000
                        Adjusted Cost         $    58.96   $   16.00   $   840.07   $   20.51   $     .00   $    43.66
              Interest Adjustment                   .996        .999         .995        .993        .996         .995
              Contract Cost per Eligible      $ 1,336.09   $   81.02   $ 3,000.77   $   90.94   $     .00   $   886.73   $ 5,395.55

              Benefit Adjustments
                        FY 94/95                   1.003        .852        1.035       1.003       1.042        1.013
                        FY 95/96                   1.000        .724        1.018       1.000       1.020        1.000
              Trend Adjustment 7/93 - 1/97         1.099       1.023        1.126       1.169       1.000        1.195

Annual Cost Per Eligible                      $ 1,472.77   $   51.13   $ 3,560.08   $  106.63   $     .00   $ 1,073.42   $ 6,264.03

Mental Health Adjustment                              .1%        2.2%          .3%        1.1%         .0%          .1%
Eyewear Adjustment                                                                                                  .4%
Cost Excluding Mental Health                  $ 1,471.30   $   50.01   $ 3,549.40   $  105.46   $     .00   $ 1,068.06   $ 6,244.23

Preliminary Monthly Rate                                                                                                 $   520.35

Adj. for Fee-for-Service Limitation                             -2.0%                                                    $   -10.41

CHDP                                                                                                                            .00

Final Rate                                                                                                               $   509.94


                                       20



STATE OF CALIFORNIA

STANDARD AGREEMENT -- APPROVED BY THE                CONTRACT NUMBER     AM. NO.
STD.2(REV.5-91)       ATTORNEY GENERAL               95-23637               01
                                                     TAXPAYER'S FEDERAL
                                                     EMPLOYER IDENTIFICATION NO.
                                                     33-0342719

THIS AGREEMENT, made and entered into this 30th day of May, 1997 in the State of
  California, by and between State of California, through its duly elected or
  appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE      AGENCY
Chief, Program Support Branch          Department of Health Services,
                                       hereafter called the State, and
CONTRACTOR'S NAME
Molina Medical Centers, hereafter called the Contractor:

WTTNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter express does
hereby agree to furnish to the State services and materials as follows: (Set
forth service to be rendered by Contractor, amount to be paid Contractor, time
for performance or completion, and attach plans and specifications, if any.)

      Amendment A01 to contract number 95-23637 between Molina Medical Centers
      and the State of California; and

      WHERE AS, the State of California and Molina Medical Centers, entered into
      a contract to provide health care services to Medi-Cal beneficiaries dated
      April 2, 1996; and

      NOW THEREFORE, this contract is amended as follows:

                                                                          [SEAL]

CONTINUED ON 1 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



- -------------------------------------------------------------------------------------------------------------------------------
          STATE OF CALIFORNIA                                              CONTRACTOR
- -------------------------------------------------------------------------------------------------------------------------------
                                     
AGENCY                                  CONTRACTOR (If other than an individual, state whether a corporation, partnership, etc.)
  Department of Health Service          Molina Medical Centers
- -------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)               BY (AUTHORIZED SIGNATURE)
/s/ Jayna Querin For                     /s/ John Molina For
- -------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING          PRINTED NAME AND TITLE OF PERSON SIGNING
  Edward E. Stahlberg                   J. Mario Molina, M.D., President
- -------------------------------------------------------------------------------------------------------------------------------
TITLE                                   ADDRESS
  Chief, Program Support Branch         One Golden Shore, Long Beach, CA 90802
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS               PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE               Department of General
DOCUMENT                                Loc. Asst. Section 14157 W&I Code        Health Care Deposit        Services Use Only
$ -0-                         ----------------------------------------------------------------------
- ------------------------------          (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                           ------------------------------------------------------------
$ 226,553,310                           ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------          4260-601-912          162           1996           96/97
TOTAL AMOUNT ENCUMBERED TO              ------------------------------------------------------------
$ 226,553,310                           OBJECT OF EXPENDITURE (CODE AND TITLE)                             Exempt from PCC
                                        Fed. Cat. No. 93778 4260-101-001 & 890                             per W&I Code
- ----------------------------------------------------------------------------------------------------       Section 14087.4
I hereby certify upon my own personal   T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- ----------------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/ Roberta Purser                                         6/26/97
- ----------------------------------------------------------------------------------------------------


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA

STANDARD AGREEMENT
STD 2 (REV.5-01)(REVERSE)

       1. The Contractor agrees to indemnify, defend and save harmless the
          State, its officers, agents and employees from any and all claims and
          losses accruing or resulting to any and all contractors,
          subcontractors, materialmen, laborers and any other person, firm or
          corporation furnishing or supplying work services, materials or
          supplies in connection with the performance of this contract, and
          from any and all claims and losses accruing or resulting to any
          person, firm or corporation who may be injured or damaged by the
          Contractor in the performance of this contract.

       2. The Contractor, and the agents and employees of Contractor, in the
          performance of the agreement, shall act in an independent capacity and
          not as officers or employees or agents of State of California.

       3. The State may terminate this agreement and be relieved of the payment
          of any consideration to Contractor should Contractor fail to perform
          the covenants herein contained at the time and in the manner herein
          provided. In the event of such termination the State may proceed with
          the work in any manner deemed proper by the State. The cost to the
          State shall be deducted from any sum due the Contractor under this
          agreement, and the balance, if any, shall be paid the Contractor upon
          demand.

       4. Without the written consent of the State, this agreement is not
          assignable by Contractor either in whole or in part.

       5. Time is of the essence in this agreement.

       6. No alteration or variation of the terms of this contract shall be
          valid unless made in writing and signed by the parties hereto, and no
          oral understanding or agreement not incorporated herein, shall be
          binding on any of the parties hereto.

       7. The consideration to be paid Contractor, as provided herein, shall be
          in compensation for all of Contractor's expenses incurred in the
          performance hereof, including travel and per diem, unless otherwise
          expressly so provided.



                               Contract Amendment

     The Department of Health Services ("DHS") and Molina Medical Centers
("Contractor") enter into this contract amendment as follows:

     WHEREAS DHS and Contractor entered into contract number 95-23637 on April
2, 1996 (the "Contract"), identifying Contractor as the mainstream plan for the
Medi-Cal Two Plan Model Program in San Bernardino and Riverside counties, and

     WHEREAS DHS and Contractor desire to modify certain rights and obligations
of the parties as they relate to termination of the Contract,

     DHS and Contractor therefore mutually agree:

1.   Section 3.17.6 is added to the Contract as though fully set forth therein:

     (a)  Notwithstanding any other provision of this Contract and except as
     provided in subsection (b), this Contract shall terminate on November 30,
     1997, unless Contractor can accept enrollment on December 1, 1997, with
     coverage to be effective on December 1, 1997.

     (b)  The termination provisions of subsection (a) above, shall not apply if
     Contractor is unable to accept enrollment on December 1, 1997, as a result
     of (1) conditions, natural or otherwise, beyond the control of Contractor,
     which substantially interfere with normal business operations, or (2)
     legal, regulatory or other obstacles, unrelated to any act or omission of
     Contractor, that prevent, postpone or suspend commencement of the Two Plan
     Model Program in San Bernardino and Riverside counties.

     (c)  In the event of termination of the Contract pursuant to this section
     3.17.6, Contractor waives any further notice and any administrative appeal
     rights otherwise arising from or associated with termination of the
     Contract pursuant to this section 3.17.6.



                                     
Department of Health Services           Molina Medical Centers


(signature)                             (signature) /s/
__________________________________      _____________________________________


(printed name)                          (printed name)  J. Mario Molina MD
__________________________________      _____________________________________


(title)                                 (title)   President
__________________________________      _____________________________________


(date)                                  (date)    6/9/97
__________________________________      _____________________________________





Molina Medical Centers                                              95-23637-A01

1.   Article III, GENERAL TERMS AND CONDITIONS, is amended to add new Section
     3.17.6, Termination-Other Conditions, as follows:

     "3.17.6           Termination-Other Conditions

     (a)   Notwithstanding any other provision of this Contract and except as
           provided in subsection (b), this Contract will terminate on November
           30, 1997, unless Contractor can accept enrollment on December 1,
           1997, with coverage to be effective on December 1, 1997.

     (b)   The termination provisions of subsection (a) above, shall not apply
           if Contractor is unable to accept enrollment on December 1, 1997, as
           a result of (1) conditions, natural or otherwise, beyond the control
           of Contractor, which substantially interfere with normal business
           operations, or (2) legal, regulatory or other obstacles, unrelated to
           any act or omission of Contractor, that prevent, postpone or suspend
           commencement of the Two Plan Model Program in San Bernardino and
           Riverside counties.

     (c)   In the event of termination of the Contract pursuant to this section
           3.17.6, Contractor waives any further notice and any administrative
           appeal rights otherwise arising from or associated with termination
           of the Contract pursuant to this section 3.17.6."

2.   The effective date of this amendment is May 30, 1997.

3.   All other rights, duties, obligations, and liabilities of the parties
     otherwise remain unchanged.



STATE OF CALIFORNIA                                  CONTRACT NUMBER     AM. NO.
                                                         95-23637          02
STANDARD AGREEMENT -- APPROVED BY THE                TAXPAYER'S FEDERAL
[STD. 2 (REV.5-91)    ATTORNEY GENERAL               EMPLOYER IDENTIFICATION
                                                      NUMBER
                                                     33-0342719

THIS AGREEMENT, made and entered into this 1st day of July, 1997, in the State
of California, by and between State of California, through its duly elected or
appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE      AGENCY
Chief, Program Support Branch           Department of Health Services,
                                        hereafter called the State, and
CONTRACTOR'S NAME
 Molina Medical Centers, Inc.,          hereafter called the Contractor.

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(Set forth service to be rendered by contractor, amount to be paid contractor,
time for performance or completion, and attach plans and specifications, if
any.)


Amendment A02 to contract number 95-23637 BETWEEN MOLINA MEDICAL CENTERS, INC.
and the STATE OF CALIFORNIA; and

WHERE AS, the State of California and Molina Medical Centers, Inc., entered into
a contract to provide health care services to eligible Medi-Cal beneficiaries,
dated April 2, 1996; and


NOW THEREFORE, this Contract is amended as follows"

[SEAL]

CONTINUED ON 2 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



       STATE OF CALIFORNIA                                                 CONTRACTOR
- ---------------------------------------------------------------------------------------------------------------------------------
                                     
AGENCY                                   CONTRACTOR (if other than an individual, state whether a corporation, partnership, etc.)
Department of Health Service                Molina Medical Centers, Inc., A CA Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)               BY (AUTHORIZED SIGNATURE)
/s/ Jayna Querin for                    /s/
- ---------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING          PRINTED NAME AND TITLE OF PERSON SIGNING
Edward E. Stahlberg                     J. Mario Molina, M.D.
- ---------------------------------------------------------------------------------------------------------------------------------
TITLE                                   ADDRESS
Chief, Program Support Branch           One Golden Shore, Long Beach, CA 90802
- ---------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS      PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE               DEPARTMENT OF GENERAL
DOCUMENT                       Loc. Asst.Sect. 14157 W&I Code           Health Care Deposit        SERVICE USE ONLY
$  194,472,680.00              ------------------------------------------------------------
- ------------------------------ (OPTIONAL USE)                                                    Exempt From PCC per
                                                                                                 W&I Code Section 14087.4
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                  ------------------------------------------------------------
$ 226,553,310.00                  ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------ 4260-601-912           Subject to the Budget Act
TOTAL AMOUNT ENCUMBERED TO     ------------------------------------------------------------
DATE                           OBJECT OF EXPENDITURE (CODE AND TITLE)
421,025,990                    Fed.Cat.No.93778 4260-101-001 & 890
- -------------------------------------------------------------------------------------------
I hereby certify upon my own personal   T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- -------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/ Roberta Purser                                         7.8.97
- -------------------------------------------------------------------------------------------


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD.2 (REV. 5-01) (REVERSE)

        1. The Contractor agrees to indemnify, defend and save harmless the
           state, its officers, agents and employees from any and all claims and
           losses accruing or resulting to any and all contractors,
           subcontractors, materialmen, laborers and any other person, firm or
           corporation furnishing or supplying work services, materials or
           supplies in connection with the performance of this contract, and
           from any and all claims and losses accruing or resulting to any
           person, firm or corporation who may be injured or damaged by the
           Contractor in the performance of this contract.

        2. The Contractor, and the agents and employees of Contractor, in the
           performance of the agreement, shall act in an independent capacity
           and not as officers or employees or agents of State of California.

        3. The State may terminate this agreement and be relieved of the payment
           of any consideration to Contractor should Contractor fail to perform
           the covenants herein contained at the time and in the manner herein
           provided. In the event of such termination the State may proceed with
           the work in any manner deemed proper by the State. The cost to the
           State shall be deducted from any sum due the Contractor under this
           agreement, and the balance, if any, shall be paid the Contractor upon
           demand.

        4. Without the written consent of the State, this agreement is not
           assignable by Contractor either in whole or in part.

        5. Time is of the essence in this agreement.

        6. No alteration or variation of the terms of this contract shall be
           valid unless made in writing and signed by the parties hereto, and no
           oral understanding or agreement not incorporated herein, shall be
           binding on any of the parties hereto.

        7. The consideration to be paid Contractor, as provided herein, shall be
           in compensation for all of Contractor's expenses incurred in the
           performance hereof, including travel and per diem, unless otherwise
           expressly so provided.



Molina Medical Centers, Inc.                                         95-23637-02

1,   Article II, DEFINITIONS, Section O, Covered Services, is amended to add a
     new subparagraph 16, to read:

     "16. HTV and AIDS drugs listed in Attachment II (consisting of one page),
          and HIV and AIDS drugs classified as Nucleoside Analogs, Protease
          Inhibitors, and Non-Nucleoside Reverse Transcriptase Inhibitors,
          approved by the federal Food and Drug Administration (FDA) after July
          1, 1997."

2.   Article V, PAYMENT PROVISIONS, Section 5.3, Capitation Rates, is amended to
     read as follows:

     "5.3      CAPITATION RATES

          DHS will remit to the Contractor a capitation payment each month for
          each Medi-Cal Member that appears on the approved list of Members
          supplied to the Contractor by DHS. The capitation rate shall be the
          amount specified in this Article. The payment period for health care
          services will commence on the first day of operations, as determined
          by DHS. Capitation payments will be made in accordance with the
          following schedule of capitation payment rates:

          Aid Code Categories

          Family: 01, 02, 08, 30, 32, 33, 34, 35, 38, 39, 3A, 3C, 3P, 3R, 40,
          42, 4C, 4K, 54, 59, 5K; Aged: 10, 14, 16, 18; Disabled: 20 24, 26, 28,
          36, 60, 64, 66, 68, 6A, 6C; Child: 03, 04, 45, 82; Adult: 86

          For the Period 6/96 - 9/97
          Riverside County                          San Bernardino County

          Family           $  76.81                Family          $  72.12
          Aged             $ 123.58                Aged            $ 130.50
          Disabled         $ 190.62                Disabled        $ 186.32
          Child            $  68.08                Child           $  67.51
          Adult            $ 496.01                Adult           $ 538.82"

                                        2



Molina Medical Centers, Inc.                                         95-23637-02


3.   Article VI, SCOPE OF WORK, Section 6.5.7.8, Sensitive Services, is amended
     to add a new paragraph, to read:

     "The Contractor will develop, implement and maintain policies and
     procedures for the treatment of HIV infection and AIDS. These policies and
     procedures will be submitted to DHS no later than October 1, 1997. The
     Contractor will submit any changes in these policies and procedures to DHS
     at least 30 days prior to their implementation."

4.   Article VI, SCOPE OF WORK, Section 6.7.3.3, Mental Health, is amended to
     read:

     "The following mental health services are excluded from the Contract: all
     of SD/MC mental health services (inpatient and outpatient); FFS/MC
     outpatient mental health services provided by psychiatrists and
     psychologists; FFS/MC inpatient mental health services.

     The Contractor will provide outpatient mental health services within the
     Primary Care Physician's scope of practice. The Contractor will refer
     Members who need specialty mental health services to the appropriate
     FFS/MC mental health provider or to the appropriate SD/MC provider. The
     Contractor will case manage the physical health of the Member and
     coordinate services with the mental health referral provider. The
     Contractor will ensure the provision of all psychotherapeutic drugs for
     Members. Reimbursement to pharmacies for those psychotherapeutic drugs
     listed in Attachment III (consisting of one page), and psychotherapeutic
     drugs classified as Anti-Psychotics and approved by the FDA after July 1,
     1997, will be made by DHS through the Medi-Cal FFS program, whether these
     drugs are provided by a pharmacy contracting with the Contractor or by an
     out-of-plan pharmacy provider. To qualify for reimbursement under this
     provision, a pharmacy must be enrolled as a Medi-Cal provider in the
     Medi-Cal FFS program."

5.   The effective date of this amendment will be July 1, 1997.

6.   All other rights, duties, obligations and liabilities of the parties hereto
     otherwise remain unchanged.



Molina Medical Centers, Inc.                                         95-23637-02

                                  ATTACHMENT II

                EXCLUDED DRUGS FOR THE TREATMENT OF HIV AND AIDS

                                    CRIXIVAN

                                     EPIVIR

                                    INVIRASE

                                     NORVIR

                                    VIRACEPT

                                    VIRAMUNE

                                   RESCRIPTOR

                                      ZERIT



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

                                  ATTACHMENT III

                        EXCLUDED PSYCHOTHERAPEUTIC DRUGS

                                  GENERIC NAME

        Benztropine Mesylate                            Biperiden HCL
        Biperiden Lactate                               Procyclidine HCL
        Trihexphenidyl HCL                              Amantadine HCL
        Lithium Carbonate                               Lithium Citrate
        Chloroprothixene                                Clozapine
        Haloperidol                                     Haloperidol Deconoate
        Haloperidol Lactate                             Loxapine HCL
        Loxapine Succinate                              Molindone HCL
        Olanzapine                                      Pimozide
        Risperidone                                     Thiothixene
        Thiothixene HCL                                 Chlorpromazine HCL
        Fluphanazine Decanoate                          Fluphanazine Enanthate
        Fluphanazine HCL                                Mesoridazine Besylate
        Perphenazine                                    Promazine HCL
        Thioridazine HCL                                Trifluoperazine HCL
        Triflupromazine HCL                             Isocarboxazid
        Phenelzine Sulfate                              Tranylcypromine Sulfate



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         355                                 Base Period: CY '93
County          Riverside                               Rate Period: 6/96 - 9/97

Aid Code Group  Family



                                          Phys      Pharm        HIP         HOP         LTC      Other       Total
                                                                                     
1.   Base Units per Eligible             3.816      4.223       .370       2.232        .000      3.330
2.   Aid Code Adjustment                 1.029       .998      1.098       1.042       1.000      1.020
3.   Age/sex Adjustment                  1.062       .994      1.094       1.032       1.000      1.021
        Adjusted Units                   4.170      4.189       .444       2.400        .000      3.468
4.   Average Cost Per Unit               71.93      14.73     828.49       21.79      369.03      28.02
5.   Area Adjustment                      .986      1.000      1.000       1.000       1.000      1.000
        Adjusted Cost                $   70.92  $   14.73  $  828.49    $  21.79    $ 369.03  $   28.02
6.   Interest Adjustment                  .993       .996       .990        .993        .993       .993
        Contract Cost per Eligible   $  293.67  $   61.46  $  364.17    $  51.93    $    .00  $   96.49   $  867.72

7.   Benefit Adjustments
               FY 94/95                  1.021       .926      1.002       1.002       1.042      1.025
               FY 95/96                  1.001       .850      1.000       1.000        .999       .991

8.   Trend Adjustment 7/93-1/97          1.036      1.313      1.060        .925       1.000      1.454

      Annual Cost Per Eligible       $  310.94  $   63.52  $  386.79    $  48.13    $    .00  $  142.51   $  951.89

9.   Mental Health Adjustment              1.4%        .6%       6.6%        5.0%        l.5%       4.5%
10.  Lenses Adjustment                                                                              1.5%

     Cost Excl. MH/Lenses            $  306.59  $   63.14  $  361.26    $  45.72    $    .00  $  134.06   $  910.77

        Preliminary Monthly Rate                                                                          $   75.90

11.  Stop Loss Reinsurance - All
      Services                                          0                                 .0%                   .00

12.  Adjustment for FFS Limitation                                                        -2%                 (1.52)

13.  CHDP                                                                                                      2.43

14.  FQHC Incremental Amount                                                                                    .00

       Final Monthly Rate - Capitation Payments at Beginning of Month                                     $   76.81


                                        1



MOLINA MEDICAL CENTERS,  INC.                                        95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number       355                                   Base Period: CY '93
County          Riverside                               Rate Period: 6/96 - 9/97

Aid Code Group  Aged



                                        Phys      Pharm      HIP           HOP        LTC       Other       Total
                                                                                     
 1.  Base Units per Eligible            4. 280     19.624      1.476       1.310       2.880     14.314
 2.  Aid Code Adjustment                  .941      l.015       .969        .932       1.004      1.003
 3.  Age/sex Adjustment                   .991      1.002      1.000        .991       1.034      1.006
        Adjusted Units                   3.991     19.958      1.430       1.210       2.990     14.443
 4.  Average Cost Per Unit               44.28      28.65     205.53       16.35       76.99       6.95
 5.  Area Adjustment                      .986      1.000      1.000       1.000       1.000      1.000
        Adjusted Cost                $   43.66  $   28.65  $  205.53    $  16.35    $  76.99  $    6.95
 6.  Interest Adjustment                  .991       .996       .986        .988        .994       .992
        Contract Cost per Eligible   $  172.68  $  569.51  $  289.79    $  19.55    $ 228.82  $   99.58   $ 1,379.93

 7.  Benefit Adjustments
               FY 94/95                  1.002       .926      1.008       1.002       1.042      1.000
               FY 95/96                  1.000       .850      l.000       1.000        .989      1.000

 8.  Trend Adjustment 7/93-1/97          1.486      1.278       .896       1.127       1.075      1.565

      Annual Cost Per Eligible       $  257.12  $  572.88  $  261.73    $  22.08    $ 253.49  $  155.84   $ 1,523.14

 9.  Mental Health Adjustment               .3%        .5%        .7%         .9%         .4%        .0%
10.  Lenses Adjustment                                                                              2.1%

     Cost Excl. MH/Lenses            $  256.35  $  570.02  $  259.90    $  21.88    $ 252.48  $  152.57   $ 1,513.20

       Preliminary Monthly Rate                                                                           $   126.10

11.  Stop Loss Reinsurance - All
      Services                                          0                                 .0%                    .00

12.  Adjustment for FFS Limitation                                                        -2%                  (2.52)

13.  CHDP                                                                                                        .00

14.  FQHC Incremental Amount                                                                                     .00

       Final Monthly Rate - Capitation Payments at Beginning of Month                                     $   123.58


                                        2



MOLINA MEDICAL CENTERS,  INC.                                        95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number          355                                Base Period: CY '93
County          Riverside                               Rate Period: 6/96 - 9/97

Aid Code Group  Disabled



                                       Phys      Pharm         HIP        HOP        LTC        Other       Total
                                                                                     
 1.  Base Units per Eligible             7.452     23.494      1.498       4.212       1.440     28.577
 2.  Aid Code Adjustment                 1.002      1.003      1.018       1.006        .997      l.005
 3.  Age/sex Adjustment                  1.003       .992       .992       1.003       1.012      l.005
        Adjusted Units                   7.489     23.376      1.513       4.250       1.453     28.863
 4.  Average Cost Per Unit               43.31      32.19     532.47       18.O5      108.27      10.65
 5.  Area Adjustment                      .986      1.000      1.000       1.000       1.000      1.000
        Adjusted Cost                $   42.70  $   32.19  $  532.47    $  18.05    $ 108.27  $   10.65
 6.  Interest Adjustment                  .992       .996       .998        .990        .995       .992
        Contract Cost per Eligible   $  317.22  $  749.46  $  795.96    $  75.95    $ 156.53  $  304.93   $ 2,400.05

 7.  Benefit Adjustments
              FY 94/95                   1.002       .926      1.005       1.002       1.042      1.000
              FY 95/96                   1.000       .850      1.000       1.000        .989      1.000

 8.  Trend Adjustment 7/93-1/97          1.160      1.270       .981       1.065        .991      1.327

      Annual Cost Per Eligible       $  368.71  $  749.17  $  784.74    $  81.05    $ 159.86  $  404.64   $ 2,548.17

 9.  Mental Health Adjustment              7.8%      10.7%      11.7%        2.4%        1.3%       1.4%
10.  Lenses Adjustment                                                                               .9%

     Cost Excl. MH/Lenses            $  339.95  $  669.01  $  692.93    $  79.10    $ 157.78  $  395.38   $ 2,334.15

        Preliminary Monthly Rate                                                                          $   194.51

11.  Stop Loss Reinsurance - All
      Services                                          0                                 .0%                    .00

12.  Adjustment for FFS Limitation                                                        -2%                  (3.89)

13.  CHDP                                                                                                        .00

14.  FQHC Incremental Amount                                                                                     .00

       Final Monthly Rate - capitation Payments at Beginning of Month                                     $   190.62


                                        3



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         355                                 Base Period: CY '93
County          Riverside                               Rate Period: 6/96 - 9/97

Aid Code Group  Child



                                                Phys          Pharm       HIP       HOP        LTC       Other     Total
                                                                                           
 1. Base Units per Eligible                    3.791          3.907      .361     1.620       .000      1.882
 2. Aid Code Adjustment                        1.020          1.035     1.048     1.013      1.000      1.025
 3. Age/sex Adjustment                         1.193           .992     1.245     1.064      1.000      1.114
       Adjusted Units                          4.613          4.007      .471     1.746       .000      2.149
 4. Average Cost Per Unit                      69.47          11.05    890.67     22.20        .00      40.13
 5. Area Adjustment                             .986          1.000     1.000     1.000      1.000      1.000
       Adjusted Cost                        $  68.50      $   ll.05  $ 890.67   $ 22.20    $   .00   $  40.13
 6. Interest Adjustment                         .992           .995      .987      .990       .994       .992
       Contract Cost per Eligible           $ 313.46      $   44.06  $ 414.05   $ 38.37    $   .00   $  85.55   $ 895.49

 7. Benefit Adjustments
             FY 94/95                          1.021           .926     1.002     1.002      1.042      1.019
             FY 95/96                          1.001           .850     1.000     1.000       .989       .991

 8. Trend Adjustment 7/93-1/97                 1.047          1.330      .807      .878      1.000      1.285

     Annual Cost Per Eligible               $ 336.42      $   46.12  $ 334.81   $ 33.76    $   .00   $ 111.01   $ 861.12

 9. Mental Health Adjustment                     1.6%           1.1%     13.4%      2.9%       3.4%       3.6%
10. Lenses Adjustment                                                                                      .9%

    Cost Excl. MH/Lenses                    $ 330.05      $   45.61  $ 289.95   $ 32.78    $   .00   $ 106.05   $ 804.44

      Preliminary Monthly Rate                                                                                  $  67.04

11. Stop Loss Reinsurance - All Services                          0                             .0%                  .00

12. Adjustment for FFS Limitation                                                               -2%                (1.34)

13. CHDP                                                                                                            2.38

14. FQHC Incremental Amount                                                                                          .00

       Final Monthly Rate - Capitation Payments at Beginning of Month                                           $  68.08


                                        4



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         355                                 Base Period: CY '93
County          Riverside                               Rate Period: 6/96 - 9/97

Aid Code Group  Adult



                                            Phys        Pharm        HIP        HOP         LTC        Other      Total
                                                                                  
 1.  Base Units per Eligible                  22.752     5.069        3.590      4.465        .000      20.412
 2.  Aid Code Adjustment                       1.000     1.000        1.000      1.000       1.000       1.000
 3.  Age/sex Adjustment                        1.000     1.000        1.000      1.000       1.000       1.000
        Adjusted Units                        22.752     5.069        3.590      4.465        .000      20.412
 4.  Average Cost Per Unit                     59.80     16.00       840.07      20.51         .00       43.66
 5.  Area Adjustment                            .986     1.000        1.000      1.000       1.000       1.000
        Adjusted Cost                     $    58.96  $  16.00   $   840.07   $  20.51     $   .00  $    43.66
 6.  Interest Adjustment                        .993      .996         .991       .989        .993        .991
        Contract Cost per Eligible        $ 1,332.07  $  80.78   $ 2,988.71   $  90.57     $   .00  $   883.17  $ 5,375.30

 7.  Benefit Adjustments
               FY 94/95                        1.002      .926        1.008      1.002       1.042       1.006
               PY 95/96                        1.000      .850        1.000      1.000        .985       1.000

 8.  Trend Adjustment 7/93-1/97                1.099     1.023        1.126      1.169       1.000       1.195

      Annual Cost Per Eligible            $ 1,466.87  $  65.04   $ 3,392.21   $ 106.09     $   .00  $ 1,061.72  $ 6,091.93

 9.  Mental Health Adjustment                     .1%       .4%          .3%       1.1%         .0%         .1%
10.  Lenses Adjustment                                                                                      .4%

     Cost Excl.MH/Lenses                  $ 1,465.40  $  64.78   $ 3,382.03   $ 104.92     $   .00  $ 1,056.42  $ 6,073.55

        Preliminary Monthly Rate                                                                                $   506.13

11.  Stop Loss Reinsurance - All Services                    0                                  .0%                    .00

12.  Adjustment for FFS Limitation                                                              -2%                 (10.12)

13.  CHDP                                                                                                              .00

14.  FQHC Incremental Amount                                                                                           .00

        Final Monthly Rate - Capitation Payments at Beginning of Month                                          $   496.01


                                        5



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         356                                 Base Period: CY '93
County          San Bernardino                          Rate Period: 6/96 - 9/97

Aid Code Group  Family



                                             Phys           Pharm      HIP            HOP      LTC      Other       Total
                                                                                              
 1.  Base Units per Eligible                 3.816           4.223      .370          2.232      .000      3.330
 2.  Aid Code Adjustment                      .989            .990      .985           .995     1.000       .976
 3.  Age/sex Adjustment                      1.026            .997     1.040          1.019     1.000      1.010
        Adjusted Units                       3.872           4.168      .379          2.263      .000      3.283
 4.  Average Cost Per Unit                   71.93           14.73    880.94          21.79    369.03      28.02
 5.  Area Adjustment                         1.013           1.000     1.000          1.000     l.000      1.000
        Adjusted Cost                     $  72.87         $ 14.73  $ 880.94       $  21.79  $ 369.03  $   28.02
 6.  Interest Adjustment                      .993            .996      .990           .993      .993       .993
        Contract Cost per Eligible        $ 280.18         $ 61.15  $ 330.54       $  48.97  $    .00  $   91.35   $ 812.19

 7.  Benefit Adjustments
              FY 94/95                       1.021            .926     1.002          1.002     1.042      1.025
              FY 95/96                       1.001            .850     1.000          1.000      .989       .991

 8.  Trend Adjustment 7/93-1/97              1.036           1.313     1.060           .926     1.000      1.454

      Annual Cost Per Eligible            $ 296.66         $ 63.20  $ 351.07       $  45.39  $    .00  $  134.92   $ 891.24

 9.  Mental Health Adjustment                  1.4%             .6%      6.6%           5.0%      1.5%       4.5%
10.  Lenses Adjustment                                                                                       1.5%

     Cost Excl. MH/Lenses                 $ 292.51         $ 62.82  $ 327.90       $  43.12  $    .00  $  126.92   $ 853.27

        Preliminary Monthly Rate                                                                                   $  71.11

11.  Stop Loss Reinsurance - All Services                        0                                 .0%                  .00

12.  Adjustment for FFS Limitation                                                                 -2%                (1.42)

13.  CHDP                                                                                                              2.43

14.  FQHC Incremental Amount                                                                                            .00

        Final Monthly Rate - Capitation Payments at Beginning of Month                                             $  72.12


                                        6



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         356                                 Base Period: CY '93
County          San Bernardino                          Rate Period: 6/96 - 9/97

Aid Code Group  Aged



                                            Phys      Pharm        HIP        HOP         LTC      Other       Total
                                                                                        
 1.  Base Units per Eligible                 4.280     19.624      1.476      1.310       2.880     14.314
 2.  Aid Code Adjustment                      .936      1.021       .968       .931       1.007      1.016
 3.  Age/sex Adjustment                       .986      1.004       .995       .987       1.031      l.005
        Adjusted Units                       3.950     20.116      1.422      1.204       2.990     14.616
 4.  Average Cost Per Unit                   44.28      28.65     265.64      16.35       76.99       6.95
 5.  Area Adjustment                         1.013      1.000      1.000      1.000       1.000      1.000
        Adjusted Cost                     $  44.86   $  28.65   $ 265.64    $ 16.35    $  76.99   $   6.95
 6.  Interest Adjustment                      .991       .996       .986       .988        .994       .992
        Contract Cost per Eligible        $ 175.60   $ 574.02   $ 372.45    $ 19.45    $ 228.82   $ 100.77   $ 1,471.11

 7.  Benefit Adjustments
               FY 94/95                      1.002       .926      1.008      l.002       1.042      1.000
               FY 95/96                      1.000       .850      1.000      1.000        .989      1.000

 8.  Trend Adjustment 7/93-1/97              1.486      1.278       .896      1.127       1.075      1.565

      Annual Cost Per Eligible            $ 261.46   $ 577.41   $ 336.38    $ 21.96    $ 253.49   $ 157.71   $ 1,608.41

 9.  Mental Health Adjustment                   .3%        .5%        .7%        .9%         .4%        .0%

10.  Lenses Adjustment                                                                                 2.1%

     Cost Excl. MH/Lenses                 $ 260.68   $ 574.52   $ 334.03    $ 21.76    $ 252.48   $ 154.40   $ 1,597.87

        Preliminary Monthly Rate                                                                             $   133.16

11.  Stop Loss Reinsurance - All Services                   0                                .0%                    .00

12.  Adjustment for FFS Limitation                                                           -2%                  (2.66)

13.  CHDP                                                                                                           .00

14.  FQHC Incremental Amount                                                                                        .00

        Final Monthly Rate - Capitation Payments at Beginning of Month                                       $   130.50


                                        7



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                  Date:         6/24/1997
Plan Number         356                                Base Period:  CY '93
County          San Bernardino                         Rate Period:  6/96 - 9/97

Aid Code Group  Disabled



                                            Phys       Pharm       HIP         HOP        LTC      Other      Total
                                                                                        
 1.  Base Units per Eligible                 7.452     23.494      1.498      4.212       1.440     28.577
 2.  Aid Code Adjustment                      .994      1.003       .983       .993        .999      1.004
 3.  Age/sex Adjustment                      l.005       .979       .990      1.011       1.011      1.008
        Adjusted Units                       7.444     23.070      1.458      4.229       1.454     28.921
 4.  Average Cost Per Unit                   43.31      32.19     511.29      18.05      108.27      10.65
 5.  Area Adjustment                         1.013      1.000      1.000      1.000       1.000      1.000
        Adjusted Cost                     $  43.87   $  32.19   $ 511.29    $ 18.05    $ 108.27   $  10.65
 6.  Interest Adjustment                      .992       .996       .988       .990        .995       .992
        Contract Cost per Eligible        $ 323.96   $ 739.65   $ 736.52    $ 75.57    $ 156.64   $ 305.54   $ 2,337.88

 7.  Benefit Adjustments
               FY 94/95                      1.002       .926      l.005      1.002       1.042      1.000
               FY 95/96                      1.000       .850      1.000      1.000        .989      1.000

 8.  Trend Adjustment 7/93-1/97              1.160      1.270       .981      1.065        .991      1.327

      Annual Cost Per Eligible            $ 376.55   $ 739.37   $ 726.14    $ 80.64    $ 159.97   $ 405.45   $ 2,488.12

 9.  Mental Health Adjustment                  7.8%      10.7%      11.7%       2.4%        1.3%       1.4%
10.  Lenses Adjustment                                                                                  .9%

     Cost Excl. MH/Lenses                 $ 347.18   $ 660.26   $ 641.18    $ 78.70    $ 157.89   $ 396.18   $ 2,281.39

         Preliminary Monthly Rate                                                                            $   190.12

11.  Stop Loss Reinsurance - All Services                   0                                .0%                    .00

12.  Adjustment for FFS Limitation                                                           -2%                  (3.80)

13.  CHDP                                                                                                           .00

14.  FQHC Incremental Amount                                                                                        .00

        Final Monthly Rate - Capitation Payments at Beginning of Month                                       $   186.32


                                        8



MOLINA MEDICAL CENTERS, INC.                                         95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number        356                                  Base Period: CY '93
County          San Bernardino                          Rate Period: 6/96 - 9/97

Aid Code Group  Child



                                            Phys      Pharm         HIP        HOP         LTC        Other       Total
                                                                                           
 1.   Base Units per Eligible                3.791      3.907       .361       l.620        .000      1.882
 2.   Aid Code Adjustment                    1.011       .993      1.025       1.010       1.000       .998
 3.   Age/sex Adjustment                     1.184      1.019      1.227       1.087       1.000      1.109
         Adjusted Units                      4.538      3.953       .454       1.779        .000      2.083
 4.   Average Cost Per Unit                  69.47      11.05     901.25       22.20         .00      40.13
 5.   Area Adjustment                        1.013      1.000      1.000       1.000       1.000      1.000
         Adjusted Cost                    $  70.37   $  11.05   $ 901.25    $  22.20     $   .00   $  40.13
 6.   Interest Adjustment                     .992       .995       .987        .990        .994       .992
         Contract Cost per Eligible       $ 316.78   $  43.46   $ 403.85    $  39.10     $   .00   $  82.92     $  886.11

 7.   Benefit Adjustments
               FY 94/95                      1.021       .926      1.002       1.002       1.042      1.019
               FY 95/96                      1.001       .850      1.000       1.000        .989       .991

 8.   Trend Adjustment 7/93-1/97             1.047      1.330       .807        .878       1.000      1.285

       Annual Cost Per Eligible           $ 338.97   $  45.50   $ 326.56    $  34.40     $   .00   $ 107.60     $  853.03

 9.   Mental Health Adjustment                 1.6%       1.1%      13.4%        2.9%        3.4%       3.6%
10.   Lenses Adjustment                                                                                  .9%

      Cost Excl. MH/Lenses                $ 333.55   $  45.00   $ 282.80    $  33.40     $   .00   $ 102.79     $  797.54

        Preliminary Monthly Rate                                                                                $   66.46

11.   Stop Loss Reinsurance - All Services                  0                                 .0%                     .00

12.   Adjustment for FFS Limitation                                                           -2%                   (1.33)

13.   CHDP                                                                                                           2.38

14.   FQHC Incremental Amount                                                                                         .00

        Final Monthly Rate - Capitation Payments at Beginning of Month                                          $   67.51


                                        9



MOLINA MEDICAL CENTERS, INC.                                        95-23637-02

Plan Name       Molina Medical Center                   Date:        6/24/1997
Plan Number         356                                 Base Period: CY '93
County          San Bernardino                          Rate Period: 6/96 - 9/97
Aid Code Group  Adult



                                            Phys      Pharm         HIP        HOP         LTC      Other         Total
                                                                                            
 1.   Base Units per Eligible               22.752      5.069       3.590       4.465        .000      20.412
 2.   Aid Code Adjustment                    1.000      1.000       1.000       1.000       1.000       1.000
 3.   Age/sex Adjustment                     1.000      1.000       1.000       1.000       1.000       1.000
         Adjusted Units                     22.752      5.069       3.590       4.465        .000      20.412
 4.   Average Cost Per Unit                  59.80      16.00      960.30       20.51         .00       43.66
 5.   Area Adjustment                        1.013      1.000       1.000       1.000       1.000       1.000
         Adjusted Cost                  $    60.58   $  16.00  $   960.30    $  20.51     $   .00  $    43.66
 6.   Interest Adjustment                     .993       .996        .991        .989        .993        .991
         Contract Cost per Eligible     $ 1,368.67   $  80.78  $ 3,416.45    $  90.57     $   .00  $   883.17    $ 5,839.64

 7.   Benefit Adjustments
               FY 94/95                      1.002       .926       1.008       1.002       1.042       1.006
               FY 95/96                      1.000       .850       1.000       1.000        .989       1.000

 8.   Trend Adjustment 7/93-1/97             1.099      1.023       1.126       1.169       1.000       1.195

       Annual Cost per Eligible         $ 1,507.18   $  65.04  $ 3,877.70    $ 106.09     $   .00  $ 1,061.72    $ 6,617.73

 9.   Mental Health Adjustment                  .1%        .4%         .3%        1.1%         .0%         .1%
10.   Lenses Adjustment                                                                                    .4%

      Cost  Excl. MH/Lenses             $ 1,505.67   $  64.78  $ 3.866.07    $ 104.92     $   .00  $ 1,056.42    $ 6,597.86

        Preliminary Monthly Rate                                                                                 $   549.82

11.     Stop Loss Reinsurance - All
         Services                                           0                                  .0%                      .00

12.     Adjustment for FFS Limitation                                                          -2%                   (11.00)

13.     CHDP                                                                                                            .00

14.     FQHC Incremental Amount                                                                                         .00

           Final Monthly Rate - Capitation Payments at Beginning of Month                                        $   538.82


                                       10



STATE OF CALIFORNIA                               CONTRACT NUMBER     AM. NO.
                                                  95-23637              03
STANDARD AGREEMENT -- APPROVED BY THE             TAXPAYER'S FEDERAL
(REV.5-91)            ATTORNEY GENERAL            EMPLOYER IDENTIFICATION NUMBER
                                                  33-0342719

THIS AGREEMENT, made and entered into this 1st day of October, 1998, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

TITLE Of OFFICER ACTING FOR STATE      AGENCY
Chief, Program Support Branch          Department of Health Services,
                                       hereafter called the State, and
CONTRACTORS NAME
Molina Medical Centers, Inc.,          hereafter called the Contractor

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed does
hereby agree to furnish to the State services and materials as follows: (Set
forth service to be rendered by Contractor, amount to be paid Contractor time
for performance or completion, and attach plans and specifications, if any.)

          Amendment A03 to Contract no. 95-23637 BETWEEN MOLINA MEDICAL CENTERS,
          INC., and the STATE OF CALIFORNIA,

          WHEREAS, the State of California and Molina Medical Centers, Inc.,
          entered into a contract to provide health care services to Medi-Cal
          beneficiaries dated April 2, 1996; and

          NOW THEREFORE, this Contract is amended as follows:

[SEAL]

CONTINUED ON 98 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

 The provisions on the reverse side hereof constitutes a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



================================================================================================================================
     STATE OF CALIFORNIA                                                       CONTRACTOR
- --------------------------------------------------------------------------------------------------------------------------------
                                     
AGENCY                                  CONTRACTOR (IF other than an individual, state whether a corporation, partnership, etc.)
Department of Health Services           Molina Medical Centers, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)               BY (AUTHORIZED SIGNATURE)
/s/ Jayne Querin for                    /s/
- --------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING          PRINTED NAME AND TITLE OF PERSON SIGNING
Edward E. Stahlberg                     J. Mario Molina, M.D.
- --------------------------------------------------------------------------------------------------------------------------------
TITLE                                   ADDRESS
Chief, Program Support Branch           One Golden Shore, Long Beach, CA 90802
- --------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS      PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE               Department of General Services
DOCUMENT                       Loc. Asst.Section 14157 W&I Code         Health Care Deposit                 Use Only
$ [187,972,680] 97/98          ------------------------------------------------------------
$ [114,472,680] 98/99          (OPTIONAL USE)                                                    Exempt From PCC per W&I Code
- ------------------------------                                                                   Section 14087.4
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                  ------------------------------------------------------------
$ 615,498,670                     ITEM             CHAPTER        STATUTE       FISCAL YEAR
                                                     282           1997            97/98
- ------------------------------ 4260-601-912          324           1998            98/99
TOTAL AMOUNT ENCUMBERED TO     ------------------------------------------------------------
DATE                           OBJECT OF EXPENDITURE (CODE AND TITLE)
3,058,310                      9912-705-95915
- -------------------------------------------------------------------------------------------
I hereby certify upon my own personal   T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- -------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/ Sharon Flaherty                                        11.19.98
- -------------------------------------------------------------------------------------------


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE)

          1.   The contractor agrees to indemnify, defend and save harmless the
               State, its officers, agents and employees from any and are claims
               and losses accruing or resulting to any and all contractors,
               subcontractors, materialmen, laborers and any other person, firm
               or corporation furnishing or supplying work services, materials
               or supplies in connection with the performance of this contract,
               and from any and all claims and losses accruing or resulting to
               any person, firm or corporation who may be injured or damaged by
               the Contractor in the performance of this contract.

          2.   The Contractor, and the agents and employees of Contractor, in
               the performance of the agreement, shall act in an independent
               capacity and not as officers or employees or agents of State of
               California.

          3.   The State may terminate this agreement and be relieved of the
               payment of any consideration to Contractor should Contractor fail
               to perform the covenants herein contained at the time and in the
               manner herein provided. In the event of such termination the
               State may proceed with the work in any manner deemed proper by
               the State. The cost to the state shall be deducted from any sum
               due the Contractor under this agreement, and the balance, if any,
               shall be paid the Contractor upon demand.

          4.   Without the written consent of the State, this agreement is not
               assignable by Contractor either in whole or in part.

          5.   Time is the essence of this agreement.

          6.   No alteration or variation of the terms of this contract shall be
               valid unless made in writing and signed by the parties hereto,
               and no oral understanding or agreement not incorporated herein,
               shall be binding on any of the parties hereto.

          7.   The consideration to be paid Contractor, as provided herein,
               shall be in compensation for all of Contractor's expenses
               incurred in the performance hereof, including travel and per
               diem, unless otherwise expressly so provided.



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

                                TABLE OF CONTENTS

                                                                                                    
ARTICLE II        DEFINITIONS                                                                             Pg  2

ARTICLE III       GENERAL TERMS AND CONDITIONS                                                            Pg 11

3.1               INTERPRETATION OF CONTRACT                                                              Pg 11
3.2               ENTIRE AGREEMENT                                                                        Pg 11
3.4               CHANGES IN STATUTES OR REGULATIONS                                                      Pg 12
3.12              INSPECTION RIGHTS                                                                       Pg 13
3.18.2            Termination-Contractor                                                                  Pg 14
3.19              Sanctions                                                                               Pg 15
3.20.1            General                                                                                 Pg 16
3.22.3            Contracting Officer's or Alternate Dispute Officer's Decision                           Pg 18
3.22.4            Appeal of Contracting Officer's or Alternate Dispute Officer's Decision                 Pg 19
3.22.5            Contractor Duty to Perform                                                              Pg 20
3.22.6            Waiver of Claims                                                                        Pg 20
3.23.1            Enrollment-General                                                                      Pg 20
3.23.3            Coverage                                                                                Pg 21
3.23.5            Disenrollment                                                                           Pg 21
3.26              FACILITIES                                                                              Pg 24
3.28.1            Knox-Keene and Regulations                                                              Pg 25
3.28.3            Departmental Approval-Non-Federally Qualified HMOs                                      Pg 25
3.28.4            Departmental Approval-Federally Qualified HMOs                                          Pg 26
3.28.6            Federally Qualified Health Centers/Rural Health Clinics                                 Pg 26
3.28.8            Disclosures                                                                             Pg 27
3.28.9            Payment                                                                                 Pg 27
3.28.10           Electronic Billing Capability                                                           Pg 28
3.28.11           Physician Incentive Plan Requirements                                                   Pg 29
3.33              AMENDMENT OF CONTRACT                                                                   Pg 29
3.41              COST AVOIDANCE AND POST-PAYMENT RECOVERY OF OTHER                                       Pg 30
                  HEALTH COVERAGE SOURCES
3.42              THIRD PARTY TORT LIABILITY/ESTATE RECOVERY                                              Pg 32
3.43              OBTAINING DHS APPROVAL                                                                  Pg 34
3.44              PILOT PROJECT                                                                           Pg 35
3.45              RECORDS RELATED TO RECOVERY FOR TOBACCO RELATED                                         Pg 35
                  ILLNESSES
3.45.1            Records                                                                                 Pg 35
3.45.2            Payment for Records                                                                     Pg 36
3.46              FRAUD AND ABUSE REPORTING                                                               Pg 37

ARTICLE IV
4.3               FACILITY INSPECTIONS                                                                    Pg 37
4.4               ENROLLMENT PROCESSING                                                                   Pg 37
4.4.1             General                                                                                 Pg 37
4.4.2             Definition                                                                              Pg 38
4.4 3             DHS Enrollment Obligations                                                              Pg 39
4.4.4             Disputes Concerning DHS Enrollment Obligations                                          Pg 40
4.6               TESTING AND CERTIFICATION OF MARKETING REPRESENTATIVES                                  Pg 42
4.7               APPROVAL PROCESS                                                                        Pg 42
4.8               PROGRAM INFORMATION                                                                     Pg 43
4.9               SANCTIONS                                                                               Pg 43


                                        1



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03


                                                                                                    
ARTICLE V
5.2               AMOUNTS PAYABLE                                                                         Pg 43
5.4               CAPITATION RATES CONSTITUTE PAYMENT IN FULL                                             Pg 45
5.5               DETERMINATION OF RATES                                                                  Pg 46
5.6               REDETERMINATION OF RATES-OBLIGATION CHANGES                                             Pg 48
5.9               FINANCIAL PERFORMANCE GUARANTEE                                                         Pg 49
5.11              RECOVERY OF CAPITATION PAYMENTS                                                         Pg 49
5.12              DATA REPORTING PERFORMANCE INCENTIVES                                                   Pg 50
5.12.1            Definitions                                                                             Pg 50
5.12.2            Payment Provisions                                                                      Pg 52
5.12.3            Performance Incentive Standards                                                         Pg 54
5.13              FQHC/RHC RISK CORRIDOR PAYMENTS                                                         Pg 61
5.14              PAYMENT OF AIDS BENEFICIARY RATES                                                       Pg 61

ARTICLE VI        Scope of Work
6.3.1             Financial Viability/Standards Compliance                                                Pg 63
6.3.2             Financial Audit/Reports                                                                 Pg 64
6.3.6             Submittal of FQHC and RHC Payment Information                                           Pg 66
6.3.7             Submittal of In-Patient Days Information                                                Pg 66
6.4.1             Management Information System (MIS) Capability                                          Pg 67
6.4.2             Encounter Data Submittal                                                                Pg 67
6.4.3             MIS/Data Correspondence                                                                 Pg 68
6.4.4             Timely, Complete and Accurate Data Submission                                           Pg 68
6.5.3.4           Quality Indicators                                                                      Pg 68
6.5.5.2           Review Procedures                                                                       Pg 69
6.5.5.3           Number of Sites to be Reviewed Prior to Operations                                      Pg 69
6.5.5.5           Facility Inspections                                                                    Pg 69
6.5.5.6           Corrective Actions                                                                      Pg 70
6.5.10.7          Targeted Case Management Services                                                       Pg 71
6.6.6             Provider to Member Ratios                                                               Pg 71
6.6.8             Subcontracts                                                                            Pg 71
6.6.13            Quarterly Report                                                                        Pg 72
6.6.14            Contract and Employment Terminations                                                    Pg 72
6.6.15            Utilization of DSH Hospitals                                                            Pg 72
6.6.17            Emergency Service Providers                                                             Pg 73
6.6.20            FQHC Services                                                                           Pg 75
6.6.21            FQHC and Rural Health Clinics (RHC) Contracts                                           Pg 75
6.6.22            Indian Health Services Facilities                                                       Pg 76
6.7.1.1           General Requirements                                                                    Pg 76
6.7.2.2           Waiver Programs                                                                         Pg 77
6.7.3.1           Miscellaneous Service Carve Outs                                                        Pg 77
6.7.3.2           California Children Services (CCS)                                                      Pg 78
6.7.3.3           Mental Health                                                                           Pg 80
6.7.3.5           Dental                                                                                  Pg 83
6.7.3.7           Directly Observed Therapy (DOT) for Treatment of Tuberculosis                           Pg 83
6.7.4.3           School Linked CHDP Services: Subcontracts                                               Pg 84
6.7.4.4           Early and Periodic Screening, Diagnosis and Treatment (EPSDT) Supplemental
                  Services, Including Case Management Services                                            Pg 84
6.7.4.7           Family Planning: Out-of-Network Reimbursement                                           Pg 85
6.7.4.8           Family Planning: Reimbursement Rate                                                     Pg 86


                                        2



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03



                                                                                                    
6.7.4.9           Sexually Transmitted Diseases (STDs)                                                    Pg 86
6.7.4.14          Nurse Midwife and Nurse Practitioner Services                                           Pg 87
6.7.7.3           Individual Health Education Behavioral Assessments                                      Pg 88
6.7.7.7           Group Needs Assessment                                                                  Pg 88
6.7.9             LOCAL MENTAL HEALTH PLAN COORDINATION                                                   Pg 89
6.7.9.1           Memorandum of Understanding                                                             Pg 89
6.8.6             Marketing Plan                                                                          Pg 91
6.9.3             Disclosure Forms                                                                        Pg 91
6.9.5             Membership Services Guide                                                               Pg 91
6.9.9             Primary Care Physician Selection                                                        Pg 94
6.9.10            Primary Care Physician Assignment                                                       Pg 95
6.9.11            Continuity of Care                                                                      Pg 95
6.9.13            Member Compliant/Grievance Systems                                                      Pg 95
6.9.15            Denial, Deferral, or Modification of Prior Authorization Requests                       Pg 96
6.10.6            Cultural and Linguistics Services Plan                                                  Pg 97
6.11.1            Time Frames                                                                             Pg 98


                                        3



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

1.   Article II, DEFINITIONS, is amended by adding a new Section I, Catastrophic
     Coverage Limitation, to read:

     I.   Catastrophic Coverage Limitation means the date beyond which
          Contractor is not at risk, as determined by the Director, to provide
          or make reimbursement for illness of or injury to beneficiaries which
          results from or is greatly aggravated by a catastrophic occurrence or
          disaster, including, but not limited to, an act of war, declared or
          undeclared, and which occurs subsequent to enrollment.

2.   Article II, DEFINITIONS, is amended by relettering old Sections I through
     LL as new Sections J through MM.

3.   Article II, DEFINITIONS, relettered Section P, Covered Services, is amended
     to read:

     P.   Covered Services means Medical Case Management and those services set
          forth in Title 22, CCR, Division 3, Subdivision 1, Chapter 3,
          beginning with Section 51301, and Title 17, CCR, Chapter 4, Subchapter
          13, Article 4, beginning with Section 6840. Covered Services do not
          include:

          1.   Services for major organ transplants as specified in Section
               6.7.2.1, Major Organ Transplants.

          2.   Long term care services as specified in Section 6.7.2.3, Long
               Term Care, (LTC).

          3.   Home and community based services (HCBS) as specified in Sections
               6.7.2.2, Waiver Programs, and 6.7.3.8, Department of
               Developmental Services Administered Medicaid Home and Community
               Based Services Waiver. HCBS do not include any service that is
               available as an EPSDT service, including EPSDT supplemental
               services, as described in Title 22, CCR, Sections 51184, 51340
               and 51340.1. EPSDT supplemental services are covered under this
               Contract, as specified in Article VI, Section 6.7.4.4, Early and
               Periodic Screening, Diagnosis and Treatment (EPSDT) Supplemental
               Services, Including Case Management Services.

          4.   California Children Services (CCS) as specified in Section
               6.7.3.2, CCS Services.

          5.   Mental health services as specified in Section 6.7.3.3, Mental
               Health.

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          6.   Alcohol and drug treatment services and outpatient heroin
               detoxification as specified in Section 6.7.3.4, Alcohol and Drug
               Treatment Services.

          7.   Fabrication of optical lenses as specified in Section 6.7.3.6,
               Vision Care - Lenses.

          8.   Directly observed therapy for tuberculosis as specified in
               Section 6.7.3.7, Directly Observed Therapy (DOT) for Treatment of
               Tuberculosis.

          9.   Dental services as specified in Title 22, CCR, Section 51307 and
               EPSDT supplemental dental services as described in Title 22, CCR,
               Section 51340.1(a). However, Contractor is responsible for all
               Covered Services as specified in Article VI, Section 6.7.3.5,
               Dental.

          10.  Acupuncture services as specified in Title 22, CCR, Section
               51308.5.

          11.  Chiropractic services as specified in Title 22, CCR, Section
               51308.

          12.  Prayer or spiritual healing as specified in Title 22, CCR,
               Section 51312.

          13.  Local Education Agency (LEA) assessment services as specified in
               Title 22, CCR, Section 51360(b)(1) provided to a Member who
               qualifies for LEA services based on Title 22, CCR, Section
               51190.1(a).

          14.  Any LEA services as specified in Title 22, CCR, Section 51360
               provided pursuant to an Individualized Education Plan (IEP) as
               set forth in Education Code, Section 56340 et seq. or an
               Individualized Family Service Plan (IFSP) as set forth in
               Government Code Section 95020, or LEA services provided under an
               Individualized Health and Support Plan (IHSP), as described in
               Title 22, CCR, Section 51360.

          15.  Laboratory services provided under the State serum
               alphafetoprotein- testing program administered by the Genetic
               Disease Branch of DHS.

          16.  Adult Day Health Care.

          17.  Targeted case management services as specified in Title 22, CCR,
               Sections 51185(h) and 51351, and as described in Article VI,
               Section 6.5.10.7, Targeted Case Management Services.

                                        3



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          18.  Childhood lead poisoning case management provided by County
               health departments.

          19.  HIV and AIDS drugs listed in Attachment II (consisting of one
               page), and HIV and AIDS drugs classified as Nucleoside Analogs,
               Protease Inhibitors, and Non-Nucleoside Reverse Transcriptase
               Inhibitors, approved by the federal Food and Drug Administration
               (FDA) after July 1, 1997.

4.   Article II, DEFINITIONS, relettered Section Y, Eligible Beneficiary, is
     amended to read:

     Y.   Eligible Beneficiary means any Medi-Cal beneficiary who is residing in
          Contractor's Service Area with one of the following aid codes:
          CalWORKS/Public Assistance Family - aid codes 30, 32, 3G, 33, 3H, 35,
          38, 39, 3A, 3C, 40, 42, 54, 59, 3P, 3R, 3N, 3U, 7X; 3E, 3L, 3M;
          Medically Needy Family - aid code 34; Public Assistance Aged - aid
          codes 10, 16, 18; Medically Needy Aged - aid code 14; Public
          Assistance Blind - aid codes 20, 26, 28, 6A; Medically Needy Blind -
          aid code 24; Public Assistance Disabled - aid codes 36, 60, 66, 68,
          6C, 6N, 6P, 6R; Medically Needy Disabled - aid code 64; Medically
          Indigent Child - aid codes 03, 04, 45, 4C, 4K, 5K, 82; Medically
          Indigent Adult - aid code 86; and Refugees - aid codes 01, 0A, 02, and
          08, with the following exclusions:

          1.   Individuals who have been approved by the Medi-Cal Field Office
               or the California Children Services Program for bone marrow,
               heart, heart-lung, liver, lung, combined liver and kidney, or
               combined liver and small bowel transplants.

          2.   Individuals who elect and are accepted to participate in the
               following Medi-Cal waiver programs: In-Home Medical Care Waiver
               Program, the Skilled Nursing Facility Waiver Program, the Model
               Waiver Program, the Acquired Immune Deficiency (AIDS) and AIDS
               Related Conditions Waiver Program, and the Multipurpose Senior
               Services Waiver Program.

          3.   Individuals determined by the Medi-Cal Field Office to be in need
               of long term care and residing in a Skilled Nursing Facility
               (SNF) for 30 days past the month of admission.

                                        4



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          4.   Individuals who have commercial or Medicare HMO coverage, unless
               the Medicare HMO is a provider under this Contract and DHS has
               agreed, as a term of the HMO's Contract, that these individuals
               may be enrolled, and DHS and the Medicare HMO have negotiated an
               appropriate rate for these individuals. Individuals with Medicare
               fee-for-service coverage are not excluded from enrolling under
               this Contract.

5.   Article II, DEFINITIONS, relettered Section Z, Emergency Conditions, is
     amended to read:

     Z.   Emergency Medical Condition means a medical condition which is
          manifested by acute symptoms of sufficient severity (including severe
          pain), such that a prudent lay person, who possesses an average
          knowledge of health and medicine, could reasonably expect the absence
          of immediate medical attention to result in:

          1.   placing the health of the individual (or, in the case of a
               pregnant woman, the health of the woman or her unborn child) in
               serious jeopardy,

          2.   serious impairment to bodily function, or

          3.   serious dysfunction of any bodily organ or part.

6.   Article II, DEFINITIONS, relettered Section AA, Emergency Services, is
     amended to read:

     AA.  Emergency Services means those health services needed to evaluate or
          stabilize an Emergency Medical Condition.

7.   Article II, DEFINITIONS, relettered Section HH, Fee-For-Service Mental
     Health Services (FFS/MC), is amended to read:

     HH.  Fee-For-Service Medi-Cal Mental Health Services (FFS/MC) means the
          mental health services covered through Fee-For-Service Medi-Cal which
          include outpatient services and acute care inpatient services. These
          services are provided through Primary Care Physicians as well as
          psychiatrists and psychologists.

                                        5



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

8.   Article II, DEFINITIONS, relettered Section II, Financial Security, is
     amended to read:

     II.  Financial Performance Guarantee means cash or cash equivalents which
          are immediately redeemable upon demand by DHS, in an amount determined
          by DHS, which shall not be less than one full month's capitation.

9.   Article II, DEFINITIONS, is amended by adding a new Section NN, Health Plan
     Employer Data and Information Set, to read:

     NN.  Health Plan Employer Data and Information Set (HEDIS) means the set of
          standardized performance measures developed by the National Committee
          for Quality Assurance (NCQA), a not-for-profit organization. HEDIS is
          designed to ensure that the public has the information it needs to
          reliably compare the performance of managed health care plans.

10.  Article II, DEFINITIONS, is amended by relettering old Sections MM through
     K2 as new Sections OO through M2.

11.  Article II, DEFINITIONS, relettered Section QQ, Joint Commission on
     Accreditation of Hospitals (JCAHCO), is amended to read:

     QQ.  Joint Commission on the Accreditation of Health Care Organizations
          (JCAHCO) means the organization composed of representatives of the
          American Hospital Association, the American Medical Association, the
          American College of Physicians, the American College of Surgeons, and
          the American Dental Association. JCAHCO provides health care
          accreditation and related services that support performance
          improvement in health care organizations.

12.  Article II, DEFINITIONS, relettered Section B1, Minor Consent Services, is
     amended to read:

     B1.  Minor Consent Services means those Covered Services of a sensitive
          nature which minors do not need parental consent to access related to:

          1.   Sexual assault, including rape.

          2.   Drug or alcohol abuse for children 12 years of age or older.

          3.   Pregnancy.

                                        6



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          4.   Family planning.

          5.   Sexually transmitted diseases (STDs), designated by the Director,
               in children 12 years of age or older.

          6.   Outpatient mental health care for children 12 years of age or
               older who are mature enough to participate intelligently and
               where either (1) there is a danger of serious physical or mental
               harm to the minor or others or (2) the children are the alleged
               victims of incest or child abuse.

          State law provides minors the right to obtain an abortion without
          parental consent.

13.  Article II, DEFINITIONS, relettered Section P1, Primary Care Provider, is
     amended to read:

     P1.  Primary Care Provider means a person responsible for supervising,
          coordinating, and providing initial and Primary Care to Members; for
          initiating referrals and for maintaining the continuity of Member
          care. A Primary Care Provider may be a Primary Care Physician or
          Non-Physician Medical Practitioner.

14.  Article II, DEFINITIONS, relettered Section X1, Sensitive Services, is
     amended to read:

     X1.  Sensitive Services means those services related to:

          1.   Family planning.

          2.   Sexually transmitted diseases (STDs).

          3.   Abortion.

          4.   HIV testing.

15.  Article II, DEFINITIONS, relettered Section B2, Short-Doyle Medi-Cal Mental
     Health Services (SD/MC), is amended to read:

     B2.  Short-Doyle Medi-Cal Mental Health Services (SD/MC) means those
          services defined in Title 22, CCR, Section 51341. SD/MC Mental Health
          Services include: crisis intervention, crisis stabilization, inpatient
          hospital services, crisis residential treatment case management, adult
          residential treatment, day treatment intensive, rehabilitation,
          outpatient therapy, medication and support services.

                                        7



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

16.  Article II, DEFINITIONS, relettered Section J2, Third Party Liability
     (TPL), is amended to read:

     J2.  Third Party Tort Liability (TPTL) means the responsibility of an
          individual or entity other than Contractor or the Member for the
          payment of claims for injuries or trauma sustained by a Member. This
          responsibility may be contractual, a legal obligation, or as a result
          of, or the fault or negligence of, third parties (e.g., auto accidents
          or other personal injury casualty claims or Workers' Compensation
          appeals).

17.  Article II, DEFINITIONS, is amended by adding a new subsection N2 to read:

     N2.  Physician Incentive Plan means any compensation arrangement between
          Contractor and a Physician or a Physician group that may directly or
          indirectly have the effect of reducing or limiting services provided
          to Members under this Contract.

18.  Article II, DEFINITIONS, is amended by adding a new subsection O2 to read:

     O2.  Rural Health Clinic (RHC) means an entity defined in Title 22, CCR,
          Section 51115.5.

19.  Article II, DEFINITIONS, is amended by adding a new subsection P2 to read:

     P2.  Beneficiary Assignment means the act of DHS or DHS' enrollment
          contractor of notifying a beneficiary in writing of the health plan in
          which the beneficiary shall be enrolled if the beneficiary fails to
          timely choose a health plan. If, at any time, the beneficiary notifies
          DHS or DHS' enrollment contractor of the beneficiaries health plan
          choice, such choice shall override the beneficiary assignment and be
          effective as provided in Article III, Section 3.23.3, Coverage.

20.  Article II, DEFINITIONS, is amended by adding a new subsection Q2 to read:

     Q2.  AIDS Beneficiary means a Member for whom a Diagnosis of Acquired
          Immunodeficiency Syndrome (AIDS) has been made by a treating
          Physician.

                                        8



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

21.  Article II, DEFINITIONS, is amended by adding a new subsection R2 to read:

     R2.  Diagnosis of AIDS means a clinical diagnosis of AIDS that meets the
          most recent communicable disease surveillance case definition of AIDS
          established by the federal Centers for Disease Control and Prevention
          (CDC), United States Department of Health and Human Services and
          published in the Morbidity and Mortality Weekly Report (MMWR) or its
          supplements, in effect for the month in which the clinical diagnosis
          is made.

22.  Article II, DEFINITIONS, is amended by adding a new subsection S2 to read:

     S2.  Other Healthcare Coverage Sources (OHCS) means the responsibility of
          an individual or entity, other than Contractor or the Member, for the
          payment of the reasonable value of all or part of the healthcare
          benefits provided to a Member. Such OHCS may originate under any other
          State, federal, or local medical care program or under other
          contractual or legal entitlement, including, but not limited to, a
          private group or indemnification program. This responsibility may
          result from a health insurance policy or other contractual agreement
          or legal obligation, excluding tort liability.

23.  Article II, DEFINITIONS, is amended by adding a new subsection T2 to read:

     T2.  Cost Avoid means Contractor requires a provider to bill all liable
          third parties and receive payment or proof of denial of coverage from
          such third parties prior to Contractor paying the provider for the
          services rendered.

24.  Article II, DEFINITIONS, is amended by adding a new subsection U2 to read:

     U2.  Post-Payment Recovery means Contractor pays the provider for the
          services rendered and then uses all reasonable efforts to recover the
          cost of the services from all liable third parties.

25.  Article II, DEFINITIONS, is amended by adding a new subsection V2 to read:

     V2.  Word Usage. Unless the context of this Contract clearly requires
          otherwise, (a) the plural and singular numbers shall each be deemed to
          include the other; (b) the masculine, feminine, and neuter genders
          shall each be deemed to include the others; (c) "shall," "will,"
          "must," or "agrees" are mandatory, and "may" is permissive; (d) "or"
          is not exclusive; and (e) "includes" and "including" are not limiting.

                                        9



 MOLINA MEDICAL CENTERS, INC.                                       95-23637-A03

26.  Article II, DEFINITIONS, is amended by adding a new section W2 to read:

     W2.  Specialty Mental Health Provider means a person or entity who is
          licensed, certified or otherwise recognized or authorized under State
          law governing the healing arts to provide Specialty Mental Health
          Services and who meets the standards for participation in the Medi-Cal
          program. Specialty Mental Health Providers include clinics, hospital
          outpatient departments, certified residential treatment facilities,
          skilled nursing facilities, psychiatric health facilities, hospitals,
          and licensed mental health professionals, including psychiatrists,
          psychologists, licensed clinical social workers, marriage, family and
          child counselors, and registered nurses authorized to provide
          Specialty Mental Health Services.

27.  Article II, DEFINITIONS, is amended by adding a new section X2 to read:

     X2.  Specialty Mental Health Service means:

          1.   Rehabilitative services, which includes mental health services,
               medication support services, day treatment intensive, day
               rehabilitation, crisis intervention, crisis stabilization, adult
               residential treatment services, crisis residential services, and
               psychiatric health facility services;

          2.   Psychiatric inpatient hospital services;

          3.   Targeted Case Management;

          4.   Psychiatrist services;

          5.   Psychologist services; and

          6.   EPSDT supplemental specialty mental health services.

                                       10



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

28.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding new
     Sections 3.1 and 3.2 to read:

     3.1       INTERPRETATION OF CONTRACT

     If it is necessary to interpret this Contract, all applicable laws may be
     used as aids in interpreting the Contract. However, the parties agree that
     any such applicable laws shall not be interpreted to create contractual
     obligations upon DHS or Contractor, unless such applicable laws are
     expressly incorporated into this Contract in some section other than this
     Section 3.1, Interpretation of Contract. Except for Section 3.19, Sanctions
     and Section 3.20, Liquidated Damages Provision, the parties agree that any
     remedies for DHS' or Contractor's non-compliance with laws not expressly
     incorporated into this Contract, or any covenants implied to be part of
     this Contract, shall not include money damages, but may include equitable
     remedies such as injunctive relief or specific performance. In the event
     any provision of this Contract is held invalid by a court, the remainder of
     this Contract shall not be affected. This Contract is the product of mutual
     negotiation, and if any ambiguities should arise in the interpretation of
     this Contract, both parties shall be deemed authors of this Contract.

     3.2       ENTIRE AGREEMENT

     This written Contract and any amendments shall constitute the entire
     agreement between the parties. No oral representations shall be binding on
     either party unless such representations are reduced to writing and made an
     amendment to the Contract.

29.  Article III, GENERAL TERMS AND CONDITIONS, is amended by renumbering old
     Section 3.1, Delegation of Authority, as Section 3.3 and amending paragraph
     three to read:

     Contractor's Representative shall be designated in writing by Contractor.
     Such designation shall be submitted to the Contracting Officer in
     accordance with Section 3.5, Authority of the State.

                                       11



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

30.  Article III, GENERAL TERMS AND CONDITIONS, is amended by deleting old
     Section 3.2, Governing Authorities, and replacing it with a new Section
     3.4, Changes in Statutes or Regulations, to read:

     3.4       CHANGES IN STATUTES OR REGULATIONS

     The parties recognize that during the life of this Contract, the Medi-Cal
     Managed Care Program shall be a dynamic program requiring numerous changes
     to its operations and

     that the scope and complexity of these changes shall vary widely over the
     life of the Contract. The parties agree that the development of a system
     that has the capability to implement such changes in an orderly and timely
     manner is of considerable importance.

     Any provision of this Contract which is in conflict with current or future
     applicable federal or State laws or regulations is hereby amended to
     conform to the provisions of those laws and regulations. Such amendment of
     the Contract shall be effective on the effective date of the statutes or
     regulations necessitating it, and shall 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.

     Such amendment shall constitute grounds for termination of this Contract in
     accordance with the procedures and provisions of Section 3.18.2,
     Termination - Contractor. The parties shall be bound by the terms of the
     amendment until the effective date of the termination.

31.  Article III, GENERAL TERMS AND CONDITIONS, is amended by renumbering old
     Sections 3.3 through 3.9, as Sections 3.5 through 3.11.

32.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.7,
     Compliance with Protocols, sentence one, is amended to read:

     Contractor shall develop the protocols and procedures specified in this
     Contract and shall comply with them within 30 days of their approval by
     DHS.

33.  Article III, GENERAL TERMS AND CONDITIONS, is amended by deleting old
     Section 3.10, Membership Diversity.

34.  Article III, GENERAL TERMS AND CONDITIONS, is amended by renumbering old
     Sections 3.11 through 3.43 as Sections 3.12 through 3.44.

                                       12



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

35.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.12,
     Inspection Rights, is amended to read:

     3.12      INSPECTION RIGHTS

     Through the end of the records retention period specified in Section
     3.32.2, Records Retention, Contractor shall allow DHS, DHHS, the
     Comptroller General of the United States, Department of Justice (DOJ)
     Bureau of Medi-Cal Fraud, Department of Corporations (DOC), and other
     authorized State agencies, or their duly authorized representatives,
     including DHS' external quality review organization contractor, to inspect,
     monitor or otherwise evaluate the quality, appropriateness, and timeliness
     of services performed under this Contract, and to inspect, evaluate, and
     audit any and all books, records, and Facilities maintained by Contractor
     and subcontractors pertaining to these services at any time during normal
     business hours.

     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, prescription files, laboratory results, Subcontracts,
     information systems and procedures, and any other documentation pertaining
     to medical and non-medical services rendered to Members. Upon request,
     through the end of the records retention period specified in Section
     3.32.2, Records Retention, Contractor shall furnish any record, or copy of
     it, to DHS or any other entity listed in this section, at Contractor's sole
     expense.

36.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.15, Term,
     paragraph two, is amended to read:

     The term of the Contract consists of the following three periods: 1) The
     Implementation Period shall extend from March 1, 1996 to June 1,1996; 2)
     The Operations Period shall extend from June 1, 1996 to March 1,2001,
     subject to the termination provisions of Sections 3.18, Termination, and
     3.19, Sanctions, and subject to the limitation provisions of Article V,
     Payment Provisions, Section 5.2, Amounts Payable; and 3) The
     Turnover/Phaseout Period shall extend for six (6) months from the end of
     the Operations Period, subject to the provisions of Section 3.16, Contract
     Extension, in which case the Turnover/Phaseout Period shall apply to the
     six (6) month period beginning the first day after the end of the
     Operations Period, as extended.

                                       13



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

37.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.17,
     Turnover and Phaseout Requirements, paragraph one, is amended to read:

     DHS shall retain an amount equal to 10% or one million dollars
     ($1,000,000), whichever is greater unless provided otherwise by the
     Financial Performance Guarantee, from the capitation payment of the last
     month of the Operations Period until all activities required during the
     Turnover and Phaseout Period are fully completed to the satisfaction of
     DHS, in it sole discretion.

38.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.18.1,
     Termination - State or Director, paragraph two, is amended to read:

     Notification shall be given at least nine (9) months prior to the effective
     date of termination, except in cases where the Director determines the
     health and welfare of Members is jeopardized by continuation of this
     Contract, in which case the Contract shall be immediately terminated.
     Notification shall state the effective date of, and the reason for the
     termination. DHS and Contractor may negotiate an earlier termination date.

39.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.18.2,
     Termination - Contractor, is amended to read:

     3.18.2    TERMINATION - CONTRACTOR

     If mutual agreement between DHS and Contractor cannot be attained on
     capitation rates for rate years subsequent to September 30,1997, Contractor
     shall retain the right to terminate the Contract, no earlier than September
     30,1998, by giving at least nine (9) months written notice to DHS to that
     effect. The effective date of any termination under this section shall be
     September 30.

     Grounds under which Contractor may terminate this Contract are limited to:
     (1) Unwillingness to accept the capitation rates determined by DHS, or if
     DHS decides to negotiate rates, failure to reach mutual agreement on rates;
     or (2) When a change in contractual obligations is created by a State or
     federal change in the Medi-Cal program, or a lawsuit, that substantially
     alters the financial assumptions and conditions under which Contractor
     entered into this Contract, such that Contractor can demonstrate to the
     satisfaction of DHS that it cannot remain financially solvent through the
     term of the Contract.

                                       14



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     If Contractor invokes ground number 2, Contractor shall submit a detailed
     written financial analysis to DHS supporting its conclusions that it cannot
     remain financially solvent. At the request of DHS, Contractor shall submit
     or otherwise make conveniently available to DHS, all of Contractor's
     financial work papers, financial reports, financial books and other
     records, bank statements, computer records, and any other information
     required by DHS to evaluate Contractor's financial analysis.

     Based on the above two grounds, Contractor may terminate the Contract, no
     earlier than September 30, 1998, by giving at least nine (9) months written
     notice to DHS to that effect. The effective date of any termination under
     this section shall be September 30.

     DHS and Contractor may negotiate an earlier termination date if Contractor
     can demonstrate to the satisfaction of DHS that it cannot remain
     financially solvent until the termination date that would otherwise be
     established under this section. Termination under these circumstances shall
     not relieve Contractor from performing the Turnover and Phaseout
     activities, as described in Section 3.17.

40.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.18.3,
     Mandatory Termination, paragraph 2, is amended to read:

     Under these circumstances, termination of the Contract shall be effective
     on the last day of the month in which the Secretary, DHHS, or DOC makes
     such determination, provided that DHS provides Contractor with at least 60
     days notice of termination. The termination of this Contract shall be
     effective on the last day of the second full month from the date of the
     notice of termination. Contractor agrees that 60 days notice is reasonable.
     Termination under this section does not relieve Contractor of its
     obligations under the Turnover and Phaseout Requirements, Sections 3.17
     through 3.17.4, except that these requirements may be performed after
     Contract termination.

41.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.19,
     Sanctions, is amended to read:

     3.19      SANCTIONS

     In the event DHS finds Contractor non-compliant with any provisions of this
     Contract, applicable statutes or regulations, or for good cause shown, DHS
     may impose sanctions provided in Welfare and Institutions Code, Section
     14304 and Title 22, CCR, Section 53872. Good cause includes, but is not
     limited to, three repeated and uncorrected findings of serious deficiencies
     that have the potential to endanger patient care identified in the medical
     audits conducted by DHS.

                                       15



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     If required by DHS, Contractor shall ensure subcontractors cease specified
     activities which may include, but are not limited to, referrals, assignment
     of beneficiaries, and reporting, until DHS determines that Contractor is
     again in compliance.

42.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.20.1,
     General, is amended to read:

     3.20.1    GENERAL

     It is agreed by the State and Contractor that:

     A.   If Contractor does not provide or perform the requirements of this
          Contract or applicable laws and regulations, damage to the State shall
          result;

     B.   Proving such damages shall be costly, difficult, and time-consuming;

     C.   Should the State choose to impose liquidated damages, Contractor shall
          pay the State those damages for not providing or performing the
          specified requirements;

     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.   DHS may, at its discretion, offset liquidated damages from capitation
          payments owed to Contractor;

     G.   Imposition of liquidated damages as specified in Sections 3.20.2,
          Liquidated Damages for Violation of Contract Terms Regarding the
          Implementation Period, 3.20.3, Liquidated Damages for Violation of
          Contract Terms or Regulations Regarding the Operations Period, and
          3.20.4, Annual Medical Reviews, shall follow the administrative
          processes described below;

     H.   DHS shall provide Contractor with written notice specifying Contractor
          requirement(s), contained in the Contract or as required by federal
          and State law or regulation, not provided or performed;

                                       16



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     I.   During the Implementation Period, Contractor shall submit or complete
          the outstanding requirement(s) specified in the written notice within
          five (5) State working days from the date of the notice, unless,
          subject to the Contracting Officer's written approval, Contractor
          submits a written request for an extension. The request must include
          the following: the requirement(s) requiring an extension; the reason
          for the delay; and the proposed date of the submission of the
          requirement.

     J.   During the Implementation Period, if Contractor has not performed or
          completed an Implementation Period requirement or secured an extension
          for the submission of the outstanding requirement, DHS may impose
          liquidated damages for the amount specified in Section 3.20.2,
          Liquidated Damages for Violation of Contract Terms Regarding the
          Implementation Period.

     K.   During the Operations Period, Contractor shall demonstrate the
          provision or performance of Contractor's requirement(s) specified in
          the written notice within a thirty (30) calendar day Corrective
          Action period from the date of the notice, unless within five (5) days
          from the end of the Corrective Action period a request for an
          extension is submitted to the Contracting Officer. If Contractor has
          not demonstrated the provision or performance of Contractor's
          requirement(s) specified in the written notice by the end of the
          Corrective Action period, DHS may impose liquidated damages for each
          day the specified Contractor's requirement is not performed or
          provided for, in the amount specified in Section 3.20.3, Liquidated
          Damages for Violation of Contract Terms or Regulations Regarding the
          Operations Period.

     L.   During the Operations Period, if Contractor has not performed or
          provided Contractor's requirement(s) specified in the written notice
          or secured the written approval for an extension, after thirty (30)
          days from the first day of the imposition of liquidated damages, DHS
          shall notify Contractor in writing of the increase of the liquidated
          damages to the amount specified in Section 3.20.3, Liquidated Damages
          for Violation of Contract Terms or Regulations Regarding the
          Operations Period.

     Nothing in this provision shall be construed as relieving 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.

                                       17



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43.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.20.4,
     Annual Medical Reviews, paragraph one, sentence two, is amended to read:

     If, after notice, Contractor does not correct the deficiency to the
     satisfaction of DHS within thirty (30) days, or longer if authorized by DHS
     in writing, DHS may impose an additional liquidated damages of $5,000 per
     day per major uncorrected deficiency as determined by DHS medical review
     staff.

44.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.22.3,
     Contracting Officer's Decision, is amended to read:

     3.22.3    CONTRACTING OFFICER'S OR ALTERNATE DISPUTE OFFICER'S DECISION

     Pursuant to a request by Contractor, the Contracting Officer may provide
     for a dispute to be decided by an alternate dispute officer designated by
     DHS, who is not the Contracting Officer and is not directly involved in the
     Medi-Cal Managed Care Program. Any disputes concerning performance of this
     Contract shall be decided by the Contracting Officer or the alternate
     dispute officer in a written decision stating the factual basis for the
     decision. Within thirty (30) days of receipt of a Notification of Dispute,
     the Contracting Officer or the alternate dispute officer shall either
     render a decision or shall request from Contractor, which in the opinion of
     the Contracting Officer or alternate dispute officer is sufficient to allow
     the rendering of a decision. Within thirty (30) days of receipt of the
     additional substantiating documentation requested, a decision shall be
     rendered. A copy of the decision shall be served on Contractor.

     The Contracting Officer's or alternate dispute officer's decision shall:

     A.   Find in favor of Contractor, in which case the Contracting Officer or
          alternate dispute officer may:

          1.   Countermand the earlier conduct which caused Contractor to file a
               dispute; or

          2.   Reaffirm the conduct and, if there is a cost impact sufficient to
               constitute a change in obligations pursuant to the payment
               provisions contained in Article V, direct DHS to comply with that
               section.

     B.   Deny Contractor's dispute and, where necessary, direct the manner of
          future performance; or

                                       18



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     C.   Request additional substantiating documentation in the event the
          information in Contractor's notification is inadequate to permit a
          decision to be made under A. or B. above, and shall advise Contractor
          as to what additional information is required, and establish how that
          information shall be furnished. Contractor shall have thirty (30) days
          to respond to the Contracting Officer's or alternate dispute officer's
          request for further information. Upon receipt of this additional
          requested information, the Contracting Officer or alternate dispute
          officer shall have thirty (30) days to respond with a decision.
          Failure to supply additional information required by the Contracting
          Officer or alternate dispute officer within the time period specified
          above shall constitute waiver by Contractor of all claims in
          accordance with Section 3.22.6, Waiver of Claims.

45.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
     Section 3.22.4, to read:

     3.22.4    APPEAL OF CONTRACTING OFFICER'S OR ALTERNATE DISPUTE OFFICER'S
               DECISION

     Contractor shall have thirty (30) calendar days following the receipt of
     the decision to file an appeal of the decision to the Director. All appeals
     shall be governed by Health and Safety Code Section 100171, except for
     those provisions of Section 100171(d)(1) relating to accusations,
     statements of issues, statement to respondent, and notice of defense. All
     appeals shall be in writing and shall be filed with DHS' Office of
     Administrative Hearings and Appeals. An appeal shall be deemed filed on the
     date it is received by the Office of Administrative Hearings and Appeals.
     An appeal shall specifically set forth each issue in dispute, and include
     Contractor's contentions as to those issues. However, Contractor's appeal
     shall be limited to those issues raised in its Notice of Dispute filed
     pursuant to Section 3.22.2, Notification of Dispute. Failure to timely
     appeal the decision shall constitute a waiver by Contractor of all claims
     arising out of that conduct, in accordance with Section 3.22.6, Waiver of
     Claims. Contractor shall exhaust all procedures provided for in Section
     3.22, Disputes and Appeals, prior to initiating any other action to enforce
     this Contract.

                                       19



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

46.  Article III, GENERAL TERMS AND CONDITIONS, old Section 3.21.4, Contractor
     Duty to Perform, is amended to read:

     3.22.5    CONTRACTOR DUTY TO PERFORM

     Pending final determination of any dispute hereunder, Contractor shall
     proceed diligently with the performance of this Contract and in accordance
     with the Contracting Officer's or alternate dispute officer's decision.

     If, pursuant to an appeal under Section 3.22.4, Appeal of Contracting
     Officer's or Alternate Dispute Officer's Decision, the Contracting
     Officer's or alternate dispute officer's decision is reversed, the effect
     of the decision pursuant to Section 3.22.4 shall be retroactive to the date
     of the Contracting Officer's or alternate dispute officer's decision, and
     Contractor shall promptly receive any benefits of such decision. DHS shall
     not pay any interest on any amounts paid pursuant to a Contracting
     Officer's or alternate dispute officer's decision or any appeal of such
     decision.

47.  Article III, GENERAL TERMS AND CONDITIONS, old Section 3.21.5, Waiver of
     Claims, is amended to read:

     3.22.6    WAIVER OF CLAIMS

     If Contractor fails to submit a Notification of Dispute, supporting and
     substantiating documentation, any additionally required information, or an
     appeal of the Contracting Officer's or alternate dispute officer's
     decision, in the manner and within the time specified in the Disputes and
     Appeals sections, that failure shall constitute a waiver by Contractor of
     all claims arising out of that conduct, whether direct or consequential in
     nature.

48.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.23.1,
     Enrollment - General, is amended to read:

     3.23.1    ENROLLMENT - GENERAL

     Eligible Beneficiaries residing within the Service Area of Contractor may
     be enrolled at any time during the term of this Contract. Eligible
     Beneficiaries shall be accepted by Contractor up to the limits imposed in
     Section 3.23.2, Enrollment Totals, and without regard to physical or mental
     condition, age, sex, race, religion, creed, color, national origin, marital
     status, sexual orientation or ancestry.

                                       20



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

49.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.23.3,
     Coverage, is amended to read:

     3.23.3    COVERAGE

     Member coverage shall begin at 12:01 a.m. on the first day of the calendar
     month for which the Eligible Beneficiary's name is added to the approved
     list of Members furnished by DHS to Contractor. The term of membership
     shall continue indefinitely unless this Contract expires, is terminated, or
     the Member is disenrolled under the conditions described in Section 3.23.5,
     Disenrollment.

50.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.23.5,
     Disenrollment, is amended to read:

     3.23.5    DISENROLLMENT

     The enrollment contractor shall process a Member Disenrollment under the
     following conditions, subject to approval by DHS, in accordance with the
     provisions of Title 22, CCR, Section 53891:

     A.   Disenrollment of a Member is mandatory when:

          1.   The Member requests Disenrollment, subject to any lock-in
               restrictions on Disenrollment under the federal lock-in option,
               if applicable.

          2.   The Member's eligibility for Enrollment with Contractor is
               terminated or eligibility for Medi-Cal is ended, including the
               death of the Member.

          3.   Enrollment was in violation of Title 22, CCR, Section 53891
               (a)(2), or requirements of this Contract regarding Marketing, and
               DHS or Member requests Disenrollment.

          4.   Disenrollment is requested in accordance with Welfare and
               Institutions Code, Sections 14303.1 or 14303.2.

          5.   There is a change of a Member's place of residence to outside
               Contractor's Service Area.

          6.   It is determined that the Member is enrolled as a commercial or
               Medicare member of an HMO other than Contractor.

                                       21



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          7.   Disenrollment is based on the circumstances described in Article
               VI, Section 6.7.2, Excluded Services: Circumstances Under Which
               Member Disenrolled.

          Such Disenrollment shall become effective on the first day of the
          second month following receipt by DHS of all documentation necessary,
          as determined by DHS, to process the Disenrollment, provided
          Disenrollment was requested at least 30 days prior to that date,
          except for Disenrollments pursuant to Article VI, Section 6.7.2.1,
          Major Organ Transplants, for which Disenrollment shall be effective
          the beginning of the month in which the transplant is approved.

     B.   Contractor shall recommend to DHS the Disenrollment of any Member in
          the event of a breakdown in the "Contractor/Member relationship" which
          makes it impossible for Contractor's providers to render services
          adequately to a Member. Except in cases of violent behavior or fraud,
          Contractor shall make significant efforts to resolve the problem with
          the Member through avenues such as reassignment of Primary Care
          Physician, education, or referral to services (such as mental health
          or substance abuse programs), before requesting a Contractor-initiated
          Disenrollment. In cases of Contractor-initiated Disenrollment of a
          Member, Contractor must submit to DHS a written request with
          supporting documentation for Disenrollment based on the breakdown of
          the "Contractor/Member relationship." Contractor-initiated
          disenrollments must be prior approved by DHS and shall be considered
          only under the following circumstances:

          1.   Member is repeatedly verbally abusive to Contractor providers,
               ancillary or administrative staff, subcontractor staff, or to
               other plan Members.

          2.   Member physically assaults a Contractor provider or staff person,
               subcontractor staff person, or other Member, or threatens another
               individual with a weapon on Contractor premises. In this
               instance, Contractor or subcontractor shall file a police report
               and file charges against the Member.

          3.   Member is disruptive to Contractor operations, in general.

                                       22



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          4.   Member habitually uses providers not affiliated with Contractor
               for non-Emergency Services without required authorizations
               (causing Contractor to be subjected to repeated provider demands
               for payment for those services or other demonstrable degradation
               in Contractor's relations with community providers).

          5.   Member has allowed the fraudulent use of Medi-Cal coverage under
               the plan, which includes allowing others to use the Member's plan
               membership card to receive services from Contractor.

     C.   A Member's failure to follow prescribed treatment (including failure
          to keep established medical appointments) shall not, in and of itself,
          be good cause for the approval by DHS of a Contractor-initiated
          Disenrollment request unless Contractor can demonstrate to DHS that,
          as a result of the failure, Contractor is exposed to a substantially
          greater and unforeseeable risk than that otherwise contemplated under
          the Contract and rate-setting assumptions.

     D.   The problem resolution attempted prior to a Contractor-initiated
          Disenrollment described in subsection B, must be documented by
          Contractor. A formal procedure for Contractor-initiated Disenrollments
          shall be established by Contractor and approved by DHS. As part of the
          procedure, the Member shall be notified in writing by Contractor of
          the intent to disenroll the Member for cause and allowed a period of
          no less that twenty (20) days to respond to the proposed action.

          1.   Contractor must submit a written request for Disenrollment and
               the documentation supporting the request to DHS for approval. The
               supporting documentation must establish the pattern of behavior
               and Contractor's efforts to resolve the problem. DHS shall review
               the request and render a decision in writing within ten(10)
               State working days of receipt of a Contractor request and
               necessary documentation. If the Contractor-initiated request for
               Disenrollment is approved by DHS, DHS shall submit the
               Disenrollment request to the enrollment contractor for
               processing. Contractor shall be notified by DHS of the decision,
               and if the request is granted, shall be notified by the
               enrollment contractor of the effective date of the Disenrollment.
               Contractor shall notify the Member of the Disenrollment for cause
               if DHS grants the Contractor-initiated request for Disenrollment.

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          2.   Contractor shall continue to provide Covered Services to the
               Member until the effective date of the Disenrollment.

     E.   Except as provided in subsection A.7, Membership shall cease no later
          than midnight on the last day of the second calendar month after the
          Member's Disenrollment request and all required supporting
          documentation are received by DHS. On the first day after membership
          ceases, Contractor is relieved of all obligations to provide Covered
          Services to the Member under the terms of this Contract. Contractor
          agrees in turn to return to DHS any capitation payment forwarded to
          Contractor for persons no longer enrolled under this Contract.

     F.   Contractor shall implement and maintain procedures to ensure that all
          Members requesting Disenrollment or information regarding the
          Disenrollment process are immediately referred to the enrollment
          contractor.

51.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.25,
     Pharmaceutical Services and Prescribed Drugs, sentence one, is amended to
     read:

     Contractor shall provide pharmaceutical services and prescribed drugs,
     either directly or through Subcontracts, in accordance with all laws and
     regulations regarding the provision of pharmaceutical services and
     prescription drugs to Medi-Cal beneficiaries, including, but not limited
     to, Title 22, CCR, Section 53854.

52.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.26,
     Facilities, is amended to read:

     3.26      FACILITIES

     Facilities used by Contractor for providing Covered Services shall comply
     with the provisions of Title 22, CCR, Section 53856.

53.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28,
     Subcontracts, sentence two, is amended to read:

     In doing so, Contractor shall meet the subcontracting requirements as
     stated in Title 22, CCR, Section 53867 and this Contract.

                                       24



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

54.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.1,
     Knox-Keene and Regulations, is amended to read:

     3.28.1    KNOX-KEENE AND REGULATIONS

     All Subcontracts shall be in writing, and shall be entered into in
     accordance with the requirements of the Knox-Keene Health Care Services
     Plan Act of 1975, Health and Safety Code Section 1340 et seq.; Title 10,
     CCR, Section 1300 et seq.; W&I Code Section 14200 et seq.; Title 22, CCR,
     Section 53800 et seq.; and applicable federal and State laws and
     regulations.

55.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.2,
     Subcontract Requirements, Subsection D, is amended to read:

     D.   Subcontractor's agreement to assist Contractor in the transfer of care
          pursuant to Section 3.17.2, Turnover Requirements, in the event of
          Contract termination.

56.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
     subsection H, to renumbered Section 3.28.2, Subcontract Requirements, to
     read:

     H.   Subcontractor's agreement to timely gather, preserve and provide to
          DHS, any records in the Subcontractor's possession, in accordance with
          Section 3.45, Records Related to Recovery for Tobacco Related
          Illnesses.

57.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.3,
     Departmental Approval - Non-Federally Qualified HMOs, is amended to read:

     3.28.3    DEPARTMENTAL APPROVAL - NON-FEDERALLY QUALIFIED HMOS

     Except as provided in Section 3.28.6, Federally Qualified Health
     Centers/Rural Health Clinics, a provider or management Subcontract entered
     into by a Contractor which is not a federally qualified HMO shall become
     effective upon approval by DHS in writing, or by operation of law where DHS
     has acknowledged receipt of the proposed Subcontract, and has failed to
     approve or disapprove the proposed Subcontract within sixty (60) days of
     receipt. Within five (5) State working days of receipt, DHS shall
     acknowledge in writing the receipt of any material sent to DHS by
     Contractor for approval.

                                       25



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     Subcontract amendments shall be submitted to DHS for prior approval at
     least thirty (30) days before the effective date of any proposed changes
     governing compensation, services, or term. Proposed changes which are
     neither approved or disapproved by DHS, shall become effective by operation
     of law 30 days after DHS has acknowledged receipt or upon the date
     specified in the Subcontract amendment, whichever is later.

58.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.4,
     Departmental Approval - Federally Qualified HMOs, is amended to read:

     3.28.4    DEPARTMENTAL APPROVAL - FEDERALLY QUALIFIED HMOS

     Except as provided in Section 3.28.6, Federally Qualified Health Centers/
     Rural Health Clinics, Subcontracts entered into by a plan which is a
     federally qualified HMO shall be:

     A.   Exempt from prior approval by DHS.

     B.   Submitted to DHS upon request.

59.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.6,
     Federally Qualified Health Centers, is amended to read:

     3.28.6    FEDERALLY QUALIFIED HEALTH CENTERS/RURAL HEALTH CLINICS

     Contractor shall not enter into a Subcontract with a Federally Qualified
     Health Center (FQHC) or a Rural Health Clinic (RHC) unless DHS approves the
     provisions regarding rates, which shall be subject to the standard that
     they be reasonable, as determined by DHS, in relation to the services to be
     provided in accordance with Article VI, Section 6.6.21, FQHC and RHC
     Contracts. In Subcontracts where the FQHC or RHC has made the election to
     be reimbursed on a reasonable cost basis by the State, provisions shall be
     included that require the subcontractor to keep a record of the number of
     visits by plan Members separate from Fee-For-Service Medi-Cal
     beneficiaries, in addition to any other data reporting requirements of the
     Subcontract.

     Subcontracts with FQHCs shall also meet Contract requirements of Article
     VI, Sections 6.6.20, FQHC Services, and 6.6.21, FQHC and RHC Contracts.
     Subcontracts with RHCs shall also meet Contract requirements of Article VI,
     Section 6.6.21.

     In Subcontracts where a negotiated reimbursement rate is agreed to as total
     payment, a provision that such rate constitutes total payment shall be
     included in the Subcontract.

                                       26



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

60.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.8,
     Disclosures, is amended to read:

     3.28.8    DISCLOSURES

     Each Subcontract shall contain at least the elements required by Section
     3.28.2, Subcontract Requirements, and the following:

     A.   Full disclosure of the method and amount of compensation or other
          consideration to be received by the subcontractor from the plan.

     B.   Specification of the services to be provided by the subcontractor.

     C.   Specification that the Subcontract shall be governed by and construed
          in accordance with the contractual obligations of Contractor.

     D.   Specification that the Subcontract or Subcontract amendments shall
          become effective only as set forth in Sections 3.28.3, Departmental
          Approval - Non-Federally Qualified HMOs, or 3.28.4, Departmental
          Approval - Federally Qualified HMOs.

     E.   Specification of the term of the Subcontract including the beginning
          and ending dates as well as methods of extension, renegotiation and
          termination.

     F.   Subcontractor's agreement to submit reports as required by Contractor.

61.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.28.9,
     Payment, is amended to read:

     3.28.9    PAYMENT

     Contractor shall pay all claims submitted by subcontracting providers in
     accordance with this section, unless the subcontracting provider and
     Contractor have agreed in writing to an alternate payment schedule.

     A.   Contractor shall comply with Section 1932(f), Title XIX, Social
          Security Act (42 U.S.C. Section 1396u-2(f)), and Health and Safety
          Code, Section 1371, subject to the following:

                                       27



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

          1.   Contractor shall pay or deny 90% of claims for payment submitted
               by providers for which no further written documentation or
               substantiation is required within 30 calendar days of receipt by
               Contractor. Written notice must be given to providers of
               contested claims within thirty (30) calendar days after receipt
               of the claim by Contractor. Such notice shall state the reason(s)
               for contesting the claim. Contractor agrees that failure to
               provide timely notification to a provider of a contested claim
               means that the claim is not being contested and is subject to the
               requirements for paying uncontested claims.

          2.   Contractor shall ensure that 100% of claims for payment submitted
               by providers for which no further written documentation or
               substantiation is required are paid or denied within forty-five
               (45) State working days after receipt.

     B.   Contractor shall maintain procedures for prepayment and postpayment
          claims review, including review of data related to provider, Member
          and Covered Services for which payment is claimed.

     C.   Contractor shall maintain sufficient claims
          processing/tracking/payment systems capability to: comply with
          applicable state and federal law, regulations and Contract
          requirements, determine the status of received claims, and calculate
          the estimate for incurred and unreported claims, as specified by Title
          10, CCR, Sections 1300.77.1 and 1300.77.2.

62.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
     Section 3.28.10 to read:

     3.28.10   ELECTRONIC BILLING CAPABILITY

     No later than April 1, 1999, Contractor shall submit to DHS a written
     report detailing Contractor's actual or planned capability to accept
     provider claims electronically. The report shall describe Contractor's
     electronic capability for accepting claims from the following types of
     providers:

     A.   Pharmacy;

     B.   Hospital;

     C.   Physician, including Emergency room Physician; and

                                       28



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     D.   Allied health providers.

          The report shall include a timetable for implementation of the
          necessary electronic capability for each type of provider claim that
          Contractor plans to install. For each type of provider claim that
          Contractor has no plans to accept electronically, the report shall
          include a supporting statement, which shall include a cost-benefit
          analysis, any infrastructure limitations, and any other circumstances
          that could preclude acceptance of those claims electronically. DHS
          shall submit any questions regarding Contractor's report within sixty
          (60) days of DHS' receipt of the report. Contractor shall respond to
          any questions from DHS within 60 (sixty) days after Contractor's
          receipt of the questions.

63.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
     Section 3.28.11 to read:

     3.28.11   PHYSICIAN INCENTIVE PLAN REQUIREMENTS

     Contractor may implement and maintain a Physician Incentive Plan only if:

     A.   No specific payment is made directly or indirectly under the incentive
          plan to a Physician or Physician group as an inducement to reduce or
          limit Medically Necessary Covered Services provided to an individual
          Member; and

     B.   The stop-loss protection (reinsurance), beneficiary survey, and
          disclosure requirements of 42 CFR 417.479 are met by Contractor.

64.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.33,
     Amendment of Contract, is amended to read:

     3.33      AMENDMENT OF CONTRACT

     Should either party during the life of this Contract desire a change in
     this Contract, that change shall be proposed in writing to the other party.
     The other party shall acknowledge receipt of the proposal within 10 days of
     receipt of the proposal. The party proposing any such change shall have the
     right to withdraw the proposal any time prior to acceptance or rejection by
     the other party. Any proposal shall set forth an explanation of the reason
     and basis for the proposed change and the text of the desired amendment to
     this Contract which would provide for the change. If the proposal is
     accepted, this Contract shall be amended to provide for the change mutually
     agreed to by the parties on the condition that the amendment is approved by
     DHHS, and the State Department of Finance, if necessary.

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65.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.41,
     Recovery From Other Sources or Providers, is amended to read:

     3.41      COST AVOIDANCE AND POST-PAYMENT RECOVERY OF OTHER HEALTH COVERAGE
               SOURCES

     A.   Contractor shall Cost Avoid or make a Post-Payment Recovery for the
          reasonable value of services paid for by Contractor and rendered to a
          Member whenever a Member's OHCS covers the same services, either fully
          or partially. However, in no event shall Contractor Cost Avoid or seek
          Post-Payment Recovery for the reasonable value of services from a TPTL
          action or make a claim against the estates of deceased Members.

     B.   All monies recovered by Contractor are retained by Contractor.

     C.   Contractor shall coordinate benefits with other coverage programs or
          entitlements, recognizing the OHCS as primary and the Medi-Cal program
          as the payor of last resort.

     D.   Cost Avoidance

          1.   If Contractor reimburses the provider on a fee-for-service basis,
               Contractor shall not pay claims for services provided to a Member
               whose Medi-Cal eligibility record indicates third party coverage,
               designated by a Other Health Coverage (OHC) code or Medicare
               coverage, without proof that the provider has first exhausted all
               sources of other payments. Contractor shall have written
               procedures implementing this requirement. Contractor shall submit
               these procedures to DHS for review and comment.

          2.   Proof of third party billing is not required prior to payment for
               services provided to Members with OHC codes A, M, X, Y, or Z.

     E.   Post-Payment Recovery

          1.   If Contractor reimburses the provider on a fee-for-service basis,
               Contractor shall pay the provider's claim and then seek to
               recover the cost of the claim by billing the liable third
               parties:

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

               a.   For services provided to Members with OHC codes A, M, X, Y,
                    or Z;

               b.   For services defined by DHS as prenatal or preventive
                    pediatric services; or

               c.   In child-support enforcement cases, identifiable by
                    Contractor. If Contractor does not have access to sufficient
                    information to determine whether or not the OHC coverage is
                    the result of a child support enforcement case, Contractor
                    shall follow the procedures for Cost Avoidance.

          2.   In instances where Contractor does not reimburse the provider on
               a fee-for-service basis, Contractor shall pay for services
               provided to a Member whose eligibility record indicates third
               party coverage, designated by a OHC code or Medicare coverage,
               and then shall bill the liable third parties for the cost of
               actual services rendered.

          3.   Contractor shall also bill the liable third parties for the cost
               of services provided to Members who are retroactively identified
               by Contractor or DHS as having OHC.

          4.   Contractor shall have written procedures implementing the above
               requirements. Contractor shall submit these procedures to DHS for
               review and comment.

     F.   Contractor shall initiate a Disenrollment for all Members whose
          eligibility record indicates OHC codes K, C, P, or F, within three (3)
          State working days after Contractor becomes aware of the OHC code.
          Until the Member is disenrolled, Contractor shall Cost Avoid or seek
          Post-Payment Recovery as specified in subsections D and E above.

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     G.   Reporting Requirements

          1.   Contractor shall submit monthly reports to DHS, in a format
               prescribed by DHS, displaying claims counts and dollar amounts of
               costs avoided and the amount of Post-Payment Recoveries, by aid
               category, as well as the amount of outstanding recovery claims
               (accounts receivable) by age of account. The report shall display
               separate claim counts and dollar amounts for Medicare Part A and
               Part B. Reports shall be sent to the Department of Health
               Services, Third Party Liability Branch, Cost Avoidance Unit,
               P.O. Box 2471, Sacramento, CA 95812-2471.

          2.   When Contractor identifies OHC unknown to DHS, Contractor shall
               report this information to DHS within ten (10) days of discovery
               in automated format as prescribed by DHS. This information shall
               be sent to the Department of Health Services, Third Party
               Liability Branch, Health Identification Unit, P.O. Box 2471,
               Sacramento, CA 95812-2471.

          3.   Contractor shall demonstrate to DHS that where Contractor does
               not Cost Avoid or perform Post-Payment Recovery, that the
               aggregate cost of this activity exceeds the total revenues
               Contractor projects it would receive from such activity.

66.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.42, Third
     Party Tort Liability, is amended to read:

     3.42      THIRD PARTY TORT LIABILITY/ESTATE RECOVERY

     Contractor shall identify and notify DHS' Third Party Liability Branch of
     all instances or cases in which Contractor believes that an action by the
     Medi-Cal Member involving the tort or Workers' Compensation liability of a
     third party or estate recovery could result in recovery by the Member of
     funds to which DHS has lien rights under Article 3.5 (commencing with
     Section 14124.70), Part 3, Division 9, Welfare and Institutions Code.
     Contractor shall make no claim for recovery of the value of Covered
     Services rendered to a Member in such cases or instances and shall refer
     all such cases or instances to DHS' Third Party Liability Branch within ten
     (10) days of discovery. To assist DHS in exercising its responsibility for
     such recoveries, Contractor shall meet the following requirements:

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

     A.   If DHS requests service information and/or copies of paid
          invoices/claims for Covered Services to an individual Member,
          Contractor shall deliver the requested information within thirty (30)
          days of the request. Service information includes subcontractor and
          out-of-plan provider data. The value of the Covered Services shall be
          calculated as the usual, customary and reasonable charge made to the
          general public for similar services or the amount paid to
          subcontracted providers or out-of-plan providers for similar services.

     B.   Information to be delivered shall contain the following data items:

          1.   Member name.

          2.   Full 14-digit Medi-Cal number.

          3.   Social Security Number.

          4.   Date of birth.

          5.   Contractor name.

          6.   Provider name (if different from Contractor).

          7.   Dates of service.

          8.   Diagnosis code and description of illness/injury.

          9.   Procedure code and/or description of services rendered.

          10.  Amount billed by a subcontractor or out-of-plan provider to
               Contractor (if applicable).

          11.  Amount paid by other health insurance to Contractor or
               subcontractor (if applicable).

          12.  Amounts and dates of claims paid by Contractor to subcontractor
               or out-of-plan provider (if applicable).

          13.  Date of denial and reasons for denial of claims (if applicable).

          14.  Date of death (if applicable).

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     C.   Contractor shall identify to DHS' Third Party Liability Branch the
          name, address and telephone number of the person responsible for
          receiving and complying with requests for mandatory and/or optional
          at-risk service information.

     D.   If Contractor receives any requests from attorneys, insurers, or
          beneficiaries for copies of bills, Contractor shall provide DHS' Third
          Party Liability Branch with a copy of any document released as a
          result of such request, and shall provide the name and address and
          telephone number of the requesting party.

     E.   Information submitted to DHS under this section shall be sent to
          Department of Health Services, Third Party Liability Branch, Recovery
          Section, P.O. Box 2471, Sacramento, CA 95812-2471.

67.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.43,
     Obtaining DHS Approval, is amended to read:

     3.43      OBTAINING DHS APPROVAL

     Contractor shall obtain written approval from DHS, as provided in Section
     4.7, Approval Process, prior to implementing or using any of the following,
     including revisions to any of the items listed:

     A.   Providers of Covered Services, except for providers of seldom used or
          unusual services as determined by DHS.

     B.   Facilities.

     C.   Marketing activities.

     D.   Marketing materials, promotional materials, and public information
          releases relating to performance under this Contract, Member service
          guides; Member newsletters; and provider claim forms unique to the
          Contract.

     E.   Member Grievance procedure.

     F.   Member Disenrollment procedure.

     G.   Grievance forms.

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     H.   Any other protocol, policy or procedure otherwise requiring approval
          under this Contract.

68.  Article III, GENERAL TERMS AND CONDITIONS, renumbered Section 3.44, Pilot
     Projects, is amended to read:

     3.44      PILOT PROJECTS

     DHS, pursuant to W&I Code Section 14094.3(c)(2), may establish pilot
     projects to test alternative managed care models tailored to the special
     health care needs of children under the California Children Services (CCS)
     Program. These pilot projects may affect Contractor's obligations under the
     Contract in the areas of Covered Services, eligible enrollees, and
     administrative systems. These pilot projects shall be implemented through
     Contract amendment pursuant to Section 3.33, Amendment of Contract, and, if
     necessary, Change Order pursuant to Section 3.35, Change Requirements. DHS
     shall not require Contractor to cover CCS services under the capitation
     rate as part of a pilot project unless Contractor is a voluntary
     participant in the project.

69.  Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
     Section 3.45, to read:

     3.45      RECORDS RELATED TO RECOVERY FOR TOBACCO RELATED ILLNESSES

     3.45.1    RECORDS

     DHS has filed a lawsuit for the recovery of medical expenses paid for the
     treatment of tobacco related illnesses, (People of the State of California
     ex rel. Daniel E. Lungren, Attorney General of the State of California; S.
     Kimberly Belshe, Director of Health Services of the State of California v.
     Philip Morris, Inc.; R.J. Reynolds Tobacco Company; Brown & Williamson
     Tobacco Corporation; B.A.T. Industries P.L.C.; Lorillard Tobacco Company,
     Inc.; American Tobacco Company, Inc.; United States Tobacco Company; Hill &
     Knowlton, Inc.; The Council for Tobacco Research-U.S.A., Inc.; Tobacco
     Institute, Inc.; Smokeless Tobacco Council, Inc. and Does 1 through 200,
     inclusive) (hereafter the "Tobacco Lawsuit"). Upon request by DHS,
     Contractor shall timely gather, preserve and provide to DHS, in the form
     and manner specified by DHS, any information specified by DHS, subject to
     any lawful privileges, in Contractor's or its subcontractors' possession,
     relating to the Tobacco Lawsuit. (If Contractor asserts that any requested
     documents are covered by a privilege, Contractor shall: 1) identify such
     privileged documents with sufficient particularity to reasonably identify
     the document

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        while retaining the privilege; and 2) state the privilege being claimed
        that supports withholding production of the document.) Such request
        shall include, but is not limited to, a response to a request for
        documents submitted by any defendant in the Tobacco Lawsuit. Contractor
        acknowledges that time may be of the essence in responding to some
        requests. Contractor shall use all reasonable efforts to immediately
        notify DHS of any subpoenas, document production requests, or requests
        for records, received by Contractor or its subcontractors related to
        tobacco related illnesses or the incidence of disease associated with
        the use of tobacco products.

        3.45.2      PAYMENT FOR RECORDS

        In addition to the payments provided for in Article V, DHS agrees to pay
        Contractor for complying with Section 3.45.1, Records, above, as
        follows:

        A.   DHS shall reimburse Contractor amounts paid by Contractor to third
             parties for services necessary to comply with Section 3.45.1. Any
             third party assisting Contractor with compliance with Section
             3.45.1 shall comply with all applicable confidentiality
             requirements. Amounts paid by Contractor to any third party for
             assisting Contractor in complying with Section 3.45.1 shall not
             exceed normal and customary charges for similar services and such
             charges and supporting documentation shall be subject to review by
             DHS.

        B.   If Contractor uses existing personnel and resources to comply with
             Section 3.45.1, DHS shall reimburse Contractor as specified below.
             Contractor shall maintain and provide to DHS time reports
             supporting the time spent by each employee as a condition of
             reimbursement. Reimbursement claims and supporting documentation
             shall be subject to review by DHS.

             1.     Compensation and payroll taxes and benefits, on a prorated
                    basis, for the employees' time devoted directly to compiling
                    information pursuant to Section 3.45.1.

             2.     Costs for copies of all documentation submitted to DHS
                    pursuant to Section 3.45.1, subject to a maximum
                    reimbursement of ten (10) cents per copied page.

        C.   Contractor shall submit to DHS all information needed by DHS to
             determine reimbursement to Contractor under this section,
             including, but not limited to, copies of invoices from third
             parties and payroll records.

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70.     Article III, GENERAL TERMS AND CONDITIONS, is amended by adding a new
        Section 3.46 to read:

        3.46        FRAUD AND ABUSE REPORTING

        Contractor shall report to the Contracting Officer all cases of
        suspected fraud and/or abuse, as defined in 42 Code of Federal
        Regulations, Section 455.2, where there is reason to believe that an
        incident of fraud and/or abuse has occurred, by subcontractors, Members,
        providers, or employees within ten (10) State working days of the date
        when Contractor first becomes aware of or is on notice of such activity.
        Contractor shall establish policies and procedures for identifying,
        investigating and taking appropriate corrective action against fraud
        and/or abuse in the provision of health care services under the Medi-Cal
        program. Contractor shall notify DHS prior to conducting any
        investigations, based upon Contractor's finding that there is reason to
        believe that an incident of fraud and/or abuse has occurred, and, upon
        the request of DHS, consult with DHS prior to conducting such
        investigations. Without waiving any privileges of Contractor, Contractor
        shall report investigation results within ten (10) State working days
        of conclusion of any fraud and/or abuse investigation.

71.     Article IV, DUTIES OF THE STATE, Section 4.3, Facility Inspections, is
        amended to read:

        4.3         FACILITY INSPECTIONS

        Conduct unannounced validation reviews on a number of Contractor's
        Primary Care sites, selected at DHS' discretion, to verify compliance of
        these sites with DHS requirements.

72.     Article IV, DUTIES OF THE STATE, Section 4.4, Enrollment Processing, is
        amended to read:

        4.4         ENROLLMENT PROCESSING

        4.4.1       GENERAL

        The parties to this Contract agree that the primary purpose of DHS'
        Medi-Cal managed care system is to improve quality and access to care
        for Medi-Cal beneficiaries. The parties acknowledge that the Medi-Cal
        eligibility process and the managed care enrollment system are dynamic
        and complex programs. The parties also acknowledge that it is
        impractical to ensure that every beneficiary eligible for enrollment in
        the Contractor's plan will be enrolled in a timely manner. Furthermore,
        the parties recognize

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        that for a variety of reasons some Eligible Beneficiaries will not be
        enrolled in Contractor's plan and will receive Covered Services in the
        Medi-Cal Fee-for-Service system. These reasons include, but are not
        limited to, the exclusion of some beneficiaries from participating in
        Medi-Cal managed care, the time it takes to enroll beneficiaries,
        changes in laws and policies, the loss and subsequent regaining of
        eligibility by beneficiaries, retroactive periods of eligibility for
        some beneficiaries, and the lack of a current valid address for some
        beneficiaries. The parties desire to work together in a cooperative
        manner so that Eligible Beneficiaries who choose to or should be
        assigned to Contractor's plan are enrolled in Contractor's plan pursuant
        to the requirements of Section 4.4. The parties agree that to accomplish
        this goal it is necessary to be reasonably flexible with regard to the
        enrollment process.

        4.4.2       DEFINITIONS

        For purposes of Section 4.4, Enrollment Processing, the following
        definitions shall apply:

        A.   Fully Converted County means a county in which the following
             circumstances - exist, except for those Medi-Cal beneficiaries
             covered by Title 22, CCR, Section 53887,:

             1.     Eligible Beneficiaries who meet the mandatory enrollment
                    criteria contained in Tide 22, CCR, Section 53845(a) may no
                    longer choose to receive Covered Services on a
                    Fee-for-Service basis; and

             2.     All new Eligible Beneficiaries who meet the mandatory
                    enrollment criteria contained in Title 22, CCR, Section
                    53845(a) must now choose a managed care plan or they will be
                    assigned to a managed care plan; and

             3.     All Eligible Beneficiaries listed in MEDS as meeting the
                    mandatory enrollment criteria contained in Title 22, CCR,
                    Section 53845(a) on the last date that both 1. and 2. above
                    occur:

                    (i)     have been notified of the requirement to choose a
                            managed care plan and informed that if they fail to
                            choose a plan they will be assigned to a managed
                            care plan; and

                    (ii)    those beneficiaries still eligible for Medi-Cal and
                            enrollment into a managed care plan at the time
                            their plan enrollment is processed in MEDS have been
                            enrolled into a managed care plan.

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        B.   Mandatory Plan Beneficiary means:

             1.     A new Eligible Beneficiary who meets the mandatory
                    enrollment criteria contained in Title 22, CCR, Section
                    53845(a) both at the time her/his plan enrollment is
                    processed by the DHS Enrollment Contractor and by MEDS; or

             2.     An Eligible Beneficiary previously receiving Covered
                    Services in a county without mandatory managed care
                    enrollment who now resides in a county where mandatory
                    enrollment is in effect and who meets the mandatory
                    enrollment criteria contained in Title 22, CCR, Section
                    53845(a); or

             3.     An Eligible Beneficiary meeting the criteria of Title 22,
                    CCR, Section 53845(b) prior to October 1, 1998, and who
                    subsequently meets the criteria of Title 22, CCR, Section
                    53845(a).

        C.   Mandatory Plan Beneficiary shall not include any Eligible
             Beneficiary who:

                    (i)     is eligible to receive Covered Services on a
                            Fee-for-Service basis because her/his MEDS
                            eligibility for managed care plan enrollment is
                            interrupted due to aid code, ZIP code or county code
                            changes; or

                    (ii)    becomes eligible for enrollment in a managed care
                            plan on a retroactive basis.

        4.4.3       DHS ENROLLMENT OBLIGATIONS

        A.   DHS shall receive applications for enrollment from its enrollment
             contractor and shall verify the current eligibility of applicants
             for enrollment in Contractor's plan under this Contract. If the
             Contractor has the capacity to accept new enrollees, DHS or its
             enrollment contractor shall enroll or assign eligible applicants in
             Contractor's plan when selected by the applicant or when the
             applicant fails to timely select a plan. Of those to be enrolled or
             assigned in Contractor's plan, DHS will ensure that in a Fully
             Converted County a Mandatory Plan Beneficiary will receive an
             effective date of plan enrollment that is no later than 90 days
             from the date that MEDS lists such an individual as meeting the
             enrollment criteria contained in Title 22, CCR, Section 53845(a),
             if all changes to MEDS have been made to allow for the enrollment
             of the individual and all changes necessary to this Contract to
             accommodate such enrollment, including, but not limited to rate

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             changes and aid code changes, have been executed. DHS will use due
             diligence in making any changes to MEDS and to this Contract. DHS
             will provide Contractor a list of Members on a monthly basis.

        B.   DHS or its enrollment contractor shall assign Eligible
             Beneficiaries meeting the enrollment criteria contained in Title
             22, CCR, Section 53845(a) to plans in accordance with Title 22,
             CCR, Section 53884.

        C.   Notwithstanding any other provision in this Contract, A. and B.
             above shall not apply to:

             1.     Eligible Beneficiaries previously eligible to receive
                    Medi-Cal services from a Prepaid Health Plan or Primary Care
                    Case Management plan and such plan's contract with DHS
                    expires, terminates, or is assigned or transferred to
                    Contractor;

             2.     Members who are enrolled into another managed care plan on
                    account of assignment, assumption, termination, or
                    expiration of this Contract;

             3.     Eligible Beneficiaries covered by a new mandatory aid code,
                    added to this Contract after October 1, 1998;

             4.     Eligible Beneficiaries meeting the criteria of Title 22,
                    CCR, Section 53845(b) prior to October 1, 1998, who
                    subsequently meet the criteria of Title 22, CCR 53845(a) due
                    solely to DHS designating a prior voluntary aid code as a
                    new mandatory aid code;

             5.     Eligible Beneficiaries residing in a County that is not a
                    Fully Converted County; or

             6.     Eligible Beneficiaries without a current valid deliverable
                    address or with an address designated as a County post
                    office box for homeless beneficiaries.

        4.4.4       DISPUTES CONCERNING DHS ENROLLMENT OBLIGATIONS

        A.   Pursuant to the requirements and procedures contained in Section
             3.20, Disputes and Appeals, Contractor shall notify DHS of DHS'
             noncompliance with Section 4.4, Enrollment Processing.

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        B.   DHS shall have 120 days from the date of DHS' receipt of
             Contractor's notice (the "Cure Period") to cure any noncompliance
             with Section 4.4, Enrollment Processing, identified in Contractor's
             notice, without incurring any financial liability to Contractor.
             For purposes of this section, DHS shall be deemed to have cured any
             noncompliance with Section 4.4, Enrollment Processing, identified
             in Contractor's notice if within the Cure Period any of the
             following occurs:

             1.     Mandatory Plan Beneficiaries receive an effective date of
                    plan enrollment that is within the Cure Period, or

             2.     DHS corrects enrollment that failed to comply with Section
                    4.4, Enrollment Processing, by redirecting enrollment from
                    one Contractor to another within the Cure Period in order to
                    comply with Section 4.4, Enrollment Processing, or

             3.     Within the Cure Period, DHS changes the distribution of
                    beneficiary Assignment (subject to the requirements of Title
                    22, CCR, Section 53884(b)(l) through (b)(4)), to the maximum
                    extent new beneficiaries are available to be assigned, to
                    make up the number of incorrectly assigned beneficiaries as
                    soon as possible.

        C.   If it is necessary to redirect enrollment or change the
             distribution of beneficiary Assignment due to noncompliance with
             Section 4.4, Enrollment Processing, and such change varies from the
             requirements of Title 22, CCR, Section 53884(b)(5) or (b)(6),
             Contractor agrees it will neither seek legal nor equitable relief
             for such variance or the results of such variance if DHS resumes
             assignment consistent with Sections 53884 (b)(5) or (b)(6) after
             correcting a noncompliance with Section 4.4, Enrollment Processing.

        D.   Notwithstanding Section 3.1 or any other provision of this
             Contract, if DHS fails to cure a noncompliance with Section 4.4,
             Enrollment Processing, within the Cure Period, DHS will be
             financially liable for such noncompliance as follows:

             DHS will be financially liable for Contractor's demonstrated actual
             reasonable losses as a result of the noncompliance, beginning with
             DHS' first failure to comply with its enrollment obligation set
             forth herein. DHS' financial liability shall not exceed 15 percent
             of Contractor's monthly capitation payment calculated as if
             noncompliance with Section 4.4 did not occur, for each month in
             which DHS has not cured noncompliance pursuant to subparagraph
             4.4.4.B, beginning with DHS' first failure to comply with its
             enrollment obligation set forth herein.

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        E.   Notwithstanding Section 4.4.4.D above, DHS shall not be financially
             liable to Contractor for any noncompliance with Section 4.4,
             Enrollment Processing, in an affected county (on a county-by-county
             basis) if Contractor's loss of Mandatory Plan Beneficiaries, in a
             month in which any noncompliance occurs, is less than five percent
             of Contractor's total Members in that affected county in the month
             in which the noncompliance occurs. The parties acknowledge that the
             above-referenced five-percent threshold shall apply on a
             county-by-county basis, not in the aggregate.

73.     Article IV, DUTIES OF THE STATE, Section 4.6, Testing and Certification
        of Marketing Representatives, is amended to read:

        4.6         TESTING AND CERTIFICATION OF MARKETING
                    REPRESENTATIVES

        Test all Contractor Marketing Representatives for knowledge of the
        program prior to their engaging in Marketing or Medi-Cal Managed Care
        information activities on behalf of Contractor. Certify as qualified
        Marketing Representatives, those persons demonstrating adequate
        knowledge of the program, provided they are of good moral character.
        Contractor may be permitted, subject to approval and oversight by DHS,
        to perform such testing on behalf of DHS, provided that Contractor has
        never been sanctioned for Marketing violations or abuses. With respect
        to evidence of good moral character, Contractor shall be permitted to
        rely on the Marketing Representative's written statements. DHS reserves
        the right to rescind approval for Contractor testing at any time.

74.     Article IV, DUTIES OF THE STATE, Section 4.7, Approval Process, is
        amended to read:

        4.7         APPROVAL PROCESS

        A.   Within five (5) State working days of receipt, DHS shall
             acknowledge in writing the receipt of any material sent to DHS by
             Contractor pursuant to Article III, Section 3.3, Obtaining DHS
             Approval.

        B.   Within sixty (60) days of receipt, DHS shall make all reasonable
             efforts to approve in writing the use of such material provided to
             DHS pursuant to Article III, Section 3.43, Obtaining DHS Approval,
             provide Contractor with a written explanation why its use is not
             approved, or provide a written estimated date of completion of DHS'
             review process. If DHS does not complete its review of submitted
             material within sixty (60) days of receipt, or within the estimated
             date

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             of completion of DHS review, Contractor may elect to implement or
             use the material at Contractor's sole risk and subject to possible
             subsequent disapproval by DHS. This subsection shall not be
             construed to imply DHS approval of any material that has not
             received written DHS approval. This subsection shall not apply to
             Subcontracts or sub-subcontracts subject to DHS approval in
             accordance with Section 3.28.3, Departmental Approval -
             Non-Federally Qualified HMOs, or Section 3.28.4, Departmental
             Approval - Federally Qualified HMOs.

75.     Article IV, DUTIES OF THE STATE, Section 4.8, Program Information, is
        amended to read:

        4.8         PROGRAM INFORMATION

        Provide Contractor with complete and current information with respect to
        pertinent policies, procedures, and guidelines affecting the operation
        of this Contract, within thirty (30) days of receipt of Contractor's
        written request for information, to the extent that the information is
        readily available. If the requested information is not available, DHS
        shall notify Contractor within thirty (30) days, in writing, of the
        reason for the delay and when Contractor may expect the information.

76.     Article IV, DUTIES OF THE STATE, Section 4.9, Sanctions, is amended to
        read:

        4.9         SANCTIONS

        Apply sanctions, in accordance with Welfare and Institutions Code,
        Section 14304, and Title 22, CCR, Section 53872, to Contractor for
        violations of the terms of this Contract, applicable federal and State
        laws and regulations.

77.     Article V, PAYMENT PROVISIONS, Section 5.2, Amounts Payable, is amended
        to read:

        5.2         AMOUNTS PAYABLE

        The maximum amount payable for the 1995-96 Fiscal Year ending June 30,
        1996 will not exceed $32,080,630; the maximum amount payable for the
        1996-97 Fiscal Year ending June 30, 1997 will not exceed $194,472,680;
        the maximum amount payable for the 1997-98 Fiscal Year ending June 30,
        1998 will not exceed $6,500,000; the maximum amount payable for the
        1998-99 Fiscal Year ending June 30, 1999 will not exceed $80,000,000.
        Any requirement for performance by DHS and the Contractor for the period
        of the Contract subsequent to June 30, 1999, will be dependent upon the

                                       43



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        availability of future appropriations by the Legislature for the purpose
        of this Contract. If funds become available for purposes of this
        Contract from future appropriations by the Legislature, the maximum
        amount payable for the 1999-2000 Fiscal Year ending June 30, 2000 will
        not exceed $107,000,000; the maximum amount payable for the 2000-2001
        Fiscal Year ending June 30, 2001 will not exceed $107,000,000; the
        maximum amount payable for the 2001-2002 Fiscal Year ending June 30,
        2002 will not exceed $80,000,000. The maximum amount payable under this
        Contract will not exceed $607,053,310.

78.     Article V, PAYMENT PROVISIONS, Section 5.3, Capitation Rates, is amended
        to read:

        DHS shall remit to Contractor a capitation payment each month for each
        Medi-Cal Member that appears on the approved list of Members supplied to
        Contractor by DHS. The capitation rate shall be the amount specified in
        this Article. The payment period for health care services shall commence
        on the first day of operations, as determined by DHS. Capitation
        payments shall be made in accordance with the following schedule of
        capitation payment rates:

        AID CODE CATEGORIES

        Family: 01, 02, 08, 30, 32, 33, 34, 35, 38, 39, 3A, 3C, 3P, 3R, 40, 42,
        4C, 4K, 54, 59, 5K; Aged: 10, 14, 16, 18; Disabled: 20, 24, 26, 28, 36,
        60, 64, 66, 68, 6A, 6C; Child 03, 04, 45, 82; Adult 86

        SAN BERNARDINO COUNTY 7/95 - 5/96      SAN BERNARDINO COUNTY 6/96 - 9/97

        Family                   $  70.01      Family                   $  71.59

        Child                    $  67.91      Child                    $  67.17
        Aged                     $ 117.66      Aged                     $ 121.76
        Disabled                 $ 177.15      Disabled                 $ 174.45
        Adult                    $ 536.02      Adult                    $ 554.73

        RIVERSIDE COUNTY 7/95-5/96             RIVERSIDE COUNTY 6/96 - 9/97

        Family                   $  74.70      Family                   $  76.39
        Child                    $  68.51      Child                    $  67.74
        Aged                     $ 110.37      Aged                     $ 114.62
        Disabled                 $ 181.61      Disabled                 $ 178.77

                                       44



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        Adult                    $ 492.78      Adult                    $ 509.94

        AID CODE CATAGORIES

        Family: 01, OA, 02, 08, 30, 32, 3G, 33, 3H, 34, 35, 38, 39, 3A, 3C, 3N,
        3U, 3P, 3R, 40, 42, 54, 59, 7X; CalWORKS: 3E, 3L, 3M; Aged: 10, 14, 16,
        18; Disabled: 20, 24, 26, 28, 36, 60, 64, 66, 68, 6A, 6C, 6N, 6P, 6R;
        Child: 03, 04, 45, 4C, 4K, 5K, 82; Adult: 86

        For the Period      10/97 - 09/30/98

        RIVERSIDE COUNTY                                 SAN BERNARDINO

        Family                   $   75.91     Family                  $   74.04
        Aged                     $  162.29     Aged                    $  167.25
        Disabled                 $  204.96     Disabled                $  217.87
        Child                    $   79.33     Child                   $   79.42
        Adult                    $  515.67     Adult                   $  531.42
        AIDS Beneficiary Rate    $ 1021.49     Aids                    $ 1072.78

        In the future, DHS expects to activate aid codes 3N, 3U, 7X, 3E, 3L, 3M,
        6N, 6P, and 6R, listed above by aid code rate category. If DHS activates
        these new aid codes, Contractor agrees to accept Eligible Beneficiaries
        with these aid codes as Members and to provide Covered Services to these
        Members at the monthly capitation rate specified for each rate category
        in this section.

79.     Article V, PAYMENT PROVISIONS, Section 5.4, Capitation Rates Constitute
        Payment In Full, is amended to read:

        5.4         CAPITATION RATES CONSTITUTE PAYMENT IN FULL

        Capitation rates for each rate period, as calculated by DHS, are
        prospective rates and constitute payment in full, subject to any stop
        loss reinsurance provisions, on behalf of a Member for all Covered
        Services required by such Member and for all Administrative Costs
        incurred by Contractor in providing or arranging for such services, and
        subject to adjustments for federally qualified health centers in
        accordance with Section 5.13, but do not include payment for the
        recoupment of current or previous losses incurred by Contractor. DHS is
        not responsible for making payment for recoupment of losses. The
        actuarial basis for the determination of the capitation payment rates is
        outlined in Attachment 1 (consisting of twelve (12) pages).

                                       45



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

80.     Article V, PAYMENT PROVISIONS, Section 5.5, Determination of Rates, is
        amended to read:

        5.5         DETERMINATION OF RATES

        DHS shall determine the capitation rates for the initial period December
        1, 1995, or the Contract effective date of operations if later, through
        September 30, 1997. Subsequent to September 30, 1997 and through the
        duration of the Contract, DHS shall make an annual redetermination of
        rates for each rate year defined as the 12-month period from October 1,
        through September 30. DHS reserves the right to redetermine rates on an
        actuarial basis or move to a negotiated rate for each rate year. All
        payments beyond June 1996 and rate adjustments beyond September 1997 are
        subject to future appropriations of funds by the Legislature and the
        Department of Finance approval. Further, all payments are subject to
        Title 42, CFR 447.361 and the availability of Federal congressional
        appropriation of funds.

        If DHS redetermines rates on an actuarial basis, DHS shall determine
        whether the rates shall be increased, decreased, or remain the same. If
        it is determined by DHS that Contractor's capitation rates shall be
        increased or decreased, that increase or decrease shall be effectuated
        through a Change Order to this Contract in accordance with the
        provisions of Article III, Section 3.35, Change Requirements, subject to
        the following provisions:

        A.   The Change Order shall be effective as of October 1 of each year
             covered by this Contract.

        B.   In the event there is any delay in a determination to increase or
             decrease capitation rates, so that a Change Order may not be
             processed in time to permit payment of new rates commencing October
             1, the payment to Contractor shall continue at the rates then in
             effect. Those continued payments shall constitute interim payment
             only. Upon final approval of the Change Order providing for the
             rate change, DHS shall make adjustments for those months for which
             interim payment was made.

                                       46



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        C.   Notwithstanding paragraph B, payment of the new annual rates shall
             commence no later than December 1, provided that a Change Order
             providing for the new annual rates has been issued by DHS. By
             accepting payment of new annual rates prior to full approval by all
             control agencies of the Change Order to this Contract implementing
             such new rates, Contractor stipulates to a confession of judgment
             for any amounts received in excess of the final approved rate. If
             the final approved rate differs from the rates agreed upon by
             Contractor and DHS:

             1.     Any underpayment by the State shall be paid to Contractor
                    within 30 days after final approval of the new rates.

             2.     Any overpayment to Contractor shall be recaptured by the
                    State's withholding the amount due from Contractor's next
                    capitation check.

                    If the amount to be withheld from that capitation check
                    exceeds 25 percent of the capitation payment for that month,
                    amounts up to 25 percent shall be withheld from successive
                    capitation payments until the overpayment is fully recovered
                    by the State.

             D.     If mutual agreement between DHS and Contractor cannot be
                    attained on capitation rates for rate years subsequent to
                    September 30, 1997 (resulting from a rate change pursuant to
                    Section 5.5 or 5.6), Contractor shall retain the right to
                    terminate the Contract, but no earlier than September 30,
                    1998. Notification of intent to terminate a Contract shall
                    be in writing and provided to DHS at least nine (9) months
                    prior to the effective date of termination, subject to any
                    earlier termination date negotiated in accordance with
                    Article III, Section 3.18.2, Termination - Contractor. DHS
                    shall pay the capitation rates last offered for that rate
                    period until the Contract is terminated.

             E.     DHS shall make every effort to notify and consult with
                    Contractor regarding proposed redetermination of rates
                    pursuant to this section or Section 5.6 at the earliest
                    possible time prior to implementation of the new rate.

                                       47



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

81.     Article V, PAYMENT PROVISIONS, Section 5.6, Redetermination of Rates -
        Obligation Changes, is amended to read:

        5.6         REDETERMINATION OF RATES - OBLIGATION CHANGES

        The Capitation rates may be adjusted during the rate year to provide for
        a change in obligations which results in an increase or decrease of more
        than one percent of cost (as defined in Title 22, CCR, Section 53869) to
        Contractor. Any adjustments shall be effectuated through a Change Order
        to the Contract subject to the following provisions:

        A.   The Change Order shall be effective as of the first day of the
             month in which the change in obligations is effective, as
             determined by DHS.

        B.   In the event DHS is unable to process the Change Order in time to
             permit payment of the adjusted rates as of the month in which the
             change in obligations is effective, payment to Contractor shall
             continue at the rates then in effect. Continued payment shall
             constitute interim payment only. Upon final approval of the Change
             Order providing for the change in obligations, DHS shall make
             adjustments for those months for which interim payment was made.

        C.   DHS and Contractor may negotiate an earlier termination date,
             pursuant to Article III, Section 3.18.2, Termination - Contractor,
             if a change in contractual obligations is created by a State or
             federal change in the Medi-Cal program, or a lawsuit, that
             substantially alters the financial assumptions and conditions under
             which Contractor entered into this Contract, such that Contractor
             can demonstrate to the satisfaction of DHS that it cannot remain
             financially solvent until the termination date that would otherwise
             be established under this section.

82.     Article V, PAYMENT PROVISIONS, Section 5.7, Reinsurance, subsection (A),
        sentence one, is amended to read:

        Contractor may obtain reinsurance (stop loss coverage) through DHS or
        other insurers or may self-insure upon approval by DHS to ensure
        maintenance of adequate capital by Contractor, for the cost of providing
        Covered Services under this Contract.

                                       48



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

83.     Article V, PAYMENT PROVISIONS, Section 5.9, Financial Security, is
        amended to read:

        5.9         FINANCIAL PERFORMANCE GUARANTEE

        Contractor shall provide satisfactory evidence of and maintain Financial
        Performance Guarantee in an amount equal to at least one month's
        capitation payment, in a manner specified by DHS. At Contractor's
        request and with DHS approval, Contractor may establish a phase-in
        schedule to accumulate the required Financial Performance Guarantee.
        Contractor may elect to satisfy the Financial Performance Guarantee
        requirement by receiving payment on a post payment basis. The Financial
        Performance Guarantee shall remain in effect for a period not exceeding
        90 days following termination or expiration of this Contract, unless DHS
        has a financial claim against Contractor.

84.     Article V, PAYMENT PROVISIONS, Section 5.11, Recovery of Capitation
        Payments, is amended to read:

        5.11        RECOVERY OF CAPITATION PAYMENTS

        DHS shall have the right to recover amounts paid to Contractor in the
        following circumstances as specified:

        A.   DHS determines that a Member has either been improperly enrolled,
             due to ineligibility of the Member to enroll in Contractor's plan,
             residence outside of Contractor's Service Area, or pursuant to
             Title 22, Section 53891(a)(2), or should have been disenrolled with
             an effective date in a prior month. DHS may recover or, upon
             request by Contractor, DHS shall recover the capitation payments
             made to Contractor for the Member and absolve Contractor from all
             financial and other risk for the provision of services to the
             Member under the terms of the Contract for the month or months in
             question. In such event, Contractor shall have the authority to
             recover any payments made to providers for Covered Services
             rendered for the month or months in question. Contractor shall
             inform providers that claims for services provided to Members
             during the month or months in question shall be paid by DHS' fiscal
             intermediary, if the Member is determined eligible for the Medi-Cal
             program.

                                       49



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

             Upon request by Contractor, DHS may allow Contractor to retain the
             capitation payments made for Members that are eligible to enroll in
             Contractor's plan, but should have been retroactively disenrolled
             pursuant to Article VI, Section 6.7.2, Excluded Services:
             Circumstances Under Which Member Disenrolled, or under other
             circumstances as approved by DHS. If Contractor retains the
             capitation payments, Contractor shall provide or arrange and pay
             for all Medically Necessary Covered Services for the Member, until
             the Member is disenrolled on a nonretroactive basis pursuant to
             Article III, Section 3.23.5, Disenrollment.

        B.   As a result of Contractor's failure to perform contractual
             responsibilities to comply with federal Medicaid requirements, the
             Department of Health and Human Services (DHHS) disallows Federal
             Financial Participation (FFP) for payments made by DHS to
             Contractor. DHS may recover the amounts disallowed by DHHS by an
             offset to the capitation payments made to Contractor. If recovery
             of the full amount at one time imposes a financial hardship on
             Contractor, DHS at its discretion may grant a Contractor's request
             to repay the recoverable amounts in monthly installments over a
             period of consecutive months not to exceed six (6) months.

        C.   If DHS determines that any other erroneous or improper payment not
             mentioned above has been made to Contractor, DHS may recover the
             amounts determined by an offset to the capitation payments made to
             Contractor. If recovery of the full amount at one time imposes a
             financial hardship on Contractor, DHS, at its discretion, may grant
             a Contractor's request to repay the recoverable amounts in monthly
             installments over a period of consecutive months not to exceed six
             (6) months. At least thirty (30) days prior to seeking any such
             recovery, DHS shall notify Contractor to explain the improper or
             erroneous nature of the payment and to describe the recovery
             process.

85.     Article V, PAYMENT PROVISIONS is amended by adding a new section 5.12 to
        read:

        5.12        DATA REPORTING PERFORMANCE INCENTIVES

                    5.12.1      DEFINITIONS

                    For purposes of Section 5.12 Data Reporting Performance
                    Incentives, the following definitions shall apply:

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        A.   Financial Performance Incentive means the funds retained by DHS and
             paid to the Contractor upon Contractor's achieving the data
             reporting performance incentive standards contained in Section
             5.12.3, Performance Incentive Standards.

        B.   Reporting Year means the twelve-month period beginning July 1, 1998
             and ending June 30, 1999, and each subsequent twelve-month period
             beginning July 1 and ending June 30.

        C.   Services Reporting Period means the period during which Contractor
             provides the services counted to determine Contractor's compliance
             with the Children Served and Outpatient and Emergency Department
             Services standards, contained in Section 5.12.3, Performance
             Incentive Standards. The first Services Reporting Period shall
             consist of the first three months of the Reporting Year; the second
             Services Reporting Period shall consist of the first six months of
             the Reporting Year; the third Services Reporting Period shall
             consist of the first nine months of the Reporting Year, and the
             fourth Services Reporting Period shall consist of the entire 12
             months of the Reporting Year.

        D.   Timeliness Reporting Period means the period during which
             Contractor reports data counted to determine Contractor's
             compliance with the Timeliness of Data Reporting Standards,
             contained in Section 5.12.3, Performance Incentive Standards. The
             first Timeliness Reporting Period shall consist of the first three
             months of the Reporting Year; the second timeliness Reporting
             Period shall consist of the first six months of the Reporting
             Years; the third Timeliness Reporting Period shall consist of the
             first nine months of the Reporting Year; and the fourth Timeliness
             Reporting Period shall consist of the entire 12 months of the
             Reporting Year.

        E.   Claim Run-Out Period means the period beginning on the first day of
             each Services Reporting Period of Timeliness Reporting Period and
             ending ninety (90) days after the last day of each Services
             Reporting Period or Timeliness Reporting Period.

        F.   Data Processing Period means the period beginning on the first day
             of each Services Reporting Period of Timeliness Reporting Period
             and ending ninety (90) days after the last day of each Claim
             Run-Out Period.

                                       51



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        G.   Evaluation Period means the ninety (90) day period beginning on the
             day after the last day of each Data Processing Period.

        H.   PM-160 Information Only Data means Child Health and Disability
             Prevention (CHDP) Encounter information contained on the
             Confidential Screening/Billing Report form used by the Contractor
             to report all CHDP Encounters to DHS and to the local CHDP program.

        I.   Encounter Record means an individual data entry, which follows the
             format code contained in the Managed Care Data Element Dictionary,
             reported to DHS for services provided to a Member during an
             Encounter.

        5.12.2      PAYMENT PROVISIONS

        For purposes of this Section 5.12, Data Reporting Performance
        Incentives, the following payment provisions shall apply:

        A.   Commencing with the monthly capitation payment for services
             provided by Contractor to Members during the month of April 1999,
             and for each subsequent monthly capitation payment, DHS shall
             retain and reserve one percent (1%) of each capitation payment for
             each county services by Contractor; however, in no event shall more
             than $100,000 per month be retained by DHS for a Contractor serving
             more than 150,000 Members. The retained funds reserved by DHS shall
             be allocated to each performance incentive standard as specified in
             Section 5.12.3, Performance Incentive Standards.

        B.   DHS shall pay Contractor the reserved Financial Performance
             Incentive funds allocated to each performance incentive standard,
             as provided in Section 5.12.3, Performance Incentive Standards,
             upon Contractor's achieving the standard, in a county serviced by
             Contractor under this Contract. If Contractor is providing services
             in multiple counties under this Contract, a Financial Performance
             Incentive payment shall only be paid for the county or counties in
             which Contractor achieves the specific performance incentive
             standard. If Contractor achieves a performance incentive standard
             in one county, this shall not affect the payment or nonpayment to
             Contractor for the same performance incentive standard in another
             county served under this Contract.

                                       52



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        C.   The funds available to each Financial Performance Incentive payment
             shall be the sum of all funds reserved by DHS for each performance
             incentive standard, as provided in Section 5.12.3, Performance
             Incentive Standards, for the Services Reporting Period or the
             Timeliness Reporting period under review, less any funds already
             paid to Contractor for achieving the standard in a previous
             Services Reporting Period or Timeliness Reporting Period in the
             same reporting year.

        D.   All Financial Performance incentive calculations for the percent of
             compliance with the standards described in Section 5.12.3,
             Financial Performance Standards, achieved by Contractor shall be
             rounded to the nearest whole number according to the following: all
             percentages shall be carried out to two (2) decimal places and
             those ending with 0.49 or less shall be rounded down to the next
             lower whole number, and all percentages ending with 0.50 or more
             shall be rounded up to the next higher whole number.

        E.   DHS shall notify Contractor of the results of its determination of
             Contractor's compliance with each performance incentive standard
             not later than ten (10) working days after the end of the
             Evaluation Period for the Services Reporting Period or Timeliness
             Reporting Period under review. The Financial Performance Incentive
             payment shall be included in Contractor's monthly capitation
             payment, no later than the second month after the last day of the
             Evaluation Period.

        F.   Payments to Contractor for achieving a performance incentive
             standard shall be subject to verification reviews, including but
             not limited to review of Member medical records, by DHS. If, based
             upon such review, Contractor did not achieve compliance with a
             performance incentive standard, DHS shall recover any Financial
             Performance Incentive payments made to Contractor for achieving the
             standard. Contract shall timely and fully cooperate with DHS, and
             required timely and full cooperation of all entities subcontracting
             with Contractor, in the conduct of verification reviews and the
             furnishing of all records and information requested by DHS to
             complete the reviews. Contractor shall not be compensated,
             including but not limited to compensation for copies of
             information, for cooperating in such reviews. Contractor's failure
             to cooperate in verification reviews, as determined by DHS in its
             sole discretion, shall be grounds for DHS' recovery of any payments
             made for achieving a performance incentive standard.

                                       53



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        G.   If DHS fails to determine Contractor's compliance with a
             performance incentive standard and mail notification to Contractor
             of the results of such determination within ten (10) working days
             after the end of the Evaluation Period for the Services Reporting
             Period or Timeliness reporting Period under review, DHS shall pay
             Contractor the Financial Performance Incentive allocated to the
             standard for which DHS failed to timely determine compliance. Such
             payment shall be included in Contractor's monthly capitation
             payment, no later than the second month after the last day of the
             Evaluation Period.

        H.   Contractor may dispute any determination of compliance with
             performance incentive standards made by DHS under Section 5.12,
             Data Reporting Performance Incentives, by filing a notice of
             dispute pursuant to Section 3.xx, Disputes and Appeals. Contractor
             shall comply with all provisions of Section 3.xx, Dispute and
             Appeals, in disputing any determination of compliance with
             performance incentive standards made by DHS pursuant to Section
             5.12, Data Reporting Performance Incentives. Contract shall exhaust
             all procedures provided for in Section 3.xx, Dispute and Appeals,
             prior to initiating any other action to enforce Section 5.12 Data
             Reporting Performance Incentives.

        I.   DHS shall pay interest to Contractor for funds reserved from or
             subsequently paid to Contractor, under Section 5.12, Data Reporting
             Performance Incentives.

5.12.3       PERFORMANCE INCENTIVE STANDARDS

Contractor shall be eligible for payment of Financial Performance Incentive
payments as set forth in Section 5.12, Data Reporting Performance Incentives,
upon compliance with the following standards:

A.      Children Served

        1.   PM-160 Information Only Data submitted by Contractor, that meets
             the requirements in paragraph 3 below, shall demonstrate compliance
             with the applicable county rte specified in Table 1 below, for the
             applicable Services Reporting Period. Contractor's failure to
             achieve the required standard for any Services Reporting Period,
             shall not prevent Contractor from receiving payment of the
             Financial Performance Incentive payment for such Services Reporting
             Period, if in a subsequent Services Reporting Period, within the
             same Reporting

                                       54



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

             Year, Contractor achieves the standard required for the subsequent
             Services Reporting Period.

 Table 1: Required % of Member Children Served to Qualify for Incentive Payments



County            By End of Reporting Period 1    By End of Reporting Period 2    By End of Reporting Period 3
==============================================================================================================
                                                                                   
Alameda                     ****8%                          ****16%                         ****24%
- --------------------------------------------------------------------------------------------------------------
Contra Costa                ****7                           ****14                          ****21
- --------------------------------------------------------------------------------------------------------------
Fresno                      ****8                           ****16                          ****24
- --------------------------------------------------------------------------------------------------------------
Kern                        ****8                           ****16                          ****24
- --------------------------------------------------------------------------------------------------------------
Los Angeles                 ****8                           ****16                          ****24
- --------------------------------------------------------------------------------------------------------------
Riverside                   ****6                           ****12                          ****18
- --------------------------------------------------------------------------------------------------------------
San Bernardino              ****7                           ****14                          ****21
- --------------------------------------------------------------------------------------------------------------
San Francisco               ****7                           ****14                          ****21
- --------------------------------------------------------------------------------------------------------------
San Joaquin                 ****8                           ****16                          ****24
- --------------------------------------------------------------------------------------------------------------
Santa Clara                 ****7                           ****14                          ****21
- --------------------------------------------------------------------------------------------------------------
Stanislaus                  ****6                           ****12                          ****18
- --------------------------------------------------------------------------------------------------------------
Tulare                      ****6                           ****12                          ****18
========================================================================================================------


==============================================
County            By End of Reporting Period 4
- ----------------------------------------------
                         
Alameda                     ****32%
- ----------------------------------------------
Contra Costa                ****28
- ----------------------------------------------
Fresno                      ****31
- ----------------------------------------------
Kern                        ****30
- ----------------------------------------------
Los Angeles                 ****30
- ----------------------------------------------
Riverside                   ****24
- ----------------------------------------------
San Bernardino              ****27
- ----------------------------------------------
San Francisco               ****26
- ----------------------------------------------
San Joaquin                 ****30
- ----------------------------------------------
Santa Clara                 ****29
- ----------------------------------------------
Stanislaus                  ****25
- ----------------------------------------------
Tulare                      ****23
============================================--


- ----------
**** - Greater than or Equal to

        2.   Compliance with the Children Services standard shall be based on
             the unduplicated count of Member children, who were enrolled in
             Contractor's plan for at least one month during the Services
             Reporting Period and who were at least four (4) months of age, but
             less than six (6) years of age during the month in which a reported
             pediatric preventive service encounter occurred. Information may be
             reported in hard copy or via computer media claiming, to the extent
             such arrangements are available to Contractor. This shall not be
             construed as creating any obligation on DHS to make available to
             Contractor or condition Contractor performance under this section
             on the availability of computer medial claiming submission.

        3.   DHS' determination as to whether Contractor has achieved the
             performance incentive standard for Children Served shall be based
             solely on evaluation of PM-160 Information Only Data:

             a.     Documenting CHDP services rendered to Members with a date of
                    service during the Services Reporting Period;

             b.     Submitted to DHS by Contractor no later than the last day of
                    the Claims Run-Out Period for the Services Reporting Period
                    under review; and

             c.     Accepted by DHS' fiscal intermediary for processing.

                                       55



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        4.   PM-160 Information Only Data submitted by Contractor during a Claim
             Run-Out Period that is rejected by DHS' fiscal intermediary shall
             not be included in DHS' evaluation for the purposes of this section
             unless it is resubmitted by Contractor and meets the requirements
             in paragraph 3 above. However, solely for purposes of evaluation
             contractor's eligibility to receive Financial Performance Incentive
             payments, PM-160 Information Only Data resubmitted after the end of
             the Claims Run-Out Period and accepted for processing by DHS'
             fiscal intermediary shall be included in DHS' evaluation for
             subsequent Services Reporting Periods within the same Reporting
             Year if such data is received by DHS no later than the last day of
             the Claims Run-Out Period for the last Services Reporting Period of
             the Reporting Year. The provisions of subsection 5.12.3.A.4 apply
             only to evaluating Contractor's compliance with the performance
             incentive standards and do not relieve Contractor of the obligation
             to report CHDP Encounters in compliance with Article VI, Section
             6.7.6.2, Children, nor shall this section be construed to limit
             DHS' right to imposed all appropriate sanctions for Contractor's
             failure to comply with Article VI, Section 6.7.6.2, Children.

        5.   Thirty-five percent (35%) of the funds reserved by DHS each month,
             for each county in which contractor provides services under this
             Contract, shall be allocated to the Children Served performance
             incentive standard.

        6.   DHS shall pay Contractor for achieving the performance incentive
             standard for Children Serviced based upon the graduated payment
             schedule shown in Table 2 below. Each Financial Performance
             Incentive payment shall be the sum of all funds reserved by DHS for
             the Children Serviced standard for the Services Reporting Period
             under review, minus any funds already paid to Contractor for
             compliance with the Children Served standard in a previous Services
             Reporting Period in the same Reporting Year, multiplied by the
             amount of Financial Incentive Payment shown in Table 2 that was
             achieved by Contractor for the Children Served performance
             incentive standard.

            Table 2: PM-160 Payment Criteria for Children Served and
  Outpatient and Emergency Department Services Performance Incentive Standards



             =========================================================================================
              % of Compliance Standard Achieved      Amount of Financial Incentive Payment
             -----------------------------------------------------------------------------------------
                                                  
                100%                                 100% of funds reserved for the relevant standard
             -----------------------------------------------------------------------------------------
              76-99%                                 75% of funds reserved for the relevant standard
             -----------------------------------------------------------------------------------------
              51-75%                                 50% of funds reserved for the relevant standard
             -----------------------------------------------------------------------------------------
              26-50%                                 25% of funds reserved for the relevant standard
             -----------------------------------------------------------------------------------------
               0-25%                                 0% of funds reserved for the relevant standard
             =========================================================================================


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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

B.      Outpatient and Emergency Department Service Encounters

        1.   For each county in which Contractor operates under this Contract,
             Contractor shall demonstrate compliance with the applicable
             utilization rate per 1,000 Members specified in Table 3 below, for
             each Services Reporting Period, and based upon Contractor's length
             of operations. Contractor's failure to achieve the required
             standard for any Services Reporting Period, shall not prevent
             Contractor from receiving payment of the Financial Performance
             Incentive for such Services Reporting Period, if in a subsequent
             Services Reporting Period, within the same Reporting Year,
             Contractor achieves the standard required for the subsequent
             Services Reporting Period.

                   Table 3: Utilization Rate Per 1,000 Members



================================================================================================================================
 Length of Operations Under Two-Plan Model Contract   Outpatient and Emergency Department Utilization Rate Per 1,000
                                                      Members Required to Qualify for Financial Incentive Payment (based
                                                      on an annualized rate of 2,760 encounters per 1,000 members)
                                                      --------------------------------------------------------------------------
                                                                           Services Reporting Period
- --------------------------------------------------------------------------------------------------------------------------------
                                                            1                  2                    3                    4
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                               
 Less than 12 months                                  ****207/1,000      ****414/1,000        ****621/1,000        ****828/1,000
- --------------------------------------------------------------------------------------------------------------------------------
 More than 12 months, but less than 24 months         ****345/1,000      ****690/1,000      ****1,035/1,000      ****1,380/1,000
- --------------------------------------------------------------------------------------------------------------------------------
 More than 24 months                                  ****455/1,000      ****910/1,000      ****1,365/1,000      ****1,822/1,000
================================================================================================================================


- ----------
**** - Greater than or equal to

        2.   Contractor's length of operations under this Section 5.12, Data
             Reporting Performance Incentives, shall be determined based upon
             the amount of time Contractor has been providing Covered Services
             under this Contract as of the last day of each Services Reporting
             Period. However, if Contractor's length of operations category
             changes after the last day of the ninth month of the Reporting
             Year, DHS shall use the Contractor's previous length of operations
             category to evaluate Contractor's compliance with the Outpatient
             and Emergency Department Services standard for the entire Reporting
             Year.

        3.   Compliance with the Outpatient and Emergency Department Service
             Encounters standard shall be based on the outpatient and emergency
             department services Encounters, exclusive of PM-160 Information
             Only Data, reported by Contractor to DHS as provided to Members in
             each county in which the Contractor operations with a data of
             service during the Services Reporting Period. Contractor
             performance shall be determined using an unduplicated count of
             Members, who were enrolled in Contractor's plan in each county for
             at least one month during the Services Reporting Period under
             review.

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        4.   DHS' determination as to whether Contractor has met the standard
             for Outpatient and Emergency Department Service Encounters shall be
             based solely on evaluation of the Encounter data, exclusive of
             PM-160 Information Only Data, for outpatient and emergency
             department services, as described in HEDIS 3.0, Ambulatory Care,
             rendered to Members with a data of service during the Services
             Reporting Period under review, and that Contractor has submitted to
             DHS no later than the last day of the Claim Run-Out Period for the
             Services Reporting Period under review and has been accepted for
             processing by DHS' fiscal intermediary. Encounter data submitted by
             Contractor during a Claim Run-Out Period that is rejected by DHS'
             fiscal intermediary shall not be included in DHS' evaluation for
             the purposes of this section unless it is resubmitted no later than
             the last day of the Claim Run-Out Period and accepted for
             processing by DHS' fiscal intermediary. However, solely for the
             purposes of evaluating Contractor's eligibility to receive
             financial Performance Incentive payments, non-PM 160 Encounter data
             submitted or resubmitted after the end of the claims Run-Out Period
             and accepted for processing DHS' fiscal intermediary shall be
             included in DHS' evaluation for subsequent Services Reporting
             Periods within the same Reporting Year if such data is received by
             DHS no later than the last day of the claim Run-Out Period for the
             last Services Reporting Period of the reporting Year. The
             provisions of this subsection 5.12.3.B.4 apply only to evaluating
             Contractor's compliance with the Outpatient and Emergency
             Department Services Encounters performance incentive standard and
             do not relieve Contractor of the obligation to report Encounter
             data in compliance with Article VI, Section 6.4, Management
             Information System.

        5.   Thirty-five percent (35%) of the total funds reserved by DHS for
             each month shall be allocated to the Outpatient and Emergency
             Department Service Encounters performance incentive standard.

        6.   DHS shall pay Contractor for achieving the performance incentive
             standard for Outpatient and Emergency Department Service Encounters
             according to the graduated payment schedule provided in Table 2 of
             Section 5.12.3, Performance Incentive Standards, paragraph A.5.
             Each Financial Performance Incentive payment shall be the sum of
             all funds reserved by DHS for the Outpatient and Emergency
             Department Encounter standard for the Services Reporting Period
             under review, less any funds already paid to Contractor for
             compliance with the Outpatient and Emergency Department Service
             Encounter standard in a previous Services Reporting Period in the
             same Reporting Year, multiplied by the amount of Financial
             Incentive Payment shown in able 3 that was achieved by Contractor
             for the Outpatient and Emergency Department Service Encounter
             performance incentive standard.

                                       58



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

C.      Timeliness of Data Reporting

        1.   Timeliness of PM-160 Information Only Data Reporting: To receive a
             Financial Performance Incentive payment for Timeliness of PM-160
             Information Only Data reporting, for any Timeliness Reporting
             Period, Contractor shall meet or exceed:

             a.     Seventy-five period (75%) of the applicable standard for
                    Children Served for the Timeliness Reporting Period under
                    review, and

             b.     Seventy-five percent (75%) of all PM-160 Information Only
                    Data submitted by Contractor during the Timeliness Reporting
                    Period under review, shall be submitted within thirty (30)
                    days of the end of the month in which the PM-160 Encounter
                    occurred, in accordance with Article VI, Section 6.7.6.2,
                    Children, subsection H, and accepted for processing by DHS'
                    fiscal intermediary no later than the last day of the
                    Timeliness Reporting Period. PM-160 Information Only Data
                    originally submitted during the Timeliness Reporting
                    Period under review, but rejected for processing by DHS'
                    fiscal intermediary, resubmitted after the Timeliness
                    Reporting Period under review and accepted by DHS' fiscal
                    intermediary no later than the last day of the subsequent
                    Timeliness Reporting Period shall be included in DHS'
                    evaluation for the subsequent Timeliness Reporting Period.
                    Notwithstanding the above, only PM-160 Information Only Data
                    received by DHS and accepted for processing by DHS' fiscal
                    intermediary no later than June 30 of the Reporting Year
                    under review shall be considered for Contractor's compliance
                    with the Timeliness of PM-160 Information Only Data
                    Reporting standard for that Reporting Year.

        2.   Timeliness of Encounter Data Reporting: To receive a Financial
             Performance Incentive payment for timeliness of Encounter data
             reporting, for any Timeliness Reporting Period, Contractor shall
             meet or exceed:

             a.     Seventy-five percent (75%) of the applicable standard for
                    Outpatient and Emergency Department Service Encounters for
                    the Timeliness Reporting Period under review; and

                                       59



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

             b.     Seventy percent (70%) of all Encounter Records submitted by
                    Contractor during the Timeliness Reporting Period under
                    review, shall be submitted within ninety (90) days of the
                    end of the month in which the Encounter occurred, and
                    accepted for processing by DHS' fiscal intermediary and DHS
                    no later than the last day of the Timeliness Reporting
                    Period. Encounter Records originally submitted to DHS during
                    the Timeliness Reporting Period under review, but rejected
                    for processing by DHS' fiscal intermediary or DHS,
                    resubmitted after the Timeliness Reporting Period under
                    review and accepted for processing by DHS' fiscal
                    intermediary and DHS no later than the last day of the
                    subsequent Timeliness Reporting Period shall be included
                    in DHS' evaluation for the subsequent Timeliness Reporting
                    Period. Notwithstanding the above, only Encounter Records
                    received by DHS and accepted for processing by DHS' fiscal
                    intermediary and DHS no later than June 30 of the Reporting
                    Year under review shall be considered for Contractor's
                    compliance with the Timeliness of Encounter Data Reporting
                    standard for that Reporting Year.

        3.   Fifteen percent (15%) of the total funds reserved by DHS for each
             month shall be allocated to the Timeliness of PM-160 Information
             Only Data Reporting standard, and fifteen percent (15%) of the
             total funds reserved by DHS for each month shall be allocated to
             the Timeliness of Encounter Data reporting standard.

        4.   Each Financial Performance Incentive payment shall be the sum of
             all funds reserved by DHS for the Timeliness of PM-160 Information
             Only Data Reporting standard for the Timeliness Reporting Period
             under review, less any funds already paid to Contractor for
             compliance with such Timeliness standard in a previous Timeliness
             Reporting Period in the same Reporting Year.

        5.   Each Financial Performance Incentive payment shall be the sum of
             all funds reserved by DHS for the Timeliness of Encounter Data
             Reporting standard for the Timeliness Reporting Period under
             review, less any funds already paid to Contractor for compliance
             with such Timeliness standard in a previous Timeliness Reporting
             Period in the same Reporting Year.

                                       60



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

86.     Article V, PAYMENT PROVISIONS is amended by adding a new Section 5.13,
        FQHC/RHC Risk Corridor Payments, to read:

        5.13        FQHC/RHC RISK CORRIDOR PAYMENTS

        Beginning October 1, 1997 and through September 30, 2000, provided that
        Contractor annually submits, within four months after the last day of
        each fiscal year, required expenditure data to DHS in the form and
        manner specified by DHS, DHS shall perform reconciliations to determine
        the variance between the funds that have been paid to Contractor in its
        capitation rates to reflect the dollar value of FQHC and RHC interim
        rate payments made to these entities in the Medi-Cal FFS program and the
        amount that Contractor has paid to subcontracting FQHCs and RHCs.

        For each annual reconciliation, if, pursuant to subcontracts with FQHCs
        and RHCs that have been reviewed and approved in writing by DHS,
        Contractor has paid subcontracting FQHCs and RHCs in the aggregate an
        amount greater than 110 percent of the dollar value of FQHC and RHC
        interim rate payments included in Contractor's capitation rates, DHS
        shall pay Contractor the amount in excess of 110 percent.

        For each annual reconciliation, if, pursuant to subcontracts with FQHCs
        and RHCs that have been reviewed and approved in writing by DHS,
        Contractor has paid subcontracting FQHCs and RHCs in the aggregate an
        amount less than 90 percent of the dollar value of FQHC and RHC interim
        rate payments included in Contractor's capitation rates, Contractor
        shall refund the amount below 90 percent to DHS. DHS may recover amounts
        owed by Contractor pursuant to this section through an offset to the
        capitation payments made to Contractor, pursuant to Section 5.11(C),
        Recovery of Capitation Payments.

        All reconciliations shall be subject to an annual reconciliation audit
        at which time payments to or recoupments from Contractor shall be
        finalized.

87.     Article V, PAYMENT PROVISIONS, is amended by adding a new Section 5.14,
        Payment of AIDS Beneficiary Rates, to read:

        5.14        PAYMENT OF AIDS BENEFICIARY RATES

        Subject to Contractor's compliance with the requirements contained in
        subsection A below, Contractor shall be eligible to receive compensation
        at the AIDS Beneficiary Rate (ABR) for AIDS Beneficiaries. Compensation
        to Contractor at the ABR for each AIDS Beneficiary shall consist of
        payment at the ABR less the capitation rate initially paid for the AIDS
        beneficiary.

                                       61



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        A.   Compensation at the ABR shall be subject to the conditions listed
             below. Contractor's failure to comply with any of the conditions
             listed below for any request for compensation at the ABR on behalf
             of an individual AIDS Beneficiary for a specific month of
             Enrollment shall result in DHS' denial of Contractor's claim for
             compensation at the ABR for that individual AIDS Beneficiary for
             that specific month of Enrollment. Contractor may submit a
             corrected claim, within the timeframes specified in paragraph 4
             below, that complies with all the conditions listed below and DHS
             shall reimburse Contractor at the ABR.

             1.     The ABR shall be in lieu of any other compensation for an
                    AIDS Beneficiary in any month.

             2.     For AIDS Beneficiaries, Contractor shall be eligible to
                    receive compensation at the ABR commencing in the month in
                    which a Diagnosis of AIDS is made and recorded, dated and
                    signed by the treating physician in the AIDS Beneficiary's
                    Medical Record.

             3.     Contractor shall submit an invoice to DHS by the 25th day of
                    each month for claims for compensation at the ABR for AIDS
                    Beneficiaries. The invoice shall include the following:

                    a.      A list of all AIDS Beneficiaries identified by
                            Medi-Cal numbers only for whom Contractor is
                            claiming compensation at the ABR Member names shall
                            not be used.

                    b.      The month(s) and year(s) for which compensation at
                            the ABR is being claimed for each AIDS Beneficiary
                            listed, sorted by month and year of service.

                    c.      The capitation rate initially paid for the AIDS
                            Beneficiary for each month being claimed by
                            Contractor, the ABR being claimed, and the
                            difference between the ABR and the capitation rate
                            initially paid for the AIDS Beneficiary.

                    d.      The total amount being claimed on the invoice.

                                       62



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

             4.     Invoices, containing originally submitted claims or
                    corrected claims, for compensation at the ABR for any month
                    of eligibility during the rate year beginning October 1,
                    1997 and ending September 30, 1998, or any rate year
                    thereafter beginning October 1 and ending September 30, must
                    be submitted by Contractor to DHS no later than six (6)
                    months following the end of the subject rate year.

        B.   Contractor shall confirm Medi-Cal eligibility of AIDS Beneficiaries
             prior to submission of the monthly invoice to DHS. DHS may verify
             the Medi-Cal eligibility of each Member for whom the ABR is claimed
             and adjust the invoiced amounts to reflect any capitation payments
             which have been previously made to Contractor for each Member prior
             to submission of the invoice required under subsection A(3).

        C.   If DHS determines that a Member for whom compensation has been paid
             at the ABR did not meet the definition of an AIDS Beneficiary, in a
             month for which the ABR was paid, DHS shall recover any amount
             improperly paid, by an offset to Contractor's capitation payment,
             in accordance with Section 5.11(C), Recovery of Capitation
             Payments. DHS shall give Contractor thirty (30) days prior written
             notice of any such offset.

88.     Article VI, SCOPE OF WORK, Section 6.2.5, Administrative
        Duties/Responsibilities, subsection (B), is amended to read:

        B.   Member and Enrollment reporting systems as specified in Section
             6.4, Management Information Systems (MIS), and Section 6.9, Member
             Services/Grievance Systems.

89.     Article VI, SCOPE OF WORK, Section 6.3.1, Financial Viability/Standards
        Compliance, is amended to read:

        6.3.1       FINANCIAL VIABILITY/STANDARDS COMPLIANCE

        Contractor shall demonstrate financial viability/standards compliance to
        DHS' satisfaction for each of the following elements:

        A.   Tangible Net Equity (TNE).

             Contractor at all times shall be in compliance with the TNE
             requirements in accordance with Title 10, CCR, Section 1300.76.

                                       63



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        B.   Administrative Costs.

             Contractor's Administrative Costs shall not exceed the guidelines
             as established under Title 10, CCR, Section 1300.78.

        C.   Standards of Organization and Financial Soundness.

             Contractor shall maintain an organizational structure sufficient to
             conduct the proposed operations and ensure that its financial
             resources are sufficient for sound business operations in
             accordance with Title 10, CCR, Sections 1300.67.3, 1300.75.1,
             1300.76, 1300.76.3, 1300.77.1, 1300.77.2, 1300.77.3, 1300.77.4,
             1300.78, and Title 22, CCR, Sections 53851, 53863, and 53864.

        D.   Working capital and current ratio of one of the following:

             1.     Contractor shall maintain a working capital ratio of at
                    least 1:1; or

             2.     Contractor shall demonstrate to DHS that Contractor is now
                    meeting financial obligations on a timely basis and has been
                    doing so for at least the preceding two years; or

             3.     Contractor shall provide evidence that sufficient noncurrent
                    assets, which are readily convertible to cash, are available
                    to achieve an equivalent working capital ratio of 1:1, if
                    the noncurrent assets are considered current.

90.     Article VI, SCOPE OF WORK, Section 6.3.2, Financial Audit/Reports, is
        amended to read:

        6.3.2       FINANCIAL AUDIT/REPORTS

        Contractor shall ensure that an annual audit is performed according to
        Section 14459, W&I Code. Combined Financial Statements shall be prepared
        to show the financial position of the overall related health care
        delivery system when delivery of care or other services is dependent
        upon Affiliates. Financial Statements shall be presented in a form that
        clearly shows the financial position of Contractor separately from the
        combined totals. Inter-entity transactions and profits shall be
        eliminated if combined statements are prepared. Contractor shall have
        separate certified Financial Statements prepared if an independent
        accountant decides that preparation of combined statements is
        inappropriate.

                                       64



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        A.   The independent accountant shall state in writing reasons for not
             preparing combined Financial Statements.

        B.   Contractor shall provide supplemental schedules that clearly
             reflect all inter-entity transactions and eliminations necessary to
             enable DHS to analyze the overall financial status of the entire
             health care delivery system.

             1.     In addition to annual certified Financial Statements
                    Contractor shall complete the entire 1989 HMO Financial
                    Report of Affairs and Conditions Format, commonly known as
                    the "Orange Blank". The Certified Public Accountant's (CPA)
                    audited Financial Statements and the "Orange Blank" report
                    shall be submitted to DHS no later than 120 calendar days
                    after the close of Contractor's Fiscal Year.

             2.     Contractor shall submit to DHS within forty-five (45)
                    calendar days after the close of Contractor's fiscal quarter
                    financial reports required by Title 22, CCR, Section
                    53862(b)(l). The required quarterly financial reports shall
                    be prepared on the "Orange Blank" format and shall include,
                    at a minimum, the following reports/schedules:

                    a.      Jurat.

                    b.      Report 1A and 1B: Balance Sheet.

                    c.      Report 2: Statement of Revenue, Expenses, and Net
                            Worth.

                    d.      Statement of Cash Flow, prepared in accordance with
                            Financial Accounting Standards Board Statement
                            Number 95 (This statement is prepared in lieu of
                            Report #3: Statement of Changes in Financial
                            Position for Generally Accepted Accounting
                            Principles (GAAP) compliance.)

                    e.      Report 4: Enrollment and Utilization Table.

                    f.      Schedule F: Unpaid Claims Analysis.

                    g.      Appropriate footnote disclosures in accordance with
                            GAAP.

                                       65



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

             C.     Contractor shall authorize the independent accountant to
                    allow representatives of DHS, upon written request, to
                    inspect any and all working papers related to the
                    preparation of the audit report.

             D.     Contractor shall submit to DHS all financial reports
                    relevant to Affiliates as specified in Title 22, CCR,
                    Section 53862(c)(4).

             E.     Contractor shall submit to DHS copies of any financial
                    reports submitted to other public or private organizations
                    as specified in Title 22, CCR, Section 53862(c)(5).

91.     Article VI, SCOPE OF WORK, is amended by adding a new Section 6.3.6,
        Submittal of FQHC and RHC Payment Information, to read:

        6.3.6       SUBMITTAL OF FQHC AND RHC PAYMENT INFORMATION

        Effective with the October 1997 month of service, Contractor shall keep
        a record of the number of visits by plan Members to each FQHC and RHC
        contracting with Contractor and related payment information, and shall
        submit this information to DHS in the frequency, format, and manner
        specified by DHS. This requirement shall remain in effect through the
        September 1999 month of service.

92.     Article VI, SCOPE OF WORK, is amended by adding a new Section 6.3.7,
        Submittal of Inpatient Days Information, to read:

        6.3.7       SUBMITTAL OF INPATIENT DAYS INFORMATION

        Upon DHS' written request, Contractor shall report inpatient days to DHS
        as required by W&I Code, Section 14105.985(b)(2) for the time period and
        in the form and manner specified in DHS' request, within thirty (30)
        days of receipt of the request. Contractor shall submit additional
        reports to DHS, as requested, for the administration of the
        Disproportionate Share Hospital program.

                                       66



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

93.     Article VI, SCOPE OF WORK, Section 6.4, Management Information System,
        is amended to read:

        6.4.1       MANAGEMENT INFORMATION SYSTEM (MIS) CAPABILITY

        Contractor shall have and maintain an MIS that provides, at a minimum:

        A.   All Medi-Cal eligibility data,

        B.   Members enrolled in Contractor's plan,

        C.   Provider claims status and payment data,

        D.   Encounter-level health care services delivery data,

        E.   Provider network information, and

        F.   Financial information as specified in Section 6.2.5(E),
             Administrative Duties/Responsibilities.

        6.4.2       ENCOUNTER DATA SUBMITTAL

        Contractor shall implement policies and procedures for ensuring the
        complete, accurate, and timely submission of Encounter-level data for
        all services for which Contractor has incurred any financial liability,
        whether directly or through Subcontracts or other arrangements. As a
        condition of payment, Contractor may require subcontractors and
        out-of-plan providers to provide Encounter-level data to Contractor that
        meets the same standards required for Contractor to comply with this
        section. Contractor shall submit

        Encounter-level data to DHS on a monthly basis, no later than ninety
        (90) days following the end of the reporting month in which the
        Encounter occurred, in the form and manner specified in DHS' most recent
        Managed Care Data Element Dictionary. Encounter-level data received and
        processed by Contractor too late to be submitted timely, shall be
        submitted to DHS with the next monthly submission. Encounter-level data
        shall include data elements specified in DHS' most recent Managed Care
        Data Element Dictionary.

                                       67



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

        6.4.3       MIS/DATA CORRESPONDENCE

        Contractor shall ensure, that upon written notice by DHS of any problems
        related to the submittal of data or any changes or clarifications
        related to Contractor's MIS system, that Contractor shall submit to DHS
        a Corrective Action Plan with measurable benchmarks within thirty (30)
        calendar days from the date of the postmark of DHS' written notice to
        Contractor. Within thirty (30) days of DHS' receipt of Contractor's
        Corrective Action Plan, DHS shall approve the Corrective Action Plan or
        request revisions. Within fifteen (15) days after receipt of a request
        for revisions to the Corrective Action Plan, Contractor shall submit a
        revised Corrective Action Plan for DHS approval.

        6.4.4       TIMELY, COMPLETE AND ACCURATE DATA SUBMISSION

        Contractor shall ensure that the Encounter-level data submitted to DHS
        are complete, accurate, and timely and in compliance with the
        requirements of DHS' most recent Managed Care Data Element Dictionary.

        Upon written notice by DHS that Encounter-level data is insufficient or
        inaccurate, Contractor shall ensure that corrected data is resubmitted
        within fifteen (15) days of receipt of DHS' notice. Upon Contractor's
        written request, DHS may provide a written extension of the time to
        resubmit corrected Encounter-level data.

94.     Article VI, SCOPE OF WORK, Section 6.5.3.3, Standards and Guidelines,
        subsection A, is amended to read:

        A.   Pediatric:

             Periodic health screen schedule based on the most recent
             recommendations of the American Academy of Pediatrics (AAP).
             Immunization schedule based on recommendations of either the
             Advisory Committee on Immunization Practices or the AAP shall be
             acceptable.

95.     Article VI, SCOPE OF WORK, Section 6.5.3.4, Quality Indicators, is
        amended to read:

        6.5.3.4     QUALITY INDICATORS

        To the extent feasible and appropriate, Contractor shall use the most
        recent HEDIS indicators for the required Quality of Care studies
        indicated in Section 6.5.3.2, Quality of Care Studies. The HEDIS
        indicators selected for use by Contractor shall be approved by DHS.

                                       68



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

96.     Article VI, SCOPE OF WORK, Section 6.5.5.2, Facility Review Procedures,
        subsection O, is amended to read:

        6.5.5.2     REVIEW PROCEDURES

        O.   Informed consent procedures.

97.     Article VI, SCOPE OF WORK, Section 6.5.5.3, Number of Sites to be
        Reviewed Prior to Operations, is amended to read:

        6.5.5.3     NUMBER OF SITES TO BE REVIEWED PRIOR TO OPERATIONS

        Contractor shall ensure that Facility reviews are completed on thirty
        (30) sites or a five (5) percent sample of the total number of Primary
        Care sites, whichever is less, prior to initiating plan operation or new
        site expansion. Contractors with 30 sites or less, or who are expanding
        by 30 sites or less, shall complete Facility reviews on all sites prior
        to initiating operation. A Contractor with NCQA accreditation is
        exempted from this requirement.

        Contractor shall submit the results of pre-operational and expansion
        site reviews to DHS at least six (6) weeks prior to plan or site
        operation. For pre-operational site reviews, Contractor shall submit the
        Primary Care Facility Identification form, the facility checklist, and
        any corrective actions and follow-up. For expansion site reviews,
        Contractor shall submit an aggregate report of the review results
        without the Primary Care Facility Identification form or facility
        checklist.

98.     Article VI, SCOPE OF WORK, Section 6.5.5.5, DHS Facility Inspections, is
        amended to read:

        6.5.5.5     FACILITY INSPECTIONS

        Contractor shall provide any necessary assistance to DHS in its conduct
        of Facility inspections and medical reviews of the Quality of Care being
        provided to Members. Contractor shall ensure correction of deficiencies
        as identified by those inspections and reviews according to the
        timeframes delineated by DHS in the resulting reports.

                                       69



MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

99.     Article VI, SCOPE OF WORK, Section 6.5.5.6, Corrective Actions, is
        amended to read:

        6.5.5.6     CORRECTIVE ACTIONS

        Contractor shall ensure that Primary Care sites with major, uncorrected
        deficiencies are not allowed to begin operation. In the event a Primary
        Care site develops such deficiencies subsequent to the commencement of
        operations, Contractor shall require such site to cease providing
        services to Members; provided that such site may not be required to
        cease providing services in the event DHS and Contractor agree to a plan
        of corrective action to be implemented by the site, and such plan is
        being implemented to the satisfaction of DHS.

100.    Article VI, SCOPE OF WORK, Section 6.5.6.5, Member's Right to
        Confidentiality, subsection (B), is amended to read:

        B.   Contractor shall counsel Members on their right to confidentiality
             and Contractor shall obtain Member's consent prior to release of
             confidential information, unless such consent is not required
             pursuant to Title 22, CCR, Section 51009.

101.    Article VI, SCOPE OF WORK, Section 6.5.7.8, Sensitive Services,
        paragraph one, is amended to read:

        Contractor shall implement and maintain procedures to ensure
        confidentiality and ready access to Sensitive Services for all Members,
        including minors. Members shall be able to access Sensitive Services in
        a timely manner and without barriers such as Prior Authorization
        requirements. Access to abortion services for Members who are minors
        shall be subject to applicable state and federal law.

102.    Article VI, SCOPE OF WORK, Section 6.5.8.4, Member Medical Record,
        sentence one, is amended to read:

        Contractor shall ensure that a complete Medical Record shall be
        maintained for each Member in accordance with Title 22, CCR, Section
        53861, and it shall reflect all aspects of patient care, including
        ancillary services, and at a minimum shall include:

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103.    Article VI, SCOPE OF WORK, is amended by adding a new Section 6.5.10.7,
        Targeted Case Management Services, to read as follows:

        6.5.10.7    TARGETED CASE MANAGEMENT SERVICES

        If a Member is receiving targeted case management services as defined in
        Title 22, CCR, Section 51185(h) and as specified in Title 22, CCR,
        Section 51351, Contractor shall be responsible for coordinating the
        Member's health care with the targeted case management provider and for
        determining the medical necessity of diagnostic and treatment services
        recommended by the targeted case management provider that are Covered
        Services under the Contract.

104.    Article VI, SCOPE OF WORK, Section 6.6.6, Provider to Member Ratios, is
        amended to read:

        6.6.6       PROVIDER TO MEMBER RATIOS

        A.   Contractor shall ensure that networks continuously satisfy the
             following full time equivalent provider to Member ratios:

             1.     Primary Care Physicians             1:2,000
             2.     Total Physicians                    1:1,200

        B.   If Non-Physician Medical Practitioners are included in Contractor's
             provider network, each individual Non-Physician Medical
             Practitioner shall not exceed a full-time equivalent
             provider/patient caseload of one provider per 1,000 patients.

105.    Article VI, SCOPE OF WORK, Section 6.6.7, Physician Supervisor to
        Non-Physician Medical Practitioner Ratios, subsection (D), is amended to
        read:

        D.   Four (4) Non-Physician Medical Practitioners in any combination
             that does not include more than three nurse midwives or two
             physician assistants.

106.    Article VI, SCOPE OF WORK, Section 6.6.8, Subcontracts, is amended to
        read:

        6.6.8       SUBCONTRACTS

        Contractor shall execute Subcontracts pursuant to the requirements
        contained in Article III, Section 3.28, Subcontracts and Title 22, CCR,
        Section 53867.

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107.    Article VI, SCOPE OF WORK, Section 6.6.13, Monthly Report, is amended to
        read:

6.6.13       QUARTERLY REPORT

        Contractor shall submit to DHS on a quarterly basis, in a format
        specified by DHS, a report summarizing changes in the provider network.
        The report shall identify provider deletions and additions and the
        resulting impact to: 1) geographic access for the Members; 2) cultural
        and linguistic services; 3) the targeted percentage of traditional and
        safety-net providers; 4) the ethnic composition of providers; and 5) the
        number of Members assigned to Primary Care Physicians and the percentage
        of Members assigned to traditional and safety-net providers. Contractor
        shall submit the report thirty (30) days following the end of the
        reporting quarter.

108.    Article VI, SCOPE OF WORK, Section 6.6.14, Contract and Employment
        Terminations, is amended to read:

        6.6.14      CONTRACT AND EMPLOYMENT TERMINATIONS

        Contractor shall ensure that the composition of Contractor's provider
        network meets the ethnic, cultural, and linguistic needs of Contractor's
        Members on a continuous basis.

109.    Article VI, SCOPE OF WORK, Section 6.6.15, Utilization of DSH Hospitals,
        is amended to read:

        6.6.15      UTILIZATION OF DSH HOSPITALS

        Contractor shall increase Utilization of Disproportionate Share
        Hospitals (DSH) by Members to a level specified by DHS upon
        notification. DHS shall only impose this requirement if the Utilization
        of DSH has decreased in such magnitude as to jeopardize DSH supplemental
        payments in the county.

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110.    Article VI, SCOPE OF WORK, Section 6.6.17, Emergency Service Providers,
        is amended to read:

        6.6.17      EMERGENCY SERVICE PROVIDERS

        A.   Contractor shall pay for Emergency Services received by a Member
             from non-Contractor providers. Payments to non-Contractor
             providers shall be for the treatment of the Emergency Medical
             Condition including Medically Necessary services rendered to a
             Member until the Member's condition has stabilized sufficiently to
             permit discharge, or referral and transfer in accordance with
             instructions from Contractor. Emergency Services shall not be
             subject to Prior Authorization by Contractor.

        B.   Contractor shall pay for those services provided by a
             non-Contractor emergency department (ED) that are required to
             determine whether treatment of the Member's condition qualifies as
             an Emergency Service, including, at a minimum, a medical screening
             examination to determine the presence or absence of an Emergency
             Medical Condition. At a minimum, Contractor must reimburse the
             non-Contractor ED and, if applicable, its affiliated providers for
             Physician services at the lowest level of evaluation and management
             CPT (Physician's Current Procedural Terminology) codes, unless a
             higher level is clearly supported by documentation, and for the
             Facility fee and diagnostic services such as laboratory and
             radiology.

        C.   Payment by Contractor, or by a subcontractor who is at risk for
             out-of-plan Emergency Services, for properly documented claims for
             services rendered by a non-Contractor provider pursuant to this
             section shall be made in accordance with Article III, Section
             3.28.9, Payment, and shall not exceed the lower of the following
             rates applicable at the time the services were rendered by the
             provider:

             1.     The usual charges made to the general public by the
                    provider.

             2.     The maximum Fee-For-Service rates for similar services under
                    the Medi-Cal program.

             3.     The rate agreed to by Contractor and the provider.

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        D.   For inpatient services, reimbursement by Contractor, or by a
             subcontractor that is at risk for out-of-plan Emergency Services,
             to an out-of-plan Emergency Services provider shall be the lower of
             the following rates applicable to the provider at the time the
             services were rendered by the provider:

             1.     For a provider not contracting with the State under the
                    Selected Provider Contracting Program, the lower of:

                    a.      The Medi-Cal Fee-For-Service rate that would be
                            received by the provider if the service were
                            provided for a beneficiary under the Medi-Cal
                            Fee-For-Service program; or

                    b.      The inpatient rate negotiated by Contractor or
                            subcontractor with the provider.

             2.     For a provider contracting with the State under the Selected
                    Provider Contracting Program, the lower of:

                    a.      The average California Medical Assistance Commission
                            (CMAC) rate for the geographic region, referred to
                            as Standard Consolidated Statistical Area, in which
                            the provider is located, for the last year reported,
                            as published in the most recent CMAC Annual Report
                            to the Legislature; or

                    b.      The inpatient rate negotiated by Contractor or
                            subcontractor with the provider.

        E.   Disputed Emergency Services claims may be submitted to DHS for
             resolution under the provisions of Section 14454, W&I Code and
             Title 22, CCR, Section 53875. Contractor agrees to abide by the
             findings of DHS in such cases, to promptly reimburse the
             non-Contractor provider within 30 days of the effective date of a
             decision that Contractor is liable for payment of a claim and to
             provide proof of reimbursement in such form as the Director may
             require. Failure to reimburse the non-Contractor provider and
             provide proof of reimbursement to DHS within 30 days shall result
             in liability offsets in accordance with Title 22, CCR, Section
             53875.

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111.    Article VI, SCOPE OF WORK, Section 6.6.20, FQHC Services, paragraph one,
        is amended to read as follows:

        6.6.20      FQHC SERVICES

        Contractor shall meet federal requirements for access and reimbursement
        for FQHC services, including those in 42 United States Code Section 1396
        b(m) and Medicaid Regional Memorandum 93-13. If FQHC services are not
        available in the provider network of either Medi-Cal managed care
        contractor in the county, Contractor shall reimburse FQHCs for services
        provided out-of-plan to Contractor's Members at the interim FQHC rate
        determined by DHS. If FQHC services are not available in Contractor's
        provider network, but are available within DHS' time and distance
        standards for access to Primary Care for Contractor's Members in the
        other Medi-Cal managed care contractor's provider network in the county,
        Contractor shall not be obligated to reimburse FQHCs for services
        provided out-of-plan to Members (unless authorized by Contractor).

112.    Article VI, SCOPE OF WORK, Section 6.6.21, FQHC Subcontracts is amended
        to read:

        6.6.21      FQHC AND RURAL HEALTH CLINICS (RHC) CONTRACTS

        A.   Notwithstanding Article III, Section 3.28.4, Department Approval -
             Federally Qualified HMOs, Contractor shall not enter into any
             contract with an FQHC or RHC for provision of Covered Services to
             Members without prior written approval by DHS. All contracts with
             FQHCs or RHCs shall provide reimbursement to the FQHC or RHC on the
             basis of each center's or clinic's Medi-Cal interim per visit rate,
             applicable on the date the reimbursable services were provided, as
             established by DHS, unless:

             1.     DHS has approved in writing an alternate reimbursement
                    methodology; or

             2.     The FQHC or RHC agrees to be reimbursed on an at-risk basis
                    and such agreement is contained in the contract with the
                    center or clinic. In contracts where a negotiated rate is
                    agreed to as total payment, the contract shall state that
                    such payment constitutes total payment to the entity.

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        B.   To the extent that Indian Health Service facilities qualify as
             FQHCs or RHCs, the same reimbursement requirements shall apply to
             contracts with Indian Health Service facilities.

113.    Article VI, SCOPE OF WORK, Section 6.6.22, Indian Health Service
        Facilities, is amended to read:

        6.6.22      INDIAN HEALTH SERVICES FACILITIES

        Contractor shall reimburse out-of-plan Indian Health Service Facilities
        for services provided to Members who are qualified to receive services
        from an Indian Health Service Facility. Contractor shall reimburse the
        out-of-plan Indian Health Service Facility at the approved Medi-Cal rate
        for that Facility.

        The contract requirements in Section 6.6.21, FQHC and Rural Health
        Clinic Contracts, shall apply to any Indian Health Service Facility
        which is also an FQHC or RHC.

114.    Article VI, SCOPE OF WORK, Section 6.7.1.1, General Requirements, is
        amended to read:

        6.7.1.1     GENERAL REQUIREMENTS

        Contractor shall provide or arrange for all Medically Necessary Covered
        Services for Members. Covered Services are those services set forth in
        Title 22, CCR, Chapter 3, Article 4, beginning with Section 51301, and
        Title 17, CCR, Division 1, Chapter 4, Subchapter 13, beginning with
        Section 6840, unless otherwise specifically excluded under the terms of
        this Contract. Contractor shall ensure that the medical necessity of
        Covered Services is determined through Utilization control procedures
        established in accordance with Sections 6.5.9.3,
        Pre-Authorization/Review Procedures, and 6.5.9.4, Exceptions to Prior
        Authorization Requirement, unless specific Utilization control
        requirements are included as terms of the Contract under sections
        applicable to specific services. However, no Utilization control
        procedure, or any other policy or procedure used by Contractor, shall
        limit services Contractor is required to provide under this Contract.

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115.    Article VI, SCOPE OF SERVICES, Section 6.7.2.2, Waiver Programs, is
        amended to read:

        6.7.2.2     WAIVER PROGRAMS

        Contractor shall maintain systems for identifying and referring Members
        to the appropriate waiver program, including the In-Home Medical Care
        Waiver Program, the Skilled Nursing Facility Waiver Program, the Model
        Waiver Program, the Acquired Immune Deficiency (AIDS) and AIDS Related
        Conditions Waiver Program, and the Multipurpose Senior Services Waiver
        Program. If the agency administering the waiver program concurs with
        Contractor's assessment of the Member and there is available placement
        in the waiver program, Contractor shall initiate Disenrollment for the
        Member. Contractor shall provide documentation to ensure the Member's
        orderly transfer to the Medi-Cal Fee-For-Service program. If the Member
        does not meet the criteria for the waiver program, or if placement is
        not available, Contractor shall continue to case manage and provide all
        Medically Necessary Covered Sservices to the Member.

116.    Article VI, SCOPE OF WORK, Section 6.7.3.1, Miscellaneous Service Carve
        Outs, is amended to read:

        6.7.3.1     MISCELLANEOUS SERVICE CARVE OUTS

        Acupuncture services, adult day health care services, chiropractic
        services, and healing by prayer or spiritual means are not Covered
        Services under this Contract. Contractor may, upon request, refer
        Members to these services.

        Local Education Agency (LEA) assessment services provided to any student
        and any LEA services provided pursuant to an Individual Education Plan
        (IEP) or Individual Family Service Plan (IFSP) or Individualized Health
        and Support Plan (IHSP) are not covered under the Contract.

        Childhood lead poisoning case management is not a Covered Service under
        this Contract. Laboratories subcontracting with Contractor shall refer
        Members with elevated blood lead levels to the Childhood Lead Poisoning
        Prevention Branch of DHS which, in turn, shall provide this information
        to the Local Health Department. The Local Health Department shall
        coordinate case information and care with the Primary Care Physician.

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117.    Article VI, SCOPE OF WORK, Section 6.7.3.2, CCS Services, is amended to
        read:

        6.7.3.2     CALIFORNIA CHILDREN SERVICES (CCS)

        A.   Contractor shall develop and implement written policies and
             procedures for identifying and referring children with CCS-eligible
             conditions to the local CCS program. The policies and procedures
             shall include, but not be limited to:

             1.     Policies and operational controls that assure that
                    Contractor's providers perform appropriate baseline health
                    assessments and diagnostic evaluations that provide
                    sufficient clinical detail to establish, or raise a
                    reasonable suspicion, that a Member child has a CCS-eligible
                    medical condition;

             2.     Procedures for assuring that Contracting Providers are
                    informed about CCS-paneled providers and CCS-approved
                    hospitals within Contractor's network; and

             3.     Procedures for initial referrals of Member children with
                    CCS-eligible conditions to the local CCS program by
                    telephone, same-day mail or FAX, if available. The initial
                    referral shall be followed by submission of supporting
                    medical documentation sufficient to allow for eligibility
                    determination by the local CCS program.

             4.     Procedures that provide for continuity of care between
                    Contractor's providers and CCS providers for Member children
                    determined eligible for the CCS program.

        B.   Contractor shall consult and coordinate CCS referral activities
             with the local CCS program in accordance with the agreement reached
             under a Memorandum of Agreement (MOA) between Contractor and LHD
             for coordination of CCS services.

        C.   Contractor shall continue to provide all Medically Necessary
             Covered Services and case management services for Member children
             referred to CCS until eligibility for the CCS program is
             established. Eligibility for the CCS program includes confirmation
             by the local CCS program of a Member child's CCS-eligible condition
             and agreement by the local CCS program to assume case management
             responsibilities for the Member child.

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        D.   Once eligibility for the CCS program is established for a Member
             child:

             1.     Contractor shall continue to provide Primary Care and other
                    Medically Necessary Covered Services unrelated to the
                    CCS-eligible condition and will ensure the coordination of
                    services between its Primary Care providers, the CCS
                    specialty providers, and the local CCS program.

             2.     The CCS program shall authorize Medi-Cal payments to
                    Contractor network physicians who currently are members of
                    the CCS panel and to other providers who provided
                    CCS-covered services to the Member child during the
                    CCS-eligibility determination period and are determined to
                    meet the CCS standards in accordance with subsection E.
                    Authorization for payment shall be retroactive to the date
                    the CCS program was informed about the Member child through
                    an initial referral by Contractor or a Contractor network
                    physician, via telephone, FAX, or mail. In an emergency
                    admission, Contractor or Contractor network physician shall
                    be allowed until the next business day to inform the CCS
                    program about the Member child. Authorization shall be
                    issued upon confirmation of panel status or completion of
                    the process described in subsection E. Payment shall be
                    dependent on the submittal of appropriately completed and
                    timely claims to the local CCS program, which authorizes
                    care. Claims authorized by the local CCS program shall be
                    forwarded to the Medi-Cal Fee-For-Service program fiscal
                    intermediary for payment.

        E    A board-certified physician who is a member of Contractor's
             provider network shall be determined to meet the CCS standards for
             participation as a CCS provider and shall be added to the CCS panel
             when all the following conditions are met:

             1.     The physician has successfully met Contractor's
                    Credentialing standards;

             2.     The physician meets the CCS certification standards in
                    accordance with Title 22, CCR, Sections 42320, 42321, 42336;

             3.     Contractor has submitted to the CCS program either a
                    completed provider Credentialing application form used by
                    Contractor or the information continued in lines one through
                    five of the CCS Panel Application Form, extracted from
                    Contractor's provider Credentialing application form for the
                    physician;

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             4.     Contractor has submitted to the CCS program a signed and
                    dated CCS Panel Application Form with the Medi-Cal provider
                    number for the physician.

        For a physician who is board-eligible at the time of completion of
        Contractor's Credentialing application, Contractor must submit a
        completed provider Credentialing application form and a signed and dated
        CCS Panel Application Form, including the provider's Medi-Cal number.

        The application of such a physician to the CCS panel will be retroactive
        to the extent necessary to enable the physician to receive payment for
        services on or after the date the CCS program was informed about the
        Member child, as provided in subsection D.2.

118.    Article VI, SCOPE OF WORK, Section 6.7.3.3, Mental Health, is amended to
        read:

        6.7.3.3     MENTAL HEALTH

        All Specialty Mental Health Services (inpatient and outpatient) are
        excluded from the Contract.

        A.   Contractor shall provide outpatient mental health services within
             the Primary Care Physician's scope of practice. Contractor shall
             provide assistance to Members needing Specialty Mental Health
             Services by referring such Members, whose mental health diagnosis
             is covered by the local Medi-Cal mental health plan or whose
             diagnosis is uncertain, to the local Medi-Cal mental health plan,
             if operational. If the Medi-Cal mental health plan is not
             operational or if the Member's diagnosis is not covered by the
             local Medi-Cal mental health plan, Contractor shall refer such
             Members to an appropriate fee-for-service Medi-Cal mental health
             provider accepting Medi-Cal patients, if known to the Contractor,
             or shall refer such Members to the County Mental Health Department,
             or other community resources that may be able to assist the Member
             to locate mental health services, including the local CHDP program,
             regional centers for the developmentally disabled, and provider
             referral services.

        B.   Contractor shall provide Medical Case Management and cover and pay
             for all Medically Necessary Covered Services for the Member,
             including the services listed below, and coordinate services with
             the Specialty Mental Health Provider.

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             1.     Emergency room professional services as described in Title
                    22, CCR, Section 53855, except psychiatrists, psychologists,
                    licensed clinical social workers, marriage, family and child
                    counselors, or other Specialty Mental Health Providers;

             2.     Facility charges for emergency room visits which do not
                    result in a psychiatric admission;

             3.     All laboratory, radiological and radioisotope services when
                    these services are necessary for the diagnosis, monitoring,
                    or treatment of a Member's mental health condition.

             4.     Emergency medical transportation services necessary to
                    provide access to all Medi-Cal covered services, including
                    emergency mental health services, as described in Title 22,
                    CCR, Section 51323.

             5.     All non-emergency medical transportation services, as
                    provided for in Title 22, CCR, Section 51323, required by
                    Members to access Medi-Cal covered mental health services,
                    subject to a written prescription by a Medi-Cal Specialty
                    Mental Health Provider, except when the transportation is
                    required to transfer the Member from one facility to
                    another, for the purpose of reducing the local Medi-Cal
                    mental health plan's cost of providing services.

             6.     Medically Necessary Covered Services for Members admitted to
                    a psychiatric inpatient hospital, including the initial
                    health history and physical assessment required upon
                    admission and any consultations related to Medically
                    Necessary Covered Services. However, notwithstanding this
                    requirement, Contractor shall not be responsible for room
                    and board charges for psychiatric inpatient hospital stays
                    by Members.

             7.     All Medically Necessary Medi-Cal covered psychotherapeutic
                    drugs for Members not otherwise excluded under this
                    Contract.

                    a.      This includes reimbursement for covered
                            psychotherapeutic drugs prescribed by out-of-plan
                            psychiatrists for Members.

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                    b.      If Contractor requires that covered prescriptions
                            written by out-of-plan psychiatrists be filled by
                            pharmacies in Contractor's provider network,
                            Contractor shall ensure that drugs prescribed by
                            out-of-plan psychiatrists are no less accessible to
                            Members than drugs prescribed by network providers.

                    c.      Reimbursement to pharmacies for those
                            psychotherapeutic drugs listed in Attachment III
                            (consisting of one page), and psychotherapeutic
                            drugs classified as Anti-Psychotics and approved by
                            the FDA after July 1, 1997, shall be made by DHS
                            through the Medi-Cal FFS program, whether these
                            drugs are provided by a pharmacy contracting with
                            Contractor or by an out-of-plan pharmacy provider.
                            To qualify for reimbursement under this provision, a
                            pharmacy must be enrolled as a Medi-Cal provider in
                            the Medi-Cal FFS program.

             8.     Paragraphs 3,5, and 6 shall not be construed to preclude
                    Contractor from: a) requiring that Covered Services be
                    provided through Contractor's provider network or b)
                    applying Utilization controls for these services, including
                    Prior Authorization, consistent with Contractor's obligation
                    to provide Covered Services under this Contract.

        C.   Contractor shall execute a Memorandum of Understanding (MOU), in
             accordance with Section 6.7.9, Local Mental Health Plan
             Coordination, for coordination of Specialty Mental Health Services
             with the local Medi-Cal mental health plan in each county that is
             covered by this Contract.

        D.   Disputes between Contractor and the local Medi-Cal mental health
             plan regarding this section shall be resolved pursuant to Title 9,
             CCR, Section 1850.505. Any decision rendered by DHS and the
             California Department of Mental Health regarding a dispute between
             Contractor and the local Medi-Cal mental health plan concerning
             provision of mental health services or Covered Services required
             under this Contract shall not be subject to the Disputes and
             Appeals procedures specified in Article III, Section 3.22.

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119.    Article VI, SCOPE OF WORK, Section 6.7.3.4, Alcohol and Drug Treatment
        Services, sentence one, is amended to read:

        Alcohol and drug treatment services available under the Short-Doyle Drug
        Medi-Cal program as defined in Title 22, CCR, Section 51341.1 and
        outpatient heroin detoxification as defined in Title 22, CCR, Section
        51328 are excluded from this Contract.

120.    Article VI, SCOPE OF WORK, Section 6.7.3.5, Dental, is amended to read:

        6.7.3.5     DENTAL

        Dental services are not covered under this Contract. Contractor shall
        perform dental screening for all Members as a part of the initial health
        assessment and refer Members to Medi-Cal dental providers. Dental
        screenings for Members under twenty-one (21) years of age shall be
        performed in accordance with the most recent recommendations of the
        American Academy of Pediatrics, as part of the initial health
        assessment. Contractor shall ensure referrals to dental providers.

        Services related to dental services that are covered medical services
        and are not provided by dentists or dental anesthetists, are the
        responsibility of Contractor. Covered medical services include:
        prescription drugs, laboratory services, pre-admission physical
        examinations required for admission to a facility, anesthesia services,
        out-patient surgical center services and in-patient hospitalization
        services required for a dental procedure. Contractor may require Prior
        Authorization for medical services required in support of dental
        procedures.

        Contractor shall develop referral and Prior Authorization policies and
        procedures to implement the above requirements. Contractor shall submit
        these policies and procedures to DHS for review and approval.

121.    Article VI, SCOPE OF WORK, Section 6.7.3.7, Direct Observed Therapy
        (DOT) for Treatment of Tuberculosis, section title only, is amended to
        read:

        6.7.3.7     DIRECTLY OBSERVED THERAPY (DOT) FOR TREATMENT OF
                    TUBERCULOSIS

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122.    Article VI, SCOPE OF WORK, Section 6.7.4.3, School Linked CHDP Services:
        Subcontracts, is amended to read:

        6.7.4.3     SCHOOL LINKED CHDP SERVICES: SUBCONTRACTS

        Contractor shall ensure that the Subcontracts with the local school
        districts or school sites meet the requirements of Article III, Section
        3.28, Subcontracts, and address the following: the population covered,
        beginning and end dates of the agreement, services covered,
        practitioners covered, outreach, information dissemination and
        educational responsibilities, Utilization Review requirements, referral
        procedures, medical information flows, patient information
        confidentiality, Quality Assurance interface, data reporting
        requirements, Grievances and complaint procedures.

123.    Article VI, SCOPE OF WORK, Section 6.7.4.4, Early and Periodic
        Screening, Diagnosis and Treatment (EPSDT) Supplemental Services,
        Excluding Case Management Services, is amended to read:

        6.7.4.4     EARLY AND PERIODIC SCREENING, DIAGNOSIS AND TREATMENT
                    (EPSDT) SUPPLEMENTAL SERVICES, INCLUDING CASE MANAGEMENT
                    SERVICES

        For Members under the age of 21 years, Contractor shall provide or
        arrange and pay for EPSDT supplemental services as defined in Title 22,
        CCR, Section 51184, except when EPSDT supplemental services are provided
        as CCS services pursuant to Section 6.7.3.2, CCS Services, or as mental
        health services pursuant to Section 6.7.3.3, Mental Health. Contractor
        shall determine the medical necessity of EPSDT supplemental services
        using the criteria established in Title 22, CCR, Sections 51340 and
        51340.1.

        For Members under the age of 21 years, who meet the medical necessity
        criteria for EPSDT case management, pursuant to Title 22, CCR, Section
        51340(f), Contractor shall refer the Member to a targeted case
        management (TCM) provider under contract with a local government agency
        pursuant to Welfare and Institutions Code Section 14132.44 or to
        entities and organizations, including Regional Centers, that provide TCM
        services pursuant to Welfare and Institutions Code Section 14132.48. If
        EPSDT case management services are rendered by these referral providers,
        Contractor is not required to pay for the EPSDT case management
        services. If EPSDT case management services are not available from these
        referral providers, Contractor shall provide or arrange and pay for the
        EPSDT case management services.

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124.    Article VI, SCOPE OF WORK, Section 6.7.4.7, Family Planning:
        Out-of-Network Reimbursement, is amended to read:

        6.7.4.7     FAMILY PLANNING: OUT-OF-NETWORK REIMBURSEMENT

        Contractor shall reimburse out-of-network family planning providers for
        the following services provided to Members of childbearing age to
        temporarily or permanently prevent or delay pregnancy:

        A.   Health education and counseling necessary to make informed choices
             and understand contraceptive methods.

        B.   Limited history and physical examination.

        C.   Laboratory tests if medically indicated as part of decision making
             process for choice of contraceptive methods. Contractor shall not
             be required to reimburse out-of-plan providers for pap smears if
             Contractor has provided pap smears to meet the U.S. Preventive
             Services Task Force guidelines.

        D.   Diagnosis and treatment of STD disease episode, as defined by DHS
             for each STD, if medically indicated.

        E.   Screening, testing and counseling of at risk individuals for HIV
             and referral for treatment.

        F.   Follow-up care for complications associated with contraceptive
             methods provided or prescribed by the family planning provider.

        G.   Provision of contraceptive pills, devices, supplies.

        H.   Tubal ligation.

        I.   Vasectomies.

        J.   Pregnancy testing and counseling.

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125.      Article VI, SCOPE OF WORK, Section 6.7.4.8, Family Planning:
          Reimbursement Rate, is amended to read:

          6.7.4.8   FAMILY PLANNING: REIMBURSEMENT RATE

          Contractor shall reimburse out-of-plan family planning providers at
          the appropriate Medi-Cal FFS rate, unless otherwise negotiated with
          the out-of-plan family planning provider.

126.      Article VI, SCOPE OF WORK, Section 6.7.4.9, Sexually Transmitted
          Diseases (STDs), is amended to read:

          6.7.4.9   SEXUALLY TRANSMITTED DISEASES (STDS)

          Contractor shall provide access to STD services without Prior
          Authorization to all Members both within and outside its provider
          network. Members may access out-of-plan STD services through local
          health department (LHD) clinics, family planning clinics, or- through
          other community STD service providers. LHD and family planning
          providers shall be reimbursed for STD services pursuant to Sections
          6.7.8.1, Subcontract, and 6.7.4.7, Family Planning: Out-Of-Network
          Reimbursement. For community providers other than LHD and family
          planning providers, the reimbursement of out-of-plan STD services is
          limited to one office visit per disease episode for the purposes of:
          (1) diagnosis and treatment of vaginal discharge and urethral
          discharge, (2) those STDs that are amenable to immediate diagnosis and
          treatment, and this includes syphilis, gonorrhea, chlamydia, herpes
          simplex, chancroid, Trichomoniasis, human papilloma virus, non-
          gonococcal urethritis, lymphogranuloma venereum and granuloma
          inguinale and (3) evaluation and treatment of Pelvic Inflammatory
          Disease (PID). Contractor shall provide follow-up care. Contractor
          shall reimburse STD providers at the Medi-Cal Fee-For-Service (FFS)
          rate, unless otherwise negotiated, and Contractor shall provide
          reimbursement only if STD treatment providers provide treatment
          records or documentation of the Member's refusal to release Medical
          Records to Contractor along with billing information.

127.      Article VI, SCOPE OF WORK, Section 6.7.4.10, Early Intervention
          Services, sentence one, is amended to read:

          Contractor shall refer to the local Early Start program those children
          in need of early intervention services, e.g., those with an
          established condition leading to developmental delay, those in whom a
          significant developmental delay is suspected, or those whose early
          health history places them at risk for delay.

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128.      Article VI, SCOPE OF WORK, Section 6.7.4.14, Nurse Midwife Services,
          is amended to read:

          6.7.4.14  NURSE MIDWIFE AND NURSE PRACTITIONER SERVICES

          Contractor shall meet federal requirements for access and
          reimbursement for Certified Nurse Midwife (CNM) services as defined in
          Title 22, CCR, Section 51345 and Certified Nurse Practitioner (CNP)
          services as defined in Title 22, CCR, Section 51345.1. If Members do
          not have access to CNM or CNP services within the provider network of
          either Medi-Cal managed care contractor in the county, Contractor
          shall inform Members that they have a right to obtain out-of-plan CNM
          or CNP services, and Contractor shall reimburse CNMs or CNPs for
          services provided out-of-plan to Members at the applicable Medi-Cal
          Fee-For-Service rates. If CNM services are unavailable in Contractor's
          provider network, but are available within DHS' time and distance
          standards for access to Primary Care in the other Medi-Cal managed
          care contractor's provider network in the county, Contractor shall not
          be obligated to reimburse CNMs for services provided out-of-plan to
          Members (unless authorized by Contractor). (This provision shall apply
          equally to CNP services.)

          Notwithstanding the above paragraph, for Emergency Services and family
          planning, the provisions of Sections 6.6.16, Emergency Service
          Providers, 6.7.4.5, Family Planning: General Requirement, and 6.7.4.8,
          Family Planning: Reimbursement Rate, shall apply.

129.      Article VI, SCOPE OF WORK, Section 6.7.6.1, Initial Health Assessment,
          sentence three, is amended to read:

          For Members under the age of 21 years, the assessment shall follow the
          applicable requirements of Health and Safety Code, Section 124025, et
          seq., and Title 17, Sections 6840 through 6850, except that Contractor
          shall follow the most recent periodicity schedule recommended by the
          American Academy of Pediatrics.

130.      Article VI, SCOPE OF WORK, Section 6.7.6.2, Children, paragraph one,
          is amended to read:

          Contractor shall maintain and operate a system which ensures the
          provision of CHDP services to Members under the age of 21 years in
          accordance with the applicable provisions of the Health and Safety
          Code, Section 124025, et seq., and Title 17, CCR, Sections 6840
          through 6850. The system shall include the following components:

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131.      Article VI, SCOPE OF WORK, Section 6.7.6.3, Pregnant Women: Minimum
          Standards, sentence two, is amended to read:

          Contractor shall develop and implement standardized risk assessment
          tools which are consistent with Comprehensive Perinatal Services
          Program (CPSP) requirements set forth in Title 22, CCR, Sections 51348
          and 51348.1.

132.      Article VI, SCOPE OF WORK, Section 6.7.7.3, Behavioral Assessments, is
          amended to read:

          6.7.7.3   INDIVIDUAL HEALTH EDUCATION BEHAVIORAL ASSESSMENTS

          Contractor shall ensure that individual health education behavioral
          assessments are conducted on all Members within 120 days of Enrollment
          to determine health practices, values, behaviors, knowledge,
          attitudes, cultural practices, beliefs, literacy levels, and health
          education needs. Upon Contractor's written request, DHS may, at its
          discretion, delay Contractor implementation of this requirement. DHS
          shall approve any such request in writing. DHS may terminate any
          approved delay in implementation thirty (30) days after DHS' notice to
          Contractor of intent to terminate.

133.      Article VI, SCOPE OF WORK, Section 6.7.7.7, Group Needs Assessment, is
          amended to read:

          6.7.7.7   GROUP NEEDS ASSESSMENT

          Contractor shall conduct a group needs assessment of its Members to
          determine health education needs, including literacy level. Contractor
          shall submit to DHS a report summarizing the methodology, findings,
          proposed services, key activities, timeline for implementation, and
          the responsible individuals. Contractor shall complete the needs
          assessment and submit the report to DHS between twelve (12) and
          eighteen (18) months after the commencement of operations under this
          Contract.

134.      Article VI, SCOPE OF WORK, Section 6.7.8.1, Subcontract, paragraph 1,
          is amended to read:

          Contractor shall execute a Subcontract for the specified public health
          services with the Local Health Department (LHD) in each county that is
          covered by this Contract. The Subcontract shall specify the scope and
          responsibilities of both parties, billing and reimbursements,
          reporting responsibilities, and Medical Record management to ensure
          coordinated health care services. The Subcontract shall meet the
          requirements contained

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          in Article III, Sections 3.28, Subcontracts, through 3.28.8,
          Disclosures. The specified public health services under the
          Subcontract are as follows:

135.      Article VI, SCOPE OF WORK, Section 6.7.8.1, Subcontracts, subsection
          (B), is amended to read:

          B.   STD services for the disease episode, as defined by DHS for each
               STD, including diagnosis and treatment of the following STDs:
               syphilis, gonorrhea, chlamydia, herpes simplex, chancroid,
               trichomoniasis, human papilloma virus, non-gonococcal urethritis,
               lymphogranuloma venereum and granuloma inguinale.

136.      Article VI, SCOPE OF WORK, Section 6.7.8.1, Subcontracts, subsection
          (H), is amended to read:

          H.   Tuberculosis Directly Observed Therapy

137.      Article VI, SCOPE OF WORK, is amended by adding a new Section 6.7.9 to
          read:

          6.7.9.    LOCAL MENTAL HEALTH PLAN COORDINATION

          6.7.9.1   MEMORANDUM OF UNDERSTANDING

          A.   Contractor shall negotiate in good faith and execute a Memorandum
               of Understanding (MOU) with the local mental health plan (MHP).
               The MOU shall specify, consistent with this Contract, the
               respective responsibilities of Contractor and the MHP in
               delivering Medically Necessary Covered Services and Specialty
               Mental Health Services to Members. The MOU shall address:

               1.   Protocols and procedures for referrals between Contractor
                    and the MHP;

               2.   Protocols for the delivery of Specialty Mental Health
                    Services, including the MHP's provision of clinical
                    consultation to Contractor for Members being treated by
                    Contractor for mental illness;

               3.   Protocols for the delivery of mental health services within
                    the Primary Care Physician's scope of practice;

               4.   Protocols and procedures for the exchange of Medical Records
                    information, including procedures for maintaining the
                    confidentiality of Medical Records;

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               5.   Procedures for the delivery of Medically Necessary Covered
                    Services to Members who require Specialty Mental Health
                    Services, including:

                    a.   Pharmaceutical services and prescription drugs;

                    b.   Laboratory, radiological and radioisotope services;

                    c.   Emergency room facility charges and professional
                         services;

                    d.   Emergency and non-emergency medical transportation;

                    e.   Home health services;

                    f.   Medically Necessary Covered Services to Members who are
                         patients in psychiatric inpatient hospitals.

               6.   Procedures for transfers between inpatient psychiatric
                    services and inpatient medical services to address changes
                    in a Member's medical or mental health condition.

               7.   Procedures to resolve disputes between Contractor and the
                    MHP.

          B.   To the extent Contractor does not execute an MOU within four (4)
               months after implementation of the Medi-Cal Specialty Mental
               Health Services Consolidation program in the area being served by
               this Contract, Contractor shall submit documentation
               substantiating its good faith efforts to enter into an MOU. Until
               such time as an MOU is executed, Contractor shall submit monthly
               reports to DHS documenting its continuing good faith efforts to
               execute an MOU and the justifications why such an MOU has not
               been executed.

138.      Article VI, SCOPE OF WORK, Section 6.8.1, Marketing Representatives,
          paragraph one, sentence one, is amended to read:

          Contractor shall ensure, in addition to compliance with the
          requirements of Title 22, CCR, Section 53880, that:

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MOLINA MEDICAL CENTERS, INC.                                        95-23637-A03

139.      Article VI, SCOPE OF WORK, Section 6.8.6, Marketing Plan, is amended
          to read:

          6.8.6     MARKETING PLAN

          Contractor shall implement and maintain a Marketing plan approved by
          DHS. Door to door Marketing is prohibited.

140.      Article VI, SCOPE OF WORK, Section 6.9.3, Disclosure Forms, is amended
          to read:

          6.9.3     DISCLOSURE FORMS

          Contractor shall provide to all Members the Evidence of Coverage and
          Disclosure Form materials which constitute a fair disclosure of the
          provisions of the covered health care services.

141.      Article VI, SCOPE OF WORK, Section 6.9.5, Membership Services Guide,
          is amended to read:

          6.9.5     MEMBERSHIP SERVICES GUIDE

          Contractor shall develop and distribute a Membership Services Guide
          that includes the following information:

          A.   The name, address and telephone number of the health plan.

          B.   A description of the full scope of Medi-Cal covered benefits and
               all available services including health education, interpretive
               services, and "carve out" services and an explanation of any
               service limitations and exclusions from coverage or charges for
               services.

          C.   Procedures for obtaining Covered Services including the address
               and telephone number of each Service Site (locations of
               hospitals, Primary Care Physicians, optometrists, psychologists,
               pharmacies, Skilled Nursing Facilities, Urgent Care Facilities).
               In the case of a medical foundation or independent practice
               association, the address and telephone number of each Physician
               provider.

               1.   The hours and days when each of these Facilities is open,
                    the services and benefits available, and the telephone
                    number to call after normal business hours.

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          D.   Procedures for selecting or requesting a change in Primary Care
               Physician, including requirements for a change in PCP; reasons
               for which a request may be denied; and reasons why a provider may
               request a change.

          E.   The purpose and value of scheduling an initial health assessment
               appointment.

          F.   The appropriate use of health care services in a managed care
               system.

          G.   The availability and procedures for obtaining after hours
               services (24-hour basis) and care, including the appropriate
               provider locations and telephone numbers.

          H.   Procedure for obtaining emergency health care both within and
               outside Contractor's Service Area.

          I.   Process for referral to specialists.

          J.   Procedures for obtaining any non-medical transportation services
               offered by Contractor and through the local CHDP programs, and
               how to obtain such services.

          K.   The causes for which a Member shall lose entitlement to receive
               services under this Contract. (See Article III, Section 3.23.5,
               Disenrollment)

          L.   Procedures for filing a complaint/Grievance, including procedures
               for appealing decisions regarding Member's coverage, benefits, or
               relationship to the organization. Include the title, address, and
               telephone number of the person responsible for processing and
               resolving complaints/Grievances.

          M.   Procedures for Disenrollment, including an explanation of the
               Member's right to disenroll without cause at any time, subject to
               any restricted disenrollment period.

          N.   Information on the Member's right to the Medi-Cal fair hearing
               process, regardless of whether or not a complaint/Grievance has
               been submitted or if the complaint/Grievance has been resolved,
               pursuant to Title 22, CCR, Section 53452, when a health care
               service requested by the Member or provider has been denied,
               deferred or modified. The State Department of Social Services'
               Public Inquiry and Response Unit toll free telephone number (800)
               952-5253.

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          O.   Information on the availability of, and procedures for obtaining,
               services at FQHCs and Indian Health Clinics.

          P.   Information on the Member's right to seek family planning
               services from any qualified provider of family planning services
               under the Medi-Cal program, including providers outside
               Contractor's provider network, and a description of those
               services, such as the following statement:

               " Family planning services are provided to Members of child
               bearing age to enable them to determine the number and spacing of
               children. These services include all methods of birth control
               approved by the Federal Food and Drug Administration. As a
               Member, you pick a doctor who is located near you and will give
               you the services you need. Our Primary Care Physicians and OB/GYN
               specialists are available for family planning services. For
               family planning services, you may also pick a doctor or clinic
               not connected with Molina Medical Centers, Inc. without having to
               get permission from Molina Medical Centers, Inc. Molina Medical
               Centers, Inc. shall pay that doctor or clinic for the family
               planning services you get".

          Q.   DHS' Office of Family Planning's toll free telephone number
               (1-800-942-1054) providing consultation and referral to family
               planning clinics.

          R.   Any other information determined by DHS to be essential for the
               proper receipt of Covered Services.

          S.   Information on the availability of, and procedures for obtaining,
               Certified Nurse Midwife and Certified Nurse Practitioner
               services, pursuant to Section 6.7.4.14, Nurse Midwife and Nurse
               Practitioner Services.

          T.   Information on the availability of transitional Medi-Cal
               eligibility and how the Member may apply for this program.
               Contractor shall include this information with all Membership
               Service Guides sent to Members after the date such information is
               furnished to Contractor by DHS.

          U.   Information on how to access State resources for investigation
               and resolution of Member complaints, including the DHS Medi-Cal
               Managed Care Ombudsman toll-free telephone number
               (1-888-452-8609) and the DOC HMO Consumer Service toll-free
               telephone number (1-800-400-0815).

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          V.   Information concerning the provision and availability of services
               covered under the CCS program from providers outside Contractor's
               provider network and how to access these services.

          W.   An explanation of the expedited disenrollment process for
               children receiving services under the Foster Care or Adoption
               Assistance Programs; Members with special health care needs,
               including, but not limited to major organ transplants; and
               Members already enrolled in another Medi-Cal, Medicare or
               commercial managed care plan.

          X.   Information on how to obtain Minor Consent Services through
               Contractor's plan, and an explanation of those services.

          Y.   A brief explanation on how to use the fee-for-service system when
               Medi-Cal covered services are excluded or limited under this
               Contract and how to obtain additional information.

          Z.   An explanation of an American Indian Member's right to access
               Indian Health Service facilities and to disenroll from
               Contractor's plan at any time, without cause.

          AA.  Subsections S through Z above, except subsection T, shall be
               included in Contractor's Membership Services Guide by April
               1,1999, or upon the next reprinting of Contractor's Membership
               Services Guide, whichever is sooner.

142.      Article VI SCOPE OF WORK, Section 6.9.9, Primary Care Physician
          Selection, is amended to read:

          6.9.9     PRIMARY CARE PHYSICIAN SELECTION

          Contractor shall implement and maintain DHS approved procedures to
          ensure that each new Member has an appropriate and available Primary
          Care Physician. Contractor shall provide each new Member an
          opportunity to select a Primary Care Physician within the first thirty
          (30) days of Enrollment. If Contractor's provider network includes
          nurse practitioners or certified nurse midwives, the Member may select
          a nurse practitioner or certified nurse midwife within thirty (30)
          days of enrollment to provide Primary Care services. Contractor shall
          ensure that Members are allowed to change a Primary Care Physician,
          nurse practitioner or certified nurse midwife, upon request, by
          selecting a different Primary Care Provider from Contractor's network
          of providers. Contractor shall

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          provide the Member sufficient information (verbal and written) in the
          appropriate language and reading level about the selection process and
          the available providers in the network, including certified nurse
          midwives and certified nurse practitioners, to ensure their ability to
          make an informed decision.

143.      Article VI, SCOPE OF WORK, Section 6.9.10, Primary Care Physician
          Assignment, is amended to read:

          6.9.10    PRIMARY CARE PHYSICIAN ASSIGNMENT

          If the Member does not select a Primary Care Physician, nurse
          practitioner, or certified nurse midwife within thirty (30) days of
          the effective date of Enrollment, Contractor shall assign that Member
          to a Primary Care Physician and notify the Member and the assigned
          Primary Care Physician no later than forty (40) days after the
          Member's Enrollment. In all cases where a nurse practitioner or a
          certified nurse midwife is a Member's selected Primary Care Provider,
          Contractor shall assure that an individual Primary Care Physician is
          responsible for the overall coordination of the Member's health care,
          consistent with applicable State and federal laws and regulations.
          Contractor shall ensure that adverse selection does not occur during
          the assignment process of Members to providers.

144.      Article VI, SCOPE OF WORK, Section 6.9.11, Continuity of Care, is
          amended to read:

          6.9.11    CONTINUITY OF CARE

          Contractor shall ensure that Members with an established relationship
          with a provider in Contractor's network, who have expressed a desire
          to continue their patient/provider relationship, are assigned to that
          provider without disruption in their care.

145.      Article VI, SCOPE OF WORK, Section 6.9.13, Member Complaint/Grievance
          System, is amended to read:

          6.9.13    MEMBER COMPLAINT/GRIEVANCE SYSTEM

          Contractor shall implement and maintain a Member complaint/Grievance
          system in accordance with Title 10, CCR, Section 1300.68, except
          subsection 1300.68(g), and Title 22, CCR, Section 53858.

          A.   Contractor shall acknowledge receipt of a complaint within 5
               days. The written acknowledgement shall also notify the
               complainant of a person at the plan who may be contacted
               regarding the complaint.

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          B.   Contractor shall resolve the complaint within 30 days of receipt
               or document reasonable efforts to resolve the complaint within
               thirty (30) days of receipt.

146.      Article VI, SCOPE OF WORK, Section 6.9.14, Disenrollments, is deleted.

147.      Article VI, SCOPE OF WORK, Section 6.9.15, Denial, Deferral, or
          Modification of Prior Authorization Requests, is renumbered and
          amended to read:

          6.9.15    DENIAL, DEFERRAL, OR MODIFICATION OF PRIOR AUTHORIZATION
                    REQUESTS

          A.   Contractor shall notify Members of denial, deferral, or
               modification of requests for Prior Authorization, in accordance
               with Title 22, CCR, Sections 51014.1 and 53894 by providing
               written notification to Members and/or their authorized
               representative, regarding any denial, deferral or modification of
               a request for approval to provide a health care service. This
               notification must be provided as specified in Title 22, CCR,
               Sections 51014.1, 51014.2, and 53894.

          B.   Contractor shall provide for a written notification to the Member
               and the Member's representative on a standardized form approved
               by DHS, informing the Member of all the following:

               1.   The Member's right to, and method of obtaining, a fair
                    hearing to contest the denial, deferral or modification
                    action.

               2.   The Member's right to represent himself/herself at the fair
                    hearing or to be represented by legal counsel, friend or
                    other spokesperson.

               3.   The name and address of Contractor and the State toll-free
                    telephone number for obtaining information on legal service
                    organizations for representation.

          C.   The notice to the Member may inform the Member that the Member
               may file a complaint/Grievance concerning Contractor's action
               using Contractor's complaint/Grievance process prior to or
               concurrent with the initiation of the fair hearing process.

          D.   Contractor shall provide required notification to beneficiaries
               and the representatives in accordance with the time frames set
               forth in Title 22, CCR, Sections 51014.1 and 53894.

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148.      Article VI, SCOPE OF WORK, Section 6.10.2, Linguistic Services,
          subsection (B), paragraph (3), is amended to read:

          3.   Translated written materials, including the Membership Services
               Guide, enrollee information, welcome packets, and marketing
               information.

149.      Article VI, SCOPE OF WORK, Section 6.10.6, Cultural and Linguistics
          Services Plan, is amended to read:

          6.10.6    CULTURAL AND LINGUISTICS SERVICES PLAN

          Contractor shall ensure that a group needs assessment of Members is
          completed between twelve (12) and eighteen (18) months after the
          commencement of operations under this Contract. This group needs
          assessment shall be conducted in conjunction with the health education
          group needs assessment, described in Section 6.7.7.7, Group Needs
          Assessment, and shall include identification of linguistic and
          cultural needs of the groups which speak a primary language other than
          English.

          The findings of the assessment shall be submitted to DHS in the form
          of a plan entitled "Cultural and Linguistic Services Plan" between
          twelve (12) and eighteen (18) months after commencement of operations
          under this Contract. In the plan, Contractor shall summarize the
          methodology, and findings of the group needs assessment of cultural
          and linguistic needs of non-English-speaking groups, and outline the
          proposed services to be implemented to address the findings of
          cultural and linguistic needs of non-English-speaking Members, the
          timeline for implementation with milestones, and the responsible
          individual.

          Contractor shall ensure implementation of the Cultural and Linguistic
          Services Plan between twelve (12) and eighteen (18) months after the
          commencement of operations under this Contract. Contractor shall also
          identify the individual with overall responsibility for the activities
          to be conducted under the plan. DHS approval of the plan is required
          prior to its implementation.

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150.      Article VI, SCOPE OF WORK, Section 6.11.1, Time Frames, is amended to
          read:

          6.11.1    TIME FRAMES

          Contractor shall submit deliverables within the timeframes specified
          on the Implementation Plan approved by DHS. Compliance with the
          schedule is mandatory unless otherwise approved in writing by DHS.
          (See Article III, Section 3.18, Liquidated Damages Provisions). Unless
          otherwise specified, all completion dates listed for the deliverables
          are calculated from the Contract effective date.

151.      Attachment 1 is amended by adding the following language to the
          capitation rate sheets:

          The State is entering into this capitated Contract as an alternative
          means of paying for medical care for members of the eligible Medi-Cal
          population. The traditional payment method, called Fee-For-Service,
          requires Medi-Cal beneficiaries to find an authorized Medi-Cal
          provider when they are in need of health care. The State reimburses
          these Medi-Cal providers for services rendered, according to an
          established schedule of fees.  Under this capitated Contract, the
          State pays Contractor a monthly fee for each Medi-Cal beneficiary
          enrolled in its prepaid health plan, and Contractor is then
          responsible for providing all medically necessary health care services
          to the beneficiary as required by the Contract.

          The rate development process for this Contract consists of two
          separate calculations. First, a Fee-For-Service equivalent (FFSE) is
          determined for the entire group of Medi-Cal eligibles. Second, rates
          are calculated for each Contract by beneficiary aid code using
          historical Medi-Cal managed care data. The name given this latter
          method is an experienced based methodology. Both the FFSE and
          experience based methodologies use factors which directly influence
          the cost of providing health care to Medi-Cal beneficiaries. These
          factors are age, sex, geographic area with price indices, Medi-Cal aid
          code, and eligibility for Medicare. The rate methodologies also employ
          adjustments for changes that are likely to occur during the term of
          the Contract. These adjustments include fee, benefit, or policy
          changes to reflect changes to the Medi-Cal program that are mandated
          each year by the State Legislature and the use of a trend factor to
          project costs to the term of the Contract.

          Actuaries employed by the Department of Health Services conduct the
          rate development process for this Contract. This attachment presents
          the methodology and calculation of the capitation rates for this
          Contract.

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152.      The effective date of the following amendments shall be the date of
          approval by the Department of Finance of this amendment package: 28,
          41, 56, 59, 62, 64, 66, 67, 69, 70, 72, 75, 89, 90, 91, 106, 113, 116,
          117, 119, 122, 127, 131, 136, 138, 140, 141, 147.

153.      The effective date of the following amendments is January 1, 1999: 61,
          65, 84, 92, 109.

154.      The effective date of the all other amendments in this package shall
          be October 1, 1997.

155.      The effective date of the rate adjustment shall be October 1,1997.

156.      All rights, duties, obligations and liabilities of the parties hereto
          otherwise remain unchanged.

                                       99



             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: Family

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC        Total
                                                                                               
1. Base Units per Eligible            4.127       4.686        0.263        2.139       0.002       3.495      0.120
2. Eligibility Adjustment             1.014       0.998        1.045        1.026       1.000       0.995      1.000
3. Age/sex Adjustment                 1.028       0.987        1.045        1.012       1.000       1.006      1.000
Adjusted Units                        4.302       4.616        0.287        2.221       0.002       3.498      0.120
4. Average Cost Per Unit          $   67.40    $  16.48       940.29    $   17.95   $  115.00    $  22.23   $  64.52   $ 1,243.87
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                     $   70.64    $  16.48    $  940.29    $   17.95   $  115.00    $  22.23   $  64.52   $ 1,247.11
6. Contract Adjustments
   a.Mental Health                    0.978       0.995        1.000        0.955       0.994       0.919      0.949
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.335       1.000      1.000
   c.Procedure Adjs.                  0.999       1.000        1.000        1.000       1.000       0.913      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible        $  295.43    $  75.31    $  268.51    $   37.88   $    0.08    $  64.92   $   7.31   $   749.44
8. Legislative Adjustment             1.026       1.052        0.993        1.004       1.038       1.027      1.027
9. Trend Adjustments
   a.Cost per Unit                    1.036       1.146        1.048        0.967       1.123       1.046      1.000
   b.Units per Eligible               0.950       1.100        0.998        1.045       1.000       1.050      1.000
Projected Cost per Eligible       $  298.32    $  99.87    $  278.87    $   38.43   $    0.09    $  73.23   $   7.51   $   796.32
Preliminary Monthly Rate                                                                                               $    66.36
10. Stop Loss Reinsurance                                  $       0                                  0.0%                   0.00
11. CHDP                                                                                                                     4.60
12.                                                                                                                          0.00
13. Fee-for-Service Adjustment                                                                        6.6%                   4.69
14. FQHC County Cost Differential                                                                                            0.26
Capitation Rate                                                                                                        $    75.91




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: Aged

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
 and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC        Total
                                                                                               
1. Base Units per Eligible            3.770      19.658        0.982        2.464       0.554      13.308      0.120
2. Eligibility Adjustment             0.960       1.017        0.959        0.979       1.002       1.021      1.000
3. Age/sex Adjustment                 0.989       1.002        1.005        0.990       1.043       1.008      1.000
Adjusted Units                        3.579      20.032        0.946        2.388       0.579      13.696      0.120
4. Average Cost Per Unit          $   47.81    $  30.45       889.66    $   10.85   $   69.41    $   5.85   $  43.50   $ 1,097.53
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                     $   50.10    $  30.45    $  889.66    $   10.85   $   69.41    $   5.85   $  43.50   $ 1,099.82
6. Contract Adjustments
   a.Mental Health                    0.991       0.996        1.000        0.986       0.996       0.958      0.989
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.196       1.000      1.000
   c.Procedure Adjs.                  0.990       1.000        1.000        1.000       1.000       0.799      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible        $  175.04    $ 604.50    $  837.41    $   25.42   $    7.81    $  61.02   $   5.14   $ 1,716.34
8. Legislative Adjustment             1.004       1.033        0.907        0.917       1.038       1.001      1.001
9. Trend Adjustments
   a.Cost per Unit                    0.865       1.105        1.079        1.036       1.034       1.049      1.000
   b.Units per Eligible               0.950       1.050        1.050        1.100       1.000       1.045      1.000
Projected Cost per Eligible       $  144.41    $ 724.52    $  860.51    $   26.56   $    8.38    $  66.96   $   5.15   $ 1,836.49
Preliminary Monthly Rate                                                                                               $   153.04
10. Stop Loss Reinsurance                                  $       0                                  0.0%                   0.00
11. CHDP                                                                                                                     0.00
12.                                                                                                                          0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   9.18
14. FQHC County Cost Differential                                                                                            0.07
Capitation Rate                                                                                                        $   162.29




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: Disabled

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC        Total
                                                                                               
1. Base Units per Eligible            6.559      24.089        1.155        4.742       0.176      20.858      0.240
2. Eligibility Adjustment             0.996       1.005        1.000        0.999       0.996       1.007      1.000
3. Age/sex Adjustment                 0.995       0.989        0.985        0.999       1.009       0.996      1.000
Adjusted Units                        6.500      23.943        1.138        4.733       0.177      20.920      0.240
4. Average Cost Per Unit          $   45.69    $  35.66       867.73    $   13.05   $  100.13    $   9.33   $  72.26   $ 1,143.85
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                     $   47.88    $  35.66    $  867.73    $   13.05   $  100.13    $   9.33   $  72.26   $ 1,146.04
6. Contract Adjustments
   a.Mental Health                    0.894       0.882        1.000        0.972       0.994       0.949      0.909
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.099       1.000      1.000
   c.Procedure Adjs.                  0.998       0.997        1.000        1.000       1.000       0.918      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible        $  276.29    $ 747.04    $  982.54    $   59.74   $    1.74    $ 169.19   $  15.69   $ 2,252.23
8. Legislative Adjustment             1.010       1.034        0.908        0.918       1.039       1.007      1.007
9. Trend Adjustments
   a.Cost per Unit                    0.954       1.161        1.032        0.977       1.042       1.032      1.000
   b.Units per Eligible               0.950       1.050        0.950        1.050       1.000       0.998      1.000
Projected Cost per Eligible       $  252.91    $ 941.64    $  874.66    $   56.26   $    1.88    $ 175.47   $  15.80   $ 2,318.62
Preliminary Monthly Rate                                                                                               $   193.22
10. Stop Loss Reinsurance                                  $       0                                  0.0%                   0.00
11. CHDP                                                                                                                     0.00
12.                                                                                                                          0.00
13. Fee-for-Service Adjustment                                                                        6.0%                  11.59
14. FQHC County Cost Differential                                                                                            0.15
Capitation Rate                                                                                                        $   204.96




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: Child

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC        Total
                                                                                               
1. Base Units per Eligible            3.962       3.669        0.332        1.521       0.000       2.012      0.120
2. Eligibility Adjustment             1.005       1.017        1.021        1.020       1.000       1.077      1.000
3. Age/sex Adjustment                 1.201       0.992        1.294        1.101       1.000       1.112      1.000
Adjusted Units                        4.782       3.702        0.439        1.708       0.000       2.410      0.120
4. Average Cost Per Unit          $   65.30    $  11.46       965.53    $   17.74   $    0.00    $  24.55   $  60.59   $ 1,145.17
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                     $   68.43    $  11.46    $  965.53    $   17.74   $    0.00    $  24.55   $  60.59   $ 1,148.30
6. Contract Adjustments
   a.Mental Health                    0.976       0.989        1.000        0.974       0.993       0.911      0.982
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.140       1.000      1.000
   c.Procedure Adjs.                  0.999       1.000        1.000        1.000       1.000       0.917      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible        $  317.46    $  41.75    $  421.75    $   29.36   $    0.00    $  49.18   $   7.10   $   866.60
8. Legislative Adjustment             1.026       1.052        0.993        1.004       1.038       1.023      1.023
9. Trend Adjustments
   a.Cost per Unit                    0.967       1.085        1.024        0.933       1.178       1.091      1.000
   b.Units per Eligible               0.950       1.050        0.950        1.045       1.000       1.100      1.000
Projected Cost per Eligible       $  299.22    $  50.04    $  407.41    $   28.74   $    0.00    $  60.38   $   7.26   $   853.05
Preliminary Monthly Rate                                                                                               $    71.09
10. Stop Loss Reinsurance                                  $       0                                  0.0%                   0.00
11. CHDP                                                                                                                     3.46
12.                                                                                                                          0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   4.47
14. FQHC County Cost Differential                                                                                            0.31
Capitation Rate                                                                                                        $    79.33




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: Adult

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC        Total
                                                                                               
1. Base Units per Eligible           21.372       5.536        3.082        4.726       0.000      12.855      0.240
2. Eligibility Adjustment             1.000       1.000        1.000        1.000       1.000       1.000      1.000
3. Age/sex Adjustment                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Units                       21.372       5.536        3.082        4.726       0.000      12.855      0.240
4. Average Cost Per Unit         $   100.08    $  16.10       998.85    $   15.92   $    0.00    $  37.45   $  54.29   $ 1,222.69
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $   104.88    $  16.10   $   998.85    $   15.92   $    0.00    $  37.45   $  54.29   $ 1,227.49
6. Contract Adjustments
   a.Mental Health                    0.999       0.999        1.000        0.991       1.000       0.997      0.996
   b.Long Term Care                   1.000       1.000        1.000        1.000       1.000       1.000      1.000
   c.Procedure Adjs.                  1.000       1.000        1.000        1.000       1.000       0.867      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $ 2,228.06    $  88.60   $ 3,063.06    $   74.19   $    0.00    $ 414.06   $  12.91   $ 5,880.88
8. Legislative Adjustment             1.022       1.052        0.993        1.004       1.038       1.023      1.023
9. Trend Adjustments
   a.Cost per Unit                    0.961       1.162        1.023        0.886       1.015       1.096      1.000
   b.Units per Eligible               0.950       0.998        1.000        1.155       1.000       0.950      1.000
Projected Cost per Eligible      $ 2,078.86    $ 108.09   $ 3,111.58    $   76.22   $    0.00    $ 441.03   $  13.21   $ 5,828.99
Preliminary Monthly Rate                                                                                               $   485.75
10. Stop Loss Reinsurance                                 $        0                                  0.0%                   0.00
11. CHDP                                                                                                                     0.00
12.                                                                                                                          0.00
13. Fee-for-Service Adjustment                                                                        6.0%                  29.15
14. FQHC County Cost Differential                                                                                            0.77
Capitation Rate                                                                                                        $   515.67




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 355
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: Riverside
     Aid Code Grouping: AIDS

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible           22.646      65.596        3.118        7.972       0.000      39.287      0.360
2. Eligibility Adjustment             1.000       1.000        1.000        1.000       1.000       1.000      1.000
3. Age/sex Adjustment                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Units                       22.646      65.596        3.118        7.972       0.000      39.287      0.360
4. Average Cost Per Unit         $    31.10  $    92.80       867.73    $   19.90   $    0.00  $    50.87   $  72.26   $  1,134.66
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    32.59  $    92.80   $   867.73    $   19.90   $    0.00  $    50.87   $  72.26   $  1,136.15
6. Contract Adjustments
   a.Mental Health                    0.934       0.990        1.000        0.993       1.000       0.988      0.959
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.456       1.000      1.000
   c.Procedure Adjs.                  1.000       0.819        1.000        1.000       1.000       0.592      1.000
   d.Viral Testing                    1.000       1.082        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   685.88  $ 5,313.67   $ 2,692.05    $  156.74   $    0.00  $ 1,163.09   $  24.82   $ 10,036.25
8. Legislative Adjustment             1.004       1.073        0.993        1.004       1.038       1.001      1.001
9. Trend Adjustments
   a.Cost per Unit                    0.954       1.161        1.032        0.977       1.042       1.032      1.000
   b.Units per Eligible               0.903       1.045        0.950        0.950       1.000       1.045      1.000
Projected Cost per Eligible      $   593.22  $ 6,917.40   $ 2,620.81    $  146.06   $    0.00  $ 1,255.58   $  24.84   $ 11,557.91
Preliminary Monthly Rate                                                                                               $    963.16
10. Stop Loss Reinsurance                                 $        0                                  0.0%                    0.00
11. CHDP                                                                                                                      0.00
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   57.79
14. FQHC County Cost Differential                                                                                             0.54
Capitation Rate                                                                                                        $  1,021.49




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: Family

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible            4.127       4.686        0.263        2.139       0.002       3.495      0.120
2. Eligibility Adjustment             0.987       0.994        0.967        0.985       1.000       0.982      1.000
3. Age/sex Adjustment                 1.016       0.995        1.026        1.010       1.000       1.005      1.000
Adjusted Units                        4.139       4.635        0.261        2.128       0.002       3.449      0.120
4. Average Cost Per Unit         $    67.40  $    16.48     1,023.54    $   17.95   $  115.00  $    22.23   $  64.52   $  1,327.12
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    70.64  $    16.48   $ 1,023.54    $   17.95   $  115.00  $    22.23   $  64.52   $  1,330.36
6. Contract Adjustments
   a.Mental Health                    0.978       0.995        1.000        0.955       0.994       0.919      0.949
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.335       1.000      1.000
   c.Procedure Adjs.                  0.999       1.000        1.000        1.000       1.000       0.913      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   284.23  $    75.62   $   265.81    $   36.30   $    0.08  $    64.01   $   7.31   $    733.36
8. Legislative Adjustment             1.026       1.052        0.993        1.004       1.038       1.027      1.027
9. Trend Adjustments
   a.Cost per Unit                    1.036       1.146        1.048        0.967       1.123       1.046      1.000
   b.Units per Eligible               0.950       1.100        0.998        1.045       1.000       1.050      1.000
Projected Cost per Eligible      $   287.01  $   100.28   $   276.07    $   36.83   $    0.09  $    72.20   $   7.51   $    779.99
Preliminary Monthly Rate                                                                                               $     65.00
10. Stop Loss Reinsurance                                 $        0                                  0.0%                    0.00
11. CHDP                                                                                                                      4.60
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                    4.18
14. FQHC County Cost Differential                                                                                             0.26
Capitation Rate                                                                                                        $     74.04




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: Aged

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other        FQHC        Total
                                                                                               
1. Base Units per Eligible            3.770      19.658        0.982        2.464       0.554      13.308      0.120
2. Eligibility Adjustment             0.969       1.014        0.965        0.985       1.000       1.015      1.000
3. Age/sex Adjustment                 0.987       1.002        0.995        0.990       1.032       1.005      1.000
Adjusted Units                        3.606      19.973        0.943        2.403       0.572      13.575      0.120
4. Average Cost Per Unit         $    47.81  $    30.45       952.39    $   10.85   $   69.41  $     5.85   $  43.50   $  1,160.26
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    50.10  $    30.45   $   952.39    $   10.85   $   69.41  $     5.85   $  43.50   $  1,162.55
6. Contract Adjustments
   a.Mental Health                    0.991       0.996        1.000        0.986       0.996       0.958      0.989
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.196       1.000      1.000
   c.Procedure Adjs.                  0.990       1.000        1.000        1.000       1.000       0.799      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   176.36  $   602.72   $   893.61    $   25.58   $    7.71  $    60.48   $   5.14   $  1,771.60
8. Legislative Adjustment             1.004       1.033        0.907        0.917       1.038       1.001      1.001
9. Trend Adjustments
   a.Cost per Unit                    0.865       1.105        1.079        1.036       1.034       1.049      1.000
   b.Units per Eligible               0.950       1.050        1.050        1.100       1.000       1.045      1.000
Projected Cost per Eligible      $   145.50  $   722.38   $   918.26    $   26.73   $    8.28  $    66.36   $   5.15   $  1,892.66
Preliminary Monthly Rate                                                                                               $    157.72
10. Stop Loss Reinsurance                                 $        0                                  0.0%                    0.00
11. CHDP                                                                                                                      0.00
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                    9.46
14. FQHC County Cost Differential                                                                                             0.07
Capitation Rate                                                                                                        $    167.25




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: Disabled

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible            6.679      24.089        1.155        4.742       0.176      20.858      0.120
2. Eligibility Adjustment             0.995       1.001        0.976        0.991       0.999       0.996      1.000
3. Age/sex Adjustment                 0.998       0.976        0.981        1.006       1.003       0.993      1.000
Adjusted Units                        6.632      23.534        1.106        4.728       0.176      20.629      0.120
4. Average Cost Per Unit         $    45.69  $    35.66     1,064.73    $   13.05   $  100.13  $     9.33   $  72.26   $  1,340.85
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    47.88  $    35.66   $ 1,064.73    $   13.05   $  100.13  $     9.33   $  72.26   $  1,343.04
6. Contract Adjustments
   a.Mental Health                    0.894       0.882        1.000        0.972       0.994       0.949      0.909
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.099       1.000      1.000
   c.Procedure Adjs.                  0.998       0.997        1.000        1.000       1.000       0.918      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   281.90  $   734.28   $ 1,171.70    $   59.67   $    1.73  $   166.84   $   7.84   $  2,423.96
8. Legislative Adjustment             1.010       1.034        0.908        0.918       1.039       1.007      1.007
9. Trend Adjustments
   a.Cost per Unit                    0.954       1.161        1.032        0.977       1.042       1.032      1.000
   b.Units per Eligible               0.950       1.050        0.950        1.050       1.000       0.998      1.000
Projected Cost per Eligible      $   258.04  $   925.56   $ 1,043.05    $   56.19   $    1.87  $   173.04   $   7.89   $  2,465.64
Preliminary Monthly Rate                                                                                               $    205.47
10. Stop Loss Reinsurance                                 $        0                                 0.0%                     0.00
11. CHDP                                                                                                                      0.00
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   12.33
14. FQHC County Cost Differential                                                                                             0.07
Capitation Rate                                                                                                        $    217.87




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: Child

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible            3.962       3.669        0.332        1.521       0.000       2.012      0.120
2. Eligibility Adjustment             1.019       1.003        1.034        1.026       1.000       1.021      1.000
3. Age/sex Adjustment                 1.168       1.009        1.237        1.095       1.000       1.072      1.000
Adjusted Units                        4.716       3.713        0.425        1.709       0.000       2.202      0.120
4. Average Cost Per Unit         $    65.30  $    11.46     1,022.12    $   17.74   $    0.00  $    24.55   $  60.59   $  1,201.76
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    68.43  $    11.46   $ 1,022.12    $   17.74   $    0.00  $    24.55   $  60.59   $  1,204.89
6. Contract Adjustments
   a.Mental Health                    0.976       0.989        1.000        0.974       0.993       0.911      0.982
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.140       1.000      1.000
   c.Procedure Adjs.                  0.999       1.000        1.000        1.000       1.000       0.917      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   313.08  $    41.87   $   432.23    $   29.38   $    0.00  $    44.93   $   7.10   $    868.59
8. Legislative Adjustment             1.026       1.052        0.993        1.004       1.038       1.023      1.023
9. Trend Adjustments
   a.Cost per Unit                    0.967       1.085        1.024        0.933       1.178       1.091      1.000
   b.Units per Eligible               0.950       1.050        0.950        1.045       1.000       1.100      1.000
Projected Cost per Eligible      $   295.09  $    50.18   $   417.53    $   28.76   $    0.00  $    55.16   $   7.26   $    853.98
Preliminary Monthly Rate                                                                                               $     71.17
10. Stop Loss Reinsurance                                 $        0                                  0.0%                   00.00
11. CHDP                                                                                                                      3.46
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                    4.48
14. FQHC County Cost Differential                                                                                             0.31
Capitation Rate                                                                                                        $     79.42




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: Adult

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible           21.492       5.536        3.082        4.726       0.000      12.855      0.120
2. Eligibility Adjustment             1.000       1.000        1.000        1.000       1.000       1.000      1.000
3. Age/sex Adjustment                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Units                       21.492       5.536        3.082        4.726       0.000      12.855      0.120
4. Average Cost Per Unit         $   100.08  $    16.10     1,055.89    $   15.92   $    0.00  $    37.45   $  54.29   $  1,279.73
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $   104.88  $    16.10   $ 1,055.89    $   15.92   $    0.00  $    37.45   $  54.29   $  1,284.53
6. Contract Adjustments
   a.Mental Health                    0.999       0.999        1.000        0.991       1.000       0.997      0.996
   b.Long Term Care                   1.000       1.000        1.000        1.000       1.000       1.000      1.000
   c.Procedure Adjs.                  1.000       1.000        1.000        1.000       1.000       0.867      1.000
   d.                                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $ 2,240.57  $    88.60   $ 3,237.98    $   74.19   $    0.00  $   414.06   $   6.46   $  6,061.86
8. Legislative Adjustment             1.022       1.052        0.993        1.004       1.038       1.023      1.023
9. Trend Adjustments
   a.Cost per Unit                    0.961       1.162        1.023        0.886       1.015       1.096      1.000
   b.Units per Eligible               0.950       0.998        1.000        1.155       1.000       0.950      1.000
Projected Cost per Eligible      $ 2,090.53  $   108.09   $ 3,289.27    $   76.22   $    0.00  $   441.03   $   6.61   $  6,011.75
Preliminary Monthly Rate                                                                                               $    500.98
10. Stop Loss Reinsurance                                 $        0                                  0.0%                    0.00
11. CHDP                                                                                                                      0.00
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   30.06
14. FQHC County Cost Differential                                                                                             0.38
Capitation Rate                                                                                                        $    531.42




             Plan Name: Molina Medical Center                Date: 12-Aug-98
           Plan Number: 356
             Plan Type: Commercial Plan                   Base Period: FY 95/96
                County: San Bernardino
     Aid Code Grouping: AIDS

The Rate Period is October 1, 1997 to September 30, 1998
Capitation Payments at the Beginning of the Month
Stop Loss Reinsurance has not been elected
CCS indicated claims are not covered
Eye appliances are provided by PIA
The plan is not responsible for Mental Health services
The plan is responsible for Long Term Care Services in the month of admission
and the next month only
The plan provides CHDP Services



                                                            Hospital     Hospital   Long Term
                                  Physician    Pharmacy    Inpatient   Outpatient        Care       Other       FQHC         Total
                                                                                               
1. Base Units per Eligible           22.886      65.596        3.118        7.972       0.000      39.287      0.120
2. Eligibility Adjustment             1.000       1.000        1.000        1.000       1.000       1.000      1.000
3. Age/sex Adjustment                 1.000       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Units                       22.886      65.596        3.118        7.972       0.000      39.287      0.120
4. Average Cost Per Unit         $    31.10  $    92.80     1,064.73    $   19.90   $    0.00  $    50.87   $  72.26   $  1,331.66
5. Area Adjustment                    1.048       1.000        1.000        1.000       1.000       1.000      1.000
Adjusted Cost                    $    32.59  $    92.80   $ 1,064.73    $   19.90   $    0.00  $    50.87   $  72.26   $  1,333.15
6. Contract Adjustments
   a.Mental Health                    0.934       0.990        1.000        0.993       1.000       0.988      0.959
   b.Long Term Care                   1.000       1.000        1.000        1.000       0.456       1.000      1.000
   c.Procedure Adjs.                  1.000       0.819        1.000        1.000       1.000       0.592      1.000
   d.Viral Testing                    1.000       1.082        1.000        1.000       1.000       1.000      1.000
7. Interest Adjustment                0.995       0.995        0.995        0.995       0.995       0.995      0.995
Contract Cost per Eligible       $   693.15  $ 5,313.67   $ 3,303.23    $  156.74   $    0.00  $ 1,163.09   $   8.27   $ 10,638.15
8. Legislative Adjustment             1.004       1.073        0.993        1.004       1.038       1.001      1.001
9. Trend Adjustments
   a.Cost per Unit                    0.954       1.161        1.032        0.977       1.042       1.032      1.000
   b.Units per Eligible               0.903       1.045        0.950        0.950       1.000       1.045      1.000
Projected Cost per Eligible      $   599.51  $ 6,917.40   $ 3,215.82    $  146.06   $    0.00  $ 1,255.58   $   8.28   $ 12,142.65
Preliminary Monthly Rate                                                                                              $  1,011.89
10. Stop Loss Reinsurance                                 $        0                                  0.0%                    0.00
11. CHDP                                                                                                                      0.00
12.                                                                                                                           0.00
13. Fee-for-Service Adjustment                                                                        6.0%                   60.71
14. FQHC County Cost Differential                                                                                             0.18
Capitation Rate                                                                                                        $  1,072.78




STATE OF CALIFORNIA                                  CONTRACT NUMBER     AM. NO.
                                                     95-23637            04
STANDARD AGREEMENT -- APPROVED BY THE                TAXPAYER'S FEDERAL ID NO.
STD. 2(REV 5-91)      ATTORNEY GENERAL               33-0342719


THIS AGREEMENT, made and entered into this 15th day of August, 1999 in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE     AGENCY
Chief, Program Support Branch         Department of Health Services,
                                      hereafter called the State, and
CONTRACTOR'S NAME
MOLINA, hereafter called the Contractor.

WTTNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
Does hereby agree to furnish to the State services and materials as follows:
(Set forth services to be rendered by Contractor, amount to be paid Contractor,
Time for performance or completion, and attach plans and specifications, if
any.)

                              ARTICLE I - PREAMBLE

Amendment A04 to Contract No.95-23637 BETWEEN MOLINA MEDICAL CENTERS, INC., AND
THE STATE OF CALIFORNIA;

WHEREAS, the State of California and Molina Medical Centers, Inc., entered into
a contract to provide health care services to Medi-Cal beneficiaries dated April
2, 1996; and

NOW THEREFORE, this Contract is amended as follows:


CONTINUED ON 1 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



====================================================================================================================================
       STATE OF CALIFORNIA                                                      CONTRACTOR
- ------------------------------------------------------------------------------------------------------------------------------------
                                         
AGENCY                                      CONTRACTOR (if other than an individual, state whether a corporation, partnership, etc.)
Department of Health Services               Molina
- ------------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)                   BY (AUTHORIZED SIGNATURE)
/s/ Jayna Querin                   for      /s/
- ------------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING              PRINTED NAME OF AND TITLE OF PERSON SIGNING
Edward E. Stahlberg JAYNA QUERIN CHIEF      George Goldstein, President
                   CONTRACT MANAGEMENT UNIT
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE                                       ADDRESS
Chief, Program Support Branch               One Golden Shore, Long Beach, CA 90802
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS                   PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE             Department of General
DOCUMENT                                    Loc.Asst.Section 14157, W&I Code         Health Care Deposit      Services Use Only
$ 0                                         ----------------------------------------------------------------------------------------
- ------------------------------              (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR

THIS CONTRACT                               ----------------------------------------------------------------------------------------
$ 420,053,310                               ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------              4260-601-912          50           1999          99/00         Exempt From PCC per
TOTAL AMOUNT ENCUMBERED TO                  ---------------------------------------------------------------W&I Code Section
DATE                                        OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 420,053,310                               9912-705-95915                                                 14087.4
- -----------------------------------------------------------------------------------------------------------
I hereby certify upon my own personal          T.B.A. NO.          I.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- -----------------------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/ Sharon Flaherty                                       08/30/99
===========================================================================================================


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91)(REVERSE)

1.   The contractor agrees to indemnify, defend and save harmless the State, its
     officers, agents and employees from any and all claims and losses accruing
     or resulting to any and all contractors, subcontractors, materialmen,
     laborers and any other person, firm or corporation furnishing or supplying
     work services, materials or supplies in connection with the performance of
     this contract, and from any and all claims and losses accruing or resulting
     to any person, firm or corporation who may be injured or damaged by the
     Contractor in the performance of this contract.

2.   The Contractor, and the agents and employees of Contractor, in the
     performance of the agreement, shall act in an independent capacity and not
     as officers or employees or agents of State of California.

3.   The State may terminate this agreement and be relieved of the payment of
     any consideration to Contractor should Contractor fail to perform the
     covenants herein contained at the time and in the manner herein provided.
     In the event of such termination, the State may proceed with the work in
     any manner deemed proper by the State. The cost to the state shall be
     deducted from any sum due the Contractor under this agreement, and the
     balance, if any, shall be paid the Contractor upon demand.

4.   Without the written consent of the State, this agreement is not assignable
     by Contractor either in whole or in part.

5.   Time is of the essence in this agreement.

6.   No alteration or variation of the terms of this contract shall be valid
     unless made in writing and signed by the parties hereto, and no oral
     understanding or agreement not incorporated herein, shall be binding on any
     of the parties hereto.

7.   The consideration to be paid Contractor, as provided herein, shall be in
     compensation for all of Contractor's expenses incurred in the performance
     hereof, including travel and per diem, unless otherwise expressly so
     provided.



MOLINA                                                              95-23637-A04

1.   ARTICLE III - GENERAL TERMS AND CONDITIONS, Section 3.15 Term, paragraph
     two, is amended to read:

     3.15    TERM

     The term of the Contract consists of the following three periods: 1) The
     Implementation Period shall extend from March 1,1996 to June 1,1996; 2) The
     Operations Period shall extend from June 1,1996 to March 1,2002, subject to
     the termination provisions of Sections 3.18, Termination and 3.19,
     Sanctions, and subject to the limitation provisions of Article V, Payment
     Provisions, Section 5.2, Amounts Payable; and 3) The Turnover/Phaseout
     Period shall extend for six (6) months from the end of the Operations
     Period, subject to the provisions of Section 3.16, Contract Extension, in
     which case the Turnover/Phaseout shall apply to the six (6) month period
     beginning the first day after the end of the Operations Period, as
     extended.

2.   The Contractor name, Molina Medical Centers, Inc., has been changed to
     Molina. Therefore, all references in this Contract to Molina Medical
     Centers, Inc shall be retitled as Molina.

3.   The effective date of this Amendment shall be August 15,1999.

4.   All rights, obligations, duties and Liabilities of the parties hereto
     otherwise remain unchanged.

                                        2



                                                    CONTRACT NUMBER     AM. NO.
                                                    95-23637            05
STANDARD AGREEMENT -- APPROVED BY THE               TAXPAYER'S FEDERAL ID NUMBER
STD. 2(REV.5-91)      ATTORNEY GENERAL              33-0342719


THIS AGREEMENT, made and entered into this 1 day of September, 2000 in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

TITLE Of OFFICER ACTING FOR STATE     AGENCY
Chief, Program Support Branch         Department of Health Services,
                                      hereafter called the State, and
CONTRACTOR'S NAME
Molina, hereafter called the Contractor.

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed does
hereby agree to furnish to the State services and materials as follows: (Set
forth services to be rendered by Contractor, amount to be paid Contractor, time
for performance or completion, and attach plans and specifications, if any.)


AMENDMENT A-05 TO CONTRACT NUMBER 95-23637 BETWEEN MOLINA AND THE STATE OF
CALIFORNIA; AND

WHEREAS, the State of California and Molina entered into a Contract to provide
health care services to Medi-Cal beneficiaries dated April 1, 1996, and;

NOW THEREFORE, this Contract is amended as follows:


CONTINUED ON 7 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



================================================================================================================================
               STATE OF CALIFORNIA                                              CONTRACTOR
- --------------------------------------------------------------------------------------------------------------------------------
                                          
AGENCY                                       CONTRACTOR (if other than an individual, state whether a corporation, partnership,
Department of Health Services                etc.)
                                             Molina
- -------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)                    BY (AUTHORIZED SIGNATURE)
/s/ Nadine Fujita Roh       for              /s/
- -------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING               PRINTED NAME OF AND TITLE OF PERSON SIGNING
Edward Stahlberg  Nadine Fujita Roh, Chief   George Goldstein, President
                    CMU PRoduction
- -------------------------------------------------------------------------------------------------------------------------------
TITLE                                        ADDRESS
Chief, Program Support Branch                One Golden Shore, Long Beach, CA 90802

- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS               PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE
DOCUMENT                                Loc.Asst.Section 14157 W&I               Health Care Deposit
$ -0-                                   ------------------------------------------------------------
- ------------------------------          (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                           ------------------------------------------------------------
$ 527,053,310                           ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------          4260-601-912        51             2000          00/01              Exempt From PCC per
TOTAL AMOUNT ENCUMBERED TO              ------------------------------------------------------------        W&I Code Section
DATE                                    OBJECT OF EXPENDITURE (CODE AND TITLE)                              14087.4
$ 527,053,310                           9912-705-95915
- ----------------------------------------------------------------------------------------------------
I hereby certify upon my own personal   T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- ----------------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/                                                        11-14-00
====================================================================================================


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91)(REVERSE)

1.   The Contractor agrees to indemnify, defend and save harmless the State, its
     officers, agents and employees from any and all claims and losses accruing
     or resulting to any and all contractors, subcontractors, materialmen,
     laborers and any other person, firm or corporation furnishing or supplying
     work services, materials or supplies in connection with the performance of
     this contract, and from any and all claims and losses accruing or resulting
     to any person, firm or corporation who may be injured or damaged by the
     Contractor in the performance of this contract.

2.   The Contractor, and the agents and employees of Contractor, in the
     performance of the agreement, shall act in an independent capacity and not
     as officers or employees or agents of State of California.

3.   The State may terminate this agreement and be relieved of the payment of
     any consideration to Contractor should Contractor fail to perform the
     covenants herein contained at the time and in the manner herein provided.
     In the event of such termination, the State may proceed with the work in
     any manner deemed proper by the State. The cost to the State shall be
     deducted from any sum due the Contractor under this agreement, and the
     balance, if any, shall be paid the Contractor upon demand.

4.   Without the written consent of the State, this agreement is not assignable
     by Contractor either in whole or in part.

5.   Time is of the essence in this agreement.

6.   No alteration or variation of the terms of this contract shall be valid
     unless made in writing and signed by the parties hereto, and no oral
     understanding or agreement not incorporated herein, shall be binding on any
     of the parties hereto.

7.   The consideration to be paid Contractor, as provided herein, shall be in
     compensation for all of Contractor's expenses incurred in the performance
     hereof, including travel and per diem, unless otherwise expressly so
     provided.



Molina.                                                             95-23637-A05

                                TABLE OF CONTENTS

ARTICLE II         DEFINITIONS                                      Pg 2

ARTICLE III        GENERAL TERMS AND CONDITIONS                     Pg 11

3.12               Inspection Rights                                Pg 2
3.18.3             Mandatory Termination                            Pg 3
3.28.2             Subcontract Requirements                         Pg 3

ARTICLE VI         SCOPE OF WORK
6.3.3              Monthly Financial Statement                      Pg 5
6.3.4              Compliance with Audit Requirements               Pg 5
6.9.5              Membership Services Guide                        Pg 5

                                        1



Molina.                                                            95-23637 A-05

1.   ARTICLE II, DEFINITIONS, SECTION Q, DMHC IS AMENDED TO READ:

     Q.        DMHC means the State Department of Managed Health Care, which is
               responsible for administering the Knox-Keene Act of 1975.

2.   ARTICLE II, DEFINITIONS, SECTION PP, DMHC IS AMENDED TO READ:

     PP.       Knox-Keene Health Care Service Plan Act of 1975 means the law,
               which regulates HMOs and is administrated by the Department of
               Managed Health Care (DMHC), commencing with Section 1340, Health
               and Safety Code.

3.   ARTICLE III, GENERAL TERMS AND CONDITIONS, SECTION 3.11 INSPECTION RIGHTS,
     IS AMENDED TO READ:

     3.11      INSPECTION RIGHTS

               Through the end of the records retention period specified in
               Section 3.32.2, Records Retention, Contractor shall allow DHS,
               DHHS, the Comptroller General of the United States, Department of
               Justice (DOJ), Bureau of Medi-Cal Fraud, Department of Managed
               Health Care (DMHC), and other authorized State agencies, or their
               duly authorized representative, including DHS' external quality
               review organization contractor, to inspect, monitor or otherwise
               evaluate the quality, appropriateness, and timeliness of services
               performed under this Contract, and to inspect, evaluate, and
               audit any and all books, records, and Facilities maintained by
               Contractor and subcontractors pertaining to these services at any
               time during normal business hours.

               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, prescription
               files, laboratory results, Subcontracts, information systems and
               procedures, and any other documentation pertaining to medical and
               non-medical services rendered to Members. Upon request, through
               the end of the records retention period specified in Section
               3.32.2, Records Retention, Contractor shall furnish any record,
               or copy of it, to DHS or any other entity in this section, at
               Contractor's sole expense.

                                        2



Molina.                                                             95-23637-A05

4.   ARTICLE III, GENERAL TERMS AND CONDITIONS, SECTION 3.18.3, MANDATORY
     TERMINATION, IS AMENDED TO READ:

     3.18.3    MANDATORY TERMINATION

               DHS will terminate this Contract in the event that: (1) the
               Secretary, DHHS, determines that the Contractor does not meet the
               requirements for participation in the Medicaid program, Title XIX
               of the Social Security Act, or (2) the Department of Managed
               Health Care finds that the Contractor no longer qualifies for
               licensure under the Knox-Keene Health Care Service Plan Act by
               giving written notice to the Contractor. Notification will be
               given by DHS at least sixty (60) days prior to the effective date
               of termination, except in cases where the Director determines the
               health and welfare of Members is jeopardized by continuation of
               the Contract, in which case the Contract will be immediately
               terminated. Notification will state the effective date of, and
               the reason for, the termination.

               Under these circumstances, termination of the Contract will be
               effective on the last day of the month in which the Secretary,
               DHHS, or the DMHC makes such determination, provided that DHS
               provides the Contractor with at least 60 days notice of
               termination. The termination of this Contract will be effective
               on the last day of the second full month from the date of the
               notice of termination. Contractor agrees that 60 days notice is
               reasonable. Termination under this section does not relieve the
               Contractor of its obligations under the Turnover and Phaseout
               Requirements, Section 3.17 through 3.17.4, except that these
               requirements may be performed after Contract termination.

5.   ARTICLE III, GENERAL TERMS AND CONDITIONS, SECTION 3.27.2, SUBCONTRACT
     REQUIREMENTS, IS AMENDED TO READ:

     3.27.2    SUBCONTRACT REQUIREMENTS

               Each Subcontract will contain:

               A.   The subcontractor's agreement to make all of its books and
                    records, pertaining to the goods and services furnished
                    under the terms of the Subcontract, available for
                    inspection, examination or copying:

                    1.   By DHS, DHHS, DOJ, DMHC

                    2.   At all reasonable times at the subcontractor's place of
                         business or at such other mutually agreeable location
                         in California.

                                        3



Molina.                                                            95-23637 A-05

                    3.   In a form maintained in accordance with the general
                         standards applicable to such book or record keeping

                    4.   For a term of at least five years from the close of DHS
                         fiscal year in which the Subcontract was in effect.

                    5.   Including all Encounter data for a period of at least
                         five years.

               B.   Full disclosure of the method and amount of compensation or
                    other consideration to be received by the subcontractor from
                    the Contractor.

               C.   Subcontractor's agreement to maintain and make available to
                    DHS, upon request, copies of all sub-subcontracts and to
                    ensure that all sub-subcontracts are in writing and require
                    that the sub-contractor:

                    1.   Make all applicable books and records available at all
                         reasonable times for inspection, examination, or
                         copying by DHS, DHHS, DOJ and DMHC.

                    2.   Retain such books and records for a term of at least
                         five years from the close of DHS' fiscal year in which
                         the sub-contract is in effect.

               D.   Subcontractor's agreement to assist Contractor in the
                    transfer of care pursuant to Section 3.17.2, Turnover
                    Requirements, in the event of Contract termination.

               E.   Subcontractor's agreement to notify DHS in the event the
                    agreement with the Contractor is amended or terminated.
                    Notice is considered given when properly addressed and
                    deposited in the United States Postal Service as first class
                    registered mail, postage attached.

               F.   Subcontractor's agreement that assignment or delegation of
                    the Subcontract will be void unless prior written approval
                    is obtained from DHS.

               G.   Subcontractor's agreement to hold harmless both the State
                    and plan Members in the event the Contractor cannot or will
                    not pay for services performed by the subcontractor pursuant
                    to the Subcontract.

               H.   Subcontractor's agreement to provide Contractor with
                    Encounter level data in the manner consistent with DHS
                    requirements.

                                        4



Molina.                                                           95-23637 A-05

               I.   Subcontracts with safety-net providers will include
                    Contractor and subcontractor's agreement to notify DHS upon
                    termination of the subcontract.

               J.   Subcontractor's agreement to timely gather, preserve and
                    provide to DHS, any records in the Subcontractor's
                    possession, in accordance with Section 3.45, Records Related
                    to Recovery for Tobacco Related Illnesses.

6.   ARTICLE VI, SCOPE OF WORK, SECTION 6.3.3, MONTHLY FINANCIAL STATEMENT, IS
     AMENDED TO READ:

     6.3.3     MONTHLY FINANCIAL STATEMENT

               The Contractor may be required to file monthly Financial
               Statements at DHS' request. If the Contractor is required to file
               monthly Financial Statements with DMHC, they will file monthly
               Financial Statements with DHS.

7.   ARTICLE VI, SCOPE OF WORK, SECTION 6.3.4, COMPLIANCE WITH AUDIT
     REQUIREMENTS, IS AMENDED TO READ:

     6.3.4     COMPLIANCE WITH AUDIT REQUIREMENTS

               The Contractor will cooperate with DHS' own independent audits
               annually or as necessary for good cause, at the discretion of
               DHS. Such audits may be waived upon submission of the financial
               audit for the same period conducted by DMHC pursuant to Section
               1382 of the Health and Safety Code.

8.   ARTICLE VI, SCOPE OF WORK, SECTION 6.9.5, MEMBERSHIP SERVICES GUIDE, IS
     AMENDED TO READ:

     6.9.5     MEMBERSHIP SERVICES GUIDE

               Contractor shall develop and distribute a Membership Services
               Guide that includes the following information:

               A.   The name address and telephone number of the health plan.

               B.   A description of the full scope of Medi-Cal covered benefits
                    and all available services including health education,
                    interpretive services, and "carve out" services and an
                    explanation of any service limitations and exclusions from
                    coverage or charges for services.

                                        5



Molina.                                                           95-23637 A-05

               C.   Procedures for obtaining Covered Services including the
                    address and telephone number of each Service Site (locations
                    of hospital, Primary Care Physicians, optometrists,
                    psychologists, pharmacies, Skilled Nursing Facilities,
                    Urgent Care Facilities). In the case of a medical foundation
                    or independent practice association, the address and
                    telephone number of each Physician provider.

                    1.   The hours and days when each of these facilities is
                         open, the services and benefits available, and the
                         telephone number to call after normal business hours.

               D.   Procedures for selecting or requesting a change in Primary
                    Care Physician, including requirements for a change in PCP,
                    reasons for which a request may be denied, and reasons why a
                    provider may request a change.

               E.   The purpose and value of scheduling an initial health
                    assessment appointment.

               F.   The appropriate use of health care services in a managed
                    care system.

               G.   The availability and procedures for obtaining after hours
                    services (24 hour basis) and care, including the appropriate
                    provider locations and telephone numbers.

               H.   Procedure for obtaining emergency health care both within
                    and outside Contractor's Service Area.

               I.   Process for referral to specialists.

               J.   Procedures for obtaining any non-medical transportation
                    services offered by Contractor and through the local CHDP
                    programs, and how to obtain such services.

               K.   The causes for which a Member shall lose entitlement re
                    receive services under this Contract.

               L.   Procedures for filing a complaint/Grievance, including
                    procedures for appealing decisions regarding Members'
                    coverage, benefits, or relationship to the organization.
                    Include the title, address, and telephone number of the
                    person responsible for processing and resolving
                    complaints/Grievances.

                                        6



Molina.                                                            95-23637 A-05

               M.   Procedures for Disenrollment, including an explanation of
                    the Member's right to disenroll without cause at any time,
                    subject to any restricted disenrollment period.

               N.   Information on the Member's right to the Medi-Cal fair
                    hearing process regardless of whether or not a
                    complaint/Grievance has been submitted or if the
                    complaint/Grievance has been resolved, pursuant to Title 22,
                    CCR, Section 53452, when a health care service requested by
                    the Member or provider has been denied, deferred or
                    modified. The State Department of Social Services' Public
                    Inquiry and Response Unit toll free telephone number (800)
                    952-5253.

               O.   Information on the availability of, and procedures for
                    obtaining, services at FQHCs and Indian Health Clinics.

               P.   Information on the Member's right to seek family planning
                    services from any qualified provider of family planning
                    services, under the Medi-Cal program, including providers
                    outside Contractor's provider network, and a description of
                    those services, such as the following statement:

                    "Family planning services are provided to Members of child
                    bearing age to enable them to determine the number and
                    spacing of children. These services include all methods of
                    birth control approved by the Federal Food and Drug
                    Administration. As a Member, you pick a doctor who is
                    located near you and will give you the services you need.
                    Our Primary Care Physicians and OB/GYN specialists are
                    available for family planning services. For family planning
                    services, you may also pick a doctor or clinic not connected
                    with Molina without having to get permission from Molina.
                    Molina shall pay that doctor or clinic for the family
                    planning services you get."

               Q.   The DHS' Office of Family Planning's toll free telephone
                    number (1-800-942-1054) providing consultation and referral
                    to family planning clinics.

               R.   Any other information determined by the DHS to be essential
                    for the proper receipt of Covered Services.

               S.   Information on the availability of, and procedures for
                    obtaining, Certified Nurse Midwife and Certified Nurse
                    Practitioner services, pursuant to Section 6.7.4.14, Nurse
                    Midwife and Nurse Practitioner Services.

                                        7



Molina.                                                            95-23637 A-05

               T.   Information on the availability of transitional Medi-Cal
                    eligibility and how the Member may apply for this program.
                    Contractor shall include this information with all
                    membership Services Guides sent to Members after the date
                    such information is furnished to Contractor by DHS.

               U.   Information on how to access State resources for
                    investigation and resolution of Member complaints, including
                    the DHS Medi-Cal Managed Care Ombudsman and toll-free
                    telephone number (1-888-452-8609) and the DMHC HMO Consumer
                    Service toll-free telephone Number (1-800-400-0815).

               V.   Information concerning the provision and availability of
                    services covered under the CCS program from providers
                    outside Contractor's provider network and how to access
                    these services.

               W.   An explanation of the expedited disenrollment process for
                    children receiving services under the Foster Care or
                    Adoption Assistance Programs; Members with special health
                    care needs, including, but not limited to major organ
                    transplants; and Members already enrolled in another
                    Medi-Cal, Medicare or commercial managed care plan.

               X.   Information how to obtain Minor Consent Services through
                    Contractor's plan, and an explanation of those services.

               Y.   A brief explanation on how to use the fee-for-service system
                    when Medi-Cal covered services are excluded or limited under
                    this Contract and how to obtain additional information.

               Z.   An explanation of an American Indian Member's right to
                    access Indian Health Service Facilities and to disenroll
                    from Contractor's plan at any time, without cause.

               AA.  Subsections S through Z above, except subsections T, shall
                    be included in Contractor's Membership Services Guide by
                    April 1, 1999, or upon the next reprinting of Contractor's
                    Membership Services Guide, whichever is sooner.

9.   The effective date of this Amendment is September 1, 2000.

10.  All rights duties, liabilities, and obligations of the parties hereto
     otherwise remain unchanged.

                                        8



STATE OF CALIFORNIA                                 CONTRACT NUMBER     AM. NO.
                                                    95-23637            6
STANDARD AGREEMENT -- APPROVED BY THE               TAXPAYER'S FEDERAL ID NUMBER
STD. 2(REV.5-91)      ATTORNEY GENERAL              33-0342719

THIS AGREEMENT, made and entered into this 1st day of July, 2001 in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE     AGENCY
Chief, Program Support Branch         Department of Health Services,
                                      hereafter called the State, and
CONTRACTOR'S NAME
Molina Healthcare of California dba: Molina, hereafter called the Contractor:

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed does
hereby agree to furnish to the State services and materials as follows: (Set
forth services to be rendered by Contractor, amount to be paid contractor. time
for performance or completion, and attach plans and specifications, if any.)

AMENDMENT A-6 TO CONTRACT NO.95-23637 BETWEEN MOLINA HEALTHCARE OF CALIFORNIA,
dba: MOLINA AND THE STATE OF CALIFORNIA; AND

WHEREAS, the State of California and Molina Healthcare of California, dba:
Molina entered into a Contract to provide health care services to Medi-Cal
beneficiaries dated April 2, 1996, and;

NOW THEREFORE, this Contract is amended as follows:


CONTINUED ON 5 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.

  The provisions on the reverse side hereof constitute a part of this agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.



===============================================================================================================================
STATE OF CALIFORNIA                                                        CONTRACTOR
- -------------------------------------------------------------------------------------------------------------------------------
                                           
AGENCY                                        CONTRACTOR (If other than an individual, state whether a corporation, partnership,
                                               etc.)
Department of Health Services                 Molina Healthcare of California, dba: Molina
- -------------------------------------------------------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)                     BY (AUTHORIZED SIGNATURE)
/s/                                 for       /s/
- -------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING                PRINTED NAME OF AND TITLE OF PERSON SIGNING
Edward Stahlberg     Nadine Fujita Roh, Chief J. Mario Molina, CEO
                     CMU Production
- -------------------------------------------------------------------------------------------------------------------------------
TITLE                                         ADDRESS
Chief, Program Support Branch                 One Golden Shore Drive, Long Beach, CA 90802
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY THIS                     PROGRAM/CATEGORY (CODE AND TITLE)        FUND TITLE
DOCUMENT                                      Loc.Asst.Section 14157 W&I               Health Care Deposit
$ -0-                                         ------------------------------------------------------------
- ------------------------------                (OPTIONAL USE)
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                                 ------------------------------------------------------------
$ 527,053,310                                 ITEM                CHAPTER        STATUTE       FISCAL YEAR
- ------------------------------                4260-601-912        52             2000          00/01        Exempt From PCC per
TOTAL AMOUNT ENCUMBERED TO                    ------------------------------------------------------------  W&I Code Section
DATE                                          OBJECT OF EXPENDITURE (CODE AND TITLE)
$ 527,053,310                                 9912-705-95915                                                14087.4
- ----------------------------------------------------------------------------------------------------------
I hereby certify upon my own personal         T.B.A. NO.          B.R. NO.
knowledge that budgeted funds are
available for the period and purpose
of the expenditure stated above.
- ----------------------------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                             DATE
/s/                                                       5/24/01
==========================================================================================================


[ ] CONTRACTOR  [ ] STATE AGENCY  [ ] DEPT. OF GEN. SER.  [ ] CONTROLLER   [ ]



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE)

1.   The contractor agrees to indemnify, defend and save harmless the State, its
     officers, agents and employees from any and all claims and losses accruing
     or resulting to any and all contractors, subcontractors, materialmen,
     laborers and any other person, firm or corporation furnishing or supplying
     work services, materials or supplies in connection with the performance of
     this contract, and from any and all claims and losses accruing or resulting
     to any person, firm or corporation who may be injured or damaged by the
     Contractor in the performance of this contract.

2.   The Contractor, and the agents and employees of Contractor, in the
     performance of the agreement, shall act in an independent capacity and not
     as officers or employees or agents of State of California.

3.   The State may terminate this agreement and be relieved of the payment of
     any consideration to Contractor should Contractor fail to perform the
     covenants herein contained at the time and in the manner herein provided.
     In the event of such termination the State may proceed with the work in
     any manner deemed proper by the State. The cost to the state shall be
     deducted from any sum due the Contractor under this agreement, and the
     balance, if any, shall be paid the Contractor upon demand.

4.   Without the written consent of the State, this agreement is not assignable
     by Contractor either in whole or in part.

5.   Time is of the essence in this agreement.

6.   No alteration or variation of the terms of this contract shall be valid
     unless made in writing and signed by the parties hereto, and no oral
     understanding or agreement not incorporated herein, shall be binding on any
     of the parties hereto.

7.   The consideration to be paid Contractor, as provided herein, shall be in
     compensation for all of Contractor's expenses incurred in the performance
     hereof, including travel and per diem, unless otherwise expressly so
     provided.



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637 A-06
DBA: MOLINA

1.   ARTICLE II - DEFINITIONS, SECTION Y, ELIGIBLE BENEFICIARY IS AMENDED TO
     READ:

          "Y.  Eligible Beneficiary means any Medi-Cal beneficiary who is
               residing in Contractor's Service Area with one of the following
               aid codes: Family: 01,OA, 02, 08, 30, 32, 33, 34, 35, 38, 39, 40,
               42, 47, 54, 59, 72, 3A, 3C, 3E, 3G, 3H, 3L, 3M, 3N, 3P, 3R, 3U,
               4F, 4G, 5X, 7X, 8P; Aged: 1H, 10, 14, 16, 18; Disabled: 20, 24,
               26, 28, 36, 60, 64, 66, 68, 6A, 6C, 6H, 6N, 6P, 6R; Child: 03,
               04, 4A, 4C, 4K, 5K, 45, 7A, 7J, 8R, 82; Adult: 86; with the
               following exclusions:

               1.   Individuals who have been approved by the Medi-Cal Field
                    Office or the California Children Services Program for bone
                    marrow, heart, heart-lung, liver, lung, combined liver, and
                    kidney, or combined liver and small bowel transplants.

               2.   Individuals who elect and are accepted to participate in the
                    following Medi-Cal waiver programs: In-Home Medical Care
                    Waiver Program, the Skilled Nursing Facility Waiver Program,
                    the Model Waiver Program, the Acquired Immune Deficiency
                    (AIDS) and AIDS Related Conditions Waiver Program, and the
                    Multipurpose Senior Services Waiver Program.

               3.   Individuals determined by the Medi-Cal Field Office to be in
                    need of long term care and residing in a Skilled Nursing
                    Facility (SNF) for 30 days past the month of admission.

               4.   Individuals who have commercial or Medicare HMO coverage,
                    unless the Medicare HMO is a provider under this Contract
                    and DHS has agreed, as a term of the HMO's Contract, that
                    these individuals may be enrolled, and DHS and the Medicare
                    HMO have negotiated an appropriate rate for these
                    individuals. Individuals with Medicare fee-for-service
                    coverage are not excluded from enrolling under this
                    Contract."

2.   ARTICLE III ~ GENERAL TERMS AND CONDITIONS, SECTION 3.49, PROHIBITED USE OF
     STATE FUNDS FOR UNION ORGANIZING IS BEING ADDED TO YOUR CONTRACT TO READ:

     "3.49 Prohibited Use of State Funds for Union Organizing

           Contractor by signing this agreement hereby acknowledges the
           applicability of Government Code Section 16645 through Section
           16649 to this agreement.

                                        2



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637 A-06
DBA: MOLINA

               1.   Contractor will not assist, promote, or deter union
                    organizing by employees performing work on a state service
                    contract, including a public works contract.

               2.   No state funds received under this agreement will be used to
                    assist, promote, or deter union organizing.

               3.   Contractor will not, for any business conducted under this
                    agreement, use any state property to hold meetings with
                    employees or supervisors, if the purpose of such meetings is
                    to assist, promote or deter union organizing, unless the
                    state property is equally available to the general public
                    for holding meetings.

               4.   If Contractor incurs costs, or makes expenditures to assist,
                    promote or deter union organizing, Contractor will maintain
                    records sufficient to show that no reimbursement from state
                    funds has been sought for these costs, and that Contractor
                    shall provide those records to the Attorney General upon
                    request."

3.   ARTICLE III -- GENERAL TERMS AND CONDITIONS, SECTION 3.50, DEBARMENT AND
     SUSPENSION CERTIFICATION, IS BEING ADDED TO YOUR CONTRACT TO READ:

     "3.50 Debarment and Suspension Certifications

          By signing this agreement, the Contractor/Grantee agrees to comply
          with the applicable federal suspension and debarment regulations, and
          certifies the following:

          A.   The Contractor/Grantee certifies to the best of its knowledge and
               belief, that it and its principals:

               1.   Are not presently debarred, suspended, proposed for
                    debarment, declared ineligible, or voluntarily excluded from
                    participation in a federally sponsored project by any
                    federal department or agency;

               2.   Have not within a three-year period preceding this agreement
                    been convicted of or had a civil judgement rendered against
                    them for commission of fraud or a criminal offense in
                    connection with obtaining, attempting to obtain, or
                    performing a public (Federal, State or local) transaction or
                    contract under public transaction; violation of Federal or
                    State antitrust statutes or commission of embezzlement,
                    theft, forgery, bribery, falsification or destruction of
                    records, making false statements, or receiving stolen
                    property;

                                        3



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637 A-06
DBA: MOLINA

               3.   Are not presently indicted for or otherwise criminally or
                    civilly charged by a governmental entity (Federal, State or
                    Local) with commission of any of the offenses enumerated in
                    the foregoing paragraph of this certification; and

               4.   Have not within a three-year period preceding this agreement
                    had one or more public transactions (Federal, State or
                    local) terminated for cause or default.

               5.   Contractor/Grantee shall not knowingly enter into any lower
                    tier covered transaction with a person or firm that is
                    proposed for debarment under federal regulations, debarred,
                    suspended, declared ineligible, or voluntarily excluded from
                    participation in such transactions, unless authorized by the
                    State. The Contractor/Grantee may rely on the certification
                    of a prospective participant in a lower tier covered
                    transaction unless it knows that the certification is
                    erroneous. The Contractor/Grantee may, but is not required
                    to, check the Procurement and Nonprocurement List issued by
                    U.S. General Service Administration at the following
                    Internet site: http://epls.arnet.gov/.

               6.   Contractor/Grantee will include a clause entitled,
                    "Debarment and Suspension Certification" that essentially
                    sets forth the provisions herein, in all lower tier covered
                    transactions and in all solicitations for lower tier covered
                    transactions.

          B.   If the Contractor/Grantee is unable to certify to any of the
               statements in this certification, the Contractor/Grantee shall
               submit an explanation to the DHS program funding this agreement.

          C.   The terms and definitions herein have the meanings set out in the
               Definitions and Coverage sections of the rules implementing
               Federal Executive Order 12549.

          D.   If the Contractor/Grantee knowingly violates this certification,
               in addition to other remedies available to the Federal
               Government, DHS may terminate this agreement for cause or
               default."

                                        4



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637 A-06
DBA: MOLINA

4.   ARTICLE V - PAYMENT PROVISIONS, SECTION 5.3, CAPITATION RATES, IS AMENDED
     TO READ:

     "5.3 Capitation Rates

          DHS shall remit to Contractor a capitation payment each month for each
          Medi-Cal Member that appears on the approved list of Members supplied
          to Contractor by DHS. The capitation rate shall be the amount
          specified in this Article. The payment period for health care services
          shall commence on the first day of operations, as determined by DHS.
          Capitation payments shall be made in accordance with the following
          schedule of capitation payment rates:



          FOR THE PERIOD OF 10/01/00 - 9/30/01                                 RIVERSIDE
          ------------------------------------------------------------------------------
           GROUPS              AID CODES                                          RATES
          ------------------------------------------------------------------------------
                                                                            
           Family              01, 0A, 02, 08, 30, 32, 33, 34, 35,               $ 86.14
                               38, 39, 40, 42, 47, 54, 59, 72, 3A, 3C, 3E, 3G,
                               3H, 3L, 3M, 3N, 3P, 3R, 3U, 4F, 4G, 5X, 7X, 8P
          ------------------------------------------------------------------------------
           Disabled            20, 24, 26, 28, 36, 60, 64, 66, 68,               $223.64
                               6A, 6C, 6H, 6N, 6P, 6R
          ------------------------------------------------------------------------------
           Aged                1H, 10, 14, 16, 18                                $160.60
          ------------------------------------------------------------------------------
           Child               03, 04, 4A, 4C, 4K, 5K, 45, 7A,                   $ 89.04
                               7J, 8R, 82
          ------------------------------------------------------------------------------
           Adult               86                                                $843.25
          ------------------------------------------------------------------------------
           Aids Beneficiary                                                      $847.95
          ------------------------------------------------------------------------------


          FOR THE PERIOD OF 10/01/00 - 9/30/01                            SAN BERNARDINO
          ------------------------------------------------------------------------------
           GROUPS              AID CODES                                          RATES
          ------------------------------------------------------------------------------
                                                                            
           Family              01, 0A, 02, 08, 30, 32, 33, 34, 35,               $ 82.56
                               38, 39, 40, 42, 47, 54, 59, 72, 3A,
                               3C, 3E, 3G, 3H, 3L, 3M, 3N, 3P,
                               3R, 3U, 4F, 4G, 5X, 7X, 8P
          ------------------------------------------------------------------------------
           Disabled            20, 24, 26, 28, 36, 60, 64, 66, 68,               $223.41
                               6A, 6C, 6H, 6N, 6P, 6R
          ------------------------------------------------------------------------------
           Aged                1H, 10, 14, 16, 18                                $151.60
          ------------------------------------------------------------------------------
           Child               03, 04, 4A, 4C, 4K, 5K, 45, 7A,                   $ 93.48
                               7J, 8R, 82
          ------------------------------------------------------------------------------
          Adult                86                                                $922.71
          ------------------------------------------------------------------------------
          Aids Beneficiary                                                       $891.15
          ------------------------------------------------------------------------------


                                        5



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637 A-06
DBA: MOLINA

          If DHS creates a new aid code that is split or derived from an
          existing aid code covered under this Contract, and the aid code has a
          neutral revenue effect for the Contractor, then the split aid code
          will automatically be included in the same aid code category as is the
          original aid code covered under this Contract. Contractor agrees to
          continue providing covered services to the Members at the monthly
          capitation rate specified for the original aid code. DHS shall confirm
          all aid code splits, and the rates of payment for such new aid codes,
          in writing to Contractor as soon as practicable after such aid code
          splits occur.

5.   The effective date of this Amendment is July 1, 2001.

6.   The effective date of 1H and 6H is May 1, 2001

7.   All rights duties, liabilities, and obligations of the parties hereto
     otherwise remain unchanged.

                                        6



                                                                     Enclosure I

The purpose of this enclosure to Molina Healthcare of California, dba Molina,
amendment 6, Contract Number 95-23637 is to provide you the Contractor with an
explanation for the amendment.

This amendment adds an Aid Code 7J to your existing contract, which is result of
recent legislation that allows certain categories of Children under the age of
19, to have their eligibility continued for one more year. This aid code was
added to the child category with no increase in rate.

This amendment adds Aid Code 1H to the Aged category and 6H to the Disabled
category.

This amendment also adds two (2) new Sections to your existing Contract.

The first is Section 3.47, Prohibition of the use of State funds for Union
Organizing. This section is mandated by Legislative Bill AB1839 and must be
included in all contracts, which are initiated by the State. This section
prohibits the use of state funds to assist, promote, or deter union organizing
by employees performing work on a state contract or use state property to hold
meetings if the purpose of the meeting is to assist, promote or deter union
organizing.

The second is Section 3.48, Debarment and Suspension. This section requires
language of a certification by contractor that contractor principals are not
presently debarred, suspended, proposed for debarment, declared ineligible, or
voluntarily excluded from participation in a federally qualified project by any
federal department or agency. Have not within the last three years been
convicted or had civil judgement rendered against them. This section is required
by federal law and must be included in any state contract receiving federal
funding of $50,000 dollars or more.



STATE OF CALIFORNIA
                        APPROVED BY THE       ----------------------------------
STANDARD AGREEMENT  --  ATTORNEY GENERAL      CONTRACT NUMBER        AM. NO.
 STD. 2 (REV. 5-91)                           95-23637                  7
                                              ----------------------------------
                                              TAXPAYER'S FEDERAL ID. NUMBER
                                              33-0342719
                                              ----------------------------------

THIS AGREEMENT, made and entered into this 1st day of June, 2001 in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

TITLE OF OFFICER ACTING FOR STATE     AGENCY

Chief, Program Support Branch         Department of Health Services, hereafter
                                      called the State, and

CONTRACTOR'S NAME

Molina Healthcare of California dba Molina, hereafter called the Contractor.

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(Set forth services to be rendered by Contractor, amount to be paid Contractor,
time for performance or completion, and attach plans and specifications, if
any.)

Amendment A07 to Contract No. 95-23637 BETWEEN MOLINA HEALTHCARE OF CALIFORNIA
dba MOLINA AND THE STATE OF CALIFORNIA;

WHEREAS, the State of California and Molina Healthcare of California dba Molina
entered into this Contract to provide healthcare services to Medi-Cal
beneficiaries, under the provisions of Welfare and Institution Code Section
14087.4, dated Ap 1, 1996, and subsquently amended;

NOW THEREFORE, this Contract is amended as follows:

CONTINUED ON 1 SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT NUMBER.
================================================================================
     The  provisions on the reverse side hereof constitute a part of this
agreement.
IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
================================================================================



====================================================================================================================================
            STATE OF CALIFORNIA                          CONTRACTOR
- ------------------------------------------------------------------------------------------------------------------------------------
                                           
AGENCY                                        CONTRACTOR (if other than an individual, state whether a corporation, partnership.
                                               etc.)
Department of Health Services                 Molina Healthcare of California dba Molina

- ------------------------------------------------------------------------------------------------------------------------------------
BY Nadine Fujita Roh      For                 BY
- ------------------------------------------------------------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING                PRINTED NAME OF AND TITLE OF PERSON SIGNING
Edward Stahlberg   Nadine Fujita Roh. Chief   George S. Goldstein, Ph.D
                       CMU Production
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE                                         ADDRESS
Chief, Program Support Branch                 One Golden Shore Drive, Long Beach, CA 90802
- ------------------------------------------------------------------------------------------------------------------------------------

AMOUNT ENCUMBERED BY THIS       PROGRAM/CATEGORY (CODE AND TITLE)    FUND TITLE                Department of General
DOCUMENT                        Loc.Asst.Section 14157 W&I Code      Health CareDeposit          Services Use Only
                                -------------------------------------------------------
$ 27,000,000                    (OPTIONAL USE)
- --------------------------------
PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT
                                =======================================================
                                ITEM            CHAPTER    STATUTE    FISCAL YEAR          Exempt per W&I Code  14087.4
$ 607,053,310                   4260-601-912    106        2001      2001/2002
- ---------------------------------------------------------------------------------------
TOTAL AMOUNT ENCUMBERED FOR     OBJECT OF EXPENDITURE (CODE AND TITLE)
DATE
$ 634,053,310                   9912-705-95915
- ---------------------------------------------------------------------------------------
I hereby certify upon my own personal knowledge         T.B.A. NO.      B.R.NO.
that budgeted funds are available for the period
and purpose of the expenditure stated above.
- ---------------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                              DATE
                                                             11/7/01
=======================================================================================
[ ] CONTRACTOR  [ ] STATE AGENCY  [ ]DEPT. OF GEN.SER.  [ ] CONTROLLER [ ]




STATE OF CALFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE)

1.   The contractor agrees to indemnify, defend and save harmless the State, its
     officers, agents and employees from any and all claims and losses accruing
     or resulting to any and all contractors, subcontractors materialmen,
     laborers and any other person, firm or corporation furnishing or supplying
     work services materials or supplies in connection with the performance of
     this contract, and from any and all claims and losses accruing or resulting
     to any person, firm or corporation who may be injured or damaged by the
     Contractor in the performance of this contract.

2.   The Contractor, and the agents and employees of Contractor, in the
     performance of the agreement, shall act in an independent capacity and not
     as officers or employees or agents of State of California.

3.   The State may terminate this agreement and be relieved of the payment of
     any consideration to Contractor, should Contractor fail to perform the
     covenants herein contained at the time and in the manner herein provided.
     In the event of such termination, the State may proceed with the work in
     any manner deemed proper by the State. The cost to the state shall be
     deducted from any sum due the Contractor under this agreement, and the
     balance, if any, shall be paid the Contractor upon demand.

4.   Without the written consent of the State, this agreement is not assignable
     by Contractor either in whole or in part.

5.   Time is the essence of this agreement.

6.   No alteration or variation of the terms of this contract shall be valid
     unless made in writing and signed the parties hereto, and no oral
     understanding or agreement not incorporated herein, shall be binding on any
     of the parties hereto.

7.   The consideration to be paid Contractor, as provided herein, shall be in
     compensation for all of Contractor's expenses incurred in the performance
     hereof, including travel and per diem, unless otherwise expressly so
     provided.



MOLINA HEALTHCARE OF CALIFORNIA                                    95-23637-A07
DBA MOLINA

1.   ARTICLE III, GENERAL TERMS AND CONDITIONS, Section 3.14, Term, paragraph 1
     is amended to read:

     3.14 TERM

          This Contract will become effective April 2, 1996 and will continue in
          full force and effect through March 31, 2003, subject to the
          provisions of Article V, Sections 5.2 and 5.10 because the State has
          currently appropriated and available for encumbrance only funds to
          cover costs through June 30, 2001.

          All other provisions of this Section remain unchanged.

2.   ARTICLE V, PAYMENT PROVISIONS, Section 5.2, Amounts Payable, is amended to
     read:

     5.2  AMOUNTS PAYABLE

          The maximum amount payable for the 1995-96 Fiscal Year ending June 30,
          1996 will not exceed $32,080,630; the maximum amount payable for the
          Fiscal Year 1996-97 Fiscal Year ending June 30, 1997 will not exceed
          $194,472,680; the maximum amount payable for the 1997-98 Fiscal Year
          ending June 30,1998 will not exceed $6,500,000; the maximum amount
          payable for the 1998-99 Fiscal Year ending June 30,1999 will not
          exceed $80,000,000; the maximum amount payable for the 1999-2000
          Fiscal Year ending June 30, 2000 will not exceed $107,000,000; the
          maximum amount payable for the 2000-2001 Fiscal Year ending June 30,
          2001 will not exceed $107,000,000. Any requirement for performance by
          DHS and Contractor for the period of the Contract subsequent to June
          30, 2001, will be dependent upon the availability of future
          appropriations by the Legislature for the purpose of this Contract. If
          funds become available for purposes of this Contract from future
          appropriations by the Legislature, the maximum amount payable for the
          2001-2002 Fiscal Year ending June 30, 2002 will not exceed
          $107,000,000; the maximum amount payable for the 2002-2003 Fiscal Year
          ending June 30, 2003 will not exceed $80,000,000. The maximum amount
          payable for this Contract will not exceed $714,053,310.

3.   The effective date of this Amendment is June 1, 2001.

4.   All rights, duties, liabilities and obligations of the parties hereto
     otherwise remain unchanged.

                                        2



                                                                     Enclosure 1

          The purpose of this enclosure to Molina's amendment 07 to Contract
          Number 96-23637 is to provide you the Contractor with an explanation
          for the amendment.

          This amendment extends the term of your contract to March 31, 2003.

          This amendment also changes the amounts payable under your contract to
          add additional dollars into the 2001-2002 Fiscal Year, and for the
          additional 2002- 2003 Fiscal Year, to allow payment for that fiscal
          year, as a result of the increase in the term of the contract.



 STATE Of CALIFORNIA
 STANDARD AGREEMENT AMENDMENT
 STD. 213 A (NEW 02/98)

                                    AGREEMENT NUMBER        AMENDMENT NUMBER
                                    95-23637                8

     This Agreement is entered into between the State Agency and Contractor
     named below:
    ---------------------------------------------------------------------------
     STATE AGENCY'S NAME
     California Department of Health Services
    ----------------------------------------------------------------------------
     CONTRACTOR'S NAME
     Molina Healthcare of California, dba: Molina
- --------------------------------------------------------------------------------
2.   The term of this
     Agreement is            4-2-96       through     3-31-02
- --------------------------------------------------------------------------------
3.   The maximum amount      $714,053,310
     of this Agreement is:   Seven hundred and fourteen million, fifth-three
                             thousand, three hundred ten
- --------------------------------------------------------------------------------
4.   The parties mutually agree to this amendment as follows. All actions noted
     below are by this reference made a part of the Agreement and incorporated
     herein:
- --------------------------------------------------------------------------------
5.   Article II - Definitions, Section Y, Eligible Beneficiary, is amended to
     add two new Aid Codes: 4M to category Family and 6V to category Disabled,
     to read as in page 2 of this amendment.
- --------------------------------------------------------------------------------
6.   Article V - Payment Provision, Section 5.3, Capitation Rates, is amended to
     add two new Aid Codes: 4M to category Family and 6V to category Disabled,
     to read as in page 3 of this amendment.

     All other terms and conditions shall remain the same.

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto.
- --------------------------------------------------------------------------------
                     CONTRACTOR                                 CALIFORNIA
- ---------------------------------------------------------  Department of General
CONTRACTOR'S NAME (If other than an individual, state            Services
whether a corporation, partnership, etc.)                        Use Only
Molina Healthcare of California, dba: Molina
- ---------------------------------------------------------
BY (Authorized Signature)       DATE SIGNED (Do not type)
/s/
- ---------------------------------------------------------
PRINTED NAME AND TITLE OF PERSON SIGNING
George S. Goldstein
- ---------------------------------------------------------
ADDRESS
One Golden Shore Drive, Long Beach, CA 90802
- ---------------------------------------------------------
                 STATE OF CALIFORNIA
- ---------------------------------------------------------
AGENCY NAME
California Department of Health Services
- ---------------------------------------------------------
BY (Authorized Signature) for   DATE SIGNED (Do not type)
/s/ Nadine Fujita Roh      for   04/05/02
- ---------------------------------------------------------
PRINTED NAME AND TITLE OF PERSON SIGNING
Edward Stahlberg, Chief, Program Support Branch
- ---------------------------------------------------------
ADDRESS
1800 3rd. Street, Rm. 455, P.O. Box 942732, Sacramento,    X Exempt per: 14087.4
CA 94234-7320
================================================================================



STATE OF CALIFORNIA
STANDARD AGREEMENT
STD. 2 (REV. 5-91) (REVERSE)

     1.   The Contractor agrees to indemnify, defend and save harmless the
          State, its officers, agents and emp1oyees from any and all claims and
          losses accruing or resulting to any and all contractors,
          subcontractors, materialmen, laborers and any other person, firm or
          corporation furnishing or supplying work services materials or
          supplies in connection with the performance of this contract, and from
          any and all claims losses accruing or resulting to any person, firm or
          corporation who may be injured or damaged by Contractor in the
          performance of this contract.

     2.   The Contractor, and the agents and employees of Contractor, in the
          performance of the agreement, shall act in an independent capacity and
          not as officers or employees or agents of State of California.

     3.   The State may terminate this agreement and be relieved of the payment
          of any consideration to Contractor should Contractor fail to perform
          the covenants herein contained at the time and in the manner herein
          provided. In the event of such termination the State may proceed with
          the work in any manner deemed proper by the State. The cost to the
          State shall be deducted from any sum due the Contractor under this
          agreement, and the balance, if any, shall be paid the Contractor upon
          demand.

     4.   Without the written consent of the State, this agreement is not
          assignable by Contractor either in whole or in part.

     5.   Time is of the essence in this agreement.

     6.   No alteration or variation of the terms of this contract shall be
          valid unless made in writing and signed by the parties hereto, and no
          oral understanding or agreement not incorporated herein, shall be
          binding on any of the parties hereto.

     7.   The consideration to be paid Contractor, as provided herein, shall be
          in compensation for all of Contractor's expenses incurred in the
          performance hereof, including travel and per diem, unless otherwise
          expressly so provided.



                                                MOLINA HEALTHCARE OF CALIFORNIA,
                                                  DBA: MOLINA
                                                 95-23637 A-08

1.   Article II - Definitions, Section Y, Eligible Beneficiary, is amended to
     read:

     "Y.  Eligible Beneficiary means any Medical beneficiary who is residing in
          Contractor's Service Area with one of the following aid codes: Family
          - aid codes 01, 0A, 02, 08, 30, 32, 33, 34, 35, 38, 39, 40, 42, 47,
          54, 59, 72, 3A, 3C, 3E, 3G, 3H, 3L, 3M, 3N, 3P, 3R, 3U, 4F, 4G, 4M,
          5X, 7X, 8P; Aged - aid codes 10, 14, 16, 18, 1H; Disabled - aid codes
          20, 24, 26, 28, 36, 60, 64, 66, 68, 6A, 6C, 6H, 6N, 6P, 6R, 6V; Child
          - aid codes 03, 04, 45, 82, 4A, 4C, 4K, 5K, 7A, 7J, 8R; Adult- aid
          code 86 with the following exclusions:

          1.   Individuals who have been approved by the Medi-Cal Field Office
               or the California Children Services Program for bone marrow,
               heart, heart-lung, liver, lung, combined liver, and kidney, or
               combined liver and small bowel transplants.

          2.   Individuals who elect and are accepted to participate in the
               following Medi-Cal waiver programs: In-Home Medical Care Waiver
               Program, the Skilled Nursing Facility Waiver Program, the Model
               Waiver Program, the Acquired Immune Deficiency (AIDS) and AIDS
               Related Conditions Waiver Program, and the Multipurpose Senior
               Services Waiver Program.

          3.   Individuals determined by the Medi-Cal Field Office to be in need
               of long term care and residing in a Skilled Nursing Facility
               (SNF) for 30 days past the month of admission.

          4.   Individuals who have commercial or Medicare HMO coverage, unless
               the Medicare HMO is a provider under this Contract and DHS has
               agreed, as a term of the HMO's Contract, that these individuals
               may be enrolled, and DHS and the Medicare HMO have negotiated an
               appropriate rate for these individuals. Individuals with Medicare
               fee-for-service coverage are not excluded from enrolling under
               this Contract."

                                        2



                                                MOLINA HEALTHCARE OF CALIFORNIA,
                                                  DBA: MOLINA
                                                 95-23637 A-08

2.   Article V - Payment Provision, Section 5.3, Capitation Rates, is amended to
     read:

     "5.3 Capitation Rates

          DHS shall remit to Contractor a capitation payment each month for each
          Medi-Cal Member that appears on the approved list of Members supplied
          to Contractor by DHS. The capitation rate shall be the amount
          specified in this Article. The payment period for health care services
          shall commence on the first day of operations, as determined by DHS.
          Capitation payments shall be made in accordance with the following
          schedule of capitation payment rates:

          For the period 10/01/00 - 9/30/01                        Riverside
          ----------------------------------------------------------------------
          Groups           Aid Codes                           Rate
          ----------------------------------------------------------------------
          Family           01, 0A, 02, 08, 30, 32, 33,         $  86.14
                           34, 35, 38, 39, 40, 42, 47,
                           54, 59, 72, 3A, 3C, 3E, 3G,
                           3H, 3L, 3M, 3N, 3P, 3R, 3U,
                           4F, 4G, 4M, 5X, 7X, 8P
          ----------------------------------------------------------------------
          Disabled         20, 24, 26, 28, 36, 60, 64,         $ 223.64
                           66, 68, 6A, 6C, 6N, 6P, 6R,
                           6V, 6H
          ----------------------------------------------------------------------
          Aged             10,14,16,18, 1H                     $ 160.60
          ----------------------------------------------------------------------
          Child            03, 04, 4A, 4C, 4K, 5K, 45,         $  89.04
                           82, 7A, 7J, 8R
          ----------------------------------------------------------------------
          Adult            86                                  $ 843.25
          ----------------------------------------------------------------------
          Aids                                                 $ 847.95
          Beneficiary
          ----------------------------------------------------------------------

                                        3



                                                MOLINA HEALTHCARE OF CALIFORNIA,
                                                  DBA: MOLINA
                                                 95-23637 A-08

          For the period 10/01/00 - 9/30/01                 San Bernardino
          ----------------------------------------------------------------------
          Groups          Aid Codes                            Rate
          ----------------------------------------------------------------------
          Family          01, OA, 02, 08, 30, 32, 33,          $  82.56
                          34, 35, 38, 39, 40, 42, 47,
                          54, 59, 72, 3A, 3C, 3E, 3G,
                          3H, 3L, 3M, 3N, 3P, 3R,
                          3U, 4F, 4G, 4M, 5X, 7X, 8P
          ----------------------------------------------------------------------
          Disabled        20, 24, 26, 28, 36, 60, 64,          $ 223.41
                          66, 68, 6A, 6C, 6N, 6P, 6R,
                          6V, 6H
          ----------------------------------------------------------------------
          Aged            10, 14, 16, 18, 1H                   $ 151.60
          ----------------------------------------------------------------------
          Child           03, 04, 4A, 4C, 4K, 5K, 45,          $  93.48
                          82, 7A, 7J, 8R
          ----------------------------------------------------------------------
          Adult           86                                   $ 922.71
          ----------------------------------------------------------------------
          Aids                                                 $ 891.15
          Beneficiary
          ----------------------------------------------------------------------

          If DHS creates a new aid code that is split or derived from an
          existing aid code covered under this Contract, and the aid code has a
          neutral revenue effect for the Contractor, then the split aid code
          will automatically be included in the same aid code category as is the
          original aid code covered under this Contract. Contractor agrees to
          continue providing covered service to the Members at the monthly
          capitation rate specified for the original aid code. DHS shall confirm
          all aid code splits, and the rates of payment for such new aid codes,
          in writing to Contractor as soon as practicable after such aid code
          splits occur."

3.   The effective date of this amendment is September 1, 2001.

                                        4



STATE OF CALIFORNIA
STANDARD AGREEMENT AMENDMENT
TO [ILLEGIBLE] A (REV [ILLEGIBLE])


                                                                    
[X] CHECK HERE IF ADDITIONAL PAGES ARE ATTACHED 1 Pages   AGREEMENT NUMBER   AMENDMENT NUMBER
                                                -         95-23637           9
=============================================================================================


1.   This Agreement is entered into between the State Agency and Contractor
     named below:

- --------------------------------------------------------------------------------
     STATE AGENCY'S NAME

     California Department of Health Services
- --------------------------------------------------------------------------------
     CONTRACTOR'S NAME

     Molina Healthcare of California, dba: Molina
- --------------------------------------------------------------------------------
2.   The term of this
     Agreement is  4-2-96 through 3-31-04
- --------------------------------------------------------------------------------
3.   The maximum amount     $794,653,310
     of this Agreement is:  Seven hundred ninety-four million, six hundred
                            fifty-three thousand, three hundred ten
- --------------------------------------------------------------------------------
4.   The parties mutually agree to this amendment as follows. All actions noted
     below are by this reference made a part of the Agreement and incorporated
     herein:

     I.   The effective date of this Amendment is September 1, 2002.

    II.   The purpose of this amendment is to extend the term of the contract
          for one-year, adjust the encumbrance accordingly, add language, and
          update the list of drugs carved-out.

   III.   Article III - GENERAL TERMS AND CONDITIONS, Section 3.14, Term is
          amended to extend the term.

    IV.   Article V - PAYMENT PROVISIONS, Section 5.2 Amounts Payable, is
          amended to adjust the encumbrance.

     V.   Article VI - SCOPE OF WORK, Section 6.6.23, Subcontractor Services to
          Non-Plan Medi-Cal Beneficiaries, is amended to address subcontractors
          are not prohibited from Knox-Keene licensed health services plans.

    VI.   Attachments II and III, Excluded Drugs, is amended to add
          Psychotherapeutic and HIV & AIDS drugs.

          All other terms and conditions shall remain the same.

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto.

                                                                               
- -------------------------------------------------------------------------------------------------------------------------
                                   CONTRACTOR                                                      CONTRACTOR
- --------------------------------------------------------------------------------       Department of General Services
CONTRACTOR'S NAME (if other than an individual, state whether a corporation,                         Use Only
                  partnership, etc.)

Molina Healthcare of California, dba: Molina
- --------------------------------------------------------------------------------
BY (Authorized Signature)                              DATE SIGNED (Do not type)

/s/                                                           8/2/02
- --------------------------------------------------------------------------------
PRINTED NAME AND TITLE OF PERSON SIGNING
George Goldstein, President/CEO
- --------------------------------------------------------------------------------
ADDRESS
One Golden Shore Dr., Long Beach, CA 90802
- --------------------------------------------------------------------------------
                              STATE OF CALIFORNIA
- --------------------------------------------------------------------------------
AGENCY NAME
California Department of Health Services
- --------------------------------------------------------------------------------
BY (Authorized Signature)                            DATE SIGNED (Do not type)
/s/ NADINE FUJITA ROH for                                   09/06/02
- --------------------------------------------------------------------------------
PRINTED NAME AND TITLE OF PERSON SIGNING              Nadine Fujita Roh, Chief         X  Exempt per W&I Code 14087.4
Edward Stahlberg, Chief, Program Support Branch           CMU Production
- --------------------------------------------------------------------------------
ADDRESS
[ILLEGIBLE] 3rd. Street, Rm. 455, P.O. Box 942732, Sacramento, CA 94234-7320
========================================================================================================================




                                                Molina Healthcare of California,
                                                                     dba: Molina
                                                                    95-23637 A-9

1.   Article III - GENERAL TERMS AND CONDITIONS, Section 3.14, Term, is amended
     to read:

     "3.14 Term

          This Contract will become effective October 1, 1996, and will
          continue in full force and effect through March 31, 2004, subject
          to the provision of Article V, Section 5.2 and 5.10, because the State
          has currently appropriated and available for encumbrance only funs to
          cover cost through June 30, 2002."

2.   Article V - PAYMENT PROVISIONS, Section 5.2 Amounts Payable, is amended to
     read:

     "5.2 Amounts Payable

          The maximum amount payable for the 1995-96 Fiscal Year ending June 30,
          1996, will not exceed $32,080,630; the maximum amount payable for the
          1996-97 Fiscal Year ending June 30, 1997, will not exceed
          $194,472,680; the maximum amount payable for the 1997-98 Fiscal Year
          ending June 30, 1998, will not exceed $6,500,000; the maximum amount
          payable for the 1998-99 Fiscal Year ending June 30, 1999, will not
          exceed $80,000,000; the maximum amount payable for the 1999-00 Fiscal
          Year ending June 30, 2000, will not exceed $107,000,000; the maximum
          amount payable for the 2000-01 Fiscal Year ending June 30, 2001, will
          not exceed $107,000,000; the maximum amount payable for the 2001-02
          Fiscal Year ending June 30, 2002, will not exceed $107,000,000. Any
          requirement for performance by DHS and Contractor for the period of
          the Contract subsequent to June 30, 2002 will be dependent upon the
          purposes of this Contract. If funds become available for purposes of
          this Contract for future appropriations by the Legislature, the
          maximum amount payable for the 2002-03 Fiscal Year ending June 30,
          2003, will not exceed $90,200,000; the maximum amount payable for the
          2003-04 Fiscal Year ending June 30, 2004, will not exceed $70,400,000.
          The maximum amount payable for this Contract will not exceed
          $794,653,310."

                                       2


                                                Molina Healthcare of California,
                                                                     dba: Molina
                                                                    95-23637 A-9

3.   Article VI - SCOPE OF WORK, Section 6.6.23, Subcontractor Services to
     Non-Plan Medi-Cal Beneficiaries, is amended to read:

     "6.6.23 Subcontractor Services to Non-Plan Medi-Cal Beneficiaries

          The Contractor will not prohibit any subcontractor from providing
          services to Medi-Cal beneficiaries who are not Members of Contractor's
          plan. Exclusivity requirements are not prohibited for subcontracting
          Knox-Keene Licensed health services plans."




                                                Molina Healthcare of California,
                                                                     dba: Molina
                                                                    95-23627 A-9

Under Article II, DEFINITIONS, Section P, Covered Services, Subparagraph 19,
Attachment II, is amended to read:

                                  ATTACHMENT II

                EXCLUDED DRUGS FOR THE TREATMENT OF HIV AND AIDS

Generic Name
- ------------
Abacavir Sulfate
Abacavir Sulfate/Lamivudine/Zidovudine
Amprenavir
Indinavir Sulfate
Efavirenz
Lamivudine
Saquinavir
Lopinavir/Ritonavir
Ritonavir
Delavirdine Mesyiate
Saquinavir Mesyiate
Tenofovir Disoproxil Fumarate
Nelfinavir Mesyiate
Nevirapine
Stavudine
Zidovudine/Lamivudine




                                                Molina Healthcare of California,
                                                                     dba: Molina
                                                                    95-23627 A-9

Under Article VI, SCOPE OF WORK, Section 6.7.3.3, Mental Health, Attachment III,
is amended to read:

                                  ATTACHMENT III

                        EXCLUDED PSYCHOTHERAPEUTIC DRUGS

Generic Name
- ------------

Amantadine HCL
Benztropine Mesylate
Biperiden HCL
Biperiden Lactate
Chlorpromazine HCL
Chlorprothixene
Clozapine
Fluphanazine Decanoate
Fluphanazine Enanthate
Fluphanazine HCL
Haloperidol
Haloperidol Deconoate
Haloperiodol Lactate
Isocarboxazid
Lithium Carbonate
Lithium Citrate
Lozapine HCL
Loxapine Succinate
Mesoridazine Besylate
Molindone HCL
Olanzapine
Perphenazine
Phenelzine Sulfate
Pimozide
Procyclidine HCL
Promazine HCL
Quetiapine
Risperidone
Thioridazine HCL
Thiothixene
Thiothixene HCL
Tranylcypromine Sulfate
Trifluoperazine HCL
Triflupromazine HCL
Trihexphenidyl HCL
Ziprasidone



[LETTERHEAD OF DEPARTMENT OF HEALTH SERVICES]

                                   May 7, 1999                            [SEAL]

     John Molina, M.D.
     Molina Medical Centers, Inc.
     One Golden Shore
     Long Beach, CA 90802

     Dear Mr. Molina:

               In accordance with Article V, Section 5.5 of your Contract, the
     enclosed Change Order transmits Molina Medical Centers, Inc., annual
     capitation rates for the period October 1, 1998 to September 30,1999. The
     new rates will appear in your capitation rate beginning June 1999. A check
     for the difference between the old Contract rates and the new Contract
     rates, for the period October 1, 1998 until the new rates are reflected in
     your capitation payments will be mailed in approximately six (6) to eight
     (8) weeks.

               If you have any questions, please contact you contract manager.

                                                  Sincerely,


                                                  /s/ [illegible]     for
                                                  ------------------------------
                                                  Susanne M. Hughes
                                                  Acting Chief
                                                  Medi-Cal Managed Care Division

     Enclosures



[LETTERHEAD OF DEPARTMENT OF HEALTH SERVICES]

     CHANGE ORDER NUMBER C1 to CONTRACT No. 95-23637: ADJUSTING THE ANNUAL
     CAPITATION RATE FOR THE PERIOD OCTOBER 1,1998 TO SEPTEMBER 30, 1999, BY
     CHANGING CONTRACT SECTIONS 5.3 CAPITATION RATES AND 5.4 CAPITATION RATES
     CONSTITUTE PAYMENT IN FULL. Issued May 7, 1999.

     1.   5.3  CAPITATION RATES

        RIVERSIDE COUNTY

        FOR THE PERIOD 07/01/95 - 05/31/96

        ------------------------------------------------------------------------
              GROUP                 AID CODES                            RATE
        ------------------------------------------------------------------------
         Family              01, 02, 08, 30, 32, 33, 35, 38, 39,      $  74.70
                             3A, 3C, 3P, 3R, 40, 42, 4C, 4K, 54,
                             59, 5K
        ------------------------------------------------------------------------
         Disabled            20, 24, 26, 28, 36, 60, 64, 66,          $ 181.61
                             68, 6A, 6C.
        ------------------------------------------------------------------------
         Aged                10, 14, 16, 18,                          $ 110.37
        ------------------------------------------------------------------------
         Child               03, 04, 45, 82                           $  68.51
        ------------------------------------------------------------------------
         Adult               86                                       $ 492.78
        ------------------------------------------------------------------------

        RIVERSIDE COUNTY

        FOR THE PERIOD 06/01/96 - 09/30/97

        ------------------------------------------------------------------------
              GROUP                 AID CODES                            RATE
        ------------------------------------------------------------------------
         Family              01, 02, 08, 30, 32, 33, 34, 35, 38, 39,  $   76.39
                             3A, 3C, 3P, 3R, 40, 42, 4C, 4K, 54,
                             59, 5K
        ------------------------------------------------------------------------
         Disabled            20, 24, 26, 28, 36, 60, 64, 66, 68,      $  178.77
                             6A, 6C,
        ------------------------------------------------------------------------
         Aged                10, 14, 16, 18,                          $  114.62
        ------------------------------------------------------------------------
         Child               03, 04, 45, 82                           $   67.74
        ------------------------------------------------------------------------
         Adult               86                                       $  509.94
        ------------------------------------------------------------------------

                                     1 of 4



CHANGE ORDER C1
TO CONTRACT NO. 95-23637

        SAN BERNARDINO COUNTY

        FOR THE PERIOD 07/01/95 - 05/31/96

        ----------------------------------------------------------------------
              GROUP                 AID CODES                          RATE
        ----------------------------------------------------------------------
         Family              01, 02, 08, 30, 32, 33, 34, 35, 38,    $   70.01
                             39, 3A, 3C, 3P, 3R, 40, 42, 4C, 4K,
                             54, 59, 5K
        ----------------------------------------------------------------------
         Disabled            20, 24, 26, 28, 36, 60, 64, 66, 68,    $  177.15
                             6A, 6C.
        ----------------------------------------------------------------------
         Aged                10, 14, 16, 18,                        $  117.66
        ----------------------------------------------------------------------
         Child               03, 04, 45, 82                         $   67.91
        ----------------------------------------------------------------------
         Adult               86                                     $  536.02
        ----------------------------------------------------------------------

        SAN BERNARDINO COUNTY

        FOR THE PERIOD 06/01/96 - 09/30/97

        ----------------------------------------------------------------------
              GROUP                 AID CODES                          RATE
        ----------------------------------------------------------------------
         Family              01, 02, 08, 30, 32, 33, 34, 35, 38,    $   71.59
                             39, 3A, 3C, 3P, 3R, 40, 42, 4C, 4K,
                             54, 59, 5K
        ----------------------------------------------------------------------
         Disabled            20, 24, 26, 28, 36, 60, 64, 66, 68,    $  174.45
                             6A, 6C.
        ----------------------------------------------------------------------
         Aged                10, 14, 16, 18,                        $  121.76
        ----------------------------------------------------------------------
         Child               03, 04, 45, 82                         $   67.17
        ----------------------------------------------------------------------
         Adult               86                                     $  554.73
        ----------------------------------------------------------------------

        RIVERSIDE COUNTY

        FOR THE PERIOD 10/01/97 - 09/30/98

        ----------------------------------------------------------------------
              GROUP                 AID CODES                          RATE
        ----------------------------------------------------------------------
         Family              01, 0A, 02, 08, 30, 32, 3G, 33, 3H,    $   75.91
                             34, 35, 38, 39, 3A, 3C, 3N, 3P, 3R,
                             3U, 3R, 40, 42, 54, 59, 7X;
                             CalWORKS: 3E, 3L, 3M
        ----------------------------------------------------------------------
         Disabled            20, 24, 26, 28, 36, 60, 64, 66,        $  204.96
                             68, 6A, 6C, 6N, 6P, 6R
        ----------------------------------------------------------------------
         Aged                10, 14, 16, 18.                        $  162.29
        ----------------------------------------------------------------------
         Child               03, 04, 45, 4C, 4K, 5K, 82             $   79.33
        ----------------------------------------------------------------------
         Adult               86                                     $  515.67
        ----------------------------------------------------------------------
         AIDS Beneficiary Rate                                      $ 1021.49
        ----------------------------------------------------------------------

                                     2 of 4



CHANGE ORDER C1
TO CONTRACT NO. 95-23637

    SAN BERNARDINO COUNTY

    For the Period 10/01/97 - 09/30/98



         GROUP                                     AID CODES                          RATE
    -----------------------------------------------------------------------------------------
                                                                              
    Family                                   01, OA, 02, 08, 30, 32, 3G, 33, 3H,    $   74.04
                                             34, 35, 38, 39, 3A, 3C, 3N, 3P, 3R,
                                             3U, 3R, 40, 42, 54, 59, 7X;
                                             CalWORKS: 3E, 3L, 3M
    -----------------------------------------------------------------------------------------
    Disabled                                 20, 24, 26, 28, 36, 60, 64, 66, 68,    $  217.87
                                             6A, 6C, 6N, 6P, 6R
    -----------------------------------------------------------------------------------------
    Aged                                     10, 14, 16, 18,                        $  167.25

    -----------------------------------------------------------------------------------------
    Child                                    03, 04, 45, 4C, 4K, 5K, 82             $   79.42

    -----------------------------------------------------------------------------------------
    Adult                                    86                                     $  531.42
    -----------------------------------------------------------------------------------------
    AIDS Beneficiary Rate                                                           $ 1072.78
    -----------------------------------------------------------------------------------------


    RIVERSIDE COUNTY

    For the Period 10/01/98 - 09/30/99



          GROUP                                     AID CODES                         RATE
    -----------------------------------------------------------------------------------------
                                                                              
    Family                                   01, OA, 02, 08, 30, 32, 3G, 33, 3H,    $   78.73
                                             34, 35, 38, 39, 3A, 3C, 3N, 3P, 3R,
                                             3U, 3R, 40, 54, 59, 7X;
                                             CalWORKS: 3E, 3L, 3M
    -----------------------------------------------------------------------------------------
    Disabled                                 20, 24, 26, 28, 36, 60, 64, 66,68,     $  222.61
                                             6A, 6C, 6N, 6P, 6R
    -----------------------------------------------------------------------------------------
    Aged                                     10, 14, 16, 18,                        $  160.47

    -----------------------------------------------------------------------------------------
    Child                                    03, 04, 45, 4C, 4K, 5K, 82             $   93.09

    -----------------------------------------------------------------------------------------
    Adult                                    86                                     $  706.77
    -----------------------------------------------------------------------------------------
    AIDS Beneficiary Rate                                                           $  962.42
    -----------------------------------------------------------------------------------------


    SAN BERNARDINO COUNTY

    For the Period 10/01/98 - 09/30/99



           GROUP                                     AID CODES                        RATE
    -----------------------------------------------------------------------------------------
                                                                               
     Family                                  01, OA, 02, 08, 30, 32, 3G, 33, 3H,    $   80.48
                                             34, 35, 38, 39, 3A, 3C, 3N, 3P, 3R,
                                             3U, 3R, 40, 54, 59, 7X:
                                             CalWORKS: 3E, 3L, 3M
    -----------------------------------------------------------------------------------------
     Disabled                                20, 24, 26, 28, 36, 60, 64, 66, 68,    $  233.49
                                             6A, 6C, 6N, 6P, 6R
    -----------------------------------------------------------------------------------------
     Aged                                    10, 14, 16, 18,                        $  163.77
    -----------------------------------------------------------------------------------------
     Child                                   03, 04, 45, 4C, 4K, 5K, 82             $  106.43

    -----------------------------------------------------------------------------------------
     Adult                                   86                                     $  790.89
    -----------------------------------------------------------------------------------------
     AIDS Beneficiary Rate                                                          $  995.00
    -----------------------------------------------------------------------------------------


                                     3 of 4



CHANGE ORDER C1
TO CONTRACT NO. 95-23637

    In the future, DHS may be splitting existing aid codes into new aid codes.
    The new split aid codes will be in the same aid code group category as the
    original aid code. If DHS establishes new aid codes by splitting existing
    aid codes, Contractor agrees to accept Eligible Beneficiaries with these
    new aid codes as Members and to provide covered services to these Members
    at the monthly capitation rate specified for the original aid code. The
    Department shall confirm all aid code splits, and the rates of payment for
    such new aid codes, in writing to Contractors as soon as practicable after
    such aid code splits occur.

    All other terms, conditions, and provisions contained in Section 5.3 remain
    unchanged.

3.  5.4 CAPITATION RATES CONSTITUTE PAYMENT IN FULL.

    The actuarial basis for the determination of the capitation payment rates is
    outlined in Attachment 1 (consisting of 12 pages).

    All other terms, conditions, and provisions contained in Section 5.4 remain
    unchanged.

                                     4 of 4




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          Family



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1, 1998 to September 30, 1999     Capitation Payments at the Beginning of the Month   Attachment 1


 Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



                                                              Hospital     Hospital    Long Term
Rate Calculation                      Physician   Pharmacy   Inpatient   Outpatient         Care
                                                                         
1.   Average Cost Per Unit             $  69.46   $  19.88    $ 864.71    $   16.16     $ 812.04
2.   Units per Eligible                   4.014      4.683       0.373        2.146        0.004
3.   Addt'l Capitation Amts.           $   0.37   $   0.05    $   4.62    $    0.01     $   0.00
     Cost per Elig. per Mo.            $  23.60   $   7.81    $  31.50         2.90     $   0.27
 Adjustments
     a. Demographics                      1.004      0.976       1.023        1.002        1.000
     b. Area                              1.043      1.000       1.000        1.000        1.000
     c. Coverages                         0.975      0.992       0.968        0.956        0.995
     d. Interest                          0.995      0.995       0.995        0.995        0.995
Adjusted Base Cost                     $  23.97   $   7.52    $  31.04    $    2.76     $   0.27
3.   Legislative Adjs.                    1.053      1.053       0.998        1.023        1.141
4.   Trend Adjustments
     a. Cost per Unit                     1.000      1.100       1.050        1.000        1.000
     b. Units per Eligible                0.950      1.000       1.050        0.950        1.050
Projected Cost per Eligible            $  23.98   $   8.71    $  34.15    $    2.68     $   0.32
5.   Stop Loss Reins.                              Amount     $      0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC Increment               $  78.73                $   78.41
                                                  /Without


                                                       FQHC
Rate Calculation                        Other      FFSE   Increment     Total
                                                          
1.   Average Cost Per Unit            $ 20.09   $ 68.39     $ 24.41
2.   Units per Eligible                 3.532     0.168       0.168
3.   Addt'l Capitation Amts.          $  0.00   $  0.00     $  0.00
     Cost per Elig. per Mo.           $  5.91   $  0.96     $  0.34   $ 73.29
 Adjustments
     a. Demographics                    0.985     0.994       0.994
     b. Area                            1.000     1.000       1.000
     c. Coverages                       0.833     0.935       0.935
     d. Interest                        0.995     0.995       0.995
Adjusted Base Cost                    $  4.82   $  0.89     $  0.31   $ 71.58
3.   Legislative Adjs.                  1.046     1 027       1.027
4.   Trend Adjustments
     a. Cost per Unit                   0.950     1.000       1.000
     b. Units per Eligible              1.050     1.000       1.000
Projected Cost per Eligible           $  5.03   $  0.91     $  0.32   $ 76.10
5.   Stop Loss Reins.                     0.0%             Premium       0.00
6.   CHDP                                                                5.06
7.   Fee-for-Service Adj.                 3.0%                          (2.43)
Capitation Rate With FQHC Increment


                                    Page 1 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          Aged



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1, 1998 to September 30, 1999     Capitation Payments at the Beginning of the Month   Attachment 1


Coverages
- -----------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- -----------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- -----------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- -----------------------------------------------------------------------------



                                                                Hospital     Hospital   Long Term
 Rate Calculation                      Physician    Pharmacy   Inpatient   Outpatient        Care
                                                                          
1.   Average Cost Per Unit               $ 48.90    $  32.71   $  287.24    $   10.02    $  77.33
2.   Units per Eligible                    4.472      21.914       1.265        3.306       2.016
3.   Addt'l Capitation Amts.             $  1.29    $   0.00   $    7.41    $    0.02    $   0.00
     Cost per Elig. per Mo.              $ 19.51    $  59.73   $   37.69    $    2.78    $  12.99
Adjustments
     a. Demographics                       0.955       1.019       0.957        0.970       1.039
     b. Area                               1.043       1.000       1.000        1.000       1.000
     c. Coverages                          0.981       0.996       0.997        0.986       0.997
     d. Interest                           0.995       0.995       0.995        0.995       0.995
Adjusted Base Cost                       $ 18.97    $  60.32   $   35.78    $    2.65    $  13.39
3.   Legislative Adjs.                     0.939       1.049       0.926        0.931       1.140
4.   Trend Adjustments
     a. Cost per Unit                      1.100       1.100       1.100        1.050       1.000
     b. Units per Eligible                 1.100       1.155       1.100        1.100       1.000
Projected Cost per Eligible              $ 21.55    $  80.39   $   40.09    $    2.85    $  15.26
5    Stop Loss Reins.                                 Amount   $       0                     Rate
6.   CHDP
7.   Fee for Service Adj.
Capitation Rate With FQHC Increment                 $ 160.47                $  160.47
                                                    /Without


 Rate Calculation                                       FQHC
                                         Other      FFSE   Increment      Total
                                                           
1.   Average Cost Per Unit            $   6.41   $ 28.59    $  0.00
2.   Units per Eligible                 12.862     0.132      0.132
3.   Addt'l Capitation Amts.          $   0.00   $  0.00    $  0.00
     Cost per Elig. per Mo.           $   6.87   $  0.31    $  0.00    $ 139.88
Adjustments
     a. Demographics                     1,025     0.970      0.970
     b. Area                             1.000     1.000      1.000
     c. Coverages                        0.791     0.603      0.603
     d. Interest                         0.995     0.995      0.995
Adjusted Base Cost                    $   5.54   $  0.18    $  0.00    $ 136.83
3.   Legislative                         0.927     0.926      0.926
4.   Trend Adjustments
     a. Cost per Unit                    1.050     1.000      1.000
     b. Units per Eligible               0.950     1.000      1.000
Projected Cost per Eligible           $   5.12   $  0.17    $  0.00    $ 165.43
5    Stop Loss Reins.                      0.0%             Premium        0.00
6.   CHDP                                                                  0.00
7.   Fee for Service Adj.                 -3.0%                           (4.96)
Capitation Rate With FQHC Increment


                                   Page 2 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          Disabled



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1, 1998 to September 30, 1999     Capitation Payments at the Beginning of the Month   Attachment 1


Coverages
- ----------------------------------------------------------------------------
   CCS Indicated Claims                             NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Menial Health Outpatient Services                NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- ----------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Alphafeto Protein Testing                        NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered by the Plan
- ----------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- ----------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- ----------------------------------------------------------------------------



                                                                Hospital     Hospital    Long Term
Rate Calculation                      Physician     Pharmacy   Inpatient   Outpatient         Care
                                                                          
1.   Average Cost Per Unit            $   46.41     $  39.70   $  485.15   $   12.37     $  139.87
2.   Units per Eligible                   6.873       26.861       1.556       5.050         0.459
3.   Addt'l Capitation Amts.          $    2.96     $   0.09   $    9.89   $    0.02     $    0.00
     Cost per Elig. per Mo.           $   29.54     $  88.96   $   72.80   $    5.23     $    5.35
Adjustments
     a. Demographics                      0.983        0.989       0.981       0.998         1.000
     b. Area                              1.043        1.000       1.000       1.000         1.000
     c. Coverages                         0.900        0.875       0.920       0.973         0.995
     d. Interest                          0.995        0.995       0.995       0.995         0.995
Adjusted Base Cost                    $   27.12     $  76.60   $   65.37   $    5.05     $    5.30
3.   Legislative Adjs.                    0.941        1.043       0.919       0.931         1.130
4.   Trend Adjustments
     a. Cost per Unit                     1.000        1.100       1.050       1.000         1.100
     b. Units per Eligible                1.100        1.210       1.050       1.045         0.950
Projected Cost per Eligible           $   28.07     $ 106.34   $   66.23   $    4.91     $    6.26
5    Stop Loss Reins.                                Amount    $       0                    Rate
6    CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC Increment                 $ 222.61               $  222.61
                                                    /Without


                                                        FQHC
Rate Calculation                         Other       FFSE  Increment      Total
                                                           
1.   Average Cost Per Unit            $  10.16    $ 66.52  $    0.00
2.   Units per Eligible                 21.959      0.216      0.216
3.   Addt'l Capitation Amts.          $   0.00    $  0.00  $    0.00
     Cost per Elig. per Mo.           $  18.59    $  1.20  $    0.00   $ 221.67
Adjustments
     a. Demographics                     1.015      0.987      0.987
     b. Area                             1.000      1.000      1.000
     c. Coverages                        0.878      0.863      0.883
     d. Interest                         0.995      0.995      0.995
Adjusted Base Cost                    $  16.48    $  1.02  $    0.00   $ 196.94

3.   Legislative Adjs.                   0.923      0.932      0.932
4.   Trend Adjustments
     a. Cost per Unit                    1.100      1.000      1.000
     b. Units per Eligible               1.000      1.000      1.000
Projected Cost per Eligible           $  16.73    $  0.95  $    0.00   $ 229.49
5    Stop Loss                             0.0%             Premium        0.00
6    CHDP                                                                  0.00
7.   Fee for Service Adj.                 -3.0%                           (6.88)
Capitation Rate With FQHC Increment


                                   Page 3 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          Child



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- -------------------------------------------------------------------------------
   CCS Indicated Claims                             NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Menial Health Outpatient Services                NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Hearth Pharmacy Costs                     NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Alphafeto Protein Testing                        NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- -------------------------------------------------------------------------------



Rate Calculation                                              Hospital     Hospital    Long Term
                                      Physician   Pharmacy   Inpatient   Outpatient         Care

                                                                         
1.   Average Cost Per Unit              $ 67.42   $  13.64   $  889.41     $  16.21     $ 469.38
2.   Units per Eligible                   3.999      3.411       0.465        1.516        0.007
3.   Addt'l Capitation Amts.            $  0.23   $   0.03   $    2.90     $   0.00     $   0.00
     Cost per Elig. per Mo.             $ 22.70   $   3.91   $   37.36     $   2.05     $   0.27
Adjustments
     a. Demographics                      1.181      1.019       1.321        1.114        1.000
     b. Area                              1.043      1.000       1.000        1.000        1.000
     c. Coverages                         0.974      0.984       0.952        0.973        0.996
     d. Interest                          0.995      0.995       0.995        0.995        0.995
Adjusted Base Cost                      $ 27.10   $   3.90   $   46.75     $   2.21     $   0.27
3.   Legislative Adjs.                    1.076      1.047       0.999        1.024        1.134
4.   Trend Adjustments
     a. Cost per Unit                     1.000      1.100       1.050        1.000        1.000
     b. Units per Eligible                0.950      1.000       1.050        0.950        1.050
Projected Cost per Eligible             $ 27.70   $   4.49   $   51.49     $   2.15     $   0.32
5.   Stop Loss Reins.                              Amount    $       0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC Increment               $  93.09                 $  92.75
                                                  /Without

Rate Calculation                                      FQHC
                                         Other       FFSE    Increment    Total
                                                             
1.   Average Cost Per Unit            $  20.69    $ 68.39      $ 24.41
2.   Units per Eligible                  1.958      0.168        0.168
3.   Addt'l Capitation Amts.          $   0.00    $  0.00      $  0.00
     Cost per Elig. per Mo.           $   3.38    $  0.96      $  0.34   $  70.97
Adjustments
     a. Demographics                     1.165      1.003        1.003
     b. Area                             1.000      1.000        1.000
     c. Coverages                        0.815      0.970        0.970
     d. Interest                         0.995      0.995        0.995
Adjusted Base Cost                    $   3.19    $  0.93      $  0.33   $  84.68
3.   Legislative Adjs.                   1.090      1.031        1.031
4.   Trend Adjustments
     a. Cost per Unit                    0.950      1.000        1.000
     b. Units per Eligible               1.050      1.000        1.000
Projected Cost per Eligible           $   3.47    $  0.96      $  0.34   $  90.92
5.   Stop Loss Reins.                      0.0%               Premium        0.00
6.   CHDP                                                                $   5.04
7.   Fee-for-Service Adj.                 -3.0%                             (2.87)
Capitation Rate With FQHC Increment


                                    Page 4 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          Adult



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1



Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                Hospital     Hospital    Long Term
                                      Physician     Pharmacy   Inpatient   Outpatient         Care
                                                                          
1.   Average Cost Per Unit            $   90.48     $  17.11   $  964.66   $    15.76    $  812.04
2.   Units per Eligible                  21.383        5.818       5.446        4.679        0.000
3.   Addt'l Capitation Amts.          $    0.37     $   0.06   $   35.62   $     0.08    $    0.00
     Cost per Elig. per Mo.           $  161.60     $   8.36   $  473.41   $     6.23    $    0.00
Adjustments
     a. Demographics                      1.000        1.000       1.000        1.000        1.000
     b. Area                              1.043        1.000       1.000        1.000        1.000
     c. Coverages                         0.999        0.999       0.999        0.989        1.000
     d. Interest                          0.995        0.995       0.995        0.995        0.995
Adjusted Base Cost                    $  167.54     $   8.31   $  470.57   $     6.13    $    0.00
3    Legislative Adjs.                    1.029        1.054       1.000        1.022        1.102
4.   Trend Adjustments
     a. Cost per Unit                     1.000        1.100       1.050        1.000        1.000
     b. Units per Eligible                0.950        1.000       1.050        0.950        1.050
Projected Cost per Eligible           $  163.78     $   9.63   $  518.60   $     5.95    $    0.00
5.   Stop Loss Reins.                                Amount    $       0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC Increment                 $ 706.77               $   705.26
                                                    /Without

Rate Calculation                                           FQHC
                                            Other       FFSE   Increment      Total
                                                               
1.   Average Cost Per Unit               $  36.13   $  68.39     $ 24.41
2.   Units per Eligible                    10.172      0.735       0.735
3.   Addt'l Capitation Amts.             $   0.00   $   0.00     $  0.00
     Cost per Elig. per Mo.              $  30.63   $   4.19     $  1.50   $ 685.92
Adjustments
     a. Demographics                        1.000      1.000       1.000
     b. Area                                1.000      1.000       1.000
     c. Coverages                           0.809      0.995       0.995
     d. Interest                            0.995      0.995       0.995
Adjusted Base Cost                       $  24.66   $   4.15     $  1.49   $ 682.85
3    Legislative Adjs.                      1.004      1.015       1.015
4.   Trend Adjustments
     a. Cost per Unit                       0.950      1.000       1.000
     b. Units per Eligible                  1.050      1.000       1.000
Projected Cost per Eligible              $  24.70   $   4.21     $  1.51   $ 728.58
5.   Stop Loss Reins.                         0.0%              Premium        0.00
6.   CHDP                                                                      0.00
7.   Fee-for-Service Adj.                    -3.0%                           (21.81)
Capitation Rate With FQHC Increment


                                   Page 5 of 12



                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:      355                 Date:              04-May-99
County:                     Riverside                           Plan Type:   Commercial Plan     Base Period:       FY 96/97
Aid Code Grouping:          AIDS



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                    NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one      Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one    NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                              NOT Covered by the Plan
- --------------------------------------------------------------------------------



                                                               Hospital     Hospital    Long Term
Rate Calculation                      Physician    Pharmacy   Inpatient   Outpatient         Care
                                                                         
1    Average Cost Per Unit            $   32.67    $ 126.04   $  485.15   $    13.79    $  139.87
2.   Units per Eligible                  26.305      74.792       3.169        9.882        0.000
3.   Addt'l Capitation Amts.          $    2.96    $   0.09   $    9.89   $     0.02    $    0.00
     Cost per Elig. per Mo.           $   74.57    $ 785.68   $  138.01   $    11.38    $    0.00
Adjustments
     a. Demographics                      1.000       1.000       1.000        1.000        1.000
     b. Area                              1.043       1.000       1.000        1.000        1.000
     c. Coverages                         0.918       0.648       0.957        0.992        0.998
     d. Interest                          0.995       0.995       0.995        0.995        0.995
Adjusted Base Cost                    $   71.04    $ 506.56   $  131.42   $    11.23    $    0.00
3.   Legislative Adjs.                    0.963       1.006       0.977        0.982        1.186
4.   Trend Adjustments
     a. Cost per Unit                     1.000       1.100       1.050        1.000        1.100
     b. Units per Eligible                1.100       1.210       1.050        1.045        0.950
Projected Cost per Eligible           $   75.25    $ 678.28   $  141.56   $    11.52    $    0.00
5    Stop Loss Reins.                               Amount    $       0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC Increment                $ 962.42               $   962.42
                                                   /Without

                                                          FQHC
Rate Calculation                            Other      FFSE   Increment        Total
                                                              
1    Average Cost Per Unit               $  42.30   $ 66.52   $  0.00
2.   Units per Eligible                    36.392     0.628     0.628
3.   Addt'l Capitation Amts.             $   0.00   $  0.00   $  0.00
     Cost per Elig. per Mo.              $ 128.28   $  3.46   $  0.00     $ 1,141.38
Adjustments
     a. Demographics                        1.000     1.000     1.000
     b. Area                                1.000     1.000     1.000
     c. Coverages                           0.599     0.951     0.951
     d. Interest                            0.995     0.995     0.995
Adjusted Base Cost                       $  76.46   $  3.29   $  0.00     $   800.00
3.   Legislative Adjs.                      0.979     0.984     0.984
4.   Trend Adjustments
     a. Cost per Unit                       1.100     1.000     1.000
     b. Units per Eligible                  1.000     1.000     1.000
Projected Cost per Eligible              $  82.34   $  3.24   $  0.00     $   992.19
5    Stop Loss Reins.                         0.0%             Premium          0.00
6.   CHdP                                                                       0.00
7.   Fee-for-Service Adj.                    -3.0%                             29.77
Capitation Rate With FQHC Increment


                                  Page 6 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     San Bernardino                      Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          Family



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



                                                          Hospital     Hospital    Long Term
Rate Calculation                 Physician    Pharmacy   Inpatient   Outpatient         Care
                                                                    
1.   Average Cost Per Unit       $   69.46    $  19.88   $  978.02    $   16.16    $  812.04
2.   Units per Eligible              4.050       4.683       0.373        2.146        0.004
3.   Addt'l Capitation Amts.     $    0.37    $   0.05   $    4.62    $    0.01    $    0.00
     Cost per Elig. per Mo.      $   23.81    $   7.81   $   35.02    $    2.90    $    0.27
Adjustments
     a. Demographics                 0.997       0.993       0.977        0.987        1.000
     b. Area                         1.043       1.000       1.000        1.000        1.000
     c. Coverages                    0.975       0.992       0.968        0.956        0.995
     d. Interest                     0.995       0.995       0.995        0.995        0.995
Adjusted Base Cost               $   24.02    $   7.65   $   32.95    $    2.72    $    0.27
3.   Legislative Adjs.               1.053       1.053       0.998        1.023        1.141
4.   Trend Adjustments
     a. Cost per Unit                1.000       1.100       1.050        1.000        1.000
     b. Units per Eligible           0.950       1.000       1.050        0.950        1.050
Projected Cost per Eligible      $   24.03    $   8.86   $   36.25    $    2.64    $    0.32
5.   Stop Loss Reins.                          Amount    $       0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $  80.48                $   80.41
                                              /Without

                                                   FQHC
Rate Calculation                      Other     FFSE   Increment       Total
                                                       
1.   Average Cost Per Unit         $  20.09  $ 68.10   $  7.33
2.   Units per Eligible               3.532    0.132     0.132
3.   Addt'l Capitation Amts.       $   0.00  $  0.00   $  0.00
     Cost per Elig. per Mo.        $   5.91  $  0.75   $  0.08     $   76.55
Adjustments
     a. Demographics                  0.985    0.992     0.992
     b. Area                          1.000    1.000     1.000
     c. Coverages                     0.833    0.935     0.935
     d. Interest                      0.995    0.995     0.995
Adjusted Base Cost                 $   4.82  $  0.69   $  0.07     $   73.19
3.   Legislative Adjs.                1.046    1.027     1.027
4.   Trend Adjustments
     a. Cost per Unit                 0.950    1.000     1.000
     b. Units per Eligible            1.050    1.000     1.000
Projected Cost per Eligible        $   5.03  $  0.71   $  0.07     $   77.91
5.   Stop Loss Reins.                   0.0%            Premium         0.00
6.   CHDP                                                               5.06
7.   Fee-for-Service Adj.              -3.0%                           (2.49)
Capitation Rate With FQHC
 Increment


                                    Page 7 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     San Bernardino                      Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          Aged



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- -------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- -------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- -------------------------------------------------------------------------------



                                                          Hospital     Hospital    Long Term
Rate Calculation                 Physician    Pharmacy   Inpatient   Outpatient        Care
                                                                   
1.   Average Cost Per Unit       $   48.90    $  32.71   $  316.16    $   10.02   $   77.33
2.   Units per Eligible              4.580      21.914       1.265        3.306       2.016
3.   Addt'l Capitation Amts.     $    1.29    $   0.00   $    7.41    $    0.02   $    0.00
     Cost per Elig. per Mo.      $   19.95    $  59.73   $   40.74    $    2.78   $   12.99
Adjustments
     a. Demographics                 0.963       1.014       0.962        0.975       1.027
     b. Area                         1.043       1.000       1.000        1.000       1.000
     c. Coverages                    0.981       0.996       0.997        0.986       0.997
     d. Interest                     0.995       0.995       0.995        0.995       0.995
Adjusted Base Cost               $   19.56    $  60.02   $   38.88    $    2.66   $   13.23
3.   Legislative Adjs.               0.939       1 049       0.926        0.931       1.140
4.   Trend Adjustments
     a. Cost per Unit                1.100       1.100       1.100        1.050       1.000
     b. Units per Eligible           1.100       1.155       1.100        1.100       1 000
     Projected Cost per          $   22.22    $  79.99   $   43.56    $    2.86   $   15.08
5.   Stop Loss Reins.                          Amount    $       0                    Rate
6.   CHDP
7.   Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $ 163.77                $  163.77
                                              /Without

                                                   FQHC
Rate Calculation                    Other      FFSE    Increment       Total
                                                        
1.   Average Cost Per Unit       $   6.41   $ 50.63      $  0.00
2.   Units per Eligible            12.862     0.024        0.024
3.   Addt'l Capitation Amts.     $   0.00   $  0.00      $  0.00
     Cost per Elig. per Mo.      $   6.87   $  0.10      $  0.00    $ 143.16
Adjustments
     a. Demographics                1.013     0.979        0.979
     b. Area                        1.000     1.000        1.000
     c. Coverages                   0.791     0.603        0.603
     d. Interest                    0.995     0.995        0.995
Adjusted Base Cost               $   5.48   $  0.06      $  0.00    $ 139.89
3.   Legislative Adjs.              0.927     0.926        0.926
4.   Trend Adjustments
     a. Cost per Unit              1. 050     1.000        1.000
     b. Units per Eligible          0.950     1.000        1.000
Projected Cost per               $   5.07   $  0.06      $  0.00    $ 168.84
5.   Stop Loss Reins.                 0.0%              Premium         0.00
6.   CHDP                                                               0.00
7.   Fee-for-Service Adj.
Capitation Rate With FQHC            -3.0%                             (5.07)
 Increment

                                    Page 8 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     San Bernardino                      Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          Disabled



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- -----------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Eyewear                                            NOT Covered by (he Plan
- -----------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- -----------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- -----------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- -----------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- -----------------------------------------------------------------------------



Rate Calculation                                          Hospital     Hospital   Long Term
                                 Physician    Pharmacy   Inpatient   Outpatient        Care
                                                                   
1.   Average Cost Per Unit       $   46.41    $  39.70   $  611.26   $   12.37    $  139.87
2.   Units per Eligible              6.969      26.861       1.556       5.050        0.459
3.   Addl'l Capitation Amts.     $    2.96    $   0.09   $    9.89   $    0.02    $    0.00
     Cost per Elig. per Mo.      $   29.91    $  88.96   $   89.15   $    5.23    $    5.35
Adjustments
     a. Demographics                 0.980       0.973       0.961       0.998        0.996
     b. Area                         1.043       1.000       1.000       1.000        1.000
     c. Coverages                    0.900       0.875       0.920       0.973        0.995
     d. Interest                     0.995       0.995       0.995       0.995        0.995
Adjusted Base Cost               $   27.38    $  75.36   $   78.43   $    5.05    $    5.28
3.   Legislative Adjs.               0.941       1.043       0.919       0.931        1.130
4.   Trend Adjustments
     a. Cost per Unit                1.000       1.100       1.050       1.000        1.100
     b. Units per Eligible           1.100       1.210       1.050       1.045        0.950
Projected Cost per Eligible      $   28.34    $ 104.62   $   79.47   $    4.91    $    6.23
5.   Stop Loss Reins.                          Amount    $       0                   Rate
6.   CHDP
7.Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $ 233.49               $   233.49
                                              /Without

Rate Calculation                                   FQHC
                                  Other        FFSE   Increment      Total
                                                      
1.   Average Cost Per Unit       $  10.16   $ 69.96     $  0.00
2.   Units per Eligible            21.959     0.120       0.120
3.   Addl't Capitation Amts.     $   0.00   $  0.00     $  0.00
     Cost per Elig. per Mo.      $  18.59   $  0.70     $  0.00   $ 237.89
Adjustments
     a. Demographics                1.006     0.989       0.989
     b. Area                        1.000     1.000       1.000
     c. Coverages                   0.878     0.863       0.863
     d. Interest                    0.995     0.995       0.995
Adjusted Base Cost               $  16.34   $  0.59     $  0.00   $ 208.43
3.   Legislative Adjs.              0.923     0.932       0.932
4.   Trend Adjustments
     a. Cost per Unit               1.100     1.000       1.000
     b. Units per Eligible          1.000     1.000       1.000
Projected Cost per Eligible      $  16.59   $  0.55     $  0.00   $ 240.71
5.   Stop Loss Reins.                 0.0%             Premium        0.00
6.   CHDP                                                             0.00
7.Fee-for-Service Adj.               -3.0%                           (7.22)
Capitation Rate With FQHC
 Increment


                                    Page 9 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     San Bernardino                      Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          Child



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- -------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- -------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- -------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- -------------------------------------------------------------------------------



                                                           Hospital     Hospital   Long Term
Rate Calculation                 Physician    Pharmacy    Inpatient   Outpatient        Care
                                                                     
1.   Average Cost Per Unit        $  67.42    $  13.64   $ 1,120.53   $    16.21    $ 469.38
2.   Units per Eligible              4.035       3.411        0.465        1.518       0.007
3.   Addt'l Capitation Amts.      $   0.23    $   0.03   $     2.90   $     0.00    $   0.00
     Cost per Elig. per Mo.       $  22.90    $   3.91   $    46.32   $     2.05    $   0.27
Adjustments
     a. Demographics                 1.212       1.021        1.342        1.157       1.000
     b. Area                         1.043       1.000        1.000        1.000       1.000
     c. Coverages                    0.974       0.984        0.952        0.973       0.996
     d. Interest                     0.995       0.995        0.995        0.995       0.995
Adjusted Base Cost                $  28.05    $   3.91   $    58.88   $     2.30    $   0.27
3   Legislative Adjs                 1.076       1.047        0.999        1.024       1.134
4.   Trend Adjustments
     a. Cost per Unit                1.000       1.100        1.050        1.000       1.000
     b. Units per Eligible           0.950       1.000        1.050        0.950       1.050
Projected Cost per Eligible       $  28.67    $   4.50   $    64.85   $     2.24    $   0.32
5.   Stop Loss Reins.                          Amount    $        0                   Rate
6.   CHDP
7.Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $ 106.43                $    106.35
                                              /Without

                                                  FQHC
Rate Calculation                   Other      FFSE   Increment      Total
                                                     
1.   Average Cost Per Unit       $ 20.69   $ 68.10     $  7.33
2.   Units per Eligible            1.958     0.132       0.132
3.   Addt'l Capitation Amts.     $  0.00   $  0.00     $  0.00
     Cost per Elig. per Mo.      $  3.38   $  0.75     $  0.08   $  79.68
Adjustments
     a. Demographics               1.080     1.084       1.084
     b. Area                       1.000     1.000       1.000
     c. Coverages                  0.815     0.970       0.970
     d. Interest                   0.995     0.995       0.995
Adjusted Base Cost               $  2.96   $  0.78     $  0.08   $  97.23
3   Legislative Adjs               1.090     1.031       1.031
4.   Trend Adjustments
     a. Cost per Unit              0.950     1.000       1.000
     b. Units per Eligible         1.050     1.000       1.000
Projected Cost per Eligible      $  3.22   $  0.80     $  0.08   $ 104.68
5.   Stop Loss Reins.                0.0%             Premium        0.00
6.   CHDP                                                            5.04
7.Fee-for-Service Adj.              -3.0%                           (3.29)
Capitation Rate With FQHC
 Increment


                                     Page 10 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     Riverside                           Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          Adult



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



                                                           Hospital     Hospital   Long Term
Rate Calculation                 Physician    Pharmacy    Inpatient   Outpatient        Care
                                                                    
1.   Average Cost Per Unit       $   90.48    $  17.11   $ 1,140.81   $    15.76   $  812.04
2.   Units per Eligible             21.541       5.818        5.446        4.679       0.000
3.   Addt'l Capitation Amts.     $    0.37    $   0.06   $    35.62   $     0.08   $    0.00
     Cost per Elig. per Mo.      $  162.79    $   8.36   $   553.36   $     6.23   $    0.00
Adjustments
     a. Demographics                 1.000       1.000        1.000        1.000       1.000
     b. Area                         1.043       1.000        1.000        1.000       1.000
     c. Coverages                    0.999       0.999        0.999        0.989       1.000
     d. Interest                     0.995       0.995        0.995        0.995       0.995
Adjusted Base Cost               $  168.77    $   8.31   $   550.04   $     6.13   $    0.00
3.   Legislative Adjs.               1.029       1.054        1.000        1.022       1.102
4.   Trend Adjustments
     a. Cost per Unit                1.000       1.100        1.050        1.000       1.000
     b. Units per Eligible           0.950       1.000        1.050        0.950       1.050
Projected Cost per Eligible      $  164.98    $   9.63   $   606.42   $     5.95   $    0.00
5.   Stop Loss Reins.                          Amount    $        0                   Rate
6.   CHDP
7.Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $ 790.89                $   790.53
                                              /Without

Rate Calculation                                   FQHC
                                    Other      FFSE   Increment      Total
                                                      
1.   Average Cost Per Unit       $  36.13   $ 68.10     $  7.33
2.   Units per Eligible            10.172     0.577       0.577
3.   Addt'l Capitation Amts.     $   0.00   $  0.00     $  0.00
     Cost per Elig. per Mo.      $  30.63   $  3.28     $  0.35   $ 765.00
Adjustments
     a. Demographics                1.000     1.000       1.000
     b. Area                        1.000     1.000       1.000
     c. Coverages                   0.809     0.995       0.995
     d. Interest                    0.995     0.995       0.995
Adjusted Base Cost               $  24.66   $  3.25     $  0.35   $ 761.51
3.   Legislative Adjs.              1.004     1.015       1.015
4.   Trend Adjustments
     a. Cost per Unit               0.950     1.000       1.000
     b. Units per Eligible          1.050     1.000       1.000
Projected Cost per Eligible      $  24.70   $  3.30     $  0.36   $ 815.34
5.   Stop Loss Reins.                 0.0%             Premium        0.00
6.   CHDP                                                             0.00
7.Fee-for-Service Adj.               -3.0%                          (24.45)
Capitation Rate With FQHC
 Increment


                                   Page 11 of 12




                                                                                                     
Plan Name:                  Molina Medical Center               Plan #:       356                Date:              04-May-99
County:                     San Bernardino                      Plan Type:    Commercial Plan    Base Period:       FY 96/97
Aid Code Grouping:          AIDS



                                                                                                           
                                                                                                                 CI for 95-23637
The Rate Period Is October 1,1998 to September 30, 1999     Capitation Payments at the Beginning of the Month    Attachment 1


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Ajphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



                                                          Hospital      Hospital   Long Term
Rate Calculation                 Physician    Pharmacy   Inpatient    Outpatient        Care
                                                                    
1.   Average Cost Per Unit       $   32.67    $ 126.04   $  611.26      $  13.79   $  139.87
2.   Units per Eligible             26.584      74.792       3.169         9.882       0.000
3.   Addt'l Capitation Amts.     $    2.96    $   0.09   $    9.89      $   0.02   $    0.00
     Cost per Elig. per Mo.      $   75.33    $ 785.66   $  171.31      $  11.38   $    0.00
Adjustments
     a. Demographics                 1.000       1.000       1.000         1.000       1.000
     b. Area                         1 043       1.000       1.000         1.000       1.000
     c. Coverages                    0.918       0.648       0.957         0.992       0.998
     d. Interest                     0.995       0.995       0.995         0.995       0.995
Adjusted Base Cost               $   71.77    $ 506.56   $  163.12      $  11.23   $    0.00
3.   Legislative Adjs.               0.963       1.006       0.977         0.982       1.186
4.  Trend Adjustments
     a. Cost per Unit                1.000       1.100       1.050         1.000       1.100
     b. Units per Eligible           1.100       1.210       1.050         1.045       0.950
Projected Cost per Eligible      $   76.03    $ 678.28   $  175.70      $  11.52   $    0.00
5.   Stop Loss Reins.                          Amount    $       0                    Rate
6.   CHDP
7.Fee-for-Service Adj.
Capitation Rate With FQHC
 Increment                                    $ 995.00                  $ 995.00
                                              /Without

Rate Calculation                                     FQHC
                                      Other      FFSE   Increment       Total
                                                       
1.   Average Cost Per Unit         $  42.30   $ 69.96   $   0.00
2.   Units per Eligible              36.392     0.349      0.349
3.   Addt'l Capitation Amts.       $   0.00   $  0.00   $   0.00
     Cost per Elig. per Mo.        $ 128.28   $  2.04   $   0.00   $ 1.174.00
Adjustments
     a. Demographics                  1.000     1.000      1.000
     b. Area                          1.000     1.000      1.000
     c. Coverages                     0.599     0.951      0.951
     d. Interest                      0.995     0.995      0.995
Adjusted Base Cost                 $  76.46   $  1.93   $   0.00   $   831.07
3.   Legislative Adjs.                0.979     0.984      0.984
4.  Trend Adjustments
     a. Cost per Unit                 1.100     1.000      1.000
     b. Units per Eligible            1.000     1.000      1.000
Projected Cost per Eligible        $  82.34   $  1.90   $   0.00   $ 1.025.77
5.   Stop Loss Reins.                   0.0%         Premium             0.00
6.   CHDP                                                                0.00
7.Fee-for-Service Adj.                  3.0                            (30.77)
Capitation Rate With FQHC Increment


                                   Page 12 of 12



[LETTER HEAD OF  DEPARTMENT OF HEALTH SERVICES]

                                  June 1, 1999

     John Molina, M.D.
     Molina Medical Centers, Inc.
     One Golden Shore
     Long Beach, CA 90802

     Dear Dr. Molina :

          In accordance with Article III, Section 3.34.2 of your Contract, the
     enclosed Change Order authorizes the coverage of aid codes 7A, 47, and 72
     and transmits Molina Medical Center, Inc., capitation rates for these aid
     codes for the period April 1, 1999, to September 30, 1999. The new rates
     will be effective April 1, 1999.

          If you have any questions, please contact your contract manager.

                                                Sincerely,


                                                /s/
                                                --------------------------------
                                                Susanne M. Hughes
                                                Acting Chief
                                                Medi-Cal Managed Care Division

     Enclosures



[LETTER HEAD OF  DEPARTMENT OF HEALTH SERVICES]

          CHANGE ORDER NUMBER C2 to CONTRACT No. 95-23637 ADDING AID CODES 7A,
          47, AND 72 AND CAPITATION RATES FOR THE PERIOD APRIL 1, 1999 TO
          SEPTEMBER 30, 1999, BY ADDING ADDITIONAL LANGUAGE TO ARTICLE II,
          SECTION Y, ELIGIBLE BENEFICIARY AND ARTICLE V, SECTIONS 5.3 CAPITATION
          RATES; AND 5.4 CAPITATION RATES CONSTITUTE PAYMENT IN FULL, Issued May
          21, 1999.

1.        Article II, Section Y, Eligible Beneficiary, following the words
          "Medically Indigent Adult - aid code 86", the following words are
          added "Percent of Poverty - aid codes 7A, 47, and 72."

          All other terms, conditions, and provisions contained in Article II,
          Section Y remain unchanged.

2.        5.3  CAPITATION RATES

            FOR THE PERIOD 04/01/99 - 09/30/99

                 GROUP                    AID CODES                  RATE
            ----------------------------------------------------------------
            Percent of Poverty          7A                         $   54.11
            ----------------------------------------------------------------
            Percent of Poverty          47/72                      $   60.05
            ----------------------------------------------------------------

          In the future, DHS may be splitting existing aid codes into new aid
          codes. The new split aid codes will be in the same aid code group
          category as the original aid code. If DHS establishes new aid codes by
          splitting existing aid codes, Contractor agrees to accept Eligible
          Beneficiaries with these new aid codes as Members and to provide
          covered services to these Members at the monthly capitation rate
          specified for the original aid code group category. The Department
          shall confirm all aid code splits, and the rates of payment for such
          new aid codes, in writing to Contractor as soon as practicable after
          such aid code splits occur.

          All other terms, conditions, and provisions contained in Section 5.3
          remain unchanged.

3.        5.4 CAPITATION RATES CONSTITUTE PAYMENT IN FULL.

          The actuarial basis for the determination of the capitation payment
          rates for Aid Codes 7A, 47, and 72 is outlined in Attachment 1
          (consisting of 2 pages).

4.        All other terms, conditions, and provisions contained in Section 5.4
          remain unchanged.



Id Group  Poverty - 7A        Base:           Statewide Family Age Adjusted
                              Base Period:    FY 96/97
Payments at End of Month



          Services==>                                               Hospital     Hospital    Nursing
                                          Physician    Pharmacy    Inpatient   Outpatient   Facility    Other

                                                                                    
1. Base Cost                               $  10.40   $    6.74   $    13.64    $    3.91   $   0.24  $  8.30
2. Age/Sex Adjustments                        1.000       1.000        1.000        1.000      1.000    1.000
3. Eligibility Adjustments                    1.000       1.000        1.000        1.000      1.000    1.000
4. Coverage Adjustments                       0.997       0.997        0.999        0.964      1.000    0.891
5. Interest Offset                            0.995       1.001        0.991        0.993      0.998    0.995

Contract Cost FY 96/97                     $  10.32   $    6.73   $    13.50    $    3.74   $   0.24  $  7.36

6. Legislative Adjustments                    1.044       0.740        0.985        1.021      1.061    1.150
7. Trend Adjustments
          a. Cost per Unit                    1.000       1.308        1.055        0.970      1.000    1.445
          b. Utilization                      1.000       1.027        1.050        1.000      1.107    1.000

Projeced Cost 10/98-9/99                   $  10.77   $    6.69   $    14.73    $    3.70   $   0.28  $ 12.23

8. CHDP

9. Administrative Allowance                                                                      1.6%

Fee-for-Service Equivalent Cost

Fee-for-Service Adj.                                                                              94%

Capitation Rate with FQHC increment

Capitation Rate without FQHC increment


          Services==>                               FQHC
                                                FFSE    Increment     Total

                                                           
1. Base Cost                               $    2,98   $     1.21   $ 47.42
2. Age/Sex Adjustments                         1.000        1.000
3. Eligibility Adjustments                     1.000        1.000
4. Coverage Adjustments                        0.991        0.991
5. Interest Offset                             0.998        0.998

Contract Cost FY 96/97                     $    2.94   $     1.20   $ 46.03

6. Legislative Adjustments                     1.024        1.024
7. Trend Adjustments
          a. Cost per Unit                     1.071        1.071
          b. utilization                       1.265        1.265

Projeced Cost 10/98-9/99                   $    4.08   $     1.66   $ 54.14

8. CHDP                                                             $  2.54

9. Administrative Allowance                                         $  0.88

Fee-for-Service Equivalent Cost                                     $ 57.56

Fee-for-Service Adj.                                                  (3.45)

Capitation Rate with FQHC increment                                 $ 54.11

Capitation Rate without FQHC increment                              $ 52.55


                                     1 of 2



Id Group  Poverty - 47/72
                                          Base:           Statewide
                                          Base Period:    FY 96/97

Payments at End of Month


                                                                     Hospital    Hospital    Nursing
        Services ==>                       Physician    Pharmacy    Inpatient   Outpatient   Facility    Other

                                                                                     
1. Base Cost                                 $ 10.66     $  7.27      $ 20.52      $  5.31   $   0.14  $  2.92
2. Age/Sex Adjustments                         1.000       1.000        1.000        1.000      1.000    1.000
3. Eligibility Adjustments                     1.000       1.000        1.000        1.000      1.000    1.000
4. Coverage Adjustments                        0.997       0.997        0.999        0.964      1.000    0.891
5. Interest Offset                             0.995       1.001        0.991        0.993      0.998    0.995

Contract Cost FY 96/97                       $ 10.57     $  7.25      $ 20.32      $  5.09   $   0.14  $  2.59

6. Legislative Adjustments                     1.044       0.740        0.985        1.021      1.061    1.150
7. Trend Adjustments
          a. Cost per Unit                     1.000       1.306        1.055        0.970      1.000    1.445
          b. Utilization                       1.000       1.027        1.050        1.000      1.107    1.000

Project Cost 10/98-9/99                      $ 11.04     $  7.21      $ 22.17      $  5.04   $   0.16  $  4.30

8. CHDP

9. Administrative Allowance                                                                       1.6%

Fee-for-Service Equivalent Cost

Fee-for-Service Adj.                                                                               94%

Capitation Rate with FQHC increment

Capitation Rate without FQHC increment


Payments at End of Month

                                                    FQHC
        Services==>                             FFSE   Increment     Total

                                                          
1. Base Cost                               $    5.42   $    2.21   $ 54.45
2. Age/Sex Adjustments                         1.000       1.000
3. Eligibility Adjustments                     1.000       1.000
4. Coverage Adjustments                        0.991       0.991
5. Interest Offset                             0.998       0.998

Contract Cost FY 96/97                     $    5.36   $    2.18   $ 53.50

6. Legislative Adjustments                      1024
7. Trend Adjustments
          a. Cost per Unit                     1.071       1.071
          b. Utilization                       1.265       1.265

Project Cost 10/98-9/99                    $    7.44   $    3.02   $ 60.38

8. CHDP                                                            $  2.54

9. Administrative Allowance                                        $  0.96

Fee-for-Service Equivalent Cost                                    $ 63.88

Fee-for-Service Adj.                                                 (3.83)

Capitation Rate with FQHC increment                                $ 60.05

Capitation Rate without FQHC increment                             $ 57.21



                                     2 of 2



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

                                  July 1, 1999
John Molina, M.D.
Molina Medical Centers, Inc.
One Golden Share
Long Beach, CA 90802

Dear Dr. Molina:

     In accordance with Article III, Section 3.34.2 of your Contract, the
enclosed Change Order authorizes the change in rates for FQHC and RHC
subcontracts and transmits Molina Medical Centers, Inc. rates for the period
July 1, 1999 through September 30, 1999. This Change Order also changes contract
Sections 3.27.6, Federally Qualified Health Centers/Rural Health Clinics; 5.3
Capitation Rates; 5.4 Capitation Rates Constitute Payment in Full; 5.13 FQHC and
RHC Risk Corridor Payments; 6.3.6 Submittal of FQHC and RHC payment information
and 6.6.21 FQHC and RHC Contracts. The new rates will appear in your capitation
rate beginning July 1, 1999.

     If you have any questions, please contact your contract manager.

                                               Sincerely,


                                               /s/
                                               Susanne M. Hughes
                                               Acting Chief
                                               Medi-Cal Managed Care Division

Enclosures



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

CHANGE ORDER NUMBER C3 TO CONTRACT NO. 95-23637 BY CHANGING CONTRACT SECTIONS
3.27.6 FEDERALLY QUALIFIED HEALTH CENTERS/RURAL HEALTH CLINICS; 5.3 CAPITATION
RATES; 5.4 CAPITATION RATES CONSTITUTE PAYMENT IN FULL; 5.13 FQHC/RHC RISK
CORRIDOR PAYMENTS; 6.3.6 SUBMITTAL OF FQHC AND RHC PAYMENT INFORMATION AND
6.6.21 FQHC AND RURAL HEALTH CLINIC (RHC) CONTRACTS. Issued July 1,1999.

1.   3.27.6      FEDERALLY QUALIFIED HEALTH CENTERS/RURAL HEALTH CLINICS

     A.   Contractor shall not enter into a Subcontract with a Federally
          Qualified Health Center (FQHC) or a Rural Health Clinic (RHC) unless
          DHS approves the provisions regarding rates, which shall be subject to
          the standard that they be reasonable, as determined by DHS, in
          relation to the services to be provided, in accordance with Article
          VI, Section 6.6.21 FQHC and RHC Contracts. In Subcontracts where the
          FQHC or RHC has made the election to be reimbursed on a reasonable
          cost basis by the State, provisions shall be included that require the
          subcontractor to keep a record of the number of visits by plan Members
          separate from Fee-For-Service Medi-Cal beneficiaries, in addition to
          any other data reporting requirements of the Subcontract. The
          provisions of this section shall end June 30, 1999.

     B.   The provisions of this section shall apply beginning July 1, 1999.
          Contractor shall submit to DHS, within 30 days of a request and in the
          form and manner specified by DHS, for each of Contractor's FQHC and
          RHC Subcontracts the services provided and the reimbursement level and
          amount. Further, Contractor shall certify to DHS that pursuant to
          Welfare and Institutions Code, Section 14087.325(b) and (d), as
          amended by Chapter 894/Statutes of 1998, that FQHC and RHC Subcontract
          terms and conditions are the same as offered to other Subcontractors
          providing similar scope of service and that reimbursement is not less
          than the level and amount of payment that Contractor makes for the
          same scope of services furnished by a provider that is not a FQHC or
          RHC. Effective July 1, 1999, Contractor shall not be required to pay
          FQHCs and RHCs at the Medi-Cal interim per visit rate described in
          Section 6.6.22. Rather, Contractor shall be required to pay its FQHC
          and RHC Subcontractors reimbursement that is

                                     1 of 4



CHANGE ORDER C3
CONTRACT NO. 95-23637

          not less than the level and amount of payment that Contractor makes
          for the same scope of services furnished by a provider that is not a
          FQHC or RHC. Effective July 1, 1999, Contractor capitation rates will
          be reduced to reflect the removal of the requirement to pay FQHCs and
          RHCs the Medi-Cal interim per visit rate. DHS reserves the right to
          review and audit Contractor's FQHC and RHC reimbursement at its
          discretion to ensure compliance with the state and federal law and
          shall approve all FQHC and RHC Subcontracts consistent with the
          provisions of Welfare and Institutions Code, Section 14087.325(h).

     C.   Subcontracts with FQHCs shall also meet Contract requirements of
          Article VI, Sections 6.6.20, FQHC services and 6.6.21, FQHC and Rural
          Health Clinic Subcontracts. Subcontracts with RHCs shall also meet
          Contract requirements of Article VI, Section 6.6.21

     D.   In Subcontracts where a negotiated reimbursement rate is agreed to as
          total payment, a provision that such rate constitutes total payment
          shall be included in the Subcontract.

2.   5.3         CAPITATION RATES

     FOR THE PERIOD 7/1/99 - 9/30/99                            RIVERSIDE COUNTY
     ---------------------------------------------------------------------------
            GROUPS                   AID CODES                           RATE
     ---------------------------------------------------------------------------
     Fami1y                01, 0A, 02, 08, 30, 32, 3G, 33,             $   78.41
                           3H, 34, 35, 38, 39, 3A, 3C,
                           3N, 3P, 3R, 3U, 3R, 40, 54,
                           59, 7X; CalWORKS: 3E, 3L,
                           3M
     ---------------------------------------------------------------------------
     Disabled              20, 24, 26, 28, 36, 60, 64, 66,             $  222.61
                           68, 6A, 6C, 6N, 6P, 6R
     ---------------------------------------------------------------------------
     Aged                  10, 14, 16, 18                              $  160.47
     ---------------------------------------------------------------------------
     Child                 03, 04, 45, 4C, 4K, 5K, 82                  $   92.75
     ---------------------------------------------------------------------------
     Adult                 86                                          $  705.26
     ---------------------------------------------------------------------------
     AIDS Beneficiary                                                  $  962.42
     ---------------------------------------------------------------------------
     Percent of Poverty    7A                                          $   52.55
     ---------------------------------------------------------------------------
     Percent of Poverty    47.72                                       $   57.21
     ---------------------------------------------------------------------------

                                     2 of 4



Change order c3
contract no. 95-23637

     For the period 7/1/99 - 9/30/99                       SAN BERNARDINO COUNTY
     ---------------------------------------------------------------------------
            GROUPS                    AID CODES                        RATE
     ---------------------------------------------------------------------------
     Family                01, 0A, 02, 08, 30, 32, 3G, 33,            $    80.41
                           3H, 34, 35, 38, 39, 3A, 3C,
                           3N, 3P, 3R, 3U, 40, 54, 59,
                           7X; Cal WORKS: 3E, 3L, 3M
     ---------------------------------------------------------------------------
     Disabled              20, 24, 26, 28, 36, 60, 64, 66,            $   233.49
                           68, 6A, 6C, 6N, 6P, 6R
     ---------------------------------------------------------------------------
     Aged                  10, 14, 16, 18                             $   163.77
     ---------------------------------------------------------------------------
     Child                 03, 04, 45, 4C, 4K, 5K, 82                 $   106.35
     ---------------------------------------------------------------------------
     Adult                 86                                         $   790.53
     ---------------------------------------------------------------------------
     AIDS Beneficiary                                                 $   995.00
     ---------------------------------------------------------------------------
     Percent of Poverty    7A                                         $    52.55
     ---------------------------------------------------------------------------
     Percent of Poverty    47,72                                      $    57.21
     ---------------------------------------------------------------------------

3.   5.4         CAPITATION RATES CONSTITUTE PAYMENT IN FULL

     The actuarial basis for the determination of the capitation payment rates
     is outlined in Attachment 1 (consisting of 16 pages).

     All other terms, conditions, and provisions contained in Section 5.4 remain
     unchanged.

4.   5.13        FQHC/RHC RISK CORRIDOR PAYMENTS

     For service periods beginning October 1, 1997 and through June 30, 1999
     provided that Contractor has submitted expenditure data to DHS in the form
     and manner specified by DHS, DHS shall perform reconciliations to determine
     the variance between the contractor's actual FQHC/RHC expenses and the
     amount they were paid through capitation rates for FQHC/RHC services.

     For each annual reconciliation, if, pursuant to subcontracts with FQHCs and
     RHCs that have been reviewed and approved in writing by DHS, Contractor has
     paid subcontracting FQHCs and RHCs in the aggregate interim rate payments
     an amount greater than 110 percent of the dollar value of FQHC and RHC
     interim rate payments included in Contractor's capitation rates, DHS shall
     pay Contractor the amount in excess of 110 percent.

     For each annual reconciliation, if, pursuant to subcontracts with FQHCs and
     RHCs that have been reviewed and approved in writing by DHS, Contractor has
     paid subcontracting FQHCs and RHCs in the aggregate an amount less than 90
     percent of the dollar value of FQHC and RHC interim rate payments included
     in Contractor's capitation rates,

                                     3 of 4



CHANGE ORDER C3
CONTRACT NO. 95-23637

     Contractor shall refund the amount below 90 percent to DHS. DHS may recover
     amounts owed by Contractor pursuant to this section through an offset to
     the capitation payments made to Contractor, pursuant to Section 5.11(C),
     Recovery of Capitation Payments.

     All reconciliations shall be subject to an annual reconciliation audit at
     which time payments to or recoupments from Contractor shall be finalized.

5.   6.3.6       SUBMITTAL OF FQHC AND RHC PAYMENT INFORMATION

     Effective with the October 1997 month of service, Contractor shall keep a
     record of the number of visits by plan Members to each FQHC and RHC
     contracting with Contractor and related payment information, and shall
     submit this information to DHS in the frequency, format, and manner
     specified by DHS. This requirement shall remain in effect for service
     periods through the June 30, 1999.

6.   6.6.21      FQHC AND RURAL HEALTH CLINIC (RHC) CONTRACTS

     A.   This requirement shall remain in effect for service periods through
          June 30, 1999. Notwithstanding Article III, Section 3.26.4,
          Departmental Approval - Federally Qualified HMOs, Contractor shall not
          enter into any contract with an FQHC or RHC for provision of Covered
          Services to Members without prior approval by DHS. All contracts with
          FQHCs or RHCs shall provide reimbursement to the FQHC or RHC on the
          basis of each center's or clinic's Medi-Cal interim per visit rate,
          applicable on the date the reimbursable services were provided, as
          established by DHS, unless:

          1.   DHS has approved in writing an alternate reimbursement
               methodology; or

          2.   The FQHC or RHC agrees to be reimbursed on an at-risk basis and
               such agreement is contained in the contract with the center or
               clinic. In contracts where the negotiated rate is agreed to as
               total payment, the contract shall state that such payment
               constitutes total payment to the entity.

     B.   To the extent that Indian Health Service facilities qualify as FQHCs
          or RHCs, the same reimbursement requirements shall apply to contracts
          with Indian Health Service facilities.

7.   All other terms, conditions, and provisions contained in Section 5.4 remain
     unchanged.

                                     4 of 4




                                                                                    
Plan Name:                Molina Medical Center         Plan #:     355                      Date:         04-May-99
County:                   Riverside                     Plan Type:  Commercial Plan          Base Period:  FY 96/97
Aid Code Grouping:        Family


The Rate Period is October 1, 1998 to September 30,1999

Capitation Payments at the Beginning of the Month        C3 to Contract 95-23637
                                                         Attachment 1
                                                         Page 1 of 16

 Coverages
 -----------------------------------------------------------------------------
     CCS Indicated Claims                              NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Mental Health Outpatient Services                 NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Mental Health Pharmacy Costs                      NOT Covered by the Plan
     -------------------------------------------------------------------------
     Mental Health Hospital Inpatient Services         NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Eyewear                                           NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Heroin Detoxification                             NOT Covered by the Plan
 -----------------------------------------------------------------------------
     AIDS Waiver Services                              NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Adult Day Health Care                             NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Chiropractor/Acupuncture                          NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Local Education Authority                         NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Alphafeto Protein Testing                         NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Long Term Care for month of entry plus one        Covered by the Plan
 -----------------------------------------------------------------------------
     Long Term Care after month of entry plus one      NOT Covered by the Plan
 -----------------------------------------------------------------------------
     Special AIDS drugs                                NOT Covered by the Plan
 -----------------------------------------------------------------------------



   Rate Calculation
                                                                   Hospital       Hospital       Long Term
                                    Physician       Pharmacy      Inpatient     Outpatient            Care          Other
                                                                                           
1. Average Cost Per Unit         $      69.46   $      19.88   $     864.71   $      16.16    $     812.04   $      20.09
2. Units per Eligible                   4.014          4.683          0.373          2.146           0.004          3.532
3. Addt'l Capitation Amts.       $       0.37   $       0.05   $       4.62   $       0.01    $       0.00   $       0.00
   Cost per Elig. per Mo.        $      23.60   $       7.81   $      31.50   $       2.90    $       0.27   $       5.91
Adjustments
   a. Demographics                      1.004          0.976          1.023          1.002           1.000          0.985
   b. Area                              1.043          1.000          1.000          1.000           1.000          1.000
   c. Coverages                         0.975          0.992          0.968          0.956           0.995          0.833
   d. Interest                          0.995          0.995          0.995          0.995           0.995          0.995
Adjusted Base Cost               $      23.97   $       7.52   $      31.04   $       2.76    $       0.27   $       4.82
3. Legislative Adjs.                    1.053          1.053          0.998          1.023           1.141          1.046
4. Trend Adjustments
   a. Cost per Unit                     1.000          1.100          1.050          1.000           1.000          0.950
   b. Units per Eligible                0.950          1.000          1.050          0.950           1.050          1.050
Projected Cost per Eligible      $      23.98   $       8.71   $      34.15   $       2.68    $       0.32   $       5.03
5. Stop Loss Reins.                         Amount             $          0               Rate                        0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                              -3.0%
Capitation Rate with FQHC
 Increment                                      $      78.73 / Without        $      78.41


   Rate Calculation                        FQHC
                                         FFSE      Increment          Total
                                                      
1. Average Cost Per Unit         $      68.39   $      24.41
2. Units per Eligible                   0.168          0.168
3. Addt'l Capitation Amts.       $       0.00   $       0.00
   Cost per Elig. per Mo.        $       0.96   $       0.34   $      73.29
Adjustments
   a. Demographics                      0.994          0.994
   b. Area                              1.000          1.000
   c. Coverages                         0.935          0.935
   d. Interest                          0.995          0.995
Adjusted Base Cost               $       0.89   $       0.31   $      71.58
3. Legislative Adjs.                    1.027          1.027
4. Trend Adjustments
   a. Cost per Unit                     1.000          1.000
   b. Units per Eligible                1.000          1.000
Projected Cost per Eligible      $       0.91   $       0.32   $      76.10
5. Stop Loss Reins                          Premium                    0.00
6. CHDP                                                                5.06
7. Fee-for-Service Adj.                                               (2.43)
Capitation Rate with FQHC
 Increment





                                                                                                      
Plan Name:              Molina Medical Center       Plan #:     355                    Date:         04-May-99    C3 to Contract
County:                 Riverside                   Plan Type:  Commercial Plan        Base Period:  FY 96/97      95-23637
Aid Code Grouping:      Aged                                                                                      Attachment 1
                                                                                                                  Page 2 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month



Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one        Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                NOT Covered by the Plan
- --------------------------------------------------------------------------------



 Rate Calculation                                               Hospital      Hospital      Long Term
                                   Physician      Pharmacy     Inpatient    Outpatient           Care         Other
                                                                                         
1. Average Cost Per Unit             $ 48.90      $  32.71      $ 287.24      $  10.02        $ 77.33      $   6.41
2. Units per Eligible                  4.472        21.914         1.265         3.306          2.016        12.862
3. Addt'l Capitation Amts.           $  1.29      $   0.00      $   7.41      $   0.02        $  0.00      $   0.00
   Cost per Ellg. per Mo.            $ 19.51      $  59.73      $  37.69      $   2.78        $ 12.99      $   6.87
Adjustments
     a. Demographics                   0.955         1.019         0.957         0.970          1.039         1.025
     b. Area                           1.043         1.000         1.000         1.000          1.000         1.000
     c. Coverages                      0.981         0.996         0.997         0.986          0.997         0.791
     d. Interest                       0.995         0.995         0.995         0.995          0.995         0.995
Adjusted Base Cost                   $ 18.97      $  60.32      $  35.78      $   2.65        $ 13.39      $   5.54
3. Legislative Adjs.                   0.939         1.049         0.926         0.931          1.140         0.927
4. Trend Adjustments
   a. Cost per Unit                    1.100         1.100         1.100         1.050          1.000         1.050
   b. Units per Eligible               1.100         1.155         1.100         1.100          1.000         0.950
Projected Cost per Eligible          $ 21.55      $  80.39      $  40.09      $   2.85        $ 15.26      $   5.12
5. Stop Loss Reins.                          Amount             $      0                Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                        -3.0%
Capitation Rate With FQHC Increment               $ 160.47 / Without          $ 160.47


 Rate Calculation                              FQHC
                                          FFSE     Increment           Total

                                                           
1. Average Cost Per Unit               $ 28.59     $    0.00
2. Units per Eligible                    0.132         0.132
3. Addt'l Capitation Amts.             $  0.00     $    0.00
   Cost per Elig. per Mo.              $  0.31     $    0.00        $ 139.88
Adjustments
     a. Demographics                     0.970         0.970
     b. Area                             1.000         1.000
     c. Coverages                        0.603         0.603
     d. Interest                         0.995         0.995
Adjusted Base Cost                     $  0.18     $    0.00        $ 136.83
3. Legislative Adjs.                     0.926         0.926
4. Trend Adjustments
   a. Cost per Unit                      1.000         1.000
   b. Units per Eligible                 1.000         1.000
Projected Cost per Eligible            $  0.17     $    0.00        $ 165.43
5. Stop Loss Reins.                           Premium                   0.00
6. CHDP                                                                 0.00
7. Fee-for-Service Adj.                                                (4.96)
Capitation Rate With FQHC Increment





                                                                                                       
Plan Name:              Molina Medical Center       Plan #:    355                     Date:           04-May-99   C3 to Contract
County:                 Riverside                   Plan Type: Commercial Plan         Base Period:    FY 96/97    95-23637
Aid Code Grouping:      Disabled                                                                                   Attachment 1
                                                                                                                   Page 3 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                Hospital      Hospital      Long Term
                                   Physician      Pharmacy     Inpatient    Outpatient           Care         Other
                                                                                        
1. Average Cost Per Unit             $ 46.41      $  39.70      $ 485.15      $  12.37      $ 139.87      $  10.16
2. Units per Eligible                  6.873        26.861         1.556         5.050         0.459        21.959
3. Addt'l Capitation Amts.           $  2.96      $   0.09      $   9.89      $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.            $ 29.54      $  88.96      $  72.80      $   5.23      $   5.35      $  18.59
Adjustments
    a. Demographics                    0.983         0.989         0.981         0.998         1 000         1.015
    b. Area                            1.043         1.000         1.000         1.000         1.000         1.000
    c. Coverages                       0.900         0.875         0.920         0.973         0.995         0.878
    d. Interest                        0.995         0.995         0.995         0.995         0.995         0.995
Adjusted Base Cost                   $ 27.12      $  76.60      $  65.37      $   5.05      $   5.30       $ 16.48
3. Legislative Adjs.                   0.941         1.043         0.919         0.931         1.130         0.923
4. Trend Adjustments
    a. Cost per Unit                   1.000         1.100         1.050         1.000         1.100         1.100
    b. Units per Eligible              1.100         1.210         1.050         1.045         0.950         1.000
Projected Cost per Eligible          $ 28.07      $ 106.34      $  66.23      $   4.91      $   6.26      $  16.73
5. Stop Loss Reins.                          Amount             $      0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                       -3.0%
Capitation Rate With FQHC Increment               $ 222.61 / Without          $ 222.61


Rate Calculation                            FQHC
                                        FFSE     Increment         Total
                                                        
1. Average Cost Per Unit             $ 66.52     $   0.00
2. Units per Eligible                  0.216        0.216
3. Addt'l Capitation Amts.           $  0.00     $   0.00
   Cost per Elig. per Mo.            $  1.20     $   0.00        $ 221.67
Adjustments
    a. Demographics                    0.987        0.987
    b. Area                            1.000        1.000
    c. Coverages                       0.863        0.863
    d. Interest                        0.995        0.995
Adjusted Base Cost                   $  1.02     $   0.00        $ 196.94
3. Legislative Adjs.                   0.932        0.932
4. Trend Adjustments
    a. Cost per Unit                   1.000        1.000
    b. Units per Eligible              1.000        1.000
Projected Cost per Eligible          $  0.95     $   0.00        $ 229.49
5. Stop Loss Reins.                        Premium                   0.00
6. CHDP                                                              0.00
7. Fee-for-Service Adj.                                             (6.88)
Capitation Rate With FQHC Increment





                                                                                                  
Plan Name:              Molina Medical Center    Plan #:    355               Date:           04-May-99    C3 to Contract
County:                 Riverside                Plan Type: Commercial Plan   Base Period:    FY 96/97     95-23637
Aid Code Grouping:      Child                                                                              Attachment 1
                                                                                                           Page 4 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Oulpatient Services                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                         MOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one        Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                               Hospital       Hospital      Long Term
                                    Physician    Pharmacy      Inpatient     Outpatient          Care         Other
                                                                                         
1. Average Cost Per Unit             $ 67.42     $ 13.64       $ 889.41       $  16.21      $ 469.38       $ 20.69
2. Units per Eligible                  3.999       3.411          0.465          1.516         0.007         1.958
3. Addt'l Capitation Amts.           $  0.23     $  0.03       $   2.90       $   0.00      $   0.00       $  0.00
   Cost per Elig. per Mo.            $ 22.70     $  3.91       $  37.36       $   2.05      $   0.27       $  3.38
Adjustments
    a. Demographics                    1.181       1.019          1.321          1.114         1.000         1.165
    b. Area                            1.043       1.000          1.000          1.000         1.000         1.000
    c. Coverages                       0.974       0.984          0.952          0.973         0.996         0.815
    d. Interest                        0.995       0.995          0.995          0.995         0.995         0.995
Adjusted Base Cost                   $ 27.10     $  3.90       $  46.75       $   2.21      $   0.27       $  3.19
3. Legislative Adjs.                   1.076       1.047          0.999          1.024         1.134         1.090
4. Trend Adjustments
   a. Cost per Unit                    1 000       1.100          1.050          1.000         1.000         0.950
   b. Units per Eligible               0.950       1.000          1.050          0.950         1.050         1.050
Projected Cost per Eligible          $ 27.70     $  4.49       $  51.49       $   2.15      $   0.32       $  3.47
5. Stop Loss Reins.                         Amount             $      0                Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                       -3.0%
Capitation Rate With FQHC Increment            $93.09 / Without               $  92.75


Rate Calculation                              FQHC
                                        FFSE     Increment         Total

                                                           
1. Average Cost Per Unit                $ 68.39    $   24.41
2. Units per Eligible                     0.168        0.168
3. Addt'l Capitation Amts.              $  0.00    $    0.00
   Cost per Etlg. per Mo.               $  0.96    $    0.34        $  70.97
Adjustments
    a. Demographics                       1.003        1.003
    b. Area                               1.000        1.000
    c. Coverages                          0.970        0.970
    d. Interest                           0.995        0.995
Adjusted Base Cost                      $  0.93    $    0.33        $  84.68
3. Legislative Adjs.                      1.031        1.031
4. Trend Adjustments
   a. Cost per Unit                       1.000        1.000
   b. Units per Eligible                  1.000        1.000
Projected Cost per Eligible             $  0.96    $    0.34        $  90.92
5. Stop Loss Reins.                              Premium                0.00
6. CHDP                                                                 5.04
7. Fee-for-Service Adj.                                               (2.87)
Capitation Rate With FQHC Increment





                                                                                                    
Plan Name:              Molina Medical Center    Plan #:    355               Date:           04-May-99      C3 to Contract
County:                 Riverside                Plan Type: Commercial Plan   Base Period:    FY 96/97       95-23637
Aid Code Grouping:      Adult                                                                                Attachment 1
                                                                                                             Page 5 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Oulpatient Services                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one        Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                Hospital      Hospital      Long Term
                                   Physician      Pharmacy     Inpatient    Oulpatient           Care         Other
                                                                                          
1. Average Cost Per Unit            $  90.48     $  17.11       $ 964.66       $  15.76      $ 812.04       $ 36.13
2. Units per Eligible                 21.383        5.818          5.446          4.679         0.000        10.172
3. Addt'l Capitation Amts.          $   0.37     $   0.06       $  35.62       $   0.08      $   0.00       $  0.00
   Cost per Elig. per Mo.           $ 161.60     $   8.36       $ 473.41       $   6.23      $   0.00       $ 30.63
Adjustments
    a. Demographics                    1.000        1.000          1.000          1.000         1.000         1 000
    b. Area                            1.043        1.000          1.000          1.000         1 000         1.000
    c. Coverages                       0.999        0.999          0.999          0.989         1.000         0.809
    d. Interest                        0.995        0.995          0.995          0.995         0.995         0.995
Adjusted Base Cost                  $ 167.54     $   8.31       $ 470.57       $   6.13      $   0.00       $ 24.66
3. Legislative Adjs.                   1.029        1.054          1.000          1.022         1.102         1.004
4. Trend Adjustments
   a. Cost per Unit                    1.000        1.100          1.050          1.000         1.000         0.950
   b. Units per Eligible               0.950        1.000          1.050          0.950         1.050         1.050
Projected Cost per Eligible         $ 163.78     $   9.63       $ 518.80       $   5.95      $   0.00       $ 24.70
5. Stop Loss Reins.                        Amount               $      0                Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                        -3.0%
Capitation Rate With FQHC Increment              $ 706.77 /  Without             $ 705.26


Rate Calculation                              FQHC
                                           FFSE    Increment           Total
                                                           
1. Average Cost Per Unit                $ 68.39    $   24.41
2. Units per Eligible                     0.735        0.735
3. Addt'l Capitation Amts.              $  0.00    $    0.00
   Cost per Elig. per Mo.               $  4.19    $    1.50        $ 685.92
Adjustments
    a. Demographics                       1.000        1.000
    b. Area                               1.000        1.000
    c. Coverages                          0.995        0.995
    d. Interest                           0.995        0.995
Adjusted Base Cost                      $  4.15    $    1.49        $ 682.85
3. Legislative Adjs.                      1.015        1.015
4. Trend Adjustments
   a. Cost per Unit                       1.000        1.000
   b. Units per Eligible                  1.000        1.000
Projected Cost per Eligible             $  4.21    $    1.51        $ 728.58
5. Stop Loss Reins.                              Premium                0.00
6. CHDP                                                                 0.00
7. Fee-for-Service Adj.                                               (21.81)
Capitation Rate With FQHC Increment





                                                                                                    
Plan Name:              Molina Medical Center    Plan #:    355               Date:           04-May-99      C3 to Contract
County:                 Riverside                Plan Type: Commercial Plan   Base Period:    FY 96/97       95-23637
Aid Code Grouping:      AIDS                                                                                 Attachment 1
                                                                                                             Page 6 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpaitient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one        Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one      NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                Hospital      Hospital      Long Term
                                   Physician      Pharmacy     Inpatient    Outpatient           Care         Other
                                                                                         
1. Average Cost Per Unit           $   32.67      $ 126.04     $  485.15      $  13.79       $ 139.87      $  42.30
2. Units per Eligible                 26.305        74.792         3.169         9.882          0.000        36.392
3. Addt'l Capitation Arms.         $    2.96      $   0.09     $    9.89      $   0.02       $   0.00      $   0.00
     Cost per Elig. per Mo.        $   74.57      $ 785.66     $  138.01      $  11.38       $   0.00      $ 128.28
Adjustments
    a. Demographics                    1.000         1.000         1.000         1.000          1.000         1.000
    b. Area                            1 043         1.000         1.000         1.000          1.000         1.000
    c. Coverages                       0.918         0.648         0.957         0.992          0.998         0.599
    d. Interest                        0.995         0.995         0.995         0.995          0.995         0.995
Adjusted Base Cost                 $   71.04      $ 506.56     $  131.42      $  11.23       $   0.00      $  76.46
3. Legislative Adjs.                   0.963         1.006         0.977         0.982          1.186         0.979
4. Trend Adjustments
   a. Cost par Unit                    1.000         1.100         1.050         1.000          1.100         1.100
   b. Units per Eligible               1.100         1.210         1.050         1.045          0.950         1.000
Projected Cost per Eligible        $   75.25      $ 678.28     $  141.56      $  11.52       $   0.00      $  82.34
5. Stop Loss Reins.                       Amount               $       0                Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                        -3.0%
Capitation Rate With FQHC Increment               $ 962.42 / Without          $ 962.42


Rule    Calculation                          FQHC
                                          FFSE    Increment            Total
                                                           
1. Average Cost Per Unit               $ 66.52    $    0.00
2. Units per Eligible                    0.628        0.628
3. Addt'l Capitation Arms.             $  0.00    $    0.00
     Cost per Elig. per Mo.            $  3.48    $    0.00         $ 1.141.38
Adjustments
    a. Demographics                      1.000        1.000
    b. Area                              1.000        1.000
    c. Coverages                         0.951        0.951
    d. Interest                          0.995        0.995
Adjusted Base Cost                     $  3.29    $    0.00         $   800.00
3. Legislative Adjs.                     0.984        0.984
4. Trend Adjustments
   a. Cost per Unit                      1.000        1.000
   b. Units per Eligible                 1.000        1.000
Projected Cost per Eligible            $  3.24    $    0.00         $   992.19
5. Stop Loss Reins.                              Premium                  0.00
6. CHDP                                                                   0.00
7. Fee-for-Service Adj.
Capitation Rate With FQHC Increment                                      29.77




Aid Group Poverty - 7A                 Base:      Statewide Family Age Adjusted
                                    Base Period : FY 96/97
Payments at End of Month



                                                               Hospital   Hospital     Nursing                         FQHC
             Services ==>              Physician  Pharmacy    Inpatient Outpatient    Facility   Other       FFSE Increment    Total
                                                                                                  
1. Base Cost                             $ 10.40    $ 6.74     $  13.64   $   3.91     $  0.24   $  8.30   $ 2.98    $ 1.21  $47.42
2. Age/Sex Adjustments                     1.000     1.000        1.000      1.000       1.000     1.000    1.000     1.000
3. Eligibility Adjustments                 1.000     1.000        1.000      1.000       1.000     1.000    1.000     1.000
4. Coverage Adjustments                    0.997     0.997        0.999      0.964       1.000     0.891    0.991     0.991
5. Interest Offset                         0.995     1.001        0.991      0.993       0.998     0.995    0.998     0.998

Contract Cost FY 96/97                   $ 10.32    $ 6.73     $  13.50   $   3.74    $   0.24   $  7.36   $ 2.94    $ 1.20  $46.03

6. Legislative Adjustments                 1.044     0.740        0.985      1.021       1.061     1.150    1.024     1.024
7. Trend Adjustments
           a. Cost per Unit                1.000     1.308        1.055      0.970       1.000     1.445    1.071     1.071
           b. Utilization                  1.000     1.027        1.050      1.000       1.107     1.000    1.265     1.265
Projected Cost 10/98-9/99                $ 10.77    $ 6.69     $  14.73   $   3.70    $   0.28   $ 12.23   $ 4.08    $ 1.66  $54.14

8. CHDP                                                                                                                      $ 2.54

9. Adiministrative Allowance                                                                         1.5%                    $ 0.88

Fee-for-Service Equivalent Cost                                                                                              $57.56

Fee-for-Services Adj.                                                                                  94%                    (3.45)

Capitation Rate with FQHC increment                                                                                          $54.11

Capitation Rate without FQHC increment                                                                                       $52.55


                                                       C3 to Contract 95-23637
                                                       Attachment 1
                                                       Page 7 of 16



Aid Group Poverty - 47/72                                 Base:  Statewide
                                                   Base Period:  FY 96/97
Payments at End of Month



                                                      Hospital     Hospital    Nursing                   FQHC
         Services ==>         Physician   Pharmacy   Inpatient   Outpatient   Facility   Other      FFSE   Increment    Totals

                                                                                     
1. Base Cost                  $   10.66   $   7.27   $   20.52   $     5.31   $   0.14   $ 2.92   $ 5.42     $  2.21   $  54.45
2. Age/Sex Adjustments            1.000      1.000       1.000        1.000      1.000    1.000    1.000       1.000
3. Eligibility Adjustments        1.000      1.000       1.000        1.000      1.000    1.000    1.000       1.000
4. Coverage Adjustments           0.997      0.997       0.999        0.964      1.000    0.891    0.991       0.991
5. Interest Offset                0.995      1.001       0.991        0.993      0.998    0.995    0.998       0.998

Contract Cost FY 96/97        $   10.57   $   7.25   $   20.32   $     5.09   $   0.14   $ 2.59   $ 5.36     $  2.18   $  53.50

6. Legislative Adjustments        1.044      0.740       0.985        1.021      1.061    1.150    1.024       1.024
7. Trend Adjustments
        a. Cost per Unit          1.000      1.308       1.055        0.970      1.000    1.445    1.071       1.071
        b. Utilization            1.000      1.027       1.050        1.000      1.107    1.000    1.265       1.265

Projected Cost 10/98-9/99     $   11.04   $   7.21   $   22.17   $     5.04   $   0.16   $ 4.30   $ 7.44     $  3.02   $  60.38

8. CHDP                                                                                                                $   2.54

9. Administrative Allowance                                                                 1.6%                       $   0.96

Fee-for-Service Equivalent
 Cost                                                                                                                  $  63.88

Fee-for-Service Adj.                                                                         94%                          (3.83)

Capitation Rate with FQHC
 increment                                                                                                             $  60.05

Capitation Rate without
 FQHC increment                                                                                                        $  57.21


                                                        C3 to Contract 95-23637
                                                        Attachment 1
                                                        Page 8 of 16





                                                                                                       
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99       C3 to Contract
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97        95-23637
Aid Code Grouping:      Family                                                                                  Attachment 1
                                                                                                                Page 9 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month




Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plun
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care alter month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                              Hospital       Hospital    Long Term
                                 Physician      Pharmacy     Inpatient     Outpatient         Care         Other
                                                                                      
1. Average Cost Per Unit           $ 69.46      $  19.88      $ 978.02      $  16.16      $ 812.04      $  20.09
2. Units per Eligible                4.050         4.683         0.373         2.146         0.004         3.532
3. Addt'l Capitation Amts.         $  0.37      $   0.05      $   4.62      $   0.01      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 23.81      $   7.81      $  35.02      $   2.90      $   0.27      $   5.91
Adjustments
   a. Demographics                   0.997         0.993         0.977         0.987         1.000         0.985
   b. Area                           1.043         1.000         1.000         1.000         1.000         1.000
   c. Coverages                      0.975         0.992         0.968         0.956         0.995         0.833
   d. Interest                       0.995         0.995         0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 24.02      $   7.65      $  32.95      $   2.72      $   0.27      $   4.82
3. Legislative Adjs.                 1.053         1.053         0.998         1.023         1.141         1.046
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100         1.050         1.000         1.000         0.950
   b. Units per Eligible             0.950         1.000         1.050         0.950         1.050         1.050
Projected Cost per Eligible        $ 24.03      $   8.86      $  36.25      $   2.64      $   0.32      $   5.03
5. Stop Loss Reins.                        Amount             $      0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                     -3.0%
Capitation Rate With FQHC
 Increment                                      $  80.48 / Without          $  80.41


Rate Calculation                          FQHC
                                      FFSE    Increment           Total
                                                      
1. Average Cost Per Unit           $ 68.10     $   7.33
2. Units per Eligible                0.132        0.132
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.75     $   0.08        $  76.55
Adjustments
   a. Demographics                   0.992        0.992
   b. Area                           1.000        1.000
   c. Coverages                      0.935        0.935
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.69     $   0.07        $  73.19
3. Legislative Adj.                  1.027        1.027
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.71     $   0.07        $  77.91
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            5.06
7. Fee-for-Service Adj.                                           (2.49)
Capitation Rate With FQHC Increment





                                                                                                     
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99     C3 to Contract
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97      95-23637
Aid Code Grouping:      Disabled                                                                              Attachment 1
                                                                                                              Page 10 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                              Hospital       Hospital    Long Term
                                 Physician      Pharmacy     Inpatient     Outpatient         Care         Other
                                                                                      
1. Average Cost Per Unit           $ 46.41      $  39.70      $ 611.26      $  12.37      $ 139.87      $  10.16
2. Units per Eligible                6.969        26.861         1.556         5.050         0.459        21.959
3. Addt'l Capitation Amts.         $  2.96      $   0.09      $   9.89      $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 29.91      $  88.96      $  89.15      $   5.23      $   5.35      $  18.59
Adjustments
   a. Demographics                   0.980         0.973         0.961         0.998         0.996         1.006
   b. Area                           1.043         1.000         1.000         1.000         1.000         1.000
   c. Coverages                      0.900         0.875         0.920         0.973         0.995         0.878
   d. Interest                       0.995         0.995         0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 27.38      $  75.36      $  78.43      $   5.05      $   5.28      $  16.34
3. Legislative Adjs.                 0.941         1.043         0.919         0.931         1.130         0.923
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100         1.050         1.000         1.100         1.100
   b. Units per Eligible             1.100         1.210         1.050         1.045         0.950         1.000
Projected Cost per Eligible        $ 28.34      $ 104.62      $  79.47      $   4.91      $   6.23      $  16.59
5. Stop Loss Reins.                        Amount             $      0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                     -3.0%
Capitation Rate With FQHC
 Increment                                      $ 233.49 / Without          $ 233.49


Rate Calculation                          FQHC
                                      FFSE    Increment          Total
                                                      
1. Average Cost Per Unit           $ 69.96     $   0.00
2. Units per Eligible                0.120        0.120
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.70     $   0.00        $ 237.89
Adjustments
   a. Demographics                   0.989        0.989
   b. Area                           1.000        1.000
   c. Coverages                      0.863        0.863
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.59     $   0.00        $ 208.43
3. Legislative Adjs.                 0.932        0.932
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.55     $   0.00        $ 240.71
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            0.00
7. Fee-for-Service Adj.                                           (7.22)
Capitation Rate With FQHC Increment





                                                                          
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97
Aid Code Grouping:      Aged



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month
                                                            C3 to Contract 95-23637
                                                            Attachment 1
                                                            Page 11 of 16




Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------

C3 to Contract
95-23637
Attachment 1
Page 11 of 16



Rate Calculation                                              Hospital      Hospital     Long Term
                                 Physician      Pharmacy     Inpatient    Outpatient          Care         Other
                                                                                      
1. Average Cost Per Unit           $ 48.90      $  32.71      $ 316.16      $  10.02      $  77.33      $   6.41
2. Units per Eligible                4.580        21.914         1.265         3.306         2.016        12.862
3. Addt'l Capitation Amts.         $  1.29      $   0.00      $   7.41      $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 19.95      $  59.73      $  40.74      $   2.78      $  12.99      $   6.87
Adjustments
   a. Demographics                   0.963         1.014         0.962         0.975         1.027         1.013
   b. Area                           1.043         1 000         1.000         1.000         1.000         1.000
   c. Coverages                      0.981         0.996         0.997         0.986         0.997         0.791
   d. Interest                       0.995         0.995         0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 19.56      $  60.02      $  38.88      $   2.66      $  13.23      $   5.48
3. Legislative Adjs.                 0.939         1.049         0.926         0.931         1.140         0.927
4. Trend Adjustments
   a. Cost per Unit                  1.100         1.100         1.100         1.050         1.000         1.050
   b. Units per Eligble             1.100         1.155         1.100         1.100         1.000         0.950
Projected Cost per Eligible        $ 22.22      $  79.99      $  43.56      $   2.86      $  15.08      $   5.07
5. Stop Loss Reins.                        Amount             $      0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                     -3.0%
Capitation Rate With FQHC
 Increment                                      $ 163.77 / Without          $ 163.77


Rate Calculation                          FQHC
                                      FFSE    Increment          Total
                                                      
1. Average Cost Per Unit           $ 50.63     $   0.00
2. Units per Eligible                0.024        0.024
3. Addt'l Capitation Amis.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.10     $   0.00        $ 143.16
Adjustments
   a. Demographics                   0.979        0.979
   b. Area                           1.000        1.000
   c. Coverages                      0.603        0.603
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.06     $   0.00        $ 139.89
3. Legislative Adjs.                 0.926        0.926
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.06     $   0.00        $ 168.84
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            0.00
7. Fee-for-Service Adj.                                           (5.07)
Capitation Rate With FQHC Increment





                                                                                                        
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99        C3 to Contract
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97         95-23637
Aid Code Grouping:      Child                                                                                    Attachment 1
                                                                                                                 Page 12 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the  Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care alter month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                               Hospital     Hospital      Long Term
                                 Physician      Pharmacy      Inpatient    Outpatient          Care        Other
                                                                                       
1. Average Cost Per Unit           $ 67.42      $  13.64     $ 1,120.53      $  16.21      $ 469.38      $  20.69
2. Units per Eligible                4.035         3.411          0.465         1.516         0.007         1.958
3. Addt'l Capitation Amts.         $  0.23      $   0.03     $     2.90      $   0.00      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 22.90      $   3.91     $    46.32      $   2.05      $   0.27      $   3.38
Adjustments
   a. Demographics                   1.212         1.021          1.342         1.157         1.000         1.080
   b. Area                           1.043         1.000          1.000         1.000         1.000         1.000
   c. Coverages                      0.974         0.984          0.952         0.973         0.996         0.815
   d. Interest                       0.995         0.995          0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 28.05      $   3.91     $    58.88      $   2.30      $   0.27      $   2.96
3. Legislative Adjs.                 1.076         1.047          0.999         1.024         1.134         1.090
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100          1.050         1.000         1.000         0.950
   b. Units per Eligible             0.950         1.000          1.050         0.950         1.050         1.050
Projected Cost per Eligible        $ 28.67      $   4.50     $    64.85      $   2.24      $   0.32      $   3.22
5. Stop Loss Reins.                        Amount            $        0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                      -3.0%
Capitation Rate With FQHC
 Increment                                      $ 106.43 / Without           $ 106.35


Rate Calculation                          FQHC
                                     FFSE     Increment          Total
                                                      
1. Average Cost Per Unit           $ 68.10     $   7.33
2. Units per Eligible                0.132        0.132
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.75     $   0.08        $  79.66
Adjustments
   a. Demographics                   1.084        1.084
   b. Area                           1.000        1.000
   c. Coverages                      0.970        0.970
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.78     $   0.08        $  97.23
3. Legislative Adjs.                 1.031        1.031
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.80     $   0.08        $ 104.88
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            5.04
7. Fee-for-Service Adj.                                           (3.29)
Capitation Rate With FQHC Increment





                                                                                                     
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99     C3 to Contract
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97      95-23637
Aid Code Grouping:      Adult                                                                                 Attachment 1
                                                                                                              Page 13 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                              Hospital       Hospital     Long Term
                                 Physician      Pharmacy     Inpatient     Outpatient          Care        Other
                                                                                       
1. Average Cost Per Unit          $  90.48      $  17.11     $ 1,140.81      $  15.76      $ 812.04      $  36.13
2. Units per Eligible               21.541         5.818          5.446         4.679         0.000        10.172
3. Addt'l Capitation Amts.        $   0.37      $   0.06     $    35.62      $   0.08      $   0.00      $   0.00
   Cost per Elig. per Mo.         $ 162.79      $   8.36     $   553.36      $   6.23      $   0.00      $  30.63
Adjustments
   a. Demographics                   1.000         1.000          1.000         1.000         1.000         1.000
   b. Area                           1.043         1.000          1.000         1.000         1.000         1.000
   c. Coverages                      0.999         0.999          0.999         0.989         1.000         0.809
   d. Interest                       0.995         0.995          0.995         0.995         0.995         0.995
Adjusted Base Cost                $ 168.77      $   8.31     $   550.04      $   6.13      $   0.00      $  24.66
3. Legislative Adjs.                 1.029         1.054          1.000         1.022         1.102         1.004
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100          1.050         1.000         1.000         0.950
   b. Units per Eligble              0.950         1.000          1.050         0.950         1.050         1.050
Projected Cost per Eligible       $ 164.98      $   9.63     $   606.42      $   5.95      $   0.00      $  24.70
5. Stop Loss Reins.                        Amount            $        0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                      -3.0%
Capitation Rate With FQHC
 Increment                                      $ 790.89 / Without          $ 790.53


Rate Calculation                          FQHC
                                     FFSE     Increment          Total
                                                      
1. Average Cost Per Unit           $ 68.10     $   7.33
2. Units per Eligible                0.577        0.577
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  3.28     $   0.35        $ 765.00
Adjustments
   a. Demographics                   1.000        1.000
   b. Area                           1.000        1.000
   c. Coverages                      0.995        0.995
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  3.25     $   0.35        $ 761.51
3. Legislative Adjs.                 1.015        1.015
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligble              1.000        1.000
Projected Cost per Eligible        $  3.30     $   0.36        $ 815.34
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            0.00
7. Fee-for-Service Adj.                                          (24.45)
Capitation Rate With FQHC Increment





                                                                                                      
Plan Name:              Molina Medical Center    Plan #:    356                 Date:           04-May-99      C3 to Contract
County:                 San Bernardino           Plan Type: Commercial Plan     Base Period:    FY 96/97       95-23637
Aid Code Grouping:      AIDS                                                                                   Attachment 1
                                                                                                               Page 14 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month





Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                              Hospital      Hospital     Long Term
                                 Physician      Pharmacy     Inpatient     Outpatient       Care         Other
                                                                                      
1. Average Cost Per Unit          $  32.67      $ 126.04     $   611.26     $  13.79      $ 139.87      $  42.30
2. Units per Eligible               26.584        74.792          3.169        9.882         0.000        36.392
3. Addt'l Capitation Amts.        $   2.96      $   0.09     $     9.89     $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.         $  75.33      $ 785.66     $   171.31     $  11.38      $   0.00      $ 128.28
Adjustments
   a. Demographics                   1.000         1.000          1.000        1.000         1.000         1.000
   b. Area                           1.043         1.000          1.000        1.000         1.000         1.000
   c. Coverages                      0.918         0.648          0.957        0.992         0.998         0.599
   d. Interest                       0.995         0.995          0.995        0.995         0.995         0.995
Adjusted Base Cost                $  71.77      $ 506.56     $   163.12     $  11.23      $   0.00      $  76.46
3. Legislative Adjs.                 0.963         1.006          0.977        0.982         1.186         0.979
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100          1.050        1.000         1.100         1.100
   b. Units per Eligble              1.100         1.210          1.050        1.045         0.950         1.000
Projected Cost per Eligible       $  76.03      $ 678.28     $   175.70     $  11.52      $   0.00      $  82.34
5. Stop Loss Reins.                        Amount            $        0              Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                     -3.0%
Capitation Rate With FQHC
 Increment                                      $ 995.00 / Without          $ 995.00


Rate Calculation                          FQHC
                                     FFSE     Increment          Total
                                                     
1. Average Cost Per Unit           $ 69.96     $   0.00
2. Units per Eligible                0.349        0.349
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  2.04     $   0.00       $ 1,174.00
Adjustments
   a. Demographics                   1.000        1.000
   b. Area                           1.000        1.000
   c. Coverages                      0.951        0.951
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  1.93     $   0.00       $   831.07
3. Legislative Adjs.                 0.984        0.984
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  1.90     $   0.00       $ 1,025.77
5. Stop Loss Reins.                      Premium                    0.00
6. CHDP                                                             0.00
7. Fee-for-Service Adj.                                            (30.77)
Capitation Rate With FQHC Increment




Aid Group Poverty - 7A                 Base:      Statewide Family Age Adjusted
                                    Base Period : FY 96/97
Payments at End of Month



                                                             Hospital   Hospital    Nursing                   FQHC
         Services ==>>                Physician   Pharmacy   Inpatient Outpatient   Facility    Other    FFSE     Increment Total
                                                                                                 
1. Base Cost                           $ 10.40    $  6.74    $  13.64   $   3.91     $  0.24   $  8.30   $ 2.98    $  1.21  $ 47.42
2. Age/Sex Adjustments                   1.000      1.000       1.000      1.000       1.000     1.000    1.000      1.000
3. Eligibility Adjustments               1.000      1.000       1.000      1.000       1.000     1.000    1.000      1.000
4. Coverage Adjustments                  0.997      0.997       0.999      0.964       1.000     0.891    0.991      0.991
5. Interest Offset                       0.995      1.001       0.991      0.993       0.998     0.995    0.998      0.998

Contract Cost FY 96/97                 $ 10.32    $  6.73    $  13.50     $ 3.74    $   0.24   $  7.36   $ 2.94    $  1.20  $ 46.03

6. Legislative Adjustments               1.044      0.740       0.985      1.021       1.061     1.150    1.024      1.024
7. Trend Adjustments
           a. Cost per Unit              1.000      1.308       1.055      0.970       1.000     1.445    1.071      1.071
           b. Utilization                1.000      1.027       1.050      1.000       1.107     1.0OO    1.265      1.265

Projected Cost 10/98-9/99              $ 10.77    $  6.69    $  14.73   $   3.70    $   0.28   $ 12.23   $ 4.08    $  1.66  $ 54.14

8. CHDP                                                                                                                     $  2.54

9. Adiministrative Allowance                                                                      1.6%                      $  0.88

Fee-for-Service Equivalent Cost                                                                                             $ 57.56

Fee-for-Service Adj.                                                                               94%                        (3.45)

Capition Rate with FQHC increment                                                                                           $ 54.11

Capition Rate without FQHC increment                                                                                        $ 52.55


                                        C3 to Contract 95-23637
                                        Attachment 1
                                        Page 15 of 16



Aid Group Poverty - 47/72              Base:      Statewide Family Age Adjusted
                                    Base Period : FY 96/97
Payments at End of Month



                                                              Hospital   Hospital   Nursing                  FQHC
         Services ==>>               Physician   Pharmacy    Inpatient  Outpatient  Facility    Other    FFSE     Increment  Total
                                                                                                
1. Base Cost                          $ 10.66    $  7.27     $  20.52   $   5.31   $  0.14    $  2.92  $  5.42    $  2.21  $  54.45
2. Age/Sex Adjustments                  1.000      1.000        1.000      1.000      1.000     1.000    1.000      1.000
3. Eligibility Adjustments              1.000      1.000        1.000      1.000      1.000     1.000    1.000      1.000
4. Coverage Adjustments                 0.997      0.997        0.999      0.964      1.000     0.891    0.991      0.991
5. Interest Offset                      0.995      1.001        0.991      0.993      0.998     0.995    0.998      0.998

Contract Cost FY 96/97                $ 10.57    $  7.25     $  20.32   $   5.09   $   0.14   $  2.59  $  5.36    $  2.18  $  53.50

6. Legislative Adjustments              1.044      0.740        0.985      1.021      1.061     1.150    1.024      1.024
7. Trend Adjustments
           a. Cost per Unit             1.000      1.308        1.055      0.970      1.000     1.445    1.071      1.071
           b. Utilization               1.000      1.027        1.050      1.000      1.107     1.0OO    1.265      1.265

Projected Cost 10/98-9/99             $ 11.04    $  7.21     $  22.17   $   5.04   $   0.16   $  4.30  $  7.44    $  3.02  $  60.38

8. CHDP                                                                                                                    $  12.54

9. Adiministrative Allowance                                                                     1.5%                      $   0.96

Fee-for-Service Equivalent Cost                                                                                            $  63.88

Fee-for-Service Adj.                                                                              94%                         (3.83)

Capition Rate with FQHC increment                                                                                          $  60.05

Capition Rate without FQHC increment                                                                                       $  57.21


                                        C3 to Contract 95-23637
                                        Attachment 1
                                        Page 16 of 16



[LETTERHEAD OF DEPARTMENT OF HEALTH SERVICES]

DEPARTMENT OF HEALTH SERVICES
714/744 P Street
P. O. Box 942732
Sacramonto, CA 94234-7320
(916) 654-8076

          December 23, 1999


          George Goldstein, President
          Molina Medical Centers
          One Golden Shore
          Long Beach, CA 90802

          Dear Mr. Goldstein:

          The enclosed Change Order No. C4 to Contract No. 95-23637 adds Section
          3.47 to Article III of your Contract, relating to Year 2000 compliance
          requirements. The text of the Change Order contains the State
          Department of General Services Year 2000 warranty language. The Change
          Order will be effective immediately. Alternative text is not
          permitted.

          If you have any questions, please contact your contract manager.


          Sincerely,

          /s/
          -------------------
              Susanne M. Hughes
              Acting Chief
              Medi-Cal Managed Care Division

          Enclosures



[LETTERHEAD OF DEPARTMENT OF HEALTH SERVICES]

DEPARTMENT OF HEALTH SERVICES
 714/744 P Street
 P. O. Box 942732
 Sacramento. CA 94234-7320
 (916) 654-8076

         CHANGE ORDER No. C4 to CONTRACT No. 95-23637: AMEND ARTICLE III,
         GENERAL TERMS AND CONDITIONS BY ADDING SECTION 3.47, YEAR 2000
         COMPLIANCE REQUIREMENTS. Issued December 17, 1999.

         3.47 YEAR 2000 COMPLIANCE REQUIREMENTS

                  The Contractor warrants and represents that the goods or
                  services sold, leased, or licensed to the State of California,
                  its agencies, or its political subdivisions, pursuant to this
                  contract are "Year 2000 compliant." For purposes of this
                  contract, a good or service is Year 2000 compliant If it will
                  continue to fully function before, at, and after the Year 2000
                  without interruption and if applicable, with full ability to
                  accurately and unambiguously process, display, compare,
                  calculate, manipulate, and otherwise utilize date information.
                  This warranty and representation supersedes all warranty
                  disclaimers and all limitations on liability provided by or
                  through the Contractor.



[GRAPHIC APPEARS HERE]

 DEPARTMENT OF HEALTH SERVICES
 714/744 P Street
 P.O. Box 42732
 Sacramento, CA 94234-7320
 (916) 654-8076


          February 7, 2000

                                                                          [SEAL]

          George Goldstein
          Molina Medical Centers, Inc.
          One Golden Shore
          Long Beach, CA 90802

          Dear Mr., Goldstein:

          On July 1, 1999, the Department of Health Services (Department) sent
          you Change Order No. 03 to Contract No. 95-23637. After further
          analysis, the Department determined that Change Order No. 03 did not
          completely express its intent regarding Federally Qualified Health
          Centers (FQHCs) and Rural Health Centers (RHCs). In addition, this
          Change Order adds several new aid codes that became effective during
          1999. These aid codes are split aid codes from existing aid codes you
          are already capitated for, including 5X split from 59, 8R split from
          7A, and 8P spirt from 72. Therefore, the Department is sending you
          this enclosed Change Order (No. 05) to replace and supersede Change
          Order No. 03.

          In accordance with Article III, Section 3.34.2 of your Contract, the
          enclosed Change Order authorizes the change in rates for FQHC and RHC
          subcontracts and transmits (Molina Medical Centers, Inc.) rates for
          the period July 1, 1999 through September 30, 1 999. This Change
          Order also changes Contract Sections 3.28.6 Federally Qualified Health
          Centers/Rural Health Clinics; 5.3 Capitation Rates; 5.4 Capitation
          Rates Constitute Payment in Full; 5.13 FQHC and RHC Risk Corridor
          Payments; 6.3,6 Submittal of FQHC and RHC Payment Information and
          6.6.21 FQHC and RHC Contracts. These rates appeared in your capitation
          rates beginning July 1, 1999.

          If you have any questions, please contact your contract manager.


          Sincerely,


          /s/
          -------------------
              Susanne M. Hughes
              Acting Chief
              Medi-Cal Managed Care Division

          Enclosures



[LETTERHEAD OF DEPARTMENT OF HEALTH SERVICES]

 DEPARTMENT OF HEALTH SERVICES
 714/744 P Street
 P. O. Box 942732
 Sacramento, CA 94234-7320
 (916)654-8076

         CHANGE ORDER NUMBER C5 TO CONTRACT NO.95-23637: CHANGING CONTRACT
         SECTIONS 3.28.6 FEDERALLY QUALIFIED HEALTH CENTERS/RURAL HEALTH
         CLINICS; 5.3 CAPITATION RATES; 5.4 CAPITATION RATES CONSTITUTE PAYMENT
         IN FULL; 5.13 FQHC/RHC RISK CORRIDOR PAYMENTS; 6.3.6 SUBMITTAL OF FQHC
         AND RHC PAYMENT INFORMATION AND 6.6.21 FQHC AND RURAL HEALTH CLINIC
         (RHC) CONTRACTS TO READ AS STATED BELOW. This Change Order is effective
         July 1,1999.

         1.  3.28.6 FEDERALLY QUALIFIED HEALTH CENTERS/RURAL HEALTH
                    CLINICS

             A.     For service periods from the effective date of this contract
                    through June 30,1999, Contractor shall not enter into a
                    Subcontract with a Federally Qualified Health Center (FQHC)
                    or a Rural Health Clinic (RHC) unless DHS approves the
                    provisions regarding rates, which shall be subject to the
                    standard that they be reasonable, as determined by DHS, in
                    relation to the services to be provided in accordance with
                    Article VI, Section 6.6.21, FQHC and RHC Contracts. In
                    Subcontracts where the FQHC or RHC has made the election to
                    be reimbursed on a reasonable cost basis by the State,
                    provisions shall be included that require the subcontractor
                    to keep a record of the number of visits by plan Members
                    separate from Fee-For-Service Medi-Cal beneficiaries, in
                    addition to any other data reporting requirements of the
                    Subcontract

             B.     For service periods beginning July 1,1999, Contractor shall
                    submit to DHS, within 30 days of a request and in the form
                    and manner specified by DHS, the services provided and the
                    reimbursement level and amount for each of Contractor's FQHC
                    and RHC Subcontracts. For service periods beginning July
                    1,1999, Contractor shall certify in writing to DHS within 30
                    days of DHS's written request, that pursuant to Welfare and
                    Institutions Code, Section 14087.325(b) and (d), as amended
                    by Chapter 894/Statutes of 1998, FQHC and RHC Subcontract
                    terms and conditions are the same as offered to other
                    Subcontractors providing a similar scope of service and that
                    reimbursement is not less than the level and amount of
                    payment that Contractor makes for the same scope of services
                    furnished by a provider that is not a FQHC or RHC. For FQHC
                    or RHC services provided on or after July 1,1999, Contractor
                    is not required to pay FQHCs and RHCs the Medi-Cal interim
                    per visit rate described in Section 6.6.21. At its
                    discretion, DHS reserves the right to review and audit
                    Contractor's FQHC and RHC reimbursement to ensure compliance
                    with state and federal law and shall approve all FQHC and
                    RHC Subcontracts consistent with the provisions of Welfare
                    and Institutions Code Section 14087.325(h).

                                     1 of 5



             C.     Subcontracts with FQHCs shall also meet Contract
                    requirements of Article VI, Sections 6.6.20, FQHC Services,
                    and 6.6.21, FQHC and Rural Health Clinic Contracts.
                    Subcontracts with RHCs shall also meet Contract requirements
                    of Article VI, Section 6.6.21.

             D.     In Subcontracts where a negotiated reimbursement rate is
                    agreed to as total payment, a provision that such rate
                    constitutes total payment shall be included in the
                    Subcontract

2.           5.3    CAPITATION RATES

             For the period 7/1/99-9/30/99                     Riverside County



             ----------------------------------------------------------------------------------------------------------
                        GROUPS                                AID CODES                              RATE
             ----------------------------------------------------------------------------------------------------------
                                                                                               
             Family                                        01, OA, 02, 08,                           $  78.41
                                                           30, 32, 33, 34, 35, 38, 39, 40,
                                                           42, 54, 59, 3A, 3C, 3E, 3G, 3H, 3L
                                                           3M, 3N, 3P, 3R, 3U, 5X, 7X,
             ----------------------------------------------------------------------------------------------------------
             Disabled                                      20, 24, 26, 28, 36,                       $ 222.61
                                                           60, 64, 66, 68,
                                                           6A, 6C, 6N, 6P,
                                                           6R
             ----------------------------------------------------------------------------------------------------------
             Aged                                          10,14,16,18                               $ 160.47
             ----------------------------------------------------------------------------------------------------------
             Child                                         03,04,4C,4K,                              $  92.75
                                                           5K, 45, 82
             ----------------------------------------------------------------------------------------------------------
             Adult                                         86                                        $ 705.26
             ----------------------------------------------------------------------------------------------------------
             AIDS Beneficiary                              .                                         $ 962.42
             ----------------------------------------------------------------------------------------------------------
             Percent of Poverty                            7A, 8R                                    $  52.55
             ----------------------------------------------------------------------------------------------------------
             Percent of Poverty                            47, 72, 8P                                $  57.21
             ----------------------------------------------------------------------------------------------------------


                                     2 of 5



             For the period 7/1/99 -9/30/99               San Bernardino County



             ---------------------------------------------------------------------------------------------------------
                       GROUPS                                 AID CODES                             RATE
             ---------------------------------------------------------------------------------------------------------
                                                                                             
             Family                                       01,OA,02,08,                             $   80.41
                                                          30, 32, 33, 34, 35, 38, 39, 40,
                                                          42, 54, 59, 3A, 3C, 3E, 3G, 3H,
                                                          3L, 3M, 3N, 3P, 3R, 3U, 5X, 7X,
             ---------------------------------------------------------------------------------------------------------
             Disabled                                     20, 24, 26, 28, 36,                      $  233.49
                                                          60, 64, 66, 68,
                                                          6A, 6C, 6N, 6P,
                                                          6R
             ---------------------------------------------------------------------------------------------------------
             Aged                                         10, 14, 16, 18                           $  163.77
             ---------------------------------------------------------------------------------------------------------
             Child                                        03, 04, 4C, 4K,                          $  106.35
                                                          5K, 45, 82
             ---------------------------------------------------------------------------------------------------------
             Adult                                        86                                       $  790.53
             ---------------------------------------------------------------------------------------------------------
             AIDS Beneficiary                                                                      $  995.00
             ---------------------------------------------------------------------------------------------------------
             Percent of Poverty                           7A, 8R                                   $   52.55
             ---------------------------------------------------------------------------------------------------------
             Percent of Poverty                           47, 72, 8P                               $   57.21
             ---------------------------------------------------------------------------------------------------------


All other terms, conditions, and provisions contained in Section 5.3 remain
unchanged.

      3.  5.4   CAPITATION RATES CONSTITUTE PAYMENT IN FULL

          Capitation rates for each rate period, as calculated by DHS, are
          prospective rates and constitute payment in full, subject to any stop
          loss reinsurance provisions, on behalf of a Member for all Covered
          Services required by such Member and for all Administrative Costs
          incurred by the Contractor in providing or arranging for such
          services, and subject to adjustments for federally qualified health
          centers in accordance with Section 5.13, but do not include payment
          for the recoupment of current or previous losses incurred by
          Contractor. DHS is not responsible for making payments for recoupment
          of losses. The actuarial basis for the determination of the capitation
          payment rates is outlined in Attachment 1 (consisting of 16 pages).

      4.  5.13   FQHC/RHC RISK CORRIDOR PAYMENTS

          For FQHCs/RHCs service periods beginning October 1,1997, and
          continuing through June 30,1999, provided that Contractor has
          submitted expenditure data to DHS in the form and manner specified by
          DHS, DHS shall perform reconciliations to determine the variance
          between the funds that have been paid to the Contractor in its
          capitation rates to reflect the dollar value of FQHC/RHC interim rate
          payments made to these entities in the

                                      3 of 5



          Medi-Cal fee-for-service program, and the amount that the Contractor
          has paid to subcontracting FQHCs/RHCs.

          For the initial reconciliation and for each reconciliation thereafter,
          if, pursuant to subcontracts with FQHCs and RHCs that have been
          reviewed and approved by DHS, Contractor has paid subcontracting FQHCs
          and RHCs in the aggregate an amount greater than 110 percent of the
          dollar value of FQHC and RHC interim rate payments included in
          Contractor's capitation rates, DHS shall pay Contractor the amount in
          excess of 110 percent.

          For the initial reconciliation and for each reconciliation thereafter,
          if, pursuant to subcontracts with FQHCs and RHCs that have been
          reviewed and approved by DHS, Contractor has paid subcontracting FQHCs
          and RHCs in the aggregate an amount less than 90 percent of the dollar
          value of FQHC and RHC interim rate payments included in Contractor's
          capitation rates, Contractor shall refund the amount below 90 percent
          to DHS. DHS may recover amounts owed by Contractor pursuant to this
          section through an offset to the capitation payments made to
          Contractor, pursuant to Section 5.11(C), Recovery of Capitation
          Payments.

          All reconciliations shall be subject to an annual reconciliation audit
          at which time payments to or recoupment from Contractor shall be
          finalized.

      5.  6.3.6 SUBMITTAL OF FQHC AND RHC PAYMENT INFORMATION

          Effective with the October 1997 month of service. Contractor shall
          keep a record of the number of visits by plan Members to each FQHC and
          RHC contracting with Contractor and related payment information, and
          shall submit this information to DHS in the frequency, format, and
          manner specified by DHS. -This requirement shall remain in effect for
          service periods through the September 2000 month of service.

      6.  6.6.21 FQHO AND RURAL HEALTH CLINIC (RHC) CONTRACTS

          A.     For service periods beginning October 1,1997, and continuing
                 through June 30,1999, notwithstanding Article III, Section
                 3.26.4, Departmental Approval - Federally Qualified HMOs,
                 Contractor shall not enter into any contract with an FQHC or
                 RHC for provision of Covered Services to Members without prior
                 written approval by DHS. All contracts with FQHCs or RHCs shall
                 provide reimbursement to the FQHC or RHC on the basis of each
                 center's or clinic's Medi-Cal interim per visit rate,
                 applicable on the date the reimbursable services were provided,
                 as established by DHS, unless:

                 1. DHS has approved in writing an alternate reimbursement
                    methodology, or

                                     4 of 5



                 2. The FQHC or RHC agrees to be reimbursed on an at-risk basis
                    and such agreement is contained in the contract with the
                    center or clinic. In contracts where a negotiated rate is
                    agreed to as total payment, the contract shall state that
                    such payment' constitutes total payment to the entity.

          B.     To the extent that Indian Health Service facilities qualify as
                 FQHCs or RHCs, the same reimbursement requirements shall apply
                 to contracts with Indian Health Service facilities.

                                     5 of 5



                                                         C5 to Contract 95-23637

                                                                                                
Plan Name:              Molina Medical Center    Plan #:    355                 Date:           04-May-99   Attachment 1
County:                 Riverside                Plan Type: Commercial Plan     Base Period:    FY 96/97    Page 1 of 16



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month



Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Deloxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                               Hospital      Hospital     Long Term
                                 Physician      Pharmacy      Inpatient    Outpatient          Care         Other
                                                                                       
1. Average Cost Per Unit           $ 69.46      $  19.88     $   864.71      $  16.16      $ 812.04      $  20.09
2. Units per Eligible                4.014         4.683          0.373         2.146         0.004         3.532
3. Addt'l Capitation Amts.         $  0.37      $   0.05     $     4.62      $   0.01      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 23.60      $   7.81     $    31.50      $   2.90      $   0.27      $   5.91
Adjustments
   a. Demographics                   1.004         0.976          1.023         1.002         1.000         0.085
   b. Area                           1.043         1.000          1.000         1.000         1.000         1.000
   c. Coverages                      0.975         0.992          0.968         0.956         0.995         0.833
   d. Interest                       0.995         0.995          0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 23.97      $   7.52     $    31.04      $   2.76      $   0.27      $   4.82
3. Legislative Adjs.                 1.053         1.053          0.998         1.023         1.141         1.046
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100          1.050         1.000         1.000         0.950
   b. Units per Eligible             0.050         1.000          1.050         0.950         1.050         1.050
Projected Cost per Eligible        $ 23.98      $   8.71     $    34.15      $   2.68      $   0.32      $   5.03
5. Stop Loss Reins.                        Amount            $        0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                      -3.0%
Capitation Rate With FQHC
 Increment                                      $  78.73 / Without          $  78.41


Rate Calculation                          FQHC
                                     FFSE      Increment         Total
                                                      
1. Average Cost Per Unit           $ 68.39     $  24.41
2. Units per Eligible                0.168        0.168
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.96     $   0.34        $  73.29
Adjustments
   a. Demographics                   0.994        0.994
   b. Area                           1.000        1.000
   c. Coverages                      0.935        0.935
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.89     $   0.31        $  71.58
3. Legislative Adjs.                 1.027        1.027
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.91     $   0.32        $  76.10
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            5.06
7. Fee-for-Service Adj.                                           (2.43)
Capitation Rate With FQHC Increment





                                                                          
Plan Name:              Molina Medical Center    Plan #:    355                 Date:           04-May-99
County:                 Riverside                Plan Type: Commercial Plan     Base Period:    FY 96/97
Aid Code Grouping:      Disabled



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month

C5 to Contract 95-23637
Attachment 1
Page 2 of 16



Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewcar                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                               Hospital      Hospital     Long Term
                                  Physician     Pharmacy      Inpatient     Outpatient       Care         Other
                                                                                       
1. Average Cost Per Unit           $ 46.41      $  39.70     $   485.15      $  12.37      $ 139.87      $  10.16
2. Units per Eligible                6.873        26.861          1.556         5.050         0.459        21.959
3. Addt'l Capitation Amts.         $  2.96      $   0.09     $     9.89      $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 29.54      $  88.96     $    72.80      $   5.23      $   5.35      $  18.59
Adjustments
   a. Demographics                   0.983         0.989          0.981         0.998         1.000         1.015
   b. Area                           1.043         1.000          1.000         1.000         1.000         1.000
   c. Coverages                      0.900         0.875          0.920         0.973         0.995         0.878
   d. Interest                       0.995         0.995          0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 27.12      $  76.60     $    65.37      $   5.05      $   5.30      $  16.48
3. Legislative Adjs.                 0.941         1.043          0.919         0.931         1.130         0.923
4. Trend Adjustments
   a. Cost per Unit                  1.000         1.100          1.050         1.000         1.100         1.100
   b. Units per Eligible             1.100         1.210          1.050         1.045         0.950         1.000
Projected Cost per Eligible        $ 28.07      $ 106.34     $    66.23      $   4.91      $   6.26      $  16.73
5. Stop Loss Reins.                        Amount            $        0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                      -3.0%
Capitation Rate With FQHC
 Increment                                      $ 222.61 / Without          $ 222.61


Rate Calculation                          FQHC
                                     FFSE     Increment          Total
                                                      
1. Average Cost Per Unit           $ 66.52     $   0.00
2. Units per Eligible                0.216        0.216
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  1.20     $   0.00        $ 221.67
Adjustments
   a. Demographics                   0.987        0.987
   b. Area                           1.000        1.000
   c. Coverages                      0.863        0.863
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  1.02     $   0.00        $ 196.94
3. Legislative Adjs.                 0.932        0.932
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligble              1.000        1.000
Projected Cost per Eligible        $  0.95     $   0.00        $ 229.49
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            0.00
7. Fee-for-Service Adj.                                           (8.88)
Capitation Rate With FQHC Increment




                                                         C5 to Contract 95-23637

                                                                                       
Attachment 1
Page 3 of 16

Plan Name:              Molina Medical Center    Plan #:    355                 Date:           04-May-99
County:                 Riverside                Plan Type: Commercial Plan     Base Period:    FY 96/97
Aid Code Grouping:      Aged



                                                         
The Rate Period is October 1, 1998 to September 30, 1999    Capitation Payments at the Beginning of the Month


Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                  NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafelo Protein Testing                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one         Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care alter month of entry plus one       NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                               Hospital      Hospital     Long Term
                                  Physician     Pharmacy      Inpatient     Outpatient       Care         Other
                                                                                       
1. Average Cost Per Unit           $ 48.90      $  32.71     $   287.24      $  10.02      $  77.33      $   6.41
2. Units per Eligible                4.472        21.014          1.265         3.306         2.016        12.862
3. Addt'l Capitation Amts.         $  1.29      $   0.00     $     7.41      $   0.02      $   0.00      $   0.00
   Cost per Elig. per Mo.          $ 19.51      $  59.73     $    37.69      $   2.78      $  12.99      $   6.87
Adjustments
   a. Demographics                   0.955         1.019          0.957         0.970         1.039         1.025
   b. Area                           1.043         1.000          1.000         1.000         1.000         1.000
   c. Coverages                      0.981         0.996          0.997         0.986         0.997         0.791
   d. Interest                       0.995         0.995          0.995         0.995         0.995         0.995
Adjusted Base Cost                 $ 18.97      $  60.32     $    35.78      $   2.65      $  13.39      $   5.54
3. Legislative Adjs.                 0.939         1.049          0.926         0.931         1.140         0.927
4. Trend Adjustments
   a. Cost per Unit                  1.100         1.100          1.100         1.050         1.000         1.050
   b. Units per Eligible             1.100         1.155          1.100         1.100         1.000         0.950
Projected Cost per Eligible        $ 21.55      $  80.39     $    40.09      $   2.85      $  15.28      $   5.12
5. Stop Loss Reins.                        Amount            $        0               Rate                    0.0%
6. CHDP
7. Fee-for-Service Adj.                                                                                      -3.0%
Capitation Rate With FQHC
 Increment                                      $ 160.47 / Without           $ 160.47


Rate Calculation                          FQHC
                                     FFSE     Increment          Total
                                                      
1. Average Cost Per Unit           $ 28.59     $   0.00
2. Units per Eligible                0.132        0.132
3. Addt'l Capitation Amts.         $  0.00     $   0.00
   Cost per Elig. per Mo.          $  0.31     $   0.00        $ 139.88
Adjustments
   a. Demographics                   0.970        0.970
   b. Area                           1.000        1.000
   c. Coverages                      0.603        0.603
   d. Interest                       0.995        0.995
Adjusted Base Cost                 $  0.18     $   0.00        $ 136.83
3. Legislative Adjs.                 0.926        0.926
4. Trend Adjustments
   a. Cost per Unit                  1.000        1.000
   b. Units per Eligible             1.000        1.000
Projected Cost per Eligible        $  0.17     $   0.00        $ 165.43
5. Stop Loss Reins.                      Premium                   0.00
6. CHDP                                                            0.00
7. Fee-for-Service Adj.                                           (4.96)
Capitation Rate With FQHC Increment





                                                                          
Plan Name:           Molina Medical Center     Plan#:      355                  Date:           04-May-00
County:              Riverside                 Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Child


The Rale Period is October 1,1998               Capitation Payments at the
to September 30, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 4 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                            
1. Average Cost Per Unit               $    67.42   $    13.64   $   889.41   $    16.21   $   469.38
2. Units per Eligible                       3.999        3.411        0.465        1.516        0.007
3. Addt'l Capitation Amts.             $     0.23   $     0.03   $     2.90   $     0.00   $     0.00
   Cost per Elig. per Mo.              $    22.70   $     3.91   $    37.86   $     2.05   $     0.27
Adjustments
   a. Demographics                          1.181        1.019        1.321        1.114        1.000
   b. Area                                  1.043        1.000        1.000        1.000        1.000
   c. Coverages                             0.974        0.984        0.952        0.973        0.996
   d. Interest                              0.995        0.995        0.995        0.995        0.995
Adjusted Base Cost                     $    27.10   $     3.90   $    46.75   $     2.21   $     0.27
3. Legislative Adjs.                        1.076        1.047        0.999        1.024        1.134
4. Trend Adjustments
   a. Cost per Unit                         1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                    0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible            $    27.70   $     4.49   $    51.49   $     2.15   $     0.32
5. Stop Loss Reins                              Amount           $        0
6. CHDP
7. Fee-for-Service Adj.
Capitation Rate With FQHC Increment                 $    93.09 / Without      $    92.75


Rate Calculation                                                           FQHC
                                                       Other        FFSE      Increment       Total
                                                                                
1. Average Cost Per Unit                            $    20.69   $    68.39   $    24.41
2. Units per Eligible                                    1.958        0.168        0.168
3. Addt'l Capitation Amts.                          $     0.00   $     0.00   $     0.00
   Cost per Elig. per Mo.                           $     3.38   $     0.96   $     0.34    $   70.97
Adjustments
   a. Demographics                                       1.165        1.003        1.003
   b. Area                                               1.000        1.000        1.000
   c. Coverages                                          0.815        0.970        0.970
   d. Interest                                           0.995        0.995        0.995
Adjusted Base Cost                                  $     3.19   $     0.93   $     0.33    $   84.68
3. Legislative Adjs.                                     1.090        1.031        1.031
4. Trend Adjustments
   a. Cost per Unit                                      0.950        1.000        1.000
   b. Units per Eligible                                 1.050        1.000        1.000
Projected Cost per Eligible                         $     3.47   $     0.96   $     0.34    $   90.92
5. Stop Loss Reins.                          Rate          0.0%      Premium                     0.00
6. CHDP                                                                                          5.04
7. Fee-for-Service Adj.                                   -3.0%                                 (2.87)
Capitation Rate With FQHC Increment





                                                                          
Plan Name:           Molina Medical Center     Plan#:      355                  Date:           04-May-00
County:              Riverside                 Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Adult


The Rate Period is October 1,1998               Capitation Payments at the
to September 30, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 5 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                            
1. Average Cost Per Unit               $    90.48   $    17.11   $   964.66   $    15.76   $   812.04
2. Units per Eligible                      21.383        5.818        5.446        4.679        0.000
3. Addt'l Capitation Amts.             $     0.37   $     0.06   $    35.62   $     0.08   $     0.00
   Cost per Elig. per Mo.              $   161.60   $     8.36   $   473.41   $     6.23   $     0.00
Adjustments
   a. Demographics                          1.000        1.000        1.000        1.000        1.000
   b. Area                                  1.043        1.000        1.000        1.000        1.000
   c. Coverages                             0.999        0.999        0.999        0.989        1.000
   d. Interest                              0.995        0.995        0.995        0.995        0.995
Adjusted Base Cost                     $   167.54   $     8.31   $   470.57   $     6.13   $     0.00
3. Legislative Adjs.                        1.029        1.054        1.000        1.022        1.102
4. Trend Adjustments
   a. Cost per Unit                         1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                    0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible            $   163.76   $     9.63   $   518.80   $     5.95   $     0.00
5. Stop Loss Reins                              Amount           $        0
6. CHDP
7. Fee-for-Service Adj.
Capitation Rale With FQHC Increment                  $  706.77 / Without      $   705.26


Rate Calculation                                                           FQHC
                                                       Other        FFSE      Increment       Total
                                                                                
1. Average Cost Per Unit                            $    36.13   $    66.39   $    24.41
2. Units per Eligible                                   10.172        0.735        0.735
3. Addt'l Capitation Amts.                          $     0.00   $     0.00   $     0.00
   Cost per Elig. per Mo.                           $    30.63   $     4.19   $     1.50    $  685.92
Adjustments
   a. Demographics                                       1.000        1.000        1.000
   b. Area                                               1.000        1.000        1.000
   c. Coverages                                          0.809        0.995        0.995
   d. Interest                                           0.995        0.995        0.995
Adjusted Base Cost                                  $    24.66   $     4.15   $     1.49    $  682.85
3. Legislative Adjs                                      1.004        1.015        1.015
4. Trend Adjustments
   a. Cost per Unit                                      0.950        1.000        1.000
   b. Units per Eligible                                 1.050        1.000        1.000
Projected Cost per Eligible                         $    24.70   $     4.21   $     1.51    $  728.58
5. Stop Loss Reins                           Rate          0.0%      Premium                     0.00
6. CHDP                                                                                          0.00
7. Fee-for-Service Adj.                                   -3.0%                                (21.81)
Capitation Rate With FQHC Increment





                                                                          
Plan Name:           Molina Medical Center     Plan#:      355                  Date:           04-May-OO
County:              Riverside                 Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   AIDS



The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 6 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                            
1. Average Cost Per Unit              $    32.67   $   126.04   $   485.15   $    13.79   $   139.87
2. Units per Eligible                     26.305       74.792        3.169        9.882        0.000
3. Addt'l Capitation Amts             $     2.96   $     0.09   $     9.89   $     0.02   $     0.00
   Cost per Ellg. per Mo              $    74.57   $   785.66   $   138.01   $    11.38   $     0.00
Adjustments
   a. Demographics                         1.000        1.000        1.000        1.000        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.918        0.648        0.957        0.992        0.998
   d. Interest                             0.995        0.995        0.995        0.995        0.995
Adjusted Base Cost                    $    71.04   $   506.56   $   131.42  $     11.23   $     0.00
3. Legislative Adjs                        0.963        1.006        0.977        0.982        1.186
4. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1.100
   b. Units per Eligible                   1.100        1.210        1.050        1.045        0.950
Projected Cost per Eligible           $    75.25   $   678.28   $   141.56   $    11.52   $     0.00
5. Slop Loss Reins                              Amount          $        0
6. CHDP
7. Fee-for-Service Adj.
Capitation Rale With FQHC Increment                 $   962.42 / Without      $   962.42


Rate Calculation                                                       FQHC
                                                       Other        FFSE      Increment       Total
                                                                                
1. Average Cost Per Unit                            $    42.30   $    66.52   $     0.00
2. Units per Eligible                                   36.392        0.628        0.628
3. Addt'l Capitation Amts                           $     0.00   $     0.00   $     0.00
   Cost per Ellg. per Mo                            $   128.28   $     3.48   $     0.00   $ 1.141.30
Adjustments
   a. Demographics                                       1.000        1.000        1.000
   b. Area                                               1.000        1.000        1.000
   c. Coverages                                          0.599        0.951        0.951
   d. Interest                                           0.995        0.995        0.995
Adjusted Base Cost                                  $    76.46   $     3.29   $     0.00   $   800.00
3. Legislative Adjs                                      0.979        0.984        0.984
4. Trend Adjustments
   a. Cost per Unit                                      1.100        1.000        1.000
   b. Units per Eligible                                 1.000        1.000        1.000
Projected Cost per Eligible                         $    82.34   $     3.24   $     0.00   $   992.19
5. Slop Loss Reins                           Rate          0,0%            Premium               0.00
6. CHDP                                                                                          0.04
7. Fee-for-Service Adj.                                   -3.0%                                (29.77)
Capitation Rale With FQHC Increment




Aid Group Poverty-7A                         Base: Statewide Family Age Adjusted
                                           Base Period:  FY 96/97

 Payments at Beginning of Month




                                                           Hospital   Hospital  Nursing                       FQHC
 Services ==>                       Physician   Pharmacy   Inpatient Outpatient Facility    Other      FFSE Increment       Totals

                                                                                                
1. Base Cost                         $  10.40   $   6.74   $  13.64   $   3.91  $  0.24    $   8.30  $  2.98    $   1.21   $  47.42
2. Age/5ex Adjustments                  1.000      1.000      1.000      1.000    1.000       1.000    1.000       1.000
3. Eligibility Adjustments              1.000      1.000      1.000      1.000    1.000       1.000    1.000       1.000
4. Coverage Adjustments                 0.997      0.997      0.999      0.964    1.000       0.891    0.991       0.991
5. Interest Offset                      0.990      0.996      0.987      0.989    0.993       0.990    0.994       0.994

 Contract Cost FY 96/37              $  10.27   $   6.69   $  13.45   $   3.73  $  0.24    $   7.32  $  2.93    $   1.20   $  45.83

6. Legislative Adjustments              1.044      0.740      0.985     1.021     1.061       1.150    1.024       1.024
7. Trend Adjustments
           a. Cost per Unit             1.000      1.308      1.055      0.970    1.000       1.445    1.071       1.071
           b. Utilization               1.000      1.027      1.050      1.000    1.107       1.000    1.265       1.265

Projected Cost 10/98-9/99            $  10.72   $   6.65   $   14.68  $   3.69  $  0.28    $  12.16  $  4.06    $   1.66   $  53.90

8.CHDP                                                                                                                     $   2.54

9. Administrative Allowance                                                                     1.6%                       $   0.88

Fee-for-Service Equivalent Cost                                                                                            $  57.32

Fee-for-Service Adj.                                                                             94%                          (3.44)

Capitation Rate with FQHC Increment                                                                                        $  53.88

Capitation Rate without FQHC Increment                                                                                     $  52.32


C5 to Contract 95-23637
Attachment 1
Page 7 of 16



Aid Group Poverty-47/72                      Base: Statewide
                                           Base Period:  FY 96/97

Payments at Beginning of Month



                                                           Hospital   Hospital  Nursing                       FQHC
 Services ==>                       Physician   Pharmacy   Inpatient Outpatient Facility    Other      FFSE Increment       Totals

                                                                                                
1. Base Cost                         $  10.66   $   7.27   $  20.52   $   5.31  $  0.14    $   2.92  $  5.42    $  2.21    $ 54.45
2. Age/5ex Adjustments                  1.000      1.000      1.000      1.000    1.000       1.000    1.000      1.000
3. Eligibility Adjustments              1.000      1.000      1.000      1,000    1.000       1.000    1.000      1.000
4. Coverage Adjustments                 0.997      0.997      0.999      0.964    1.000       0.891    0.991      0.991
5. Interest Offset                      0.990      0.996      0.987.     0.989    0.993       0.990    0.994      0.994

 Contract Cost FY 96/37              $  10.52   $   7.22   $  20.24   $   5.07  $  0.14    $   2.57  $  5.34    $  2.18    $ 53.28

6. Legislative Adjustments              1.044      0.740      0.985     1.021     1.061       1.150    1.024      1.024
7. Trend Adjustments
           a. Cost per Unit             1.000      1.308      1.055      0.970    1.000       1.445    1.071      1.071
           b. Utilization               1.000      1.027      1.050      1.000    1.107       1.000    1.265      1.265

Projected Cost 10/98-9/99            $  10.98   $   7.18   $  22.08   $   5.02  $  0.16    $   4.27  $  7.41    $  3.02    $  60.12

8.CHOP                                                                                                                     $   2.54

9. Administrative Allowance                                                                     1.6%                       $   0.95

Fee-for-Service Equivalent Cost                                                                                            $  63.61

Fee-for-Service Adj.                                                                             94%                          (3.82)

Capitation Rate with FQHC Increment                                                                                        $  59.79

Capitation Rate without FQHC Increment                                                                                     $  56.95


C5 to Contract 95-23637
Attachment 1
Page 8 of 16





                                                                          
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Family


The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 9 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           
1. Average Cost Per Unit              $    69.46   $    19.88   $   978.02   $    16.16   $   812.04
2. Units per Eligible                      4.050        4.683        0.373        2.146        0.004
3. Add'l Capitation Amis              $     0.37        $0.05   $     4.62   $     0.01   $     0.00
   Cost per Ellg. per Mo              $    23.81   $     7.81   $    35.02   $     2.90   $     0.27
Adjustments
   a. Demographics                         0.997        0.993        0.977        0.987        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.975        0.992        0.968        0.956        0.995
   d. Interest                             1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                    $    24.14   $     7.69   $    33.12   $     2.74   $     0.27
3. Legislative Adjs,                       1.053        1.053        0.998        1.023        1.141
4. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                   0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible           $    24.15   $     8.91   $    36.44       $ 2.66   $     0.32
5.  Slop Loss Reins                                   Amount    $        0
6.   CHOP
7.  Fee-for-Sarvice Adj.
Capitation Rate With FQHC  Increment               $    80.89 /Without           $80.82


Rate Calculation                                          FQHC
                                                      Other        FFSE      Increment       Total
                                                                    
1. Average Cost Per Unit                           $    20.09   $    68.10   $     7.33
2. Units per Eligible                                   3.532        0.132        0.132
3. Add'l Capitation Amis                           $     0.00   $     0.00   $     0.00
   Cost per Ellg. per Mo                                $5.91   $     0.75   $     0.08     $ 76.55
Adjustments
   a. Demographics                                      0.985        0.992        0.992
   b. Area                                              1.000        1.000        1.000
   c. Coverages                                         0.833        0.935        0.935
   d. Interest                                          1.000        1.000        1.000
Adjusted Base Cost                                 $     4.85   $     0.70   $     0.07     $ 73.58
3. Legislative Adjs,                                    1.046        1.027        1.027
4. Trend Adjustments
   a. Cost per Unit                                     0.950        1.000        1.000
   b. Units per Eligible                                1.050        1.000        1.000
Projected Cost per Eligible                        $     5.06   $     0.72   $     0.07     $ 78.33
5.  Slop Loss Reins                          Rate         0,0%      Premium                    0.00
6.   CHOP                                                                                      5.06
7.  Fee-for-Sarvice Adj.                                 -3.0%                                (2.50)






                                                                          
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Disabled


The Rate Period Is October 1,1998               Capitation Payments at the
to September 30, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 10 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                            
1. Average Cost Per Unit               $    46.41   $    39.70   $   611.26   $    12.37   $   139.87
2. Units per Eligible                       6.969       26.661        1.556        5.050        0.459
3. Addt'l Capitation Amts              $     2.96   $     0.09   $     9.89   $     0.02   $     0.00
   Cost per Ellg. per Mo               $    29.91      $ 88.45   $    89.15   $     5.23   $     5.35
Adjustments
   a. Demographics                          0.980        0.973        0.961        0.998        0.996
   b. Area                                  1.043        1.000        1.000        1.000        1.000
   c. Coverages                             0.900        0.875        0.920        0.973        0.995
   d. Interest                              1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                     $    27.51   $    75.74   $    78.82   $     5.08   $     5.30
3. Legislative Adjs                         0.941        1.043        0.919        0.931        1.130
4. Trend Adjustments
   a. Cost per Unit                         1.000        1.100        1.050        1.000        1.100
   b. Units per Eligible                    1.100        1.210        1.050        1.045        0.950
Projected Cost per Eligible            $    28.48   $   105.14      $ 79.86   $     4.94   $     6.26
5. Slop Loss Reins                              Amount           $        0
6. CHDP
7. Fee-for-Service Adj.
Capitation Rale With FQHC Increment                 $   234.65 / Without      $   234.65


Rate Calculation                                                       FQHC
                                                       Other        FFSE      Increment       Total
                                                                                
1. Average Cost Per Unit                            $    10.16   $    69.96   $     0.00
2. Units per Eligible                                   21.959        0.120        0.120
3. Addt'l Capitation Amts                           $     0.00   $     0.00   $     0.00
   Cost per Ellg. per Mo                            $    18.59   $     0.70         0.00    $  237.89
Adjustments
   a. Demographics                                       1.006        0.989        0.989
   b. Area                                               1.000        1.000        1.000
   c. Coverages                                          0.878        0.863        0.863
   d. Interest                                           1.000        1.000        1.000
Adjusted Base Cost                                  $    16.42   $     0.60   $     0.00    $  209.47
3. Legislative Adjs                                      0.923        0.932        0.932
4. Trend Adjustments
   a. Cost per Unit                                      1.100        1.000        1,000
   b. Units per Eligible                                 1.000        1.000        1.000
Projected Cost per Eligible                         $    16.67   $     0.56   $     0.00    $  241.91
5. Slop Loss Reins                           Rate          0.0%      Premium                     0.00
6. CHDP                                                                                          0.00
7. Fee-for-Service Adj.                                   -3.0%                                 (7.26)
Capitation Rale With FQHC Increment






                                                                          
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Aged


The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 11 of 16




Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           
1. Average Cost Per Unit              $    48.90   $    32.71   $   316.16   $    10.02   $    77.33
2. Units per Eligible                      4.580       21.914        1.265        3.306        2.016
3. Add'l Capitation Amts              $     1.29   $     0.00   $     7.41   $     0.02   $     0.00
   Cost per Ellg. per Mo              $    19.95   $    59.73   $    40.74   $     2.78   $    12.99
Adjustments
    a. Demographics                        0.963        1.014        0.962        0.975        1.027
    b. Area                                1.043        1.000        1.000        1.000        1.000
    c. Coverages                           0.981        0.996        0.997        0.986        0.997
    d. Interest                            1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                    $    19.66   $    60.32   $    39.07   $     2.67   $    13.30
3. Legislative Adjs                        0.939        1.049        0.926        0.931        1.140
4. Trend Adjustments
   a. Cost per Unit                        1.100        1.100        1.100        1.050        1.000
   b. Units per Eligible                   1.100        1.155        1.100        1.100        1.000
Projected Cost per Eligible           $    22.34   $    80.39   $    43.78   $     2.87   $    15.16
5.  Stop Loss Reins                                    Amount   $        0
6.   CHOP
7.  Fee-for-Service Adj.
Capitation Rate With FQHC Increment                $   164.60 /Without       $   164.60


Rate Calculation                                             FQHC
                                               Other       FFSE        Increment    Total
                                                                       
1. Average Cost Per Unit                     $     6.41   $    50.63   $     0.00
2. Units per Eligible                            12.862        0.024        0.024
3. Add'l Capitation Amts                     $     0.00   $     0.00   $     0.00
   Cost per Ellg. per Mo                     $     6.87   $     0.10   $     0.00  $ 143.16
Adjustments
    a. Demographics                               1.013        0.979        0.979
    b. Area                                       1.000        1.000        1.000
    c. Coverages                                  0.791        0.603        0.603
    d. Interest                                   1.000        1.000        1.000
Adjusted Base Cost                           $     5.50   $     0.06   $     0.00  $ 140.58
3. Legislative Adjs                               0.927        0.926        0.926
4. Trend Adjustments
   a. Cost per Unit                               1.050        1.000        1.000
   b. Units per Eligible                          0.950        1.000        1.000
Projected Cost per Eligible                  $     5.09   $     0.06   $     0.00  $ 169.69
5.  Stop Loss Reins                   Rate          0.0%     Premium                   0.00
6.   CHOP                                                                              0.00
7.  Fee-for-Service Adj.                           -3.0%                              (5.09)
Capitation Rate With FQHC  Increment






                                                                          
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Child


The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 12 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           
1. Average Cost Per Unit              $    67.42   $    13.64   $ 1,120.53   $    16.21   $   469.38
2. Units per Eligible                      4.035        3.411        0.465        1.516        0.007
3. Add'l Capitation Amts              $     0.23   $     0.03   $     2.90   $     0.00   $     0.00
   Cost par Ellg. per Mo              $    22.90   $     3.91   $    46.32   $     2.05   $     0.27
Adjustments
   a. Demographics                         1.212        1.021        1.342        1.157        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.974        0.984        0.952        0.973        0.996
   d. Interest                             1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                    $    28.20   $     3.93   $    59.18   $     2.31   $     0.27
3. Legislative Adjs                        1.076        1.047        0.999        1.024        1.134
4. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                   0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible           $    28.83   $     4.53   $    65.18   $     2.25   $     0.32
5. Stop Loss Reins                              Amount          $        0                  Rate
6.   CHOP
7.  Fee-for-Service AdJ.
Capitation Rate With FQHC     Increment            $   106.97 /Without       $   106.89


Rate Calculation                                      FQHC
                                        Other       FFSE        Increment    Total
                                                                 
1. Average Cost Per Unit              $    20.69   $    68.10   $     7.33
2. Units per Eligible                      1.958        0.132        0.132
3. Add'l Capitation Amts              $     0.00   $     0.00   $     0.00
   Cost par Ellg. per Mo              $     3.38   $     0.75   $     0.08   $  79.66
Adjustments
   a. Demographics                         1.080        1.084        1.084
   b. Area                                 1.000        1.000        1.000
   c. Coverages                            0.815        0.970        0.970
   d. Interest                             1.000        1.000        1.000
Adjusted Base Cost                    $     2.98   $     0.79   $     0.08   $  97.74
3. Legislative Adjs                        1.090        1.031        1.031
4. Trend Adjustments
   a. Cost per Unit                        0.950        1.000        1.000
   b. Units per Eligible                   1.050        1.000        1.000
Projected Cost per Eligible           $     3.24   $     0.81   $     0.08   $ 105.24
5. Stop Loss Reins                                                Premium        0.00
6.   CHDP                                                                        5.04
7.  Fee-for-Service AdJ.                    -3.0%                               (3.31)
Capitation Rate With FQHC Increment






                                                                          
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Adult


The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C5 to Contract 95-23637
Attachment 1
Page 13 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           
1. Average Cost Per Unit              $    90.48   $    17.11   $ 1,140.81   $    15.76   $   812.04
2. Units per Eligible                     21.541        5.818        5.446        4.679        0.000
3. Add'l Capitation Amts              $     0.37   $     0.06   $    35.62   $     0.08   $     0.00
   Cost per Ellg. per Mo              $   162.79   $     6.36   $   553.36   $     6.23   $     0.00
Adjustments
   a. Demographics                         1.000        1.000        1.000        1.000        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.999        0.999        0.999        0.989        1.000
   d. Interest                             1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                    $   169.62   $     8.35   $   552.81   $     6.16   $     0.00
3. Legislative Adjs                        1.029        1.054        1.000        1.022        1.102
4. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                   0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible           $   165.81   $     9.68   $   609.47   $     5.98   $     0.00
5. Stop Loss Reins                                     Amount   $        0
6.   CHOP
7.  Fee-for-Service Adj.
Capitation Rate With FQHC     Increment            $   794.86 /Without       $   794.50


Rate Calculation                                      FQHC
                                        Other       FFSE        Increment    Total
                                                                 
1. Average Cost Per Unit              $    36.13   $    68.10   $     7.33
2. Units per Eligible                     10.172        0.577        0.577
3. Add'l Capitation Amts              $     0.00   $     0.00   $     0.00
   Cost par Ellg. per Mo              $    30.63   $     3.28   $     0.35   $ 765.00
Adjustments
   a. Demographics                             .        1.000        1.000
   b. Area                                 1.000        1.000        1.000
   c. Coverages                            0.809        0.995       .0.995
   d. Interest                             1.000        1.000        1.000
Adjusted Base Cost                    $    24.78   $     3.26   $     0.35   $ 765.33
3. Legislative Adjs                        1.004        1.015        1.015
4. Trend Adjustments
   a. Cost per Unit                        0.950        1.000        1.000
   b. Units per Eligible                   1.050        1.000        1.000
Projected Cost per Eligible           $    24.82   $     3.31   $     0.36   $ 819.43
5. Stop Loss Reins                           0.0%                 Premium        0.00
6.   CHOP                                                                        0.00
7.  Fee-for-Service Adj.                    -3.0%                              (24.57)
Capitation Rate With FQHC Increment






                                                                                 
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Dec-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   AIDS


The Rate Period Is October 1,1998               Capitation Payments at the
to September 3D, 1999                           Beginning of the Month

  Coverages

   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphateto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered-by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

 C5 to Contract 95-23637
 Attachment 1
 Page 14 of 16



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           

1. Average Cost Per Unit              $    32.67   $   126.04   $   611.26   $    13.79   $   139.87
2. Units per Eligible                     26.584       74.792        3.169        9.882        0.000
3. Add'l Capitation Amis              $     2.96   $     0.09   $     9.89   $     0.02   $     0.00
   Cost per Elig. per Mo              $    75.33   $   785.66   $   171.31   $    11.38   $     0.00
Adjustments
   a. Demographics                         1.000        1.000        1.000        1.000        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.918        0.648        0.957        0.992        0.998
   d. Interest                             1.000        1.000        1.000        1.000        1.000
Adjusted Base Cost                    $    72.13   $   509.11   $   163.94   $    11.29   $     0.00
3. Legislative Adjs                        0.963        1.006        0.977        0.982        1.186
4. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1,100


   b. Units per Eligible                   1.100        1.210        1.050        1.045        0.950
Projected Cost per Eligible           $    76.41   $   681.69   $   176.59   $    11.59   $     0.00
5.  Stop Loss Reins
6.   CHOP
7.  Fee-for-Service Adj.
Capitation Rate With FQHC Increment                $ 1,000.01/Without        $ 1,000.01


Rate Calculation                                        FQHC
                                          Other       FFSE        Increment      Total
                                                                   

1. Average Cost Per Unit                $    42.30   $    69.96   $     0.00
2. Units per Eligible                       36.392        0.349        0.349
3. Add'l Capitation Amis                $     0.00   $     0.00   $     0.00
   Cost per Elig. per Mo                $   128.28   $     2.04   $     0.00   $ 1,174.00
Adjustments
   a. Demographics                           1.000        1.000        1.000
   b. Area                                   1.000        1.000        1.000


   c. Coverages                              0.599        0.951        0.951
   d. Interest                               1.000        1.000        1,000
Adjusted Base Cost                      $    76.84   $     1.94   $     0.00   $   835.25
3. Legislative Adjs                          0.979        0.984        0.984
4. Trend Adjustments
   a. Cost per Unit                          1.100        1,000
                                                                       1.000

   b. Units per Eligible                     1.000        1.000        1.000
Projected Cost per Eligible             $    82.75   $     1.91   $     0.00   $ 1,030.94
5.  Stop Loss Reins                            0.0%                                  0.00
6.   CHOP                                                                            0.00
7.  Fee-for-Service Adj.             Rate     -3.0%                Premium         (30.93)
Capitation Rate With FQHC Increment




Aid Group Poverty-47/72                      Base: Statewide
                                           Base Period:  FY 96/97

 Payments at Beginning of Month
 Services ==>



                                                           Hospital   Hospital  Nursing                       FQHC
                                     physician   Pharmacy  Inpatient Outpatient Facility    Other      FFSE Increment       Totals

                                                                                                
1. Base Cost                         $  10.40   $   6.74   $  13.64   $   3.91  $  0.24    $   8.30  $  2.96    $  1.21    $ 47.42
2. Age/5ex Adjustments                  1.000      1.000      1.000      1.000    1.000       1.000    1.000      1.000
3. Eligibility Adjustments              1.000      1.000      1.000      1.000    1.000       1.000    1.000      1.000
4. Coverage Adjustments                 0.997      0.997      0.999      0.964    1.000       0.891    0.991      0.991
5. Interest Offset                      0.995      1.001      0.991      0.993    0.998       0.995    0.998      0.998

 Contract Cost FY 96/37              $  10.32   $   6.73   $  13.50   $   3.74  $  0.24    $   7.36  $  2.94    $  1.20    $ 46.03

6. Legislative Adjustments              1.044      0.740      0.985      1.021    1.061       1.150    1.024      1.024
7. Trend Adjustments
           a. Cost per Unit             1.000      1.308      1.055      0.970    1.000       1.445    1.071      1.071
           b. Utilization               1.000      1.027      1.050      1.000    1.107       1.000    1.265      1.265

Projected Cost 10/98-9/99            $  10.77   $   6.69   $  14.73   $   3.70  $  0.28    $  12.23  $  4.08    $  1.66    $ 54.14

8.CHOP                                                                                                                     $  2.54

9. Administrative Allowance                                                                     1.5%                       $  0.88

Fee-for-Service Equivalent Cost                                                                                            $ 57.56

Fee-for-Service Adj.                                                                             94%                         (3.45)

Capitation Rate with FQHC Increment                                                                                        $ 54.11

Capitation Rate without FQHC Increment                                                                                     $ 52.55


                             C5 to Contract 95-23637
                             Attachment 1
                             Page 15 of 16



Aid Group Poverty-47/72                      Base: Statewide
                                           Base Period:  FY 96/97

 Payments at Beginning of Month
 Services ==>



                                                           Hospital   Hospital  Nursing                       FQHC
                                     physician   Pharmacy  Inpatient Outpatient Facility    Other      FFSE Increment      Totals

                                                                                               
1. Base Cost                         $  10.66   $   7.27   $  20.52   $   5.31  $  0.14    $   2.92  $  5.42    $  2.21   $   54.45
2. Age/5ex Adjustments                  1.000      1.000      1.000      1.000    1.000       1.000    1.000      1.000
3. Eligibility Adjustments              1.000      1.000      1.000      1.000    1.000       1.000    1.000      1.000
4. Coverage Adjustments                 0.997      0.997      0.999      0.964    1.000       0.891    0.991      0.991
5. Interest Offset                      0.995      1.001      0.991      0.993    0.998       0.995    0.998      0.994

 Contract Cost FY 96/37              $  10.57   $   7.25   $  20.32   $   5.09  $  0.14    $   2.59  $  5.36    $  2.18   $   53.50

6. Legislative Adjustments              1.044      0.740      0.985      1.021     1.061      1.150    1.024      1.024
7. Trend Adjustments
           a. Cost per Unit             1.000      1.308      1.055      0.970    1.000       1.445    1.071      1.071
           b. Utilization               1.000      1.027      1.050      1.000    1.107       1.000    1.265      1.265

Projected Cost 10/98-9/99            $  11.04   $   7.21   $  22.17   $   5.04  $  0.16    $   4.30  $  7.44    $  3.02   $   60.38

8.CHOP                                                                                                                    $    2.54

9. Administrative Allowance                                                                     1.5%                      $    0.96

Fee-for-Service Equivalent Cost                                                                                           $   63.88

Fee-for-Service Adj.                                                                             94%                          (3.83)

Capitation Rate with FQHC Increment                                                                                       $   60.05

Capitation Rate without FQHC Increment                                                                                    $   57.21


                             C5 to Contract 95-23637
                             Attachment 1
                             Page 16 of 16



STATE OF CALIFORNIA-HEALTH AND HUMAN SERVICES AGENCY        GRAY DAVIS, Governor

================================================================================

[SEAL OF DEPARTMENT OF HEALTH SERVICES]

[SEAL]

DEPARTMENT OF HEALTH SERVICES
714/744 P Street
P. O. Box 942732
Sacramento, CA 94234-7320
(916)654-8076

         February 8, 2000

         Mr. George Goldstein, President
         Molina
         One Golden Shore
         Long Beach, CA 90802

         Dear Mr. Goldstein:

         In accordance with Article V, Section 5.5 of your Contract, the
         enclosed Change Order No. 06 transmits ( Molina's ) annual capitation
         rates for the period October 1, 1999 to September 30, 2000.

         This Change Order also includes a rate change for the two-month period
         of August 1999 through September 1999, to include the provider rate
         increases established in the Budget Act of 1999/2000, which were
         effective August 1, 1999.

         The retropayment between the old rates and the new 1999/2000 rates for
         the period October 1, 1999 through February 2000 and the provider rate
         increases for the period August 1999 through September 1999 will appear
         in your capitation check for February 2000. The March capitation check
         will reflect the 1999/2000 rates.

         If you have any questions, please contact your contract manager.

         Sincerely,

         /s/
         Susanne M. Hughes
         Acting Chief
         Medi-Cal Managed Care Division



STATE OF CALIFORNIA-HEALTH AND HUMAN SERVICES AGENCY        GRAY DAVIS, Governor

================================================================================

[SEAL OF DEPARTMENT OF HEALTH SERVICES]

[SEAL]

DEPARTMENT OF HEALTH SERVICES
714/744 P Street
P. O. Box 942732
Sacramento, CA 94234-7320
(916)654-8076

CHANGE ORDER C06 TO CONTRACT NO.95-23637: ADJUSTING THE ANNUAL CAPITATION RATE
FOR PROVIDER RATE INCREASES DURING THE TWO MONTH PERIOD OF AUGUST 1, 1999
THROUGH SEPTEMBER 30, 1999; AND THE ANNUAL CAPITATION RATES FOR THE PERIOD
OCTOBER 1,1999 TO SEPTEMBER 30, 2000, BY CHANGING CONTRACT SECTIONS; 5.3
CAPITATION RATES; AND 5.4 CAPITATION RATES CONSTITUTE PAYMENT IN FULL. This
Change Order is effective February 1, 2000.

1.   5.3    CAPITATION RATES

      For the Period 8-1-99 to 9-30-99             San Bernardino County
     ---------------------------------------------------------------------------
                 GROUPS              AID CODES                           RATE
     ---------------------------------------------------------------------------
      Family                     01, OA. 02, 08, 30,                     81.00
                                 32, 33, 34, 35, 38,
                                 39, 40, 42, 54, 59,
                                 3A, 3C, 3E, 3G, 3H,
                                 3L, 3M, 3N, 3P, 3R,
                                 3U, 5X.7X
     ---------------------------------------------------------------------------
      Disabled                   20,24, 26, 28, 36,                      234.98
                                 60, 64, 66, 68, 6A,
                                 6C, 6N, 6P, 6R
     ---------------------------------------------------------------------------
      Aged                       10, 14. 16. 18                          165.06
     ---------------------------------------------------------------------------
      Child                      03, 04, 4C, 4K, 5K,                     107.27
                                 45,82
     ---------------------------------------------------------------------------
      Adult                      86                                      796.46
     ---------------------------------------------------------------------------
      AIDS Beneficiary                                                   996.35
     ---------------------------------------------------------------------------
      Percent of Poverty         7A                                       52.87
     ---------------------------------------------------------------------------
      Percent of Poverty         47,72                                    57.53
     ---------------------------------------------------------------------------

                                        1



For the Period 8-1-99 to 9-30-99             Riverside County
- ----------------------------------------------------------------
             GROUPS          AID CODES                      RATE
- ----------------------------------------------------------------
 Family                   01, OA, 02, 08, 30,              78.99
                          32, 33, 34, 35, 38, 39, 40,
                          42, 54, 59, 3A, 3C, 3E, 3G,
                          3H, 3L, 3M, 3N, 3P, 3R, 3U,
                          SX,7X
- ----------------------------------------------------------------
 Disabled                 20,24, 26, 28, 36,              224.00
                         60, 64, 66; 68, 6A,
                         6C, 6N, 6P. 6R
- ----------------------------------------------------------------
 Aged                     10, 14, 16, 18                  161.75
- ----------------------------------------------------------------
 Child                   03, 04, 4C, 4K, 5K,               93.54
                         45,82
- ----------------------------------------------------------------
 Adult                   86                               710.61
- ----------------------------------------------------------------
 AIDS Beneficiary                                         963.67
- ----------------------------------------------------------------
 Percent of Poverty      7A                                52.87
- ----------------------------------------------------------------
 Percent of Poverty      47,72                             57.53
- ----------------------------------------------------------------

 For the period 10-1-99 to 9-30-2000     San Bernardino County
- ----------------------------------------------------------------
             GROUPS          AID CODES                     RATE
- ----------------------------------------------------------------
 Family                  01. OA. 02, 08, 30,               84.07
                         32, 33, 34, 35, 38, 39, 40,
                         42, 54, 59, 3A, 3C, 3E, 3G,
                         3H, 3L, 3M, 3N, 3P, 3R, 3U,
                         4F, 4G, 5X, 7A, 7X
- ----------------------------------------------------------------
 Disabled                20, 24, 26, 28, 36,              198.68
                         60, 64, 66, 68, 6A,
                         6C, 6N, 6P, 6R
- ----------------------------------------------------------------
 Aged                     10, 14, 16, 18                  145.52
- ----------------------------------------------------------------
 Child                   03, 04, 4A, AC, 4K,                8582
                         5K, 45, 47, 72, 82,
                         8R.8P
- ----------------------------------------------------------------
 Adult                   86                               914.05
- ----------------------------------------------------------------
 AIDS Beneficiary                                         763.69
- ----------------------------------------------------------------

                                        2



Riverside  County
     For the period 10-1-99 to 9-30-2QQQ
     ----------------------------------------------------------------
              GROUPS              AID CODES                     RATE
     ----------------------------------------------------------------
      Family                  01, 0A, 02, 08, 30,               79.61
                              32, 33, 34, 35, 38,
                              39, 40, 42, 54, 59,
                              3A, 3C, 3E, 3G, 3H,
                              3L, 3M, 3N, 3P, 3R,
                              3U, 4F, 4G, 5X, 7A,
                              7X
     ----------------------------------------------------------------
      Disabled                20, 24. 26, 28, 36,             201.02
                              GO, 64, 66, 68, 6A,
                              6C, 6N, 6P, 6R
     ----------------------------------------------------------------
      Aged                    10, 14, 16, 18                   143.42
     ----------------------------------------------------------------
      Child                   03, 04, 4A, 4C, 4K,              101.31
                              5K, 45, 47, 72, 82,
                              8R.8P
     ----------------------------------------------------------------
      Adult                   86                               838.60
     ----------------------------------------------------------------
      AIDS Beneficiary                                         722.10
     ----------------------------------------------------------------

     .    Aid codes 4A, 4F, 4G, 8R, & 8P will be effective February 1, 2000.

     .    All other terms, conditions, and provisions contained in Section 5.3
          remain unchanged.

2.   5.4     CAPITATION RATES CONSTITUTE PAYMENT IN FULL

     Capitation rates for each rate period, as calculated by DHS, are
     prospective rates and constitute payment in full, subject to any stop loss
     reinsurance provisions, on behalf of a Member for all Covered Services
     required by such Member and for all Administrative Costs incurred by the
     Contractor in providing or arranging for such services, and subject to
     adjustments for federally qualified health centers in accordance with
     Section 14087.325 of the W&.I Code, but do not include payment for the
     recoupment of current or previous losses incurred by Contractor. DHS is not
     responsible for making payments for recoupment of losses. The actuarial
     basis for the determination of the capitation payment rates is outlined in
     Attachment 1 (consisting of 28 pages).

     All other terms, conditions, and provisions contained in Section 5.4 remain
     unchanged.

                                        3



                                                                                 
Plan Name:           Molina Medical Center     Plan#:      356                  Date:           01-Nov-99
County:              San Bernardino            Plan Type:  Commercial Plan      Base Period:    FY 96/97
Ald Code Grouping:   Family


Adjusted Rate is Effective August 1,              Capitation Payments at the
1999 to September 30. 1999                        Beginning of the Month

Coverages
- --------------------------------------------------------------------------------
  CCS Indicated Claims                             NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Mental Health Outpatient Services                NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Mental Health Pharmacy Costs                     NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Eyewear                                          NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Heroin Detoxification                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
  AIDS Waiver Services                             NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Adult Day Health Care                            NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Chiropractor/Acupuncture                         NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Local Education Authority                        NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Alphateto Protein Testing                        NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Long Term Care for month of entry plus one       Covered by the Plan
- -------------------------------------------------------------------------------
  Long Term Care after month of entry plus one     NOT Covered by the Plan
- -------------------------------------------------------------------------------
  Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C6 to Contract 95-23637
Attachment 1
Page 1 of 28



Rate Calculation                                                  Hospital     Hospital    Long Term
                                        Physician    Pharmacy    Inpatient    Outpatient     Care
                                                                           

1. Average Cost Per Unit              $    69.46   $    19.88   $   978.02   $    16.16   $   812.04
2. Units per Eligible                      4.050        4.683        0.373        2.146        0.004
3. Addt'l Capitation Amis             $     0.37   $     0.05   $     4.62   $     0.01   $     0.00
    Cost per Elig. per Mo             $    23.81   $     7.81   $    35.02   $     2.90   $     0.27
4. Adjustments
   a. Demographics                         0.997        0.993        0.977        0.987        1.000
   b. Area                                 1.043        1.000        1.000        1.000        1.000
   c. Coverages                            0.975        0.992        0.968        0.956        0.995
   d. Interest                             0.995        0.995        0.995        0.995        0.995
Adjusted Base Cost                    $    24.02   $     7.65   $    32.95   $     2.72   $     0.27
5. Legislative Adjs                        1.061        1.053        1.006        1.031
6. Trend Adjustments
   a. Cost per Unit                        1.000        1.100        1.050        1.000        1.000
   b. Units per Eligible                   0.950        1.000        1.050        0.950        1.050
Projected Cost per Eligible           $    24.21   $     8.86   $    36.55   $     2.66   $     0.34
7. Stop Loss Reins.                                 Amount      $        0
8. CHOP
9. Fee-for-Service Adj.
Capitation Rate


Rate Calculation                                   FQHC
                                     Other       FFSE        Increment     Total
                                                              

1. Average Cost Per Unit           $    20.09   $    68.10
2. Units per Eligible                   3.532        0.132
3. Addt'l Capitation Amis           $     0.00   $     0.00
    Cost per Elig. per Mo          $     5.91   $     0.75   $    76.47
4. Adjustments
   a. Demographics                      0.985        0.992
   b. Area                              1.000        1.000
   c. Coverages                         0.833        0.935
   d. Interest                          0.995        0.995
Adjusted Base Cost                 $     4.82   $     0.69   $    73.12
5. Legislative Adjs                     1.061        1.041
6. Trend Adjustments
   a. Cost per Unit                     0.950        1.000
   b. Units per Eligible                1.050        1.000
Projected Cost per Eligible        $     5.10   $     0.72   $    78.44
7. Stop Loss Reins.                Rate   0.0%                     0.00   $ 78.44
8. CHOP                                                                      0.00
9. Fee-for-Service Adj.                                                      5.06
Capitation Rate                          -3.0%                              (2.50)
                                                                          $ 81.00

Department of Health Services. Rate Development Branch




                                                                          
Plan Name:               Molina Medical Center     Plant #:    356              Date:          16-NOV-99
County:                  San Bernardino            Plan Type: Commercial Plan   Base Period:   FY 96/97
Aid Code Grouping:       Aged


Adjusted Rate is Effective August               Capitation Payments at the
1,1999 to September 30, 1999                    Beginning of the Month

Coverages
- ---------------------------------------------------------------------------
 CCS Indicated Claims                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Outpatient Services              NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Pharmacy Costs                   NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Eyewear                                        NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Heroin Detoxification                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 AIDS Waiver Services                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Adult Day Health Care                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Chiropractor/Acupuncture                       NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Local Education Authority                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Alphafeto Protein Testing                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care for month of entry plus one     Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care after month of entry plus one   NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Special AIDS drugs                             NOT Covered by the Plan
- ---------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 2 of 28



Rate Calculation                                    Hospital      Hospital     Long Term                        FQHC
                             Physician   Pharmacy   Inpatient    Outpatient       Care      Other         FFSE        Total
                                                                                            
1. Average Cost Per Unit      $  48.90   $  32.71    $ 316.16       $ 10.02      $ 77.33   $   6.41      $ 50.63
2. Units per Eligible            4.580     21.914       1.265         3.306        2.016     12.862        0.024
3. Addt'l Capitation Amis.    $   1.29   $   0.00    $   7.41       $  0.02      $  0.00   $   0.00      $  0.00
   Cost per Elig. per Mo.     $  19.95   $  59.73    $  40.74       $  2.78      $ 12.99   $   6.87      $  0.10    $ 143.18
4. Adjustments
   a. Demographics               0.963      1.014       0.962         0.975        1.027      1.013        0.979
   b. Area                       1.043      1.000       1.000         1.000        1.000      1.000        1.000
   c. Coverages                  0.981      0.996       0.997         0.986        0.997      0.791        0.603
   d. Interest                   0.995      O.995       0.995         0.995        0.995      0.995        0.995
Adjusted Base Cost            $  19.56   $  60.02    $  38.88       $  2.66      $ 13.23   $   5.48     $  0.06    $ 139.89
5. Legislative Adjs.             0.947      1.049       0.933         0.939        1.194      0.941        0.939
6. Trend Adjustments
   a.Cost per Unit               1.100      1.100       1.100         1.050        1.000      1.050        1.000
   b.Units per Eligible          1.100      1.155       1.100         1.100        1.000      0.950        1.000
Projected Cost per Eligible   $  22.41   $  79.99    $  43.89       $  2.88      $ 15.80   $   5.14      $  0.06    $ 170.17
7. Stop Loss Reins.                  Amount          $      0              Rate                 0.0%                    0.00
8. CHOP                                                                                                                 0.00
9. Fee-for-Service Adj.                                                                        -3.0%                   (5.11)
Capitation Rate                                                                                                     $ 165.06


Department of Health Services, Rate Development Branch




                                                                       
Plan Name:          Molina Medical Center       Plan#:     356                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  Disabled


Adjusted Rate is Effective August 1, 1999           Capitation Payments at the
to September 30, 1999                               Beginning of the Month

Coverages
- --------------------------------------------------------------------------------
   CCS Indicated Claims                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                          NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Cam                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one       Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one     NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                               NOT Covered by the Plan
- --------------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 3 of 28



Rate Calculation
                                                           Hospital    Hospital    Long Term                    FQHC
                                   Physician   Pharmacy   Inpatient   Outpatient     Care        Other     FFSE       Total
                                                                                             
1. Average Cost Per Unit             $ 46.41   $  39.70    $ 611.26     $  12.37    $ 139.87   $  10.16    $ 69.96
2. Units per Eligible                  6.969     26.861       1.556        5.050       0.459     21.959      0.120
3. Addt'l Capitation Amts            $  2.96   $   0.09    $   9.89     $   0.02    $   0.00      $0.00    $  0.00
   Cost per Elig. per Mo.            $ 29.91   $  88.96    $  89.15     $   5.23    $   5.35   $  18.59    $  0.70   $ 237.89
4. Adjustments
   a. Demographics                     0.980      0.973       0.961        0.998       0.996      1.006      0.989
   b. Area                             1.043      1.000       1.000        1.000       1.000      1.000      1.000
   c. Coverages                        0.900      0.875       0.920        0.973       0.995      0.878      0.863
   d. Interest                         0.995      0.995       0,995        0.995       0.995      0.995      0.995
Adjusted Base Cost                   $ 27.38   $  75.36    $  78.43     $   5.05    $   5.28   $  16.34    $  0.59   $ 208.43
5. Legislative Adjs.                   0.949      1.043       0.927        0.939       1.184      0.937      0.945
6. Trend Adjustments
   a. Cost per Unit                    1.000      1.100       1.050        1.000       1.100      1.100      1.000
   b. Units per Eligible               1.100      1.210       1.050        1.045       0.950      1.000      1.000
Projected Cost per Eligible          $ 28.58   $ 104.62    $  80.16     $   4.96    $   6.53   $  16.84    $  0.56   $ 242.25
7. Stop Loss Reins.                         Amount         $      0             Rate                0.0%                 0.00
6. CHOP                                                                                                                  0.00
9. Fee-for-Service Adj.                                                                            -3.0%                (7.27)
Capitation  Rate                                                                                                     $ 234.98


Department of Health Services, Rate Development Branch




                                                                          
Plan Name:          Molina Medical Center       Plan#:     356                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  Child


Adjusted Rate is Effective August 1, 1999       Capitation Payments at the
to September 30, 1999                           Beginning of the Month

Coverages
- ---------------------------------------------------------------------------
  CCS Indicated Claims                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                  NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services     NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                       NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one    Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one  NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                            NOT Covered by the Plan
- ---------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 4 of. 28



Rate Calculation                                            Hospital     Hospital    Long Term                   FQHC
                                    Physician   Pharmacy   Inpatient    Outpatient     Care       Other     FFSE      Total
                                                                                             
1. Average Cost Per Unit              $ 67.42    $ 13.64   $ 1,120.53      $ 16.21    $ 469.38   $ 20.69   $ 68.10
2. Units per Eligible                   4.036      3.411        0.465        1.516       0.007     1.958     0.132
3. Addt'l Capitation Amts             $  0.23    $  0.03   $     2.90      $  0.00    $   0.00   $  0.00   $  0.00
   Cost per Elig. per Mo.             $ 22.90    $  3.91   $    46.32      $  2.05    $   0.27   $  3.38   $  0.75   $  79.58
4. Adjustments
   a. Demographics                      1.212      1.021        1.342        1.157       1.000     1.080     1.084
   b. Area                              1.043      1.000        1.000        1.000       1.000     1.000     1.000
   c. Coverages                         0.974      0.984        0.952        0.973       0.996     0.815     0.970
   d. Interest                          0.995      0.995        0.995        0.995       0.995     0.995     0.995
Adjusted Base Cost                    $ 28.05    $  3.91   $    58.88      $  2.30    $   0.27   $  2.96   $  0.78   $  97.15
5. Legislative Adjs.                    1.084      1.047        1.009        1.031       1.188     1.104     1.044
6. Trend Adjustments
   a. Cost per Unit                     1.000      1.100        1.050        1.000       1.000     0.950     1.000
   b. Units per Eligible                0,950      1.000        1.050        0.950       1.050     1.050     1.000
Projected Cost per Eligible           $ 28.89    $  4.50   $    65.50      $  2.25    $   0.34   $  3.26   $  0.81   $ 105.55
7. Stop Loss Reins.                        Amount          $        0             Rate               0.0%                0.00
6. CHOP                                                                                                                  5.04
9. Fee-for-Service Adj.                                                                             -3.0%               (3.32)
Capitation  Rate                                                                                                     $ 107.27


Department of Health Services, Rate Development Branch




                                                                          
Plan Name:          Molina Medical Center       Plan#:     356                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  Adult


Adjusted Rate is Effective August 1,1999             Capitation Payments at the
to September 30,1999                                 Beginning of the Month
Coverages
- --------------------------------------------------------------------------------
 CCS Indicated Claims                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Outpatient Services                    NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Pharmacy Costs                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Hospital inpatient Services            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Eyewear                                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Heroin Detoxification                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 AIDS Waiver Services                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Adult Day Health Care                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Chiropractor/Acupuncture                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Local Education Authority                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Alphafeto Protein Testing                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care for month of entry plus one           Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care after month of entry plus one         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Special AIDS drugs                                   NOT Covered by the Plan
- --------------------------------------------------------------------------------

C6 to Contract :No.  95-23637
Page 5 of 28



Rate Calculation                                                 Hospital     Hospital   Long Term                       FQHC
                                         Physician   Pharmacy    Inpatient   Outpatient    Care        Other      FFSE      Total
                                                                                                   
1. Average Cost Per Unit                  $  90.48    $ 17.11   $ 1,140.81      $ 15.76    $ 812.04   $  36.13   $ 68.10
2. Units per Eligible                       21.541      5.818        5.446        4.679       0.000     10.172     0.577
3. Addt'l Capitation Amts                 $   0.37    $  0.06   $    35.62      $  0.08    $   0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.                 $ 162.79    $  8.36   $   553.36      $  6.23    $   0.00   $  30.63   $  3.28   $ 764.65
4. Adjustments
   a. Demographics                           1.000      1.000        1.OOO        1.000       1.000      1.000     1.000
   b. Area                                   1.043      1.000        1.OOO        1.000       1.000      1.000     1.000
   c. Coverages                              0.999      0.999        0.999        0.989       1.000      O.809     0.995
   d. Interest                               0.995      0.995        0.995        0.995       0.995      0.995     0.995
Adjusted Base Cost                        $ 168.77    $  8.31   $   550.04      $  6.13    $   0.00   $  24.66   $  3.25   $ 761.16
5. Legislative Adjs.                         1.038      1.054        1.007        1.031       1.154      1.018     1.029
6. Trend Adjustments
   a. Cost per Unit                          1.000      1.100        1.050        1.000       1.000      0.950     1.000
   b. Units per Eligible                     0.950      1.000        1.050        0.950       1.050      1.050     1.000
Projected Cost per Eligible               $ 166.42    $  9.63   $   610.66      $  6.00    $   0.00   $  25.04   $  3.34   $ 821.09
7. Stop Loss Reins.                               Amount        $        0             Rate               0.0%                0.00
6. CHOP                                                                                                                        0.00
9. Fee-for-Service Adj.                                                                                   -3.0%              (24.63)
Capitation  Rate                                                                                                           $ 796.46


Department of Health Services, Rate Development Branch




                                                                          
Plan Name:          Molina Medical Center       Plan#:     356                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  AIDS


Adjusted Rate is Effective August 1,1999              Capitation Payments at the
to September 30, 1999                                 Beginning of the Month

Coverages
- --------------------------------------------------------------------------------
 CCS Indicated Claims                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Menial Health Outpatient Services                    NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Pharmacy Costs                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Eyewear                                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Heroin Detoxification                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 AIDS Waiver Services                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Adult Day Health Care                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Chiropractor/Acupuncture                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Local Education Authority                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Alphafeto Protein Testing                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care for month of entry plus one           Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care after month of entry plus one         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Special AIDS drugs                                   NOT Covered by the Plan
- --------------------------------------------------------------------------------

 C6 to Contract No. 95-23637
 Page 6 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                     FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE        Total
                                                                                       
1. Average Cost Per Unit      $  32.67   $ 126.04   $  611.26      $  13.79   $  139.87   $  42.30   $ 69.96
2. Units per Eligible           26.584     74.792       3.169         9.882       0.000     36.392     0.349
3. Addt'l Capitation Amts     $   2.96   $   0.09   $    9.89      $   0.02   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $  75.33   $ 785.66   $  171.31      $  11.38   $    0.00   $ 128.28   $  2.04   $  1,174.00
4. Adjustments
   a. Demographics               1.000      1.000       1.000         1.000       1.000      1.000     1,000
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.918      0.648       0.957         0.992       0.998      0.599     0.951
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $  71.77   $ 506.56   $  163.12      $  11.23   $    0.00   $  76.46   $  1.93   $    831.07
5. Legislative Adjs.             0.969      1.006       0.980         0.984       1.242      0.983     0.988
6. Trend Adjustments
   a. Cost per Unit              1.000      1.100       1.050         1.000       1.100      1.100     1.000
   b. Units per Eligible         1.100      1.210       1.050         1.045       0.950      1.000     1.000
Projected Cost per Eligible   $  76.50   $ 678.28   $  176.24      $  11.55   $    0.00   $  82.68   $  1.91   $  1,027.16
7. Stop Loss Reins.                   Amount        $       0              Rate                0.0%                   0.00
6. CHOP                                                                                                               0.00
9. Fee-for-Service Adj.                                                                       -3.0%                 (30.81)
Capitation  Rate                                                                                               $    996.35


Department of Health Services, Rate Development Branch



C6 to Contract No.95-2367
Page 7 of 28

Aid Group: Poverty-47/72                          Base:           Statewide
           Rate Period: August 1999 to September  Base Period:    FY 96/97



                                                                       Hospital     Hospital   Nursing
  Services ==>                                Physician   Pharmacy    Inpatient   Outpatient   Facility    Other     FQHC    Totals
                                                                                                     
1. Base Cost                                    $ 10.66    $  7.27     $  20.52      $  5.31    $  0.14   $  2.92   $  5.42  $52.24
2. Age/Sex Adjustments                            1.000      1.000        1.000        1.000      1.000     1.000     1.000
3. Eligibility Adjustments                        1.000      1.000        1.000        1.OOO      1.000     1.000     1.000
4. Coverage Adjustments                           0.997      0.997        0.999        0.964      1.000     0.891     0.991
5. Interest Offset                                0.990      0.996        0.987        0.989      0.993     0.990     0.994

Contract Cost FY 96/97                          $ 10.52    $  7.22     $  20.24      $  5.07    $  0.14   $  2.57   $  5.34  $51.10
6. Legislative Adjustments                        1.054      0.740        0.997        1.031      1.111     1.167     1.038
7. Trend Adjustments
       a. Cost Per Unit                           1.000      1.308        1.055        0.970      1.000     1.445     1.071
       b. Utilization                             1.000      1.027        1.050        1.000      1.107     1.000     1.265

Projected Cost 10/98-9/99                       $ 11.09    $  7.18     $  22.35      $  5.07    $  0.17   $  4.33   $  7.51  $57.70

8. CHDP                                                                                                                      $ 2.54

9. Administrative Allowance                                                                         1.6%                     $ 0.96

Fee-for-Service Equivalent Cost                                                                                              $61.20

Adjustment to Fee-for Service                                                                        94%                     $(3.67)

Capitation Rate (payments at beginning of month)                                                                             $57.53


01/21/2000-Department of Health Services, Rate Development Branch



C6 to Contract No.   95-23637
Page 8 of 28


                                                 
Aid Group: Poverty - 7 A                              Base:        Statewide Family Age Adjusted
           Rate Period : August 1999 to September   Base Period:   FY 96/97'




                                                                     Hospital      Hospital    Nursing
         Services==>                          Physician   Pharmacy   Inpatient    Outpatient   Facility    Other    FQHC     Totals
                                                                                                     
1. Base Cost                                    $ 10.40    $  6.74     $ 13.64       $  3.91    $  0.24   $  8.30   $  2.98  $46.21
2. Age/Sex Adjustments                            1.000      1.000       1.000         1.000      1,000     1.000     1.000
3. Eligibility Adjustments                        1,000      1.000       1.000         1.000      1.000     1.000     1.000
4. Coverage Adjustments                           0.997      0.997       0.999         0.964      1.000     0.891     0.991
5. Interest Offset                                0.99O      0.996       0.987         0.989      0.993     0.990     0.994

Contract Cost FY 96/97                          $ 10.27    $  6.69     $ 13.45       $  3.73    $  0.24   $  7.32   $  2.93  $44.63

6. Legislative Adjustments                        1.054      0.740       0.997         1.031      1.111     1.167     1.038
7. Trend Adjustments
       a. Cost Per Unit                           1.000      1.308       1.055         0.970      1.000     1.445     1.071
       b. Utilization                             1.000      1.027       1.050         1.000      1.107     1.000     1.265

Projected Cost 10/98-9/99                       $ 10.82    $  6.65     $ 14.85       $  3.73    $  0.30   $ 12.34   $  4.12  $52.81

8. CHDP                                                                                                                      $ 2.54
                                                                                                     1.6%                    $ 0.89
9. Administrative Allowance

Fee-for-Service Equivalent Cost                                                                                              $56.24

Adjustment to Fee-for Service                                                                         94%                    $(3.37)

Capitation Rate (payments at beginning of month)                                                                             $52.87


01 /21 /2000 - Department of Health Services, Rate Development Branch




                                                              
Plan Name:          Molina Medical Center     Plan #:    355        Date:             16-Nov-99
County:             Riverside                 Plan Type: Commercial Plan Base Period: Fy 96/97
Aid Code Grouping   Family


Adjusted Rate is Effective August 1, 1999      Capitation Payments at the
to September 30, 1999                          Beginning of the Month

Coverages
- ---------------------------------------------------------------------------
 CCS Indicated Claims                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Outpatient Services             NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Pharmacy Costs                  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Eyewear                                       NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Heroin Detoxification                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 AiDS Waiver Services                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Adult Day Health Care                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Chiropractor/Acupuncture                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Local Education Authority                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Alphafeto Protein Testing                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care for month of entry plus one    Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care after month of entry plus one  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Special AIDS drugs                            NOT Covered by the Plan
- ---------------------------------------------------------------------------

C6 to 'Contract No.  95-23637
Page 9 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                    FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE     Total
                                                                                       
1. Average Cost Per Unit      $  69.46   $  19.86   $  864.71      $  16.16   $  812.04   $  20.09   $ 68.39
2. Units per Eligible            4.014      4.683       0.373         2.146       0.004      3.532     0.168
3. Addt'l Capitation Amts     $   0.37   $   0.05   $    4.62      $   0.00   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $  23.60   $   7.81   $   31.50      $   2.90   $    0.27   $   5.91   $  0.96   $  72.95
4. Adjustments
   a. Demographics               1.004      0.976       1.023         1.002       1.000      0.985     0.994
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.975      0.992       0.968         0.956       0.995      0.833     0.935
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $  23.97   $   7.52   $   31.04      $   2.76   $    0.27   $   4.82   $  0.89   $  71.27
5. Legislative Adjs.             1.061      1.053       1.006         1.031       1.195      1.061     1.041
6. Trend Adjustments
   a. Cost per Unit              1.000      1.100       1.050         1.000       1.000      0.950     1.000
   b. Units per Eligible         0.950      1.210       1.050         0.950       0.050      1.050     1.000
Projected Cost per Eligible   $  24.16   $   8.71   $   34.43      $   2.70   $    0.34   $   5.10   $  0.93   $  76.37
7. Stop Loss Reins.                   Amount        $       0              Rate                0.0%                0.00
6. CHOP                                                                                                            0.00
9. Fee-for-Service Adj.                                                                       -3.0%               (2.44)
Capitation  Rate                                                                                               $  78.99


Department of Health Services, Rate Development Branch




                                                                           
Plan Name:          Molina Medical Center     Plan #:    355                     Date:        16-Nov-99
County:             Riverside                 Plan Type: Commercial Plan         Base Period: Fy 96/97
Aid Code Grouping:  Aged


Adjusted Rate is Effective August 1,1999      Capitation Payments at the
to September 30,1999                          Beginning of the Month

Coverages

- ---------------------------------------------------------------------------
 CCS Indicated Claims                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Menial Health Outpatient Services             NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Menial Health Pharmacy Costs                  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Eyewear                                       NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Heroin Detoxification                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 AIDS Waiver Services                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Adult Day Health Care                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Chiropractor/Acupuncture                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Local Education Authority                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Alphafeto Protein Testing                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care for month of entry plus one    Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care after month of entry plus one  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Special AIDS drugs                            NOT Covered by the Plan
- ---------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 10 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                    FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE     Total
                                                                                       
1. Average Cost Per Unit      $  48.90   $  32.71   $  287.24      $  10.02   $   77.33   $   6.41   $ 28.59
2. Units per Eligible            4.472     21.914       1.265         3.306       2.016     12.862     0.132
3. Addt'l Capitation Amts     $   1.29   $   0.00   $    7.41      $   0.02   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $  19.51   $  59.73   $   37.69      $   2.78   $   12.99   $   6.87   $  0.31   $ 139.88
4. Adjustments
   a. Demographics               0.955      1.019       0.957         0.970       1.039      1.025     0.970
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.981      0.996       0.997         0.986       0.997      0.791     0.603
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $  18.97   $  60.32   $   35.78      $   2.65   $   13.39   $   5.54   $  0.18   $ 136.83
5. Legislative Adjs.             0.947      1.049       0.933         0.939       1.194      0.941     0.939
6. Trend Adjustments
   a. Cost per Unit              1.100      1.100       1.100         1.050       1.000      1.050     1.000
   b. Units per Eligible         1.100      1.155       1.100         1.100       0.050      0.950     1.000
Projected Cost per Eligible   $  21.74   $  80.39   $   40.39      $   2.87   $   15.99   $  5.20   $   0.17   $ 166.75
7. Stop Loss Reins.                   Amount        $       0              Rate                0.0%                0.00
6. CHOP                                                                                                            0.00
9. Fee-for-Service Adj.                                                                       -3.0%               (5.00)
Capitation  Rate                                                                                               $ 161.75


Department of Health Services, Rate Development Branch




                                                                          
Plan Name:          Molina Medical Center     Plan #:    355                    Date:        16-Nov-99
County:             Riverside                 Plan Type: Commercial Plan        Base Period: Fy 96/97
Aid Code Grouping:  Disabled


Adjusted Rate is Effective August 1, 1999     Capitation Payments at the
to September 30, 1999                         Beginning of the Month
Coverages

- ---------------------------------------------------------------------------
 CCS Indicated Claims                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental health Outpatient Services             NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Pharmacy Costs                  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Eyewear                                       NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Heroin Detoxification                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 AIDS Waiver Services                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Adult Day Health Care                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Chiropractor/Acupuncture                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Local Education Authority                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Alphafeto Protein Testing                     NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care for month of entry plus one    Covered by the Plan
- ---------------------------------------------------------------------------
 Long Term Care after month of entry plus one  NOT Covered by the Plan
- ---------------------------------------------------------------------------
 Special AIDS drugs                            NOT Covered by the Plan
- ---------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 11 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                    FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE     Total
                                                                                       
1. Average Cost Per Unit      $  46.41   $  39.70   $  485.15      $  12.37   $  139.87   $  10.16   $ 66.52
2. Units per Eligible            6.873     26.861       1.556         5.050       0.459     21.959     0.216
3. Addt'l Capitation Amts     $   2.96   $   0.09   $    9.89      $   0.02   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $  29.54   $  88.96   $   72.80      $   5.23   $    5.35   $  18.59   $  1.20   $ 221.67
4. Adjustments
   a. Demographics               0.983      0.989       0.981         0.998       1.000      1.015     0.987
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.900      0.875       0.920         0.973       0.995      0.878     0.863
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $  27.12   $  76.60   $   65.37      $   5.05   $    5.30   $  16.48   $  1.02   $ 196.94
5. Legislative Adjs.             0.949      1.043       0.927         0.939       1.184      0.937     0.945
6. Trend Adjustments
   a. Cost per Unit              1.000      1.100       1.050         1.000       1.100      1.100     1.000
   b. Units per Eligible         1.100      1.210       1.050         1.045       0.950      1.000     1.000
Projected Cost per Eligible   $  28.31   $ 106.34   $   66.81      $   4.96   $    6.56   $  16.99  $   0.96   $ 230.93
7. Stop Loss Reins.                   Amount        $       0              Rate                0.0%                0.00
6. CHOP                                                                                                            0.00
9. Fee-for-Service Adj                                                                        -3.0%               (6.93)
Capitation  Rate                                                                                               $ 224.00





                                                                          
Plan Name:          Molina Medical Center       Plan#:     355                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  Child


Adjusted Rate is Effective August 1,1999              Capitation Payments at the
to September 30, 1999                                 Beginning of the Month

Coverages

- --------------------------------------------------------------------------------
 CCS Indicated Claims                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Menial Health Outpatient Services                    NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Pharmacy Costs                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Eyewear                                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Heroin Detoxification                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 AIDS Waiver Services                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Adult Day Health Care                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Chiropractor/Acupuncture                             NOT Covered by [ha Plan
- --------------------------------------------------------------------------------
 Local Education Authority                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Alphafeto Protein Testing                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care for month of entry plus one           Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care after month of entry plus one         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Special AIDS drugs                                   NOT Covered by the Plan
- --------------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 12 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                     FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE        Total
                                                                                       
1. Average Cost Per Unit      $  67.42   $  13.64   $  889.41      $  16.21   $  469.38   $  20.69   $ 68.39
2. Units per Eligible            3.999      3.411       0.465         1.516       0.007      1.958     0.168
3. Addt'l Capitation Amts     $   0.23   $   0.03   $    2.90      $   0.00   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $  22.70   $   3.91   $   37.36      $   2.05   $    0.27   $   3.38   $  0.96   $     70.63
4. Adjustments
   a. Demographics               1.181      1.019       1.321         1.114       1.000      1.165     1.003
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.974      0.984       0.952         0.973       0.996      0.815     0.970
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $  27.10   $   3.90   $   46.75      $   2.21   $    0.27   $   3.19   $  0.93   $     84.35
5. Legislative Adjs.             1.084      1.047       1.009         1.031       1.188      1.104     1.044
6. Trend Adjustments
   a. Cost per Unit              1.000      1.100       1.050         1.000       1.000      0.950     1.000
   b. Units per Eligible         0.950      1.000       1.050         0.950       1.050      1.050     1.000
Projected Cost per Eligible   $  27.91   $   4.49   $   52.01      $   2.16   $    0.34   $   3.51   $  0.97   $     91.39
7. Stop Loss Reins.                   Amount        $       0              Rate                0.0%                   0.00
6. CHOP                                                                                                               5.04
9. Fee-for-Service Adj.                                                                       -3.0%                  (2.89)
Capitation  Rate                                                                                               $     93.54


Department of Health Services, Rate Development Branch




                                                                          
Plan Name:          Molina Medical Center       Plan#:     355                  Date:        16-Nov-99
Country:            San Bernardino              Plan Type: Commercial Plan      Base Period: FY 96/97
Aid Code Grouping:  Adult


Adjusted Rate is Effective August 1,1999              Capitation Payments at the
to September 30, 1999                                 Beginning of the Month

Coverages

- --------------------------------------------------------------------------------
 CCS Indicated Claims                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Menial Health Outpatient Services                    NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Pharmacy Costs                         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Mental Health Hospital Inpatient Services            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Eyewear                                              NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Heroin Detoxification                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 AIDS Waiver Services                                 NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Adult Day Health Care                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Chiropractor/Acupuncture                             NOT Covered by [ha Plan
- --------------------------------------------------------------------------------
 Local Education Authority                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Alphafeto Protein Testing                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care for month of entry plus one           Covered by the Plan
- --------------------------------------------------------------------------------
 Long Term Care after month of entry plus one         NOT Covered by the Plan
- --------------------------------------------------------------------------------
 Special AIDS drugs                                   NOT Covered by the Plan
- --------------------------------------------------------------------------------

C6 to Contract No. 95-23637
Page 13 of 28



Rate Calculation                                    Hospital       Hospital    Long Term                     FQHC
                              Physician  Pharmacy   Inpatient    Outpatient      Care       Other      FFSE        Total
                                                                                       
1. Average Cost Per Unit      $  90.48   $  17.11   $  964.66      $  15.76   $  812.04   $  36.13   $ 68.39
2. Units per Eligible           21.383      5.818       5.446         4.679       0.000     10.172     0.735
3. Addt'l Capitation Amts     $   0.37   $   0.06   $   35.62      $   0.08   $    0.00   $   0.00   $  0.00
   Cost per Elig. per Mo.     $ 161.60   $   8.36   $  473.41      $   6.23   $    0.00   $  30.63   $  4.19   $    684.42
4. Adjustments
   a. Demographics               1.000      1.000       1.000         1.000       1.000      1.000     1.000
   b. Area                       1.043      1.000       1.000         1.000       1.000      1.000     1.000
   c. Coverages                  0.999      0.999       0.999         0.989       1.000      0.809     0.995
   d. Interest                   0.995      0.995       0.995         0.995       0.995      0.995     0.995
Adjusted Base Cost            $ 167.54   $   8.31   $  470.57      $   6.13   $    0.00   $  24.66   $  4.15   $    681.36
5. Legislative Adjs.             1.038      1.054       1.007         1.031       1.154      1.018     1.029
6. Trend Adjustments
   a. Cost per Unit              1.000      1.100       1.050         1.000       1.000      0.950     1.000
   b. Units per Eligible         0.950      1.000       1.050         0.950       1.050      1.050     1.000
Project Cost per Eligible     $ 165.21   $   9.63   $  522.44      $   6.00   $    0.00   $  25.04   $  4.27   $    732.59
7. Stop Loss Reins.                    Amount              $0              Rate                0.0%                   0.00
8. CHDP                                                                                                               0.00
9. Fee-for-Service Adj.                                                                       -3.0%                 (21.98)
Capitation Rate                                                                                                $    710.61


Department of Health Services, Rate Development Branch



Plan Name:          Molina Medical Center   Plan #:  355
County:             Riverside               Plan Type: Commercial Plan
Ald Code Grouping:  AIDS

Date:        16-Nov-99
Base Period: FY 96/97

Adjusted  Rate is  Effective  August  1,1999  to  September  30,1999
Capitation Payments at the Beginning of the Month

Coverages
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care alter month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------

 C6 to Contract No.95-23637
 Page 14 of 28



Rate Calculation                                           Hospital     Hospital     Long Term                     FQHC
                                 Physician    Pharmacy    Inpatient   Outpatient          Care       Other       FFSE         Total
                                                                                                 
1. Average Cost Per Unit         $   32.67    $ 126.04    $  485.15    $   13.79     $  139.87    $  42.30    $ 66.52
2. Units per Eligible               26.305      74.792        3.169        9.882         0.000      36.392      0.628
3. Addt'l Capitation Amts.       $    2.96    $   0.09    $    9.89    $    0.02     $    0.00    $   0.00    $  0.00
   Cost per Elig. per Mo.        $   74.57    $ 785.66    $  138.01    $   11.38     $    0.00    $ 128.28    $  3.48    $ 1,141.38
4. Adjustments
   a. Demographics                   1.000       1.000        1.000        1.000         1.000       1.000      1.000
   b. Area                           1.043       1.000        1.000        1.000         1.000       1.000      1.000
   c. Coverages                      0.918       0.648        0.957        0.992         0.998       0.599      0.951
   d. Interest                       0.995       0.995        0.995        0.995         0.995       0.995      0.995
Adjusted Base Cost               $   71.04    $ 506.56    $  131.42    $   11.23     $    0.00    $  76.46    $  3.29    $   800.00
5. Legislative Adjs.                 0.969       1.006        0.980        0.984         1.242       0.983      0.988
6. Trend Adjustments
   a. Cost per Unit                  1.000       1.100        1.050        1.000         1.100       1.100      1.000
   b. Units per Eligible             1.100       1.210        1.050        1.045         0.950       1.000      1.000
Projected Cost per Eligible      $   75.72    $ 678.28    $  141.99    $   11.55     $    0.00    $  82.68    $  3.25    $   993.47
7. Stop Loss Reins.                        Amount                50              Rate                  0.0%                    0.00
8. CHDP                                                                                                                        0.00
9. Fee-for-Service Adj.                                                                               -3.0%                  (29.80)
Capitation Rate                                                                                                          $   963.67


Department of Health Services, Rate Development Branch



                                                    C6 to Contract No.95-23637
                                                    Page 15 of 28
Aid Group: Poverty-47/72
  Rate Period: August 1999 to September        Base:     Statewide
                                            Base Period:  FY 96/97



                                                           Hospital     Hospital       Nursing
        Services===>             Physician    Pharmacy    Inpatient    Outpatient     Facility       Other       FQHC         Total

                                                                                                 
1. Base Cost                     $   10.66    $   7.27    $   20.52    $    5.31     $    0.14    $   2.92    $  5.42    $    52.24
2. Age/Sex Adjustments               1.000       1.000        1.000        1.000         1.000       1.000      1.000
3. Eligibility Adjustments           1.000       1.000        1.000        1.000         1.000       1.000      1.000
4. Coverage Adjustments              0.997       0.997        0.999        0.964         1.000       0.891      0.991
5. Interest Offset                   0.990       0.996        0.987        0.989         0.993       0.990      0.994

Contract Cost FY 96/97           $   10.52    $   7.22    $   20.24    $    5.07     $    0.14    $   2.57    $  5.34    $    51.10

6. Legislative Adjustments           1.054       0.740        0.997        1.031         1.111       1.167      1.038
7. Trend Adjustments
     a. Cost per Unit                1.000       1.308        1.055        0.970         1.000       1.445      1.071
     b. Utilization                  1.000       1.027        1.050        1.000         1.107       1.000      1.265

Projected Cost 10/98-9/99        $   11.09    $   7.18    $   22.35    $    5.07     $    0.17    $   4.33    $  7.51    $    57.70

8. CHDP                                                                                                                  $     2.54

9. Administrative Allowance                                                                1.6%                          $     0.96

Fee-for-Service Equivalent Cost                                                                                          $    61.20

Adjustment to Fee-for Service                                                               94%                          $    (3.67)

Capitation Rate (payments at
 beginning of month)                                                                                                     $    57.53


01/21/2000 - Department of Health Services, Rate Development Branch



                                                    C6 to Contract No.95-23637
                                                    Page 16 of 28
Aid Group: Poverty-7A                     Base:  Statewide Family Age Adjusted
 Rate Period: August 1999 to September    Base Period:  FY 96/97




                                                           Hospital     Hospital      Nursing
        Services===>             Physician    Pharmacy    Inpatient    Outpatient    Facility        Other       FQHC      Total

                                                                                                
1. Base Cost                     $   10.40    $   6.74    $   13.64    $    3.91     $    0.24    $   8.30    $  2.98   $  46.21
2. Age/Sex Adjustments               1.000       1.000        1.000        1.000         1.000       1.000      1.000
3. Eligibility Adjustments           1.000       1.000        1.000        1.000         1.000       1.000      1.000
4. Coverage Adjustments              0.997       0.997        0.999        0.964         1.000       0.891      0.991
5. Interest Offset                   0.990       0.996        0.987        0.989         0.993       0.990      0.994

Contract Cost FY 96/97           $   10.27    $   6.69    $   13.45        $3.73     $    0.24    $   7.32    $  2.93   $  44.63

6. Legislative Adjustments           1.054       0.740        0.997        1.031         1.111       1.167      1.038
7. Trend Adjustment
     a. Cost per Unit                1.000       1.308        1.055        0.970         1.000       1.445      1.071
     b. Utilization                  1.000       1.027        1.050        1.000         1.107       1.000      1.265

Projected Cost 10/98-9/99        $   10.82    $   6.65    $   14.85    $    3.73     $    0.30    $  12.34    $  4.12   $  52.81

8. CHDP                                                                                                       $  2.54

9. Administrative Allowance                                                                1.6%               $  0.89

Fee-for-Service Equivalent Cost                                                                               $ 56.24

Adjustment to Fee-for Service                                                               94%               $ (3.37)

Capitation Rate (payment at
 beginning of month)                                                                                          $ 52.87




                                                     C6 to Contract No.95-23637
                                                     Page 17 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:    Commercial Plan
Aid Code Grouping:  Family                  Plan Type: 356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1, 1999 to September 30,2000 Capitation Payments
at the End of the Month

Coverage Adjustments
- ----------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the  Plan
- ----------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ----------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ----------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ----------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ----------------------------------------------------------------------------



Rate Calculation                                           Hospital      Hospital    Long Term
                                 Physician    Pharmacy    Inpatient    Outpatient         Care       Other      Total
                                                                                         
1. Average Cost Per Unit         $   66.25    $  23.82    $  978.02    $    20.37    $  229.41    $   8.79
2. Units per Eligible                5.957       3.361        0.304         2.609        0.009       6.410
   Cost per Elig. per Mo.        $   32.89    $   6.67    $   24.78    $     4.43    $    0.17    $   4.70    $ 73.64
Adjustments
   a. Demographics                   0.829       0.863        0.714         0.835        1.000       0.871
   b. Area                           1.008       1.000        1.000         1.000        1.000       1.000
   c. Coverages                      0.975       0.992        0.968         0.956        0.995       0.868
   d. Interest                       1.000       1.000        1.000         1.000        1.000       1.000
Adjusted Base Cost               $   26.80    $   5.71    $   17.13    $     3.54    $    0.17    $   3.55    $ 56.90
3. Legislative Adjs.                 1.139       0.975        1.012         1.034        1.159       1.065
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100        1.000         1.000        1.100       1.000
   b. Units per Eligible             1.000       0.998        1.045         1.000        1.000       1.100
Projected Cost per Eligible      $   30.53    $   6.11    $   18.12    $     3.66    $    0.20    $   4.16    $ 62.78
5. Stop Loss Reins.                      Amount           $       0              Rate                  0.0%      0.00
6. CHDP                                                                                                          4.88
7. Fee-for-Service Adj.                                                                               26.1%     16.41
Capitation Rate                                                                                               $ 84.07




                                                     C6 to Contract No.95-23637
                                                     Page 18 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:       Commercial Plan
Aid Code Grouping:  Aged                    Plan Type  :  356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1, 1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                           Hospital     Hospital     Long Term
                                 Physician    Pharmacy    Inpatient   Outpatient          Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   16.06    $  38.28    $  316.16    $   11.67     $  177.26    $   6.49
2. Units per Eligible               11.563      16.963        0.819        3.904         1.049      42.784
   Cost per Elig. per Mo.        $   15.48    $  54.11    $   21.58    $    3.80     $   15.50    $  23.14    $ 133.61
Adjustments
   a. Demographics                   0.964       1.019        0.964        0.983         1.034       1.022
   b. Area                           1.008       1.000        1.000        1.000         1.000       1.000
   c. Coverages                      0.981       0.996        0.997        0.986         0.997       0.781
   d. Interest                       1.000       1.000        1.000        1.000         1.000       1.000
Adjusted Base Cost                $  14.76    $  54.92    $   20.74    $    3.68     $   15.98    $  18.47    $ 128.55
3. Legislative Adjs.                 0.952       0.920        0.940        1.035         1.159       0.932
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100        1.100        1.000         1.000       1.000
   b. Units per Eligible             1.050       0.998        0.950        1.045         0.950       1.100
Projected Cost per Eligible       $  14.75    $  55.47    $   20.37    $    3.98     $   17.59    $  18.94    $ 131.10
5. Stop Loss Reins.                      Amount           $       0              Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      14.42
Capitation Rate                                                                                               $ 145.52




                                                     C6 to Contract No.95-23637
                                                     Page 19 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:    Commercial Plan
Aid Code Grouping:  Disabled                Plan Type: 356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1, 1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                           Hospital     Hospital     Long Term
                                 Physician    Pharmacy    Inpatient    Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   20.15    $  50.42    $  611.26    $   18.26     $  184.85    $   7.07
2. Units per Eligible               13.720      21.892        1.011        6.029         0.452      63.930
   Cost per Elig. per Mo.        $   23.04    $  91.98    $   51.50    $    9.17     $    6.96    $  37.67    $ 220.32
Adjustments
   a. Demographics                   0.942       0.851        0.850        1.019         0.995       1.023
   b. Area                           1.008       1.000        1.000        1.000         1.000       1.000
   c. Coverages                      0.900       0.875        0.920        0.973         0.995       0.877
   d. Interest                       1.000       1.000        1.000        1.000         1.000       1.000
Adjusted Base Cost               $   19.69    $  68.49    $   40.27    $    9.09     $    6.89    $  33.80    $ 178.23
3. Legislative Adjs.                 0.969       0.920        0.933        1.035         1.159       0.956
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100        1.100        1.000         1.000       1.000
   b. Units per Eligible             1.050       0.998        0.903        0.950         1.000       1.100
Projected Cost per Eligible       $  20.03    $  69.17    $   37.32    $    8.94     $    7.99    $  35.54    $ 178.99
5. Stop Loss Reins.                        Amount         $       0              Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      19.69
Capitation Rate                                                                                               $ 198.68




                                                     C6 to Contract No.95-23637
                                                     Page 20 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:     Commercial Plan
Aid Code Grouping:  Child                   Plan Type:  356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverages Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   58.40    $  17.50    $ 1,120.53   $    18.79    $  140.26    $   6.45
2. Units per Eligible                5.196       3.068         0.436        2.787        0.019      10.564
   Cost per Elig. per Mo.        $   25.29    $   4.47    $    40.71   $     4.36    $    0.22    $   5.68    $  80.73
Adjustments
   a. Demographics                   0.927       0.989         0.778        0.935        1.000       0.946
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.974       0.984         0.952        0.973        0.996       0.882
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   23.02    $   4.35    $    30.15   $     3.97    $    0.22    $   4.74    $  66.45
3. Legislative Adjs.                 1.155       1.055         1.019        1.034        1.159       1.069
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.000        1.000        1.000       1.000
   b. Units per Eligible             1.000       0.998         1.045        1.000        1.000       1.100
Projected Cost per Eligible      $   26.59    $   5.04    $    32.11   $     4.10    $    0.25    $   5.57    $  73.66
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           4.06
7. Fee-for-Service Adj.                                                                               11.0%       8.10
Capitation Rate                                                                                               $  85.82




                                                     C6 to Contract No.95-23637
                                                     Page 21 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:      Commercial Plan
Aid Code Grouping:  Adult                   Plan Type  : 356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1, 1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                           Hospital     Hospital    Long Term
                                 Physician    Pharmacy    Inpatient   Outpatient         Care        Other       Total
                                                                                        
1. Average Cost Per Unit         $  164.23    $  19.84    $ 1,140.81   $    19.73    $    0.00    $  30.86
2. Units per Eligible               22.157       4.314         4.387       17.657        0.000       8.468
   Cost per Elig. per Mo.        $  303.24    $   7.13    $   417.06   $    29.03    $    0.00    $  21.78    $ 778.24
Adjustments
   a. Demographics                   1.000       1.000         1.000        1.000        1.000       1.000
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.999       0.999         0.999        0.989        1.000       0.887
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $  305.43    $   7.12    $   416.64   $    28.71    $    0.00    $  19.32    $ 777.22
3. Legislative Adjs.                 1.059       0.945         1.011        1.034        1.159       1.071
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.000        1.000        1.000       1.000
   b. Units per Eligible             1.000       0.998         1.045        1.000        1.000       1.100
Projected Cost per Eligible      $  323.45    $   7.39    $   440.18   $    29.69    $    0.00    $  22.76    $ 823.47
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      90.58
Capitation Rate                                                                                               $ 914.05



                                                     C6 to Contract No.95-23637
                                                     Page 22 of 28

Plan Name:          Molina Medical Center
County:             San Bernardino          Plan #:     Commercial Plan
Aid Code Grouping:  AIDS                    Plan Type:  356

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                           Hospital     Hospital    Long Term
                                 Physician    Pharmacy    Inpatient   Outpatient          Care       Other      Total
                                                                                        
1. Average Cost Per Unit         $   25.87    $ 141.75    $   611.26   $    17.75    $  228.06    $  14.00
2. Units per Eligible               29.254      46.897         3.823       28.506        0.450      78.563
   Cost per Elig. per Mo.        $   63.07    $ 553.97    $   194.74   $    42.17    $    8.55    $  91.66    $ 954.16
Adjustments
   a. Demographics                   1.000       1.000         1.000        1.000        1.000       1.000
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.918       0.648         0.957        0.992        0.998       0.642
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   58.37    $ 358.97    $   186.37   $    41.83    $    8.53    $  58.85    $ 712.92
3. Legislative Adjs.                 0.982       0.843         0.981        1.009        1.159       0.989
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.100        1.000        1.000       1.000
   b. Units per Eligible             1.050       0.998         0.903        0.950        1.000       1.100
Projected Cost per Eligible      $   60.19    $ 332.21    $   181.60   $    40.10    $    9.89    $  64.02    $ 688.01
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      75.68
Capitation Rate                                                                                               $ 763.69




                                                     C6 to Contract No.95-23637
                                                     Page 23 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:     Commercial Plan
Aid Code Grouping:  Family                  Plan Type:  355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   66.25    $  23.82    $   864.71   $    20.37    $  229.41    $   8.79
2. Units per Eligible                5.957       3.361         0.304        2.609        0.009       6.410
   Cost per Elig. per Mo.        $   32.89    $   6.67    $    21.91   $     4.43    $    0.17    $   4.70    $  70.77
Adjustments
   a. Demographics                   0.883      0.8750         0.853        0.903        1.000       0.866
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.975       0.992         0.968        0.956        0.995       0.868
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   28.55    $   5.79    $    18.09   $     3.82    $    0.17    $   3.53    $  59.95
3. Legislative Adjs.                 1.139       0.975         1.012        1.034        1.159       1.065
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.000        1.000        1.000       1.000
   b. Units per Eligible             1.000       0.998         1.045        1.000        1.000       1.100
Projected Cost per Eligible      $   32.52    $   6.20    $    19.13   $     3.95    $    0.20    $   4.14    $  66.14
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           4.88
7. Fee-for-Service Adj.                                                                               13.0%       8.59
Capitation Rate                                                                                               $  79.61



                                                     C6 to Contract No.95-23637
                                                     Page 24 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:    Commercial Plan
Aid Code Grouping:  Aged                    Plan Type: 355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   16.06    $  38.28    $   287.24   $    11.67    $  177.26    $   6.49
2. Units per Eligible               11.563      16.963         0.819        3.904        1.049      42.784
   Cost per Elig. per Mo.       $   15.48    $  54.11    $    19.60   $     3.80    $   15.50    $  23.14    $ 131.63
Adjustments
   a. Demographics                   0.953       1.025         0.958        0.968        1.035       1.021
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.981       0.996         0.997        0.986        0.997       0.781
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   14.59    $  55.24    $    18.72   $     3.63    $   15.99    $  18.45    $ 126.62
3. Legislative Adjs.                 0.952       0.920         0.940        1.035        1.159       0.932
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.100        1.000        1.000       1.000
   b. Units per Eligible             1.050       0.998         0.950        1.045        0.950       1.100
Projected Cost per Eligible      $   14.58    $  55.79    $    18.39   $     3.93    $   17.61    $  18.91    $ 129.21
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      14.21
Capitation Rate                                                                                               $ 143.42




                                                     C6 to Contract No.95-23637
                                                     Page 25 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:     Commercial Plan
Aid Code Grouping:  Disabled                Plan Type:  355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000 \
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   20.15    $  50.42    $   485.15   $    18.26    $  184.85    $   7.07
2. Units per Eligible               13.720      21.892         1.011        6.029        0.452      63.930
   Cost per Elig. per Mo.       $   23.04    $  91.98    $    40.87   $     9.17    $    6.96    $  37.67    $ 209.69
Adjustments
   a. Demographics                   1.027       0.895         0.946        1.076        0.937       1.053
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.900       0.875         0.920        0.973        0.995       0.877
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   21.47    $  72.03    $    35.57   $     9.60    $    6.49    $  34.79    $ 179.95
3. Legislative Adjs.                 0.969       0.920         0.933        1.035        1.159       0.956
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.100        1.000        1.000       1.000
   b. Units per Eligible             1.050       0.998         0.903        0.950        1.000       1.100
Projected Cost per Eligible      $   21.84    $  72.75    $    32.96   $     9.44    $    7.52    $  36.59    $ 181.10
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      19.92
Capitation Rate                                                                                               $ 201.02




                                                     C6 to Contract No.95-23637
                                                     Page 26 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:     Commercial Plan
Aid Code Grouping:  Child                   Plan Type:  355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   58.40    $  17.50    $   889.41   $    18.79    $  140.26    $   6.45
2. Units per Eligible                5.196       3.068         0.436        2.787        0.019      10.564
   Cost per Elig. per Mo.       $   25.29    $   4.47    $    32.32   $     4.36    $    0.22    $   5.68    $  72.34
Adjustments
   a. Demographics                   1.156       1.020         1.155        1.139        1.OOO       1.048
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.974       0.984         0.952        0.973        0.996       0.882
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   28.71    $   4.49    $    35.54   $     4.83    $    0.22    $   5.25    $  79.04
3. Legislative Adjs.                 1.155       1.055         1.019        1.034        1.159       1.069
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.000        1.000        1.000       1.000
   b. Units per Eligible             1.000       0.998         1.045        1.000        1.000       1.100
Projected Cost per Eligible      $   33.16    $   5.20    $    37.84   $     4.99    $    0.25    $   6.17    $  87.61
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           4.06
7. Fee-for-Service Adj.                                                                                 11%       9.64
Capitation Rate                                                                                               $ 101.31




                                                     C6 to Contract No.95-23637
                                                     Page 27 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:     Commercial Plan
Aid Code Grouping:  Adult                   Plan Type:  355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $  164.23    $  19.84    $   964.66   $    19.73    $    0.00    $  30.86
2. Units per Eligible               22.157       4.314         4.387       17.657        0.000       8.468
   Cost per Elig. per Mo.       $  303.24    $   7.13    $   352.66   $    29.03    $    0.00    $  21.78    $ 713.84
Adjustments
   a. Demographics                   1.000       1.000         1.000        1.000        1.000       1.000
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.999       0.999         0.999        0.989        1.000       0.887
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $  305.43    $   7.12    $   352.31   $    28.71    $    0.00    $  19.32    $ 712.89
3. Legislative Adjs.                 1.059       0.945         1.011        1.034        1.159       1.071
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.000        1.000        1.000       1.000
   b. Units per Eligible             1.000       0.998         1.045        1.000        1.000       1.100
Projected Cost per Eligible      $  323.45    $   7.39    $   372.21   $    29.69    $    0.00    $  22.76    $ 755.50
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      83.10
Capitation Rate                                                                                               $ 838.60




                                                     C6 to Contract No.95-23637
                                                     Page 28 of 28

Plan Name:          Molina Medical Center
County:             Riverside               Plan #:     Commercial Plan
Aid Code Grouping:  AIDS                    Plan Type:  355

Date:        01-Dec-99
Base Period: FY 96/97

The Rate Period is October 1,1999 to September 30,2000
Capitation Payments at the End of the Month

Coverage Adjustments
- ---------------------------------------------------------------------------
  CCS Indicated Claims                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Outpatient Services                 NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Pharmacy Costs                      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Mental Health Hospital Inpatient Services         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Eyewear                                           NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Heroin Detoxification                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  AIDS Waiver Services                              NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Adult Day Health Care                             NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Chiropractor/Acupuncture                          NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Local Education Authority                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Alphafeto Protein Testing                         NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care for month of entry plus one        Covered by the Plan
- ---------------------------------------------------------------------------
  Long Term Care after month of entry plus one      NOT Covered by the Plan
- ---------------------------------------------------------------------------
  Special AIDS drugs                                NOT Covered by the Plan
- ---------------------------------------------------------------------------



Rate Calculation                                            Hospital     Hospital    Long Term
                                 Physician    Pharmacy     Inpatient   Outpatient         Care       Other       Total
                                                                                         
1. Average Cost Per Unit         $   25.87    $ 141.75    $   485.15   $    17.75    $  228.06    $  14.00
2. Units per Eligible               29.254      46.897         3.823       28.506        0.450      78.563
   Cost per Elig. per Mo.       $   63.07    $ 553.97    $   154.56   $    42.17    $    8.55    $  91.66    $ 913.98
Adjustments
   a. Demographics                   1.000       1.000         1.000        1.000        1.000       1.000
   b. Area                           1.008       1.000         1.000        1.000        1.000       1.000
   c. Coverages                      0.918       0.648         0.957        0.992        0.998       0.642
   d. Interest                       1.000       1.000         1.000        1.000        1.000       1.000
Adjusted Base Cost               $   58.37    $ 358.97    $   147.91   $    41.83    $    8.53    $  58.85    $ 674.46
3. Legislative Adjs.                 0.982       0.843         0.981        1.009        1.159       0.989
4. Trend Adjustments
   a. Cost per Unit                  1.000       1.100         1.100        1.000        1.000       1.000
   b. Units per Eligible             1.050       0.998         0.903        0.950        1.000       1.100
Projected Cost per Eligible      $   60.19    $ 332.21    $   144.13   $    40.10    $    9.89    $  64.02    $ 650.54
5. Stop Loss Reins.                      Amount           $        0             Rate                  0.0%       0.00
6. CHDP                                                                                                           0.00
7. Fee-for-Service Adj.                                                                               11.0%      71.56
Capitation Rate                                                                                               $ 722.10




[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

DEPARTMENT OF HEALTH SERVICES
714/744 P Street
P.O. Box 942732
Sacramento, CA 94234-7320
(916)654-8076

[SEAL]

     March 1, 2000

     George Goldstein
     Molina
     One Golden Shore
     Long Beach, CA 90802

     Dear Mr. Goldstein:

     Change Order Number C7 to Contract No.95-23637 is being provided to rectify
     the capitation payment schedule from prepaid to postpaid in accordance with
     Article V, Section 5.3, Capitation Rates and Section 5.4 Capitation Rates
     Constitute Payment in Full, of your Contract for the periods February 1,
     1998 through September 30, 1998; October 1, 1998 through June 30, 1999
     (Includes FQHC); July 1, 1999 through July 31, 1999 (excludes FQHC); and
     August 1, 1999 through September 30, 1999. Corresponding postpaid rate
     sheets are attached. This Change Order is effective March 1, 2000.

     The retropayment for the above mentioned periods will be processed and
     payment should be mailed within three (3) to six (6) weeks from the date of
     this letter.

     If you have any questions, please contact your contract manager.

     Sincerely,


     /s/
     Susanne M. Hughes
     Acting Chief
     Medi-Cal Managed Care Division

     Enclosures



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

1.   5.3  CAPITATION RATES

DHS will remit to the Contractor a capitation payment each month for each
Medi-Cal Member that appears on the approved list of Members supplied to the
Contractor by DHS. The capitation rate shall be the amount specified in this
Article. The payment period for health care services will commence on the first
day of operations, as determined by DHS. Capitation payments will be made in
accordance with the following schedule of capitation payment rates:



FOR THE PERIOD 2/1/98 - 9/30/98                         RIVERSIDE COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, OA, 02, 08, 30,                   $    76.14
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   205.99
                                                 60, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   163.11
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K, 5K,                   $    79.71
                                                 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   518.25
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $ 1,026.62
- -------------------------------------------------------------------------------------------------


                                     1 of 5





FOR THE PERIOD 2/1/98  - 9/30/98                        SAN BERNARDINO COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, 0A, 02, 08, 30,                   $   74.39
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   218.97
                                                 6O, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   168.09
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K,                       $    79.79
                                                 5K, 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   534.10
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $ 1,078.17
- -------------------------------------------------------------------------------------------------


FOR THE PERIOD 10/1/98 - 6/30/99                        RIVERSIDE COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, OA, 02, 08, 30,                   $    79.13
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   223.73
                                                 60, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   161.27
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K, 5K,                   $    93.51
                                                 45,82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   710.32
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $   967.27
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               7A,                                   $    54.11
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               47, 72,                               $    60.05
- -------------------------------------------------------------------------------------------------


                                     2 of 5





FOR THE PERIOD 10/1/98 - 6/30/99                        SAN BERNARDINO COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, OA, 02, 08, 30,                   $    80.89
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   234.65
                                                 60, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   164.60
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K,                       $   106.97
                                                 5K, 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   794.86
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $ 1,000.01
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               7A,                                   $    54.11
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               47, 72,                               $    60.05
- -------------------------------------------------------------------------------------------------


FOR THE PERIOD 7/1/99 - 7/31/99                         RIVERSIDE COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, 0A, 02, 08, 30,                   $    78.80
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   223.73
                                                 6O, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   161.27
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K,                       $    93.17
                                                 5K, 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   708.81
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $   967.27
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               7A,                                   $    52.55
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               47, 72,                               $    57.21
- -------------------------------------------------------------------------------------------------


                                     3 of 5





FOR THE PERIOD 7/1/99 - 7/31/99                         SAN BERNARDINO COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, 0A, 02, 08, 30,                   $    80.82
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   234.65
                                                 6O, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   164.60
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K,                       $   106.89
                                                 5K, 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   794.50
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $ 1,000.01
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               7A,                                   $    52.55
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               47, 72,                               $    57.21
- -------------------------------------------------------------------------------------------------


FOR THE PERIOD 8/1/99 - 9/30/99                         RIVERSIDE COUNTY
- -------------------------------------------------------------------------------------------------
                GROUPS                                     AID CODES                      RATE
- -------------------------------------------------------------------------------------------------
                                                                                 
Family                                           01, 0A, 02, 08, 30,                   $    79.37
                                                 32, 33, 34, 35, 38,
                                                 39, 40, 42, 54, 59,
                                                 3A, 3C, 3E, 3G, 3H,
                                                 3L, 3M, 3N, 3P, 3R,
                                                 3U, 5X, 7X,
- -------------------------------------------------------------------------------------------------
Disabled                                         20, 24, 26, 28, 36,                   $   225.12
                                                 6O, 64, 66, 68, 6A,
                                                 6C, 6N, 6P, 6R
- -------------------------------------------------------------------------------------------------
Aged                                             10, 14, 16, 18                        $   162.55
- -------------------------------------------------------------------------------------------------
Child                                            03, 04, 4C, 4K,                       $    93.95
                                                 5K, 45, 82
- -------------------------------------------------------------------------------------------------
Adult                                            86                                    $   714.18
- -------------------------------------------------------------------------------------------------
AIDS Beneficiary                                                                       $   968.53
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               7A,                                   $    53.10
- -------------------------------------------------------------------------------------------------
Percent of Poverty                               47, 72,                               $    57.78
- -------------------------------------------------------------------------------------------------


                                     4 of 5



For the Period 8/1/99 - 9/30/99             San Bernardino County



         --------------------------------------------------------------------------
                     GROUPS                     AID CODES                 RATE
         --------------------------------------------------------------------------
                                                                
          Family                            01, 0A, 02, 08,           $       81.39
                                            30, 32, 33, 34, 35,
                                            38, 39, 40, 42, 54,
                                            59, 3A, 3C, 3E,
                                            3G, 3H, 3L, 3M,
                                            3N, 3P, 3R, 3U,
                                            5X, 7X,
         --------------------------------------------------------------------------
          Disabled                          20, 24, 26, 28, 36,       $      236.15
                                            60, 64, 66, 68,
                                            6A, 6C, 6N, 6P,
                                            6R
         --------------------------------------------------------------------------
          Aged                              10,14,16,18               $      165.90
         --------------------------------------------------------------------------
          Child                             03, 04, 4C, 4K,           $      107.81
                                            5K, 45, 82
         --------------------------------------------------------------------------
          Adult                             86                        $      800.46
         --------------------------------------------------------------------------
          AIDS Beneficiary                                            $    1,001.35
         --------------------------------------------------------------------------
          Percent of Poverty                7A,                       $       53.10
         --------------------------------------------------------------------------
          Percent of Poverty                47,72,                    $       57.78
         --------------------------------------------------------------------------


         All other terms, conditions, and provisions contained in Section 5.3
         remain unchanged.

2.       5.4      CAPITATION RATES CONSTITUTE PAYMENT IN FULL

         Capitation rates for each rate period, as calculated by DHS, are
         prospective rates and constitute payment in full, subject to any stop
         loss reinsurance provisions, on behalf of a Member for all Covered
         Services required by such Member and for all Administrative Costs
         incurred by the Contractor in providing or arranging for such services,
         and subject to adjustments for federally qualified health centers in
         accordance with Section 5.13, but do not include payment for the
         recoupment of current or previous losses incurred by Contractor. DHS is
         not responsible for making payments for recoupment of losses. The
         actuarial basis for the determination of the capitation payment rates
         is outlined in Attachment 1 (consisting of 60 pages).

                                     5 of 5



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

[SEAL]

[SEAL]

            November 20, 2000

            Mr. George Goldstein
            President
            Molina Healthcare of California
            Dba Molina
            One Golden Shore
            Long Beach, CA 90802

            Dear Mr. Goldstein:

            In accordance with Article V, Section 5.5 of your Contract, the
            enclosed Change Order No. 08 transmits (Molina's) annual capitation
            rates for the Period beginning October 1,2000 to September 30, 2001.

            The retropayment between the old rates and the new 2000/2001 rates
            for the period beginning October 1, 2000 will be processed in
            approximately four to six weeks.

            If you have any questions, please contact your contract manager.

            Sincerely,

            /s/
            ----------------------
            Susanne M. Hughes
            Acting Chief
            Medi-Cal Managed Care Division

            Enclosure



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]


            CHANGE ORDER C08 TO CONTRACT NO.95-23637; ADJUSTING THE ANNUAL
            CAPITATION RATE FOR PROVIDER RATE INCREASES FOR THE PERIOD OCTOBER
            1, 2000 TO SEPTEMBER 30, 2001, BY CHANGING CONTRACT SECTIONS; 5.3
            CAPITATION RATES; AND 5.4 CAPITATION RATES CONSTITUTE PAYMENT IN
            FULL. This Change Order is effective November 1, 2000.

            1.     5.3      CAPITATION RATES

            For the period October 1, 2000 to
            September 30,2001                                   Riverside County


            -----------------------------------------------------------------------------
                   GROUPS                       AID CODES                     RATE
            -----------------------------------------------------------------------------
                                                                   
             Family                   01, 0A, 02, 08, 30, 32, 33,        $      86.14
                                      34, 35, 38, 39, 40, 42, 47,
                                      54, 59, 72, 3A, 3C, 3E, 3G,
                                      3H, 3L, 3M, 3N, 3P, 3R, 3U,
                                      4F, 4G, 5X, 7X, 8P
            -----------------------------------------------------------------------------
             Disabled                 20, 24, 26, 28, 36, 60, 64,        $     223.64
                                      66, 68, 6A, 6C, 6N, 6P, 6R
            -----------------------------------------------------------------------------
             Aged                     10, 14, 16, 18                     $     160.60
            -----------------------------------------------------------------------------
             Child                    03, 04, 4A, 4C, 4K, 5K, 45,        $      89.04
                                      82, 7A, 8R
            -----------------------------------------------------------------------------
             Adult                    86                                 $     843.25
            -----------------------------------------------------------------------------
             AIDS Beneficiary                                            $     847.95
            -----------------------------------------------------------------------------


            For the period October 1, 2000 to
            September 30,2001                              San Bernardino County


            ----------------------------------------------------------------------------------
                   GROUPS                       AID CODES                     RATE
            ----------------------------------------------------------------------------------
                                                                   
             Family                   01, 0A, 02, 08, 30, 32, 33,        $      82.56
                                      34, 35, 38, 39, 40, 42, 47,
                                      54, 59, 72, 3A, 3C, 3E, 3G,
                                      3H, 3L, 3M, 3N, 3P, 3R, 3U,
                                      4F, 4G, 5X, 7X, 8P
            ----------------------------------------------------------------------------------
             Disabled                 20, 24, 26, 28, 36, 60, 64,        $     223.41
                                      66, 68, 6A, 6C, 6N, 6P, 6R
            ----------------------------------------------------------------------------------
             Aged                     10, 14, 16, 18                     $     151.60
            ----------------------------------------------------------------------------------
             Child                    03, 04, 4A, 4C, 4K, 5K, 45,        $      93.28
                                      82, 7A, 8R
            ----------------------------------------------------------------------------------
             Adult                    86                                 $     922.71
            ----------------------------------------------------------------------------------
             AIDS Beneficiary                                            $     891.15
            ----------------------------------------------------------------------------------




2.       5.4      CAPITATION RATES CONSTITUTE PAYMENT IN FULL

         Capitation rates for each rate period, as calculated by DHS, are
         prospective rates and constitute payment in full, subject to any stop
         loss reinsurance provisions, on behalf of a Member for all Covered
         Services required by such Member and for all administrative costs
         incurred by the Contractor in providing or arranging for such services,
         and subject to adjustments for federally qualified health centers in
         accordance with Section 14087.325 of the W&I Code, but do not include
         payment for recoupment of current or previous losses incurred by
         Contractor. DHS is not responsible for making payments for recoupment
         of losses. The actuarial basis for the determination of the capitation
         payment rates is outlined in Attachment 1 (consisting of 12 pages).

3.       All other terms, conditions, and provisions contained in Sections 5.3
         and 5.4 remain unchanged.

                                                                               2



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  1 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Family                   Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




Rate Calculation                                                     Hospital     Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient             Care         Other    Total
                                                                                                      
1. Average Cost Per Unit                $   66.25      $  23.82     $  864.71   $    20.37      $    229.41     $    8.79
2. Units per Eligible                       5.957         3.361         0.304        2.609            0.009         6.410
   Cost per Elig. per Mo.               $   32.89      $   6.67     $   21.91   $     4.43      $      0.17     $    4.70  $ 70.77
3. Adjustments
    a.Demographics                          0.933         0.927         0.903        0.933            1.000         0.938
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.975         0.992         0.968        0.956            0.995         0.868
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   26.93      $   6.13     $   19.15   $     3.95      $      0.17     $    3.83  $ 60.16
4. Legislative Adjs.                        1.261         0.895         1.016        1.065            1.375         1.086
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.000        1.000            1.000         1.000
    b. Units per Eligible                   1.000         1.073         1.066        1.000            1.000         1.148
Projected Cost per Eligible             $   33.96      $   6.76     $   20.73   $     4.21      $      0.23     $    4.77  $ 70.66
6. Adjustment to No Loss                                                                                                      0.00
7. CHDP                                                                                                                       4.88
8. Adjustment to Fee-For-Service                                                                                     15.0%   10.60
Capitation Rate                                                                                                            $ 86.14
Value of Provider Rate Increase                                                                                            $  4.44


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  2 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Disabled                 Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




Rate Calculation                                                     Hospital     Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient             Care         Other     Total
                                                                                                      
1. Average Cost Per Unit                $   20.15      $  50.42     $  485.15   $    18.26      $    184.85     $    7.07
2. Units per Eligible                      13.720        21.892         1.011        6.029            0.452        63.930
   Cost per Elig. per Mo.               $   23.04      $  91.98     $   40.87   $     9.17      $      6.96     $   37.67  $ 209.69
3. Adjustments
    a.Demographics                          0.990         0.881         0.935        1.064            0.954         1.046
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.900         0.875         0.920        0.973            0.995         0.877
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   18.48      $  70.91     $   35.16   $     9.49      $      6.61     $   34.56  $ 175.21
4. Legislative Adjs.                        1.151         0.925         0.952        1.057            1.379         0.991
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.148        1.000            1.000         1.000
    b. Units per Eligible                   1.073         1.073         0.863        0.929            1.000         1.148
Projected Cost per Eligible             $   22.82      $  80.77     $   33.15   $     9.31      $      9.12     $   39.30  $ 194.47
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%    29.17
Capitation Rate                                                                                                            $ 223.64
Value of Provider Rate Increase                                                                                            $   4.65


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  3 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Aged                     Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                             
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




Rate Calculation                                                    Hospital      Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient             Care         Other     Total
                                                                                                      
1. Average Cost Per Unit                $   16.06      $  38.28     $  287.24   $    11.67      $    177.26     $    6.49
2. Units per Eligible                      11.563        16.963         0.819        3.904            1.049        42.784
   Cost per Elig. per Mo.               $   15.48      $  54.11     $   19.60   $     3.80      $     15.50     $   23.14  $ 131.63
3. Adjustments
    a.Demographics                          1.007         1.014         1.005        1.001            0.975         1.011
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.981         0.996         0.997        0.986            0.997         0.781
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   13.76      $  54.65     $   19.64   $     3.75      $     15.07     $   18.27  $ 125.14
4. Legislative Adjs.                        0.993         0.911         0.960        1.052            1.368         0.966
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.148        1.000            1.000         1.000
    b. Units per Eligible                   1.073         1.073         0.929        1.066            0.929         1.148
Projected Cost per Eligible             $   14.66      $  61.31     $   20.09   $     4.20      $     19.14     $   20.25  $ 139.65
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%    20.95
Capitation Rate                                                                                                            $ 160.60
Value of Provider Rate Increase                                                                                            $   0.84


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  4 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Child                    Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                             
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                    Hospital    Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit                $   58.40      $  17.50     $  889.41   $    18.79      $    140.26     $    6.45
2. Units per Eligible                       5.196         3.068         0.436        2.787            0.019        10.564
   Cost per Elig. per Mo.               $   25.29      $   4.47     $   32.32   $     4.36      $      0.22     $    5.68  $  72.34
3. Adjustments
    a.Demographics                          1.020         1.029         0.953        1.033            1.000         0.988
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.974         0.984         0.952        0.973            0.996         0.882
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   22.61      $   4.53     $   29.32   $     4.38      $      0.22     $    4.95  $  66.01
4. Legislative Adjs.                        1.144         0.907         1.019        1.055            1.359         1.089
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.000        1.000            1.000         1.000
    b. Units per Eligible                   1.000         1.073         1.066        1.000            1.000         1.148
Projected Cost per Eligible             $   25.87      $   5.06     $   31.84   $     4.62      $      0.30     $    6.19  $  73.88
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        4.08
8. Adjustment to Fee-For-Service                                                                                     15.0%    11.08
Capitation Rate                                                                                                            $  89.04
Value of Provider Rate Increase                                                                                            $   0.71


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  5 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Adult                    Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




Rate Calculation                                                    Hospital     Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit                $  164.23      $  19.84     $  964.66   $    19.73      $      0.00     $   30.86
2. Units per Eligible                      22.157         4.314         4.387       17.657            0.000         8.468
   Cost per Elig. per Mo.               $  303.24      $   7.13     $  352.66   $    29.03      $      0.00     $   21.78  $ 713.84
3. Adjustments
    a.Demographics                          1.000         1.000         1.000        1.000            1.000         1.000
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.999         0.999         0.999        0.989            1.000         0.887
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $  272.64      $   7.12     $  352.31   $    28.71      $      0.00     $   19.32  $ 680.10
4. Legislative Adjs.                        1.075         0.900         1.008        1.062            1.213         1.053
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.000        1.000            1.000         1.000
    b. Units per Eligible                   1.000         1.073         1.066        1.000            1.000         1.148
Projected Cost per Eligible             $  293.09      $   7.89     $  378.44   $    30.49      $      0.00     $   23.35  $ 733.26
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%   109.99
Capitation Rate                                                                                                            $ 843.25
Value of Provider Rate Increase                                                                                            $   3.39


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  6 of  12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:         355
Aid Code Grouping:      AIDS                     Plan Type:      Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                             
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




Rate Calculation                                                     Hospital     Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient             Care         Other     Total
                                                                                                      
1. Average Cost Per Unit                $   25.87      $ 141.75     $  485.15   $    17.75      $    228.06     $   14.00
2. Units per Eligible                      29.254        46.897         3.823       28.506            0.450        78.563
   Cost per Elig. per Mo.               $   63.07      $ 553.97     $  154.56   $    42.17      $      8.55     $   91.66  $ 913.98
3. Adjustments
    a.Demographics                          1.000         1.000         1.000        1.000            1.000         1.000
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.918         0.663         0.957        0.992            0.998         0.970
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   52.11      $ 367.28     $  147.91   $    41.83      $      8.53     $   88.91  $ 706.57
4. Legislative Adjs.                        1.098         0.836         0.986        1.015            1.453         0.996
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.148        1.000            1.000         1.000
    b. Units per Eligible                   1.073         1.073         0.863        0.929            1.000         1.148
Projected Cost per Eligible             $   61.39      $ 378.09     $  144.43   $    39.43      $     12.39     $  101.62  $ 737.35
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%   110.60
Capitation Rate                                                                                                            $ 847.95
Value of Provider Rate Increase                                                                                            $   7.25


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  7 of  12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Family                   Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


- ----------------------------------------------------------------------------------------------------------
                                                                                             
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                    Hospital    Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit                $   66.25      $  23.82     $  978.02   $    20.37      $    229.41     $    8.79
2. Units per Eligible                       5.957         3.361         0.304        2.609            0.009         6.410
   Cost per Elig. per Mo.               $   32.89      $   6.67     $   24.78   $     4.43      $      0.17     $    4.70  $  73.64
3. Adjustments
    a. Demographics                         0.870         0.911         0.786        0.871            1.000         0.918
    b. Area                                 0.900         1.000         1.000        1.000            1.000         1.000
    c. Coverages                            0.975         0.992         0.968        0.956            0.995         0.868
    d. Interest                             1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   25.11      $   6.03     $   18.85   $     3.69      $      0.17     $    3.75  $  57.60
4. Legislative Adjs.                        1.261         0.895         1.016        1.065            1.375         1.086
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.000        1.000            1.000         1.000
    b. Units per Eligible                   1.000         1.073         1.066        1.000            1.000         1.148
Projected Cost per Eligible             $   31.66      $   6.65     $   20.41   $     3.93      $      0.23     $    4.67  $  67.55
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        4.88
8. Adjustment to Fee-For-Service                                                                                     15.0%    10.13
Capitation Rate                                                                                                            $  82.56
Value of Provider Rate Increase                                                                                            $   4.15


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  8 of  12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Disabled                 Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                    Hospital    Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit                $   20.15      $  50.42     $  611.26   $    18.26      $    184.85     $    7.07
2. Units per Eligible                      13.720        21.892         1.011        6.029            0.452        63.930
   Cost per Elig. per Mo.               $   23.04      $  91.98     $   51.50   $     9.17      $      6.96     $   37.67  $ 220.32
3. Adjustments
    a.Demographics                          0.927         0.841         0.865        1.023            0.991         1.031
    b.Area                                  0.900         1.000         1.000        1.000            1.000         1.000
    c.Coverages                             0.900         0.875         0.920        0.973            0.995         0.877
    d.Interest                              1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   17.30      $  67.69     $   40.98   $     9.13      $      6.86     $   34.06  $ 176.02
4. Legislative Adjs.                        1.151         0.925         0.952        1.057            1.379         0.991
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.148        1.000            1.000         1.000
    b. Units per Eligible                   1.073         1.073         0.863        0.929            1.000         1.148
Projected Cost per Eligible             $   21.37      $  77.10     $   38.64   $     8.96      $      9.46     $   38.74  $ 194.27
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%    29.14
Capitation Rate                                                                                                            $ 223.41
Value of Provider Rate Increase                                                                                            $   4.42


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  9 of  12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Aged                     Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month


Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                    Hospital    Hospital        Long Term
                                        Physician      Pharmacy     Inpatient   Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit                $   16.06      $  38.28     $  316.16   $    11.67      $    177.26     $    6.49
2. Units per Eligible                      11.563        16.963         0.819        3.904            1.049        42.784
   Cost per Elig. per Mo.               $   15.48      $  54.11     $   21.58   $     3.80      $     15.50     $   23.14  $ 133.61
3. Adjustments
    a. Demographics                         1.014         1.009         0.894        1.039            0.650         0.962
    b. Area                                 0.900         1.000         1.000        1.000            1.000         1.000
    c. Coverages                            0.981         0.996         0.997        0.986            0.997         0.781
    d. Interest                             1.000         1.000         1.000        1.000            1.000         1.000
Adjusted Base Cost                      $   13.86      $  54.38     $   19.23   $     3.89      $     10.04     $   17.39  $ 118.79
4. Legislative Adjs.                        0.993         0.911         0.960        1.052            1.368         0.966
5. Trend Adjustments
    a. Cost per Unit                        1.000         1.148         1.148        1.000            1.000         1.000
    b. Units per Eligible                   1.073         1.073         0.929        1.066            0.929         1.148
Projected Cost per Eligible             $   14.77      $  61.00     $   19.67   $     4.36      $     12.75     $   19.28  $ 131.83
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%    19.77
Capitation Rate                                                                                                            $ 151.60
Value of Provider Rate Increase                                                                                            $   0.81


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page 10 of 12

                                                                Date:  14-Nov-00
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Child                    Plan Type:     Commercial Plan

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                   Hospital     Hospital        Long Term
                                       Physician      Pharmacy     Inpatient    Outpatient         Care           Other     Total
                                                                                                     
1. Average Cost Per Unit               $   58.40      $  17.50     $ 1,120.53   $    18.79      $    140.26     $    6.45
2. Units per Eligible                      5.196         3.068          0.436        2.787            0.019        10.564
   Cost per Elig. per Mo.              $   25.29      $   4.47     $    40.71   $     4.36      $      0.22     $    5.68  $  80.73
3. Adjustments
    a. Demographics                        0.986         1.016          0.877        0.987            1.000         0.976
    b. Area                                0.900         1.000          1.000        1.000            1.000         1.000
    c. Coverages                           0.974         0.984          0.952        0.973            0.996         0.882
    d. Interest                            1.000         1.000          1.000        1.000            1.000         1.000
Adjusted Base Cost                     $   21.86      $   4.47     $    33.99   $     4.19      $      0.22     $    4.89  $  69.62
4. Legislative Adjs.                       1.144         0.907          1.019        1.055            1.359         1.089
5. Trend Adjustments
    a. Cost per Unit                       1.000         1.148          1.000        1.000            1.000         1.000
    b. Units per Eligible                  1.000         1.073          1.066        1.000            1.000         1.148
Projected Cost per Eligible            $   25.01      $   4.99     $    36.91   $     4.42      $      0.30     $    6.11  $  77.74
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        4.08
8. Adjustment to Fee-For-Service                                                                                     15.0%    11.66
Capitation Rate                                                                                                            $  93.48
Value of Provider Rate Increase                                                                                            $   0.69


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-8
                                                Attachment   1
                                                Page  11 of 12

                                                                Date:  14-Nov-00
Plan Name:              Molina Medical Center
County:                 San Bernadino            Plan #:        356
Aid Code Grouping:      Adult                    Plan Type:     Commercial Plan


The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                   Hospital     Hospital        Long Term
                                      Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit              $  164.23      $  19.84     $ 1,140.81    $    19.73      $      0.00     $   30.86
2. Units per Eligible                    22.157         4.314          4.387        17.657            0.000         8.468
   Cost per Elig. per Mo.             $  303.24      $   7.13     $   417.06    $    29.03      $      0.00     $   21.78  $ 778.24
3. Adjustments
    a. Demographics                       1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                               0.900         1.000          1.000         1.000            1.000         1.000
    c. Coverages                          0.999         0.999          0.999         0.989            1.000         0.887
    d. Interest                           1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                    $  272.64      $   7.12     $   416.64    $    28.71      $      0.00     $   19.32  $ 744.43
4. Legislative Adjs.                      1.075         0.900          1.008         1.062            1.213         1.053
5. Trend Adjustments
    a. Cost per Unit                      1.000         1.148          1.000         1.000            1.000         1.000
    b. Units per Eligible                 1.000         1.073          1.066         1.000            1.000         1.148
Projected Cost per Eligible           $  293.09      $   7.89     $   447.54    $    30.49      $      0.00     $   23.35  $ 802.36
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%   120.35
Capitation Rate                                                                                                            $ 922.71
Value of Provider Rate Increase                                                                                            $   3.39


Prepared by Department of Health Services, Rate Development Branch



                                                Contract   #95-23637   C-8
                                                Attachment   1
                                                Page  12 of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      AIDS                     Plan Type:     Commercial Plan

Date:  14-Nov-00

The Rate Period is October 1, 2000                  Capitation Payments at the
to September 30, 2001                               End of the Month

Coverages (C = Covered by Plan, N = NOT Covered by Plan)


                                                                                            
   CCS Indicated Claims                 N           AIDS Waiver                                       N
- ----------------------------------------------------------------------------------------------------------
   GHPP                                 C           In Home Waiver                                    N
- ----------------------------------------------------------------------------------------------------------
   Hemodialysis                         C           Model NF Waiver                                   N
- ----------------------------------------------------------------------------------------------------------
   Major Organ Transplants              N           Adult Day Health Care                             N
- ----------------------------------------------------------------------------------------------------------
   Out-of-State                         C           Newborn Hearing Screening                         N
- ----------------------------------------------------------------------------------------------------------
   Chiropractor                         N           Psychiatric Drugs                                 N
- ----------------------------------------------------------------------------------------------------------
   Local Education Authority            N           AIDS Drugs                                        N
- ----------------------------------------------------------------------------------------------------------
   Psychiatrist                         N           Injections                                        N
- ----------------------------------------------------------------------------------------------------------
   Acupuncturist                        N           MH - Hospital Inpatient                           N
- ----------------------------------------------------------------------------------------------------------
   Alphafeto Protein Testing            N           MH - Outpatient Services                          N
- ----------------------------------------------------------------------------------------------------------
   Heroin Detoxification                N           Long Term Care for month of entry plus one        C
- ----------------------------------------------------------------------------------------------------------
   Direct Observed Therapy              N           Long Term Care after month of entry plus one      N
- ----------------------------------------------------------------------------------------------------------
   PIA Lenses                           N           CHDP                                              C
- ----------------------------------------------------------------------------------------------------------




 Rate Calculation                                                   Hospital     Hospital        Long Term
                                      Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                      
1. Average Cost Per Unit              $   25.87      $ 141.75     $   611.26    $    17.75      $    228.06     $   14.00
2. Units per Eligible                    29.254        46.897          3.823        28.506            0.450        78.563
   Cost per Elig. per Mo.             $   63.07      $ 553.97     $   194.74    $    42.17      $      8.55     $   91.66  $ 954.16
3. Adjustments
    a. Demographics                       1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                               0.900         1.000          1.000         1.000            1.000         1.000
    c. Coverages                          0.918         0.663          0.957         0.992            0.998         0.970
    d. Interest                           1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                    $   52.11      $ 367.28     $   186.37    $    41.83      $      8.53     $   88.91  $ 745.03
4. Legislative Adjs.                      1.098         0.836          0.986         1.015            1.453         0.996
5. Trend Adjustments
    a. Cost per Unit                      1.000         1.148          1.148         1.000            1.000         1.000
    b. Units per Eligible                 1.073         1.073          0.863         0.929            1.000         1.148
Projected Cost per Eligible           $   61.39      $ 378.09     $   181.99    $    39.43      $     12.39     $  101.62  $ 774.91
6. Adjustment to No Loss                                                                                                       0.00
7. CHDP                                                                                                                        0.00
8. Adjustment to Fee-For-Service                                                                                     15.0%   116.24
Capitation Rate                                                                                                            $ 891.15
Value of Provider Rate Increase                                                                                            $   7.26


Prepared by Department of Health Services, Rate Development Branch



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

[SEAL]

[SEAL]

            January 9, 2001

            Mr. George Goldstein
            President
            Molina Healthcare of California
            Dba Molina
            One Golden Shore
            Long Beach, CA 90802

            Dear Mr. Goldstein:

            In accordance with Article V, Section 5.5 of your Contract, the
            enclosed Change Order No. 09 transmits (Molina's) annual capitation
            rates for the Period August 1, 2000 to September 30, 2000.

            The retropayment between the old rates and the new rates for the
            period August 1, 2000 through September 30, 2000 will be processed
            in approximately four to six weeks.

            If you have any questions, please contact your contract manager.

            Sincerely,

            /s/
            ------------------------
            Roberto B. Martinez
            Acting Chief
            Medi-Cal Managed Care Division

            Enclosure



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

            CHANGE ORDER C09 TO CONTRACT NO.95-23637; ADJUSTING THE ANNUAL
            CAPITATION RATE FOR PROVIDER RATE INCREASES FOR THE PERIOD AUGUST 1,
            2000 TO SEPTEMBER 30, 2000, BY CHANGING CONTRACT SECTIONS; 5.3
            CAPITATION RATES; AND 5.4 CAPITATION RATES CONSTITUTE PAYMENT IN
            FULL. This Change Order is effective January 1, 2001.

            1.     5.3      CAPITATION RATES

For the period August 1, 2000 to September 30,2000             Riverside County



            -----------------------------------------------------------------------------
                   GROUPS                       AID CODES                     RATE
            -----------------------------------------------------------------------------
                                                                   
             Family                   01, 0A, 02, 08, 30, 32, 33,        $      84.28
                                      34, 35, 38, 39, 40, 42, 47,
                                      54, 59, 72, 3A, 3C, 3E, 3G,
                                      3H, 3L, 3M, 3N, 3P, 3R, 3U,
                                      4F, 4G, 5X, 7X, 8P
            -----------------------------------------------------------------------------
             Disabled                 20, 24, 26, 28, 36, 60, 64         $     205.86
                                      66, 68, 6A, 6C, 6N, 6P, 6R
            -----------------------------------------------------------------------------
             Aged                     10, 14, 16, 18                     $     144.20
            -----------------------------------------------------------------------------
             Child                    03, 04, 4A, 4C, 4K, 5K, 45,        $     102.15
                                      82, 7A, 8R
            -----------------------------------------------------------------------------
             Adult                    86                                 $     841.84
            -----------------------------------------------------------------------------
             AIDS Beneficiary                                            $     729.33
            -----------------------------------------------------------------------------


For the period August 1, 2000 to September 30,2001        San Bernardino County


            ----------------------------------------------------------------------------------
                   GROUPS                       AID CODES                     RATE
            ----------------------------------------------------------------------------------
                                                                   
             Family                   01, 0A, 02, 08, 30, 32, 33,        $      88.96
                                      34, 35, 38, 39, 40, 42, 47,
                                      54, 59, 72, 3A, 3C, 3E, 3G,
                                      3H, 3L, 3M, 3N, 3P, 3R, 3U,
                                      4F, 4G, 5X, 7X, 8P
            ----------------------------------------------------------------------------------
             Disabled                 20, 24, 26, 28, 36, 60, 64,        $     203.17
                                      66, 68, 6A, 6C, 6N, 6P, 6R
            ----------------------------------------------------------------------------------
             Aged                     10, 14, 16, 18                     $     146.29
            ----------------------------------------------------------------------------------
             Child                    03, 04, 4A, 4C, 4K, 5K, 45,        $      86.53
                                      82, 7A, 8R

            ----------------------------------------------------------------------------------
             Adult                    86                                 $     917.28
            ----------------------------------------------------------------------------------
             AIDS Beneficiary                                            $     770.92
            ----------------------------------------------------------------------------------




2.       5.4      CAPITATION RATES CONSTITUTE PAYMENT IN FULL

         Capitation rates for each rate period, as calculated by DHS, are
         prospective rates and constitute payment in full, subject to any stop
         loss reinsurance provisions, on behalf of a Member for all Covered
         Services required by such Member and for all administrative costs
         incurred by the Contractor in providing or arranging for such services,
         and subject to adjustments for federally qualified health centers in
         accordance with Section 14087.325 of the W&I Code, but do not include
         payment for recoupment of current or previous losses incurred by
         Contractor. DHS is not responsible for making payments for recoupment
         of losses. The actuarial basis for the determination of the capitation
         payment rates is outlined in Attachment 1 (consisting of 12 pages).

3.       All other terms, conditions, and provisions contained in Sections 5.3
         and 5.4 remain unchanged.



                                                Contract    #95-23637   C-9
                                                Attachment
                                                Page  1  of  12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        Commercial Plan
Aid Code Grouping:      Family                   Plan Type:     355

Date:  03-Nov-00

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

 Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                    Hospital     Hospital        Long Term
                                      Physician      Pharmacy      Inpatient    Outpatient         Care           Other     Total
                                                                                                      
1.  Average Cost Per Unit             $   66.25      $  23.82     $   864.71    $    20.37      $    229.41     $    8.79
2.  Units per Eligible                    5.957         3.361          0.304         2.609            0.009         6.410
    Cost per Elig. per Mo.            $   32.89      $   6.67     $    21.91    $     4.43      $      0.17     $    4.70  $  70.77
Adjustments
    a. Demographics                       0.883         0.875          0.853         0.903            1.000         0.866
    b. Area                               1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                          0.975         0.992          0.968         0.956            0.995         0.868
    d. Interest                           1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                    $   28.55      $   5.79     $    18.09    $     3.82      $      0.17     $    3.53  $  59.95
3.  Legislative Adjs.                     1.280         0.975          1.012         1.034            1.159         1.094
4.  Trend Adjustments
    a. Cost per Unit                      1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible                 1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible           $   36.54      $   6.20     $    19.13    $     3.95      $      0.20     $    4.25  $  70.27
5.  Stop Loss Rein.                             Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                       4.88
7.  Fee-for-Service Adj.                                                                                             13.0%     9.13
Capitation Rate                                                                                                            $  84.28
Value of Provider Rate Increase                                                                                            $   4.67


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-9
                                                Attachment   1
                                                Page  2  of 12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan # :       Commercial Plan
Aid Code Grouping:      Disabled                 Plan Type:           355

Date:  03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   20.15      $  50.42     $   485.15    $    18.26      $    184.85     $    7.07
2.  Units per Eligible                 13.720        21.892          1.011         6.029            0.452        63.930
    Cost per Elig. per Mo.          $   23.04      $  91.98     $    40.87    $     9.17      $      6.96     $   37.67  $ 209.69
Adjustments
    a. Demographics                     1.027         0.895          0.946         1.076            0.937         1.053
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.900         0.875          0.920         0.973            0.995         0.877
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   21.47      $  72.03     $    35.57    $     9.60      $      6.49     $   34.79  $ 179.95
3.  Legislative Adjs.                   1.123         0.920          0.933         1.035            1.159         0.979
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.903         0.950            1.000         1.100
Projected Cost per Eligible         $   25.32      $  72.75     $    32.96    $     9.44      $      7.52     $   37.47    185.46
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    20.40
Capitation Rate                                                                                                            205.86
Value of Provider Rate Increase                                                                                              4.84


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-9
                                                Attachment   1
                                                Page  3  of 12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        Commercial Plan
Aid Code Grouping:      Aged                     Plan Type:           355

Date:  03-Nov-00
Base Period: 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient             Care         Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   16.06      $  38.28     $   287.24    $    11.67      $    177.26     $    6.49
2.  Units per Eligible                 11.563        16.963          0.819         3.904            1.049        42.784
    Cost per Elig. per Mo.          $   15.48      $  54.11     $    19.60    $     3.80      $     15.50     $   23.14  $ 131.63
Adjustments
    a. Demographics                     0.953         1.025          0.958         0.968            1.035         1.021
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.981         0.996          0.997         0.986            0.997         0.781
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   14.59      $  55.24     $    18.72    $     3.63      $     15.99     $   18.45  $ 126.62
3.  Legislative Adjs.                   0.968         0.920          0.940         1.035            1.159         0.954
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.950         1.045            0.950         1.100
Projected Cost per Eligible         $   14.83      $  55.79     $    18.39    $     3.93      $     17.61     $   19.36    129.91
5.  Stop Loss Rein.                           Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    14.29
Capitation Rate                                                                                                            144.20
Value of Provider Rate Increase                                                                                              0.78


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-9
                                                Attachment   1
                                                Page  4  of  12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        Commercial Plan
Aid Code Grouping:      Child                    Plan Type:           355

Date:  03-Nov-00

Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   58.40      $  17.50     $   889.41    $    18.79      $    140.26     $    6.45
2.  Units per Eligible                  5.196         3.068          0.436         2.787            0.019        10.564
    Cost per Elig. per Mo.          $   25.29      $   4.47     $    32.32    $     4.36      $      0.22     $    5.68  $  72.34
Adjustments
    a. Demographics                     1.156         1.020          1.155         1.139            1.000         1.048
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.974         0.984          0.952         0.973            0.996         0.882
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   28.71      $   4.49     $    35.54    $     4.83      $      0.22     $    5.25  $  79.04
3.  Legislative Adjs.                   1.175         1.055          1.019         1.034            1.159         1.102
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible               1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible         $   33.73      $   5.20     $    37.84    $     4.99      $      0.25     $    6.36     88.37
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     4.06
7.  Fee-for-Service Adj.                                                                                           11.0%     9.72
Capitation Rate                                                                                                            102.15
Value of Provider Rate Increase                                                                                              0.84


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-9
                                                Attachment   1
                                                Page  5  of  12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        Commercial Plan
Aid Code Grouping:      Adult                    Plan Type:           355

Date:  03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $  164.23      $  19.84     $   964.66    $    19.73      $      0.00     $   30.86
2.  Units per Eligible                 22.157         4.314          4.387        17.657            0.000         8.468
    Cost per Elig. per Mo.          $  303.24      $   7.13     $   352.66    $    29.03      $      0.00     $   21.78  $ 713.84
Adjustments
    a. Demographics                     1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.999         0.999          0.999         0.989            1.000         0.887
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $  305.43      $   7.12     $   352.31    $    28.71      $      0.00     $   19.32  $ 712.89
3.  Legislative Adjs.                   1.067         0.945          1.011         1.034            1.159         1.093
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible               1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible         $  325.89      $   7.39     $   372.21    $    29.69      $      0.00     $   23.23    758.41
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    83.43
Capitation Rate                                                                                                            841.84
Value of Provider Rate Increase                                                                                              3.24


Prepared by Department of Health Services, Rate Development Branch



                                                Contract   #95-23637   C-9
                                                Attachment   1
                                                Page  6  of  12
Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        Commercial Plan
Aid Code Grouping:      AIDS                     Plan Type:           355

Date:  03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care        Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   25.87      $ 141.75     $   485.15    $    17.75      $    228.06     $   14.00
2.  Units per Eligible                 29.254        46.897          3.823        28.506            0.450        78.563
    Cost per Elig. per Mo.          $   63.07      $ 553.97     $   154.56    $    42.17      $      8.55     $   91.66  $ 913.98
Adjustments
    a. Demographics                     1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.918         0.648          0.957         0.992            0.998         0.642
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   58.37      $ 358.97     $   147.91    $    41.83      $      8.53     $   58.85  $ 674.46
3.  Legislative Adjs.                   1.082         0.843          0.981         1.009            1.159         0.995
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.903         0.950            1.000         1.100
Projected Cost per Eligible         $   66.31      $ 332.21     $   144.13    $    40.10      $      9.89     $   64.41    657.05
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    72.28
Capitation Rate                                                                                                            729.33
Value of Provider Rate Increase                                                                                              7.23


Prepared by Department of Health Services, Rate Development Branch



                                                Contract    #95-23637   C-9
                                                Attachment   1
                                                Page  7  of  12
Plan Name:              Molina Medical Center
County:                 San Bernadino            Plan #:        Commercial Plan
Aid Code Grouping:      Family                   Plan Type:           356

Date:  03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   66.25      $  23.82     $   978.02    $    20.37      $    229.41     $    8.79
2.  Units per Eligible                  5.957         3.361          0.304         2.609            0.009         6.410
    Cost per Elig. per Mo.          $   32.89      $   6.67     $    24.78    $     4.43      $      0.17     $    4.70  $  73.64
Adjustments
    a. Demographics                     0.829         0.863          0.714         0.835            1.000         0.871
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.975         0.992          0.968         0.956            0.995         0.868
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   26.80      $   5.71     $    17.13    $     3.54      $      0.17     $    3.55  $  56.90
3.  Legislative Adjs.                   1.280         0.975          1.012         1.034            1.159         1.094
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible               1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible         $   34.30      $   6.11     $    18.12    $     3.66      $      0.20     $    4.27     66.66
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     4.88
7.  Fee-for-Service Adj.                                                                                           26.1%    17.42
Capitation Rate                                                                                                             88.96
Value of Provider Rate Increase                                                                                              4.89


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637   C-9
                                                Attachment
                                                Page  8  of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:       Commercial Plan
Aid Code Grouping:      Disabled                 Plan Type:           356

Date:  03-Nov-00
Base Period : FY 96/97
The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   20.15      $  50.42     $   611.26    $    18.26      $    184.85     $    7.07
2.  Units per Eligible                 13.720        21.892          1.011         6.029            0.452        63.930
    Cost per Elig. per Mo.          $   23.04      $  91.98     $    51.50    $     9.17      $      6.96     $   37.67  $ 220.32
Adjustments
    a. Demographics                     0.942         0.851          0.850         1.019            0.995         1.023
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.900         0.875          0.920         0.973            0.995         0.877
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   19.69      $  68.49     $    40.27    $     9.09      $      6.89     $   33.80  $ 178.23
3.  Legislative Adjs                    1.123         0.920          0.933         1.035            1.159         0.979
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.903         0.950            1.000         1.100
Projected Cost per Eligible         $   23.22      $  69.17     $    37.32    $     8.94      $      7.99     $   36.40    183.04
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    20.13
Capitation Rate                                                                                                            203.17
Value of Provider Rate Increase                                                                                              4.49


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637   C-9
                                                Attachment
                                                Page  9  of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        Commercial Plan
Aid Code Grouping:      Aged                     Plan Type:           356

Date:        03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   16.06      $  38.28     $   316.16    $    11.67      $    117.26     $    6.49
2.  Units per Eligible                  11.563        16.963          0.819         3.904            1.049        42.784
    Cost per Elig. per Mo.          $   15.48      $  54.11     $    21.58    $     3.60      $     15.50     $   23.14  $ 133.61
Adjustments
    a. Demographics                     0.964         1.019          0.964         0.963            1.034         1.022
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.981         0.996          0.997         0.986            0.997         0.781
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   14.76      $  54.92     $    20.74    $     3.68      $     15.98     $   18.47  $ 128.55
3.  Legislative Adjs                    0.968         0.920          0.940         1.035            1.159         0.954
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.950         1.045            0.950         1.100
Projected Cost per Eligible         $   15.00      $  55.47     $    20.37    $     3.98      $     17.59     $   19.38    131.79
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    14.50
Capitation Rate                                                                                                            146.29
Value of Provider Rate Increase                                                                                              0.77


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637   C-9
                                                Attachment
                                                Page  10 of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        Commercial Plan
Aid Code Grouping:      Child                    Plan Type:           356

Date:        03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   58.40      $  17.50     $ 1,120.53    $    18.79      $    140.26     $    6.45
2.  Units per Eligible.                 5.196         3.068          0.436         2.787            0.019        10.564
    Cost per Elig. per Mo           $   25.29      $   4.47     $    40.71    $     4.36      $      0.22     $    5.68  $  80.73
Adjustments
    a. Demographics                     0.927         0.989          0.788         0.935            1.000         0.946
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.974         0.984          0.952         0.973            0.996         0.882
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   23.02      $   4.35     $    30.15    $     3.97      $      0.22     $    4.74  $  66.45
3.  Legislative Adjs.                   1.175         1.055          1.019         1.034            1.159         1.102
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible               1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible         $   27.05      $   5.04     $    32.11    $     4.10      $      0.25     $    5.75     74.30
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     4.06
7.  Fee-for-Service Adj.                                                                                           11.0%     8.17
Capitation Rate                                                                                                             86.53
Value of Provider Rate Increase                                                                                              0.71


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637   C-9
                                                Attachment
                                                Page  11 of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino            Plan #:       Commercial Plan
Aid Code Grouping:      Adult                     Plan Type:          356

Date:        03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient             Care         Other     Total
                                                                                                    
1.  Average Cost Per Unit           $  164.23      $  19.84     $ 1,140.81    $    19.73      $      0.00     $   30.86
2.  Units per Eligible                 22.157        4.314          4.387        17.657            0.000         8.468
    Cost per Elig. per Mo.          $  303.24      $   7.13     $   417.06    $    29.03      $      0.00     $   21.78  $ 778.24
Adjustments
    a. Demographics                     1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.999         0.999          0.999         0.989            1.000         0.887
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $  305.43      $   7.12     $   416.64    $    28.71      $      0.00     $   19.32  $ 777.22
3.  Legislative Adjs.                   1.067         0.945          1.011         1.034            1.159         1.093
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.000         1.000            1.000         1.000
    b. Units per Eligible               1.000         0.998          1.045         1.000            1.000         1.100
Projected Cost per Eligible         $  325.89      $   7.39     $   440.18    $    29.69      $      0.00     $   23.23    826.38
5.  Stop Loss Rein                            Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    90.90
Capitation Rate                                                                                                            917.28
Value of Provider Rate Increase                                                                                              3.23


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637   C-9
                                                Attachment
                                                Page  12 of  12
Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        Commercial Plan
Aid Code Grouping:      AIDS                     Plan Type:           356

Date:        03-Nov-00
Base Period: FY 96/97

The Rate Period is August 1, 2000                      Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverage Adjustments
- --------------------------------------------------------------------------------
   CCS Indicated Claims                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Outpatient Services                   NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Pharmacy Costs                        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Mental Health Hospital Inpatient Services           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Eyewear                                             NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Heroin Detoxification                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   AIDS Waiver Services                                NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Adult Day Health Care                               NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Chiropractor/Acupuncture                            NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Local Education Authority                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Alphafeto Protein Testing                           NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care for month of entry plus one          Covered by the Plan
- --------------------------------------------------------------------------------
   Long Term Care after month of entry plus one        NOT Covered by the Plan
- --------------------------------------------------------------------------------
   Special AIDS drugs                                  NOT Covered by the Plan
- --------------------------------------------------------------------------------



Rate Calculation                                                  Hospital     Hospital        Long Term
                                    Physician      Pharmacy      Inpatient    Outpatient            Care          Other     Total
                                                                                                    
1.  Average Cost Per Unit           $   25.87      $ 141.75     $   611.26    $    17.75      $    228.06     $   14.00
2.  Units per Eligible                 29.254        46.897          3.823        28.506            0.450       78.563
    Cost per Elig. per Mo.          $   63.07      $ 553.97     $   194.74    $    42.17      $      8.55     $   91.66  $ 954.16
Adjustments
    a. Demographics                     1.000         1.000          1.000         1.000            1.000         1.000
    b. Area                             1.008         1.000          1.000         1.000            1.000         1.000
    c. Coverages                        0.918         0.648          0.957         0.992            0.998         0.642
    d. Interest                         1.000         1.000          1.000         1.000            1.000         1.000
Adjusted Base Cost                  $   58.37      $ 358.97     $   186.37    $    41.83      $      8.53     $   58.85  $ 712.92
3.  Legislative Adjs                    1.082         0.843          0.981         1.009            1.159         0.995
4.  Trend Adjustments
    a. Cost per Unit                    1.000         1.100          1.100         1.000            1.000         1.000
    b. Units per Eligible               1.050         0.998          0.903         0.950            1.000         1.100
Projected Cost per Eligible         $   66.31      $ 332.21     $   181.60    $    40.10      $      9.89     $   64.41    694.52
5.  Stop Loss Reins.                          Amount            $        0                 Rate                     0.0%     0.00
6.  CHDP                                                                                                                     0.00
7.  Fee-for-Service Adj.                                                                                           11.0%    76.40
Capitation Rate                                                                                                            770.92
Value of Provider Rate Increase                                                                                              7.23


Prepared by Department of Health Services, Rate Development Branch



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

            October 30, 2001

            Mr. George Goldstein
            CEO
            Molina Healthcare of California
            dba: Molina
            One Golden Shore Dr.
            Long Beach, CA 90802

            Dear Mr. Goldstein:

            In accordance with Article V, Section 5.5 of your Contract, the
            enclosed Change Order No. 10 transmits (Molina Health Care of
            California dba: Molina) annual capitation rates for the period
            beginning October 1, 2001 to September 30, 2002.

            The retropayment, between the old rates and the new 2001/2002 rates
            for the period beginning October 1, 2001, will be processed in
            approximately four to six weeks.

            If you have any questions, please contact your contract manager.

            Sincerely,

            /s/
            -------------------
            Cheri Rice, Chief
            Medi-Cal Managed Care Division

            Enclosure



[LETTER HEAD OF DEPARTMENT OF HEALTH SERVICES]

            CHANGE ORDER NUMBER C10 TO CONTRACT NO.95-23637: ADJUSTING THE
            ANNUAL CAPITATION RATE FOR PROVIDER RATE INCREASES FOR THE PERIOD
            OCTOBER 1, 2001 TO SEPTEMBER 30, 2002, BY CHANGING CONTRACT
            SECTIONS; 5.3 CAPITATION RATES; AND 5.4 CAPITATION RATES CONSTITUTE
            PAYMENT IN FULL. This Change Order is effective October 1, 2001.

            1.     5.3      CAPITATION RATES

                   DHS shall remit to Contractor a capitation payment each month
                   for each Medi-Cal Member that appears on the approved list of
                   Members supplied to Contractor by DHS. The capitation rate
                   shall be the amount specified in this Article. The payment
                   period for health care services shall commence on the first
                   day of operations, as determined by DHS. Capitation payments
                   shall be made in accordance with the following schedule of
                   capitation payment rates:



                   -----------------------------------------------------------------------
                   For the period 10/01/01 - 9/30/02                        San Bernardino
                   -----------------------------------------------------------------------
                   Groups             Aid Codes                                Rate
                   -----------------------------------------------------------------------
                                                                      
                         Family       01, OA, 02, 08, 30, 32, 33, 34,       $     87.86
                                      35, 38, 39, 40, 42, 47, 54, 59,
                                      72, 3A, 3C, 3E, 3G, 3H, 3L,
                                      3M, 3N, 3P, 3R, 3U, 4F, 4G,
                                      5X, 7X, 8P
                   -----------------------------------------------------------------------
                        Disabled      20, 24, 26, 28, 36, 60, 64, 66,       $    235.58
                                      68, 6A, 6C, 6H, 6N, 6P, 6R
                   -----------------------------------------------------------------------
                          Aged        1H, 10, 14, 16, 18                    $    172.72
                   -----------------------------------------------------------------------
                         Child        03, 04, 4A, 4C, 4K, 5K, 45, 82,       $    104.73
                                      7A, 7J, 8R
                   -----------------------------------------------------------------------
                         Adult        86                                    $    925.69
                   -----------------------------------------------------------------------
                          Aids                                              $    922.10
                       Beneficiary
                   -----------------------------------------------------------------------






                   -----------------------------------------------------------------------
                   For the period 10/01/01 - 9/30/02                        Riverside
                   -----------------------------------------------------------------------
                   Groups             Aid Codes                                Rate
                   -----------------------------------------------------------------------
                                                                      
                         Family       01, OA, 02, 08, 30, 32, 33,34,        $     86.87
                                      35,38, 39,40,42,47,54,59,
                                      72, 3A, 3C, 3E, 3G, 3H, 3L,
                                      3M, 3N, 3P, 3R, 3U, 4F, 4G,
                                      5X, 7X, 8P
                   -----------------------------------------------------------------------
                        Disabled      20, 24, 26, 28, 36, 60, 64, 66,       $    233.86
                                      68,6A,6C, 6H,6N,6P, 6R
                   -----------------------------------------------------------------------
                          Aged        1H, 10, 14, 16, 18                    $    170.89
                   -----------------------------------------------------------------------
                         Child        03, 04, 4A, 4C, 4K, 5K, 45, 82,       $     97.58
                                      7A, 7J, 8R
                   -----------------------------------------------------------------------
                         Adult        86                                    $    844.46
                   -----------------------------------------------------------------------
                          Aids                                              $    878.16
                       Beneficiary
                   -----------------------------------------------------------------------


                   If DHS creates a new aid code that is split or derived from
                   an existing aid code covered under this Contract, and the aid
                   code has a neutral revenue effect for the Contractor, then
                   the split aid code will automatically be included in the same
                   aid code category as is the original aid code covered under
                   this Contract. Contractor agrees to continue providing
                   covered services to the Members at the monthly capitation
                   rate specified for the original aid code. DHS shall confirm
                   all aid code splits, and the rates of payment for such new
                   aid codes, in writing to Contractor as soon as practicable
                   after such aid code splits occur.

2.     5.4         CAPITATION RATES CONSTITUTE PAYMENT IN FULL

                   Capitation rates for each rate period, as calculated by DHS,
                   are prospective rates and constitute payment in full, subject
                   to any stop loss reinsurance provisions, on behalf of a
                   Member for all Covered Services required by such Member and
                   for all administrative Costs incurred by the Contractor in
                   providing or arranging for such services, and subject to
                   adjustments for federally qualified health centers in
                   accordance with Section 14087.325 of the W&I Code, but do not
                   include payment for recoupment of current or previous losses
                   incurred by Contractor. DHS is not responsible for making
                   payments for recoupment of losses. The actuarial basis for
                   the determination of the capitation payment rates is outlined
                   in Attachment 1 (consisting of 12 pages).

3.     All other terms, conditions, and provisions contained in Sections 5.3 and
       5.4 remain unchanged.

                                        2



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 1  of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Family                   Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2000                     Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)



                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                            Hospital       Hospital      Long Term
                              Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                
1. Average Cost Per Unit      $    66.25   $      23.82   $     978.02   $      20.37   $    229.41   $      8.79
2. Units per Eligible/year         5.957          3.361          0.304          2.609         0.009         6.410
   Cost per Elig. per Mo.     $    32.89   $       6.67   $      24.78   $       4.43   $      0.17   $      4.70    $    73.64
3. Adjustments
   a.Age/Sex                       0.916          0.943          0.875          0.919         1.000         0.955
   b.Area                          0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                     0.975          0.992          0.968          0.956         0.995         0.868
   d.Interest                      1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost            $    26.88   $       6.24   $      20.99   $       3.89   $      0.17   $      3.90    $    62.07
4. Legislative Adjustments         1.221          0.869          1.029          1.054         1.436         1.079
5. Trend Adjustments
   a.Cost per Unit                 1.000          1.262          1.040          1.000         1.000         1.000
   b.Units per Eligible            1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible   $    32.82   $       8.08   $      23.95   $       4.10   $      0.24   $      4.83    $    74.02
6. CHDP                                                                                                                    4.88
7. Adjustment to Pool                                                                                        12.1%         8.96
Capitation Rate                                                                                                      $    87.86


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 2  of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Disabled                 Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)



                                                                                    
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                            Hospital       Hospital      Long Term
                              Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                
1. Average Cost Per Unit      $    20.15   $      50.42   $     611.26   $      18.26   $    184.85   $      7.07
2. Units per Eligible/year        13.720         21.892          1.011          6.029         0.452        63.930
   Cost per Elig. per Mo.     $    23.04   $      91.98   $      51.50   $       9.17   $      6.96   $     37.67    $   220.32
3. Adjustments
   a.Age/Sex                       0.929          0.838          0.895          1.038         0.977         1.048
   b.Area                          0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                     0.900          0.875          0.920          0.973         0.995         0.877
   d.Interest                      1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost            $    17.63   $      67.44   $      42.41   $       9.26   $      6.77   $     34.62    $   178.13
4. Legislative Adjustments         1.099          0.888          0.965          1.048         1.442         0.987
5. Trend Adjustments
   a.Cost per Unit                 1.000          1.262          1.194          1.000         1.000         1.000
   b.Units per Eligible            1.073          1.180          0.863          0.929         1.000         1.148
Projected Cost per Eligible   $    20.79   $      89.18   $      42.17   $       9.02   $      9.76   $     39.23    $   210.15
6. CHDP                                                                                                                    0.00
7. Adjustment to Pool                                                                                        12.1%        25.43
Capitation Rate                                                                                                      $   235.58


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 3  of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Aged                     Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2000                     Capitation Payments at
to September 30, 2000                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care       Other          Total
                                                                                                    
1. Average Cost Per Unit          $    16.06   $      38.28   $     316.16   $      11.67   $    177.26   $      6.49
2. Units per Eligible/year            11.563         16.963          0.819          3.904         1.049        42.784
   Cost per Elig. per Mo.         $    15.48   $      54.11   $      21.58   $       3.80   $     15.50   $     23.14    $   133.61
3. Adjustments
   a.Age/Sex                           0.995          1.007          1.003          0.992         1.021         1.005
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.981          0.996          0.997          0.986         0.997         0.781
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    13.83   $      54.27   $      21.58   $       3.72   $     15.78   $     18.16    $   127.34
4. Legislative Adjustments             0.984          0.879          0.969          1.046         1.433         0.963
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.194          1.000         1.000         1.000
   b.Units per Eligible                1.073          1.180          0.929          1.066         0.929         1.148
Projected Cost per Eligible       $    14.60   $      71.04   $      23.20   $       4.15   $     21.01   $     20.08    $   154.08
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        18.64
Capitation Rate                                                                                                          $   172.72


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 4 of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Child                    Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $    58.40   $      17.50   $   1,120.53   $      18.79   $    140.26   $      6.45
2. Units per Eligible/year             5.196          3.068          0.436          2.787         0.019        10.564
   Cost per Elig. per Mo.         $    25.29   $       4.47   $      40.71   $       4.36   $      0.22   $      5.68    $    80.73
3. Adjustments
   a.Age/Sex                           1.062          1.056          1.029          1.067         1.000         0.997
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.974          0.984          0.952          0.973         0.996         0.882
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    23.94   $       4.64   $      39.88   $       4.53   $      0.22   $      4.99    $    78.20
4. Legislative Adjustments             1.116          0.875          1.035          1.049         1.424         1.082
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.040          1.000         1.000   $     1.000
   b.Units per Eligible                1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible       $    26.72   $       6.05   $      45.76   $       4.75   $      0.31   $      6.20    $    89.79
6. CHDP                                                                                                                        4.08
7. Adjustment to Pool                                                                                            12.1%        10.86
Capitation Rate                                                                                                          $   104.73


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 5 of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      Adult                    Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $   164.23   $      19.84   $   1,140.81   $      19.73   $      0.00   $     30.86
2. Units per Eligible/year            22.157          4.314          4.387         17.657         0.000         8.468
   Cost per Elig. per Mo.         $   303.24   $       7.13   $     417.06   $      29.03   $      0.00   $     21.78    $   778.24
3. Adjustments
   a.Age/Sex                           1.000          1.000          1.000          1.000         1.000         1.000
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.999          0.999          0.999          0.989         1.000         0.887
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $   277.19   $       7.12   $     416.64   $      28.71   $      0.00   $     19.32    $   748.98
4. Legislative Adjustments             1.060          0.872          1.016          1.053         1.242         1.045
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.040          1.000         1.000   $     1.000
   b.Units per Eligible                1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible       $   293.82   $       9.25   $     469.29   $      30.23   $      0.00   $     23.18    $   825.77
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        99.92
Capitation Rate                                                                                                          $   925.69


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 6 of 12

Plan Name:              Molina Medical Center
County:                 San Bernardino           Plan #:        356
Aid Code Grouping:      AIDS                     Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $    25.87   $     141.75   $     611.26   $      17.75   $    228.06   $     14.00
2. Units per Eligible/year            29.254         46.897          3.823         28.506         0.450        78.563
   Cost per Elig. per Mo.         $    63.07   $     553.97   $     194.74   $      42.17   $      8.55   $     91.66    $   954.16
3. Adjustments
   a.Age/Sex                           1.000          1.000          1.000          1.000         1.000         1.000
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.918          0.663          0.957          0.992         0.998         0.642
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    52.98   $     367.28   $     186.37   $      41.83   $      8.53   $     58.85    $   715.84
4. Legislative Adjustments             1.070          0.826          0.989          1.013         1.529         1.001
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.194          1.000         1.000   $     1.000
   b.Units per Eligible                1.073          1.180          0.863          1.929         1.000         1.148
Projected Cost per Eligible       $    60.83   $     451.77   $     189.93   $      39.37   $     13.04   $     67.63    $   822.57
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        99.53
Capitation Rate                                                                                                          $   922.10


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 7 of 12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Family                   Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care       Other          Total
                                                                                                    
1. Average Cost Per Unit          $    66.25   $      23.82   $     864.71   $      20.37   $    229.41   $      8.79
2. Units per Eligible/year             5.957          3.361          0.304          2.609         0.009         6.410
   Cost per Elig. per Mo.         $    32.89   $       6.67   $      21.91   $       4.43   $      0.17   $      4.70    $    70.77
3. Adjustments
   a.Age/Sex                           0.939          0.949          0.911          0.942         1.000         0.966
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.975          0.992          0.968          0.956         0.995         0.868
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    27.55   $       6.28   $      19.32   $       3.99   $      0.17   $      3.94    $    61.25
4. Legislative Adjustments             1.221          0.869          1.029          1.054         1.436         1.079
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.040          1.000         1.000   $     1.000
   b.Units per Eligible                1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible       $    33.64   $       8.13   $      22.04   $       4.21   $      0.24   $      4.88    $    73.14
6. CHDP                                                                                                                        4.88
7. Adjustment to Pool                                                                                            12.1%         8.85
Capitation Rate                                                                                                          $    86.87


Prepared by Department of Health Services, Rate Development Branch



                                                  #95-23637 C-10
                                                  Attachment 1
                                                  Page 8 of 12

Plan Name:              Molina Medical Center
County:                 Riverside                  Plan #:      355
Aid Code Grouping:      Disabled                   Plan Type:   Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital       Hospital      Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care       Other          Total
                                                                                                    
1. Average Cost Per Unit          $    20.15   $      50.42   $     485.15   $      18.26   $    184.85   $      7.07
2. Units per Eligible/year            13.720         21.892          1.011          6.029         0.452        63.930
   Cost per Elig. per Mo.         $    23.04   $      91.98   $      40.87   $       9.17   $      6.96   $     37.67    $   209.69
3. Adjustments
   a.Age/Sex                           0.981          0.869          0.938          1.074         0.949         1.077
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.900          0.875          0.920          0.973         0.995         0.877
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    18.61   $      69.94   $      35.27   $       9.58   $      6.57   $     35.58    $   175.55
4. Legislative Adjustments             1.099          0.888          0.965          1.048         1.442         0.987
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.194          1.000         1.000   $     1.000
   b.Units per Eligible                1.073          1.180          0.863          0.929         1.000         1.148
Projected Cost per Eligible       $    21.95   $      92.49   $      35.07   $       9.33   $      9.47   $     40.31    $   208.62
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        25.24
Capitation Rate                                                                                                          $   233.86


Prepared by Department of Health Services, Rate Development Branch



                                                 #95-23637 C-10
                                                 Attachment 1
                                                 Page 9 of 12

Plan Name:             Molina Medical Center
County:                Riverside                  Plan #:        355
Aid Code Grouping:     Aged                       Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital        Hospital     Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $    16.06   $      38.28   $     287.24   $      11.67   $    177.26   $      6.49
2. Units per Eligible/year            11.563         16.963          0.819          3.904         1.049        42.784
   Cost per Elig. per Mo.         $    15.48   $      54.11   $      19.60   $       3.80   $     15.50   $     23.14    $   131.63
3. Adjustments
   a.Age/Sex                           0.993          1.008          1.012          0.993         1.029         1.007
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.981          0.996          0.997          0.986         0.997         0.781
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    13.87   $      54.32   $      19.78   $       3.72   $     15.90   $     18.20    $   125.79
4. Legislative Adjustments             0.984          0.879          0.969          1.046         1.433         0.963
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.194          1.000         1.000   $     1.000
   b.Units per Eligible                1.073          1.180          0.929          1.066         0.929         1.148
Projected Cost per Eligible       $    14.64   $      71.10   $      21.26   $       4.15   $     21.17   $     20.12    $   152.44
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        18.45
Capitation Rate                                                                                                          $   170.89


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 10 of 12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:        355
Aid Code Grouping:      Child                    Plan Type:     Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital        Hospital     Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $    58.40   $      17.50   $     889.41   $      18.79   $    140.26   $      6.45
2. Units per Eligible/year             5.196          3.068          0.436          2.787         0.019        10.564
   Cost per Elig. per Mo.         $    25.29   $       4.47   $      32.32   $       4.36   $      0.22   $      5.68    $    72.34
3. Adjustments
   a.Age/Sex                           1.090          1.071          1.089          1.100         1.000         0.994
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.974          0.984          0.952          0.973         0.996         0.882
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $    24.57   $       4.71   $      33.51   $       4.67   $      0.22   $      4.98    $    72.65
4. Legislative Adjustments             1.116          0.875          1.035          1.049         1.424         1.082
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.040          1.000         1.000   $     1.000
   b.Units per Eligible                1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible       $    27.42   $       6.14   $      38.45   $       4.90   $      0.31   $      6.19    $    83.41
6. CHDP                                                                                                                        4.08
7. Adjustment to Pool                                                                                            12.1%        10.09
Capitation Rate                                                                                                          $    97.58


Prepared by Department of Health Services, Rate Development Branch



                                                 #95-23637 C-10
                                                 Attachment 1
                                                 Page 11 of 12

Plan Name:              Molina Medical Center
County:                 Riverside                 Plan #:       355
Aid Code Grouping:      Aged                      Plan Type:    Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital        Hospital     Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $   164.23   $      19.84   $     964.66   $      19.73   $      0.00   $     30.86
2. Units per Eligible/year            22.157          4.314          4.387         17.657         0.000         8.468
   Cost per Elig. per Mo.         $   303.24   $       7.13   $     352.66   $      29.03   $      0.00   $     21.78    $   713.84
3. Adjustments
   a.Age/Sex                           1.000          1.000          1.000          1.000         1.000         1.000
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.999          0.999          0.999          0.989         1.000         0.887
   d.Interest                          1.000          1.000          1.000          1.000         1.000         1.000
Adjusted Base Cost                $   277.19   $       7.12   $     352.31   $      28.71   $      0.00   $     19.32    $   684.65
4. Legislative Adjustments             1.060          0.872          1.016          1.053         1.242         1.045
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.040          1.000         1.000   $     1.000
   b.Units per Eligible                1.000          1.180          1.066          1.000         1.000         1.148
Projected Cost per Eligible       $   293.82   $       9.25   $     396.83   $      30.23   $      0.00   $     23.18    $   753.31
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        91.15
Capitation Rate                                                                                                          $   844.46


Prepared by Department of Health Services, Rate Development Branch



                                                #95-23637 C-10
                                                Attachment 1
                                                Page 12 of 12

Plan Name:              Molina Medical Center
County:                 Riverside                Plan #:       355
Aid Code Grouping:      AIDS                     Plan Type:    Commercial Plan

Date:  11-Oct-01

The Rate Period is October 1, 2001                     Capitation Payments at
to September 30, 2002                                  the End of the Month

Coverages ( C = Covered by Plan, N = NOT Covered by Plan)


                                                                                    
- ------------------------------------------------------------------------------------------------
CCS Indicated Claims             N        AIDS Waiver                                        N
- ------------------------------------------------------------------------------------------------
GHPP                             N        In Home Waiver                                     N
- ------------------------------------------------------------------------------------------------
Hemodialysis                     C        Model NF Waiver                                    N
- ------------------------------------------------------------------------------------------------
Major Organ Transplants          N        Adult Day Health Care                              N
- ------------------------------------------------------------------------------------------------
Out-of-State                     C        Newborn Hearing Screens                            N
- ------------------------------------------------------------------------------------------------
Chiropractor                     N        Psychiatric Drugs                                  N
- ------------------------------------------------------------------------------------------------
Local Education Authority        N        AIDS Drugs                                         N
- ------------------------------------------------------------------------------------------------
Psychiatrist                     N        Injections                                         C
- ------------------------------------------------------------------------------------------------
Acupuncturist                    N        MH - Hospital Inpatient                            N
- ------------------------------------------------------------------------------------------------
Alphafeto Protein Testing        N        MH - Outpatient Services                           N
- ------------------------------------------------------------------------------------------------
Heroin Detoxification            N        Long Term Care for month of entry plus one         C
- ------------------------------------------------------------------------------------------------
Direct Observed Therapy          N        Long Term Care after month of entry plus one       N
- ------------------------------------------------------------------------------------------------
Lenses for eyewear               N        CHDP                                               C
- ------------------------------------------------------------------------------------------------




Rate Calculation                                                Hospital        Hospital     Long Term
                                  Physician      Pharmacy      Inpatient      Outpatient          Care          Other         Total
                                                                                                    
1. Average Cost Per Unit          $    25.87   $     141.75   $     485.15   $      17.75   $    228.06   $     14.00
2. Units per Eligible/year            29.254         46.897          3.823         28.506         0.450        78.563
   Cost per Elig. per Mo.         $    63.07   $     553.97   $     154.56   $      42.17   $      8.55   $     91.66    $   913.98
3. Adjustments
   a.Age/Sex                           1.000          1.000          1.000          1.000         1.000         1.000
   b.Area                              0.915          1.000          1.000          1.000         1.000         1.000
   c.Coverages                         0.918          0.663          0.957          0.992         0.998         0.642
   d.Interest                          1.000          1.000          1.000          1.000         1.000   $     1.000
Adjusted Base Cost                $    52.98   $     367.28   $     147.91   $      41.83   $      8.53   $     58.85    $   677.38
4. Legislative Adjustments             1.070          0.826          0.989          1.013         1.529         1.001
5. Trend Adjustments
   a.Cost per Unit                     1.000          1.262          1.194          1.000         1.000   $     1.000
   b.Units per Eligible                1.073          1.180          0.863          0.929         1.000         1.148
Projected Cost per Eligible       $    60.83   $     451.77   $     150.73   $      39.37   $     13.04   $     67.63    $   783.37
6. CHDP                                                                                                                        0.00
7. Adjustment to Pool                                                                                            12.1%        94.79
Capitation Rate                                                                                                          $   878.16

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY "[*]".
CONFIDENTIAL INFORMATION OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.

                                                                    EXHIBIT 10.2

                            HEALTH SERVICES AGREEMENT
               BETWEEN FOUNDATION HEALTH, A CALIFORNIA HEALTH PLAN
                           AND MOLINA MEDICAL CENTERS

     This Health Services Agreement ("Agreement") is entered into this 1st day
of February, 1996, by and between Foundation Health, a California Health Plan, a
California corporation ("Foundation"), and Molina Medical Centers, a California
corporation ("Molina").

                                    RECITALS

     A.   Foundation is a prepaid full-service health care service plan licensed
under the Knox-Keene Health Care Services Plan Act of 1975, as amended (the
"Knox-Keene Act").

     B.   Molina is also a prepaid full-service health care service plan
licensed under the Knox-Keene Act, with a Medi-Cal service area defined in
Addendum A (the "Molina Service Area").

     C.   Foundation intends to contract with the California Department of
Health Services under the Medi-Cal Managed Care Program for the provision of
Health Care Services to persons who enroll in the Foundation Medi-Cal Plan for
Los Angeles County.

     D.   Molina has established staff-model facilities and contracted with a
network of Participating Physicians and Participating Facilities for the
rendering of Health Care Services.

     E.   Foundation wishes to contract with Molina for the arrangement of
Health Care Services, marketing services and certain administrative services to
those Medi-Cal beneficiaries residing in Los Angeles County who enroll in the
Foundation Medi-Cal Plan and who select, or who are assigned by Foundation to, a
Molina Participating Physician as his or her Primary Care Provider.

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

                             ARTICLE I - DEFINITIONS

     1.01 Capitation Payment - is a fixed monthly payment negotiated by the
parties that is payable to Molina by Foundation for each Molina Member.

     1.02 DHS - is the California Department of Health Services.

     1.03 DHHS - is the United States Department of Health and Human Services.

     1.04 DOC - is the California Department of Corporations.

                                        1




     1.05 DOJ - is the United States Department of Justice.

     1.06 Eligibility List - is a list of all Molina Members to be provided by
Foundation on a monthly basis to Molina.

     1.07 Emergency Services - are those Health Care Services required for
alleviation of severe pain or immediate diagnosis and treatment of unforeseen
medical conditions, which, if not immediately diagnosed and treated, would lead
to disability or death.

     1.08 Foundation Enrollment Packet - The information provided by Foundation
to Medi-Cal Members upon enrollment in the Medi-Cal Plan which summarizes the
Foundation Medi-Cal Plan offered to Molina Members and which includes an
Evidence of Coverage, Disclosure Form, and Participating Provider Directory for
Los Angeles County. The Evidence of Coverage is attached hereto and incorporated
herein as Addendum B, the Disclosure Form is attached hereto and incorporated
herein as Addendum C, and the Participating Provider Directory is attached
hereto and incorporated herein as Addendum D.

     1.09 Foundation Medi-Cal Plan - is the Foundation benefit plan covering the
provision of Health Care Services to Medi-Cal Members pursuant to the Medi-Cal
Agreement. The benefits of the Foundation Medi-Cal Plan are set forth in the
Medi-Cal Agreement.

     1.10 Health Care Services - are all medical, hospital and ancillary
services, including Emergency Services, which are covered benefits under the
Foundation Medi-Cal Plan.

     1.11 Knox-Keene Act - is the Knox-Keene Health Care Service Plan Act of
1975, as amended, and the rules and regulations promulgated by DOC thereunder.

     1.12 Medi-Cal - is a federal and state funded health care program
established by Title XIX of the Social Security Act, as amended, which is
administered in California by the DHS.

     1.13 Medi-Cal Agreement - is the agreement to be entered into by and
between Foundation and DHS pursuant to the Waxman-Duffy Act, under which
Foundation will agree to provide health benefits under the Medi-Cal Managed Care
Program to Los Angeles County Medi-Cal beneficiaries who enroll in the
Foundation Medi-Cal Plan. A copy of the Medi-Cal Agreement will be provided to
Molina by Foundation upon execution. The required elements of this Agreement
will, among other things, conform with the requirements set forth in the State
of California DHS Request for Application ("RFA") dated September 1994, as
amended.

     1.15 Medi-Cal Member - is an individual residing in Los Angeles County who
is eligible for Medi-Cal and is enrolled in the Foundation Medi-Cal Plan.

     1.16 Monthly DHS Payment - is the revenue received by Foundation each month
from DHS, as determined by DHS, for the Health Care Services each Medi-Cal
Member is to be provided under the Foundation Medi-Cal Plan.

                                        2



     1.16 Primary Care Physician - is either an internist, pediatrician, or
family practitioner who has been selected by or assigned to a Medi-Cal Member
for the purpose of coordinating Health Care Services under the Foundation
Medi-Cal Plan.

     1.17 Primary Hospital - is the hospital selected by a Medi-Cal Member at
the time of enrollment where most hospital services will be provided to the
Medi-Cal Member

     1.18 Molina Member - is a person enrolled in the Foundation Medi-Cal Plan
who has been assigned to or selected a Molina Participating Physician as his or
her Primary Care Physician in accordance with the procedures set out in Addendum
E hereto.

     1.19 Molina Participating Facility - is a licensed acute-care facility
which is owned by or has contracted with Molina to furnish Health Care Services
to Molina Members.

     1.20 Molina Participating Physician - is a licensed physician or osteopath
or group of physicians or osteopaths which has contracted with or is employed by
Molina to provide or arrange Health Care Services to Molina Members.

     1.21 Molina Participating Providers - are Participating Physicians,
Participating Facilities and other providers, such as ancillary service
providers, which contract with Molina to provide Health Care Services to Molina
Members.

     1.22 Molina Service Area - The geographic area in Los Angeles County in
which, as of the Commencement Date of this Agreement, Molina is licensed by the
DOC to provide or arrange Health Care Services for its Medi-Cal enrollees. The
Molina Service Area is described in Exhibit A, attached hereto and incorporated
herein. The Molina Service Area may be revised in Los Angeles County upon the
approval of the DOC and DHS.

     1.23 Molina Subcontracts - are the contracts entered into between Molina
and Molina Participating Providers for the performance of Health Care Services.

     1.24 Waxman-Duffy Act - is the Waxman-Duffy Prepaid Health Plan Act
(commencing at Section 14200 of the California Welfare and Institutions Code),
and the rules and regulations promulgated thereunder by the DHS.

                          ARTICLE II - MOLINA'S DUTIES

     2.01 Arrange Health Care Services - Molina shall provide or arrange all
Health Care Services to Molina Medi-Cal Members as identified on the Eligibility
List provided by Foundation pursuant to Section 3.04 of this Agreement. Molina's
obligation to provide Health Care Services under this Agreement is limited to
the Molina Service Area and is subject to Molina's capacity limitation specified
in Section 2.04 below.

                                        3




     2.02 Participating Providers.

          2.02.01 Standards. All Health Care Services shall be provided by duly
licensed, certified or accredited Molina Participating Providers who will
provide such services consistent with the scope of their license, certification
or accreditation and in accordance with the standards of medical practice in the
community. In addition, Molina Participating Providers shall satisfy the
standards for participation and all applicable requirements for providers of
health services under the Medi-Cal Program as set forth in Title 22 of the
California Code of Regulations, Article 4, Section 51200 et seq. Molina agrees
that Molina Facilities shall comply with the facility standards established by
DHS as set forth in Title 22, California Code of Regulations. Molina shall
cooperate with inspections of Molina Participating Providers, as conducted by
DHS or Foundation staff, that are required to assure compliance with DHS and
Foundation standards.

          2.02.02 Adequacy and Availability. Molina shall demonstrate the
continuous availability and accessibility of adequate numbers of Molina
Participating Providers to provide Health Care Services to Molina Members on a
24-hour basis, seven (7) days a week, including the provision of Emergency
Services. Molina will have as a minimum the following:

               (i)   One full-time equivalent Primary Care Physician per two
thousand (2,000) prepaid persons;

               (ii)  One full-time equivalent physician per one thousand two
hundred (1,200) prepaid persons;

               (iii) One full-time equivalent non-physician medical practitioner
per one thousand (1,000) prepaid persons; and

               (iv)  One(1) designated Emergency Services facility in Los
Angeles County, providing care on a 24-hour basis, seven (7) days a week.

          2.02.03 List of Providers. Molina shall provide to Foundation at the
time of the execution of this Agreement a complete list of the names, addresses,
specialities, license numbers and normal hours of operation for each Molina
Participating Physician and the names and addresses of each Molina Participating
Provider other than a Molina Participating Physician who will be providing
Health Care Services under the Foundation Medi-Cal Plan. Molina agrees to
provide Foundation with any additional provider information required by the DHS
and DOC.

          2.02.04 Changes in Provider Network. Molina will provide Foundation an
updated list of Molina Participating Providers on a monthly basis and Foundation
shall publish either a new Participating Provider Directory or an amendment to
the existing Participating Provider Directory as required by DHS. Molina's
updated monthly list shall identify those Molina Participating Providers which
have been added or deleted from the previous monthly list of Molina
Participating Providers, and those Molina Participating Providers that have
changed office locations. Molina shall immediately inform Foundation of the
termination of any Molina Primary

                                        4



Care Physician so that Foundation may reassign all linked Molina Members. When a
Molina Participating Provider moves to a new facility, Molina shall conduct an
on-site inspection of such new facility as required by law. In addition, Molina
shall immediately inform Foundation of any other type of provider change that
may impact Foundation's responsibilities under the Medi-Cal Agreement of law. In
the event of termination of a Molina Participating Provider for any reason,
Molina remains responsible for the continued provision of Health Care Services
to all Molina Members, including those who are receiving Health Care Services
from the terminated Molina Participating Provider.

          2.02.05 Primary Care Physician. Molina shall ensure that an
appropriate Primary Care Physician is available for each Molina Member. A Molina
Member may select a Primary Care Physician or Foundation may assign a Molina
Member to a Primary Care Physician.

     2.03 Insurance. Molina shall maintain professional liability insurance and
general liability and errors and omissions liability insurance in the minimum
amounts of five million dollars ($5,000,000) per person and ten million dollars
($10,000,000) total liability for coverage of Molina, its agents and employees.
In the event Molina procures a claims made policy, as distinguished from an
occurrence policy, Molina shall procure and maintain prior to termination of
such insurance, continuing extended reporting coverage for the maximum term
provided in the professional liability policy. Molina shall notify Foundation of
any material changes in insurance coverage and shall provide a certificate of
such insurance to Foundation upon request. Molina shall require Molina
Participating Providers to maintain insurance consistent with the standards of
the relevant community.

     2.04 Acceptance of Members and Limitation on Enrollment. Molina shall
accept as Molina Members all Foundation Medi-Cal Members who chose a Molina
Primary Care Physician or who are assigned to Molina in accordance with the
procedures, and up to the enrollment limitation, set out in Addendum E hereto.

     2.05 Coordination of Benefits. Molina may recover the costs of Health Care
Services rendered to a Molina Member to the extent a Molina Member is covered
for such services under any other state or federal medical care program or under
other contractual or legal entitlement, including, but not limited to, private
group or individual indemnification programs, in accordance with applicable
coordination of benefits laws.

     2.06 Third Party Liability. Neither Molina nor Molina Participating
Providers may attempt to recover costs of Health Care Services in circumstances
involving casualty insurance, tort liability or workers' compensation. Molina
shall notify Foundation within five (5) calendar days of discovering any
circumstances involving a Molina Member which may result in the Molina Member
recovering tort liability payments, casualty insurance payments or workers'
compensation awards. Molina shall also provide to Foundation such other related
information as required under the Medi-Cal Agreement (see Section 3.41 of the
draft Medi-Cal Agreement). The parties understand and agree that the Medi-Cal
Agreement provides that said recoveries are the exclusive property of the DHS.

                                        5



     2.07 Molina Licensure and Compliance.

          2.07.01 Knox-Keene License. Throughout the term of this Agreement,
Molina shall maintain Knox-Keene licensure in good standing with the DOC.

          2.07.02 Regulatory Approval. Molina shall use its best efforts and
take all necessary steps to obtain,  prior to the date operations commence under
this  Agreement  and  throughout  the term of this  Agreement,  via  appropriate
approval by all applicable regulatory bodies, including, without limitation, the
DOC,  approval for Molina to participate in the Foundation  Medi-Cal Plan and to
provide  Health Care Services  under this  Agreement  within the Molina  Service
Area. Molina shall provide to Foundation written evidence of such approval prior
to enrolling any Molina Members pursuant to this Agreement.

          2.07.03 Approved Molina Service Area. Molina shall enroll persons
under this Agreement only within the Molina Service Area for Medi-Cal enrollees.

          2.07.04 Licensure Changes/Limitations. Molina shall notify Foundation
in writing within five (5) working days in the event of any suspension,
restriction or limitation is placed on its licensed Molina Service Area by the
DOC.

     2.08 Quality Assurance and Remedial Procedures. The parties shall mutually
agree upon and implement a quality assurance program for application to
Foundation Medi-Cal Members, in accordance with the requirements of the
Knox-Keene Act, the Waxman-Duffy Act and the Medi-Cal Agreement. The Foundation
Medi-Cal Plan quality assurance program shall include maintenance of a
Foundation Medi-Cal Plan Quality Assurance Committee which shall be responsible
for oversight of all Health Care Services provided to Foundation Medi-Cal
Members. The Foundation Medi-Cal Plan Quality Assurance Committee may be
established as a subcommittee of the Foundation Quality Assurance Committee. A
Molina designated physician shall participate in the Foundation Medi-Cal Plan
Quality Assurance Committee. Molina shall additionally maintain an independent
Quality Assurance Committee for reviewing matters related to Molina Members
which shall meet at least monthly. Molina may satisfy this requirement by
establishing a Subcommittee to the Molina Quality Assurance Committee. Molina
shall, through its Medi-Cal Plan Quality Assurance Committee or Subcommittee,
perform quality assurance reviews of Health Care Services provided to Molina
Members in compliance with the Foundation Medi-Cal Plan quality assurance
program as brought before Molina internally or from Foundation's Medi-Cal Plan
Quality Assurance Committee, the DOC, DHS and any other governmental agencies
with regulatory or enforcement jurisdiction over this Agreement. The Molina
Quality Assurance Committee shall keep minutes of the committee meetings, a copy
of which shall be made available to the Foundation Medi-Cal Plan Quality
Assurance Committee. A Foundation designated physician shall participate in the
Molina Quality Assurance Committee's review of Molina Member matters.

     Notwithstanding any provision in this Agreement to the contrary, Molina
shall, at its sole cost, engage an outside quality management firm satisfactory
to Foundation (e.g., MEDSTAT) to

                                        6



perform facility inspections and medical chart audits of every Molina
Participating Provider which is not a Foundation Participating Provider. Such
facility inspections and medical chart audits shall be conducted in accordance
with Foundation's standards.  The facility inspections and medical chart audits
shall be completed during the implementation period of the Medi-Cal Agreement
and repeated annually thereafter during the term of this Agreement. Molina shall
assure that Molina Participating Providers implement any corrective action plan
identified as being necessary by the outside quality management firm. On or
about August 1, 1996, Foundation will evaluate Molina's capacity to conduct its
own facility inspections and medical chart audits in accordance with
Foundation's standards. Foundation will at that time strike the requirement that
such work be done by a third party if Foundation determines that Molina has
developed an internal capacity which meets Foundation standards. If on said date
Foundation determines that Molina has not developed said internal capacity,
Foundation will strike the requirement on such later date as Foundation
determines that Molina has developed said internal capacity.

     Molina and Molina Participating Providers shall abide by Foundation's
written Quality Management Program, and Foundation's policies and procedures,
including: (1) Oversight of Quality Management Functions to Medical Groups and
IPAs; (2) Assessment of Medical Groups and IPAs for Delegated Quality
Management; (3) Monitoring and Oversight of Quality Management Activities of
Network Providers; (4) Delegation of Quality Management - HMO Coalition Studies;
(5) Delegation of Quality Management - Medical Records Audits; (6) Delegation of
Quality Management - Medi-Cal Facility Inspections; and (7) Standards for
Delegated Quality Improvement.

     2.09 Utilization Review. Molina shall develop a utilization review program
in conformance with the requirements of the DOC, DHS and the Foundation Medi-Cal
Plan Quality Assurance Committee. Molina shall maintain a Utilization Review
Committee which shall meet as frequently as necessary. The Utilization Review
Committee shall keep minutes of the committee meetings, copies of which shall be
made available to Foundation. Molina shall review elective referral and hospital
admissions on a concurrent and prospective basis and Emergency Services on a
retrospective basis.

     2.10 Credentialling. Molina shall be responsible for credentialing Molina
Participating Providers in accordance with the standards of the DOC and DHS and
the Foundation Medi-Cal Plan Quality Assurance Committee.

     2.11 Non-discrimination. Molina and Molina Participating Providers shall
not unlawfully discriminate against any employee nor applicant for employment
because of race, religion, color, national origin, ancestry, physical handicap,
medical condition, marital status, age (over 40) or sex. Molina and Molina
Participating Providers shall ensure that the evaluation and treatment of their
employees and applicants for employment are free of such discrimination. Molina
and Molina Participating Providers shall comply with the provisions of the Fair
Employment & Housing Act (California Government Code, Section 12990, et seq.)
and the applicable regulations promulgated thereunder (CCR, Title 2, Section
7285.0, et seq.). The applicable regulations of the Fair Employment and Housing
Commission implementing

                                        7



Government Code, Section 12990, set forth in Chapter 5 of Division 4 of Title 2
of the CCR are incorporated into this Agreement by reference and made a part
hereof as if set forth in full. Molina and Molina Participating Providers shall
give written notice of their obligations under this clause to labor
organizations with which they have a collective bargaining or other agreement.
Molina shall include the non-discrimination and compliance provisions of this
Section in all subcontracts to perform services under this Agreement.

     Molina and Molina Participating Providers shall not discriminate against
Medi-Cal Members because of race, color, creed, religion, ancestry, marital
status, sexual orientation, national origin, age (over 40), sex, or physical or
mental handicap in accordance with Title VI of the Civil Rights Act of 1964, 42
USC Section 2000d, rules and regulations promulgated pursuant thereto, or as
otherwise provided by law or regulation.

     2.12 Accounts Payable System.

          2.12.01 Provider Claims. Molina agrees to operate its accounts payable
system in a manner which assures that providers of authorized Health Care
Services, including Molina Participating Providers and noncontracting providers,
receive timely payment for Health Care Services rendered to Molina Members. For
purposes of this Agreement, timely payment shall mean payment within the time
specified in the applicable agreement between Molina and the provider. If such
agreement does not specify a time period or if no agreement is in place, timely
payment shall mean payment within the time periods required by California law.

          2.12.02 Member Claims. Molina shall pay uncontested claims for
Emergency Services or other Health Care Services for which a Molina Member has
been billed within thirty (30) working days of receipt of a claim. If the claim
is contested by Molina, Molina shall notify the Molina Member that the claim is
contested within the time period specified in this paragraph and shall provide
Foundation a copy of the notice. The notice shall identify the portion of the
claim that is contested and the specific reasons for contesting the claim.

     2.13 Protection of Members. Molina may not impose any limitations on the
acceptance of Medi-Cal Members for care or treatment that it does not impose on
its non-Medi-Cal Members. Neither Foundation, Molina, nor any Molina
Participating Provider may request, demand, require or seek directly or
indirectly the transfer, discharge, or removal of any Medi-Cal Member for
reasons of the Medi-Cal Member's need for, or utilization of, Health Care
Services.

     2.14 Child Health and Disability Prevention ("CHDP") Program Services.
Molina agrees to maintain and operate a system which ensures the provision of
CHDP services to Medi-Cal Members under the age of 21 in accordance with Title
17, California Code of Regulations, Section 6800 et seq.

     2.15 Identification of Officers, Owners, Stockholders, Creditors. As
required by DHS, Molina shall identify the names of the following persons by
listing them on Addendum F to this Agreement: (i) Molina officers and owners;
(ii) Molina shareholders owning greater than ten

                                        8



percent (10%) of any stock issued by Molina; and (iii) major creditors holding
more than five percent (5%) of any debts owed by Molina. Molina shall notify
Foundation within thirty (30) days of any changes in the information provided in
Addendum F.

     2.16 Molina Subcontracts.

          2.16.01 Subcontracts. Molina shall maintain and make available to DHS
and Foundation copies of all executed Molina Subcontracts. All Molina
Subcontracts shall be in writing and shall be consistent with the terms and
provisions of this Agreement and in compliance with applicable State and federal
laws. Each Molina Subcontract shall contain the amount of compensation which the
Molina Subcontractor will receive under the term of the Molina Subcontract.
Each Molina Subcontract shall also provide that the State of California, DHS,
Foundation and Molina Members are held harmless in the event Molina does not pay
for services under the Molina Subcontract.

          2.16.02 Records. Molina shall require all Molina Subcontractors to
make their books and records pertaining to Health Care Services available at all
reasonable times for inspection, examination, or copying by the DHS, DOC, DOJ,
DHHS and Foundation. Molina shall also require all Molina Subcontractors to
retain such books and records for a term of at least five years from the close
of the fiscal year in which the Molina Subcontract is in effect.

          2.16.03 Continuing Care Requirements. Molina shall require all Molina
Participating Providers to assist Molina and Foundation in the orderly transfer
of the medical care of Molina Members in the event of termination of the
Medi-Cal Agreement, including, without limitation, making available to DHS
copies of medical records and any other pertinent information necessary for
efficient case management of Medi-Cal Members, as determined by DHS.

          2.16.04 Continuing Obligations. The obligations of Molina and Molina
Subcontractors under this Section 2.16 shall not terminate upon the termination
of this Agreement.

     2.17 Local Health Department Coordination. As more fully set out in the
Medi-Cal Agreement, Foundation will enter inter an agreement for the specified
public health services with the Local Health Department ("LHD") in Los Angeles
County. The agreement will specify the scope and responsibilities of the County,
Foundation, Molina and Universal Care Health Plan, billing and reimbursements,
reporting responsibilities, and medical record management to ensure coordinated
health care services. The specified public health services under the agreement
are as follows:

     2.17.01 Family planning services, as specified under the Medi-Cal
Agreement.

     2.17.02 Sexually transmitted disease ("STD") services diagnosis and
treatment of disease episode of the following STDs: syphilis, gonorrehea,
chlamydia, herpes simplex, chancroid, trichomoniasis, human papilloma virus,
non-gonococcal urethritis, lymphogranuloma venereum

                                        9



and granuloma inguinale.

     2 17.03 Confidential HIV testing, as specified under the Medi-Cal
Agreement.

     2.17.04 Immunizations, as specified under the Medi-Cal Agreement.

     2.17.05 California Children Services.

     2.17.06 Maternal and Child Health.

     2.17.07 Child Health and Disability Prevention Program.

     2.17.08 Tuberculosis Direct Observed Therapy.

     2.17.09 Women, Infants, and Children Supplemental Food Program.

     2.17.10 Population based Prevention Programs: collaborate in LHD community
based prevention programs.

     The services specified in Sections 2.17.01 through 2.17.04 require
reimbursement to the LHD. The parties understand and agree that Molina shall be
responsible for the arrangement, support and coordination of said services,
billing and reimbursements, reporting responsibilities, and medical record
management to ensure coordinated health care services involving Molina Members.

     2.18 Pharmacy and Formulary Compliance. In accordance with Title 22,
California Code of Regulations, Section 53214, Molina shall comply with DHS
standards for the appropriate use, storage and handling of pharmaceutical items.
Molina shall permit periodic audits upon reasonable notice by Foundation or DHS
to measure Molina's compliance with DHS standards and to provide recommendations
regarding improvement.

     2.19 Additional Responsibilities. Molina shall have additional
responsibilities as identified in the Matrix of Responsibilities attached hereto
and incorporated herein as Addendum G. The specific details for these additional
responsibilities shall be mutually agreed upon by the parties and shall be
included in a Policies and Procedures Manual that will be jointly developed by
the parties.

                        ARTICLE 3 - DUTIES OF FOUNDATION

     3.01 Medi-Cal Agreement. Foundation will endeavor to maintain the Medi-Cal
Agreement in effect throughout the term of this Agreement. Foundation will
administer the Medi-Cal Agreement and will act as the liaison between DHS and
Molina for all purposes related to the provision of Health Care Services to
Medi-Cal beneficiaries under the Medi-Cal Agreement.

                                       10



     3.02 Licensure.  Throughout the term of this Agreement, Foundation will
remain a licensed health care service plan in good standing with the DOC.
Foundation shall notify Molina in writing within five (5) working days in the
event of any suspension, restriction or limitation placed on its license or
approved service area by the DOC.

     3.03 Enrollment. Foundation will enroll Medi-Cal Members into the
Foundation Medi-Cal Plan in accordance with applicable State and federal laws
and the Medi-Cal Agreement. Foundation will assign Medi-Cal Members among
Molina, Molina Medical Centers and itself on a rational, fair and alternating
basis, as more fully set out in the procedures attached hereto and incorporated
herein as Addendum E.

     3.04 Verification of Eligibility. Within five (5) days after receipt of the
monthly Eligibility List from DHS, Foundation will provide to Molina a copy of
such Eligibility List listing the Molina Members based on DHS information. Such
Eligibility List for Molina Members shall be provided to Molina in a mutually
agreeable electronic data submission format.

     3.05 Member Information and Identification Cards. Within seven (7) days
after Foundation receives notice of the effective date of enrollment, Foundation
shall distribute to new Molina Members (i) the information required to be
provided to Molina Members under applicable State laws, including, without
limitation, the Foundation Evidence of Coverage, Disclosure Form, and
Participating Provider Directory, and (ii) an identification card which
identifies the Molina Member as a Foundation Medi-Cal Member.

     3.06 Insurance. Foundation shall maintain professional liability insurance
and general liability and errors and omissions liability insurance in the
minimum amounts of five million dollars ($5,000,000) per person and ten million
dollars ($10,000,000) total liability for coverage of Foundation, its agents and
employees. In the event Foundation procures a claims made policy, as
distinguished from an occurrence policy, Foundation shall procure and maintain
prior to termination of such insurance, continuing extended reporting coverage
for the maximum term provided in the professional liability policy. Foundation
shall notify Molina of any material changes in insurance coverage and shall
provide a certificate of such insurance to Foundation upon request.

     3.07 Management of Delegated Quality Improvement Activities. As more fully
set out in the Medi-Cal Agreement, Foundation will maintain a system to ensure
accountability of delegated quality improvement ("QIP") activities including:

          3.07.01 Maintenance of policies and procedures which describe
delegated activities, QIP authority, function, and responsibilities, how Molina
will be informed of the scope of QIP responsibilities, and Molina's
accountability for delegated activities.

          3.07.02 Establish reporting standards to include findings and actions
taken by Molina as a result of QIP activities with the reporting frequency to be
at least quarterly.

                                       11



          3 07.03 Maintenance of written procedures and documentation of
continuous monitoring and evaluation of the delegated functions, evidence that
the actual quality of care being provided meets professionally recognized
standards.

          3.07.04 Assurance and documentation that Molina has the administrative
capacity, task experience, and budgetary resources to fulfill its
responsibilities.

          3.07.05 Foundation will approve Molina's QIP, including its policies
and procedures which meet Foundation's standards.

          3.07.06 Foundation will ensure that the actual quality of care being
provided is being continuously monitored and evaluated.

          3.07.07 Foundation will investigate all potential quality issues
involving Molina Members and Molina Participating Providers and shall take
appropriate action upon finding an actual quality issue. Molina and its
Participating Providers shall cooperate with such investigations and abide by
Foundation's determinations.

     3.08 Management of Delegated Credentialling Activities. As more fully set
out in the Medi-Cal Agreement, Foundation is responsible for the implementation
and maintenance of policies and procedures which delineate the credentialing
activities which are delegated to Molina under this Agreement, and Foundation
shall monitor such activities. The parties understand and agree that Molina
shall ensure the qualification of all Molina Participating Providers, approve
new providers and sites, and terminate or suspend individual providers, in
accordance with the standards of the DOC and DHS and the Foundation Medi-Cal
Plan Quality Assurance Committee. Foundation shall perform on-site inspections
and investigations of Molina Participating Providers as required by the DHS and
as necessary to investigate a potential quality issue involving a Participating
Provider, and Molina and Molina Participating Providers shall cooperate with
Foundation's inspections and investigations.

     3.09 Management of Delegated Utilization Review Activities. As more fully
set out in the Medi-Cal Agreement, Foundation is responsible for the
implementation and maintenance of a utilization management program which meets
the requirements of the Medi-Cal Agreement. The parties understand and agree
that Molina shall develop a utilization review program in conformance with the
requirements of the Medi-Cal Agreement, DOC, DHS and the Foundation Medi-Cal
Plan Quality Assurance Committee. Molina shall maintain a Utilization Review
Committee which shall meet as frequently as necessary. The Utilization Review
Committee shall keep minutes of the committee meetings, copies of which shall be
made available to Foundation. Molina shall review elective referral and hospital
admissions on a concurrent and prospective basis and Emergency Services on a
retrospective basis. Foundation shall ensure that said delegated utilization
management activities are regularly evaluated and approved and that the such
process is documented.

     3.10 Member Satisfaction Surveys. Foundation will conduct member
satisfaction

                                       12



surveys of Molina Members as required under the Medi-Cal Agreement.

     3.11 Additional Responsibilities. Foundation shall have additional
responsibilities as identified in the Matrix of Responsibilities attached hereto
and incorporated herein as Addendum G. The specific details for these additional
responsibilities shall be mutually agreed upon by the parties and shall be
included in a Policies and Procedures Manual that will be jointly developed by
the parties.

                       ARTICLE 4 - JOINT RESPONSIBILITIES

     4.01 Solicitation of Enrollment. The parties shall mutually develop a plan
for marketing the Foundation Medi-Cal Plan and Molina's participation in the
Foundation Medi-Cal Plan. The marketing plan shall be developed in compliance
with all applicable laws.

     4.02 Agency Inquiries and Complaints. Any party receiving any inquiry,
complaint, deficiency notice or request for corrective action from DHS, DOC, DOJ
or the DHHS relating to Molina's arrangement of Health Care Services under this
Agreement, or relating to the administration of the Foundation Medi-Cal Plan or
to the arrangement of Health Care Services to Medi-Cal Members, shall notify the
other party within one (1) working day of the receipt of the matter. The parties
shall cooperate fully and as necessary to resolve such matters.

     4.03 Member Grievance Procedures. Molina shall abide by Foundation's Member
Grievance Procedures which are attached hereto and incorporated herein as
Addendum H. Molina shall abide by, and implement upon request, all Foundation,
DOC and DHS determinations on Molina Member appeals and grievances. Molina
understands and further agrees as follows.

          4.03.01 Foundation will publish a single form of Evidence of Coverage
for its Los Angeles County Medi-Cal Members. The Evidence of Coverage and
Foundation's separately stated written Member grievance procedures attached
hereto as Addendum H will contain a single Foundation telephone number and
single Foundation address for receipt of Medi-Cal Member customer service
inquiries, appeals and grievances. If Molina receives a written grievance or
appeal involving a Molina Member, it will fax same to Foundation's Director of
Medi-Cal Customer Service within one (1) working day of receipt.

          4.03.02 Foundation will mail all letters acknowledging receipt of a
grievance or appeal to Molina Members. Foundation will forward first level
Molina Member appeals and grievances to Molina for initial review. However, for
grievances which Foundation determines to involve a potential quality issue and
Molina or a Molina Participating Provider, Foundation shall also conduct a
concurrent review of such grievances.

          4.03.03 For Molina Member grievances involving a potential quality
issue, Molina shall, within 15 calendar days of the receipt of the grievance,
submit all applicable records and its written findings, recommendations and
proposed corrective action plan where applicable, to

                                       13



Foundation's Director of Medi-Cal Customer Service for Foundation's review and
determination on the matter.  Molina and Molina Participating Providers shall
cooperate fully in Foundation's handling of such grievances.

          4.03.04 If Molina's review determination on a Molina Member's first
level appeal or grievance not involving a potential quality issue is to overturn
its previous denial of coverage or to remedy the grievance to the Molina
Member's satisfaction, then Molina will draft an appropriate letter in a form
approved by Foundation and on Foundation's letterhead and mail the letter to the
Molina Member. Molina shall also provide a copy of the response to Foundation.

          4.03.05 If Molina's review recommendation on a Molina Member's first
level appeal or grievance not involving a potential quality issue is to uphold
its previous denial of coverage or to not remedy the grievance to the Molina
Member's satisfaction, then Molina will, within 15 calendar days of the receipt
of the appeal or grievance, draft an appropriate written response in a form
approved by Foundation and fax same with all supporting medical records and
other documentation to Foundation's Director of Medi-Cal Customer Service for
Foundation's review and determination on the matter. Foundation will, in its
sole discretion, reasonably determine to (i) ratify Molina's review
recommendation; (ii) modify Molina's review recommendation; or (iii) reject
Molina's review recommendation and direct Molina to arrange and cover the
disputed service or to remedy the grievance to the reasonable satisfaction of
the Molina Member. In the event that Foundation determines to ratify Molina's
review recommendation, Foundation will so advise Molina and Molina will mail the
letter to the Molina Member. In the event that Foundation determines to modify
Molina's review recommendation, Foundation will so advise Molina and Foundation
will draft the response, mail the letter to the Molina Member, and provide a
copy to Molina. In the event that Foundation determines to reject Molina's
review recommendation, Foundation will so advise Molina and Foundation will
draft the response, mail the letter to the Molina Member, and provide a copy to
Molina.

          4.03.06 Foundation will handle all second level Molina Member
grievance hearings and DHS reviews. Molina shall cooperate fully and provide
assistance as requested by Foundation, and shall appear and participate at the
hearings if requested by Foundation.

          4.03.07 Molina shall abide by, and implement upon request, all
Foundation, DOC and DHS determinations on Molina Member appeals and grievances.
If Molina fails to implement a determination of Foundation, DOC or DHS in a
timely manner, Foundation may arrange and cover the disputed service or remedy
the grievance to the reasonable satisfaction of the Molina Member and offset the
cost of same from Foundation's payment under this Agreement to Molina.

          4.03.08 Molina will maintain a written log of all appeals, grievances
and DOC and DHS complaints involving Molina Members and provide a copy of same
to Foundation on a monthly basis.

     4.04 Reciprocity. If and only to the extent current contracts permit
reciprocity, Foundation shall make good faith efforts to provide reciprocity at
Foundation rates on claims for

                                       14



Health Care Services provided to Molina Members by providers who contract with
Foundation but who are not Molina Participating Providers. Likewise, if and only
to the extent current contracts permit reciprocity, Molina shall make good faith
efforts to provide reciprocity at Molina rates on claims for Health Care
Services provided by Molina Participating Providers to Medi-Cal Members assigned
to Foundation.

     4.05 Requests for Transfers. The parties shall cooperate in arranging
Member transfers in the event a Molina Member requests a non-Molina Primary Care
Physician but desires to remain a Foundation Medi-Cal Member or in the event a
Foundation Medi-Cal Member requests a transfer in order to select a Molina
Primary Care Physician.

     4.06 Additional Responsibilities. The parties shall have additional
responsibilities as identified in the Matrix of Responsibilities attached hereto
and incorporated herein as Addendum G. The specific details for these additional
responsibilities shall be mutually agreed upon by the parties and shall be
included in a Policies and Procedures Manual that will be jointly developed by
the parties.

                            ARTICLE 5 - COMPENSATION

     Foundation shall pay Molina Capitation Payments at the rates and according
to the procedures set forth in Addendum I attached hereto and incorporated
herein.

                                ARTICLE 6 - TERM

     The initial term of this Agreement shall commence concurrently with the
effective date of the Medi-Cal Agreement (the "Commencement Date") and shall
continue for the full term of the Medi-Cal Agreement and any extensions thereto,
unless sooner terminated as set forth in Article 7 below.

                             ARTICLE 7 - TERMINATION

     7.01 Molina's Right to Termination. Subject to the prior written approval
of DHS, Molina shall have the right to terminate this Agreement immediately upon
written notice to Foundation in the following circumstances:

          (i)   revocation, suspension or expiration of Foundation's license as
a health care service plan pursuant to the Knox-Keene Act;

          (ii)  Foundation's breach of any material term, covenant or condition
of this Agreement and subsequent failure to cure such breach within thirty (30)
calendar days after notice by Molina of such breach. The remedy of such breach
within thirty (30) calendar days of receipt of such notice shall revive this
Agreement for the remaining term, subject to any of the rights of termination
contained in this or any other provision of this Agreement; or

          (iii) Foundation's material failure to comply with the Medi-Cal
Agreement, the

                                       15



Knox-Keene Act or the Waxman-Duffy Act or the rules and regulations promulgated
thereunder, as evidenced by a deficiency notice or cease and desist letter from
DOC or DHS, and failure to cure such material failure within forty-five (45)
days of the receipt of such notice from DOC or DHS.

     7.02 Foundation's Right to Termination. Subject to the prior written
approval of DHS, Foundation shall have the right to terminate this Agreement
immediately upon written notice to Molina in the following circumstances:

          (i)   revocation, suspension or expiration of Molina's license as a
health care service plan pursuant to the Knox-Keene Act;

          (ii)  Molina's breach of any material term, covenant or condition of
this Agreement and subsequent failure to cure such breach within thirty (30)
calendar days after notice by Foundation of such breach. The remedy of such
breach within thirty (30) calendar days of receipt of such notice shall revive
this Agreement for the remaining term, subject to any of the rights of
termination contained in this or any other provision of this Agreement; or

          (iii) Molina's material failure to comply with the Medi-Cal Agreement,
the Knox-Keene Act or the Waxman-Duffy Act or the rules and regulations
promulgated thereunder, as evidenced by a deficiency notice or cease and desist
letter from DOC or DHS, and failure to cure such material failure within
forty-five (45) days of the receipt of such notice from DOC or DHS.

     7.03 Termination of Medi-Cal Agreement. This Agreement shall immediately
terminate upon the termination or nonrenewal of the Medi-Cal Agreement. Such
termination of obligations shall be accomplished by delivery of written notice
to Molina of the date upon which such termination shall become effective.

     7.04 Termination Without Cause. Subject to the prior written approval of
DHS, either party may terminate this Agreement with or without cause effective
upon the renewal date of the Medi-Cal Agreement by giving written notice to the
other party at least one hundred eighty (180) days prior to renewal of the
Medi-Cal Agreement.

     7.05 Notification of DHS of Amendment or Termination. Molina shall notify
DHS in the event of an amendment or termination of this Agreement. Notice shall
be given by properly addressed letter deposited in the United States Postal
Service as first-class postage-prepaid registered mail. Any termination under
Sections 7.01, 7.02 or 7.04 above is subject to the prior written approval of
DHS.

     7.06 Termination of Enrollment of a Molina Member. Termination of
enrollment of a Molina Member shall be in accordance with the terms of the
Foundation Medi-Cal Plan and shall be upon the mutual agreement of the parties.

     7.07 Continuing Care Period. Molina shall continue to provide Health Care
Services to

                                       16



Molina Members as required by this Agreement after the effective date of
termination of this Agreement until either (i) such services are complete or the
Molina Member can be safely transferred to the care of another provider and such
transfer does not violate State laws regarding abandonment of patients, or (ii)
Foundation has made provisions for the assumption of such services, whichever
occurs first. Foundation will use its best efforts to provide for the assumption
of such services as soon as is reasonably practicable, taking into account the
best interests of the Molina Member and the availability of appropriate
providers. Compensation to Molina during this continuing care period will be
compensated at the DHS Medi-Cal fee schedule.

                         ARTICLE 8 - DISPUTE RESOLUTION

     8.01 Arbitration. The parties agree to meet and confer in good faith to
resolve any problems or disputes that may arise under this Agreement. Such
negotiation shall be a condition precedent to the filing of any arbitration
demand by either party. Any controversy, dispute or claim between the parties
arising out of or relating to interpretation, performance or breach of this
Agreement shall be resolved by binding arbitration at the request of either
party, in accordance with the California Arbitration Act, California Code of
Civil Procedure, Sections 1280-1294.2. The arbitration shall be conducted in Los
Angeles, California by a single, neutral arbitrator who is licensed to practice
law in the State of California. The arbitration shall be conducted under the
auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"), except
that if JAMS is nor longer in existence or is otherwise unable to appoint a
neutral arbitrator, the parties shall conduct arbitration in accordance with the
Commercial Rules of the American Arbitration Association ("AAA") as supplemented
by the provisions in this Section 8.01. If the parties are unable to agree on
the choice of the arbitrator, then the parties agree that either JAMS or AAA
shall appoint a neutral arbitrator.

     The arbitrator shall apply California substantive law and federal
substantive law where State law is preempted. Civil discovery for use in such
arbitration may be conducted in accordance with the California Code of Civil
Procedure and the California Evidence Code, and the arbitrator selected shall
have the power to enforce the rights, remedies, duties, liabilities, and
obligations of discovery by the imposition of the same terms, conditions and
penalties as can be imposed in like circumstances in a civil action by a
superior court of the State of California. The provisions of California Code of
Civil Procedure Section 1283 and 1283.05 concerning the right to discovery and
the use of depositions in arbitration are incorporated herein by reference and
made applicable to this Agreement. Each party shall have the right to take no
more than three (3) depositions of individuals or entities, including
depositions of expert witnesses, and copies of all exhibits and demonstrative
evidence to be used at the arbitration. However, rebuttal and impeachment
evidence need not be exchanged until presented at the arbitration hearing.

     The arbitrator shall have the power to grant all legal and equitable
remedies and award compensatory damages provided by California law, except that
punitive damages may not be awarded. The arbitrator shall prepare in writing and
provide to the parties an award including factual findings and the legal reasons
on which the decision is based. The arbitrator shall not have the power to
commit errors of law or legal reasoning, and the award may be vacated or
corrected

                                       17



pursuant to California Code of Civil Procedure Sections 1286.2 or 1286.6 for any
such error.

     Notwithstanding the above, in the event either party wishes to obtain
injunctive relief or a temporary restraining order, such party may initiate an
action for such relief in a court of law and the decision of the court of law
with respect to the injunctive relief or temporary restraining order shall be
subject to appeal only through the courts of law. The courts of law shall not
have the authority to review or grant any request or demand for damages or
declaratory relief.

                     ARTICLE 9 - RECORDS AND DATA COLLECTION

     9.01 Maintenance of Records. Molina shall maintain and provide to the DHS,
DOC, DOJ, DHHS and Foundation all books, records, patient records, encounter
data (in a format approved by Foundation), and other information as may be
necessary for compliance by the parties with the Knox-Keene Act, the
Waxman-Duffy Act, and all other applicable law. Such books and records shall be
maintained in a form in accordance with the general standards and laws
applicable to such book or record keeping, including medical histories, records
and reports from other providers, hospital discharge summaries, records of
Emergency Services and such other information as said parties may require or as
necessary to disclose the quality, appropriateness or timeliness of Health Care
Services provided to Molina Members under this Agreement. The obligations under
this Section shall not terminate upon the termination of this Agreement, whether
by rescission or otherwise.

The parties shall keep and maintain their books and records on a current basis
in accordance with general standards for book and record keeping. The parties
shall retain said records for a term of at least five years from the close of
the fiscal year in which this Agreement is in effect.

     9.02 Right to Inspect. Molina shall make available for inspection,
examination or copying by the DHS, DOC, DOJ, DHHS and Foundation at reasonable
times at Molina's usual place of business, or at such other mutually agreeable
place in California, all books, records, patient records, encounter data, and
other information relating to the services provided pursuant to this Agreement,
including, but not limited to, Molina Member patient records, subject to the
confidentiality restrictions set forth in Section 9.03, and financial records
pertaining to the cost of operations and income received for Health Care
Services provided to Molina Members. The right of said parties to inspect,
evaluate and audit such records shall extend through five (5) years from the
date of termination of this Agreement.

     9.03 Confidentiality. The parties shall maintain the confidentiality of
Molina Member medical records and related information in accordance with
applicable federal, State and local laws, including, without limitation, Title
45, Section 250.50 of the Code of Federal Regulations, and Welfare and
Institutions Code Section 1400.2 and the regulations promulgated thereunder.
Where required by law, the parties shall obtain a specific written authorization
from the Molina Member prior to releasing the Molina Member's medical records.
The parties shall establish and maintain procedures and safeguards so that no
information pertaining to Medi-Cal Members contained in the parties' records or
obtained from DHS in carrying out the terms of this

                                       18



Agreement shall be used or disclosed by the parties or their agents or employees
other than for purposes directly connected with the administration of the
Foundation Medi-Cal Plan.

     9.04 Financial Statements. Molina shall provide to Foundation copies of the
quarterly financial reports submitted by Molina to the DOC. Foundation shall
provide to Molina copies of the quarterly financial reports submitted by
Foundation to the DOC

     9.05 Provision of Data. The parties shall jointly and separately maintain
statistical records and data relating to the utilization of Health Care Services
by Molina Members as required for the administration of the Foundation Medi-Cal
Plan and in compliance with all DHS and DOC statistical, financial and encounter
data reporting requirements. Encounter data shall be submitted in a format
approved by Foundation and on a timely basis so that Foundation can meet its
regulatory reporting requirements.

                      ARTICLE 10 - RELATIONSHIP OF PARTIES

     10.01 Independent Contract Relationship. The relationship between the
parties is one of independent contractors. Nothing in this Agreement is intended
to create nor will be deemed or construed to create any relationship between the
parties other than that of independent contracts. Neither of the parties, nor
any of their respective officers, directors or employees, shall act as nor be
construed to be the partner, agent, employee or representative of the other. The
relationship between the parties, as a subcontractor of Foundation, and DHS and
the State of California are independent contractor relationships. Neither
Foundation nor Molina nor any agents, officers or employees of Foundation or
Molina are agents, officers, employees, partners or associates of DHS or the
State of California. None of the provisions of this Agreement shall be construed
to create a relationship of partnership, agency, joint venture or employment
between Foundation or Molina, as a subcontractor of Foundation, and DHS and the
State of California.

     10.02 Indemnification. The parties will indemnify and hold each other
harmless against any claims, demands, damages, liability, judgments and
expenses, including reasonable attorney fees, as follows:

          10.02.01 To the extent that any allegations against Molina are based
on alleged fault by Molina (or its agents, employees or providers) in providing
or failing to provide Health Care Services to Molina Members or in other
administrative dealings with Molina Members, and the allegations against
Foundation are based on vicarious, passive or secondary liability, including,
without limitation, allegations of apparent or ostensible agency and negligent
selection, Molina will fully indemnify Foundation against such claims, including
attorney fees and costs.

          10.02.02 To the extent that any allegations against Foundation are
based on alleged fault by Foundation (or its agents, employees or providers) in
providing or failing to provide Health Care Services to Molina Members or
otherwise failing to perform under the Medi-Cal Agreement or under the
Foundation Medi-Cal Plan, and the allegations against Molina are based on
vicarious, passive or secondary liability, including, without limitation,
allegations of

                                       19



apparent or ostensible agency and negligent selection, Foundation will fully
indemnify Foundation against such claims, including attorney fees and costs.

          10.02.03 To the extent of any other claims, the parties will mutually
indemnify each other, including attorney fees and costs, in proportion to the
relative degree of each party's fault that contributed to the claim. In
interpreting this paragraph, the principals of comparative fault shall apply.

     10.03 Cooperation. The parties shall maintain an effective liaison and
close cooperation with one another to ensure smooth working relationships with
Medi-Cal Members, effective communication between providers, and maximum
benefits to each Medi-Cal Member at the most reasonable cost, consistent with
quality of Health Care Services.

                           ARTICLE 11 - MISCELLANEOUS

     11.01 Assignment. This Agreement and the rights, interests, and benefits
hereunder shall not be assigned, transferred, pledged, or hypothecated in any
way by the parties and shall not be subject to execution, attachment or similar
process nor shall the duties imposed herein be subcontracted or delegated
without the written consent of the other party. Any assignment or delegation of
the Agreement shall be void unless prior written approval is obtained from the
DHS.

     11.02 Amendments. The parties may amend this Agreement by providing thirty
(30) days' prior written notice to the other party in order to maintain
compliance with applicable federal and State laws. Such amendment shall be
binding upon the parties. Other amendments to this Agreement shall be effective
only upon mutual written consent.

     11.03 Confidentiality of this Agreement. To the extent possible, each party
agrees to maintain the terms of this Agreement confidential. Disclosure of the
terms of this Agreement, other than disclosures required by the DOC or DHS,
shall not be made without the approval of the other party.

     11.04 Notices. All notices required or permitted by this Agreement shall be
in writing and may be delivered in person or may be sent by regular, registered
or certified mail or United States Postal Service Express Mail, with postage
prepaid, or by facsimile transmission, and shall be deemed sufficiently given if
served in the manner specified in this Section 11.04. The addresses below shall
be the particular party's address for delivery or mailing of notice purposes:

     To Molina:      Molina Medical Centers
                     One Golden Shore
                     Long Beach, California 90802

                     ATTENTION: C. David Molina, M.D.

                                       20



     To Foundation:  Foundation Health, a California Health Plan
                     3400 Data Drive
                     Rancho Cordova, California 95670

                     ATTENTION:  President

     The parties may change the names and addresses noted above through written
notice in compliance with this Section 11.04. Any notice sent by registered or
certified mail, return receipt requested, shall be deemed given on the date of
delivery shown on the receipt card, or if not delivery date is shown, the
postmark date. If sent by regular mail, the notice shall be deemed given
forty-eight (48) hours after the notice is addressed and mailed with postage
prepaid: Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given twenty-four (24) hours
after delivery of the notice to the United States Postal Service or other
courier. If any notice is transmitted by facsimile transmission or similar
means, the notice shall be deemed served or delivered upon telephone
confirmation of receipt of the transmission, provided a copy is also delivered
via delivery or mail.

     11.05 Entire Agreement. This Agreement contains all the terms and
conditions between Molina and Foundation concerning the subject matter of this
Agreement and supersedes all other agreements, oral or otherwise, including,
without limitation, that certain Health Services Agreement entered into by the
parties on April 13, 1995.

     11.06 Provisions Separable. The invalidity or uneforceability of any term
or provision of this Agreement will in no way affect the validity or
enforceability of any other term or provision.

     11.07 Headings. The headings of the various sections of this Agreement are
inserted merely for the purpose of convenience and do not expressly, or by
implication, limit or define or extend the specific terms of the section so
designated.

     11.08 Waiver of Breach. The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as or be construed to be a
waiver of any subsequent breach thereof.

     11.09 Applicable Law and Compliance with Medi-Cal Agreement. This Agreement
shall be governed in all respects by the laws of the State of California and
applicable federal law, including, without limitation, (i) the Knox-Keene Act
and the regulations promulgated thereunder by the DOC; and (ii) the Waxman-Duffy
Act and the regulations promulgated thereunder by DHS. Molina shall comply with
the terms and conditions of the Medi-Cal Agreement as it relates to the
arrangement of Health Care Services to Molina Members and shall cooperate fully
with Foundation to assist Foundation to remain in compliance with the Medi-Cal
Agreement. Any provision that any law, regulation or the Medi-Cal Agreement
requires to be in this Agreement shall bind the parties whether or not
specifically provided herein.

     11.10 Exhibits. The addenda attached to this Agreement are an integral part
of this

                                       21



Agreement and are incorporated herein by reference.

     11.11 Attorney Fees and Costs. If any action at law or suit in equity or
arbitration is brought to enforce or interpret the provisions of this Agreement
or to collect any monies due hereunder, the prevailing party shall be entitled
to reasonable attorney fees and reasonable costs, together with interest at ten
percent (10%) per annum, in addition to any and all other relief to which it may
otherwise be entitled.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth below.

MOLINA MEDICAL CENTERS                   FOUNDATION HEALTH, A CALIFORNIA
                                         HEALTH PLAN


By: /s/ John C. Molina                   By: /s/
    --------------------------               ---------------------------
Title: VICE-PRESIDENT                    Title: President
      ------------------------                 -------------------------
Date:  FEBRUARY 2, 1996                  Date:  February 6, 1996
     -------------------------                 -------------------------

                                       22



                               SCHEDULE OF ADDENDA

ADDENDUM A               MOLINA SERVICE AREA

ADDENDUM B               EVIDENCE OF COVERAGE

ADDENDUM C               DISCLOSURE FORM

ADDENDUM D               PARTICIPATING PROVIDER DIRECTORY FOR LOS
                         ANGELES COUNTY

ADDENDUM E               PROCEDURE FOR ASSIGNMENT OF FOUNDATION'S LOS
                         ANGELES COUNTY MAINSTREAM MEDI-CAL MEMBERS
                         AMONG FOUNDATION, MOLINA AND UNIVERSAL CARE
                         HEALTH PLAN

ADDENDUM F               OFFICERS, OWNERS, STOCKHOLDERS, CREDITORS

ADDENDUM G               MATRIX OF RESPONSIBILITIES

ADDENDUM H               FOUNDATION'S MEDI-CAL MEMBER GRIEVANCE
                         PROCEDURES

ADDENDUM I               COMPENSATION

                                       23



                                   ADDENDUM A

                               MOLINA SERVICE AREA


        (The entirety of Los Angeles County, inclusive of all ZIP Codes)

                                       24



                                   ADDENDUM B

                              EVIDENCE OF COVERAGE


                  (To be developed by Foundation and attached)

                                       25



                                   ADDENDUM C

                                 DISCLOSURE FORM


                  (To be developed by Foundation and attached)

                                       26



                                   ADDENDUM D

             PARTICIPATING PROVIDER DIRECTORY FOR LOS ANGELES COUNTY


                  (To be developed by Foundation and attached)

                                       27



                                   ADDENDUM E

 PROCEDURE FOR ASSIGNMENT OF FOUNDATION'S LOS ANGELES COUNTY MAINSTREAM MEDI-CAL
         MEMBERS AMONG FOUNDATION, MOLINA AND UNIVERSAL CARE HEALTH PLAN

OVERVIEW OF ENROLLMENT OPTIONS AND PROCESS

     Following an enrollment presentation and notification by mail, Los Angeles
County Medi-Cal beneficiaries will have thirty days to select either the local
initiative plan or Foundation as the mainstream plan. If the beneficiary does
not select either plan within the required thirty days, the enrollment
contractor will assign the beneficiary to one of the plans. All assignments will
be made to the local initiative plan until its total enrollment has reached the
minimum enrollment levels for the County. Once this minimum enrollment level has
been met, assignments will alternate between the mainstream plan and local
initiative plan, taking into account such items as plan capacity and location of
service sites in relation to the beneficiary's residence.

ASSIGNMENT OF FOUNDATION'S LOS ANGELES COUNTY MAINSTREAM MEDI-CAL MEMBERS

     Prepaid Health Plan Enrollees. If a Medi-Cal beneficiary was a Medi-Cal
prepaid health plan enrollee of Foundation, Molina or Universal immediately
prior to the commencement date of operations for the Two Plan Model in Los
Angeles County, Foundation will assign the Medi-Cal beneficiary to such plan,
unless prohibited by the DHS or otherwise requested by the Medi-Cal beneficiary.

     Assignment of a Medi-Cal Member Who Selects a PCP Unique to One of the
Three Plans. Los Angeles County Medi-Cal beneficiaries who select or who are
assigned by the enrollment contractor to Foundation's mainstream plan will be
offered the opportunity to select their Primary Care Physician from a single
listing of Foundation, Molina and Universal Care Health Plan Primary Care
Physicians. If the Medi-Cal Member selects or is assigned to a Primary Care
Physician that contracts with only one of the three plans, such health plan will
be responsible for the arrangement of Health Care Services for the Medi-Cal
Member, but the Medi-Cal Member remains a Medi-Cal Member of Foundation.

     Assignment of a Medi-Cal Member Who Either Selects a PCP of Two or Three of
the Plans or Who Does Not Select a PCP. If a Medi-Cal Member selects a Primary
Care Physician that contracts with two or three of the plans, or the Medi-Cal
Member does not select a Primary Care Physician at the time of enrollment, the
Medi-Cal Member will be assigned by Foundation to one of the plans on a
rational, fair and alternating basis. In making this assignment, Foundation will
consider the ability of the plans' available Primary Care Physicians to
accommodate the geographic and linguistic needs of the Medi-Cal Member. Where
the geographic and linguistic needs of the Medi-Cal Member can be adequately
served by Primary Care Physicians of two or more of the plans, Foundation will
assign the Medi-Cal Member to the plan which is next due for an assignment on an
alternating basis among the three plans.

                                       28



     If a Medi-Cal Member selects a Primary Care Physician that contracts with
Molina and Universal, the Medi-Cal Member will be assigned by Foundation to
Molina or Universal on a rational, fair and alternating basis.

     This forementioned assignment procedure will also apply to Medi-Cal Members
who request a Primary Care Physician change but who do not indicate the name of
a new Primary Care Physician.

     Additionally, if a Medi-Cal Member selects a PCP that contracts with two or
three of the plans but requests in writing to be assigned to one of such plans,
Foundation will assign the Medi-Cal Member to the requested plan. However, the
parties understand and agree that such assignments to Molina and Universal shall
only be made until Molina and Universal reach the 26% enrollment limitation
described in this Addendum below.

     Enrollment Limitation for Molina and Universal. This assignment process
will continue until Molina and Universal each achieve a total Medi-Cal
membership in Los Angeles County of 26% of the total number of Foundation
Medi-Cal Members in Los Angeles County (Foundation will calculate enrollment
numbers on a monthly basis). When Molina or Universal achieve such enrollment,
these plans will only receive new Medi-Cal Members if they are the sole plan
that contracts with the Primary Care Physician selected by the Medi-Cal Member.

     If any of the plans is unable to service additional Medi-Cal Members due to
lack of capacity, Foundation will assign additional Medi-Cal Members to the
remaining plans with capacity using the above procedure.

                                       29



                                   ADDENDUM F

                    OFFICERS, OWNERS, STOCKHOLDERS, CREDITORS

     Name and address of each person with an ownership or control interest:


 NAME                    ADDRESS                           PERCENT OF OWNERSHIP
- --------------------------------------------------------------------------------
 Molina Family Trust     One Golden Shore                  100%
                         Long Beach, California
                         90802


                                    OFFICERS:

 NAME                                     TITLE
- --------------------------------------------------------------------------------
 C. David Molina, M.D., M.P.H.            President & Treasurer
- --------------------------------------------------------------------------------
 John C. Molina                           Secretary & Vice President
- --------------------------------------------------------------------------------
 Joseph M. Molina, M.D.                   Vice President for Medical Operations
- --------------------------------------------------------------------------------
 Richard Anderson, M.D.                   Medical Director
- --------------------------------------------------------------------------------
 C. Joseph Heinz                          Chief Administrative Officer
- --------------------------------------------------------------------------------
 Harvey Fein                              Chief Financial Officer
- --------------------------------------------------------------------------------
 Mary Martha Molina, M.D.                 Vice President, Medical Staff Services


                                 MAJOR CREDITORS

 CREDITOR                                 DESCRIPTION
- --------------------------------------------------------------------------------

                                       30



                                   ADDENDUM G

                           MATRIX OF RESPONSIBILITIES
       (i.e., Division of Responsibilities Between Foundation and Molina)



                                                                                                JOINT:           JOINT:
                                                EXCLUSIVELY     EXCLUSIVELY     JOINT:          PRINCIPALLY      PRINCIPALLY
FUNCTION                                        FOUNDATION      MOLINA          EQUAL           FOUNDATION       MOLINA
- --------                                        -----------     -----------     ------          -----------      -----------
                                                                                         
MARKETING

   Advertising                                                                    X
   Material                                                                       X
   Staff                                                                          X

NETWORK DEVELOPMENT

   Provider Contracting                                             X
   Rate Determination                                               X
   IPA Management                                                   X
   Office Training & Orientation                                    X
   Provider Manuals & Bulletins                                                   X

UTILIZATION REVIEW

   Hospital & Utilization Tracking                                  X
   Case Management                                                  X
   Specialty Referral Review                                        X
   Computer Input                                                   X
   Physician/Enrollee                                               X
   Notification Coordination                                        X
   On-Call Scheduling                                               X
   Phone Advice Availability                                        X
   Coordination of Community Resources                              X
   Claims Review                                                    X
   Oversight for Compliance with F's Standards      X

MEMBERSHIP SERVICES

   Membership Staff                                                                                  X
   Phone Access                                     X
   1st Level Grievance Resolution                                                                    X
   2nd Level Grievance Resolution (Hearing)         X
   Member Newsletter                                X
   Data Collection                                                                X
   Member Rights                                                                  X
   Electronic Interface                                                           X
   Cultural & Linguistic                                                                             X
   Member Satisfaction Survey                       X

CLAIMS ADJUDICATION

   Claims Review                                                    X


                                       31





                                                                                               JOINT:        JOINT:
                                                     EXCLUSIVELY      EXCLUSIVELY   JOINT:     PRINCIPALLY   PRINCIPALLY
FUNCTION                                             FOUNDATION       MOLINA        EQUAL      FOUNDATION    MOLINA
- --------                                             -----------      -----------   ------     -----------   -----------
                                                                                                    

  Denials                                                                X
  Third Party Liability                                                               X
  Coordination of Benefits                                               X
  Claims Check Processing                                                X
  Claims Inventory Monitoring                                            X
  LAG Study Tracking                                                     X
  IBNR Calculations                                                      X
  Stop-Loss Billing                                                      X

MANAGEMENT INFORMATION SYSTEMS

  Hardware                                                                            X
  Software                                                                            X
  Communication                                                                       X
  Computer Operations                                                                 X

ENROLLMENT AND ELIGIBILITY

  Enrollment Forms                                       X
  Evidence of Coverage                                   X
  Disclosure Form                                        X
  Welcome Letter                                         X
  Identification Cards                                   X
  Enrollment Mailing                                     X
  Participating Provider Directory (quarterly)           X
  Processing                                             X
  Enrollment Data Entry                                  X
  Eligibility List                                       X
  Electronic Tape Processing                                                          X
  Eligibility Reconciliation                             X

CAPITATION PROCESSING

  Medical Group/IPA Monitoring                                           X
  Medical Group/IPA Payments                                             X
  Risk Reserve Calculation                                               X

DATA COLLECTION

  Medical Group/IPA Report Cards                                                                                X
  Physician Profiling                                                                                           X
  HEDIS Reporting                                                                     X
  Regulatory Requirements                                                             X

UNDERWRITING

  Fraudulent Enrollment Resolutions                      X
  Governmental Relations Reporting                       X


                                       32





                                                                                               JOINT:        JOINT:
                                                     EXCLUSIVELY      EXCLUSIVELY   JOINT:     PRINCIPALLY   PRINCIPALLY
FUNCTION                                             FOUNDATION       MOLINA        EQUAL      FOUNDATION    MOLINA
- --------                                             -----------      -----------   ------     -----------   -----------
                                                                                                 
QUALITY MANAGEMENT

 Credentialing/Re-credentialing                                                                                 X
 Quality Improvement Operations                                                                    X
 Meeting Minutes and Follow-up                                                                                  X
 Chart Review                                                            X
 Standards Development                                   X
 Network Auditing                                                                     X
 Review of Bad Outcome QA Cases                                                       X
 Administration of Disciplinary Action                                                                          X
 Peer Review                                                                                                    X
 Health Education                                                                     X
 Policy & Procedure Maintenance                                                       X
 Interface with Public Health                                                         X
 11 Quality of Care Studies                                                                        X
 Oversight for Compliance with F's Standards             X
 Review of Potential Quality Issue Grievances                                                      X

ACCOUNTING

 Accounts Payable                                                                     X
 Purchasing                                                                           X
 Cash Management                                                                      X
 Checking Account Reconciliation                                                      X
 Fee-for-Service Billing                                                 X
 Financial Statements Development                                                     X
 Audits                                                                               X
 Insurance Maintenance                                                                X
 Payroll                                                                              X
 Budget Development                                                                   X
 Budget Monitoring                                                                    X
 Purchase of Forms                                                                    X

PHARMACY MANAGEMENT

 Claims Adjudication                                                     X
 Pharmacy Contracting                                                    X
 Mail Order Prescription                                                 X
 Pharmacy Data                                                           X
 Claims Payment                                                          X
 DUR/DUE                                                                 X

OTHER

 Policy and Procedure Manual                                                          X
 Legal                                                                                X
 DOC Interface                                           X
 DHS Interface                                           X
 Coordination with County Health Department                                                                     X


                                       33



                                   ADDENDUM H

                FOUNDATION'S MEDI-CAL MEMBER GRIEVANCE PROCEDURES

I    GRIEVANCE PROCESSING

     Medi-Cal Members may contact the Member Services Department by telephone
     (800) 675-6110, in person or in writing to file a grievance.

     Foundation will send written acknowledgment to the Medi-Cal Member within
     five days after receipt of the grievance. The acknowledgment letter will
     include the time frame and steps that will be taken to resolve the
     grievance and the Medi-Cal Member's right to request a fair hearing from
     the Department of Health Services at any time during the process.
     Grievances will be responded to within 30 days, unless the Medi-Cal Member
     is notified that additional time is required.

     Medi-Cal Members will be notified in writing of Foundation's determination
     on their grievance. If Foundation's determination is to uphold the initial
     denial of coverage, the response will include the Medi-Cal Member's right
     to request a fair hearing from the Department of Health Services, and/or
     request disenrollment from Foundation should the Medi-Cal Member feel that
     no satisfactory resolution is possible.

II.  FOUNDATION'S INTERNAL APPEAL PROCESS

     A. If the Medi-Cal Member is dissatisfied with Foundation's initial
        determination regarding a claim or request for prior authorization, the
        Medi-Cal Member may appeal in writing to Foundation at the following
        address:

                    Foundation Health, a California Health Plan
                    Member Services Department, Appeals Unit
                          333 South Arroyo Parkway
                          Pasadena, California 91105

        If requested, the Member Services Department staff will assist the
        Medi-Cal Member in writing the appeal. Written appeals must be signed by
        the Medi-Cal Member (unless incapacitated or a minor), and include any
        additional information that the Medi-Cal Member wishes Foundation to
        consider.

        The written appeal must be received by Foundation within 30 days of the
        final action taken on a grievance. Written acknowledgment will be sent
        to the Medi-Cal Member, within five days of receipt of the written
        appeal.

        Depending on the subject matter of the appeal, the matter may be
        reviewed by one of Foundation's Medical Directors who has not previously
        been involved in the grievance, a

                                       34



        member of Foundation's administrative staff, or a provider consultant.

        Foundation will notify the Medi-Cal Member in writing of the results of
        its review and the specific basis of its decision in 30 days following
        its receipt of the grievance. If additional time is required to resolve
        the grievance, the Medi-Cal Member will be notified within the 30-day
        period of the reason additional time is necessary. If Foundation's
        determination is to uphold the initial denial of coverage, the response
        to the Medi-Cal Member will include the Medi-Cal Member's right to
        request a hearing by Foundation's Member Grievance Committee, right to
        request a fair hearing by the Department of Health Services, or request
        disenrollment from Foundation.

     B. The final internal level of appeal available to a Medi-Cal Member for
        resolution of a claim or request for prior authorization of coverage, is
        a hearing before Foundation's member Grievance Committee. Requests for a
        hearing must be in writing and received by Foundation within 90 days of
        Foundation's mailing of its determination on the first step grievance.
        Appeals received by Foundation after this period will not be considered
        and no further internal recourse is available.

        Although the make-up of the Committee is subject to change at the
        discretion of Foundation, it is currently comprised of one Medi-Cal
        Member, a physician who has not previously been involved in the
        grievance, and Foundation's Medi-Cal Member Services Director or his or
        her designee. A quorum to convene a hearing is two of these persons.

        Hearings will be scheduled within 30 days of written request and heard
        within 60 days of receipt, unless the Medi-Cal Member requests a later
        hearing date. Medi-Cal Members may appear with and have information
        offered by third parties, including attorneys, but not any persons
        having a conflict of interest with Foundation. Unless incapacitated or a
        minor, Medi-Cal Members must appear in person and are to be principally
        responsible for the presentation of their grievance and for direct
        response to questions by the Committee. The hearing is conducted as an
        informal administrative hearing -- formal rules of evidence and
        discovery which are common to legal hearings do not apply. In some
        cases, Foundation may require the hearing to be conducted by telephone
        conference.

III. EXTERNAL OPTIONS FOR GRIEVANCE RESOLUTION

     A. A Medi-Cal Member may request a fair hearing from the Department of
        Health Services at any time during the grievance process, by contacting
        the Public Inquiry and Response Unit at (800) 952-5253, TDD (800)
        952-8349.

     B. If the Medi-Cal Member feels that no satisfactory resolution is
        possible, he or she may request disenrollment from Foundation by
        contacting the State's contractor, Health Choice, Inc., at (address and
        telephone number to be determined). Foundation may provide the Medi-Cal
        Member with a disenrollment form at his or her request, however,
        processing of the disenrollment form will be completed by Health Choice,
        Inc.

                                       35



                                   ADDENDUM I

                                  COMPENSATION

   1. Compensation. The following compensation rates shall apply for the period
beginning with the date Foundation's Medi-Cal Plan for Los Angeles County
commences and ending September 30, 1997. The below initial rates shall be
adjusted in the same proportion and at the same time as the Monthly DHS Payments
to Foundation are adjusted.

      1.1 Molina's Compensation. Foundation shall pay to Molina for all Health
Care Services and other services provided or arranged by Molina under this
Agreement the following monthly Capitation Payment amounts for each Molina
Member assigned by Foundation to Molina (based on the Molina Member's aid
category):

 FAMILY         AGED         DISABLED        CHILD                ADULT
- --------------------------------------------------------------------------------
 $ [*]         $ [*]        $  [*]          $ [*]                $ [*]

   In addition, Molina shall also exclusively enjoy all coordination of benefits
recoveries and third party liability recoveries collected pursuant to Sections
2.05 and 2.06 of the Agreement.

     1.2 Foundation's Compensation. In consideration for the services provided
by Foundation pursuant to this Agreement and the Medi-Cal Agreement, Foundation
will keep the balance of the Monthly DHS Payment for each Molina Member assigned
by Foundation to Molina, as follows:

 FAMILY         AGED         DISABLED        CHILD                ADULT
- --------------------------------------------------------------------------------
 $ [*]         $ [*]        $  [*]          $ [*]                $ [*]

   2. Due Date. Foundation shall make Capitation Payments as described in this
Addendum on a monthly basis, due and payable within five (5) working days of
Foundation's receipt of the corresponding payment from DHS.

   3. Foundation Reinsurance. Foundation shall assume financial responsibility
for any Health Care Services which exceed [*]% of the "estimated specified total
expenditures" made by Molina under this Agreement. For the purposes of this
provision, "estimated specified total expenditures" is defined as [*]% of DHS
premium (excludes Molina's estimated profits of [*]% of the Monthly DHS Payment
and Foundation's compensation of [*]% of the Monthly DHS Payment). Foundation
will only pay for Health Care Services (i.e., not Molina's administrative
expenses) if and to the extent the [*]% threshold of "estimated specified total
expenditures" is exceeded on an "aggregate, annual" basis (i.e., the health care
cost experience of all Molina Members over a one-

                                       36



year period).

   Reconciliation will occur once annually, four months after the close of each
fiscal year, with incurred but not reported claims not considered after 90 days
of the close of each 12-month contract period. For the purposes of this
provision, "fiscal year" shall mean the period running annually from June 1 of
one year through May 31 of the next year.

     4. Retroactive Adjustments. If DHS determines that a Molina Member was
improperly omitted from the Eligibility List for a period of time during which
the Molina Member actually was eligible for Health Care Services, Foundation
will pay Molina for the Molina Member for such time period at the Capitation
Payment rate specified in this Addendum within five (5) working days of
receiving the corresponding payment from DHS. If DHS determines that a Molina
Member was improperly enrolled or should have been disenrolled in a prior month,
Foundation will debit the Capitation Payment amount paid to Molina by the amount
attributable to such Molina Member for such time period. Molina agrees that
Foundation is not liable for any Capitation Payment amounts payable to or
deductible from Molina's compensation amount due to any errors in the
Eligibility List not caused by Foundation unless and except to the extent that
DHS has recognized and corrected such errors, informed Foundation of the correct
information, and made appropriate payment adjustments under the Medi-Cal
Agreement.

     5. Collection of Charges from Molina Members. Neither Molina nor any Molina
Participating Provider shall in any event, including, without limitation,
non-payment by Foundation, insolvency of Foundation, or breach of this
Agreement, bill, charge, collect and deposit, or attempt to bill, charge,
collect or receive form of payment, from any Molina Member for Health Care
Services provided pursuant to this Agreement. Neither Molina nor any Molina
Participating Provider shall maintain any action at law or equity against a
Molina Member to collect sums owed by Foundation to Molina. Upon notice of any
violation of this paragraph, Foundation may terminate this Agreement pursuant to
Section 7.02(ii) and take all other appropriate action consistent with the terms
of this Agreement to eliminate such charges, including, without limitation,
requiring Molina, and Molina Participating Providers to return all sums
improperly collected from Molina Members or their representatives.

     Each contract between Molina and a Molina Participating Provider shall
provide that in the event that Molina fails to pay the Molina Participating
Provider, the Molina Member shall not be liable to the Molina Participating
Provider for any sums owed by Molina.

     In addition, Molina agrees to hold harmless the State of California and DHS
in the event of non-payment by Foundation for Health Care Services provided to
Molina Members.

     Molina's obligations under this paragraph shall survive the termination of
this Agreement with respect to Health Care Services provided during the term of
this Agreement without regard to cause of termination of this Agreement.

     6. Capitation Deposit Account. The parties shall establish an account (the
"Account") at

                                       37



a mutually acceptable bank for the purpose of protecting Molina in the event of
Foundation's failure to make a Capitation Payment. The Account shall be
established in accordance with the following guidelines:

          6.1 Foundation shall deposit five (5) working days prior to the
scheduled receipt of the first Capitation Payment from DHS an amount equal to
the estimated Capitation Payment amount to Molina for the first month of the
Agreement. Thereafter, Foundation shall adjust the Account by depositing
additional amounts or withdrawing amounts so that, following the adjustment, the
Account is equal to the most recent one month's Capitation Payment.

          6.2 If Foundation fails to make Capitation Payments to Molina by the
due date, Molina shall provide notice of non-payment to Foundation. If
Foundation fails to make a payment in full within fifteen (15) days of the
receipt of notice of non-payment, Molina may withdraw an amount from the Account
equal to the delinquent amount of Capitation Payments due to Molina. Molina
shall not be entitled to withdraw from the Account if Foundation, within the
fifteen (15) day notice period, notifies Molina that it is contesting the claim
for Capitation Payment and includes an explanation of Foundation's reason for
contesting the Capitation Payment claim.

          6.3 Following any permissible withdrawal from the Account by Molina,
Foundation shall have fifteen (15) days to replenish the amount withdrawn from
the Account. Failure to do so shall constitute breach of this Agreement.

          6.4 Upon the effective date of termination of this Agreement, Molina
shall be entitled to withdraw from the Account any delinquent Capitation
Payments due from Foundation. Foundation shall be entitled to any remaining
amounts in the Accounts upon the effective date of termination.

          6.5 Except as provided in Sections 6.1 and 6.4 of this Addendum,
Foundation shall have no ability to withdraw funds from the Account.

          6.6 Except as provided in Sections 6.2 and 6.4 of this Addendum,
Molina shall have no ability to withdraw funds from the Account.

          6.7 Foundation shall be entitled to any and all interest earned on the
Account. The parties understand and agree that the compensation arrangement
under this Agreement is contingent upon the parties simultaneously entering into
and maintaining separate similar subcontracts for Molina's Medi-Cal Agreements
for Riverside and San Bernardino counties, whereunder the parties shall reverse
the roles for the parties that are set out in this Agreement.

                                       38



                  NOTICE OF AMENDMENT TO AGREEMENT REQUIRED BY
                    CALIFORNIA DEPARTMENT OF HEALTH SERVICES

                    REQUIRED MEDI-CAL SUBCONTRACT PROVISIONS

This is an amendment to the Health Services Agreement (the "Agreement") between
Foundation Health, a California Health Plan ("Foundation") and Molina Medical
Centers ("Provider"). For the purposes of this amendment, Foundation's Medi-Cal
agreements with the California Department of Health Services ("DHS") and its
subcontracts with Medi-Cal prepaid health plans, are hereinafter collectively
referred to as the "PHP Agreement". Foundation has been directed by the DHS to
amend its Medi-Cal participating provider agreements to include the below
provisions which are required to appear in all subcontracts under the PHP
Agreement by the terms of the PHP Agreement and by Medi-Cal law. The unilateral
and generic form of this amendment is legally and administratively necessary
because the language of this amendment may not be negotiated and because this
amendment is being provided to many thousands of health care providers of
different types (e.g., individual practitioners, medical groups, IPAs,
facilities, ancillary providers, FQHCs, and subcontracting health plans), and
these providers contract with Foundation under a variety of different forms of
contracts. In accordance with the provision of the Agreement which provides that
amendments required because of regulatory or legal requirements do not require
the consent of Provider or Foundation, this amendment is effective immediately
and is an integral part of the Agreement and shall supersede any contractual
provisions to the contrary.

Foundation thanks you for your participation as an essential part of
Foundation's Medi-Cal operations and we appreciate your understanding of this
form of amendment.

All references to "Beneficiaries" in this amendment are deemed to refer to those
Medi-Cal beneficiaries who are covered by Foundation under the PHP Agreement.

The Agreement is hereby amended to include the following provisions to the
extent that such provisions do not appear in the Agreement:

1.   Preparation and Retention of Records; Access to Records; Audits. Provider
     shall prepare and maintain medical and other books and records required by
     law in a form maintained in accordance with the general standards
     applicable to such book or record keeping. Provider shall maintain such
     financial, administrative and other records as may be necessary for
     compliance by Foundation with all applicable local, State, and federal
     laws, rules and regulations. Provider shall retain such books and records
     and all encounter data for a term of at least five years from the close of
     the California fiscal year in which the Agreement is in effect. Provider
     shall make Provider's books, records and encounter data pertaining to the
     goods and services furnished under the terms of the Agreement, available
     for inspection, examination or copying by Foundation, DHS, the United
     States Department of Health and Human Services ("DHHS"), the California

                                       -1-



     Department of Corporations ("DOC"), the United States Department of Justice
     ("DOJ"), and any other regulatory agency having jurisdiction over
     Foundation. The records shall be available at Provider's place of business,
     or at such other mutually agreeable location in California. When such
     entities request Provider's records, Provider shall produce copies of the
     requested records at no charge. Provider shall permit Foundation, and its
     designated representatives, and designated representatives of local, State,
     and federal regulatory agencies having jurisdiction over Foundation, to
     conduct site evaluations and inspections of Provider's offices and service
     locations. [22 CCR Section 53250(e)(l); W & I Section 14452(c);PHP
     Agreement]

2.   Governing Law. The Agreement shall be governed by and construed and
     enforced in accordance with all laws, regulations and contractual
     obligations incumbent upon Foundation. Provider shall comply with all
     applicable local, State, and federal laws, rules and regulations, now or
     hereafter in effect, to the extent that they directly or indirectly affect
     Provider or Foundation, and bear upon the subject matter of the Agreement.
     Provider shall comply with the provisions of the PHP Agreement, and
     Chapters 3 and 4 of Subdivision 1 of Division 3 of Title 22 of the
     California Code of Regulations. In addition, Foundation is subject to the
     requirements of Chapter 2.2 of Division 2 of the California Health and
     Safety Code and Subchapter 5.5 of Chapter 3 of Title 10 of the California
     Code of Regulations. Any provision required to be in the Agreement by
     either of the above laws shall bind the parties whether or not provided in
     the Agreement. [22 CCR Section 53250(c)(2)]; W & I Section 14452(a);
     Knox-Keene Act]

3.   Amendments. Amendments to the Agreement shall be submitted by Foundation to
     the DHS for prior approval at least 30 days before the effective date of
     any proposed changes governing compensation, services or term. Proposed
     changes, which are neither approved nor disapproved by the Department,
     shall become effective by operation of law 30 days after the DHS has
     acknowledged receipt, or upon the date specified in the amendment,
     whichever is later. Subcontracts between a prepaid health plan and a
     subcontractor shall be public records on file with the DHS. [22 CCR
     Sections 53250(a), (c)(3), & (e)(4); W & I Section 14452(a)]

4.   Provider's Notice to DHS Upon Termination. Provider shall notify the DHS in
     the event that the subcontract is amended or terminated. Notice to the DHS
     is considered given when properly addressed and deposited in the United
     States Postal Service as first- class registered mail, postage attached.
     [Knox-Keene Act and PHP Agreement]

5.   Notice of Change in Availability or Location of Covered Services.
     Foundation is obligated to ensure Beneficiaries are notified in writing of
     any changes in the availability or location of Covered Services at least 30
     days prior to the effective date of such changes, or within 14 days prior
     to the change in cases of unforeseeable circumstances. Such notifications
     must be approved by DHS prior to the release. In order for Foundation to
     meet this requirement, Provider is obligated to notify Foundation in
     writing of any

                                       -2-



     changes in the availability or location of Covered Services at least 40
     days prior to the effective date of such changes. [Knox-Keene Act and PHP
     Agreement]

6.   Reports and Information. Provider shall provide Foundation, within the time
     requested by Foundation, with all such reports and information as
     Foundation may require to allow it to meet the reporting requirements under
     the PHP Agreement or any applicable law, rule or regulation. [22 CCR
     Section 53250(c)(5)]

7.   Subcontracting Under the Agreement. Provider shall not subcontract for the
     performance of services under the Agreement without the prior written
     consent of Foundation. Every such subcontract shall provide that it is
     terminable with respect to Beneficiaries by Provider upon Foundation's
     request. Provider shall furnish Foundation with copies of such
     subcontracts, and amendments thereto, within ten days of execution. Each
     such subcontracting provider shall meet Foundation's credentialing
     requirements, prior to the subcontract becoming effective. Provider shall
     be solely responsible to pay any health care provider permitted under the
     subcontract, and shall hold, and ensure that health care providers hold,
     Foundation, Beneficiaries and the State harmless from and against any and
     all claims which may be made by such subcontracting providers in connection
     with services rendered to Beneficiaries under the subcontract. Provider
     shall maintain and make available to Foundation, DHS, DHHS, DOC, DOJ, and
     any other regulatory agency having jurisdiction over Foundation, copies of
     all Provider's subcontracts under the Agreement and to ensure that all such
     subcontracts are in writing and require that the subcontractor: (1) make
     all applicable books and records available  for inspection, examination
     or copying by said entities; (2) retain such books and records for a term
     of at least five years from the close of the fiscal year in which the
     subcontract is in effect; and (3) maintain such books and records in a form
     maintained in accordance with the general standards applicable to such book
     or record keeping. [22 CCR Section 53250(e)(3)]

8.   Beneficiaries and State Held Harmless. Provider agrees that in no event,
     including, but not limited to, non-payment by Foundation, the insolvency of
     Foundation, or breach of the Agreement, shall Provider or a subcontractor
     of Provider bill, charge, collect a deposit from, seek compensation,
     remuneration, or reimbursement from, or have any recourse against
     Beneficiaries, the State of California, or persons other than Foundation
     acting on their behalf for services provided pursuant to the Agreement.
     Provider further agrees that: (1) this provision shall survive the
     termination of the Agreement regardless of the cause giving rise to
     termination and shall be construed to be for the benefit of Beneficiaries;
     and (2) this provision supersedes any oral or written contrary agreement
     now existing or hereafter entered into between Provider and Beneficiaries
     or persons acting on their behalf. Any modification, addition, or deletion
     of or to the provisions of this clause shall be effective on a date no
     earlier than 15 days after the State regulatory agency has received written
     notice of such proposed change and has approved such change. [22 CCR
     Section 53250(e)(6)]

                                       -3-



9.   Transfer of Care Upon Termination of the Agreement. Provider shall,
     pursuant to the requirements of the PHP Agreement, assist in the orderly
     transfer of care of all Beneficiaries under the care of Provider in the
     event of the termination of the Agreement. [Knox-Keene Act and PHP
     Agreement]

10.  Assignment and Delegation. Assignment or delegation of the Agreement shall
     be void unless prior written approval is obtained from the DHS. In
     addition, any assignment or delegation of the Agreement by Provider shall
     be void unless prior written approval is obtained from Foundation. [22 CCR
     Section 53250(e)(5)]

11.  Beneficiary Education. Provider shall make health education materials and
     programs available to Beneficiaries on the same basis that it makes such
     materials and programs available to the general public, and shall use its
     best efforts to encourage Beneficiaries to participate in such health
     education programs. [PHP Agreement]

12.  Grievances. Provider and Foundation agree to cooperate in resolving all
     grievances relating to the provision of services to Beneficiaries. Provider
     shall comply with Foundation's grievance procedure, including any fair
     hearing procedure involving the State of California or Foundation. Provider
     shall abide by, and implement upon request, all Foundation, DHS and DOC
     determinations on Beneficiary appeals and grievances. If Provider fails to
     implement a determination of Foundation, DHS or DOC in a timely manner,
     Foundation may arrange and cover the disputed service or remedy the
     grievance to the reasonable satisfaction of the Beneficiary and offset the
     cost of same from Foundation's payment under the Agreement to Provider.
     Copies of complaint forms and Foundation's grievance procedure will be made
     available to Provider and all Beneficiaries. Provider shall provide a
     Foundation complaint form to a Beneficiary who wishes to register a written
     complaint. Provider shall report any Beneficiary complaint directly to
     Foundation within one business day of receipt, whether resolved directly or
     not. All Beneficiary complaints will be logged by Foundation, a form letter
     acknowledging the complaint will be sent to the Beneficiary within five
     days of its receipt, and resolve the complaint within 30 days or document
     reasonable efforts to resolve the complaint. Beneficiaries may request
     disenrollment from Foundation or may request a fair hearing from the
     California Department of Social Services. [Section 1368 of the Knox-Keene
     Act and PHP Agreement]

13.  Provider-Patient Relationship. Provider shall be solely responsible,
     without interference from Foundation or its agent, for providing health
     care to Beneficiaries, and shall have the right to object to treating any
     individual who makes onerous the relationship between Provider and
     Beneficiary. In the event of a breakdown in such relationship, Foundation
     shall make reasonable efforts to assign the Beneficiary to another
     participating provider. If reassignment is unsuccessful, a request may be
     filed with the DHS to permit termination of services to such Beneficiary.
     Approval from the DHS must be obtained before Provider terminates services
     to such Beneficiary. Provider and Foundation are

                                       -4-



     independent contractors in relation to each other and each party is
     responsible for its own acts. [PHP Agreement]

14.  Fair Employment Requirements. During the term of the Agreement, Provider
     and its subcontractors shall not unlawfully discriminate against any
     employee or applicant for employment because of race, religious creed,
     color, national origin, ancestry, physical disability, mental disability,
     medical condition, marital status, age (over 40) or sex. Provider and its
     subcontractors also shall ensure that the evaluation and treatment of their
     employees and applicants for employment are free of such discrimination.
     Provider and its subcontractors shall comply with the provisions of the
     Fair Employment & Housing Act (California Government Code Section 12990 et
     seq.) and the applicable regulations promulgated thereunder (2 CCR Section
     7285.0 et seq.). The applicable regulations of the Fair Employment &
     Housing Commission implementing Government Code Section 12990, set forth in
     Chapter 5 of Division 4 of Title 2 of the California Code of Regulations
     are incorporated into the Agreement by reference and made a part hereof as
     if set forth in full. Provider and its subcontractors shall give written
     notice of their obligations under this clause to labor organizations with
     which they have a collective bargaining or other agreements. [PHP
     Agreement]

15.  Confidentiality of Information. Names of persons receiving public social
     services are confidential and are to be protected from unauthorized
     disclosure in accordance with Title 45, Code of Federal Regulations,
     Sections 205.50 & 14100.2 of the California Welfare and Institutions Code
     and the regulations adopted thereunder. For the purposes of the Agreement,
     all information, records, data, and data elements collected and maintained
     for or in connection with performance under the Agreement and pertaining to
     Beneficiaries shall be protected by Provider from unauthorized disclosure.
     With respect to any identifiable information concerning a Beneficiary under
     the Agreement that is obtained by Provider or its subcontractors, Provider:
     (1) will not use any such information for any purpose other than carrying
     out the express terms of the Agreement; (2) will promptly transmit to
     Foundation all requests for disclosure of such information; (3) will not
     disclose, except as otherwise specifically permitted by the Agreement, any
     such information to any party other than Foundation without Foundation's
     prior written authorization specifying that the information is releasable
     under applicable law; and (4) will, at the expiration or termination of the
     Agreement, return all such information to Foundation or maintain such
     information according to written procedures provided Provider by Foundation
     for this purpose. Provider shall ensure that its subcontractors comply with
     the provisions of this provision. [PHP Agreement]

16.  Third Party Tort Liability. Provider shall make no claim for recovery for
     health care services rendered to a Beneficiary when such recovery would
     result from an action involving the tort liability of a third party or
     casualty liability insurance, including workers' compensation awards and
     uninsured motorist coverage. Within five days of discovery, Provider shall
     notify Foundation of cases in which an action by the Beneficiary

                                       -5-



     involving the tort or workers' compensation liability of a third party
     could result in a recovery by the Beneficiary. Provider shall promptly
     provide: (1) all information requested by Foundation in connection with the
     provision of health care services to a Beneficiary who may have an action
     for recovery from any such third party; (2) copies of all requests by
     subpoena from attorneys, insurers or Beneficiaries for copies of bills,
     invoices or claims for health care services; and (3) copies of all
     documents released as a result of such requests. Provider shall ensure that
     its subcontractors comply with the requirements of this provision. [PHP
     Agreement]

17.  Non-Discrimination. Provider shall not discriminate against any Beneficiary
     in the provision of Contracted Services hereunder, whether on the basis of
     the Beneficiary's coverage, age, sex, marital status, sexual orientation,
     race, color, religion, ancestry, national origin, disability, handicap,
     health status, source of payment, utilization of medical or mental health
     services or supplies or other unlawful basis including, without limitation,
     the filing by such Beneficiary of any complaint, grievance or legal action
     against Provider, Foundation, or an affiliate or subcontractor of
     Foundation. [Knox-Keene Act and PHP Agreement]

18.  Encounter Reporting. For Beneficiaries for which Provider may receive
     capitation compensation under the Agreement, Provider shall provide
     Foundation with the following information, via personal computer diskette,
     magnetic tape or electronic transmission in standard HCFA 1500 form or its
     successor format and hardcopy, for each encounter with a Beneficiary during
     a calendar month. Such electronic encounter information and hardcopy
     materials shall be complete, accurate and provided to Foundation by the
     15th day of the month following the month in which the encounter occurred.
     Encounter reporting shall be in accordance with, but not limited to, the
     Health Plan Employer Data and Information Set (HEDIS), Version 2.0, or its
     successor. Additionally, Provider shall promptly provide Foundation with
     all corrections to and revisions of such encounter data. [PHP Agreement]

19.  No Surcharges and No Copayments. Provider shall not charge a Beneficiary
     any fee, surcharge or Copayment for health care services rendered pursuant
     to the Agreement. In addition, Provider shall not collect a sales, use or
     other applicable tax from Beneficiaries for the sale or delivery of medical
     services. If Foundation receives notice of any additional charge, Provider
     shall fully cooperate with Foundation to investigate such allegations, and
     shall promptly refund any payment deemed improper by Foundation to the
     party who made the payment. [Knox-Keene Act and PHP Agreement]

NOTE: THE FOLLOWING PROVISIONS ARE NON-STANDARD AND UNIQUE TO
      MOLINA MEDICAL CENTERS.

20.  Striking of Inaccurate Default Enrollment Provision. Addendum E in the
     Agreement contains certain inaccurate language concerning the enrollment
     process of the State and

                                       -6-



     inaccurate language concerning members being required to select a primary
     hospital. Addendum E is hereby deleted in its entirety and replaced with
     the restated Addendum E attached hereto as Attachment 1.

21.  No Automatic Rate Adjustment Commensurate With DHS Rate Adjustment to
     Foundation. The second sentence in Section 1 of Addendum I to the Agreement
     concerning the automatic adjustment in rates commensurate with adjustments
     in Foundation's rate from the DHS, has been determined by the DHS to be
     impermissible and is hereby stricken. If the parties are unable to mutually
     agree on a rate adjustment under the circumstances of Foundation's rate
     from the DHS being adjusted, then either party may terminate the Medi-Cal
     line of business under the Agreement with 30 days' written notice. Section
     1.2 of Addendum I to the Agreement is also hereby stricken.

FOUNDATION HEALTH, A CALIFORNIA HEALTH PLAN

By: /s/
   --------------------------------
     David J. Friedman
     Vice President
     Medi-Cal Operations

                                       -7-



                            ATTACHMENT 1 TO AMENDMENT

                               RESTATED ADDENDUM E

 PROCEDURE FOR ASSIGNMENT OF FOUNDATION'S LOS ANGELES COUNTY MAINSTREAM MEDI-CAL
            MEMBERS AMONG FOUNDATION, MOLINA MEDICAL CENTERS AND UCHP

   Prepaid Health Plan Enrollees. If a Medi-Cal beneficiary was a Medi-Cal
prepaid health plan enrollee of Foundation, Molina or Universal immediately
prior to the commencement of operations for the Two Plan Model in Los Angeles
County, Foundation will assign the Medi-Cal beneficiary to such plan, unless
prohibited by the DHS or otherwise requested by the Medi-Cal beneficiary.

   Assignment of a Medi-Cal Member Who Selects a PCP Unique to One of the Three
Plans. Los Angeles County Medi-Cal beneficiaries who select or who are assigned
by the enrollment contractor to Foundation's mainstream plan will be offered the
opportunity to select their Primary Care Physician from a single listing of
Foundation, Molina and Universal Primary Care Physicians. If the Medi-Cal Member
selects or is assigned to a Primary Care Physician that contracts with only one
of the three plans, such health plan will be responsible for the arrangement of
Health Care Services for the Medi-Cal Member, but the Medi-Cal Member remains a
Medi-Cal Member of Foundation.

   Assignment of a Medi-Cal Member Who Either Selects a PCP of Two or Three of
the Plans or Who Does Not Select a PCP. If a Medi-Cal Member selects a Primary
Care Physician that contracts with two or three of the plans, or the Medi-Cal
Member does not select a Primary Care Physician at the time of enrollment, the
Medi-Cal Member will be assigned by Foundation to one of the plans on a
rational, fair and alternating basis. In making this assignment, Foundation will
consider the ability of the plans' available Primary Care Physicians to
accommodate the geographic and linguistic needs of the Medi-Cal Member. Where
the geographic and linguistic needs of the Medi-Cal Member can be adequately
served by Primary Care Physicians of two or more of the plans, Foundation will
assign the Medi-Cal Member to the plan which is next due for an assignment on an
alternating basis among the three plans.

   If a Medi-Cal Member selects a Primary Care Physician that contracts with
Molina and Universal, the Medi-Cal Member will be assigned by Foundation to
Molina or Universal on a rational, fair and alternating basis.

   This forementioned assignment procedure will also apply to Medi-Cal Members
who request a Primary Care Physician change but who do not indicate the name of
a new Primary Care Physician.

   Additionally, if a Medi-Cal Member selects a PCP that contracts with two or
three of the plans but requests in writing to be assigned to one of such plans,
Foundation will assign the

                                       -8-



Medi-Cal Member to the requested plan. However, the parties understand and agree
that such assignments to Molina and Universal shall only be made until Molina
and Universal reach the 26% enrollment limitation described in this Addendum
below.

   Enrollment Limitation for Molina and Universal. This assignment process will
continue until Molina and Universal each achieve a total Medi-Cal membership in
Los Angeles County of 26% of the total number of Foundation Medi-Cal Members in
Los Angeles County (Foundation will calculate enrollment numbers on a monthly
basis). When Molina or Universal achieve such enrollment, these plans will only
receive new Medi-Cal Members if they are the sole plan that contracts with the
Primary Care Physician selected by the Medi-Cal Member.

   If any of the plans is unable to service additional Medi-Cal Members due to
lack of capacity, Foundation will assign additional Medi-Cal Members to the
remaining plans with capacity using the above procedure.

                                       -9-



                                  AMENDMENT OF
             HEALTH NET-MOLINA LOS ANGELES COUNTY MEDI-CAL AGREEMENT

This is an amendment of the Health Services Agreement for Los Angeles County
(the "Agreement") entered into by and between Molina Medical Centers ("Molina")
and Health Net (formerly, Foundation Health, a California Health Plan). This
Amendment is an integral part of the Agreement and shall supersede any
contractual provisions to the contrary. The parties hereby amend the Agreement
as follows:

1. Revised compensation arrangement. Addendum I is deleted in its entirety and
   replaced with the restated Addendum I attached hereto as Exhibit 1.

MOLINA MEDICAL CENTERS                     HEALTH NET

By: /s/                                    By: /s/
   --------------------------------           ----------------------------------
   George Goldstein, President                Jeffrey A. Baumeister,
                                              Vice President
                                              California Health Programs

Date: 9/22/99                              Date: 9/22/99
     ------------------------------              -------------------------------

LARATEAMD                              -1-                                9-8-99



                            EXHIBIT 1 TO AMENDMENT OF
             HEALTH NET-MOLINA LOS ANGELES COUNTY MEDI-CAL AGREEMENT

                               RESTATED ADDENDUM I

                                  COMPENSATION

1.   Compensation. Health Net shall pay to Molina for all Health Care Services
and other services provided or arranged by Molina under this Agreement the
following monthly Capitation Payment amounts for each Member assigned by Health
Net to Molina (based on the Member's aid category).

   1.1  Compensation for the period of July 1,1997 to October 1,1997. For the
period of July 1, 1997 to October 1,1997, Health Net shall pay Molina the
monthly "Amended Rates" set out below for each Member assigned by Health Net to
Molina. The parties understand and agree that Health Net will make the specified
"adjustment" to the specified "Previously Paid Rates" to pass on an approximate
[*]% rate increase.

   PREVIOUSLY PAID RATE          AMENDED RATE                 ADJUSTMENT
   --------------------          ------------                 ----------

   Family       [*]                   [*]                         [*]
   Child        [*]                   [*]                         [*]
   Disabled     [*]                   [*]                         [*]
   Aged         [*]                   [*]                         [*]
   Adult        [*]                   [*]                         [*]

   1.2  Compensation for the period of October 1,1997 to April 1,1998. For the
period of October 1,1997 to April 1,1998, Health Net shall pay Molina the
monthly "Amended Rates" set out below for each Member assigned by Health Net to
Molina. The parties understand and agree that Health Net made the specified
"adjustment" to the specified "Previously Paid Rates" to adjust the rates to the
specified "Amended Rates".

   PREVIOUSLY PAID RATE          AMENDED RATE                 ADJUSTMENT
   --------------------          ------------                 ----------

   Family       [*]                   [*]                         [*]
   Child        [*]                   [*]                         [*]
   Disabled     [*]                   [*]                         [*]
   Aged         [*]                   [*]                         [*]
   Adult        [*]                   [*]                         [*]
   AIDS         [*]                   [*]                         [*]

   AIDS compensation. Payment of the AIDS rate is payable after Health Net
receives its

LARATEAMD                              -2-                                9-8-99



AIDS compensation from the DHS, and will be reduced to the extent that Molina
has received another capitation rate from Health Net.

   1.3  Compensation for the period of April 1,1998 to October 1,1998. For the
period of April 1, 1998 to October 1,1998, Health Net shall pay Molina the
monthly "Amended Rates" set out below for each Member assigned by Health Net to
Molina. The parties understand and agree that Health Net made the specified
"adjustment" to the specified "Previously Paid Rates" to pass on a similar rate
reduction in Health Net's compensation from the DHS for a carve out of optical
lenses under the Medi-Cal Agreement.

   PREVIOUSLY PAID RATE          AMENDED RATE                 ADJUSTMENT
   --------------------          ------------                 ----------

   Family       [*]                   [*]                         [*]
   Child        [*]                   [*]                         [*]
   Disabled     [*]                   [*]                         [*]
   Aged         [*]                   [*]                         [*]
   Adult        [*]                   [*]                         [*]
   AIDS         [*]                   [*]                         [*]

   AIDS compensation. Payment of the AIDS rate is payable after Health Net
receives its AIDS compensation from the DHS, and will be reduced to the extent
that Molina has received another capitation rate from Health Net.

   1.4 Compensation for the period of October 1,1998 to July 1,1999. For the
period of October 1,1998 to July 1,1999, Health Net shall pay Molina the monthly
"Amended Rates" set out below for each Member assigned by Health Net to Molina.

   PREVIOUSLY PAID RATE          AMENDED RATE                 ADJUSTMENT
   --------------------          ------------                 ----------

   Family       [*]                   [*]                         [*]
   Child        [*]                   [*]                         [*]
   Disabled     [*]                   [*]                         [*]
   Aged         [*]                   [*]                         [*]
   Adult        [*]                   [*]                         [*]
   AIDS         [*]                   [*]                         [*]

   1.5  Compensation for the period of July 1,1999 to October 1,1999. For the
period of July 1, 1999 to October 1, 1999, Health Net shall pay Molina the
monthly "Amended Rates" set out below for each Member assigned by Health Net to
Molina.

   Family       [*]
   Child        [*]
   Disabled     [*]

LARATEAMD                              -3-                                9-8-99



     Aged     [*]
     Adult    [*]
     AIDS     [*]

     1.6 Compensation Adjustment Provision. Subject to the prior written
approval of this provision by the DHS, in the event that Health Net's
compensation for its Los Angeles County Medi-Cal Plan under Health Net's
Medi-Cal Agreement with the DHS is adjusted, Health Net and Molina will execute
an amendment of this Agreement that establishes revised per member per month
capitation rates that are commensurate with the new Medi-Cal rates paid by the
DHS, less [*]% and the $ [*] per member per month reduction described in Section
 6below,

     1.7 Incentive Withhold Arrangement. Commencing April 1, 1999, Health Net
shall withhold $ [*]  each month from Molina's compensation under this Agreement
to incent Molina's efforts to assist Health Net in receiving incentive monies
withheld from Health Net by the DHS that are tied to Health Net's achievement of
specified utilization standards, as measured by encounter data and PM-160
information, and the achievement of timely encounter data and PM-160 reporting.
The performance standards, terms and conditions for Health Net's receipt of its
monies withheld by the DHS (the "DHS Withhold of Health Net Money") are set out
in the previously provided ten-page excerpt of the Medi-Cal Agreement that is
summarized below. The terms, conditions and performance standards for Molina's
receipt of its incentive monies withheld by Health Net shall be identical to the
terms, conditions and performance standards for Health Net's receipt of its
incentive monies withheld by the DHS, except as otherwise set out in this
Compensation Addendum. The parties agree that the terms, conditions and
performance standards for Molina's receipt of its incentive monies withheld by
Health Net shall be automatically modified to conform with any DHS modifications
of the terms, conditions and performance standards of the DHS Withhold of Health
Net Money.

The amount of any distribution of the Molina withhold will be determined by
Health Net in its sole discretion based on all of the following factors:

1.   The extent of Molina's compliance with the DHS performance standards and
     the terms and conditions of this Agreement,

2.   The amount of any return of the DHS Withhold of Health Net Money, and
     Molina's relative share considering the total incentive monies at stake of
     the following three "Plan Partners" that collectively serve Health Net's
     Los Angeles County. Medi-Cal Plan (Molina, Universal Care Health Plan and
     Health Net), and

3.   The combined performance of the Plan Partners against the performance
     standards. That is, the DHS performance standards consider the collective
     utilization of all members of Health Net's Los Angeles County Medi-Cal Plan
     and the totality of PM-160 and encounter data reporting under the plan,
     even though each of the Plan Partners are only responsible

LARATEAMD                              -4-                                9-8-99



     for the arrangement of health care services and related PM-160 and
     encounter data reporting for a portion of the members. The return of
     incentive withhold monies of each of the Plan Partners is dependent on the
     collective performance of the Plan Partners against the performance
     standards. For example, if Molina significantly falls short of the
     performance standards, it will jeopardize the return of its $ [*] share of
     the withhold, and will jeopardize the return of $ [*] share of the withhold
     of its three Plan Partners. Hence, the risk of the return of our respective
     withhold monies must necessarily be shared on a mutually dependent basis.

In order for Health Net to meet the performance standard of encounter data
reporting timeliness, Molina shall produce encounter data to Health Net 30 days'
prior to the time that Health Net is required to report the data to the DHS.

Summary of terms, conditions and performance standards of DHS Withhold of Health
Net Money. This Section sets out a very general summary of some of the terms,
conditions and details of the very complex DHS Withhold of Health Net Money. The
actual provisions are set out in the previously provided ten-page excerpt of the
Medi-Cal Agreement that is summarized below.

     Applicable member population;      Health Net's Los Angeles County Medi-Cal
                                        Members

     Withhold amount:                   $ [*]   each month

     Performance standards, means of
     measurement, and portion of
     withhold:                          1.   Children Served. 30% of children
                                             receive CHDP services, as measured
                                             by PM-160 information. This
                                             standard constitutes 35% of the
                                             withhold or $ [*]

                                        2.   Outpatient and Emergency Room
                                             Services. For the period of July 1,
                                             1998 - June 30, 1999, 1,380 member
                                             encounters receive outpatient or
                                             emergency department services for
                                             every 1,000 members. For the period
                                             of July 1, 1999 - June 30, 2000,
                                             1,822 member encounters receive
                                             outpatient or emergency department
                                             services for every 1,000 members).
                                             This standard is measured by
                                             outpatient and emergency room
                                             encounter data and constitutes 35%
                                             of the withhold or $ [*]

LARATEAMD                             -5-                                 9-8-99



                                        3.   Timeliness of PM-160 Reporting of
                                             Children Served. 75% of all PM-160
                                             information for children served is
                                             submitted within 30 days after the
                                             end of the month of the encounter.
                                             This standard constitutes 15% of
                                             the withhold or $ [*]

                                        4.   Timeliness of Encounter Data
                                             Reporting of Outpatient and
                                             Emergency Room Services. 70% of
                                             outpatient and emergency room data
                                             is submitted within 90 days after
                                             the end of the month of the
                                             encounter. This standard
                                             constitutes 15% of the withhold or
                                             $ [*]

     GRADUATED DISTRIBUTION FOR PARTIAL
     COMPLIANCE -WITH FIRST TWO
     STANDARDS                           % OF COMPLIANCE  % OF WITHHOLD RETURNED
                                         ---------------  ----------------------

                                           100%           100%
                                         76-99%            75%
                                         51-75%            50%
                                         26-50%            25%
                                          0-25%             0%

     Timing of distribution of          9-12 months after completion of each
     withhold                           quarter

     1.8 FQHC and RHC Risk Corridor. Beginning October 1,1997 and through June
30, 1999, the DHS shall perform reconciliations to determine the variance
between the funds that have been paid to Health Net in its Los Angeles County
capitation rates to reflect the dollar value of Federally Qualified Health
Centers ("FQHC") and Rural Health Clinics ("RHC") interim rate payments made to
these entities in Los Angeles County under the Medi-Cal Fee-For-Service Program
and the amount of payments to contracting FQHCs and RHCs under Health Net's Los
Angeles County Medi-Cal Plan. For each reconciliation, if under Health Net's Los
Angeles County Medi-Cal Plan contracting FQHCs and RHCs have been paid in the
aggregate an amount greater than [*]% of the dollar value of FQHC and RHC
interim rate payments included in Health Net's Los Angeles County capitation
rates, DHS shall pay Health Net the amount in excess of [*]%. For each
reconciliation, if under Health Net's Los Angeles County Medi-Cal Plan
contracting FQHCs and RHCs have been paid in the aggregate an amount less than
[*]% of the dollar value of FQHC and RHC interim rate payments included in
Health Net's Los Angeles County capitation rates, Health Net is required to
refund the amount below [*]% to the DHS.

If Health Net receives an FQHC/RHC Risk Corridor payment from the DHS, Health
Net shall

LARATEAMD                             -6-                                 9-8-99



distribute to Molina its share. If Health Net is required to make an FQHC/RHC
Risk Corridor payment to the DHS, Health Net shall deduct Molina's share from
its compensation under this Agreement. The amount of any such payment to, or
deduction from, Molina will be reasonably determined by Health Net based on
Molina's share of FQHC and RHC payments relative to all FQHC and RHC payments
under Health Net's Los Angeles County Medi-Cal Plan.

2.   Health Net Reinsurance. Health Net shall assume financial responsibility
for any Health Care Services rendered to Members assigned to Molina that exceed
[*]% of the amount of Capitation Payments to Molina under this Agreement over
a one-year fiscal year period of June 1 of one year through May 31 of the next
year. Health Net will only pay for Health Care Services, not Molina's
administrative expenses. Reconciliation will occur once annually. four months
after the close of each fiscal year, with incurred but not reported claims not
considered after 90 days of the close of each 12-month contract period.

3.   Retroactive Enrollment Adjustments. If DHS determines that a Member was
improperly omitted from the Eligibility List for a period of time during which
the Member actually was eligible for Health Care Services, Health Net will pay
Molina for the Member for such time period at the Capitation Payment rate
specified in this Addendum within five working days of receiving the
corresponding payment from DHS. If DHS determines that a Member was improperly
enrolled or should have been disenrolled in a prior month, Health Net will debit
the Capitation Payment amount paid to Molina by the amount attributable to such
Member for such time period. Molina agrees that Health Net is not liable for any
Capitation Payment amounts payable to or deductible from Molina's compensation
amount due to any errors in the Eligibility List not caused by Health Net unless
and except to the extent that DHS has recognized and corrected such errors,
informed Health Net of the correct information, and made appropriate payment
adjustments under the Medi-Cal Agreement.

4.   Collection of Charges From Members. Neither Molina nor any Molina
Participating Provider shall in any event, including, without limitation,
non-payment by Health Net, insolvency of Health Net, or breach of this
Agreement, bill, charge, collect and deposit, or attempt to bill, charge,
collect or receive form of payment, from any Member for Health Care Services
provided pursuant to this Agreement. Neither Molina nor any Molina Participating
Provider shall maintain any action at law or equity against a Member to collect
sums owed by Health Net to Molina. Upon notice of any violation of this
paragraph, Health Net may terminate this Agreement pursuant to Section 7.02(ii)
and take all other appropriate action consistent with the terms of this
Agreement to eliminate such charges, including, without limitation, requiring
Molina, and Molina Participating Providers to return all sums improperly
collected from Members or their representatives.

     Each contract between Molina and a Molina Participating Provider shall
provide that in the event that Molina fails to pay the Molina Participating
Provider, the Member shall not be liable to the Molina Participating Provider
for any sums owed by Molina. In addition,

LARATEAMD                             -7-                                 9-8-99



Molina agrees to hold harmless the State of California and DHS in the event of
non-payment by Health Net for Health Care Services provided to Members. Molina's
obligations under this Section shall survive the termination of this Agreement
with respect to Health Care Services provided during the term of this Agreement
without regard to cause of termination of this Agreement.

5.   Right to reduce compensation and/or dedelegate to the extent that Molina
has not performed its responsibilities under this Agreement. Pursuant to the
Agreement, Health Net has delegated the performance of certain functions to
Molina. In the event Health Net concludes that Molina is failing to materially
perform a delegated function to Health Net's satisfaction, Health Net may
dedelegate that function and/or reduce Molina's compensation by an actuarially
or financially determined amount, subject to the following:

5.1  Health Net shall first provide to Molina a detailed written notification of
     Health Net's determination that Molina has materially failed to perform the
     delegated function. Health Net's written notification shall also include an
     actuarial or financial analysis of the amount by which Health Net will
     reduce Molina's compensation.

5.2  Molina shall have 30 days from the date of receipt of the aforementioned
     written notification, or such longer period as Health Net may identify in
     that notification, to demonstrate that Molina is materially performing the
     delegated function to Health Net's satisfaction (i.e., full performance of
     the contract requirement). If Molina does so within that time frame, the
     delegated function shall remain with Molina. If Molina is unable to do so
     within that time frame, the function may be dedelegated and/or Health Net
     may make an appropriate reduction in compensation retroactive to the date
     of material nonperformance. In addition, if Molina cures the nonperformance
     of a delegated responsibility within the 30-day cure period, Health Net may
     make an appropriate reduction in compensation for the period of material
     nonperformance.

6.   Reduction for nonperformance of credentialing, primary care site review
and medical record audit responsibilities under this Agreement. Due to Health
Net's dedelegation of Molina for credentialing responsibilities, Molina's
compensation shall be reduced by $ [*]  per Member per month. Such reduction
shall apply prospectively and retroactively to October 1, 1997.

LARATEAMD                             -8-                                 9-8-99



                                  AMENDMENT OF
             HEALTH NET-MOLINA LOS ANGELES COUNTY MEDI-CAL AGREEMENT

This is an amendment of the Health Services Agreement for Los Angeles County
(the "Agreement") entered into by and between Molina Healthcare of California
(formerly, "Molina Medical Centers") and Health Net of California, Inc.
(formerly, "Foundation Health, a California Health Plan"). Subject to the terms
and conditions of Restated Addendum I to the Agreement, the parties hereby amend
the Agreement as follows:

1.   Revised compensation arrangement for the period of August 1, 2000 through
     September 30,2000. For the specified period, Health Net shall pay Molina
     the following monthly capitation rates for each Member assigned to Molina:

         Family       [*]
         Child        [*]
         Disabled     [*]
         Adult        [*]
         Aged         [*]
         AIDS         [*]

2.   Revised compensation arrangement for the period of October 1, 2000 through
     September 30, 2001. For the specified period, Health Net shall pay Molina
     the following monthly capitation rates for each Member assigned to Molina:

         Family       [*]
         Child        [*]
         Disabled     [*]
         Adult        [*]
         Aged         [*]
         AIDS         [*]

3.   Effective date of Amendment. This Amendment is effective August 1, 2000.

MOLINA/HEALTHCARE                             HEALTH NET OF CALIFORNIA, INC.
OF CALIFORNIA


By: /s/                                       By: /s/
   ----------------------------                  ---------------------------
    George Goldstein,                             Dave Meadows,
    President                                     Vice President
                                                  California Health Programs



                                  AMENDMENT OF
              HEALTH NET-MOLINA MEDI-CAL HEALTH SERVICES AGREEMENT
                             FOR LOS ANGELES COUNTY

   CONFORMATION OF PREEXISTING UTILIZATION MANAGEMENT DELEGATION AGREEMENT IN
                         COMPLIANCE WITH NCQA STANDARDS

This is an amendment of the Health Services Agreement for Los Angeles County
(the "Agreement") entered into by and between Molina Healthcare of California
("Molina") and Health Net of California, Inc. ("Health Net"). This amendment is
to (1) confirm and clarify compliance of the Agreement with the NCQA utilization
management delegation standards, and (2) clarify delegation responsibilities
concerning utilization management of pharmaceutical services.

 The parties hereby amend the Agreement as follows:

1.   Addition of Addendum J to each Agreement. The language attached as Exhibit
     1 to this Amendment is hereby added as Addendum J to the Agreement.

2.   Effective date of Amendment. This Amendment is effective June 1, 2001.

MOLINA HEALTHCARE OF CALIFORNIA         HEALTH NET OF CALIFORNIA, INC.


By: /s/                                 By: /s/
   -------------------------               --------------------
    George Goldstein,                       Dave Meadows,
    President                               Vice President
                                            California Health Programs

                                        1



                            EXHIBIT 1 TO AMENDMENT OF
              HEALTH NET-MOLINA MEDI-CAL HEALTH SERVICES AGREEMENT
                             FOR LOS ANGELES COUNTY

                                   ADDENDUM J

   CONFIRMATION OF PREEXISTING UTILIZATION MANAGEMENT DELEGATION AGREEMENT IN
                         COMPLIANCE WITH NCQA STANDARDS

When the parties entered into the Agreement in 1996, the party holding the
Medi-Cal contract with the DHS for the county ("Medi-Cal Plan") delegated to the
subcontracting party ("Subcontracting Plan") both the right and duty to perform
utilization management functions, including pharmaceutical utilization
management, with respect to Medi-Cal Plan members who are assigned to the
Subcontracting Plan. In Los Angeles County, Health Net is the Medi-Cal Plan and
Molina is the Subcontracting Plan. The Agreement and the delegation provisions
therein were approved by the California Department of Health Services ("DHS"),
HCFA and the California Department of Managed Health Care. The delegation of
utilization management functions under the Agreement to the Subcontracting Plan
has been successfully operative for more than five years without adverse
incident.

Although neither party is presently accredited by NCQA, each is, nonetheless,
obligated to comply with essentially all NCQA standards pursuant to their
Medi-Cal contracts with the DHS, and certain Medi-Cal and Knox-Keene laws. In
accordance with a study prepared by NCQA and published in the January 2001
report entitled "Medi-Cal Audit Crosswalk: A Comparison of the NCQA
Accreditation Standards and Medi-Cal Regulatory Oversight Requirements for
Managed Care Organizations", both NCQA and the DHS found that NCQA standards
are consistent with existing Medi-Cal Plan Contract and legal requirements. In
particular, NCQA and the DHS found that the NCQA standard UM 13 for delegation
of utilization management functions (renumbered UM 15 for the NCQA Guidelines
that are effective July 1, 2001) is consistent with the following sections of
the Medi-Cal Plan's Contract with the DHS: Sections 3.27.1, 3.27.2, 6.5.2.6,
Delegation of QIP Activities, 6.5.2.6(A), Maintenance of policies and procedures
which describe delegated activities, 6.5.2.6(B), Establish reporting standards,
6.5.2.6(C), Continues monitoring and evaluation of the delegated functions,
6.5.2.6(D), Assurance and documentation that subcontractor has the
administrative capacity, task experience, and budgetary resources to fulfill its
responsibilities. NCQA and the DHS also found that the NCQA delegation standard
is consistent with 10 CCR 1300.70(b)(2)(B-C), and (G)(2-4). This NCQA-Medi-Cal
Plan contract consistency is not coincidental because beginning in 1996, the DHS
began to issue new, and amend existing, Medi-Cal plan contracts to conform with
NCQA requirements.

The described NCQA report also found NCQA standards UM 3-6 were consistent with
and set out in the following sections of each of the Medi-Cal Plan's contracts
with the DHS and specified law:

                                        2



..    NCQA and the DHS found that NCQA standard UM 3 is consistent with Medi-Cal
     Plan Contract Section 6.5.9.3(A) and California Health and Safety Code
     Sections 1367.01(e)and 1367(g).
..    NCQA and the DHS found that NCQA standard UM 4 is consistent with Medi-Cal
     Plan Contract Sections 6.5.9.3(E), 6.9.14 and California Health and Safety
     Code Sections 1367.0l(h)(1-4), and 1367.10(h)(2).
..    NCQA and the DHS found that NCQA standard UM 5 is consistent with Medi-Cal
     Plan Contract Section 6.5.9.1 and California Health and Safety Code
     Sections 1367.5(a), and 1367(g).
..    NCQA and the DHS found that NCQA standard UM 6 is consistent with Two-Plan
     Model Contract Sections 6.5.9.3(A), 6.9.14, 22 CCR 53894, 22 CCR 51014.1,
     and California Health and Safety Code Sections 1367.0l(h)(4), and
     1368(a)(4).

The NCQA standards in each of the Medi-Cal Plan's contracts with the DHS were,
in turn, set out in the following sections of the Agreements to conform with the
delegation and oversight requirements in the parties' Medi-Cal Contracts with
the DHS, which NCQA has acknowledged in the above-described report to conform
with NCQA requirements: Section 3.07, Management of Delegated Quality
Improvement Activities, 3.08, Management of Delegated Credentialing Activities,
and 3.09, Management of Delegated Utilization Review Activities. Sections 2.08,
2.09 and 2.10 of the Agreements conform with the Medi-Cal Plan contract and NCQA
requirements that provide that the Subcontracting Plan's quality assurance,
utilization review and credentialing activities are subject to the Medi-Cal
Plan's standards and the oversight of the Medi-Cal Plan's Quality Assurance
Committee.

In summary, this is to confirm that the parties understand and agree that the
delegation provisions in the Agreements describe the Medi-Cal Plan's requirement
to maintain the oversight responsibilities required by NCQA and meet the
required elements of an NCQA-sufficient delegation agreement as set out in NCQA
standard UM 13.1 (renumbered UM 15.1 for the NCQA Guidelines that are effective
July 1, 2001).

Although the Agreements expressly provide that the Medi-Cal Plan delegated to
the subcontracting party and its subcontractors both the right and duty to
pharmaceutical utilization management, the following clarifies the understanding
and agreement of the parties with respect to such pharmaceutical utilization
management. The Subcontracting Plan and/or its subcontracting pharmacy benefits
management company shall:

..    Have clearly documented pharmaceutical management procedures in place, and
     a process for applying the procedures.
..    Review such pharmaceutical management procedures at least annually and
     update as it determines to be necessary.
..    Involve actively practicing practitioners, including pharmacists, in the
     development and periodic updating of its pharmaceutical management
     procedures.
..    Provide its contracting providers its pharmaceutical management procedures
     and any changes that the Subcontracting Plan or subcontracting pharmacy
     benefits management company makes to the procedures.

                                        3



..    When restricting pharmacy benefits via a drug formulary, the Subcontracting
     Plan or subcontracting pharmacy benefits management company shall have a
     process to consider medical necessity exceptions for members to obtain
     coverage of a pharmaceutical not on the drug formulary; provided, however,
     the parties understand and agree that the Subcontracting Plan is not
     obligated to cover non-formulary medications on a medically necessary basis
     that are carved out from the Medi-Cal Plan's contract with the DHS, such as
     AIDS, HIV, Parkinson's, anti-psychotic and anti-maniac medications.
..    Provide the following reports to the Medi-Cal Plan on a quarterly basis:

     1.   Notification of any changes to the drug formulary.
     2.   Copies of denials for pharmacy prior authorization (if any).
     3.   Additions and deletions to pharmaceutical management procedures (other
          than drug formulary).
     4.   Any changes in overall makeup of P&T Committee (e.g., different
          specialties represented, actual member names need not be included).

                                        4



                                  AMENDMENT OF
             HEALTH NET-MOLINA LOS ANGELES COUNTY MEDI-CAL AGREEMENT

This is an amendment of the Health Services Agreement for Los Angeles County
(the "Agreement") entered into by and between Molina Healthcare of California
(formerly, "Molina Medical Centers") and Health Net of California, Inc.
(formerly, "Foundation Health, a California Health Plan"). Subject to the terms
and conditions of Restated Addendum I to the Agreement, the parties hereby amend
the Agreement as follows:

1.   Revised compensation arrangement for the period of October 1, 2001 through
     October 31, 2001. For the specified period, Health Net shall pay Molina the
     following monthly capitation rates for each Member assigned to Molina:

         Family         $  [*]
         Child          $  [*]
         Disabled       $  [*]
         Adult          $  [*]
         Aged           $  [*]
         AIDS           $  [*]

2.   Revised compensation arrangement for the period of November 1, 2001 through
     September 30, 2002. For the specified period, Health Net shall pay Molina
     the following monthly capitation rates for each Member assigned to Molina:

         Family         $  [*]
         Child          $  [*]
         Disabled       $  [*]
         Adult          $  [*]
         Aged           $  [*]
         AIDS           $  [*]

3.   Effective date of Amendment. This Amendment is effective October 1, 2001.

MOLINA HEALTHCARE                       HEALTH NET OF CALIFORNIA, INC.
OF CALIFORNIA

By: /s/                                 By: /s/
   ----------------------                   -----------------------
    George Goldstein,                        Dave Meadows,
    President                                Vice President
                                             California Health Programs

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY "[*]".
CONFIDENTIAL INFORMATION OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.

                                                                    EXHIBIT 10.3

Form No. DMB 234 (Rev. 1/96)
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Contract will not be executed unless form is filed

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET
                              OFFICE OF PURCHASING
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                                 CONTRACT NO. 071B1001026
                                     between
                              THE STATE OF MICHIGAN
                                       and

NAME & ADDRESS OF VENDOR
   Molina Healthcare of Michigan, Inc.              TELEPHONE Michael A. Graham
   dba Molina Healthcare of Michigan                (248) 454-1070
   43097 Woodward Avenue, Suite 200                 ---------------------------
   Bloomfield Hills, MI 48302                       VENDOR NUMBER/MAIL  CODE
                                                    (2) 38-3341599 (008)
                                                    ---------------------------
                                                    BUYER (517) 373-2467
                                                    /s/ Ray E. Irvine
                                                    -----------------
                                                    Ray E. Irvine
- --------------------------------------------------------------------------------
Contract Administrator: Rick Murdock
 Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries in
          Selected Michigan Counties -- Department of Community Health
- --------------------------------------------------------------------------------
CONTRACT PERIOD:           From: October 1, 2000            To: October 1, 2002*
- --------------------------------------------------------------------------------
TERMS                                      SHIPMENT
                 N/A                                         N/A
- --------------------------------------------------------------------------------
F.O.B.                                     SHIPPED FROM
                 N/A                                         N/A
- --------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- --------------------------------------------------------------------------------
MISCELLANEOUS INFORMATION:

The terms and conditions of this Contract are those of ITB #071I0000251, this
Contract Agreement and the vendor's quote dated 5-1-00, and subsequent Best And
Final offer. In the event of any conflicts between the specifications, terms and
conditions indicated by the State and those indicated by the vendor, those of
the State take precedence.

Estimated Contract Value: The exact dollar value of this contract is unknown;
the Contractor will be paid based on actual beneficiary enrollment at the rates
(prices) specified in Attachment A to the Contract
- --------------------------------------------------------------------------------

THIS IS NOT AN ORDER: This Contract Agreement is awarded on the basis of our
inquiry bearing the ITB No.071I0000251. A Purchase Order Form will be issued
only as the requirements of the State Departments are submitted to the Office of
Purchasing. Orders for delivery may be issued directly by the State Departments
through the issuance of a Purchase Order Form.

All terms and conditions of the invitation to bid are made a part hereof.
================================================================================

FOR THE VENDOR:                                 FOR THE STATE:
 Molina Healthcare of Michigan, Inc.
 dba Molina Healthcare of Michigan              /s/ David F. Ancell
- -------------------------------------------     -------------------------------
               Firm Name                                   Signature
        /s/ Michael A. Graham                           David F. Ancell
- -------------------------------------------     --------------------------------
       Authorized Agent Signature                            Name
 Michael A. Graham, Chief Executive Officer        State Purchasing Director
- -------------------------------------------     --------------------------------
    Authorized Agent (Print or Type)                         Title
              9/28/00                                       10/6/00
- -------------------------------------------     --------------------------------
                Date                                         Date



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                TABLE OF CONTENTS

                                    SECTION I

                    CONTRACTUAL SERVICES TERMS AND CONDITIONS


                                                                                             
I-A    PURPOSE.................................................................................  1
I-B    ISSUING OFFICE..........................................................................  1
I-C    CONTRACT ADMINISTRATOR..................................................................  1
I-D    TERM OF CONTRACT........................................................................  2
I-E    PRICE...................................................................................  2
I-F    COST LIABILITY..........................................................................  2
I-G    CONTRACTOR RESPONSIBILITIES.............................................................  2
I-H    NEWS RELEASES...........................................................................  3
I-I    DISCLOSURE..............................................................................  4
I-J    CONTRACT INVOICING AND PAYMENT..........................................................  4
I-K    ACCOUNTING RECORDS......................................................................  4
I-L    INDEMNIFICATION.........................................................................  4
         1.   General Indemnification..........................................................  4
         2.   Patent/Copyright Infringement Indemnification....................................  5
         3.   Indemnification Obligation Not Limited...........................................  5
         4.   Continuation of Indemnification Obligation.......................................  6
         5.   Exclusion........................................................................  6
I-M    CONTRACTOR'S LIABILITY INSURANCE........................................................  6
I-N    LITIGATION..............................................................................  7
I-O    CANCELLATION............................................................................  8
I-P    ASSIGNMENT..............................................................................  9
I-Q    DELEGATION..............................................................................  9
I-R    CONFIDENTIALITY.........................................................................  9
I-S    NON-DISCRIMINATION CLAUSE...............................................................  9
I-T    MODIFICATION OF CONTRACT................................................................  9
I-U    ACCEPTANCE OF PROPOSAL CONTENT.......................................................... 10
I-V    RIGHT TO NEGOTIATE EXPANSION............................................................ 10
I-W    MODIFICATIONS, CONSENTS AND APPROVALS................................................... 10
I-X    ENTIRE AGREEMENT AND ORDER OF PRECEDENCE................................................ 10
I-Y    NO WAIVER OF DEFAULT.................................................................... 11
I-Z    SEVERABILITY............................................................................ 11
I-AA   DISCLAIMER.............................................................................. 11
I-BB   RELATIONSHIP OF THE PARTIES (INDEPENDENT CONTRACTOR).................................... 11
I-CC   NOTICES................................................................................. 11
I-DD   UNFAIR LABOR PRACTICES.................................................................. 11
I-EE   SURVIVOR................................................................................ 12
I-FF   GOVERNING LAW........................................................................... 12
I-GG   YEAR 2000 SOFTWARE COMPLIANCE........................................................... 12

                                   SECTION II

                                 WORK STATEMENT

II-A   BACKGROUND/PROBLEM STATEMENT............................................................ 13
         1.   Value Purchasing and Planning Principles......................................... 13
         2.   Managed Care Direction........................................................... 13


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TABLE OF CONTENTS (CON'T.)

                               SECTION II (con't.)


                                                                                             
II-B   OBJECTIVES.............................................................................. 14
         1.   Objectives....................................................................... 14
         2.   Objectives for Special Needs..................................................... 14
         3.   Objectives for Contractor Accountability......................................... 14
II-C   SPECIFICATIONS.......................................................................... 15
II-D   TARGETED GEOGRAPHICAL AREA FOR
       IMPLEMENTATION OF THE CHCP.............................................................. 15
         1.   Regions.......................................................................... 15
         2.   Multiple Region Service Areas.................................................... 16
         3.   Alternative Regions.............................................................. 17
         4.   Contractor Minimum Capacity...................................................... 17
II-E   MEDICAID ELIGIBILITY AND CHCP ENROLLMENT................................................ 17
         1.   Medicaid Eligible Groups Who Must Enroll in the CHCP............................. 17
         2.   Medicaid Eligible Groups Who May Voluntarily Enroll in the CHCP.................. 18
         3.   Medicaid Eligible Groups Excluded From Enrollment in the CHCP.................... 18
II-F   ELIGIBILITY DETERMINATION............................................................... 18
II-G   ENROLLMENT IN THE CHCP.................................................................. 18
         1.   Enrollment Services.............................................................. 18
         2.   Initial Enrollment............................................................... 19
         3.   Enrollment Lock-in............................................................... 19
         4.   Rural Area Exception............................................................. 20
         5.   Enrollment Date.................................................................. 20
         6.   Newborn Enrollment............................................................... 20
         7.   Open Enrollment.................................................................. 20
         8.   Automatic Re-enrollment.......................................................... 21
         9.   Enrollment Errors by the Department.............................................. 21
        10.   Enrollees who move out of the Contractor's Service Area.......................... 21
        11.   Disenrollment Requests Initiated by the Contractor............................... 21
        12.   Medical Exception................................................................ 22
        13.   Disenrollment for Cause Initiated by the Enrollee................................ 22
II-H   SCOPE OF COMPREHENSIVE BENEFIT PACKAGE.................................................. 22
         1.   Services Included................................................................ 22
         2.   Enhanced Services................................................................ 23
         3.   Services Covered Outside of the CHCP Contract.................................... 24
         4.   Services Prohibited or Excluded Under Medicaid................................... 24
ll-I   SPECIAL COVERAGE PROVISIONS............................................................. 24
         1.   Emergency Services............................................................... 25
         2.   Out-of-Network Services.......................................................... 25
         3.   Family Planning Services......................................................... 26
         4.   Maternal and Infant Support Services............................................. 26
         5.   Federally Qualified Health Centers............................................... 27
         6.   Co-payments...................................................................... 28
         7.   Abortions........................................................................ 28
         8.   Pharmacy......................................................................... 28
         9.   Well Child Care/Early and Periodic Screening, Diagnosis & Treatment
              Program (EPSDT).................................................................. 29
        10.   Immunizations.................................................................... 30
        11.   Transportation................................................................... 30
        12.   Transplant Services.............................................................. 31
        13.   Post-Partum Stays................................................................ 31
        14.   Communicable Disease Services.................................................... 31
        15.   Restorative Health Services...................................................... 31
        16.   School Based/School Linked (Adolescent) Health Centers........................... 31
        17.   Hospice Services................................................................. 32


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TABLE OF CONTENTS (CON'T.)

                               SECTION II (con't.)


                                                                                             
II-J   OBSERVANCE OF FEDERAL, STATE AND LOCAL LAWS............................................. 32
         1.   Special Waiver Provisions for CHCP............................................... 32
         2.   Fiscal Soundness of the Risk-Based Contractor.................................... 33
         3.   Suspended Providers.............................................................. 33
         4.   Public Health Reporting.......................................................... 33
         5.   Compliance with HCFA Regulation.................................................. 33
         6.   Advanced Directives Compliance................................................... 33
         7.   Medicaid Policy.................................................................. 34
II-K   CONFIDENTIALITY......................................................................... 34
II-L   CRITERIA FOR CONTRACTORS................................................................ 34
         1.   Administrative and Organizational Criteria....................................... 34
         2.   Financial Criteria............................................................... 34
         3.   Provider Network and Health Service Delivery Criteria............................ 34
II-M   CONTRACTOR ORGANIZATIONAL STRUCTURE, ADMINISTRATIVE
       SERVICES, FINANCIAL REQUIREMENTS AND PROVIDER NETWORKS.................................. 35
         1.   Organizational Structure......................................................... 35
         2.   Administrative Personnel......................................................... 35
              (a)  Executive Management........................................................ 36
              (b)  Medical Director............................................................ 36
              (c)  Quality Improvement/Utilization Director.................................... 36
              (d)  Chief Financial Officer..................................................... 36
              (e)  Support/Administrative Staff................................................ 36
              (f)  Member Services Staff....................................................... 37
              (g)  Provider Services Staff..................................................... 37
              (h)  Grievance/Complaint Coordinator............................................. 37
              (i)  Management Information Systems Director..................................... 37
         3.   Administrative Requirements...................................................... 37
         4.   Management Information Systems................................................... 37
         5.   Governing Body................................................................... 38
         6.   Provider Network in the CHCP..................................................... 38
              (a)  General..................................................................... 38
              (b)  Mainstreaming............................................................... 40
              (c)  Public and Community Providers and Organizations............................ 40
              (d)  Local Behavioral and Developmental Disability Agreements.................... 41
              (e)  Network Changes............................................................. 41
              (f)  Provider Contracts.......................................................... 41
              (g)  Disclosure of Physician Incentive Plan...................................... 42
              (h)  Provider Credentialling..................................................... 42
              (i)  Primary Care Provider Standards............................................. 42
II-N   PAYMENT TO PROVIDERS.................................................................... 44
         1.   Electronic Billing Capacity...................................................... 44
         2.   Prompt Payment................................................................... 44
         3.   Payment Resolution Process....................................................... 44
         4.   Arbitration...................................................................... 45
         5.   Post-payment Review.............................................................. 45
         6.   Total Payment.................................................................... 45
         7.   Case Rate Payments for Emergency Services........................................ 45
II-O   PROVIDER SERVICES....................................................................... 46
II-P   QUALITY ASSESSMENT AND PERFORMANCE IMPROVEMENT
       STANDARDS............................................................................... 46
         1.   Quality Assessment and Performance Improvement Program Standards................. 46
         2.   Performance Objectives........................................................... 48
         3.   Statewide Performance Improvement................................................ 48
         4.   External Quality Review.......................................................... 49
         5.   Annual Effectiveness Review...................................................... 49
         6.   Consumer Survey.................................................................. 49


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TABLE OF CONTENTS (CON'T.)

                               SECTION II (con't.)


                                                                                             
II-Q   UTILIZATION MANAGEMENT.................................................................. 50
II-R   THIRD PARTY RESOURCE REQUIREMENTS....................................................... 50
II-S   MARKETING............................................................................... 50
         1.   Allowed Marketing Locations/Practices............................................ 51
         2.   Prohibited Marketing Locations/Practices......................................... 51
         3.   Marketing Materials.............................................................. 51
II-T   MEMBER SERVICES AND ENROLLEE SERVICES................................................... 52
         1.   General.......................................................................... 52
         2.   Enrollee Education............................................................... 52
         3.   Member Handbook/Provider Directory............................................... 53
         4.   Protection of Enrollees Against Liability for Payment and Balanced
              Billing.......................................................................... 54
II-U   GRIEVANCE/COMPLAINT PROCEDURES.......................................................... 54
         1.   Contractor Grievance/Complaint Procedure Requirements............................ 55
         2.   Notice to Enrollees of Grievance Procedure....................................... 55
         3.   State Medicaid Appeal Process.................................................... 55
         4.   Termination of Coverage.......................................................... 55
II-V   CONTRACTOR ON-SITE REVIEWS.............................................................. 58
II-W   CONTRACTOR REMEDIES..................................................................... 58
II-X   DATA REPORTING.......................................................................... 59
         1.   HEDIS............................................................................ 60
         2.   Encounter Data Reporting......................................................... 60
         3.   Financial and Claims Reporting Requirements...................................... 60
         4.   Quality Assessment and Performance Improvement Program Reporting................. 60
II-Y   RELEASE OF REPORT DATA.................................................................. 60
II-Z   MEDICAL RECORDS......................................................................... 61
         1.   Medical Record Maintenance....................................................... 61
         2.   Medical Record Confidentiality/Access............................................ 61
II-AA  SPECIAL RISK SHARING PROVISIONS......................................................... 61
II-BB  RESPONSIBILITIES OF THE DEPARTMENT OF COMMUNITY HEALTH.................................. 62
II-CC  RESPONSIBILITIES OF THE DEPARTMENT OF ATTORNEY GENERAL.................................. 63

                                SECTION III

                          CONTRACTOR INFORMATION

III-A  BUSINESS ORGANIZATION................................................................... 64

III-B  AUTHORIZED CONTRACTOR EXPEDITER......................................................... 64

                                APPENDICES

A      MODEL LOCAL AGREEMENT WITH LOCAL HEALTH DEPARTMENTS &
       MATRIX FOR COORDINATION OF SERVICES

B      MODEL LOCAL AGREEMENT WITH BEHAVIORAL PROVIDER

C      MODEL LOCAL AGREEMENT WITH DEVELOPMENTAL DISABILITY PROVIDER

D      FORMAT FOR PROFILES OF PRIMARY CARE PROVIDERS, SPECIALISTS,
       & ANCILLARY PROVIDER


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TABLE OF CONTENTS (CON'T.)

                               APPENDICES (con't.)

E    ANNUAL CONSOLIDATED REPORT

F    SCHEDULE FOR REPORTING REQUIREMENTS FOR CONTRACTORS

                                   ATTACHMENTS

A    CONTRACTOR'S AWARDED PRICES

B    APPROVED SERVICE AREAS

C    CORRECTIVE ACTION PLANS (to be developed at a later date)

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                                                           CONTRACT #071B1001026
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                        DEFINITIONS/EXPLANATION OF TERMS

ACIP                     Advisory Committee on Immunization Practices. A federal
                         advisory committee convened by the Center for Disease
                         Control, Public Health Service, Health & Human Services
                         to make recommendations on the appropriate use and
                         scheduling of vaccines and immunizations for the
                         general public.

BALANCED BUDGET ACT      The Balanced Budget Act (BBA) of 1997 (Public law
                         105-33) was signed into law by President Clinton in
                         August 1997. This legislation enacts the most
                         significant changes to the Medicare and Medicaid
                         Programs since their inception. Additionally, it
                         expands the services provided through the new Child
                         Health Insurance Program (Title XXI).

BENEFICIARY              Any person determined eligible for the Medical
                         Assistance Program as defined below.

BLANKET PURCHASE         Alternative term for "Contract" used in the State's
ORDER                    computer system (Michigan Automated Information
                         Network) MAIN.

BUSINESS DAY             Monday through Friday except those days identified by
                         the State as holidays.

CAC                      Clinical Advisory Committee appointed by the DCH.

CAPITATION RATE          A fixed per person monthly rate payable to the
                         Contractor by the DCH for provision of all Covered
                         Services defined within this Contract. This rate shall
                         not exceed the limits set forth in 42 CFR 447.361.

CFR                      Code of Federal Regulations

CHCP                     Comprehensive Health Care Program. Capitated health
                         care services for Medicaid Beneficiaries in specified
                         counties provided by Contractors that contract with the
                         State.

CLEAN CLAIM              For purposes of this Contract, a Clean Claim shall be
                         defined as in the Medicare Program unless otherwise
                         defined by State or Federal enacted legislation. A
                         Clean Claim is one that does not require further
                         investigation or the development of additional
                         information outside of the Contractor's operation
                         before processing the claim. Clean Claims also are
                         those that:
                         .    Pass edits and are processed electronically;
                         .    Do not require external development;
                         .    Are investigated within the Contractor's claims,
                              medical review or payment office without the need
                              to contact the provider, Enrollee or other outside
                              source;
                         Are subject to medical review but complete medical
                         evidence is attached by the provider or forwarded
                         simultaneously with EMC records in accordance with the
                         Contractor's

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DEFINITIONS/EXPLANATION OF TERMS (CON'T.)

CLEAN CLAIM (CON'T.)        instructions;
                         .  Identifies the health professional or the health
                            facility that provided treatment or service and
                            includes a matching identifying number (provider ID
                            number);
                         .  Identifies the patient and plan (member ID number
                            and plan name and/or ID number);
                         .  Lists the date and place of service;
                         .  Is for covered services;
                         .  If necessary, substantiates the medical necessity
                            and appropriateness of the care or services
                            provided, that includes any applicable authorization
                            number if prior authorization is required;
                         .  Includes additional documentation based upon
                            services rendered as reasonably required by the
                            payer;
                         Is certified by the provider that the claim is true,
                         accurate, prepared with the knowledge and consent of
                         the provider, and does not contain untrue, misleading,
                         or deceptive information, that identifies each
                         attending, referring, or prescribing physician,
                         dentist, or other practitioner by means of a program
                         identification number on each claim or adjustment of a
                         claim.

CMHSP                    Community Mental Health Services Program

CONTRACT                 A binding agreement between the State of Michigan and
                         the Contractor (see also "Blanket Purchase").

CONTRACTOR               A successful Bidder who is awarded a Contract to
                         provide services under CHCP. In this Contract, the
                         terms Contractor, Contractor's plan, Health Plan,
                         Qualified Health Plan, and QHP, are used
                         interchangeably.

COVERED SERVICES         All services provided under Medicaid, as defined in
                         Section II-H (1)-(2) that the Contractor has agreed to
                         provide or arrange to be provided.

CSHCS                    Children's Special Health Care Services.

DCH OR MDCH              The Department of Community Health or the Michigan
                         Department of Community Health and its designated
                         agents.

DEPARTMENT               The Department of Community Health and it designated
                         agents.

DMB                      The Department of Management and  Budget.

EMERGENCY MEDICAL        Those services necessary to treat an emergency medical
CARE/SERVICES            condition. Emergency medical condition means a medical
                         condition manifesting itself by acute symptoms of
                         sufficient severity (including severe pain) such that a
                         prudent lay person,

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DEFINITIONS/EXPLANATION OF TERMS (CON'T.)

EMERGENCY MEDICAL        with an average knowledge of health and medicine, could
CARE/SERVICES (CON'T.)   reasonably expect the absence of immediate medical
                         attention to result in: (i) serious jeopardy to the
                         health of the individual or, in the case of a pregnant
                         woman, the health of the woman or her unborn child;
                         (ii) serious impairment to bodily functions; or (iii)
                         serious dysfunction of any bodily organ or part.

ENROLLEE                 Any Medicaid Beneficiary that is a member of the
                         Contractor's health plan (see Beneficiary)

ENROLLMENT CAPACITY      The number of persons that the Contractor can serve
                         through its provider network under a Contract with the
                         State. Enrollment Capacity is determined by a
                         Contractor based upon its provider network and
                         organizational capacity. The DCH will verify that the
                         provider network is under contract and of sufficient
                         size before accepting the enrollment capacity
                         statement.

ENROLLMENT SERVICE       An entity contracted by the DMB to contact and educate
                         general Medicaid and Children's Special Health Care
                         Services Beneficiaries about managed care and to
                         enroll, disenroll, and change enrollment(s) for these
                         Beneficiaries.

FIA                      Family Independence Agency, formerly the Department of
                         Social Services.

FFS                      Fee-for-service. A reimbursement methodology that
                         provides a payment amount for each individual service
                         delivered.

FQHC                     Federal Qualified Health Center

HEALTH PLANS             Managed care organizations that provide or arrange for
                         the delivery of comprehensive health care services in
                         exchange for a fixed prepaid sum or Per Member Per
                         Month prepaid payment without regard to the frequency,
                         extent or kind of health care services. A Health Plan
                         must be licensed as a Health Maintenance Organization
                         (HMO) not later than October 1, 2000. (See also
                         "Contractor.")

HEDIS                    Health Employer Data and Information Set.

HCFA                     The Health Care Financing Administration (and its
                         designated agents) which is the federal agency within
                         the United States Department of Health and Human
                         Services responsible for administration of the Medicaid
                         and Medicare programs.

HMO                      An entity defined in Michigan Compiled Laws (MCL
                         333.21005(2)) that has received and maintains a state
                         license to operate as an HMO.

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DEFINITIONS/EXPLANATION OF TERMS (CON'T.)

LONG TERM CARE           Any facility licensed and certified by the Michigan
FACILITY                 Department of Community Health, in accordance with 1978
                         PA 368, as amended, to provide inpatient nursing care
                         services.

MECICAID/MEDICAL         A federal/state program authorized by the Title XIX of
ASSISTANCE PROGRAM       the Social Security Act, as amended, 42 U.S.C. 1396 et
                         seq.; and section 105 of 1939 PA 280, as amended, MCL
                         400.105; which provides federal matching funds for a
                         Medical Assistance Program. Specified medical and
                         financial eligibility requirements must be met.

MSA                      Medical Services Administration, the agency within the
                         Department of Community Health responsible for the
                         administration of the Medicaid Program.

PCP                      Primary Care Provider. Those providers within the
                         Health Plans who are designated as responsible for
                         providing or arranging health care for specified
                         Enrollees of the Contractor. A PCP may be any of the
                         following: family practice physician, general practice
                         physician, internal medicine physician, OB/GYN
                         specialist, pediatric physician when appropriate for an
                         Enrollee, other physician specialists when appropriate
                         for an Enrollee's health condition, nurse practitioner,
                         and physician assistants.

PMPM                     Per Member Per Month.

PROVIDER                 Provider means a health facility or a person licensed,
                         certified, or registered under parts 61 to 65 or 161 to
                         182 of Michigan's Public Health code, 1978 PA 368, as
                         amended, MCL 333.6101- 333.6523 and MCL
                         333.16101-333.18237.

PURCHASING OFFICE        The Office of Purchasing within the Department of
                         Management and Budget that is the sole point of contact
                         throughout the procurement process.

QIC                      Quality Improvement Committee appointed by the
                         Contractor.

QHP                      A Qualified Health Plan awarded a Contract to provide
                         services under CHCP. (See also "Contractor").

RFP                      Request for Proposal. Interchangeable with ITB,
                         (Invitation to Bid). A procurement document that
                         describes the services required, and instructs
                         prospective Bidders how to prepare a response.

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DEFINITIONS/EXPLANATION OF TERMS (CON'T.)

RURAL                    Rural is defined as any county not included in a
                         standard metropolitan area (SMA).

SUCCESSFUL BIDDER        The Bidder (Contractor) awarded a Contract as a result
                         of a proposal submitted in response to the ITB.

STATE                    The State of Michigan.

STATE PURCHASING         The Director of the Office of Purchasing within the
DIRECTOR                 Department of Management and Budget. Also referred to
                         as Director of Purchasing.

VFC                      Vaccines for Children program. A federal program which
                         makes vaccine available free in immunize children age
                         18 and under who are Medicaid eligible, who have no
                         health insurance, who are native Americans or Alaskans,
                         or who have health insurance but not for immunizations
                         and receive their immunization at a FQHC.

WELL CHILD               Early and periodic screening, diagnosis, and treatment
VISITS/EPSDT             program. A child health program of prevention and
                         treatment intended to ensure availability and
                         accessibility of primary, preventive, and other
                         necessary health care resources and to help Medicaid
                         children and their families to effectively use these
                         resources.

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                                    SECTION I
                    CONTRACTUAL SERVICES TERMS AND CONDITIONS

I-A  PURPOSE

     The State of Michigan, by the Department of Management and Budget (DMB),
     Office of Purchasing, hereby enters into a Contract with the Contractor
     identified in Section III-A for the Michigan Department of Community Health
     (DCH).

     The purpose of this Contract is to obtain the services of the Contractor to
     provide Comprehensive Health Care Program (CHCP) Services for Medicaid
     beneficiaries (Beneficiaries) in the service area as described in
     Attachment B to this Contract. This is a unit price (Per Member Per Month
     [PMPM] Capitated Rate) Contract, see Attachment A. The term of the Contract
     shall be effective October 1, 2000 and continue to October 1, 2002. The
     Contract may be extended for no more than three(3) one year extensions
     after September 30, 2002.

I-B  ISSUING OFFICE

     This Contract is issued by DMB, Office of Purchasing (Office of
     Purchasing), for and on the behalf of DCH. Where actions are a combination
     of those of the Office of Purchasing and DCH, the authority will be known
     as the State.

     The Office of Purchasing is the sole point of contact in the State with
     regard to all procurement and contractual matters relating to the services
     describe herein.. The Office of Purchasing is the only office authorized to
     change, modify, amend, clarify, or otherwise alter the prices,
     specifications, terms, and conditions of this Contract. The OFFICE OF
     PURCHASING will remain the SOLE POINT OF CONTACT until such time as the
     Director of Purchasing shall direct otherwise in writing. See Paragraph I-C
     below. All communications with the DMB must be addressed to:

           Ray Irvine
           Office of Purchasing
           Department of Management & Budget
           P.O. Box 30026
           Lansing, MI 48909

I-C  CONTRACT ADMINISTRATOR

     Upon receipt by the Office of Purchasing of the properly executed Contract,
     it is anticipated that the Director of Purchasing will direct that the
     person named below be authorized to administer the Contract on a day-to-day
     basis during the term of the Contract. However, administration of this
     Contract implies no authority to change, modify, clarify, amend, or
     otherwise alter the prices, terms, conditions, and specifications of the
     Contract. That authority is retained by the Office of Purchasing. The
     Contract Administrator for this project is:

           Richard B. Murdock, Director
           Comprehensive Health Plan Division
           Medical Services Administration
           Department of Community Health
           P.O. Box 30479
           Lansing, Michigan 48909

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I-D  TERM OF CONTRACT

     The term of this Contract shall be from October 1, 2000 through September
     30, 2002. The Contract may be extended for no more than three (3) one year
     extensions after September 30, 2002. The State's fiscal year is October 1st
     through September 30th. Payments in any given fiscal year are contingent
     upon and subject to enactment of legislative appropriations.

     Because Beneficiaries must have a choice among Contractors, the State
     cannot guarantee an exact number of Enrollees to any Contractor.

1-E  PRICE

     Prices shall be held firm through September 30, 2001. Prices offered by the
     Contractor in the response to the RFP for the period October 1, 2001
     through October 1, 2002 are subject to written acceptance by the Director
     of Purchasing. Price adjustments for this second year period of the
     Contract and for any Contract extension thereafter may be proposed by the
     State or the Contractor. Price adjustments proposed by the Contractor must
     be submitted in writing to the Director of Purchasing no later than June
     15th of each contract year. Price adjustments proposed by the State will be
     submitted to the Contractor in no later than June 15th of each contract
     year.

     Any changes requested by either party are subject to negotiation and
     written acceptance by the State Purchasing Director before becoming
     effective. In the event the State and the Contractor cannot agree to
     changes by August 31st of each contract year, the Contract may be canceled
     pursuant to Section I-O (6) CANCELLATION. The exact dollar value of this
     Contract is unknown; the Contractor will be paid based on actual
     Beneficiary enrollment at the rates (prices) specified in Attachment "A"
     (Awarded Prices) of the Contract.

I-F  COST LIABILITY

     The State assumes no responsibility or liability for costs incurred by the
     Contractor prior to the signing of this Contract by all parties. Total
     liability of the State is limited to the terms and conditions of this
     Contract.

I-G  CONTRACTOR RESPONSIBILITIES

     The Contractor will be required to assume responsibility for all
     contractual activities relative to this Contract whether or not that
     Contractor performs them. Further, the State will consider the Contractor
     to be the sole point of contact with regard to contractual matters,
     including payment of any and all charges resulting from the Contract.
     Although it is anticipated that the Contractor will perform the major
     portion of the duties as requested, subcontracting by the Contractor for
     performance of any of the functions requires prior notice to the State. The
     Contractor must identify all subcontractors, including firm name and
     address, contact person, complete description of work to be subcontracted,
     and descriptive information concerning subcontractor's organizational
     abilities. The Contractor must also outline the contractual relationship
     between the Contractor and each subcontractor. The State reserves the right
     to approve subcontractors for administrative functions for this project and
     to require the

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                                                           CONTRACT #071B1001026
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     Contractor to replace subcontractors found to be unacceptable. The
     Contractor is totally responsible for adherence by the subcontractor to all
     provisions of the Contract.

     A subcontractor is any person or entity that performs a required, ongoing
     function of the Contractor under this Contract. A health care provider
     included in the network of the Contractor is not considered a subcontractor
     for purposes of this Contract unless otherwise specifically noted in this
     Contract. Contracts for one-time only functions or service contracts, such
     as maintenance or insurance protection, are not intended to be covered by
     this section.

     Although Contractors may enter into subcontracts, all communications shall
     take place between the Contractor and the State directly; therefore, all
     communication by subcontractors must be with the Contractor only, not with
     the State.

     If a Contractor elects to use a subcontractor not specified in the
     Contractor's response, the State must be provided with a written request at
     least 21 days prior to the use of such subcontractor. Use of a
     subcontractor not approved by the State may be cause for termination of the
     Contract.

     In accordance with 42 CFR 434.6(b), all subcontracts entered into by the
     Contractor must be in writing and fulfill the requirements of 42 CFR
     434.6(a) that are appropriate to the service or activity delegated under
     the subcontract. All subcontracts must be in compliance with all State of
     Michigan statutes and will be subject to the provisions thereof. All
     subcontracts must fulfill the requirements of this Contract that are
     appropriate to the services or activities delegated under the subcontract.
     For each portion of the proposed services to be arranged for and
     administered by a subcontractor, the technical proposal must include: (1)
     the identification of the functions to be performed by the subcontractor,
     and (2) the subcontractor's related qualifications and experience. All
     employment agreements, provider contracts, or other arrangements by which
     the Contractor intends to deliver services required under this Contract,
     whether or not characterized as a subcontract, shall be subject to review
     and approval by the State and must meet all other requirements of this
     paragraph appropriate to the service or activity delegated under the
     agreement.

     The Contractor shall furnish information to the State as to the amount of
     the subcontract, the qualifications of the subcontractor for guaranteeing
     performance, and any other data that may be required by the State. All
     subcontracts held by the Contractor shall be made available on request for
     inspection and examination by appropriate State officials, and such
     relationships must meet with the approval of the State.

     The Contractor shall furnish information to the State necessary to
     administer all requirements of the Contract. The State shall give
     Contractors at least 30 days notice before requiring new information.

I-H  NEWS RELEASES

     News releases pertaining to this document or the services, study, data, or
     project to which it relates will not be made without prior written State
     approval, and then only in accordance with the explicit written
     instructions from the State. No information or data related to this
     Contract is to be released without prior approval of the designated State
     personnel.

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I-I  DISCLOSURE

     All information in this Contract is subject to the provisions of the
     Freedom of Information Act, 1976 PA 442, as amended, MCL 15.231, et seq.

I-J  CONTRACT INVOICING AND PAYMENT

     This Contract reflects a fixed reimbursement mechanism and the specific
     payment schedule for this Contract will be monthly. The services will be
     under a fixed price per covered member multiplied by the actual member
     count assigned to the Contractor in the month for which payment is made.
     DCH will generate reports to the Contractor prior to month's end
     identifying expected enrollment for the following service month. At the
     beginning of the service month, DCH will automatically generate invoices
     based on actual member enrollment. The Contractor will receive one lump-sum
     payment approximately at mid-service month. A process will be in place to
     ensure timely payments and to identify Enrollees that the Contractor was
     responsible for during the month but for which no payment was received in
     the service month (e.g., newborns).

     The application of Contract remedies and performance bonus payments as
     described in Section II of this Contract will affect the lump sum payment.
     Payments in any given fiscal year are contingent upon and subject to
     enactment of legislative appropriations.

I-K  ACCOUNTING RECORDS

     The Contractor will be required to maintain all pertinent financial and
     accounting records and evidence pertaining to the Contract in accordance
     with generally accepted accounting principles and other procedures
     specified by the State of Michigan. Financial and accounting records shall
     be made available, upon request, to the Health Care Financing
     Administration (HCFA), the State of Michigan, its designees, the Department
     of Attorney General, or the Office of Auditor General at any time during
     the Contract period and any extension thereof, and for six (6) years from
     expiration date and final payment on the Contract or extension thereof.

I-L  INDEMNIFICATION

     1.   General Indemnification

          The Contractor shall indemnify, defend and hold harmless the State,
          its departments, divisions, agencies, sections, commissions, officers,
          employees and agents, from and against all losses, liabilities,
          penalties, fines, damages and claims (including taxes), and all
          related costs and expenses (including reasonable attorneys' fees and
          disbursements and costs of investigation, litigation, settlement,
          judgments, interest and penalties), arising from or in connection with
          any of the following:

          (a)  any claim, demand, action, citation or legal proceeding against
               the State, its employees and agents arising out of or resulting
               from (1) the products and services provided or (2) performance of
               the work, duties, responsibilities, actions or omissions of the
               Contractor or any of its subcontractors under this Contract;

          (b)  any claim, demand, action, citation or legal proceeding against
               the State, its employees and agents arising out of or resulting
               from a breach by the Contractor of any representation or warranty
               made by the Contractor in the Contract;

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          (c)  any claim, demand, action, citation or legal proceeding against
               the State, its employees and agents arising out of or related to
               occurrences that the Contractor is required to insure against as
               provided for in this Contract;

          (d)  any claim, demand, action, citation or legal proceeding against
               the State, its employees and agents arising out of or resulting
               from the death or bodily injury of any person, or the damage,
               loss or destruction of any real or tangible personal property, in
               connection with the performance of services by the Contractor, by
               any of its subcontractors, by anyone directly or indirectly
               employed by any of them, or by anyone for whose acts any of them
               may be liable;

          (e)  any claim, demand, action, citation or legal proceeding against
               the State, its employees and agents which results from an act or
               omission of the Contractor or any of its subcontractors in its or
               their capacity as an employer of a person.

     2.   Patent/Copyright Infringement Indemnification

          The Contractor shall indemnify, defend and hold harmless the State,
          its employees and agents from and against all losses, liabilities,
          damages (including taxes), and all related costs and expenses
          (including reasonable attorney's fees and disbursements and costs of
          investigation, litigation, settlement, judgments, interest and
          penalties) incurred in connection with any action or proceeding
          threatened or brought against the State to the extent that such action
          or proceeding is based on a claim that any piece of equipment,
          software, commodity or service supplied by the Contractor or its
          subcontractors, or the operation of such equipment, software,
          commodity or service, or the use or reproduction of any documentation
          provided with such equipment, software, commodity or service infringes
          any United States of America or foreign patent, copyright, trade
          secret or other proprietary right of any person or entity, which right
          is enforceable under the laws of the United States of America. In
          addition, should the equipment, software, commodity, or service, or
          the operation thereof, become or in the Contractor's opinion be likely
          to become the subject of a claim of infringement, the Contractor shall
          at the Contractor's sole expense (i) procure for the State the right
          to continue using the equipment, software, commodity or service or, if
          such option is not reasonably available to the Contractor, (ii)
          replace or modify the same with equipment, software, commodity or
          service of equivalent function and performance so that it becomes
          non-infringing, or, if such option is not reasonably available to the
          Contractor, (iii) accept its return by the State with appropriate
          credits to the State against the Contractor's charges and reimburse
          the State for any losses or costs incurred as a consequence of the
          State ceasing its use and returning it.

     3.   Indemnification Obligation Not Limited

          In any and all claims against the State of Michigan, or any of its
          agents or employees, by any employee of the Contractor or any of its
          subcontractors, the indemnification obligation under the Contract
          shall not be limited in any way by the amount or type of damages,
          compensation or benefits payable by or for the Contractor or any of
          its subcontractors under worker's disability compensation acts,
          disability benefits acts, or other employee benefits acts. This
          indemnification clause is intended to be comprehensive. Any overlap in
          subclauses, or the fact that greater specificity is provided as to
          some categories of risk, is not intended to limit the scope of
          indemnification under any other subclause.

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     4.   Continuation of Indemnification Obligation

          The duty to indemnify will continue in full force and effect
          notwithstanding the expiration or early termination of the Contract
          with respect to any claims based on facts or conditions that occurred
          prior to termination.

     5.   Exclusion

          The Contractor is not required to indemnify the State of Michigan for
          services provided by health care providers mandated under federal
          statute or State policy, unless the health care provider is a
          voluntary contractual member of the Contractor's provider network.
          Local agreements with Community Mental Health Services program (CMHSP)
          do not constitute network provider contracts.

I-M  CONTRACTOR'S LIABILITY INSURANCE

     The Contractor shall purchase and maintain such insurance as will protect
     it from claims set forth below, which may arise out of or result from the
     Contractor's operations under the Contract whether such operations are by
     it or by any subcontractor or by anyone directly or indirectly employed by
     any of them, or by anyone for whose acts any of them may be liable:

     1)   Claims under workers' disability compensation, disability benefit and
          other similar employee benefit act. A non-resident Contractor shall
          have insurance for benefits payable under Michigan's Workers'
          Disability Compensation Law for any employee resident of and hired in
          Michigan; and as respects any other employee protected by workers'
          disability compensation laws of any other state the Contractor shall
          have insurance or participate in a mandatory State fund to cover the
          benefits payable to any such employee.

          In the event any work is subcontracted, the Contractor shall require
          the subcontractor similarly to provide workers' compensation insurance
          for all the subcontractor's employees working in the State, unless
          those are covered by the workers' compensation protection afforded by
          the Contractor. Any subcontract executed with a firm not having the
          requisite workers' compensation coverage will be considered void by
          the State.

     2)   Claims for damages because of bodily injury, occupational sickness or
          disease, or death of its employees.

     3)   Claims for damages because of bodily injury, sickness or disease, or
          death of any person other than its employees, subject to limits of
          liability of not less than $1,000,000.00 each occurrence and, when
          applicable, $2,000,000.00 annual aggregate for non-automobile hazards
          and as required by law for automobile hazards.

     4)   Claims for damages because of injury to or destruction of tangible
          property, including loss of use resulting therefrom, subject to a
          limit of liability of not less than $50,000.00 each occurrence for
          non-automobile hazards and as required by law for automobile hazards.

     5)   Insurance for subparagraphs (3) and (4) non-automobile hazards on a
          combined single limit of liability basis shall not be less than
          $1,000,000.00 each occurrence and when applicable, $2,000,000.00
          annual aggregate.

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     6)   Director's and Officer's Errors and Omissions coverage that includes
          coverage of the Contractor's peer review and care management
          activities and has limits of at least $1,000,000.00 per occurrence and
          $3,000,000.00 aggregate.

     7)   The Contractor shall also require that each of its subcontractors
          maintain insurance coverage as specified above, except for
          subparagraph (6), or have the subcontractors provide coverage for each
          subcontractor's liability and employees. The Contractor must provide
          proof, upon request of the DCH, of its Provider's medical professional
          liability insurance in amounts consistent with the community accepted
          standards for similar professionals. The provision of this clause
          shall not be deemed to limit the liability or responsibility of the
          Contractor or any of its subcontractors herein.

     8)   The insurance shall be written for not less than any limits of
          liability herein specified or required by law, whichever is greater,
          and shall include contractual liability insurance as applicable to the
          Contractor's obligations under the Indemnification clause of the
          Contract.

     9)   BEFORE STARTING WORK THE CONTRACTOR'S INSURANCE AGENCY MUST FURNISH TO
          THE DIRECTOR OF THE OFFICE OF PURCHASING, ORIGINAL CERTIFICATE(S) OF
          INSURANCE VERIFYING THAT THE REQUIRED LIABILITY COVERAGE IS IN EFFECT
          FOR THE AMOUNTS SPECIFIED IN THE CONTRACT. THE CONTRACT NUMBER MUST BE
          SHOWN ON THE CERTIFICATE OF INSURANCE TO ENSURE CORRECT FILING. The
          Contractor must immediately notify the State of any changes in type,
          amount, or duration of insurance coverage. These certificates shall
          contain a provision to the effect that the policy will not be canceled
          until at least fifteen days prior written notice has been given to the
          State. The written notice will have the Contract number and must be
          received by the Director of Purchasing.

I-N  LITIGATION

     The State, its departments, and its agents shall not be responsible for
     representing or defending the Contractor, Contractor's personnel, or any
     other employee, agent or subcontractor of the Contractor, named as a
     defendant in any lawsuit or in connection with any tort claim.

     The State and the Contractor agree to make all reasonable efforts to
     cooperate with each other in the defense of any litigation brought by any
     person or persons not a party to the Contract.

     The Contractor shall submit annual litigation reports in a format
     established by DCH, providing the following detail for all civil litigation
     that the Contractor, subcontractor, or the Contractor's insurers or
     insurance agents are parties to:

             Case name and docket number
             Name of plaintiff(s) and defendant(s)
             Names and addresses of all counsel appearing
             Nature of the claim
             Status of the case.

     The provisions of this section shall survive the expiration or termination
     of the Contract.

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I-O  CANCELLATION

     1)   The State may cancel the Contract for default of the Contractor.
          Default is defined as the failure of the Contractor to fulfill the
          obligations of the proposal or Contract. In case of default by the
          Contractor, the State may immediately cancel the Contract without
          further liability to the State, its departments, agencies, and
          employees, and procure the articles or services from other sources,
          and hold the Contractor responsible for all costs occasioned thereby.

     2)   The State may cancel the Contract in the event the State no longer
          needs the services or products specified in the Contract, or in the
          event program changes, changes in laws, rules or regulations occur.
          The State may cancel the Contract without further liability to the
          State, its departments, divisions, agencies, sections, commissions,
          officers, agents and employees by giving the Contractor written notice
          of such cancellation 30 days prior to the date of cancellation.

     3)   The State may cancel the Contract for lack of funding. The Contractor
          acknowledges that the term of this Contract extends for several fiscal
          years and that continuation of this Contract is subject to
          appropriation of funds for this project. If funds to enable the State
          to effect continued payment under this Contract are not appropriated
          or otherwise made available, the State shall have the right to
          terminate this Contract without penalty at the end of the last period
          for which funds have been appropriated or otherwise made available by
          giving written notice of termination to the Contractor. The State
          shall give the Contractor written notice of such non-appropriation
          within 30 days after it receives notice of such non-appropriation.

     4)   The State may immediately cancel the Contract without further
          liability to the State, its departments, divisions, agencies,
          sections, commissions, officers, agents and employees if the
          Contractor, an officer of the Contractor, or an owner of a 25% or
          greater share of the Contractor, is convicted of a criminal offense
          incident to the application for or performance of a State, public, or
          private contact or subcontract; or convicted of a criminal offense
          including but not limited to any of the following: embezzlement,
          theft, forgery, bribery, falsification or destruction of records,
          receiving stolen property, attempting to influence a public employee
          to breach the ethical conduct standards for State of Michigan
          employees; convicted under state or federal antitrust statutes; or
          convicted of any other criminal offense, which, in the sole discretion
          of the State, reflects poorly on the Contractor's business integrity.

     5)   The State may immediately cancel the Contract in whole or in part by
          giving notice of termination to the Contractor if any final
          administrative or judicial decision or adjudication disapproves a
          previously approved request for purchase of personal services pursuant
          to Constitution 1963, Article 11, Section 5, and Civil Service Rule
          4-6.

     6)   The State may, with 30 days written notice to the Contractor, cancel
          the Contract in the event prices proposed for Contract
          modification/extension are unacceptable to the State. (See Sections
          I-E, Price, and I-T, Modification of Contract).

     7)   Either the State or the Contractor may, upon 90 days written notice,
          cancel the contract for the convenience of either party.

     In the event that a Contract is canceled, the Contractor will cooperate
     with the State to implement a transition plan for Enrollees. The Contractor
     will be paid for Covered Services provided during the transition period in
     accordance with the Capitation Rates in effect between the Contractor and
     the State at the time of cancellation. Contractors will be provided due
     process before the termination of any Contract.

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I-P  ASSIGNMENT

     The Contractor shall not have the right to assign or delegate any of its
     duties or obligations under this Contract to any other party (whether by
     operation of law or otherwise), without the prior written consent of the
     State Purchasing Director. To obtain consent for assignment of this
     Contract to another party, documentation must be provided to the State
     Purchasing Director to demonstrate that the proposed assignee meets all of
     the requirements for a Contractor under this Contract. Any purported
     assignment in violation of this Section shall be null and void. Further,
     the Contractor may not assign the right to receive money due under the
     Contract without consent of the Director of Purchasing.

I-Q  DELEGATION

     The Contractor shall not delegate any duties or obligations under this
     Contract to a subcontractor other than a subcontractor named in the bid
     unless the State Purchasing Director has given written consent to the
     delegation.

I-R  CONFIDENTIALITY

     The use or disclosure of information regarding Enrollees obtained in
     connection with the performance of this Contract shall be restricted to
     purposes directly related to the administration of services required under
     the Contract.

I-S  NON-DISCRIMINATION CLAUSE

     The Contractor shall comply with the Elliott-Larsen Civil Rights Act, 1976
     PA 453, as amended, MCL 37.2101 et seq., the Persons with Disabilities
     Civil Rights Act, 1976 PA 220, as amended, MCL 37.1101 et seq., and all
     other federal, state and local fair employment practices and equal
     opportunity laws and covenants that it shall not discriminate against any
     employee or applicant for employment, to be employed in the performance of
     this Contract, with respect to his or her hire, tenure, terms, conditions,
     or privileges of employment, or any matter directly or indirectly related
     to employment, because of his or her race, religion, color, national
     origin, age, sex, height, weight, marital status, or physical or mental
     disability that is unrelated to the individual's ability to perform the
     duties of a particular job or position. The Contractor agrees to include in
     every subcontract entered into for the performance of this Contract this
     covenant not to discriminate in employment. A breach of this covenant is a
     material breach of this Contract.

I-T  MODIFICATION OF CONTRACT

     The Director of Purchasing reserves the right to modify Covered Services
     required under this Contract during the course of this Contract. Such
     modification may include adding or deleting tasks that this service shall
     encompass and/or any other modifications deemed necessary. Any changes in
     pricing proposed by the Contractor resulting from the requested changes are
     subject to acceptance by the State. Changes may be increases or decreases.
     Contract changes will not be necessary in order for the Contractor to keep
     current with changes in the delivery of Covered Services that may result
     from new technology or new drugs.

     IN THE EVENT PRICES SUBMITTED AS THE RESULT OF A MODIFICATION OF COVERED
     SERVICE ARE NOT ACCEPTABLE TO THE STATE, THE CONTRACT MAY BE TERMINATED AND
     THE CONTRACT MAY BE SUBJECT TO COMPETITIVE

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     BIDDING AND AWARD BASED UPON THE NEW MODIFIED COVERED SERVICES IF ADEQUATE
     CAPACITY IS NOT READILY AVAILABLE TO SERVE BENEFICIARIES IN THE AFFECTED
     SERVICE AREA THROUGH EXISTING CONTRACTS WITH OTHER CONTRACTORS.

I-U  ACCEPTANCE OF PROPOSAL CONTENT

     The contents of the RFP and the Contractor's proposal resulting in this
     Contract are contractual obligations.

I-V  RIGHT TO NEGOTIATE EXPANSION

     The State reserves the right to negotiate expansion of the services
     outlined within this Contract to accommodate the related service needs of
     additional selected State agencies, or of additional entities within DCH.

     Such expansion shall be limited to those situations approved and negotiated
     by the Office of Purchasing at the request of DCH or another State agency.
     The Contractor shall be obliged to expeditiously evaluate and respond to
     specified needs submitted by the Office of Purchasing with a proposal
     outlining requested services and pricing. All pricing for expanded services
     shall be shown to be consistent with the cost elements and/or unit pricing
     of the original Contract.

     In the event that a Contract expansion proposal is accepted by the State,
     the Office of Purchasing shall issue a Contract change notice to the
     Contract as notice to the Contractor to provide the work specified.
     Compensation is not allowed the Contractor until such time as a Contract
     change notice is issued.

I-W  MODIFICATIONS, CONSENTS AND APPROVALS

     This Contract will not be modified, amended, extended, or augmented, except
     by a writing executed by the parties hereto, and any breach or default by a
     party shall not be waived or released other than in writing signed by the
     other party.

I-X  ENTIRE AGREEMENT AND ORDER OF PRECEDENCE

     The following documents constitute the complete and exclusive statement of
     the agreement between the parties as it relates to this transaction. In the
     event of any conflict among the documents making up the Contract, the
     following order of precedence shall apply (in descending order of
     precedence):

         A.   This Contract and any Addenda thereto
         B.   State's RFP and any Addenda thereto
         C.   Contractor's proposal to the State's RFP and Addenda
         D.   Policy manuals of the Medical Assistance Program and subsequent
              publications

     In the event of any conflict over the interpretation of the specifications,
     terms, and conditions indicated by the State and those indicated by the
     Contractor, those of the State take precedence.

     This Contract supersedes all proposals or other prior agreements, oral or
     written, and all other communications between the parties.

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I-Y  NO WAIVER OF DEFAULT

     The failure of the State to insist upon strict adherence to any term of
     this Contract shall not be considered a waiver or deprive the State of the
     right thereafter to insist upon strict adherence to that term, or any other
     term, of the Contract.

I-Z  SEVERABILITY

     Each provision of this Contract shall be deemed to be severable from all
     other provisions of the Contract and, if one or more of the provisions
     shall be declared invalid, the remaining provisions of the Contract shall
     remain in full force and effect.

I-AA DISCLAIMER

     All statistical and fiscal information contained within the Contract and
     its attachments, and any amendments and modifications thereto, reflect the
     best and most accurate information available to DCH at the time of
     drafting. No inaccuracies in such data shall constitute a basis for legal
     recovery of damages, either real or punitive.

     Captions and headings used in this Contract are for information and
     organization purposes. Captions and headings, including inaccurate
     references, do not, in any way, define or limit the requirements or terms
     and conditions of this Contract.

I-BB RELATIONSHIP OF THE PARTIES (INDEPENDENT CONTRACTOR)

     The relationship between the State and the Contractor is that of client and
     independent contractor. No agent, employee, or servant of the Contractor or
     any of its subcontractors shall be deemed to be an employee, agent or
     servant of the State for any reason. The Contractor will be solely and
     entirely responsible for its acts and the acts of its agents, employees,
     servants, and subcontractors during the performance of a contract resulting
     from this Contract.

I-CC NOTICES

     Any notice given to a party under this Contract must be written and shall
     be deemed effective, if addressed to such party at the address indicated in
     sections I-B, I-C and III-A of this Contract upon (i) delivery, if hand
     delivered; (ii) receipt of a confirmed transmission by telefacsimile if a
     copy of the notice is sent by another means specified in this Section;
     (iii) the third (3rd) Business Day after being sent by U.S. mail, postage
     pre-paid, return receipt requested; or (iv) the next Business Day after
     being sent by a nationally recognized overnight express courier with a
     reliable tracking system.

     Either party may change its address where notices are to be sent by giving
     written notice in accordance with this Section.

I-DD UNFAIR LABOR PRACTICES

     Pursuant to 1980 PA 278, as amended, MCL 423.321 et seq., the State shall
     not award a contract or subcontract to an employer or any subcontractor,
     manufacturer or supplier of the employer, whose name appears in the current
     register compiled by the Michigan Department of Consumer and Industry
     Services. The State may void any contract if, subsequent to award of the
     Contract, the name of the Contractor as an employer, or the name of the
     subcontractor, manufacturer of supplier of the contractor appears in the
     register.

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I-EE SURVIVOR

     Any provisions of the Contract that impose continuing obligations on the
     parties including, but not limited to, the Contractor's indemnity and other
     obligations, shall survive the expiration or cancellation of this Contract
     for any reason.

I-FF GOVERNING LAW

     This Contract shall in all respects be governed by, and construed in
     accordance with, the laws of the State of Michigan.

I-GG YEAR 2000 SOFTWARE COMPLIANCE

     The Contractor warrants that all software which the Contractor either sells
     or licenses to the State of Michigan and used by the State prior to, during
     or after the calendar year 2000, includes or shall include, at no added
     cost to the State, design and performance so the State shall not experience
     software abnormality and/or the generation of incorrect results from the
     software, due to date oriented processing, in the operation of the business
     of the State of Michigan.

     The software design, to insure year 2000 compatibility, shall include, but
     is not limited to: data structures (databases, data files, etc.) that
     provide 4-digit date century; stored data that contain date century
     recognition, including, but not limited to, data stores in databases and
     hardware device internal system dates; calculations and program logic
     (e.g., sort algorithms, calendar generation, event recognition, and all
     processing actions that use or produce date values) that accommodates same
     century and multi-century formulas and date values; interfaces that supply
     data to and receive data from other systems or organizations that prevent
     non-compliant dates and data from entering any State system; user
     interfaces (i.e., screens, reports, etc.) that accurately show 4 digit
     years; and assurance that the year 2000 shall be correctly treated as a
     leap year within all calculation and calendar logic.

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                                   SECTION II
                                 WORK STATEMENT

II-A BACKGROUND/PROBLEM STATEMENT

     1.   Value Purchasing

          The creation of DCH through Executive Order 1996-1 brought together
          policy, programs and resources to enable the State to become a more
          effective purchaser of health care services for the Medicaid
          population. As the single State agency responsible for health policy
          and purchasing of health care services using State appropriated and
          federal matching funds, DCH intends to get better value while ensuring
          quality and access. DCH will focus on "value purchasing". Value
          purchasing involves aligning financing incentives to stimulate
          appropriate changes in the health delivery system that will:

               .    bring organization and accountability for the full range of
                    benefits,
               .    provide greater flexibility in the range of services;
               .    improve access to and quality of care;
               .    achieve greater cost efficiency; and
               .    link performance of Contractors to improvements in the
                    health status of the community.

     2.   Managed Care Direction

          Under the Comprehensive Health Care Program (CHCP), the State
          selectively contracts with Contractors who will accept financial risk
          for managing comprehensive care through a performance contract. The
          managed care direction is the health care purchasing direction for
          Michigan's future. Change in health care delivery systems is happening
          at the national and state levels. Michigan will proactively work to
          shape the health care marketplace as a purchaser of services. The
          focus will be on quality of care, accessibility, and
          cost-effectiveness.

          It is critical that Michigan act now to bring the rate of growth in
          Medicaid more in line with the forecasted rate of growth in State
          revenues. Since 1990, State revenues have grown by about 3% per year.
          The growth of the Medicaid budget must be slowed but, at the same
          time, access to quality health care for the Medicaid population must
          be ensured.

          There are three basic ways to slow down cost growth: restrict
          eligibility, reduce benefits, or stimulate more efficiency in the
          health delivery system through managed care. DCH has chosen not to
          make program cuts, but rather to use the efficiency approach because
          other important health care goals can be achieved at the same time.

          There are two categories of specialized services that are available
          outside of the CHCP. These are behavioral health services and services
          for persons with developmental disabilities. These specialized
          services are clearly defined as beyond the scope of benefits that are
          included in the CHCP. Any Contractor contracting with the State as a
          capitated managed care provider will be responsible for coordinating
          access to these specialized services with those providers designated
          by the State to provide them. The criteria for contracted Qualified
          Health Plans (QHPs) include the implementation of local agreements
          with the behavioral health and developmental disability providers who
          are under

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          contract with DCH. Model agreements between Contractors and behavioral
          health and developmental disability providers are included in the
          appendix to this Contract.

II-B OBJECTIVES

     1.   Objectives

          The Contract objectives of the State are:

               .    the assurance of access to primary and preventive care;
               .    the coordination for all necessary health care services;
               .    the provision of medical care that is of high quality,
                    provides continuity and is appropriate for the individual;
                    and
               .    the delivery of health care in a manner that makes costs
                    more predictable for the Medicaid population.

     2.   Objectives for Special Needs

          When providing services under the CHCP, the Contractor must take into
          consideration the requirements of the Medicaid program and how to best
          serve the Medicaid population in the CHCP. As an objective, the
          Contractor must also stress the collaborative effort of both the State
          and the private sector to operate a managed care system that meets the
          special needs of these Enrollees.

          It is recognized that special needs will vary by individual and by
          county or region. Contractors must have an underlying organizational
          capacity to address the special needs of their Enrollees, such as:
          responding to requests for assignment of specialists as Primary Care
          Providers (PCP), assisting in coordinating with other support
          services, and generally responding and anticipating needs of Enrollees
          with special needs. Under their Covered Service responsibilities,
          Contractors are expected to provide early prevention and intervention
          services for recipients with special needs, as well as all other
          recipients.

          As an example, while support services for persons with developmental
          disabilities may be outside of the direct service responsibility of
          the Contractor, the Contractor does have responsibility to assist in
          coordinating arrangements to receive necessary support services. This
          coordination must be consistent with the person-centered planning
          principles established within the revised Michigan's Mental Health
          Code.

          Another example would be for Enrollees who have chronic illnesses such
          as diabetes or end-stage renal disease. In these instances, the PCP
          assignment may be more appropriately located with a specialist within
          the Contractor's network. When a Contractor designates a physician
          specialist as the PCP, that PCP will be responsible for coordinating
          all continuing medical care for the assigned Enrollee.

     3.   Objectives for Contractor Accountability

          Contractor accountability must be established in order to ensure that
          the State's objectives for managed care and goal for immunizations are
          met and the objectives for special populations are addressed.
          Contractors contracting with the State will be held accountable for:

               .    Ensuring that all Covered Services are available and
                    accessible to Enrollees with reasonable promptness and in a
                    manner which ensures continuity.

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                    Medically necessary services shall be available and
                    accessible 24 hours a day and 7 days a week.
               .    Delivering health care services in a manner that focuses on
                    health promotion and disease prevention and features disease
                    management strategies.
               .    Demonstrating the Contractor's capacity to adequately serve
                    the Contractor's expected enrollment of Enrollees.
               .    Providing access to appropriate providers, including
                    qualified specialists for all medically necessary services
                    including those specialists described under model agreements
                    for behavioral health and developmental disabilities.
               .    Providing assurances that it will not deny enrollment to,
                    expel, or refuse to re- enroll any individual because of the
                    individual's health status or need for services, and that it
                    will notify all eligible persons of such assurances at the
                    time of enrollment.
               .    Paying providers in a timely manner for all Covered
                    Services.
               .    Establishing an ongoing internal quality improvement and
                    utilization review program.
               .    Providing procedures to ensure program integrity through the
                    detection and elimination of fraud and abuse and cooperate
                    with DCH and the Department of Attorney General as
                    necessary.
               .    Reporting encounter data and aggregate data including data
                    on inpatient and outpatient hospital care, physician visits,
                    pharmaceutical services, and other services specified by the
                    Department.
               .    Providing procedures for hearing and timely resolving
                    grievances between the Contractor and Enrollees.
               .    Providing for outreach and care coordination to Enrollees to
                    assist them in using their health care resources
                    appropriately.
               .    Collaborating, through local agreements, with specialized
                    behavioral and developmental disability services contractors
                    on services provided by them to the Contractor's Enrollees.
               .    Providing assurances for the Contractor's solvency and
                    guaranteeing that Enrollees and the State will not be liable
                    for debts of the Contractor.
               .    Meeting all standards and requirements contained in this
                    Contract, and complying with all applicable federal and
                    state laws, administrative rules, and policies promulgated
                    by DCH.
               .    Cooperating with the State and/or HCFA in all matters
                    related to fulfilling Contract requirements and obligations.

II-C SPECIFICATIONS

     The following sections provide an explanation of the specifications and
     expectations that the Contractor must meet and the services that must be
     provided under the Contract. The Contractor is not, however, constrained
     from supplementing this with additional services or elements deemed
     necessary to fulfill the intent of the CHCP.

II-D TARGETED GEOGRAPHICAL AREA FOR IMPLEMENTATION OF THE CHCP

     1.   Regions

          The State will divide the delivery of Covered Services into ten
          regions.

          Contractor's plans for Region 1 and 10 must be tailored to each county
          in terms of the provider network, Enrollment Capacity and Capitation
          Rates. Region 1 (Wayne County) and Region 10 (Oakland County) may have
          partial county service areas.

          Contractor's plans for Regions 2 through 9 must establish:

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          (a)  a network of providers that guarantees access to required
               services for the entire region; or

          (b)  a network of providers that guarantees access to required
               services for a significant portion of the region.

               Under alternative (b) the Contract must specifically identify the
               contiguous portion of the region that will be served along
               (entire counties) with a description of the available provider
               network.

               The counties included in the specific regions are as follows:

               Region 1:   Wayne

               Region 2:   Hillsdale, Jackson, Lenawee, Livingston, Monroe, and
                           Washtenaw

               Region 3:   Barry, Berrien, Branch, Calhoun, Cass, Kalamazoo, St.
                           Joseph, Van Buren

               Region 4:   Allegan, Antrim, Benzie, Charlevoix, Cheboygan,
                           Emmet, Grand Traverse, Ionia, Kalkaska, Kent, Lake,
                           Leelanau Manistee, Mason, Mecosta, Missaukee,
                           Montcalm, Muskegon, Newaygo, Oceana, Osceola, Ottawa,
                           and Wexford

               Region 5:   Clinton, Eaton, Ingham

               Region 6:   Genesee, Lapeer, Shiawassee

               Region 7:   Alcona, Alpena, Arenac, Bay, Clare, Crawford,
                           Gladwin, Gratiot, Huron, Iosco, Isabella, Midland,
                           Montmorency, Ogemaw, Oscoda, Otsego, Presque Isle,
                           Roscommon, Saginaw, Sanilac, Tuscola

               Region 8:   Alger, Baraga, Chippewa, Delta, Dickinson, Gogebic
                           Houghton, Iron, Keweenaw, Luce, Mackinac, Marquette,
                           Menominee, Ontonagon, Schoolcraft

               Region 9:   Macomb and St. Clair

               Region 10:  Oakland

     2.   Multiple Region Service Areas

          Although Contractors may propose to contract for services in more than
          one of the above described regions, the Contractor agrees to tailor
          its services to each individual region in terms of the provider
          network, Enrollment Capacity, and Capitation Rates. DCH may determine
          Contractors to be qualified in one region but not in another.

          Contractor may request service area expansion at any time during the
          term of the Contract using the provider profile information form
          contained in Appendix D of the Contract. If Contractor seeks approval
          in a region which IT did not seek or receive a service area approval
          under the original RFP (071I0000251), DCH may negotiate a contract
          modification covering that service area that is within the parameters
          of approved pricing already in place for other contractors already
          approved in the

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          same county. Service area expansion will only be approved in those
          counties requiring additional capacity as determined by DCH.

     3.   Alternative Regions

          Contractors may propose alternatives to the regions listed above under
          the following condition:

               .    One or more contiguous counties from other listed regions
                    may be included in the service area for the Contract. The
                    counties must be contiguous to the original region under
                    Contract. Under this alternative, the proposed provider
                    network and Enrollment Capacity shall be included with the
                    original region. However, the Capitation Rates, under this
                    alternative, must be specific for the contiguous county(ies)
                    in addition to the regional Capitation Rates.

     4.   Contractor Minimum Capacity

          The State will initiate cancellation of the Contractor if a Contractor
          has sought and received approval for regions 1, 9 or 10 and does not
          have a minimum total enrollment capacity of 25,000 from all product
          lines (Commericial, Medicare, and Medicaid) on or after January 1,
          2001. The DCH will establish a transition plan for the orderly
          movement of Enrollees in accordance with Section I-O of the Contract.
          Exceptions to the cancellation will be in those instances where
          significant Enrollee disruptions will occur due to the lack of
          continuity of care with providers that are not contracted with any
          other Contractor in the same region.

II-E MEDICAID ELIGIBILITY AND CHCP ENROLLMENT

     The Michigan Medicaid program arranges for and administers medical
     assistance to approximately 1.2 million Beneficiaries. This includes the
     categorically needy (those individuals eligible for, or receiving,
     federally-aided financial assistance or those deemed categorically needy)
     and the medically needy populations. Eligibility for Michigan's Medicaid
     program is based on a combination of financial and non-financial factors.
     Within the Medicaid eligible population, there are groups that must enroll
     in the CHCP, groups that may voluntarily enroll, and groups that are
     excluded from participation in the CHCP as follows:

     1.   Medicaid Eligible Groups Who Must Enroll in the CHCP:

               .    Families with children receiving assistance under the
                    Financial Independence Program (FIP)
               .    Persons receiving Mich-Care Medicaid or Medicaid for
                    pregnant women
               .    Persons under age 21 who are receiving Medicaid.
               .    Persons receiving Medicaid for caretaker relatives and
                    families with dependent children who do not receive FIP
               .    Supplemental Security Income (SSI) Beneficiaries who do not
                    receive Medicare
               .    Persons receiving Medicaid for the blind or disabled
               .    Persons receiving Medicaid for the aged

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     2.   Medicaid Eligible Groups Who May Voluntarily Enroll in the CHCP:
               .    Migrants
               .    Native Americans
               .    Persons in the Traumatic Brain Injury program
               .    Pregnant women who are in third trimester of pregnancy

     3.   Medicaid Eligible Groups Excluded From Enrollment in the CHCP:

               .    Persons without full Medicaid coverage, including those in
                    the State Medical Program or PlusCare
               .    Persons with Medicaid who reside in an ICF/MR (intermediate
                    care facilities for the mentally retarded), or a State
                    psychiatric hospital.
               .    Persons receiving long term care (custodial care) in a
                    licensed nursing facility
               .    Persons being served under the Home & Community Based
                    Elderly Waiver
               .    Persons enrolled in Children's Special Health Care Services
                    (CSHCS)
               .    Persons with commercial HMO coverage, including Medicare HMO
                    coverage.
               .    Persons in PACE (Program for All-inclusive Care for the
                    Elderly)
               .    Spend-down clients
               .    Children in Foster Care or Child Care Institutions
               .    Persons in the Refugee Assistance Program
               .    Persons in the Repatriate Assistance Program
               .    Persons with both Medicare and Medicaid eligibility

II-F ELIGIBILITY DETERMINATION

     The State has the sole authority for determining whether individuals or
     families meet any of the eligibility requirements as specified for
     enrollment in the CHCP.

     Individuals who attain eligibility due to a pregnancy are usually
     guaranteed eligibility for comprehensive services through 60 days
     post-partum or post-loss of pregnancy. Their newborns are usually
     guaranteed coverage for 60 days and may be covered for one full year.

II-G ENROLLMENT IN THE CHCP

     1.   Enrollment Services

          The State is required to contract for services to help Beneficiaries
          make informed choices regarding their health care, assist with client
          satisfaction and access surveys, and assist Beneficiaries in the
          appropriate use of the Contractor's complaint and grievance systems.
          DCH contracts with an Enrollment Services contractor to contact and
          educate general Medicaid and CSHCS Beneficiaries about managed care
          and to enroll, disenroll, and change enrollment for these
          Beneficiaries. Although this Contract indicates that the enrollment
          and disenrollment process and related functions will be performed by
          DCH, generally, these activities are part of the Enrollment Services
          contract. Enrollment Services references to DCH are intended to
          indicate functions that will be performed by either DCH or the
          Enrollment Services contractor. All Contractors agree to work closely
          with DCH and provide necessary information, including provider files.

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     2.   Initial Enrollment

          After a person applies to FIA for Medicaid, he or she will be assessed
          for eligibility in a Medicaid managed care program. If they are
          determined eligible for the CHCP, they will be given marketing
          material on the Contractors available to them, and the opportunity to
          speak with an Enrollee counselor to obtain more in-depth information
          and to get answers to any questions or concerns they may have. DCH
          will provide access to a toll-free number to call for information or
          to designate their preferred Contractor. Beneficiaries eligible for
          the CHCP will have full choice of Contractors within their county of
          residence. Beneficiaries must decide on the Contractor they wish to
          enroll in within 30 days from the date of approval of Medicaid
          eligibility. If they do not voluntarily choose a Contractor within 30
          days of approval, DCH will automatically assign the Beneficiaries to
          Contractors within their county of residence.

          Under the automatic enrollment process, Beneficiaries will be
          automatically assigned to Contractors based on performance of the
          Contractor in areas specified by DCH. DCH will automatically assign a
          larger proportion of Beneficiaries to Contractors with a higher
          performance ranking. The capacity of the Contractor to accept new
          Enrollees and to provide reasonable accessibility for the Enrollees
          also will be taken into consideration in automatic Beneficiary
          enrollment. Individuals in a family unit will be assigned together
          whenever possible. DCH has the sole authority for determining the
          methodology and criteria to be used for automatic enrollment.

     3.   Enrollment Lock-in

          Except as stated in this subsection, enrollment into a Contractor's
          plan will be for a period of 12 months with the following conditions:

               .    At least 60 days before the start of each enrollment period
                    and at least once a year, DCH, or the Enrollment Services
                    contractor, will notify Enrollees of their right to
                    disenroll;
               .    Enrollees will be provided with an opportunity to select any
                    Contractor approved for their area during this open
                    enrollment period;
               .    Enrollees will be notified that if they do nothing, their
                    current enrollment will continue;
               .    Enrollees who choose to remain with the same Contractor will
                    be deemed to have had their opportunity for disenrollment
                    without cause and declined that opportunity;
               .    New Enrollees, those who have changed from one Contractor to
                    another or are new to Medicaid eligibility, will have 90
                    days within which they may change Contractors without cause;
               .    Enrollees who change enrollment within the 90-day period
                    will have another 90 days within which they may change
                    Contractors without cause and this may continue throughout
                    the year;
               .    An Enrollee who has already had a 90-day period with a
                    particular Contractor will not be entitled to another 90-day
                    period within the year with the same Contractor;
               .    Enrollees who disenroll from a Contractor will be required
                    to change enrollment to another Contractor;

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               .    All such changes will be approved and implemented by DCH on
                    a calendar month basis.

          After October 1, 2000, and for the period October 1, 2000 through
          September 30, 2001 only, DCH may implement an additional open
          enrollment period. Implementation of this additional open enrollment
          period will be consistent with the conditions stated above

     4.   Rural Area Exception

          This sub-section is reserved for Rural Area Exception that is included
          under proposed rules under the Balanced Budget Act. Upon issuing the
          final rule, consistent Contract amendments will be developed.

     5.   Enrollment date

          Any changes in enrollment will be approved and implemented by DCH on a
          calendar month basis.

          If a Beneficiary is determined eligible during a month, he or she is
          eligible for the entire month. In some cases, Enrollees may be
          retroactively determined eligible. Once a Beneficiary (other than a
          newborn) is determined to be Medicaid eligible, enrollment in the CHCP
          and assignment to a Contractor will occur on the first day of the
          month following the eligibility determination. Contractors will not be
          responsible for paying for health care services during a period of
          retroactive eligibility and prior to the date of enrollment in their
          health plan, except for newborns (Refer to II-G6). Only full-month
          capitation payments will be made to the Contractor.

          If the Beneficiary is in an inpatient hospital setting on the date of
          enrollment (first day of the month), the Contractor will not be
          responsible for the inpatient stay or any charges incurred prior to
          the date of discharge. The Contractor will be responsible for all care
          from the date of discharge forward. Similarly, if an Enrollee is
          disenrolled from a Contractor and is in an inpatient hospital setting
          on the date of disenrollment (last day of the month), the Contractor
          will be responsible for all charges incurred until the date of
          discharge.

     6.   Newborn Enrollment

          Newborns of eligible CHCP mothers who were enrolled at the time of the
          child's birth will be automatically enrolled with the mother's
          Contractor. The Contractor is responsible for submitting a newborn
          notification form to DCH. The Contractor will be responsible for all
          Covered Services for the newborn until notified otherwise by DCH. At a
          minimum, newborns are eligible for the month of their birth and may be
          eligible for up to one year or longer. The Contractor will receive a
          capitation payment for the month of birth and for all subsequent
          months of enrollment.

     7.   Open Enrollment

          Open enrollment will occur for all Beneficiaries at least once every
          12 months. Enrollees will be offered the choice to stay in the health
          plan they are in or to change to another Contractor within their
          county at the end of the 12-month lock-in.

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     8.   Automatic Re-enrollment

          Enrollees who are disenrolled from a Contractor's plan due to loss of
          Medicaid eligibility will be automatically re-enrolled or assigned to
          the same Contractor should they regain eligibility within three
          months. If more than three months have elapsed, Beneficiaries will
          have full choice of Contractors within their county of residence.

     9.   Enrollment Errors by the Department

          If DCH enrolls a non-eligible person with a Contractor, DCH will
          retroactively disenroll the person as soon as the error is discovered
          and will recoup the capitation paid to the Contractor. Contractor may
          then recoup payments from its providers if that is permissible under
          its provider contracts.

     10.  Enrollees who move out of the Contractor's Service Area

          The Contractor agrees to be responsible for services provided to an
          Enrollee who has moved out of the Contractor's service area after the
          effective date of enrollment until the Enrollee is disenrolled from
          the Contractor. DCH will permit Contractor to submit information that
          an Enrollee has moved out of service area only if such information can
          be corroborated by an independent third party acceptable to DCH. DCH
          will expedite prospective disenrollments of Enrollees and process all
          such disenrollments effective the next available month after
          notification from FIA that the Enrollee has left the Contractor's
          service area. Until the Enrollee is disenrolled from the Contractor,
          the Contractor will receive a Capitation Rate for these Enrollees at a
          rate consistent with the highest rate approved for the Contractor. The
          Contractor is responsible for all medically necessary Covered Services
          for these Enrollees until they are disenrolled. The Contractor may use
          its utilization management protocols for hospital admissions and
          specialty referrals for Enrollees in this situation. Contractors are
          responsible for all medically necessary authorized services until a
          member is disenrolled from a plan. Contractors may require members to
          return to use network providers and provide transportation and
          Contractors may authorize out of network providers to provide
          medically necessary services. Enrollment of Beneficiaries who reside
          out of the service area of a Contractor before the effective date of
          enrollment will be considered an "enrollment error" as described
          above.

     11.  Disenrollment Requests Initiated by the Contractor

          The Contractor may initiate special disenrollment requests to DCH
          based on Enrollee actions inconsistent with Contractor membership--for
          example, if there is fraud, abuse of the Contractor, or other
          intentional misconduct; or if, in the opinion of the attending PCP,
          the Beneficiary's behavior makes it medically infeasible to safely or
          prudently render Covered Services to the Enrollee. Special
          disenrollment requests are divided into three categories:

               .    Violent/life-threatening situations involving physical acts
                    of violence; physical or verbal threats of violence made
                    against Contractor providers, staff or the public at
                    Contractor locations; or stalking situations.
               .    Fraud/misrepresentation involving alteration or theft of
                    prescriptions, misrepresentation of Contractor membership,
                    or unauthorized use of CHCP benefits.

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               .    Other noncompliance situations involving the failure to
                    follow treatment plan; repeated use of non-Contractor
                    providers; Contractor provider refusal to see the Enrollee;
                    repeated emergency room use; and other situations that
                    impede care.

          Disenrollment requests may also be initiated by the Contractor if the
          Enrollee becomes eligible for services under Title V of the Social
          Security Act or is admitted to a nursing facility for custodial care.
          The Contractor must provide DCH with medical documentation to support
          this type of disenrollment request. Information must be provided in a
          timely manner using the format specified by DCH. DCH reserves the
          right to require additional information from the Contractor to assess
          the need for Enrollee disenrollment and to determine the Enrollee's
          eligibility for special services.

     12.  Medical Exception

          The Beneficiary may request an exception to enrollment in the CHCP if
          he or she has a serious medical condition and is undergoing active
          treatment for that condition with a physician that does not
          participate with the Contractor at the time of enrollment. The
          Beneficiary must submit a medical exception request to DCH.

     13.  Disenrollment for Cause Initiated by the Enrollee

          The Enrollee may request a disenrollment for cause from a Contractor's
          plan at any time during the enrollment period. Reasons cited in a
          request for disenrollment for cause may include poor quality care or
          lack of access to necessary specialty services covered under the
          Contract. Enrollees who are granted a disenrollment for cause will be
          required to change enrollment to another Contractor.

II-H SCOPE OF COMPREHENSIVE BENEFIT PACKAGE

     1.   Services Included

          The Covered Services that the Contractor has available for Enrollees
          must include, at a minimum, the Covered Services listed below. The
          Contractor may limit services to those which are medically necessary
          and appropriate, and which conform to professionally accepted
          standards of care. Contractors must operate consistent with all
          applicable Medicaid provider manuals and publications for coverages
          and limitations. If new services are added to the Michigan Medicaid
          Program, or if services are expanded, eliminated, or otherwise
          changed, the Contractor must implement the changes consistent with
          State direction in accordance with the provisions of Contract Section
          I-T.

          Although the Contractor must provide the full range of Covered
          Services listed below they may choose to provide services over and
          above those specified.

          The services provided to Enrollees under this Contract include, but
          are not limited to, the following:

               .    Inpatient and outpatient hospital services
               .    Emergency services
               .    Practitioners' services (such as those provided by
                    physicians, optometrists and dentists enrolled as a Medicaid
                    Provider Type 10)

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               .    Chiropractic services
               .    Podiatry services
               .    Immunizations
               .    Well child/EPSDT for persons under age 21
               .    Transplant services
               .    Family planning services
               .    Pharmacy services
               .    Prosthetics & orthotics
               .    Durable medical equipment and supplies
               .    Certified nurse midwife services
               .    Certified pediatric and family nurse practitioner services
               .    Hospice services (if requested by the Enrollee)
               .    Transportation
               .    Ambulance and other emergency medical transportation
               .    Vision services
               .    Hearing & speech services, including hearing aids
               .    Therapies, (speech, language, physical, occupational)
               .    Diagnostic lab, x-ray and other imaging services
               .    Health education
               .    Home Health services
               .    Intermittent or short-term restorative or rehabilitative
                    nursing care (in or out of a facility)
               .    Parenting and birthing classes
               .    Medically necessary weight reduction services
               .    End Stage Renal Disease services
               .    Mental health care up to 20 outpatient visits per Contract
                    year
               .    Maternal and Infant Support Services (MSS/ISS)
               .    Outreach for included services, especially, pregnancy
                    related and well-child care
               .    Out-of-state services authorized by the Contractor
               .    Treatment for sexually transmitted disease (STD)
               .    Blood lead follow-up services for individuals under the age
                    of 21

     2.   Enhanced Services

          In conjunction with the provision of Covered Services, the Contractor
          agrees to do the following:

               .    Place strong emphasis on programs to enhance the general
                    health and well- being of Enrollees;
               .    Makes available health promotion programs to the Enrollees;
               .    Promote the availability of health education classes for
                    Enrollees;
               .    Consider providing education for Enrollees with, or at risk
                    for, a specific disability;
               .    Consider providing education to Enrollees, Enrollees'
                    families, and other health care providers about early
                    intervention and management strategies for various illnesses
                    and/or exacerbations related to that disability or
                    disabilities.

          The Contractor agrees that the enhanced services must comply with the
          marketing and other relevant guidelines established by DCH. DCH will
          be receptive to innovation in the provision of health promotion
          services and, if appropriate, will seek any federal waivers necessary
          for the Contractor to implement a desired innovative program.

          The Contractor may not charge an Enrollee a nominal fee for
          participating in health education services that fall under the
          definition of a Covered Service under this

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          section of the Contract. A nominal fee may be charged to an Enrollee
          if the Enrollee elects to participate in programs beyond the Covered
          Services.

     3.   Services Covered Outside of the Contract

          The following services are not Contractor requirements:

               .    Dental services
               .    Services provided by a school district and billed through
                    the Intermediate School District
               .    Inpatient hospital psychiatric services (Contractors are not
                    responsible for the physician cost related to providing
                    psychiatric admission physical and histories. However, if
                    physician services are required for other than psychiatric
                    care during a psychiatric inpatient admission, the
                    Contractor would be responsible for covering the cost,
                    provided the service has been prior authorized and is a
                    covered benefit.)
               .    Outpatient partial hospitalization psychiatric care
               .    Mental health services in excess of 20 outpatient visits
                    each contract year
               .    Substance abuse services through accredited providers
                    including:
                    .    Screening and assessment
                    .    Detoxification
                    .    Intensive outpatient counseling and other outpatient
                         services
                    .    Methadone treatment
               .    Services provided to persons with developmental disabilities
                    and billed through Provider Type 21
               .    Custodial care in a nursing facility
               .    Home and Community based waiver program services
               .    Personal care or home help services
               .    Transportation for services not covered in the CHCP
               .    Pharmacy and related services prescribed by providers under
                    the State's Contract for specialty behavioral services or
                    the State's Contract for specialty services for persons with
                    developmental disabilities

     4.   Services Prohibited or Excluded Under Medicaid:

               .    Elective abortions and related services
               .    Experimental/Investigational drugs, procedures or equipment
               .    Elective cosmetic surgery

II-I SPECIAL COVERAGE PROVISIONS

     Specific coverage and payment policies apply to certain types of services
     and providers, including the following:

          .    Emergency services
          .    Out-of-network services
          .    Family planning services
          .    Maternal and Infant Support Services
          .    Federally Qualified Health Center (FQHC)
          .    Co-payments
          .    Abortions
          .    Pharmacy services
          .    Early and Periodic Screening, Diagnosis & Treatment (EPSDT)
               Program
          .    Immunizations
          .    Transportation
          .    Transplant services
          .    Post-partum stays
          .    Communicable disease services
          .    Restorative health services
          .    Adolescent health centers

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     1.   Emergency Services

          The Contractor must cover Emergency Services as well as medical
          screening exams consistent with the Emergency Medical Treatment and
          Active Labor Act (EMTALA) (41 USCS 1395 dd (a)). The Enrollee must be
          screened and stabilized without requiring prior authorization.

          The Contractor must ensure that Emergency Services are available 24
          hours a day and 7 days a week. The Contractor is responsible for
          payment of all out-of-plan or out-of-area Emergency Services and
          medical screening and stabilization services provided in an emergency
          department of a hospital consistent with the legal obligation of the
          emergency department to provide such services. The Contractor will not
          be responsible for paying for non-emergency treatment services that
          are not authorized by the Contractor.

          (a)  Emergency Transportation

               The Contractor agrees to provide emergency transportation for
               Enrollees. In the absence of a contract between the emergency
               transportation provider and the Contractor, a properly completed
               and coded claim form for emergency transport, which includes an
               appropriate ICD-9-CM diagnosis code as described in Medicaid
               policy, will receive timely processing and payment by the
               Contractor.

          (b)  Professional Services

               The Contractor agrees to provide professional services that are
               needed to evaluate or stabilize an emergency medical condition
               that is found to exist using a prudent layperson standard.
               Contractors acknowledge that hospitals that offer emergency
               services are required to perform a medical screening examination
               on emergency room clients leading to a clinical determination by
               the examining physician that an emergency medical condition does
               or does not exist. The Contractor further acknowledges that if an
               emergency medical condition is found to exist, the examining
               physician must provide whatever treatment is necessary to
               stabilize that condition of the Enrollee.

          (c)  Facility Services

               The Contractor agrees to ensure that Emergency Services continue
               until the Enrollee is stabilized and can be safely discharged or
               transferred. If an Enrollee requires hospitalization or other
               health care services that arise out of the screening assessment
               provided by the emergency department, then the Contractor may
               require prior authorization for such services. However, such
               services shall be deemed prior authorized if the Contractor does
               not respond within the timeframe established under rules of the
               federal Balanced Budget Act of 1997 for responding to a request
               for authorization being made by the emergency department.

     2.   Out-of-Network Services

          Services may be Contractor authorized either out of the area or out of
          the Contractor's network of providers. Unless otherwise noted in this
          Contract, the Contractor is responsible for coverage and payment of
          all emergency and authorized care provided outside of the established
          network. Out-of-network claims must be

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          paid at established Medicaid fees that currently exist for paying
          participating Medicaid providers as established by Medicaid policy.

     3.   Family Planning Services

          Family planning services include any medically approved diagnostic
          evaluation, drugs, supplies, devices, and related counseling for the
          purpose of voluntarily preventing or delaying pregnancy or for the
          detection or treatment of sexually transmitted diseases (STDs).
          Services are to be provided in a confidential manner to individuals of
          child bearing age including minors who may be sexually active, who
          voluntarily choose not to risk initial pregnancy, or wish to limit the
          number and spacing of their children.

          The Contractor agrees:

               .    That Enrollees will have full freedom of choice of family
                    planning providers, both in-plan and out-of-plan;
               .    To encourage the use of public providers in their network;
               .    To pay providers of family planning services who do not have
                    contractual relationships with the Contractor, or who do not
                    receive PCP authorization for the service at established
                    Medicaid fee-for-service (FFS) fees that currently exist for
                    paying participating Medicaid providers;
               .    To encourage family planning providers to communicate with
                    PCPs once any form of medical treatment is undertaken;
               .    To maintain accessibility for family planning services
                    through promptness in scheduling appointments, particularly
                    for teenagers;
               .    That family planning services do not include treatment for
                    infertility.

     4.   Maternal and Infant Support Services

          In regard to MSS/ISS, the Contractor agrees:

               .    That maternal and infant support services are specialized
                    preventive services provided to pregnant women, mothers and
                    their infants to help reduce infant mortality and morbidity;
               .    That these support services are effectively provided by a
                    multidisciplinary team of health professionals who
                    concentrate on social services, nutrition, and health
                    education;
               .    That it will ensure that the mothers and infants have proper
                    nutrition, psychosocial support, transportation for all
                    health services, assistance in understanding the importance
                    of receiving routine prenatal care, Well Child Visits and
                    immunizations, as well as other necessary health services,
                    care coordination, counseling and social casework, Enrollee
                    advocacy, and appropriate referral services;
               .    That the support services are intended for those Enrollees
                    who are most likely to experience serious health problems
                    due to psychosocial or nutritional conditions;
               .    That maternal and infant support services must be provided
                    by certified providers.

          The Contractor agrees that during the course of providing prenatal or
          infant care, support services will be provided if any of the following
          conditions are likely to affect the pregnancy:

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               .    disadvantageous social situation
               .    negative or ambivalent feelings about the pregnancy
               .    mother under age 18 and has no family support
               .    need for assistance to care for herself and infant
               .    mother with cognitive emotional or mental impairment
               .    nutrition problem
               .    need for transportation to keep medical appointments
               .    need for childbirth education
               .    abuse of alcohol or drugs or smoking

          The Contractor agrees that infant support services are home based
          services and will be provided if any of the following conditions exist
          with the mother or infant:

               .    abuse of alcohol or drugs (especially cocaine) or smoking
               .    mother is under age 18 and has no family support
               .    family history of child abuse or neglect
               .    failure to thrive
               .    low birth weight (less than 2500 grams)
               .    mother with cognitive, emotional or mental impairment
               .    homeless or dangerous living/home situation
               .    any other condition that may place the infant at risk for
                    death, illness or significant impairment

          Due to the potentially serious nature of these conditions, some
          Enrollees will need the assistance of the FIA Children's Protective
          Services. The Contractor agrees to work cooperatively and on an
          ongoing basis with local FIA office to establish and maintain a
          referral protocol and working relationship.

          Because of the investment of public dollars to improve the health
          status of children, it is intended that the annual collective dollars
          spent by all Contractors in each county for maternal and infant
          support services equal at least the base year's total expenditures for
          the same services. Through the reporting requirements specified in
          this Contract, DCH will monitor Contractors to ensure that
          expenditures for these services are used in this manner.

     5.   Federally Qualified Health Centers (FQHCs)

          The Contractor agrees to provide Enrollees with access to services
          provided through a Federally Qualified Health Center (FQHC) if the
          Enrollee resides in the FQHC's service area and if the Enrollee
          requests such services. For purposes of this requirement, the service
          area will be defined as the county in which the FQHC is located. The
          Contractor must inform Enrollees of this right in their member
          handbooks. If a Contractor has an FQHC in its provider network and
          allows members to receive medically necessary services from the FQHC,
          the Contractor has fulfilled its responsibility to provide FQHC
          services and does not need to allow its members to access FQHC
          services out-of-network.

          If a Contractor does not include an FQHC in its provider network and
          an FQHC exists in the service area (county), the Contractor will have
          to pay FQHC charges if an Enrollee member requests such services.

          For services furnished on or after October 1, 1997, FQHCs are
          entitled, pursuant to the Social Security Act, to reasonable
          cost-based reimbursement as subcontractors of section 1903 (m)
          organizations. Section 4712(b)(2) requires that rates of payments
          between FQHCs and Managed Care Organizations (Health Plans) shall not
          be less than the amount of payment for a similar set of services with
          a non-

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          FQHC. States are required to make supplemental payments, at least on a
          quarterly basis, for the difference between the rates paid by section
          1903 (m) organizations (Health Plans) and the reasonable cost of FQHC
          subcontracts with the 1903 (m) organization (Health Plans). Beginning
          in Fiscal Year (FY) 2000, the difference states will be required to
          pay begins to phase down from 100 percent; specifically, 95 percent of
          reasonable cost in FY 2000, 2001, and 2002; 90 percent in FY 2003; and
          85 percent in FY 2004.

          FQHC services must be prior authorized by the Contractor, however the
          Contractor may not refuse to authorize medically necessary services if
          the Contractor does not have a FQHC in the network for the service
          area (county). Contractors may expect a sharing of information and
          data and appropriate network referrals from FQHCs.

     6.   Co-payments

          The Contractor may subject Enrollees to co-payment requirements,
          consistent with state and federal guidelines. In regard to
          co-payments, the Contractor agrees that it will not implement
          co-payments without DCH approval and that co-payments will only be
          implemented following the annual open enrollment period. Enrollees
          must be informed of co-payments during the open enrollment period.

     7.   Abortions

          Medicaid funds cannot be used to pay for elective abortions (and
          related services) to terminate pregnancy unless a physician certifies
          that the abortion is medically necessary to save the life of the
          mother. Elective abortions must also be covered if the pregnancy is a
          result of rape or incest. Treatment for medical complications
          occurring as a result of an elective abortion will be covered.
          Treatments for spontaneous, incomplete, or threatened abortions and
          for ectopic pregnancies will be covered.

     8.   Pharmacy

          The Contractor may have a prescription drug management program that
          includes a drug formulary. DCH may review a formulary if Enrollee
          complaints regarding access have been filed regarding the formulary.
          The Contractor agrees to have a process to approve physicians'
          requests to prescribe any medically appropriate drug that is covered
          under the Medicaid fee-for-services program.

          Drug coverages must include over-the-counter products such as insulin
          syringes, reagent strips, psyllium, and aspirin, as covered by the
          Medicaid fee-for-services program. Condoms must also be made available
          to all eligible Enrollees.

          The Contractor agrees to act as DCH's third party administrator and
          reimburse pharmacies for psychotropic drugs. In the performance of
          this function:

          (a)  The Contractor must follow Medicaid Fee-For-Service utilization
               controls for Medicaid psychotropic prescriptions. The Contractor
               must prior authorize only the psychotropic drugs that are prior
               authorized by Medicaid Fee-For-Service.
          (b)  The Contractor agrees that it and its pharmacy benefit managers
               are precluded from billing manufacturer rebates on psychotropic
               drugs.
          (c)  The Contractor agrees to provide payment files to DCH in the
               format and manner prescribed by DCH.
          (d)  DCH agrees to use the payment files to reimburse the Contractor
               for the payments made on behalf of CMHSPs using the following
               formula:

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                    . [*]% of all anti-psychotics
                    . [*]% of antiparkinson drugs, anticholinergic
                    . [*]% all other psychotropic drugs

          (e)  In order to meet the terms of this sub-section, the Contractor
               will have to enroll with DCH as a Medicaid pharmacy provider;
               however, that enrollment is limited to fulfilling the terms of
               this part of the Contract.
          (f)  Contractor is responsible for covering lab and x-ray services
               related to the ordering of psychotropic drug prescriptions for
               CMHSP clients who are also Enrollees of the contractor's health
               plan but may limit access to its contracted lab and x-ray
               providers.

     9.   Well Child Care/Early and Periodic Screening, Diagnosis & Treatment
          (EPSDT) Program

          Well Child/EPSDT is a Medicaid child health program of early and
          periodic screening, diagnosis and treatment services for children,
          adolescents, and young adults under the age of 21. It supports two
          goals: to ensure access to necessary health resources, and to assist
          parents and guardians in appropriately using those resources. The
          Contractor agrees to provide the following program:

          (a)  As specified in federal regulations, the screening component
               includes a general health screening most commonly known as a
               periodic well-child exam. The required Well Child/EPSDT screening
               guidelines, based on the American Academy of Pediatrics'
               recommendations for preventive pediatric health care, include:

                    .    health and developmental history
                    .    developmental/behavioral assessment
                    .    age appropriate unclothed physical examination
                    .    height and weight measurements, and age appropriate
                         head circumference
                    .    blood pressure for children 3 and over
                    .    immunization review and administration of appropriate
                         immunizations
                    .    health education including anticipatory guidance
                    .    nutritional assessment
                    .    hearing, vision and dental assessments
                    .    lead toxicity screening ages 1-5, with blood sample for
                         lead level determination as indicated
                    .    interpretive conference and appropriate counseling for
                         parents or guardians

               Additionally, objective testing for developmental behavior,
               hearing and vision must be performed in accordance with the
               periodicity schedule included in Medicaid policy. Laboratory
               services for tuberculin testing, hematocrit, urinalysis,
               hemoglobin, or other needed testing as determined by the
               physician must be provided.

          (a)  Vision services under Well Child/EPSDT must include at least
               diagnosis and treatment for defective vision, including glasses
               if appropriate.

          (b)  Dental services under Well Child/EPSDT must include at least
               relief of pain and infections, restoration of teeth, and
               maintenance of dental health. (The Contractor is responsible for
               screening and referral only.)

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          (c)  Hearing services must include at least diagnosis and treatment
               for hearing defects, including hearing aids as appropriate.

          (d)  Other health care, diagnostic services, treatment, or services
               covered under the State Medicaid Plan necessary to correct or
               ameliorate defects, physical or mental illnesses, and conditions
               discovered during a screening. A medically necessary service may
               be available under Well Child/EPSDT if listed in a federal
               statute as a potentially covered service, even if Michigan's
               Medicaid program does not cover the service under its State plan
               for Medical Assistance Program.

          Appropriate referrals must be made for a diagnostic or treatment
          service determined to be necessary. Oral screening should be part of a
          physical exam; however, each child must have a direct referral to a
          dentist after age two. It is the Contractor's responsibility to ensure
          that the child is seen by an appropriate dental provider. Children
          should also be referred to a hearing and speech clinic, optometrist or
          ophthalmologist, or other appropriate provider for objective hearing
          and vision services as necessary. Referral to community mental health
          services also may be appropriate. If a child is found to have elevated
          blood lead levels in accordance with standards disseminated by DCH, a
          referral should be made to the local health department for follow-up
          services that may include an epidemiological investigation to
          determine the source of blood lead poisoning.

          The Contractor shall provide or arrange for outreach services to
          Medicaid beneficiaries who are due or overdue for well-child visits.
          Outreach contacts may be by phone, home visit or mail. The Contractor
          will meet this requirement by contracting with local health
          departments and the provision to local health departments of the names
          of children due or overdue for well child visits.

     10.  Immunizations

          The Contractor agrees to provide all Enrollees with all vaccines and
          immunizations in accordance with the Advisory Committee on
          Immunization Practices (ACIP) guidelines. The Contractor must ensure
          that all providers use vaccines available free under the Vaccine for
          Children (VFC) program for children 18 years old and younger, and use
          vaccines for adults such as hepatitis B available at no cost from
          local health departments under the Vaccine Replacement Program.
          Immunizations should be given in conjunction with Well-Child/EPSDT
          care. The Contractor must participate in the locally accessed Michigan
          Children's Immunization Registry that will maintain a database of
          child vaccination histories and enable tracking and recall.

          Contractor will be responsible for the reimbursement of immunization
          that Enrollees have obtained from local health departments at
          Medicaid-Fee-For-Service rates. This policy is effective without
          Contractor prior authorization and regardless of whether a contract
          exists between the Contractor and the local health departments.

     11.  Transportation

          The Contractor must ensure transportation and travel expenses
          determined to be necessary for Enrollees to secure medically necessary
          medical examinations and treatment. The Contractor agrees to provide a
          description, upon request, of the method(s) used to ensure this
          requirement is met. Contractors will receive supplemental funding for
          non-emergency transportation.

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     12.  Transplant Services

          The Contractor agrees to cover all costs associated with transplant
          surgery and care. Related care may include but is not limited to organ
          procurement, donor searching and typing, harvesting of organs, related
          donor medical costs. Cornea and kidney transplants and related
          procedures are covered services. Extrarenal organ transplants (heart,
          lung, heart-lung, liver, pancreas, bone marrow including allogenic,
          autologous and peripheral stem cell harvesting, and small bowel) must
          be covered on a patient-specific basis when determined medically
          necessary according to currently accepted standards of care. The
          Contractor must have a process in place to evaluate, document, and act
          upon such requests.

     13.  Post-Partum Stays

          Contractors agree to cover a minimum length of post-partum stay at a
          hospital that is consistent with the minimum hospital stay standards
          of the American Academy of Pediatrics and the American College of
          Obstetricians and Gynecologists.

     14.  Communicable Disease Services

          The Contractor agrees that Enrollees may receive treatment services
          for communicable diseases from local health departments without prior
          authorization by the Contractor. For purposes of this section,
          communicable diseases are HIV/AIDS, STDs, tuberculosis, and
          vaccine-preventable communicable diseases.

          To facilitate coordination and collaboration, Contractors are
          encouraged to enter into agreements with local health departments.
          Such agreements should provide details regarding confidentiality,
          service coordination and instances when local health departments will
          provide direct care services for the Contractor's Enrollees.
          Agreements should also discuss, where appropriate, reimbursement
          arrangements between the Contractor and the local health department.

          If a local agreement is not in effect, and an Enrollee receives
          services for a communicable disease from a local health department,
          the Contractor is responsible for payment to the local health
          department at established Medicaid fee-for-service fees that currently
          exist for participating providers.

     15.  Restorative Health Services

          The Contractor is responsible for providing up to 45 days of
          restorative health care services as long as medically necessary and
          appropriate for Enrollees.

          Restorative health services means intermittent or short-term
          "restorative" or rehabilitative nursing care that may be provided in
          or out of health care facilities.

          The Contractor will be expected to help facilitate support services
          such as home help services that are not the direct responsibility of
          the Contractor but are services to which Enrollees may be entitled.
          Such care coordination should be provided consistent with the
          individual or person-centered planning that is necessary for Enrollee
          members with special health care needs.

     16.  School Based/School Linked (Adolescent) Health Centers

          The Contractor acknowledges that Enrollees may choose to obtain
          services from a School Based/School Linked Health Center (SBLHC)
          without prior authorization from

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          the Contractor. If the SBLHC does not have a contractual relationship
          with the Contractor, then the Contractor is responsible for payment to
          the SBLHC at Medicaid fee-for-service rates in effect on the date of
          service.

          Contractors may contract with an SBLHC to deliver Covered Services as
          part of the Contractor's network. Covered Services shall be medically
          necessary and administered, or arranged for, by a designated PCP. The
          SBLHC will meet the Contractor's written credentialling and
          re-credentialling policies and procedures for ensuring quality of care
          and ensuring that all providers rendering services to Enrollees are
          licensed by the State and practice within their scope of practice as
          defined for them in Michigan's Public Health Code.

          If a contract exists between the SBLHC and the Contractor, then the
          SBLHC is to be reimbursed according to the provisions of the
          contractual agreement.

     17.  Hospice Services

          Contractor is responsible for all medically necessary and authorized
          hospice services, including the "room and board" component of the
          hospice benefit when provided in a nursing home. Members who have
          elected the hospice benefit will not be disenrolled after 45 days in a
          nursing home as otherwise permitted under subsection (15) of the
          section.

II-J OBSERVANCE OF FEDERAL, STATE AND LOCAL LAWS

     The Contractor agrees that it will comply with all state and federal
     statutes, regulations and administrative procedures that become effective
     during the term of this Contract. Federal regulations governing contracts
     with risk-based managed care plans are specified in section 1903(m) of the
     Social Security Act and 42 CFR Part 434, and will govern this Contract. The
     State is not precluded from implementing any changes in state or federal
     statutes, rules or administrative procedures that become effective during
     the term of this Contract and will implement such changes pursuant to
     Contract Section (I-T).

     1.   Special Waiver Provisions for CHCP

          DCH's waiver renewal application to HCFA under the auspices of
          section 1915(b)(1)(2), requesting that section 1902 (a)(23) of the
          Social Security Act be waived, has been approved. The renewal was
          approved by HCFA for the period March 28, 2000 through March 27, 2002.
          Under this waiver, Beneficiaries will be enrolled with a Contractor in
          the county of their residence. All health care for Enrollees will be
          arranged for or administered by the Contractor only. Federal approval
          of the waiver is required prior to commitment of the federal financing
          share of funds under this Contract. No other waiver is necessary to
          implement this Contract.

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     2.   Fiscal Soundness of the Risk-Based Contractor

          Federal regulations require that the risk-based Contractors maintain a
          fiscally solvent operation and DCH has the right to evaluate the
          ability of the risk-based Contractor to bear the risk of potential
          financial losses, or to perform services based on determinations of
          payable amounts under the Contract. The State will require a minimum
          net worth and a set reserve amount as a condition of maintaining
          status as a Contractor.

     3.   Suspended Providers

          Federal regulations and State law preclude reimbursement for any
          services ordered, prescribed, or rendered by a provider who is
          currently suspended or terminated from direct and indirect
          participation in the Michigan Medicaid program or federal Medicare
          program. An Enrollee may purchase services provided, ordered, or
          prescribed by a suspended or terminated provider, but no Medicaid
          funds may be used. DCH publishes a list of providers who are
          terminated, suspended or otherwise excluded from participation in the
          program. The Contractor must ensure that its provider networks do not
          include these providers.

          Pursuant to Section 1932(d)(1) of the Social Security Act, a
          Contractor may not knowingly have a director, officer, partner, or
          person with beneficial ownership of more than 5% of the entity's
          equity who is currently debarred or suspended by any federal agency.
          Contractors are also prohibited from having an employment, consulting,
          or any other agreement with a debarred or suspended person for the
          provision of items or services that are significant and material to
          the Contractor's contractual obligation with the State.

          The United States General Services Administration (GSA) maintains a
          list of parties excluded from federal programs. The "excluded parties
          lists" (EPLS) and any rules and/or restrictions pertaining to the use
          of EPLS data can be found on GSA's homepage at the following Internet
          address: www.arnet.gov/epls.

     4.   Public Health Reporting

          State law requires that health professionals comply with specified
          reporting requirements for communicable disease and other health
          indicators. The Contractor agrees to ensure compliance with all such
          reporting requirements through its provider contracts.

     5.   Compliance with HCFA Regulation.

          As required by 42 CFR Part 434.22, DCH will deny payments for new
          enrollees when payments for those Enrollees are denied by HCFA
          pursuant to 42 CFR 434.67(e).

     6.   Advanced Directives Compliance.

          The Contractor shall comply with provisions for advance directives as
          required under 42 C.F.R.434.28.

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     7.   Medicaid Policy.

          As required, Contractors shall comply with provisions of Medicaid
          policy developed under the formal policy consultation process, as
          established by the Medical Assistance Program.

II-K CONFIDENTIALITY

     All Enrollee information, medical records, data and data elements
     collected, maintained, or used in the administration of this Contract
     shall be protected by the Contractor from unauthorized disclosure. The
     Contractor must provide safeguards that restrict the use or disclosure of
     information concerning Enrollees to purposes directly connected with its
     administration of the Contract.

     The Contractor must have written policies and procedures for maintaining
     the confidentiality of data, including medical records, client
     information, appointment records for adult and adolescent sexually
     transmitted disease, and family planning services.

II-L CRITERIA FOR CONTRACTORS

     The Contractor agrees to maintain its capability to deliver Covered
     Services to Enrollees by meeting the following criteria:

     1.   Administrative and Organizational Criteria

          The Contractor will:

               .    Provide organizational and administrative structure and key
                    specified personnel;
               .    Provide management information systems capable of collecting
                    processing, reporting and maintaining information as
                    required;
               .    Have a governing body that meets the requirements defined in
                    this Contract;
               .    Meet the specified administrative requirements, i.e.,
                    quality improvement, utilization management, provider
                    network, reporting, member services, provider services,
                    staffing;
               .    Be or has applied for accreditation as a managed care
                    organization by either the National Committee for Quality
                    Assurance (NCQA) or Joint Commission on Health Care
                    Organizations (JCAHO) no later than March 31, 2001;
               .    Be incorporated within the State of Michigan.

     2.   Financial Criteria

          The Contractor agrees to comply with all HMO financial requirements
          and maintain financial records for its Medicaid activities separate
          from other financial records.

     3.   Provider Network and Health Service Delivery Criteria

          The Contractor:

               .    has a network of qualified providers in sufficient numbers
                    and locations to provide appropriate access to Covered
                    Services;
               .    provides or arranges appropriate accessible care 24 hours a
                    day, 7 days a week to the enrolled population.
               .    has local agreements with DCH contracted behavioral health
                    and developmental disability providers and coordinates care.

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II-M CONTRACTOR ORGANIZATIONAL STRUCTURE, ADMINISTRATIVE SERVICES, FINANCIAL
     REQUIREMENTS AND PROVIDER NETWORKS

     1.   Organizational Structure

          The Contractor will maintain an administrative and organizational
          structure that supports a high quality, comprehensive managed care
          program. The Contractor's management approach and organizational
          structure will ensure effective linkages between administrative areas
          such as: provider services, member services, regional network
          development, quality improvement and utilization review,
          grievance/complaint review, and management information systems.

          The Contractor will be organized in a manner that facilitates
          efficient and economic delivery of services that conforms to
          acceptable business practices within the State. The Contractor will
          employ senior level managers with sufficient experience and expertise
          in health care management, and must employ or contract with skilled
          clinicians for medical management activities.

          The Contractor must not include persons who are currently suspended or
          terminated from the Medicaid program in its provider network or in the
          conduct of the Contractor's affairs.

          The Contractor will provide, upon request from DCH, a copy of the
          current organizational chart with reporting structures, names, and
          positions. A written narrative which documents the operation of the
          organization and the educational background, relevant work experience,
          and current job description for the key personnel identified in the
          organizational chart must be available upon request.

          The Contractor will provide, upon request, a disclosure statement
          fully disclosing to DCH the nature and extent of any contracts or
          arrangements between the individuals responsible for the conduct of
          the Contractor's affairs (or their immediate families, or any legal
          entity in which they or their families have a financial interest
          exceeding 5% of the stock or assets of the entity) and the Contractor
          or a provider or other person concerning any financial relationship
          with the Contractor. The disclosure statements must be signed by each
          person listed and notarized. DCH must be notified in writing of a
          substantial change in the facts set forth in the statement not more
          than 30 days from the date of the change.

          The Contractor must provide a completed "Authorization for Release of
          Information" form to DCH for each employee serving in a key position
          (i.e., Administrator, Medical Director, Chief Financial Officer,
          Management Information Systems Director). This form must be completed
          and submitted to DCH for every new employee hired to serve in a key
          position with the Contractor.

          Information required to be disclosed in this section shall also be
          available to the Department of Attorney General, Health Care Fraud
          Division.

     2.   Administrative Personnel

          The Contractor will have sufficient administrative staff and
          organizational components to comply with all program standards. The
          Contractor shall ensure that all staff has appropriate training,
          education, experience, licensure as appropriate, liability coverage,
          and orientation to fulfill the requirements of the positions. Resumes
          for key personnel must be available upon request from DCH. Resumes
          must indicate the type and amount of experience each person has
          relative to the position.

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          The Contractor must promptly provide written notification to DCH of
          any vacancies of key positions and must make every effort to fill
          vacancies in all key positions with qualified persons as quickly as
          possible. The Contractor shall inform DCH in writing within seven (7)
          days of staffing changes in the following key positions:

               .    Administrator (Chief Executive Officer)
               .    Medical Director
               .    Chief Financial Officer
               .    Management Information System Director

          The Contractor shall provide the following positions (either through
          direct employment or contract):

               (a)  Executive Management

                    A full time administrator with clear authority over general
                    administration and implementation of requirements set forth
                    in the Contract including responsibility to oversee the
                    budget and accounting systems implemented by the Contractor.
                    The administrator shall be responsible to the governing body
                    for the daily conduct and operations of the Contractor's
                    plan.

               (b)  Medical Director

                    The medical director shall be a Michigan-licensed physician
                    (MD or DO) and shall be actively involved in all major
                    clinical program components of the Contractor's plan
                    including review of medical care provided, medical
                    professional aspects of provider contracts, and other areas
                    of responsibility as may be designated by the Contractor.
                    The medical director shall devote sufficient time to the
                    Contractor's plan to ensure timely medical decisions,
                    including after hours consultation as needed. The medical
                    director shall be responsible for managing the Contractor's
                    Quality Assessment and Performance Improvement Program. The
                    medical director shall ensure compliance with state and
                    local reporting laws on communicable diseases, child abuse
                    and neglect.

               (c)  Quality Improvement/Utilization Director

                    A full time quality improvement/utilization director who is
                    either the Contractor's medical director, or a Michigan
                    licensed physician or registered nurse who directly reports
                    to the medical director and adequate staff to support
                    quality improvement and utilization review activities.

               (d)  Chief Financial Officer

                    Full-time chief financial officer to oversee the budget and
                    accounting systems implemented by the Contractor.

               (e)  Support/Administrative Staff

                    Adequate clerical and support staff to ensure appropriate
                    functioning of the Contractor's operation.

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               (f)  Member Services Staff

                    Staff to coordinate communications with Enrollees and to act
                    as Enrollee advocates. There shall be sufficient member
                    service staff to enable Enrollees to receive prompt
                    resolution of their problems or inquiries.

               (g)  Provider Services Staff

                    Staff to coordinate communications between the Contractor
                    and its subcontractors and other providers. There shall be
                    sufficient provider services staff to enable providers to
                    receive prompt resolution of their problems or inquiries.

               (h)  Grievance/Complaint Coordinator

                    Staff to coordinate, manage, and adjudicate member and
                    provider grievances.

               (i)  Management Information System (MIS) Director

                    Full-time MIS director to oversee the data management
                    system, and to ensure that all reporting and claims payments
                    are timely and accurate.

     3.   Administrative Requirements

          The Contractor agrees to have the following policies, processes, and
          plans in place.

               .    written policies, procedures and an operational plan for
                    management information systems;
               .    a process to review and authorize all network provider
                    contracts;
               .    a process to credential and monitor credentials of all
                    healthcare personnel;
               .    a process to identify and address instances of fraud and
                    abuse;
               .    a process to review and authorize contracts established for
                    reinsurance and third party liability if applicable;
               .    policies that comply with all federal and state business
                    requirements;
               .    the Contractor must comply with all Contract reporting
                    requirements; and
               .    designated liaisons - these must include a management
                    information system (MIS) liaison and a general management
                    liaison. All communication between the Contractor and DCH
                    must occur through the designated liaisons unless otherwise
                    specified by DCH. The general management liaison will also
                    be designated as the authorized Contractor expediter
                    pursuant to Contract Section III-B.

          All policies, procedures, and clinical guidelines that the Contractor
          follows must be in writing and available on request to DCH and/or
          HCFA. All medical records, reporting formats, information systems,
          liability policies, provider network information and other detail
          specific to performing the contracted services must be available on
          request to DCH and/or HCFA.

     4.   Management Information Systems

          The Contractor will have available a claims processing and management
          information system sufficient to support provider payments and data
          reporting between the Contractor and DCH. The Contractor must be
          capable of controlling, processing, and paying providers for services
          rendered to Contractor Enrollees. The Contractor

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          must collect service-specific procedures and diagnosis data, to price
          specific procedures or encounters (depending on the agreement between
          the provider and the Contractor), and maintain detailed records of
          remittances to providers. The Contractor is responsible for annual IRS
          form 1099 reporting of provider earnings.

          Management information systems capabilities are necessary for at least
          the following areas:

               .    Member enrollment
               .    Provider enrollment
               .    Third party liability activity
               .    Claims payment
               .    Grievance and complaint tracking
               .    Tracking and recall for immunizations, well-child
                    visits/EPSDT, and other services as required by DCH
               .    Encounter reporting
               .    Quality reporting
               .    Member access and satisfaction

     5.   Governing Body

          Each Contractor will have a governing body that has a minimum of 1/3
          of its membership consisting of adult Enrollees who are not
          compensated officers, employees, stockholders who own more than 5% of
          the shares of the Contractor's plan, or other individuals responsible
          for the conduct of, or financially interested in, the Contractor's
          affairs. The Contractor must have written policies and procedures
          detailing how Enrollee board members will be elected, the length of
          the term, filling of vacancies, notice to Enrollees and subscribers,
          etc. The governing body will ensure adoption and implementation of
          written policies governing the operation of the Contractor's plan. The
          Enrollee board members must have the same responsibilities as other
          board members in the development of policies governing the operation
          of the Contractor's plan. The administrator or executive officer that
          oversees the day-to-day conduct and operations of the Contractor will
          be responsible to the governing body. The governing body must meet at
          least quarterly, and must keep a permanent record of all proceedings
          that is available to DCH and/or HCFA on request.

     6.   Provider Network in the CHCP

          (a)  General

               The Contractor is solely responsible for arranging and
               administering Covered Services to Enrollees. Covered Services
               shall be medically necessary and administered, or arranged for,
               by a designated PCP. Enrollees shall be provided with an
               opportunity to select their PCP. If the Enrollee does not choose
               a PCP at the time of enrollment, it is the Contractor's
               responsibility to assign a PCP within one month of the effective
               date of enrollment. If the Contractor cannot honor the Enrollee's
               choice of the PCP, the Contractor must contact the Enrollee to
               allow the Enrollee to either make a choice of an alternative PCP
               or to disenroll. The Contractor must notify all Enrollees
               assigned to a PCP whose provider contract will be terminated and
               assist them in choosing a new PCP prior to the termination of the
               provider contract.

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               The Contractor must ensure that the provider network:

                    .    provides available, accessible and adequate numbers of
                         facilities, locations and personnel for the provision
                         of Covered Services.
                    .    guarantees that emergency services are available seven
                         days a week, 24-hours per day.
                    .    demonstrates that it can maintain a delivery system of
                         sufficient size and resources to offer quality care
                         that accommodates the needs of the enrolled
                         Beneficiaries within each enrollment area.
                    .    assures that contracted PCPs provide or arrange for
                         coverage of services 24 hours a day, 7 days a week and
                         PCPs must be available to see patients a minimum of 20
                         hours per practice location per week.
                    .    responds to the cultural, racial and linguistic needs
                         (including interpretive services as necessary) of the
                         Medicaid population.
                    .    is described in the provider files for PCPs and other
                         providers that are submitted to the Department's
                         Enrollment Services Contractor.
                    .    will have sufficient capacity to handle the maximum
                         number of Enrollees specified under this Contract.

               Provider files will be used to give Beneficiaries information on
               available Contractors and to ensure that the provider networks
               identified for Contractors are adequate in terms of number,
               location, and hours of operation. The Contractor will ensure:

                    .    that it will provide to DCH's Enrollment Services
                         contractor provider files which contain a complete
                         description of the provider network available to
                         Enrollees;
                    .    that provider files will be submitted in the format
                         specified by DCH;
                    .    that provider files will be updated as necessary to
                         reflect the existing provider network;
                    .    that provider files will be submitted to DCH's
                         Enrollment Services contractor in a timely manner;
                    .    that it will provide to DCH's Enrollment Services
                         contractor a description of the Contractor's service
                         network, including but not limited to: the specialty
                         and hospital network available, arrangements for
                         provision of medically necessary non-contracted
                         specialty care; any family planning services network
                         available, any affiliations with Federally Qualified
                         Health Centers, Rural Health Clinics, and Adolescent
                         Health Centers; arrangements for access to obstetrical
                         and gynecological services; availability of case
                         management or care coordination services; and
                         arrangements for provision of ancillary services. The
                         description will be updated as necessary;
                    .    that the services network will be submitted to DCH's
                         Enrollment Services contractor in a timely manner in
                         the format requested

               The Contractor will ensure:

                    .    that selected PCPs are accessible taking into account
                         travel time, availability of public transportation and
                         other factors that may determine accessibility;
                    .    that primary care and hospital services will be
                         available to Enrollees within 30 minutes or 30 miles
                         travel. Exceptions to this standard may be granted if
                         the Contractor documents that no other network or non-
                         network provider is accessible within the 30 minutes or
                         30 miles travel time. For pharmacy services, the
                         State's expectations are that the Contractor will
                         ensure access within 30 minutes travel time and that
                         services will be available during evenings and on
                         weekends;
                    .    that reasonable access to specialists will be based on
                         the availability and distribution of such specialists;

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                    .    that adequate access exists for ancillary services such
                         as pharmacy services, durable medical equipment
                         services, home health services, and Maternal and Infant
                         Support Services;
                    .    that arrangements for laboratory services will be
                         through only those laboratories with CLIA certificates;
                    .    that all ancillary providers and facilities must be
                         appropriately licensed or certified if required under
                         1978 PA 368, as amended.

          (b)  Mainstreaming

               DCH considers mainstreaming of Enrollees into the broader health
               delivery system to be important. The Contractor must have
               guidelines and a process in place to ensure that Enrollees are
               provided Covered Services without regard to race, color, creed,
               sex, religion, age, national origin, ancestry, marital status,
               sexual preference, or physical or mental handicap. In addition,
               the Contractor must ensure that:

                    .    Enrollees will not be denied a Covered Service or
                         availability of a facility or provider identified in
                         this Contract.

                    .    Network providers will not intentionally segregate
                         Enrollees in any way from other persons receiving
                         health care services.

          (c)  Public and Community Providers and Organizations

               Contractors must work closely with local public and private
               community-based organizations and providers to address prevalent
               health care conditions and issues. Such agencies and
               organizations include local health departments, local FIA
               offices, family planning agencies, Substance Abuse Coordinating
               Agencies, community and migrant health centers, school based and
               adolescent health centers, and local or regional consortiums
               centered around various health conditions. Local coordination and
               collaboration with these entities will make a wider range of
               essential health care and support services available to the
               Contractor's Enrollees. Each county has a different array of
               these providers, and agencies or organizations. Contractors are
               encouraged to coordinate with these entities through
               participation of their provider networks in Michigan's
               county-based community health assessment and improvement process
               and multipurpose human services collaborative bodies.

               A local coordination matrix is provided in the Appendix of this
               Contract. The Contractor is encouraged to use this document as a
               guide for establishing coordination and collaboration practices
               and protocols with local public health agencies. To ensure that
               the services provided by these agencies are available to all
               Contractors, an individual Contractor shall not require an
               exclusive contract as a condition of participation with the
               Contractor.

               It is also beneficial for Contractors to collaborate with
               non-profit organizations that have maintained a historical base
               in the community. These entities are seen by many Enrollees as
               "safe harbors" due to their familiarity with the cultural
               standards and practices within the community. For example,
               adolescent health centers are specifically designed to be
               accessible and acceptable, and are viewed as a "safe harbor"
               where adolescents will seek rather than avoid or delay needed
               services.

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          (d)  Local Behavioral Health and Developmental Disability Provider
               Agreements

               Some Enrollees in each Contractor's plan may also be eligible for
               services provided by Behavioral Health Services and Services for
               Persons with Developmental Disabilities managed care programs.
               Contractors are not responsible for the direct delivery of
               specified behavioral health and developmental disability
               services. The Contractor will establish and maintain local
               agreements with behavioral health and developmental disability
               agencies or organizations contracting with the State.

               Contractors must ensure that local agreements address the
               following issues:

                    .    Emergency services
                    .    Pharmacy and laboratory service coordination
                    .    Medical coordination
                    .    Data and reporting requirements
                    .    Quality assurance coordination
                    .    Grievance and complaint resolution
                    .    Dispute resolution

               Examples of local agreements are included in the Appendix of this
               Contract.

          (e)  Network Changes

               Contractors will notify DCH within seven (7) days of any changes
               to the composition of the provider network that affects the
               Contractor's ability to make available all Covered Services in a
               timely manner. Contractors will have procedures to address
               changes in its network that negatively affect access to care.
               Changes in provider network composition that DCH determines to
               negatively affect Enrollees' access to Covered Services may be
               grounds for sanctions or Contract termination.

               If the Contractor expands the PCP network within a county and can
               serve more Enrollees the Contractor may submit a request to DCH
               to increase capacity. The request must include details of the
               changes that would support the increased capacity. Contractor
               must use the format specified by DCH to describe network
               capacity.

          (f)  Provider Contracts

               In addition to HMO licensure requirements, Contractor provider
               contracts will meet the following criteria:

                    .    Prohibit the provider from seeking payment from the
                         Enrollee for any Covered Services provided to the
                         Enrollee within the terms of the Contract and require
                         the provider to look solely to the Contractor for
                         compensation for services rendered. No cost-sharing or
                         deductibles can be collected from Enrollees.
                         Co-payments are only permitted with DCH approval.
                    .    Require the provider to cooperate with the Contractor's
                         quality improvement and utilization review activities.
                    .    Include provisions for the immediate transfer of
                         Enrollees to another Contractor PCP if their health or
                         safety is in jeopardy.

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                    .    Cannot prohibit a provider from discussing treatment
                         options with Enrollees that may not reflect the
                         Contractor's position or may not be covered by the
                         Contractor.
                    .    Cannot prohibit a provider from advocating on behalf of
                         the Enrollee in any grievance or utilization review
                         process, or individual authorization process to obtain
                         necessary health care services.
                    .    Require providers to meet Medicaid accessibility
                         standards as established in Medicaid policy.

               In accordance with Section 1932 (b)(7) of the Social Security Act
               as implemented by Section 4704(a) of the Balanced Budget Act,
               Contractors may not discriminate with respect to participation,
               reimbursement, or indemnification as to any provider who is
               acting within the scope of provider's license or certification
               under applicable State law, solely on the basis of such license
               or certification. This provision should not be construed as an
               "any willing provider" law, as it does not prohibit Contractors
               from limiting provider participation to the extent necessary to
               meet the needs of the Enrollees. This provision also does not
               interfere with measures established by Contractors that are
               designed to maintain quality and control costs consistent with
               the responsibility of the organization.

          (g)  Disclosure of Physician Incentive Plan

               Contractors will annually disclose to DCH the information on
               their provider incentive plans listed in 42 CFR 417.479(h)(1) and
               417.479(i), as required in 42 CFR 434.70(a)(3), in order to
               determine whether the incentive plans meet the requirements of 42
               CFR 417.479 (d) -- (g) when there exists compensation
               arrangements under the Contract where payment for designated
               health services furnished to an individual on the basis of a
               physician referral would otherwise be denied under Section 1903
               (s) of the Social Security Act. The Contractor will provide the
               information on its physician incentive plans listed in 42 CFR
               417.479(h)(3) to any Enrollee.

          (h)  Provider Credentialling

               The Contractor will have written credentialling and
               re-credentialling (at least every two years) policies and
               procedures for ensuring quality of care and ensuring that all
               providers rendering services to their Enrollees are licensed by
               the State and are qualified to perform their services throughout
               the life of the Contract. The Contractor must ensure that network
               providers residing and providing services in bordering states
               meet all applicable licensure and certification requirements
               within their state. The Contractor also must have written
               policies and procedures for monitoring its providers and for
               sanctioning providers who are out of compliance with the
               Contractor's medical management standards.

          (i)  PCP Standards

               The Contractor must offer its Enrollees freedom of choice in
               selecting a PCP. The Contractor will have written policies and
               procedures describing how Enrollees choose and are assigned to a
               PCP, and how they may change their PCP. The PCP is responsible
               for supervising, coordinating and providing all primary care to
               each assigned Enrollee. In addition, the PCP is responsible for
               initiating referrals for specialty care, maintaining continuity
               of each Enrollee's health care, and maintaining the Enrollee's
               medical record which includes documentation of all services
               provided by the PCP as well as any specialty or referral
               services.

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               The Contractor will allow a specialist to perform as a PCP when
               the Enrollee's medical condition warrants management by a
               physician specialist. This may be necessary for those Enrollees
               with conditions such as diabetes, end-stage renal disease or
               other chronic disease or disability. The need for management by a
               physician specialist should be determined on a case-by-case basis
               in consultation with the Enrollee. If the Enrollee disagrees with
               the Contractor's decision, the Enrollee should be informed of his
               or her right to file a grievance with the Contractor and/or to
               file an appeal with DCH.

               The Contractor will ensure that there is a reliable method and
               system for providing 24 hour access to urgent care and emergency
               services 7 days a week. All PCPs within the network must have
               information on the system and must reinforce with their Enrollees
               the appropriate use of health care services. Routine physician
               and office visits must be available during regular and scheduled
               office hours. Provisions must be available for obtaining urgent
               care 24 hours a day. Urgent care may be provided directly by the
               PCP or directed by the Contractor through other arrangements.
               Emergency Services must always be available.

               Direct contact with a qualified clinical staff person must be
               available through a toll-free telephone number at all times.

               At a minimum, the Contractor shall have or provide one full-time
               PCP per 2,000 members. This ratio shall be used to determine
               maximum Enrollment Capacity for the Contractor in an approved
               service area.

               The Contractor will assign a PCP who is within 30 minutes or 30
               miles travel time to the Enrollee's home, unless the Enrollee
               chooses otherwise. Exceptions to this standard may be granted if
               the Contractor documents that no other network or non-network
               provider is accessible within the 30 minute or 30 mile travel
               time. The Contractor will take the availability of handicap
               accessible public transportation into consideration when making
               PCP assignments.

               PCPs must be available to see Enrollees a minimum of 20 hours per
               practice location per week. This provision may be waived by DCH
               in response to a request supported by appropriate documentation.
               Specialists are not required to meet this standard for minimum
               hours per practice location per week. In the event that a
               specialist is assigned to act as a PCP, the Enrollee must be
               informed of the specialist's business hours. In circumstances
               where teaching hospitals use residents as providers in a clinic
               and a supervising physician is designated as the PCP by the
               Contractor, the supervising physician must be available at least
               20 hours per practice location per week.

               The Contractor will ensure that some providers offer evening and
               weekend hours of operation in addition to scheduled daytime
               hours. The Contractor will provide notice to Enrollees of the
               hours and locations of service for their assigned PCP.

               The Contractor will monitor waiting times to get appointments
               with providers, as well as the length of time actually spent
               waiting to see the provider. This data must be reported to DCH
               upon request. The Contractor will have established

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               criteria for monitoring appointment scheduling for routine and
               urgent care and for monitoring waiting times in provider offices.
               These criteria must be submitted to DCH upon request.

               The Contractor will ensure that a maternity care provider is
               designated for an enrolled pregnant woman for the duration of her
               pregnancy and postpartum care. A maternity care provider is a
               provider meeting the Contractor's credentialling requirements and
               whose scope of practice includes maternity care. An individual
               provider must be named as the maternity care provider to assure
               continuity of care. An OB/GYN clinic or practice cannot be
               designated as a PCP or maternity care provider. Designation of
               individual providers within a clinic or practice is appropriate
               as long as that individual, within the clinic or practice, agrees
               to accept responsibility for the Enrollees care for the duration
               of the pregnancy and post-partum care.

               For maternity care, the Contractor will be able to provide
               initial prenatal care appointments for enrolled pregnant women
               according to standards developed by the CAC and the QIC.

II-N PAYMENT TO PROVIDERS

     The Contractor will make timely payments to all providers for Covered
     Services rendered to Enrollees. With the exception of newborns, the
     Contractor will not be responsible for any payments owed to providers for
     services rendered prior to a Beneficiary's enrollment with the Contractor's
     plan. Except for newborns, payment for services provided during a period of
     retroactive eligibility will be the responsibility of DCH.

     1.   Electronic Billing Capacity

          The Contractor must meet the following timeframes for electronic
          billing capacity and may require its providers to meet the same
          standard as a condition for payment:

               (a)  Be capable of accepting electronic billing for HCFA 1500 and
                    UB 92 no later than May 31, 2000;
               (b)  Be capable of accepting electronic billing for UB 92
                    (Inpatient and Outpatient Claims) with Medicare format
                    standards no later than September 30, 2000;
               (c)  Be capable of accepting electronic billing for HCFA 1500
                    claims with Medicare format standards no later than December
                    31, 2000.

     2.   Prompt Payment

          Contractors must meet the prompt payment requirements as stated in
          2000 PA 187.

     3.   Payment Resolution Process

          The Contractor will have an effective provider appeal process to
          promptly resolve provider billing disputes. The Contractor will
          cooperate with providers who have exhausted the Contractor's appeal
          process by entering into arbitration or other alternative dispute
          resolution process.

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     4.   Arbitration

          When arbitration is requested by a provider, the Contractor is
          required to participate in a binding arbitration process.

          DCH will provide a list of neutral arbitrators that can be made
          available to resolve billing disputes. These arbitrators will be
          organizations with the appropriate expertise to analyze medical claims
          and supporting documentation available from medical record reviews and
          determine whether a claim is complete, appropriately coded, and should
          or should not be paid. A model agreement will be developed by DCH that
          both parties to the dispute will be required to sign. This agreement
          will specify the name of the arbitrator, the dispute resolution
          process, a timeframe for the arbitrator's decision, and the method of
          payment for the arbitrator's fee.

          The party found to be at fault will be assessed the cost of the
          arbitrator. If both parties are at fault, the cost of the arbitration
          will be apportioned.

          The Contractor will be subject to an interest charge based on the
          value of unpaid claims when clean claims are not processed and paid
          within 30 days of receipt. Applicable interest rates for the unpaid
          claims shall be specified by DCH based on Medicare guidelines.

          A provider that submits duplicate claims that have previously been
          denied or returned with notice by the Contractor that the claim is
          incomplete or incorrect shall be subject to a service charge for each
          duplicate claim in an amount determined by DCH if the duplicate claim
          is submitted without completion, correction or further information
          that addresses denial or return.

     5.   Post-payment Review

          The Contractor may utilize a post-payment review methodology to assure
          claims have been paid appropriately.

     6.   Total Payment

          The Contractor or its providers may not require any co-payments,
          patient-pay amounts, or other cost-sharing arrangements unless
          authorized by DCH. The Contractor's providers may not bill Enrollees
          for the difference between the provider's charge and the Contractor's
          payment for Covered Services. The Contractor's providers will not seek
          nor accept additional or supplemental payment from the Enrollee,
          his/her family, or representative, in addition to the amount paid by
          the Contractor even when the Enrollee has signed an agreement to do
          so.

     7.   Case Rate Payments for Emergency Services

          The Contractor, in the absence of a contract with emergency providers,
          must provide reimbursement at Medicaid rates for professional and
          facility services provided in the emergency room of a hospital as
          required in Section II-I-1 and Section II-1-2 of this Contract. As
          described in a Medicaid policy bulletin prepared for this issue
          (Proposed Policy Draft #0034-prac), the DCH will convert the existing

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          Medicaid rates to inclusive case rate for professional emergency
          services provided in a hospital emergency room. The Contractor must
          use the case rates when presented with claims from emergency
          providers.

II-O PROVIDER SERVICES (NETWORK AND OUT-OF-NETWORK)

     The Contractor will:

          .    Provide contract and education services for the provider network,
               ensure proper maintenance of medical records, maintain proper
               staffing to respond to provider inquiries, and be able to process
               provider grievances, complaints, and an appeal system to resolve
               provider billing disputes;
          .    Maintain a written plan detailing methods of provider recruitment
               and education regarding Contractor policies and procedures;
          .    Maintain a regular means of communicating and providing
               information on changes in policies and procedures to its
               providers. This may include guidelines for answering written
               correspondence to providers, offering provider-dedicated phone
               lines, or a regular provider newsletter;
          .    Provide a staff of sufficient size to respond timely to provider
               inquiries, questions and concerns regarding Covered Services.
          .    Provide a copy of the Contractor's prior authorization policies
               to the provider when the provider joins the Contractor's provider
               network. The Contractor must notify providers of any changes to
               prior authorization policies as changes are made.

II-P QUALITY ASSESSMENT AND PERFORMANCE IMPROVEMENT PROGRAM STANDARDS

     1.   Quality Assessment and Performance Improvement Program Standards

          The Contractor will have an ongoing Quality Assessment and Performance
          Improvement Program that meets the requirements of 42 CFR 434.34. The
          Contractor's medical director shall be responsible for managing the
          Quality Assessment and Performance Improvement Program. The Contractor
          must maintain a QIC for purposes of reviewing the Quality Assessment
          and Performance Improvement Program, its results and activities, and
          recommending changes on an ongoing basis. The QIC must be comprised of
          Contractor staff, including but not limited to the quality improvement
          director and other key management staff, as well as health
          professionals providing care to Enrollees.

          The Contractor's Quality Assessment and Performance Improvement
          Program will be capable of identifying opportunities to improve the
          provision of health care services and the outcomes of such care for
          Enrollees. In addition, the Contractor's Quality Assessment and
          Performance Improvement Program will incorporate and address findings
          of site reviews by DCH, external independent reviews, and statewide
          focused studies and the recommendations of the CAC. In addition, the
          Contractor's Quality Assessment and Performance Improvement Program
          must develop or adopt performance improvement goals, objectives and
          activities or interventions as required by the DCH to improve service
          delivery or health outcomes for Enrollees.

          The Contractor will have a written plan for the Quality Assessment and
          Performance Improvement Program which includes a statement of the
          Contractor's performance goals and objectives, lines of authority and
          accountability including data responsibilities, evaluation tools, and
          performance improvement activities.

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          The written plan must also describe how the Contractor will:

               .    Analyze both the processes and outcomes of care using
                    currently accepted standards from recognized medical
                    authorities, including focused review of individual cases as
                    appropriate and to discern the causes of variation in the
                    provision of care to Enrollees.

               .    Establish clinical and non-clinical priority areas and
                    indicators for assessment and performance improvement.

               .    Use measures to analyze the delivery of services and quality
                    of care, over and under utilization of services, disease
                    management strategies, and outcomes of care. The Contractor
                    is expected to collect and use data from multiple sources
                    such as medical records, encounter data, HEDIS(R), claims
                    processing, grievances, utilization review and member
                    satisfaction instruments in this activity.

               .    Compare Quality Assessment and Performance Improvement
                    Program findings with past performance and with
                    established program goals and available external standards.

               .    Measure the performance of Contractor providers and conduct
                    peer review activities such as: identification of practices
                    that do not meet Contractor standards; recommendation of
                    appropriate action to correct deficiencies; and monitoring
                    of corrective action by providers.

               .    Measure provider performance through the inclusion of
                    medical record audits to be performed at least twice
                    annually on a statistically valid sample of Contractor
                    providers.

               .    Provide performance feedback to providers, including
                    detailed discussion of clinical standards and expectations
                    of the Contractor.

               .    Develop and/or adopt clinically appropriate practice
                    parameters and protocols/guidelines and give the
                    Contractor's providers enough information about the
                    protocols to enable them to meet the established standards.

               .    Evaluate access to care for Enrollees according to the
                    established standards and those developed by the CAC and
                    Contractor's QIC and implement a process for ensuring that
                    network providers meet and maintain the standards. The
                    evaluation should include an analysis of the accessibility
                    of services to Enrollees with disabilities.

               .    Perform a member satisfaction survey annually, in
                    collaboration with DCH, and distribute results to providers,
                    Enrollees, and DCH.

               .    Implement improvement strategies related to program findings
                    and evaluate progress periodically but at least annually.

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               .    Maintain the written plan for the Contractor's Quality
                    Assessment and Performance Improvement Program that will be
                    available to DCH upon request.

     2.   Performance Objectives

          At a minimum, the Contractor will include performance objectives for
          the delivery of services to Enrollees in the written plan for its
          Quality Assessment and Performance Improvement Program. The
          Contractor's performance on these objectives will be monitored by DCH.

          For Enrollees with continuous enrollment with the Contractor according
          to HEDIS(R) reporting standards, the Contractor will be assessed
          against performance objectives as specified annually by DCH.

          DCH will also use the results of performance assessments as part of
          the formula for automatic enrollment assignments.

          The Contractor's QIC may establish additional performance objectives
          based on its own assessment and program findings.

     3.   Statewide Performance Improvement

          In addition to its internal Quality Assessment and Performance
          Improvement Program, the Contractor may be required to participate in
          statewide focused studies or performance improvement activities.

          The CAC established by DCH will collaborate with Contractors to
          determine priority areas for statewide focused studies and performance
          improvement initiatives. The CAC will establish time frames for
          submission of data and information for statewide focused studies and
          will review and approve all analytical methodologies associated with
          the focused studies to assure that comparisons among Contractors are
          possible. The clinical priority areas may vary from one year to the
          next and will reflect the needs of the Beneficiaries. The measures may
          include, but are not limited to:

               .    Low birth weight deliveries
               .    Vaginal delivery and C-section rates
               .    Well-Child/EPSDT visit periodicity
               .    Immunization rates
               .    Re-hospitalization rates
               .    Mortality rates
               .    Emergency room use
               .    Chronic disease prevalence and management.

          The Contractor will assess performance for the priority area(s)
          identified by the CAC as requested by DCH, using defined indicators of
          health status, functional status, Enrollee satisfaction or valid
          proxies of these outcomes. The Contractor must submit data and
          information for priority area(s) as requested by DCH. The Contractor
          will address the statewide focused study findings for priority area(s)
          through its Quality Assessment and Performance Improvement Program and
          develop performance improvement goals, objectives and activities
          specific to the

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          Contractor. The Contractor will incorporate any statewide performance
          improvement objectives, established as a result of a statewide focus
          study or performance improvement initiative, into the written plan for
          its Quality Assessment and Performance Improvement Program.

          The CAC may recommend standards of care and related protocols in areas
          including, but not limited to: family planning, diabetes, asthma, end
          stage renal disease, AIDS, and maternal and infant support. The
          Contractor must implement these standards of care and related
          protocols through its Quality Assessment and Performance Improvement
          Program if required by DCH.

     4.   External Quality Review

          The State will arrange for an annual, external independent review of
          the quality and outcomes, timeliness of, and access to Covered
          Services provided by the Contractor. The Contractor will address the
          findings of the external review through its Quality Assessment and
          Performance Improvement Program. The Contractor must develop and
          implement performance improvement goals, objectives and activities in
          response to the external review findings as part of the Contractor's
          Quality Assessment and Performance Improvement Program. A description
          of the performance improvement goals, objectives and activities
          developed and implemented in response to the external review findings
          will be included in the Contractor's quality assessment and
          performance improvement program and provided to DCH upon request. DCH
          may also require separate submission of an improvement plan specific
          to the findings of the external review.

     5.   Annual Effectiveness Review

          The Contractor will annually conduct an effectiveness review of its
          Quality Assessment and Performance Improvement Program. The
          effectiveness review must include analysis of whether there have been
          improvements in the quality of health care and services for Enrollees
          as a result of quality assessment and improvement activities and
          interventions carried out by the Contractor. The analysis should take
          into consideration trends in service delivery and health outcomes over
          time and include monitoring of progress on performance goals and
          objectives. Information on the effectiveness of the Contractor's
          Quality Assessment and Performance Improvement Program must be
          provided annually to network providers and to Enrollees upon request.
          Information on the effectiveness of the Contractor's Quality
          Assessment and Performance Improvement Program must be provided to DCH
          upon request.

     6.   Consumer Survey.

          Contractors must conduct a survey of their enrollee population using
          the Consumer Assessment of Health Plan Survey, CAHPS, instrument
          either by partnering with the DCH through cost sharing or by directly
          contracting with a NCQA certified CAHPS vendor and submitting the data
          according to the specifications and timelines established by the DCH.

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II-Q UTILIZATION MANAGEMENT

     The major components of the Contractor's utilization management plan must
     encompass, at a minimum, the following:

          .    Written policies and procedures that conform with managed health
               care industry standards and processes.
          .    A formal utilization review committee directed by the
               Contractor's medical director to oversee the utilization review
               process.
          .    Sufficient resources to regularly review the effectiveness of the
               utilization review process, and to make changes to the process as
               needed.
          .    An annual review and reporting of utilization review activities
               and outcomes/interventions from same.

     The Contractor may establish and use a prior approval procedure for
     utilization management purposes provided that it does not use such
     procedures to avoid providing medically necessary services within the
     coverages established under the Contract. The utilization management
     activities of the Contractor must be integrated with the Contractor's
     quality assessment and performance improvement program.

II-R THIRD PARTY RESOURCE REQUIREMENTS

     The Contractor will collect any payments available from other health
     insurers including Medicare and private health insurance for services
     provided to its members in accordance with Section 1902(a)(25) of the
     Social Security Act and 42 CFR 433 Subpart D. The Contractor will be
     responsible for identifying and collecting third party liability
     information and may retain third party collections.

     Third party liability (TPL) refers to any other health insurance plan or
     carrier (e.g., individual, group, employer-related, self-insured or
     self-funded plan or commercial carrier, automobile insurance and worker's
     compensation) or program (e.g., Medicare) that has liability for all or
     part of a member's health care coverage. Contractors are payers of last
     resort and will be required to identify and seek recovery from all other
     liable third parties in order to make themselves whole. All such
     collections may be retained by the Contractor. The Contractor must report
     third party collections in its encounter data submission and in aggregate
     as required by DCH.

     DCH will provide the Contractor with a listing of known third party
     resources for its Enrollees. The listing will be produced monthly and will
     contain information made available to the State at the time of eligibility
     determination and/or redetermination.

     When an Enrollee is also enrolled in Medicare, Medicare will be the primary
     payer ahead of any Contractor. The Contractor must make the Enrollee whole
     by paying or otherwise covering all Medicare cost sharing amounts incurred
     by the Enrollee such as coinsurance and deductibles.

II-S MARKETING

     With the approval of DCH, Contractors are allowed to promote their services
     to the general population in the community, provided that such promotion
     and distribution of materials is directed at the population of the entire
     approved service area.

     However, direct marketing to individual Beneficiaries is prohibited. The
     Contractor may not provide inducements through which compensation, reward,
     or supplementary benefits or services are offered to Beneficiaries to
     enroll or to remain enrolled with the

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     Contractor. DCH will review and approve any form of marketing. The
     following are examples of allowed and prohibited marketing locations and
     practices:

     1.   Allowed Marketing Locations/Practices directed at the general
          population:

               .    Newspaper articles
               .    Newspaper advertisements
               .    Magazine advertisements
               .    Signs
               .    Billboards
               .    Pamphlets
               .    Brochures
               .    Radio advertisements
               .    Television advertisements
               .    Noncapitated plan sponsored events
               .    Public transportation (i.e. buses, taxicabs)
               .    Mailings to the general population.

     2.   Prohibited Marketing Locations/Practices which target individual
          Beneficiaries:

               .    Local FIA offices
               .    Provider offices
               .    Individual Contractor "Health Fairs"
               .    Malls or commercial retail establishments
               .    Hospitals
               .    Check cashing establishments
               .    Door-to-door marketing
               .    Telemarketing
               .    Community centers and clinics
               .    Churches
               .    Direct mail targeting individual Medicaid Beneficiaries
               .    WIC clinics.

     3.   Marketing Materials

          The Contractor is required to develop informational materials such as
          pamphlets and brochures that can be used to assist Beneficiaries in
          choosing a Contractor. Marketing materials shall contain provider and
          physician choices offered by the Contractor, and their locations and
          specialties. All written and oral materials must be prior approved by
          DCH.

          Materials must be written at no higher than 6th grade level as
          determined by any one of the following indices:

               .    Fry Readability Index
               .    PROSE The Readability Analyst (software developed by
                    Educational Activities, Inc.)
               .    Gunning FOG Index
               .    McLaughlin SMOG Index
               .    Other computer generated readability indices accepted by
                    DCH.

          Marketing materials must be available in languages appropriate to the
          Beneficiaries being served within the county. All material must be
          culturally appropriate and available in alternative formats in
          accordance with the American with Disabilities Act.

          DCH may impose monetary or restricted enrollment penalties should the
          Contractor or any of its subcontractors or providers be found to use
          marketing materials which have not been approved in writing by DCH or
          engage in prohibited marketing practices. DCH reserves the right to
          suspend all enrollment of new Enrollees into

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          the Contractor's plan. Such suspensions may be imposed for a period of
          sixty (60) days from notification of the violation by DCH to the
          Contractor.

II-T MEMBER AND ENROLLEE SERVICES

     1.   General

          All Enrollee services must address the need for culturally-appropriate
          interventions. Reasonable accommodation must be made for Enrollees
          with hearing and/or vision impairments.

          Contractors will establish and maintain a toll-free 24 hours a day, 7
          days a week telephone number to assist with questions that Enrollees
          may have about the Contractor's providers or Covered Services.

          Contractors will issue an eligibility card to all Enrollees that
          identifies their PCP's name and phone number. The card must also
          include the tollfree 24 hours a day, 7 days a week phone number for
          Enrollees to call and a unique identifying number for the Enrollee.

          The Contractor will demonstrate a commitment to case managing the
          complex health care needs of Enrollees. That commitment will be
          demonstrated by the involvement of the Enrollee in the development of
          his or her treatment plan and will take into account all of an
          Enrollee's needs (e.g. home health services, therapies, durable
          medical equipment and transportation).

          Contractors will accept as enrolled all Enrollees appearing on monthly
          enrollment reports and infants enrolled by virtue of the mother's
          enrollment status. Contractors may not discriminate against
          Beneficiaries on the basis of health needs or health status.

          The duties of each Contractor include arrangements for medically
          necessary services and education of Enrollees with regard to the
          importance of preventive care. In this context, Contractors may not
          encourage an Enrollee to disenroll because of health care needs or a
          change in health care status. Further, an Enrollee's health care
          utilization patterns may not serve as the basis for disenrollment from
          the Contractor. Subject to the above, Contractors may request that DCH
          prospectively disenroll an Enrollee for cause and present all relevant
          evidence to assist DCH in reaching its decision. DCH shall consider
          all relevant factors in making its decision. DCH's decision regarding
          disenrollment shall be final. Disenrollments "for cause" will be the
          first day of the next available month.

     2.   Enrollee Education

          (a)  The Contractor will be responsible for developing and maintaining
               Enrollee education programs designed to provide the Enrollee with
               clear, concise, and accurate information about the Contractor's
               services. Materials for Enrollee education should include:

               .    Member handbook
               .    Contractor bulletins or newsletters sent to the Contractor's
                    Enrollees at least three times a year that provide updates
                    related to Covered Services, access to providers and updated
                    policies and procedures.
               .    Literature regarding health/wellness promotion programs
                    offered by the Contractor.

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          (b)  Enrollee education should also focus on the appropriate use of
               health services. Contractors are encouraged to work with local
               and community based organizations to facilitate their provision
               of Enrollee education services.

     3.   Member Handbook/Provider Directory

          Contractors must mail printed information via first class mail on
          accessing Covered Services to all Enrollees within five (5) Business
          Days of being notified of their enrollment. When there are program or
          service site changes, notification must be provided to the affected
          Enrollees at least ten (10) Business Days before implementation.

          The Contractor must maintain documentation verifying that the
          information in the member handbook is reviewed for accuracy and
          updated at least once a year. The provider directory may be published
          separately. At a minimum the member handbook must include:

               .    A table of contents
               .    A Provider Directory listed by county including:
                    Provider name, address, telephone number and any hospital
                    affiliation
                    Days and hours of operation
                    Languages spoken at the primary care sites
                    Information on how to choose and change PCPs
               .    A list of all hospitals, pharmacies, medical suppliers, and
                    other ancillary health providers the Enrollees may need to
                    access
               .    What to do when family size changes
               .    How to make, change, and cancel appointments with a PCP
               .    A description of all available Contract services and an
                    explanation of any service limitations or exclusions from
                    coverage
               .    How to contact the Contractor's Member Services and a
                    description of its function
               .    Information regarding the grievance and complaint process
                    including how to register a complaint with the Contractor,
                    and/or the State, and how to file a written grievance
               .    Information regarding the State's fair hearing process and
                    that access to that process may occur without first going
                    through the Contractor's grievance/complaint process
               .    What to do in case of an emergency and instructions for
                    receiving advice on getting care in case of any emergency.
                    Enrollees should be instructed to activate emergency medical
                    services (EMS) by calling 9-1-1 in life threatening
                    situations
               .    How to obtain emergency transportation and medically
                    necessary transportation
               .    How to obtain medically necessary durable medical equipment
                    (or customized durable medical equipment)
               .    How to access hospice services
               .    Information on the signs of substance abuse problems,
                    available substance abuse services and accessing substance
                    abuse services
               .    Information on well-child care, immunizations, and follow-up
                    services for Enrollees under age 21 (EPSDT)
               .    Information on vision services, family planning services,
                    and how to access these services
               .    Information on the process of referral to specialists and
                    other providers
               .    Information on the availability and process for accessing
                    Covered Services that are not the responsibility of the
                    Contractor, but are available to its Enrollees such as
                    dental care, behavioral health and developmental disability
                    services
               .    Information on how to handle out of county and out of state
                    services
               .    Information to Enrollees that they are entitled to receive
                    FQHC services
               .    How Enrollees can contribute towards their own health by
                    taking responsibility, including appropriate and
                    inappropriate behavior

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               .    Information regarding pregnancies which conveys the
                    importance of prenatal care and continuity of care, to
                    promote optimum care for mother and infant
               .    Information regarding the Women's, Infant's, and Children
                    (WIC) Supplemental Food and Nutrition Program
               .    Information advising Enrollees of their right to request
                    information regarding physician incentive arrangements
                    including those that cover referral services that place the
                    physician at significant financial risk (more than 25%),
                    other types of incentive arrangements, whether stop-loss
                    coverage is provided
               .    Information regarding when specialists may be designated as
                    their PCP; and
               .    Any other information deemed essential by the Contractor
                    and/or the DCH
               .    Information regarding the Enrollee's right to obtain routine
                    OB/GYN and Pediatric services from network providers without
                    a referral.

          The handbook must be written at no higher than a sixth grade reading
          level. Member handbooks must be available in languages other than
          English when more than five percent (5%) of the Contractor's Enrollees
          speak another language. The Contractor must submit all member handbook
          material to DCH for approval prior to distribution to members. The
          Contractor must agree to make modifications in the handbook language
          so as to comply with the specifications of this Contract.

     4.   Protection of Enrollees Against Liability for Payment and Balanced
          Billing

          Section 1932(b)(6) of the Social Security Act requires Contractors to
          protect Enrollees from certain payment liabilities. Section
          1128B(d)(1) of the Social Security Act authorizes criminal penalties
          to providers in the case of services provided to an individual
          enrolled with a Contractor which are charges at a rate in excess of
          the rate permitted under the organization's Contract.

II-U GRIEVANCE/COMPLAINT PROCEDURES

     The Contractor will establish and maintain an internal process for the
     resolution of complaints and grievances from Enrollees. Enrollees may file
     a complaint or grievance on any aspect of service provided to them by the
     Contractor.

     Enrollees must be told of their right to an administrative hearing if
     dissatisfaction is expressed at any point during the rendering of medical
     treatment. While Contractors may attempt to resolve the dispute through
     their grievance or complaint process, this process must not supplant or
     replace the Enrollee's right to file a hearing request with DCH. The
     Contractor's grievance or complaint process may occur simultaneously with
     DCH's administrative hearing process.

     The following definitions apply:

          DCH Administrative Hearing: Also called a fair hearing, an impartial
          review by DCH of a decision made by the Contractor that the Enrollee
          believes is inappropriate. The Administrative Hearing is conducted by
          an Administrative Law Judge.

          Administrative Law Judge: A person designated by DCH to conduct the
          Administrative Hearing in an impartial or unbiased manner.

          Adverse Determination: A determination by a Contractor that a facility
          admission, availability of care, continued stay or other health care
          service has been reviewed

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          and denied, reduced or terminated. Failure of the Contractor to
          respond in a timely manner constitutes an adverse determination.

          Complaint: A communication by an Enrollee or an Enrollee's
          representative to the Contractor expressing an opinion about care or
          service provided by the Contractor, or presenting an issue to the
          Contractor with a request for relief that can be resolved informally.
          Complaints may be oral or written.

          Grievance: A written complaint on behalf of an Enrollee, submitted by
          an Enrollee or a person, including but not limited to, a physician
          authorized to act on behalf of the Enrollee regarding:

               (a)  availability, delivery or quality of health care services,
                    including a complaint regarding an adverse determination
                    made pursuant to utilization review;
               (b)  claims payment, handling or reimbursement for health care
                    services;
               (c)  matters pertaining to the contractual relationship between
                    a Contractor and an Enrollee.

     1.   Contractor Grievance/Complaint Procedure Requirements

          The Contractor agrees to have written policies and procedures
          governing the resolution of complaints and grievances. These written
          policies and procedures will meet the following requirements:

               .    The Contractor shall administer an internal complaint and
                    grievance procedure according to the requirements of MCLA
                    500.22113 and shall cooperate with the Michigan Office of
                    Financial and Insurance Services in the implementation of
                    2000 PA 251, "Patient's Rights to Independent Review Act".

     2.   Notice to Enrollees of Grievance Procedure

          The Contractor will inform Enrollees about the Contractor's internal
          grievance procedures at the time of initial enrollment, each time a
          service is denied, reduced or terminated, and any other time a
          Enrollee expresses dissatisfaction with the Contractor. The
          information will be included in the member handbook and will explain:

               .    how to file a complaint or grievance with the Contractor
               .    the internal grievance resolution process
               .    the member's right to a fair hearing with the State

     3.   State Medicaid Appeal Process

          The State will maintain a Medicaid fair hearing process to ensure that
          Enrollees have the opportunity to appeal decisions directly to the
          State.

     4.   Termination of Coverage

          (a)  The Contractor shall be responsible for the Enrollee's medical
               care until the Department notifies the Contractor that its
               responsibility for the Enrollee is no longer in effect.

          (b)  DCH will not retroactively disenroll any Enrollees unless the
               person was enrolled in error, the person died before the
               beginning of the month in which a capitation payment was made, or
               for CSHCS enrollment as described under (c) (v) below.
               Recoupments of capitation will be collected by DCH for all
               retroactive

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               disenrollments. DCH shall only retroactively enroll newborns and
               persons previously enrolled who regain eligibility for Medicaid
               within ninety-three (93) days from the date eligibility was lost.
               The Contractor shall not deny payment for medically necessary
               covered services provided during the 93 day re-enrollment period
               for reason of not authorized.

          (c)  Coverage for an Enrollee shall terminate whenever any of the
               following occurs:

                   i.    This Contract is terminated for any reason.

                   ii.   The Enrollee is no longer eligible for Medicaid and
                         does not regain eligibility within ninety-three (93)
                         days.

                   iii.  The Enrollee dies. The Contractor shall be entitled to
                         a capitation payment for such person through the last
                         day of the month in which death occurred.

                   iv.   The Enrollee moves outside the Contractor's service
                         area. In such instances, the Enrollee shall be
                         disenrolled effective the first (1st) day of the month
                         following DCH's implementation of the change of
                         address. The Contractor shall remain responsible for
                         all medically necessary Covered Services until the
                         effective date of disenrollment.

                   v.    The Enrollee is medically eligible for CSHCS and has
                         elected to enroll in CSHCS. When the Enrollee has
                         joined CSHCS, the Enrollee will be disenrolled from the
                         Contractor's health plan effective with the first day
                         of the month for which CSHCS medical eligibility was
                         determined. The Contractor will assist DCH in
                         determining medical eligibility by promptly providing
                         medical documentation to DCH using standard forms and
                         will also assist the DCH in CSHCS enrollment education
                         efforts after medical eligibility has been confirmed.

                   vi.   The Enrollee is eligible for long-term custodial
                         services in a nursing facility following discharge from
                         an acute care inpatient facility.

                              .    The Contractor shall involve DCH in discharge
                                   planning for Enrollees whom the Contractor
                                   believes will require custodial long-term
                                   care services in a nursing facility upon
                                   discharge from the inpatient setting. If DCH
                                   is involved and if DCH agrees that the
                                   Enrollee meets the criteria for admission to
                                   a nursing facility for long-term custodial
                                   care upon discharge from the inpatient
                                   setting, DCH will disenroll the Enrollee from
                                   the Contractor's plan upon discharge from the
                                   inpatient setting.
                              .    If the Contractor fails to provide DCH with
                                   sufficient notice of the impending discharge
                                   or does not include DCH in discharge planning
                                   for the Enrollee, the Contractor will be
                                   responsible for all services required by the
                                   Enrollee for up to 45 days.
                              .    The Contractor is responsible for all
                                   restorative and rehabilitative services
                                   required by its Enrollees (including care in
                                   a nursing facility). The Contractor is not
                                   responsible for

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                                   Covered Services provided in a nursing
                                   facility that was not authorized by the
                                   Contractor.

                              .    DCH has sole responsibility for the
                                   determination of eligibility for long-term
                                   care services paid for by DCH.

                   vii.  The Enrollee is admitted to a state psychiatric
                         hospital. An Enrollee admitted to a state psychiatric
                         hospital shall be disenrolled at the end of the month.
                         The Contractor shall not be responsible for reimbursing
                         the state psychiatric hospital.

                   viii. The Enrollee is granted a disenrollment by DCH for
                         medical exceptions.

                         (a)  Except for Beneficiaries who may be medically
                              eligible for CSHCS, the Contractor shall not ask
                              DCH to disenroll an Enrollee because of an adverse
                              change in the Enrollee's health. The Contractor
                              must ensure DCH that any request for termination
                              is not due to a change in the Enrollee's health.

                         (b)  The Contractor may terminate the enrollment of an
                              Enrollee, subject to the prior approval of DCH,
                              when actions by the Enrollee are inconsistent with
                              Contractor's membership, including fraud, abuse of
                              the Contractor's services, or other intentional
                              misconduct; or if, in the opinion of the PCP, the
                              Enrollee's behavior make its medically infeasible
                              to safely or prudently render Covered Services.
                              Such termination is subject to the grievance
                              procedures as set forth in this section of the
                              Contract. The notice of termination shall be
                              immediately communicated to the Enrollee whose
                              enrollment is terminated, along with procedures
                              for expeditious review pursuant to Section
                              (II-U1).

                              The Contractor may require an Enrollee to sign a
                              statement agreeing to use only the Contractor's
                              providers for obtaining health care. The
                              Contractor shall advise the Enrollee that to abuse
                              this requirement by willfully and knowingly
                              obtaining Covered Services from out-of-network
                              providers or providers not otherwise authorized to
                              provide services under the Contractor may result
                              in enrollment termination. The Contractor must
                              obtain DCH approval prior to the implementation of
                              such an agreement.

                         (c)  The Contractor agrees to accept automatic
                              reinstatement of a person previously enrolled who
                              regains eligibility for Medicaid with ninety-three
                              (93) days from the date eligibility was lost. The
                              Contractor assumes responsibility for services
                              provided during this ninety-three (93) day period
                              for any month the beneficiary gains Medicaid
                              eligibility.

                         (d)  The Contractor shall remain liable for all Covered
                              Services until the date of the Enrollee's
                              termination of coverage becomes effective.

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                         (e)  DCH will terminate enrollment in order to
                              implement the decision of an Administrative Law
                              Judge resulting from a formal grievance
                              proceeding.

                              Nothing in this paragraph or this Contract shall
                              be construed to limit or in any way jeopardize a
                              Beneficiary's Medicaid eligibility.

II-V CONTRACTOR ON-SITE REVIEWS

     Contractor on-site reviews by DCH will be an ongoing activity conducted
     during the Contract. The Contractor's on-site review may include the
     following areas: administrative, financial, provider, Covered Services,
     quality assurance, utilization review, data reporting, claims processing,
     and documentation. These reviews will present an opportunity for the State
     to physically inspect provider offices for accessibility.

II-W CONTRACT REMEDIES

     The State will utilize a variety of means to assure compliance with
     Contract requirements. The State will pursue remedial actions or
     improvement plans that the Contractor can implement to resolve outstanding
     requirements. If remedial action or improvement plans are not appropriate
     or are not successful, Contract remedies including, but not limited to,
     enrollment freezes, capitation withholding, or other financial penalties
     will be implemented. CHCP requirements that are subject to the
     implementation of remedies include but are not limited to:

          .    immunization target rates
          .    Well Child/EPSDT target rates
          .    marketing
          .    member services
          .    enrollment practices
          .    provider network requirements
          .    provider payments
          .    financial requirements
          .    data submission
          .    data reporting
          .    data validity
          .    Enrollee access
          .    Enrollee satisfaction.

     The application of remedies will be a matter of public record.

     The use of intermediate sanctions for non-compliance is described in
     Section 1932(e) of the Social Security Act as enacted in the Balanced
     Budget Act section 4707(e). This provision states that a hearing must be
     afforded to Contractors before termination of a Contract under this section
     can occur. The State must notify Enrollees of such a hearing and allow
     Enrollees to disenroll, without cause, if they choose.

     In addition to the general remedies described above:

          1)   DCH will administer contract remedies to assure the prompt and
               timely reporting required under this Contract. Remedies will be
               as follows:

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               .    If a report required under this Contract is not submitted on
                    or before the required date the Contractor will have its
                    enrollment frozen. If the required reporting is more than 10
                    business days late the Contractor will have 10% of its
                    capitation withheld. Contractors will have the enrollment
                    unfrozen and the withheld capitation paid the next available
                    month following receipt of the required reports.

          2)   DCH will administer Contract remedies to assure compliance with
               the payment to provider requirements contained in Section II-N of
               this Contract. Remedies will be as follows:

               .    If DCH determines that Contractor is not in compliance with
                    either the electronic billing capacity timelines as required
                    in Section II-N-1 or if the Contractor is not complying with
                    the prompt payment standards as required in Section II-N-2
                    the Contractor will have 10% of its capitation withheld.
                    This determination will be made through DCH site assessments
                    and findings and/or review of the monthly claims lag
                    reporting. Withheld capitation will be paid the next
                    available month following compliance with the respective
                    requirements.

          3)   DCH will also administer and enforce a monetary penalty of not
               more than $5000.00 to a contractor for repeated failures on any
               of the findings of DCH site visit report. Collections under this
               Contract remedy will be through gross adjustments to the monthly
               payments described in Section I-J of this Contract and will be
               allocated to the fund established under Section II-AA-e of the
               Contract for performance bonus.

II-X DATA REPORTING

     To measure the Contractor's accomplishments in the areas of access to care,
     utilization, medical outcomes, Enrollee satisfaction, and to provide
     sufficient information to track expenditures and calculate future
     Capitation Rates the Contractor must provide the DCH with uniform data and
     information as specified by DCH. The Contractor must submit an annual
     consolidated report using the instructions and format covered in Contract
     Appendix E. In addition to the annual consolidated report, the Contractor
     must submit monthly and quarterly reports as specified in this section. Any
     changes in the reporting requirements will be communicated to the
     Contractor at least ninety (90) days before they are effective unless state
     or federal law requires otherwise.

     The Contractor's timeliness in submitting required reports and their
     accuracy will be monitored by DCH and will be considered by DCH in ranking
     the performance of the Contractor.

     The Contractor must cooperate with DCH in carrying out validation of data
     provided by the Contractor by making available medical records and a sample
     of its data and data collection protocols. The Contractor must develop and
     implement corrective action plans to correct data validity problems as
     identified by the DCH.

     The following information and reports must be submitted to the Department
     in addition to the annual consolidated report:

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     1.   HEDIS(R)

          The Contractor annually submit Michigan specific HEDIS reports
          according to the most current NCQA specifications and timelines,
          utilizing Michigan specific samples of Enrollees. The Contractor must
          contract with a NCQA certified HEDIS auditing vendor and undergo a
          full audit of their HEDIS reporting process.

     2.   Encounter Data Reporting

          In order to assess quality of care, determine utilization patterns and
          access to care for various health care services, affirm Capitation
          Rate calculations and estimates, the Contractor will submit encounter
          data containing detail for each patient encounter reflecting all
          services provided by the Contractor. Encounter records will be
          submitted monthly via electronic media in the format specified by DCH.
          Encounter level records must have a common identifier that will allow
          linkage between DCH's and the Contractor's Management Information
          Systems.

          The Contractor must submit quarterly utilization reports within 30
          days after the end of the reporting quarter, until DCH determines that
          comparable, accurate data is available through the encounter data
          system. Quarterly utilization reports must provide data as specified
          by DCH. Contractor will be notified by DCH when the requirement for
          quarterly utilization reports is eliminated.

     3.   Financial and Claims Reporting Requirements

          In addition to meeting all HMO financial reporting requirements and
          providing copies of the HMO financial reports to DCH, Contractors must
          provide to DCH monthly statements that provide information regarding
          paid claims, aging of unpaid claims, and denied claims. The DCH may
          also require monthly financial statements from Contractors.

     4.   Quality Assessment and Performance Improvement Program Reporting

          The Contractor must perform and document annual assessments of their
          quality assessment and performance improvement program. This
          assessment is to summarize any modifications made in the quality
          assessment and performance improvement program, a description of
          performance improvement activities for the previous year, an
          effectiveness review (including progress on performance goals and
          objectives), and a work plan for the coming year. The assessment must
          also include results of the Contractor's member satisfaction survey if
          the Contractor does not participate with DCH coordinated survey
          activity. The Contractor may be required to provide this assessment
          and other reports or improvement plans addressing specific contract
          performance issues identified through site visit reviews, external
          independent reviews, focused studies or other monitoring activities
          conducted by DCH.

II-Y RELEASE OF REPORT DATA

     The Contractor must obtain DCH's written approval prior to publishing or
     making formal public presentations of statistical or analytical material
     based on its Enrollees.

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II-Z MEDICAL RECORDS

     The Contractor must ensure that its providers maintain medical records of
     all medical services received by the Enrollee. The medical record must
     include, at a minimum, a record of outpatient and emergency care,
     specialist referrals, ancillary care, diagnostic test findings including
     all laboratory and radiology, prescriptions for medications, inpatient
     discharge summaries, histories and physicals, immunization records, other
     documentation sufficient to fully disclose the quantity, quality,
     appropriateness, and timeliness of services provided.

     1.   Medical Record Maintenance

          The Contractor's medical records must be maintained in a detailed and
          comprehensive manner which conforms to good professional medical
          practice, permits effective professional medical review and medical
          audit processes, and which facilitates an adequate system for
          follow-up treatment. Medical records must be signed and dated. All
          medical records must be retained for at least six (6) years.

          The Contractor must have written policies and procedures for the
          maintenance of medical records so that those records are documented
          accurately and in a timely manner, are readily accessible, and permit
          prompt and systematic retrieval of information. The Contractor must
          have written plans for providing training and evaluating providers'
          compliance with the recognized medical records standards.

     2.   Medical Record Confidentiality/Access

          The Contractor must have written policies and procedures to maintain
          the confidentiality of all medical records. DCH and/or HCFA shall be
          afforded prompt access to all Enrollees' medical records. Neither HCFA
          nor DCH are required to obtain written approval from an Enrollee
          before requesting an Enrollee's medical record. When an Enrollee
          changes PCP, his or her medical records or copies of medical records
          must be forwarded to the new PCP within ten (10) working days from
          receipt of a written request by the former PCP.

II-AA SPECIAL PAYMENT PROVISIONS

     1.  DCH processing Inpatient Claims

          The Contractor may elect an option whereby the Contractor's inpatient
          claims will be paid from an account established through the
          withholding of the hospital portion of the Contractor's Capitation
          Rate. Hospital claims will be paid at Medicaid rates and will not
          include payments for graduate medical education and regular
          disproportionate share hospital payments. The Contractor will be
          required to authorize all non-emergent hospital services before they
          are paid by DCH. At the end of each year of the Contract an interim
          settlement of the account will be made. A final settlement will be
          made twelve months after each interim settlement. An administrative
          fee may be charged by DCH for this function. At the time the interim
          settlement is made, the Contractor will be paid 50% of any amount
          remaining in the account for the year being settled. When the final
          settlement of the account is made for each year, the Contractor will
          be paid any amount remaining in the account for the settled year. If
          the account has a negative balance at any time, the Contractor will be
          required to pay into the account to eliminate the negative balance and
          future withholding may be increased to ensure that the account is
          properly funded.

     2.   Payment of Rural Access Incentive

          In addition to the capitation payment agreed to and included in the
          Contract as Attachment A, the DCH will provide an additional "add-on"
          payment for health plans who have been approved to provide services in
          any or all of the following counties:

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               .    Alcona, Alpena, Antrim, Benzie, Charlevoix, Cheboygan,
                    Clare, Crawford, Emmet, Gladwin, Huron, Kalkaska, Leelanau,
                    Mason, Mecosta, Midland, Missaukee, Montmorency, Oceana,
                    Osceola, Otsego, Presque Isle, Sanilac, Tuscola, and
                    Wexford.

          Payment will be provided each month in the form of an additional $3
          dollars/per member/per month payment for each Beneficiary enrolled
          with the Contractor. Five ($5) dollars per member per month will be
          paid to the Contractor if the Contractor is serving all of the above
          listed counties. It is expected that the additional payment will be
          used to help support the provider and infrastructure costs for
          operating a managed care plan in a rural environment. Contractors will
          be required to report on the disposition, of the payments received
          through this additional reimbursement.

     3.   Contractor Performance Bonus

          During each Contract year, the DCH will withhold .0025 of the
          approved capitation for each Contractor. The amount withheld will be
          used to establish a fund for awarding Contractor performance bonus
          payments. These payments will be made to those high performing
          Contractors according to criteria established by DCH. The criteria
          will include assessment of performance in quality, of care,
          beneficiary responsiveness, and administrative functions. The DCH will
          establish the criteria and measurement of the criteria at the start of
          each fiscal year and provide notice to each Contractor.

II-BB RESPONSIBILITIES OF THE DEPARTMENT OF COMMUNITY HEALTH

      DCH will be responsible for administering the CHCP. It will administer
      Contracts with Contractors, monitor Contract performance, and perform the
      following activities:

          .    Pay to the Contractor a PMPM Capitation Rate as agreed to in the
               Contract for each Enrollee.
          .    Determine eligibility for the Medicaid program and determine
               which Beneficiaries will be enrolled.
          .    Determine if and when an Enrollee will be disenrolled from the
               Contractor's plan or changed to another Medicaid managed care
               program.
          .    Notify the Contractor of changes in enrollment.
          .    Notify the Contractor of the Enrollee's name, address, and
               telephone number if available. The Contractor will be notified of
               changes as they are known to the DCH.
          .    Issue Medicaid identification cards to Enrollees that include the
               name and phone number of the Enrollee's Contractor.
          .    Provide the Contractor with information related to known third
               party resources and any subsequent changes and be responsible for
               reporting paternity related expenses to FIA.
          .    Notify the Contractor of changes in Covered Services or
               conditions of providing Covered Services.
          .    Maintain a CAC to collaborate with Contractors on quality
               improvement.
          .    Protect against fraud and abuse involving Medicaid funds and
               Enrollees in cooperation with appropriate state and federal
               authorities.
          .    Administer a Medicaid fair hearing process consistent with
               federal requirements.
          .    Collaborate with the Contractor on quality improvement
               activities, fraud and abuse issues, and other activities which
               impact on the health care provided to Enrollees.
          .    Conduct a member satisfaction survey of all Enrollees, compile,
               and publish the results.
          .    Review and approve Contractor marketing and member information
               materials before being released to Enrollees.
          .    Apply Contract remedies as necessary to assure compliance with
               Contract requirements.

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          .    Monitor the operation of the Contractor to ensure access to
               quality care for Enrollees.

II-CC RESPONSIBILITIES OF THE DEPARTMENT OF ATTORNEY GENERAL

      The Health Care Fraud Division of the Department of Attorney General
      (Medicaid Fraud Control Unit) is the State agency responsible for the
      investigation of fraud in the State Medicaid program. Contractors shall
      immediately report to the Michigan Medicaid Fraud Control Unit any
      suspicion or knowledge of fraud, including but not limited to the false or
      fraudulent filings of claims and/or the acceptance or failure to return
      monies allowed or paid on claims known to be false or fraudulent. The
      reporting entity shall not attempt to investigate or resolve the reported
      suspicion, knowledge or action without informing the Michigan Medicaid
      Fraud Control Unit and must cooperate fully in any investigation by the
      Fraud Control Unit and any subsequent legal action that may result from
      such investigation.

      Contractors and their health care providers participating in the State
      Medicaid program shall, upon request, make available to the Medicaid Fraud
      Control Unit any and all administrative, financial and medical records
      relating to the delivery of items or services for which State Medicaid
      program funds are expended. In addition, the Medicaid Fraud Control Unit
      must be allowed access to the place of business and to all records of any
      managed care organization or health care providers or any sub-contractors
      during normal business hours, except under special circumstances when
      after-hour admission shall be allowed. Special circumstances shall be
      determined by the Medicaid Fraud Control Unit.

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                                   SECTION III

                             CONTRACTOR INFORMATION


III-A BUSINESS ORGANIZATION

      Molina Healthcare of Michigan, Inc.
      dba Molina Healthcare of Michigan
      43097 Woodward Avenue, Suite 200
      Bloomfield Hills, MI 48302


III-B AUTHORIZED CONTRACTOR EXPEDITER

      Michael A. Graham, CEO
      Phone: (248)454-1070
      Fax:   (248)454-1080

                                       64



                                   APPENDICES

A. Model local agreement with local health departments and matrix for
   coordination of services

B. Model local agreement with behavioral health provider.

C. Model local agreement with developmental disability provider.

D. Provider network format and ancillary provider format for service area
   expansion.

E. Annual Consolidated Report.

F. Schedule for reporting requirements for Contractors.



                                   APPENDIX A

                     Model Agreement Between HEALTH PLAN and
                         Local Health Department (LHDs)



                     Model Agreement Between HEALTH PLAN and
                         Local Health Department (LHDs)

The agreements between the Qualified Health Plan and the local health department
(LHD) must incorporate and address all of the items and areas listed and
described below. These standard provisions are as follows:

     .    Legal Basis
     .    Term of Agreement
     .    Administration
     .    Areas of Coordination and Collaboration
     .    Reporting Requirements
     .    Indemnification
     .    Governing Laws

This agreement is made and entered into this______day of_______,20__by and
between________________and________________________.
                 (Health Plan)            (LHD)

(1)  Legal Basis

     Whereas, P.A. 352 of the Public Acts of 1996 permits the Department of
Community Health to increase the enrollment of Medicaid eligible persons in
qualified health plans on a capitated basis; and
     Whereas, in order to expand enrollment the Department of Community Health
has established a competitive bid process that has resulted in contracts with
health plans that are deemed to be qualified to provide specified health care
services to Medicaid enrollees; and
     Whereas, the Michigan Public Health Code, Act 368 of 1978, as amended,
places responsibility with local health departments to prevent disease, prolong
life, and promote the public health through organized programs, including
prevention and control of environmental health hazards, prevention and control
of diseases, prevention and control of particularly vulnerable population
groups, development of health care facilities and health services delivery
systems, and regulation of health care facilities and health services delivery
systems to the extent provided by law; and
     Whereas, qualified health plans and LHDs should coordinate and collaborate
efforts in order to promote and protect the health of Medicaid enrolled
population;
     Now, therefore the Qualified Health Plan and the LHD agree as follows:

(2)  Term of Agreement

This agreement will be effective______________20____for a period not to
exceed_____________. The agreement will be subject to amendment due to changes
in the contracts between the Department of Community Health and the Qualified
Health Plan.

Upon signed agreement of both parties, the provisions of this agreement will be
extended for a time frame consistent with the contract period of the Qualified
Health Plan and the Department of Community Health. Either party may cancel the
agreement upon 30 day written notice.

(3)  Administration and Point of Authority

The Qualified Health Plan shall designate in writing to the LHD the person who
has authority to administer this agreement. The LHD shall designate in writing
to the Qualified Health Plan the person who has authority to administer this
agreement.



(4)  Areas of Coordination and Collaboration

Under the contract with the Department of Community Health, Qualified Health
Plans are responsible and accountable for providing or arranging health services
specified within the contract. As identified in the accompanying matrix, certain
health care services may be more efficiently and effectively delivered through
coordination and collaboration with LHDs. The matrix describes opportunities for
coordination and collaboration for the following services:

     (a)  Communicable Diseases
               HIV/AIDS
               STDs
               Tuberculosis
               Immunizations
     (b)  Chronic Diseases
               Breast and Cervical Cancer
               Diabetes
               Cardiovascular Diseases
     (c)  Family Planning
     (d)  Prenatal and Postnatal care
     (e)  Maternal and Infant Support Services
     (f)  Laboratory
     (g)  Lead (Pb)
     (h)  Well Child Care (EPSDT)

The intent of this agreement is to explicitly describe the services to be
coordinated and the essential aspects of collaboration between the qualified
health plan and the LHD using the matrix as a guide. The agreement may also
include provisions for the LHD serving as a direct provider of services for the
qualified health plan and related reimbursement arrangements. The LHD will look
solely to the health plan for reimbursement regarding direct care services
provided to the plan's Medicaid enrollees.

(5)  Reporting Requirements

Health care providers, including qualified health plans and its provider panel,
are required to report communicable diseases and certain other conditions to
LHDs. This requirement is included in PA 368 of 1978, the Public Health Code.

(6)  Indemnification

Both parties will agree to provisions that protect against liability in the
performance of activities related to this agreement.

(7)  Governing Laws

Both parties agree that performance under this agreement will be conducted in
compliance with all federal, state, and local laws, regulations, guidelines and
directives.


SIGNATURE
Approved as to form by local Counsel.



COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                        ----------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                        
1.      COMMUNICABLE DISEASES           Collaborate with LHD to      Notification of individuals    Support and assist in
                                        develop and implement        who may have been exposed to   outbreak investigations
        Screening, diagnosis, and       protocols based on           a communicable disease
        treatment, including            standardized guidelines to                                  Assure availability of
        screening and risk assessment   provide, authorize or        Lead outbreak investigations   vaccines not specific to
        for at risk populations,        contract for adequate                                       childhood immunization
        e.g., substance abusers         screening, testing,          Provide local disease
                                        diagnosis, isolation, and    surveillance                   Provide state wide
        Complete case and laboratory    treatment of enrollees                                      population based disease
        reporting to LHD and MDCH       exposed to or infected                                      surveillance
                                        with communicable diseases
        Provide for specimen or                                                                     Develop and implement
        isolate collection and                                                                      state-wide surveillance
        transportation to MDCH                                                                      studies
        laboratory, for testing to
        support outbreak                                                                            Perform reference and
        investigation and                                                                           epidemiological testing to
        surveillance studies                                                                        support outbreak
        (including but not limited to                                                               investigation and
        all Salmonella, Shigella and                                                                surveillance studies
        E.coli O 157:H7 Isolates)                                                                   (including but not limited
                                                                                                    to all Salmonella,
        Cooperate with LHD and MDCH                                                                 Shigella and E.coli O 157:H7
        in outbreak                                                                                 Isolates)
        Investigation and disease
        surveillance studies

        STANDARD:                                                                                   Provide assistance
                                                                                                    organizing and maintaining
        Michigan Administrative Code                                                                surveillance and reporting
        Disease Control Rules                                                                       systems
- --------------------------------------------------------------------------------------------------------------------------------
        a)   HIV/AIDS                   Where the health plan is     LHD may provide HIV            Provide HIV counselor
        b)   STD                        directly providing HIV       counseling and testing,        training and certification
                                        counseling and testing,      and/or STD testing
        Screen to identify high risk    and/or STD testing,                                         Consult on quality
        enrollees seen for prenatal,    collaborate with LHD and     Where the health plan is       assurance issues related
        family planning, substance      MDCH in use of protocols     directly providing HIV         to counseling and testing
        abuse, tuberculosis and         and confidentiality          counseling and testing,        activities
        emergency services and for      provisions, Including        and/or STD testing, the LHD
        high risk patients seen         access to services for       can provide:                   Coordinate drug assistance
        through other plan services     minors                                                      programs for persons
                                                                     protocols for HIV and STD      living with HIV who meet
        Provide, authorize or           Participate where            screening, taking into         specific requirements
        contract for adequate           appropriate in regional      account local morbidity
        counseling, testing,            HIV prevention and care      trends                         Coordinate professional
        diagnosis and treatment         planning                                                    education for primary care
        according to state and                                       protocols for HIV and STD      physicians and other
        federal guidelines                                           patient treatment              health care provides on
                                                                                                    HIV laws, new
        Provide disease and                                          data on HIV and STD in the     treatments/prophylaxis
        prevention education to all                                  population
        high risk enrollees
                                                                     LHD may conduct partner
        Assure complete HIV and STD                                  notification.  Where the
        case and STD laboratory                                      health plan conducts partner
        reporting                                                    notification, the LHD can
                                                                     assist in the implementation
        Perform, or refer to LHD, for                                of protocols
        partner notification services
                                                                     Provide guidance on current
                                                                     recommendations on
                                                                     post-exposure prophylaxis
                                                                     for workplace
================================================================================================================================


Coordination and Collaboration
Page 1



COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN           LOCAL HEALTH DEPARTMENT (LHD)   MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                      
                                                                      exposures to blood or
                                                                      body fluids

                                                                      Provide referral
               STANDARD:                                              information for HIV case    Provide reference laboratory
                                                                      management and other care   testing:
         State laws for pre- and post-                                services within the         HIV confirmatory testing,
         test HIV counseling, informed                                community                   HIV 2 antibody testing, HIV
         consent, confidentiality, and                                                            viral load studies, neonatal
         partner notification                                         Provide copies of           and maternal PCR, reference
                                                                      applicable statutes, rules  testing for gonorrhea and
         Disease Control Rules                                        and LHD/MDCH reporting      syphilis and chlamydia
                                                                      procedures; assist health   culture; all according to
         Sexually Transmitted Disease                                 plan in maintaining         state laboratory submission
         Guidelines, MMWR, Vol 42 no                                  confidentiality,            requirements
         14, 1993                                                     particularly on access to
                                                                      care for minors and
         Health Resources Admin                                       HIV/AIDS care
         guidelines for HIV/AIDS
         education and screening                                      Provide education and
                                                                      prevention materials;
         Public Health Service                                        conduct training and
         guidelines for counseling and                                presentations
         antibody testing to prevent
         AIDS MMWR, Vol 36 509-15                                     When available, LHD can
                                                                      provide counseling,
         MDCH Laboratory Users' Manual                                testing and treatment
                                                                      with pre-authorization of
                                                                      enrollee and will report
                                                                      encounter data to health
                                                                      plan, based on properly
                                                                      executed releases
- --------------------------------------------------------------------------------------------------------------------------------
         c) TUBERCULOSIS                 Collaborate with MDCH to     Interview patient and       Perform reference and
                                         implement standardized       contacts and identify       epidemiological testing of
         Provide, authorize or           testing and treatment        additional cases in the     the first isolate from each
         contract for adequate           protocols                    community                   case and any isolate grown
         testing, diagnosis and                                                                   from a specimen more than 90
         treatment according to state                                 Provide directly observed   days after the original
         and federal guidelines                                       therapy                     culture

         Provide disease and                                          Collect, process and        Provide standardized testing
         prevention education to all                                  evaluate case reporting     and treatment protocols
         high risk enrollees,
         including substance abusers

         Submit tuberculosis isolates
         to MDCH laboratory

         Report all suspect and
         confirmed cases to LHD

         Refer non-adherent patients
         promptly to LHD for directly
         observed therapy (DOT) and
         authorize DOT

         STANDARD:

         Proceeding of the 2nd
         National Conference of
         Laboratory Aspects of
         Tuberculosis, ASTPHLD,
         Washington, DC, 1996
- --------------------------------------------------------------------------------------------------------------------------------
         d) IMMUNIZATION                 Collaborate with LHD to      LHD will report             Provide confirmatory testing
                                         implement childhood          immunizations provided to   for
                                                                      enrollees
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================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                      
                                         and adult immunization      to appropriate health plans  vaccine-preventable
         Provide vaccinations            protocols according to                                   illnesses and outbreak
                                         national recommendations    Investigate reports of       investigations
         Conduct individual provider     as adopted in Michigan      vaccine preventable
         assessments and feedback                                    illnesses                    Provide vaccine for Medicaid-
                                         Report vaccine-                                          eligible enrollees
         Participate in immunization     preventable disease to LHD  Provide provider education
         registry                                                    and training                 Develop and provide provider
                                         Cooperate with state and                                 education materials
         Comply with state and           local health departments    Provide resource materials
         national storage and handling   in disease and outbreak                                  Develop and provide resource
         protocols for vaccines,         investigations              Provide practice and         materials
         assuring maintenance of                                     provider assessment
         proper equipment                                            software and services        Provide practice and
                                                                                                  provider assessment software
         Report all suspect cases of                                 Distribute vaccine for       and services
         vaccine-preventable disease                                 Medicaid eligible enrollees
         to LHD                                                                                   Assist in outbreak
                                                                     Assure availability of       investigation and
         Report immunization adverse                                 immunization services        intervention activities
         reactions to the national
         Vaccine Adverse Event
         Reporting System (VAERS)

         Refer all specimens for
         confirmation of vaccine-
         preventable illnesses to MDCH
         laboratory

         Screen all pregnant women for
         HBsAg; administer appropriate
         prophylaxis to infants born to
         HBsAg. positive mothers

         STANDARD:

         Advisory Committee on
         Immunization Practices and
         AAP Pediatrics Recommendations
- --------------------------------------------------------------------------------------------------------------------------------
2.       CHRONIC DISEASE                 Collaborate with LHDs and   Assist plan development of   Provide LHD with technical
                                         MDCH to incorporate breast  monitoring systems           assistance in monitoring
         a) BREAST AND CERVICAL CANCER   and cervical cancer                                      system development, and
                                         screening, follow-up and    Assist plan in development   collaborate as needed with
         Detection, treatment and        reminder data into plan     of strategies and            plans
         follow-up                       monitoring or tracking      educational material
                                         systems                                                  Provide LHD with information
         Standards for early detection                               Collaborate with plan to     on culturally-sensitive
         and follow-up care:             Collaborate with LHDs and   implement projects to        strategies and educational
                                         MDCH to develop             increase community           material, and collaborate as
         Breast and Cervical Cancer      culturally-sensitive        awareness of breast and      needed with plans, including
         Medical Protocol, Michigan      strategies and              cervical cancer control      evaluation efforts
         Cancer Consortium               educational materials to
                                         encourage women to be                                    Serve as clearinghouse for
         Standards for mammography       screened at                                              community awareness projects
         facilities and cytology         age-appropriate                                          in the state
         laboratories:                   frequencies

                                         Collaborate with LHDs to
                                         increase community
                                         awareness about breast
                                         and cervical cancer
                                         control
================================================================================================================================


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COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
         State Requirements
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                      
         b) DIABETES                     Collaborate with the        Participate in and assist    Certify diabetes outreach
                                         regional Diabetes           in establishing and          programs and support
         Detection, treatment and        Outreach Network to         maintaining linkage          regional networks
         control including patient       assure that the             between the health plan
         education                       prevention and care         and the regional Diabetes
                                         provided to persons with    Outreach Network.
                                         or at risk for diabetes
                                         are consistent with the
                                         national guidelines

         STANDARDS:

         "Diabetes Care," American
         Diabetes Association (ADA)
         January Supplement I

         Michigan Diabetes Outpatient
         Education-Program Standards,
         1992
- --------------------------------------------------------------------------------------------------------------------------------
         c) CARDIOVASCULAR DISEASES      Collaborate with LHD and    Participate in and assist    In cooperation with the
         (high blood pressure, high      MDCH to implement use of    health plan to establish     Governor's Council on
         blood cholesterol, and          professional consensus      and maintain linkage with    Physical Fitness, provide
         smoking and physical            reports and guidelines,     the local physical fitness   health plans with
         inactivity risk factors)        e.g., CDC recommendations   council to increase          information about the
                                         for physician counseling    opportunities for exercise   Centers for Disease Control
         Detection, treatment and        for exercise called                                      and Prevention's PACE
         control including tobacco use   Physician-based             Participate in and assist    Program and guidelines for
         prevention and education        Assessment and Counseling   health plan to develop       sports injury prevention
                                         for Exercise (PACE)         linkages with local
         STANDARD:                       Program                     cardiovascular disease and
                                                                     tobacco coalition efforts
         Human Blood Pressure            Participate in local
         Determination by                coalitions related to       Assure availability of
         Sphygmomanometry, Circulation   CVD, tobacco reduction      community-based
         Vol 88, No.5, Part 1,           and physical inactivity     smoking/tobacco cessation
         November 1993, pp 2460 2470                                 programs

         The Fifth Report of the Joint                               Provide the health plan
         National Committee on                                       with professional
         Detection and Evaluation and                                consensus reports and
         Treatment of High Blood                                     guidelines
         Pressure (NIH Pub No.93 1088,
         March 1994)

         Personal Health Guide from
         HHS, Put Prevention Info
         Practice

         The Second Report of the
         Expert Panel on Detection,
         Evaluation, and Treatment of
         High Blood Cholesterol in
         Adults (NIH Pub # 93 3090,
         September 1993)

         Physical Activity and Health
         A Report of the Surgeon
         General Executive Summary.
         HHS and CDC US Government
         Printing Office (S/N
         017-023-00 196-5) 1996
- --------------------------------------------------------------------------------------------------------------------------------
3.       FAMILY PLANNING                 Enrollees have full         Local family planning        Title X delegate agency
                                         freedom of choice, both     clinics (Title X)            support to local family
         Diagnostic evaluation, drugs,   in-plan and out of-plan;                                 planning clinics
         supplies, devices, services,    LHD may also be a service   Coordinate delivery of
         and related counseling          provider                    recipient care with health
                                                                     plans
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COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                     
         STANDARD:                       Develop joint policy on     Assist in the development
                                         confidentiality with        of joint policy on
         Contraceptive Technology, 1994  other family planning       confidentiality between
                                         providers, in cooperation   health plans and other
         American College of             with LHD                    family planning providers
         Obstetricians and
         Gynecologist Guidelines for     Develop procedure for
         Women's Health Care and         enhancing sharing of
         Standards for                   medical information which
         Obstetric-Gynecologic           may affect health and/or
         Services 1996, and Technical    reproductive needs
         Bulletins

         Centers for Control Morbidity
         and Mortality Weekly Report
         (MOIRE), Vol 42, no 14, Sept.
         14, 1993

         CDC Guidelines for HIV
         Counseling and Voluntary
         Testing for Pregnant Women
- --------------------------------------------------------------------------------------------------------------------------------
4.       PRENATAL AND POSTPARTUM CARE    Assess enrollees'           Community education about   Support local agencies in
                                         understanding of how to     the need for early and      educating and assisting women
         Provide mandatory counseling    access prenatal care in     regular prenatal and        info care
         and voluntary testing for       the managed care system,    postpartum care
         HIV, STD, and hepatitis B to    and refer enrollees to
         pregnant women                  Medicaid managed care       Assist women info care
                                         ombudsman programs as       via outreach and advocacy
         STANDARD:                       needed
                                                                     Promote the development
         American College of             Develop protocols on        of community resources
         Obstetrician Gynecologist       minors' access to care in   for support of
         American Academy of             collaboration with LHD,     childbearing families
         Pediatrics Guidelines for       to assure compliance with
         Perinatal Care third edition    state law                   Conduct local smoking
                                                                     cessation/intervention
         Prevention of Perinatal Group   Refer eligible enrollees    programs
         B Streptococcal Disease A       to WIC and other
         Public Health perspective,      community-based services    Collaborate with health
         Morbidity and Mortality                                     plans in development of
         Weekly Report vol 45, no                                    protocols for minors'
         RR-7, May 31, 1996                                          access to care

         US Public Health Service
         Recommendations for Human
         Immunodeficiency Virus
         Counseling and Voluntary
         Testing for Pregnant Women,
         Morbidity and Mortality
         Weekly Report, vol 44,
         no.RR-7, July 7, 1995

         Michigan Compiled Laws
         (Public Act 368, 1978 as
         amended) Section 5123, 5131,
         5133

         Health Resources and Services
         Administration "Use of
         Zidovudine (ZDV) to Reduce
         Perinatal Transmission of
         HIV/AIDS," 1995

         US Department Health and
         Human Services, Public Health
         Services, Substance Abuse and
         Mental Health Services
         Administration, Pregnant
         Substance Using Women,
         Treatment Improvement Protocol
================================================================================================================================


Coordination and Collaboration
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COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                     
         (TIP)

         Institute of Medicine,
         Nutrition During Pregnancy
         and Lactation, Implementation
         Guide 1992
- --------------------------------------------------------------------------------------------------------------------------------
5.       MATERNAL AND INFANT SUPPORT     Collaborate with LHD to     Certified and skilled       Certify and monitor MSS and
         SERVICES                        implement MSS and ISS       MSS/ISS providers are       ISS
                                         protocols                   available through LHD and
         Screen all pregnant and                                     other community agencies
         postpartum women and infants    If the health plan
         to determine risk for poor      contracts for MSS/ISS
         birth outcomes                  services, it must do so
                                         only with certified
         Provide or authorize MSS/ISS    providers
         services

         STANDARD:

         Medical Services Bulletin and
         Infant Support Services
         Providers 95-01, 95-03, and
         93-03
- --------------------------------------------------------------------------------------------------------------------------------
6.       LABORATORY                      Arrange for specimen        Assist in specimen          Develop laboratory-based
                                         transport to MDCH           collection and              surveillance study protocols
         Diagnostic laboratory and       laboratory.                 transportation to MDCH      and perform appropriate
         x-ray services                                              Laboratory                  reference and epidemiological
                                         Assist LHD, local animal                                testing
         Provide for specimen or         control officials and       Assist interpretation of
         isolate collection and          veterinarians in locating   certain laboratory          Perform rabies testing on
         transportation to MDCH          animals responsible for     results to plan             unvaccinated or wild animals
         laboratory, for testing to      having bitten enrollees     physicians and enrollees
         support outbreak                                                                        Provide MDCH Laboratory Users
         investigation and               Coordinate appropriate                                  Guide
         surveillance studies            rabies prophylaxis
         (including but not limited to   vaccination with LHD                                    See laboratory roles related
         all initial isolates of                                                                 to health plan service #1,
         Mycobacterium tuberculosis,                                                             Communicable Diseases
         Salmonella, Shigella and
         E.coli O 157:H7 and any
         cultures isolate 90 days or
         more from the initial
         isolate; serum specimens from
         suspect cases of
         vaccine-preventable illness;
         isolates of highly resistant
         invasive microorganisms)

         Complete laboratory reporting
         requirements

         Cooperate with LHD and MDCH
         in outbreak investigation and
         disease surveillance studies

         STANDARD:

         Disease Control Rules

         MDCH Laboratory Users Guide

         Second National Conference on
         Serological Diagnosis of Lyme
         Disease, MMWR Vol 44 (no 31)
================================================================================================================================


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COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN          LOCAL HEALTH DEPARTMENT (LHD)    MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                     
         Proceedings of the Second
         National Conference on
         Laboratory aspects of
         Tuberculosis ASTPHLD, 1996

         Sexually Transmitted Disease
         Guidelines MMWR Vol 42 (RR 14)
         1993

         Public Health Service
         Guidelines for Counseling and
         Antibody Testing to Prevent
         HIV infection and AIDS MMWR
         Vol 36, 1987

         Interpretation and Use of the
         Western Blot Assoy for
         Serodiagnosis of HIV type 1
         Infections MMWR, Vol 38, 1989
- --------------------------------------------------------------------------------------------------------------------------------
7.       LEAD SERVICES                   Coordinate environmental   Analyze data to identify     Provide environmental
                                         and nursing                exposure patterns            assessment and nursing
         Provide lead poisoning          investigations and                                      investigations and abatement
         prevention education            community education        Develop primary prevention   programs
                                         programs with LHD          services
         Submit blood specimens for                                                              Provide lead poisoning
         all children to MDCH            Refer and authorize        Coordinate prevention and    prevention education programs
         laboratory for blood lead       every child with an        environmental remediation
         testing                         elevated blood lead        programs                     Provide blood lead and
                                         level for an                                            environmental testing
         Refer all children who          environmental and in-      Facilitate referrals and
         develop toxic lead levels to    home nursing follow-up     consultation to Children's
         LHD for environmental testing                              Medical Specialty Clinics
         at MDCH laboratory
                                                                    Provide referrals to
         Refer to LHD for                                           support services, for
         environmental and nursing                                  example EarlyOn
         investigations and follow-up
         and referrals for
         environmental remediation.

         STANDARD:

         Preventing Lead Poisoning in
         Young Children.  Centers for
         Disease Control and
         Prevention 1991
- --------------------------------------------------------------------------------------------------------------------------------
8.       WELL CHILD CARE (EPSDT)         Refer eligible enrollees   Provide community health     Support community efforts
                                         for community based        education to promote the     that educate and promote
         Provide or authorize            support and follow-up      need for regular, routine    enrollees accessing their
         screening services and needed   services including but     well child and well-         health care provider
         follow-up care                  not limited to EarlyOn     adolescent preventive
                                         (under three years old)    health screen
         Accept and take action on       CSHCS, the Intermediate
         referrals from community-based  school district, (special  Assure school based vision   Regular update of quality
         school health, hearing and      education) vocational        and hearing screening        standards and recommendations
         vision screening programs       rehabilitation (16 years   programs and referral of     for hearing and vision
                                         old and up)                all children needing         screening service
                                                                    follow-up to the health plan
         Use every encounter as an
         opportunity to immunize
         children and adolescents        Collaborate with local     Appropriate reporting to     Provide training for
                                         SAFE KIDS Coalitions to    Lead Surveillance System     preschool and school aged
                                         disseminate injury         at MDCH                      hearing and vision screening
                                         prevention educational
                                         materials and safety       Assist health plan in
                                         equipment                  referring enrollees to
                                                                    local or
                                         Collaborate with school-
                                         based and adolescent
================================================================================================================================


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COORDINATION AND COLLABORATION BETWEEN HEALTH PLANS AND PUBLIC HEALTH AGENCIES
ON SELECTED SERVICES



================================================================================================================================
                                                                COORDINATION AND COLLABORATION ROLES
                                         ---------------------------------------------------------------------------------------
NO.          HEALTH PLAN SERVICES               HEALTH PLAN         LOCAL HEALTH DEPARTMENT (LHD)     MICHIGAN DEPARTMENT OF
                                                                                                      COMMUNITY HEALTH (MDCH)
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                     
         STANDARD:                      health centers to assure    state-level SAFE KIDS        Develop practice parameters
                                        the provision of primary    Coalition for information    for appropriate health care
         American Pediatrics            care, psycho-social and     on obtaining low-cost        practitioner counseling based
         Association Schedule for       health education services   safety equipment, e.g.,      on the National SAFE KIDS
         periodicity for well child     which are accessible and    child safety seats, bike     Home Safety Check endorsed by
         services                       acceptable to youth.        helmets, smoke detectors     former Surgeon General
                                                                                                 C. Everett Koop
         Medical Services                                           School-based and
         Administration Bulletin                                    adolescent health centers    Encourage use of E-codes
                                                                    will continue to promote     (ICD9-CM external cause of
         American Medical Association                               collaboration with health    injury codes) and provide
         Guidelines for Adolescent                                  plans in the provision of    education to increase
         Preventive Services                                        primary care,                awareness of their importance
                                                                    psycho-social and health     in prevention planning, as
                                                                    education services which     recommended by the Centers
                                                                    are accessible and           for Disease Control and
                                                                    acceptable to youth.         Prevention and the National
                                                                                                 Highway Traffic Safety
                                                                                                 Administration
================================================================================================================================


Coordination and Collaboration
Page 8



                                   APPENDIX B

                 Model Local Agreement with Behavioral Provider



   Model Agreement Between HEALTH PLAN and Local Behavioral Health Contractor,
                (Community Mental Health Service Program, CMHSP)

The agreements between the Qualified Health Plan and the local behavioral health
contractor (CMHSP) must incorporate and address all of the items and areas
listed and described below. These standard provisions are as follows:

     .    Legal Basis
     .    Term of Agreement
     .    Administration
     .    Areas of Shared Responsibility
          .    Referral
          .    Interagency Assessment and Supports/Services Planning
          .    Emergency Services
          .    Pharmacy and laboratory service coordination
          .    Medical Coordination
          .    Quality Improvement coordination
          .    Data and reporting requirements
          .    Grievance and complaint resolution
          .    Dispute Resolution
     .    Indemnification
     .    Governing Laws

This agreement is made and entered into this___________day of______, 20___by and
between __________________and_______________________.
          (Health Plan)              (CMHSP)

(1)  Legal Basis

     Whereas, P.A. 352 of the Public Acts of 1996 permits the Department of
Community Health to increase the enrollment of Medicaid eligible persons in
qualified health plans on a capitated basis; and
     Whereas, in order to expand enrollment the Department of Community Health
has established a competitive bid process that has resulted in contracts with
health plans that are deemed to be qualified to provide specified health care
services to Medicaid enrollees; and
     Whereas, the majority of Medicaid covered mental health services will be
provided through arrangements between the Department of Community Health and
selected behavioral health providers; and
     Whereas, Community Mental Health Service Programs, CMHSP, are designated as
the Behavioral Health Provider under contract with the Department of Community
Health and consistent with the Mental Health Code; and
     Whereas, qualified health plans and CMHSPs should coordinate and
collaborate efforts in order to promote and protect the health of Medicaid
enrolled population;
     Now, therefore the Qualified Health Plan and the CMHSP agree as follows:

(2)  Term of Agreement

This agreement will be effective_____________20____for a period not to
exceed_______________. The agreement will be subject to amendment due to changes
in the Contracts between the Department of Community Health and the Qualified
Health Plan or the contract with the Community Mental Health Services Programs.



Upon signed agreement of both parties, the provisions of this agreement will be
extended for a time frame consistent with the contract period of the Qualified
Health Plan and the Department of Community Health. Either party may cancel the
agreement upon 30 day written notice.

(3)  Administration and Point of Authority

The Qualified Health Plan shall designate in writing to the CMHSP the person who
has authority to administer this agreement. The CMHSP shall designate in writing
to the Qualified Health Plan the person who has authority to administer this
agreement.

(4)  Areas of Shared Responsibility

In order to provide the most efficient and coordinated services to Medicaid
enrollees, the responsibilities of the Qualified Health Plan and CMHSP will
include:

(A)  Referral

Mutually Served Consumers

This refers to Qualified Health Plan members who also receive specialized CMHSP
behavioral health services. Mutual consumer groups will be defined according to
clinical criteria agreed upon between the individual CMHSP and Qualified Health
Plan. For adults with severe and persistent mental illness and for children and
adolescents with severe emotional disturbance the criteria should be based upon
the combination of diagnosis, degree of disability, duration, and prior service
utilization. Services to be provided by the Qualified Health Plan and by CMHSP
may vary for different clinically defined groups.

Entry to CMHSP Specialized Behavioral Health Services

This is the process of obtaining CMHSP approval for a Qualified Health Plan
member to receive specialized behavioral health services from CMHSP. Specialized
behavioral health services means those provided by a psychiatric hospital or
inpatient unit of a community hospital, partial hospitalization services or
those unique services of CMHSP which support persons in community environments
and/or provide alternatives to, or decrease the need for psychiatric inpatient
services or state facility services. These might include such services as
assertive community treatment, specialized residential services, day program
services, Mental Health Clinic services, psychosocial rehabilitation services,
home based services, etc.

Services To Be Provided (Benefit Packages and Limitations)

The intent of establishing written procedures between Qualified Health Plans and
CMHSP Programs is to assure service coordination and continuity of care for
persons receiving services from both organizations. Therefore it is essential
that the parties define the service/coverage package which will be provided by
each party to mutual consumers. This must also specify any limitations on
amounts of services, including but not restricted to:

     .  emergency services
     .  inpatient psychiatric hospital and other hospital services
     .  outpatient mental health services
     .  physician, especially neurological assessments and treatment,
        diagnostics, and orders for therapies;
     .  pharmacy and laboratory services
     .  therapies (physical, occupational, speech)



     .  Mental Health Clinic Services
     .  personal care services, including Home Help and specialized Mental
        Health personal care
     .  substance abuse services
     .  transportation to medical services & to Mental Health services

(B)  Interagency Assessment and Supports/Services Planning

This includes collaborative joint supports/services, and/or treatment planning
activities of the consumer, the CMHSP Program and the Qualified Health Plan
regarding mental health services, specialty developmental disability services
and medical services provided by each party to the mutual consumer.

It includes identifying responsibilities to, and processes for: joint service
planning meetings; sharing of assessments and background information; employing
person-centered processes to develop supports/services plans; assigning
supports/services coordination responsibilities; ongoing monitoring (inclusive
of health status) and communication about services rendered or additional
services needed.

The two parties must establish a process for clinical staffings in order that
the clinical staff of the two agencies meet on a regular basis to review the
plans and status of mutual consumers.

The interagency treatment/supports planning process further involves sharing of
written documents and verbal reports, and discussions at joint supports/services
planning meetings.

(C)  Emergency Services.

In accordance with the definition of emergency services described in Section
II-I-1 of CONTRACT for Comprehensive Health Care Program, emergency services
also include those services provided to a person suffering from an acute problem
in behavior or mood which requires immediate intervention. The need for the
intervention may be identified by the enrollee, the enrollee's family or social
unit, other agencies or referral sources, or law enforcement personnel.

It is the responsibility of the Qualified Health Plan to ensure that emergency
services are available 24 hours a day and 7 days a week. As part of its
responsibilities to provide emergency services and mental health outpatient
services, the Qualified Health Plan must make available mental health crisis
services; for its enrollees. This applies for all enrollees except for those who
are receiving specialized behavioral health services. If the emergency is of a
medical/physical nature, it is the responsibility of the Qualified Health plan.

The Qualified Health plan has the responsibility to inform all enrollees of
emergency service procedures for accessing emergency services and to inform
members of the designated emergency phone number through member services
materials and programs. Prior approval by the Qualified Health Plan is not
required.

It is the responsibility of the CMHSP to provide for emergency mental health
services for all enrollees receiving specialized behavioral health services
including:

     .  access by telephone 24 hours a day, seven days a week. Such number shall
        be made available to the qualified health plan to provide to all
        enrollees;
     .  provision for face-to-face services to persons in need of crisis
        evaluation, and admission screening for psychiatric inpatient
        admissions, intervention and disposition.



(D)  Pharmacy and Laboratory Services

Prescriptions and Orders for Laboratory Services:

1.   Unless agreed to by the CMHSP, the Qualified Health Plan cannot restrict
     prescriptions written by the behavioral health physicians as long as:

     (a) The drug prescribed is for the treatment of mental illness or substance
         abuse and any side effects of psychopharmacological agents.
     (b) The purchase is made from an approved Qualified Health Plan pharmacy.

2.   The Qualified Health Plan cannot restrict orders for laboratory services to
     test for and monitor the medications prescribed by the behavioral health
     physician, except that the laboratory must be approved by the Qualified
     Health Plan.

3.   The Qualified Health Plan and the CMHSP must develop approval mechanisms
     for other laboratory and imaging services (e.g. MRI, CAT scans, X-rays,
     etc).

Coordination:

1.   The Qualified Health Plan and the CMHSP must develop procedures for
     notifying each other of prescriptions, and when deemed advisable,
     consultation between practitioners before prescribing medication, and
     sharing complete and up-to-date medication records.

2.   The CMHSP in cooperation with the Qualified Health Plan is responsible to
     monitor and track pharmaceutical usage in order for the Qualified Health
     Plan to provide comprehensive data and information as required under
     contract with the Department of Community Health.

Pharmacies and Laboratories:

The qualified Health Plan must ensure that pharmacy and laboratory services are
easily accessible to the recipients of the specialized behavioral health
services. Strategies to accomplish this include the location of pharmacies and
laboratories in proximity to specialty service locations and/or public
transportation, home delivery services, or other methods of the provision of
these services. The CMHSP shall assist the Qualified Health Plan in identifying
existing locations used by consumers and/or alternative delivery strategies.

Drug Formulary:

1.   The Qualified Health Plan drug formulary for developmental disabilities and
     for behavioral health must include all of the drugs currently covered for
     the Medicaid FFS population.

2.   The Qualified Health Plan must have a process to evaluate requests to add
     products not included in its drug formulary.

(E)  Medical Coordination

In order to coordinate the appropriate delivery of health care services to
Medicaid enrollees clarity regarding the respective responsibility is necessary.
Both parties will develop referral procedures and effective means of
communicating the need for individual referrals.



It is the responsibility of Qualified Health Plans to provide or arrange for a
limited number of outpatient visits (20 visits). The Qualified Health Plan may
contract with CMHSP to provide this benefit. Payment for these services are the
responsibility of the Qualified Health Plan.

It is the responsibility of the CMHSP to provide or arrange for all inpatient
(including entry and exit from state facilities) services and specialty mental
health services. Payment for these services will be the responsibility of the
CMHSP and Department of Community Health.

Health and Medical Services: A number of mutually served consumers will be
jointly under the care of at least two physicians, namely the Qualified Health
Plan primary health care physician and the specialty behavioral health
physician. The treatment planning process must clearly define the respective
responsibilities for these two physicians. On an individual consumer basis other
health related services will need to be clarified. Such health related services
include nutrition/dietary, maintenance of health and hygiene, nursing services,
teaching self-administration of medications, etc.

It is jointly the responsibility of the Qualified Health Plan and CMHSP to
conduct utilization review for Medicaid enrollees. This is defined as the
process of evaluating the necessity, appropriateness and efficiency of health
care services. The information developed in this process is essential to the
Quality Improvement Plans of each party.

(F)  Quality Improvement

Both parties agree that a set of Quality Improvement activities to monitor the
coordination of services is necessary. The Quality Improvement process will
establish performance standards that will be used to monitor access,
coordination, outcome, and satisfaction of services.

(G)  Data and Reporting Requirements and Release of Information

Both parties will agree to coordinate the data sharing necessary for completing
reporting requirements established through their respective contracts with the
Department of Community Health. Such data sharing should involve performance
indicators such as:

     .  mental health emergency services including pre-admission screening for
        psychiatric inpatient services
     .  inpatient utilization
     .  referrals to CMHSP specialized mental health services
     .  pharmacy and laboratory utilization
     .  coordination between the Qualified Health Plan and the CMHSP
     .  consumer/enrollee satisfaction with services and coordination.

Both parties shall agree to obtain any necessary signed releases of information
from the enrollee so that treatment information can be shared without impediment
between the two parties to this agreement. The Mental Health Code stipulates
that the holder of the mental health record may disclose information "as
necessary in order for the recipient to apply for or receive benefits".

(H)  Grievance and Complaint

Qualified Health Plans are required to establish internal processes for
resolution of complaints and grievances from enrollee members. Medicaid
enrollees may file a complaint or grievance on any aspect of service provided to
them by the health plan or the health plan's contracted providers.



CMHSPs are required to establish second opinion mechanisms and internal
recipient rights processes for resolution of complaints from recipients and
others.

Both parties are responsible for informing the other about their consumer
grievance and complaint process.

Both parties are responsible to provide information to Medicaid enrollee members
regarding the health plan's grievance and complaint process and that of the
CMHSP.

(I)  Dispute Resolution

The parties must specify the steps that the Qualified Health Plan or CMHSP must
follow to contest a decision or action by the other party related to the terms
of the agreement. The process should specify the responsibilities of the parties
and time frame for each step.

The dispute resolution process should include:

     For administrative decisions:

     .  Request to the other party for reconsideration of the disputed decision
        or action.
     .  Appeal to the DCH regarding a disputed decision of a QHP, or for a
        disputed decision of a CMHSP.

     For clinical decisions:

     .  Request to the other party for reconsideration of the disputed decision
        or action.
     .  Appeal to a locally-established clinical review team comprised of
        Medical Directors, or their designees, from the CMHSP and the Qualified
        Health Plan.
     .  Appeal to a clinical review team consisting of medical professionals
        representing the Department of Community Health.

(5)  Indemnification

     Both parties will agree to provisions that protect against liability in the
performance of activities related to this agreement.

(6)  Governing Laws

     Both parties agree that performance under this agreement will be conducted
in compliance with all federal, state, and local laws, regulations, guidelines
and directives.

SIGNATURE
     Approved as to form by local Counsel.



                                   APPENDIX C

                    MODEL LOCAL AGREEMENT WITH DEVELOPMENTAL
                               DISABILITY PROVIDER



     Model Agreement Between HEALTH PLAN and Local Developmental Disability
                                   Contractor,
                (Community Mental Health Service Program, CMHSP)

The agreements between the Qualified Health Plan and the local developmental
disability contractor (CMHSP) must incorporate and address all of the items and
areas listed and described below. These standard provisions are as follows:

     .  Legal Basis
     .  Term of Agreement
     .  Administration
     .  Areas of Shared Responsibility
        .  Referral
        .  Interagency Assessment and Supports/Services Planning
        .  Emergency Services
        .  Pharmacy and laboratory service coordination
        .  Medical Coordination
        .  Quality Improvement coordination
        .  Data and reporting requirements
        .  Grievance and complaint resolution
        .  Dispute Resolution
     .  Indemnification
     .  Governing Laws

This agreement is made and entered into this ___________ day of ___________,
20____ by and between _________________________ and ___________________________.
                           (Health Plan)                     (CMHSP)

(1)  Legal Basis

     Whereas, P.A. 352 of the Public Acts of 1996 permits the Department of
Community Health to increase the enrollment of Medicaid eligible persons in
qualified health plans on a capitated basis; and
     Whereas, in order to expand enrollment the Department of Community Health
has established a competitive bid process that has resulted in contracts with
health plans that are deemed to be qualified to provide specified health care
services to Medicaid enrollees; and
     Whereas, specialized services for Medicaid enrollees who have developmental
disabilities will be provided through arrangements between the Department of
Community Health and selected developmental disability providers; and
     Whereas, Community Mental Health Service Programs, CMHSP, are designated as
the Developmental Disability Provider under contract with the Department of
Community Health and consistent with the Mental Health Code; and
     Whereas, qualified health plans and CMHSPs should coordinate and
collaborate efforts in order to promote and protect the health of Medicaid
enrolled population;
     Now, therefore the Qualified Health Plan and the CMHSP agree as follows:

(2)  Term of Agreement

This agreement will be effective _________________ 20____ for a period not
to exceed _____________. The agreement will be subject to amendment due
to changes in the contracts between the Department of Community Health and the
Qualified Health Plan or the contract with the Community Mental Health Services
Programs.



Upon signed agreement of both parties, the provisions of this agreement will be
extended for a time frame consistent with the contract period of the Qualified
Health Plan and the Department of Community Health. Either party may cancel the
agreement upon 30 day written notice.

(3)  Administration and Point of Authority

The Qualified Health Plan shall designate in writing to the CMHSP the person who
has authority to administer this agreement. The CMHSP shall designate in writing
to the Qualified Health Plan the person who has authority to administer this
agreement.

(4)  Areas of Shared Responsibility

In order to provide the most efficient and coordinated services to Medicaid
enrollees, the responsibilities of the Qualified Health Plan and CMHSP will
include:

(A)  Referral

Mutually Served Consumers

This refers to Qualified Health Plan members who also receive CMH services.
Mutual consumer groups will be defined according to clinical criteria agreed
upon between the individual CMH and Qualified Health Plan. Services to be
provided by the Qualified Health Plan and by CMH may vary for different
clinically defined groups. Eligibility criteria for specialty developmental
disability (DD) services are outlined in Attachment 1. It should be noted that
persons who receive specialty developmental disability services also have a high
likelihood of requiring behavioral health services.

Entry to CMHSP Specialized Services for Persons with DD

This is the process of obtaining CMHSP approval for a Qualified Health Plan
member to receive specialized DD services from CMHSP. Specialized DD services
means those unique services of CMHSP which support persons in community
environments and/or provide alternatives to, or decrease the need for,
Intermediate Care Facilities for persons with Mental Retardation (ICFs/MR) which
includes State DD Centers and Alternative Intermediate Services for Persons with
Mental Retardation (AIS/MR) homes. These might include such services as
specialized residential services, day program services, outpatient Mental Health
Clinic services, supportive services (e.g., family support, supported
independent living), etc.

Services To Be Provided (Benefit Packages and Limitations)

The intent of establishing written procedures between Qualified Health Plans and
CMHSP Programs is to assure service coordination and continuity of care for
persons receiving services from both organizations. Therefore it is essential
that the parties define the service/coverage package which will be provided by
each party to mutual consumers. This must also specify any limitations on
amounts of services, including but not restricted to:

     .  emergency services
     .  inpatient hospital, and outpatient services by type of outpatient
        service
     .  intermittent/short term LTC nursing facility stays
     .  physician, especially neurological assessments and treatment,
        diagnostics, and orders for therapies;
     .  pharmacy, particularly drugs used in seizure and/or behavioral
        management and the OTC and non-prescription items commonly ordered for
        consumers with DD



     .  laboratory services
     .  dental services
     .  therapies (physical, occupational, speech)
     .  Mental Health Clinic Services
     .  home health services, including hourly nursing
     .  medical equipment and supplies, and assistive technology
     .  specialized DD services, including home and community-based care, crisis
        stabilization, and long-term supports
     .  personal care services, including Home Help and specialized Mental
        Health personal care
     .  transportation to medical services & to Mental Health services

(B)  Interagency Assessment and Supports/Services Planning

This includes collaborative joint supports/services, and/or treatment planning
activities of the consumer, the CMHSP Program and the Qualified Health Plan
regarding specialty developmental disability services, mental health services,
and medical services provided by each party to the mutual consumer.

It includes identifying responsibilities to, and processes for: joint service
planning meetings; sharing of assessments and background information; employing
person-centered processes to develop supports/services plans; assigning
supports/services coordination responsibilities; ongoing monitoring (inclusive
of health status) and communication about services rendered or additional
services needed.

For persons with developmental disability, a critical responsibility that needs
to be identified relates to the physician responsibilities. This will need to be
handled on an individual basis, but the process must be clearly laid out for
defining the respective responsibilities of the CMHSP physician and the CHPP
primary physician

The two parties must establish a process for clinical staffings in order that
the clinical staff of the two agencies meet on a regular basis to review the
plans and status of mutual consumers.

The interagency treatment/supports planning process further involves sharing of
written documents and verbal reports, and discussions at joint supports/services
planning meetings.

(C)  Emergency Services.

In accordance with the definition of emergency services described in Section
II-I-1 of the Request for Proposal for Comprehensive Health Care Program,
emergency services also include those services provided to a person suffering
from an acute problem in behavior or mood that requires immediate intervention.
The need for the intervention may be identified by the enrollee, the enrollee's
family or social unit, other agencies or referral sources, or law enforcement
personnel.

It is the responsibility of the Qualified Health Plan to ensure that emergency
services are available 24 hours a day and 7 days a week. As part of its
responsibilities to provide emergency services and mental health outpatient
services, the Qualified Health Plan must make available mental health crisis
services for its enrollees. This applies for all enrollees except for those who
are receiving specialized behavioral health services. If the emergency is of a
medical/physical nature, it is the responsibility of the Qualified Health plan.
If the emergency results from crises in the supports system of the consumer it
is the responsibility of the specialty developmental disability provider.

The Qualified Health plan has the responsibility to inform all enrollees of
emergency service procedures for accessing emergency services and to inform
members of the designated emergency



phone number through member services materials and programs. Prior approval by
the Qualified Health Plan is not required.

It is the responsibility of the CMHSP to provide for emergency mental health
services for all enrollees receiving specialized behavioral health services
including:

     .  access by telephone 24 hours a day, seven days a week. Such number shall
        be made available to the qualified health plan to provide to all
        enrollees;
     .  provision for face-to-face services to persons in need of crisis
        evaluation, and admission screening for psychiatric inpatient
        admissions, intervention and disposition.

(D)  Pharmacy and Laboratory Services

Prescriptions and Orders for Laboratory Services:

1.   Unless agreed to by the CMHSP, the Qualified Health Plan cannot restrict
     prescriptions written by the developmental disability physicians as long
     as:

     a.   The drug prescribed is for the treatment of the developmental
          disability or for any complication due to the developmental
          disability.
     b.   The purchase is made from an approved Qualified Health Plan pharmacy.

2.   The Qualified Health Plan cannot restrict orders for laboratory services to
     test for developmental disabilities or the complications due to the
     disability, except that the laboratory must be approved by the Qualified
     Health Plan.

3.   The Qualified Health Plan cannot restrict orders for laboratory services to
     test for and monitor the medications prescribed by the developmental
     disability services physician, except that the laboratory must be approved
     by the Qualified Health Plan.

4.   The Qualified Health Plan and the CMHSP must develop approval mechanisms
     for other laboratory and imaging services (e.g. MRI, CAT scans, X-rays,
     etc).

Coordination:

1.   The Qualified Health Plan and the CMHSP must develop procedures for
     notifying each other of prescriptions, and when deemed advisable,
     consultation between practitioners before prescribing medication, and
     sharing complete and up-to-date medication records.
2.   The CMHSP in cooperation with the Qualified Health Plan is responsible to
     monitor and track pharmaceutical usage in order for the Qualified Health
     Plan to provide comprehensive data and information as required under
     contract with the Department of Community Health.

Pharmacies and Laboratories:

The qualified Health Plan must ensure that pharmacy and laboratory services are
easily accessible to the recipients of developmental disability services.
Strategies to accomplish this include the location of pharmacies and
laboratories in proximity to specialty service locations and/or public
transportation, home delivery services, or other methods of the provision of
these services. The CMHSP shall assist he Qualified Health Plan in identifying
existing locations used by consumers and/or alternative delivery strategies.



Drug Formulary:

1.   The Qualified Health Plan drug formulary for developmental disabilities and
     for behavioral health must include all of the drugs currently covered for
     the Medicaid FFS population.

2.   The Qualified Health Plan must have a process to evaluate requests to add
     products not included in its drug formulary.

(E)  Medical Coordination

In order to coordinate the appropriate delivery of health care services to
Medicaid enrollees clarity regarding the respective responsibility is necessary.
Both parties will develop referral procedures and effective means of
communicating the need for individual referrals.

In addition, both the Qualified Health Plan and CMHSP acknowledge respective
individual responsibilities as listed below:

..    Habilitation and rehabilitation services. Habilitation services means those
     services designed to assist Medicaid enrollees in the development of skills
     and capacities they have never possessed, (i.e., predominantly in the
     functioning areas of self-care and/or activities of daily living), and to
     maintain capacities attained for the first time. Habilitation services are
     the responsibility of the CMHSP. Rehabilitation services are designed to
     assist Medicaid enrollees in restoring those self care skills they once
     possessed and is the responsibility of the Qualified Health Plan.

..    Case Management: Case management services means those services which will
     assist Medicaid enrollees in gaining access to needed medical, social,
     educational and other services. It is the expectation that Qualified Health
     Plans will demonstrate a commitment to assisting enrollees in managing
     their complex health care needs (Section II-T of the Request for Proposal
     for Comprehensive Health Care Program).

     Within the developmental disabilities specialty services system case
     management includes: assessment; person-centered service plan development;
     linking/coordination of services; reassessment/follow-up; advocacy and
     monitoring of services. Some CMHSP consumers of DD services receive these
     case management services under a coverage entitled "supports
     coordination". As part of the referral procedures described above, the
     Qualified Health Plan and CMHSP shall both indicate the manner in which
     case management services will be coordinated.

..    Health and Medical Services: A number of mutually served consumers will be
     jointly under the care of at least two physicians, namely the Qualified
     Health Plan primary health care physician and the specialty developmental
     disabilities physician. The treatment planning process must clearly define
     the respective responsibilities for these two physicians. On an individual
     consumer basis other health related services will need to be clarified.
     Such health related services include nutrition/dietary, maintenance of
     health and hygiene, nursing services, teaching self-administration of
     medications, etc.

     It is jointly the responsibility of the Qualified Health Plan and CMHSP to
     conduct utilization review for Medicaid enrollees. This is defined as the
     process of evaluating the necessity, appropriateness and efficiency of
     health care services. The information developed in this process is
     essential to the Quality Improvement Plans of each party.



(F)  Quality Improvement

Both parties agree that a set of Quality Improvement activities to monitor the
coordination of services is necessary. The Quality Improvement process will
establish performance standards that will be used to monitor access,
coordination, outcome, and satisfaction of services.

(G)  Data and Reporting Requirements and Release of Information

Both parties will agree to coordinate the data sharing necessary for completing
reporting requirements established through their respective contracts with the
Department of Community Health. Such data sharing should involve performance
indicators such as:

     .  mental health emergency including pre-admission screening for DD Centers
        or AIS/MR services
     .  referrals to CMHSP specialized developmental disabilities services
     .  Pharmacy and Laboratory utilization
     .  coordination between the QHP and the CMHSP
     .  Consumer/enrollee satisfaction with services and coordination.

Both parties shall agree to obtain any necessary signed releases of information
from the enrollee so that treatment information can be shared without impediment
between the two parties to this agreement. The Mental Health Code stipulates
that the holder of the mental health record may disclose information "as
necessary in order for the recipient to apply for or receive benefits".

(H)  Grievance and Complaint

Qualified Health Plans are required to establish internal processes for
resolution of complaints and grievances from enrollee members. Medicaid
enrollees may file a complaint or grievance on any aspect of service provided to
them by the health plan or the health plan's contracted providers.

CMHSPs are required to establish second opinion mechanisms and internal
recipient rights processes for resolution of complaints from recipients and
others.

Both parties are responsible for informing the other about their grievance and
complaint processes.

Both parties are responsible to provide information to Medicaid enrollee members
regarding the health plan's grievance and complaint processes and that of the
CMHSP.

(I)  Dispute Resolution

The parties must specify the steps that the Qualified Health Plan or CMHSP must
follow to contest a decision or action by the other party related to the terms
of the agreement. The process should specify the responsibilities of the parties
and time frame for each step.

The dispute resolution process should include:

     For administrative decisions:

     .  Request to the other party for reconsideration of the disputed decision
        or action.
     .  Appeal to the DCH regarding a disputed decision of a QHP, or for a
        disputed decision of a CMHSP.



     For clinical decisions:

     .  Request to the other party for reconsideration of the disputed decision
        or action.
     .  Appeal to a locally-established clinical review team comprised of
        Medical Directors, or their designees, from the CMHSP and the Qualified
        Health Plan.
     .  Appeal to a clinical review team consisting of medical professionals
        representing the Department of Community Health.

(5)  Indemnification

Both parties will agree to provisions that protect against liability in the
performance of activities related to this agreement.

(6)  Governing Laws

Both parties agree that performance under this agreement will be conducted in
compliance with all federal, state, and local laws, regulations, guidelines and
directives.

SIGNATURE
     Approved as to form by local Counsel.



                                  ATTACHMENT 1

                              ELIGIBILITY CRITERIA
                  DEVELOPMENTAL DISABILITIES SERVICE CARVE OUT

Health plan members may be referred for specialized services for persons with
developmental disabilities provided through Michigan Community Mental Health
Services Programs (CMHSP) when the member meets one or more of the following
criteria:

     1. Meets the Michigan Mental Health Code definition of developmental
        disability;
     2. Has a confirmed diagnosis of severe or profound mental retardation, or
        mild or moderate mental retardation in combination with cerebral palsy,
        physical disability, sensory impairment, or challenging behaviors;
     3. Has a documented IQ of 70 or below;
     4. Has a designation of SMI, SXI, AI or TMI established by the school
        system;
     5. Has a documented developmental delay based on administration of a
        standardized developmental test, such as the Denver Developmental
        Screening or the Gesell Developmental Test.

Additionally, the individual must have an apparent need for, or have requested,
one or more of these specialized services provided through the CMHSP system:

     1. Inpatient services in a State Center for Persons with Developmental
        Disabilities.
     2. Specialized residential services.
     3. Day program services.
     4. Outpatient Mental Health Clinic Services when the service is
        habilitative and part of a plan of comprehensive supports/services.
     5. Emergency DD services as needed to augment emergency services provided
        by the health plan.
     6. Supportive services.
     7. Prevention programs.
     8. Testing and assessments.
     9. Other services, by mutual agreement of the Qualified Health plan and the
        CMHSP.

Persons who are referred to the CMHSP will be screened to determine the level of
need. Services will be provided according to the service priorities specified in
the Michigan Mental Health Code. Some services may be limited or not available,
due to funding limitations or capacity restrictions.



                                   APPENDIX D

                 FORMAT FOR PROFILES OF PRIMARY CARE PROVIDERS,
                       SPECIALISTS, & ANCILLARY PROVIDERS



                   HEALTH PLAN'S PRIMARY CARE PROVIDER PROFILE

Health Plan
Name ____________________________________ County/Region ________________________

List alphabetically by category of Primary Care: Family Practice, General
Practice, Internal Medicine, OB/GYN, Pediatrician, authorized Nurse
Practitioner and Physician Assistant
This form may be duplicated by the bidder as necessary and the Profile must be
submitted in this format on disk using Excel 5.0.



- -----------------------------------------------------------------------------------------------------------------------------------
Category                                          Physician                    Physician                    Physician
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
Physician Name
- -----------------------------------------------------------------------------------------------------------------------------------
State License Number
- -----------------------------------------------------------------------------------------------------------------------------------
Board Certified or Eligible (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Practice Type (e.g. GYN, OB etc.)
- -----------------------------------------------------------------------------------------------------------------------------------
Office Location (Use separate column for
each location/address)
- -----------------------------------------------------------------------------------------------------------------------------------
Office days
- -----------------------------------------------------------------------------------------------------------------------------------
Office hours
- -----------------------------------------------------------------------------------------------------------------------------------
Accept established Medicaid Patients only
(Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Accept New Medicaid Patients (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Medicaid Capacity
- -----------------------------------------------------------------------------------------------------------------------------------
Total Patient Capacity (Medicaid Medicare
and Commercial)
- -----------------------------------------------------------------------------------------------------------------------------------
Physician provides prenatal and OB services
(Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Hospital admitting Priviliges (list hospitals)
- -----------------------------------------------------------------------------------------------------------------------------------
Other licensed health personnel in office
(Y/N) if Y, list by type of personnel (e.g., PA,
FNP, etc.)
- -----------------------------------------------------------------------------------------------------------------------------------
Affiliation status with Health Plan: (Employee,
Contractual (signed contract--Plan and
physician), Contractual (signed letter of
intent)
- -----------------------------------------------------------------------------------------------------------------------------------




                         HEALTH PLAN'S HOSPITAL PROFILE

Health Plan
Name ____________________________________ County/Region ________________________
This form may be duplicated by the bidder as necessary and the Profile must be
submitted in this format on disk using Excel 5.0.



- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Attachment (and any addition
                                                                                                 or deletion) of most recent
                                                                                                 American Hospital
                                    Affiliation Status with Health Plan: Owned,                  Association Guide describing
                                    Contractual with signed and dated Contract,                  Services provided by Hospital
Name of Hospital                    Contractual with signed and dated letter of intent           Attachment provided (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                           
- -----------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




                 HEALTH PLAN'S ANCILLARY HEALTH PROVIDER PROFILE

Health Plan Name _________________________________________

County/Region _______________________________________________________

Include the following information regarding ancillary health provider for at
least the following providers:


                                                      
     Pharmacy             Laboratory        Physical Therapy   Occupational Therapy
     Speech Therapy       Home Health       Durable Medical    Maternal/Infant
                                             Equipment          Support Services
     Hospice              Vision            Audiology          Ambulance Service
     Radiology            Substance Abuse   Family Planning    FQHC/RHC
     Mental Health        Orthotics         Prosthetics        Restorative/Rehab Facility
     Local Health Dept.


This form may be duplicated by the bidder as necessary and the Profile must be
submitted in this format on disk using Excel 5.0. (Plans may attach a list of
multiple providers (i.e, pharmacies)



- -----------------------------------------------------------------------------------------------------------------------------------
                                 Licensue
                                 Number (if                                      Office       Office Days
Name of Ancillary Provider       applicable)         Office Location             Hours        (SMTWTFS)             Type of Service
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
- -----------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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




                    HEALTH PLAN'S SPECIALTY PHYSICIAN PROFILE

Health Plan
Name_______________________________ County/Region ______________________________

Specialists may include:


                                                                                         
                                         Allergists               Anesthesiologists               Cardiologists
             Dermatologists              Endocrinologists         Emergency Medicine              Gastroenterologists
             Hematologists               Neonatologists           Neurologists                    Neurosurgeons
             Oncologists                 Ophthalmologists         Orthopedists                    Otolaryngologists
             Pathologists                Physiatrists             Plastic Surgeons                Psychiatrists
             Podiatrists                 Pulmonary Specialists    Radiologists                    Rheumatologists
             Surgeons-General            Surgeons-Oral            Surgeons-Specialists            Sports Medicine
             Therapeutic Radiologists    Urologists               Infection Disease Specialist


Group physicians in like specialities. This form may be duplicated by the bidder
as necessary and the Profile must be submitted in this format on disk using
Excel 5.0.



- -----------------------------------------------------------------------------------------------------------------------------------
Category                                        Physician                       Physician                    Physician
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Physician Name & Specialty
- -----------------------------------------------------------------------------------------------------------------------------------
State License Number
- -----------------------------------------------------------------------------------------------------------------------------------
Board Certified or Eligible (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Office Address (Use separate column
for each location/address)
- -----------------------------------------------------------------------------------------------------------------------------------
Office Hours
- -----------------------------------------------------------------------------------------------------------------------------------
Office Days
- -----------------------------------------------------------------------------------------------------------------------------------
Hospital Admitting Privileges (list
hospitals)
- -----------------------------------------------------------------------------------------------------------------------------------
Accepting established Medicaid patients
only (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Accepting new Medicaid Patients (Y/N)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Medicaid Capacity for Health Plan
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capacity fol all patients (Medicaid,
Medicare and Commercial)
- -----------------------------------------------------------------------------------------------------------------------------------





- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Affiliation Status with Health Plan:
Employee Contractual (signed and
dated contract), Contractual (signed and
dated letter of intent)
- -----------------------------------------------------------------------------------------------------------------------------------




                                   APPENDIX E

                   KEY CONTRACTOR PERSONNEL AUTHORIZATION FOR
                             RELEASE OF INFORMATION



                    AUTHORIZATION FOR RELEASE OF INFORMATION
                     Michigan Department of Community Health

TO WHOM IT MAY CONCERN:

I authorize any representative or agent of the Michigan Department of Community
Health bearing either the original or a copy of this authorization to obtain
information from your files or other sources pertaining to my personal
background including but not limited to:
     .  Employment History
     .  Criminal History, including but not limited to a check of the
        Computerized Criminal History (CCH) file
     .  Financial / Credit History
     .  Academic Records
     .  Professional Licensure, including a check for any disciplinary actions

I authorize you to release such information upon request of the bearer. This
Authorization is executed with the full knowledge and understanding that the
information is for official use by the Michigan Department of Community Health.

I release you, the institution, agency or establishment which you represent,
including its officers, employees and related personnel, both individually and
collectively, from any and all liability for damages of whatever kind, which may
at any time result to me, my heirs, family or associates because of compliance
with this Authorization for Release of Information, or any attempt to comply
with it. Should there be any question as to the validity of the Authorization,
you may contact me as indicated below:

Full Name (Typed or Printed)            Social Security Number *

- -------------------------------------------------------------------------------
Current Address (Number and Street,     Date of Birth
Apt. No., Etc.)

- -------------------------------------------------------------------------------
City            State       ZIP Code    Telephone Number

                                        Area Code (      ) Number
- -------------------------------------------------------------------------------
Driver License Number                                  State Issuing

- -------------------------------------------------------------------------------
Medical or Health Professional License Number          State Issuing

- -------------------------------------------------------------------------------
Authorizing Signature                   Today's Date

- -------------------------------------------------------------------------------
Witness Signature                       Witness Name (Typed or Printed)

- -------------------------------------------------------------------------------
* This information is confidential and protected by the Federal Privacy Act.


Subscribed and sworn to before me

                                              Authority:  PA 352 of 1996
this ________ day of _______________, 1997.  Completion:  Is Voluntary
                                            Consequence:  Failure to submit form
    ___________________________________                   may delay completion
                                                          of proposal review.
                                            ------------------------------------
Notary Public __________________ County     The Department of Community Health
State of Michigan                           will not discriminate against any
My Commission Expires: ________________     individual or group because of race,
                                            sex, religion, age, national origin,
                                            marital status, political beliefs
                                            or disability.

MSA-50 (5-97)



                                   APPENDIX F

                    HEALTH PLAN REPORTING FORMAT AND SCHEDULE



[LOGO OF MDCH]

                     MICHIGAN DEPARTMENT OF COMMUNITY HEALTH

                    INSTRUCTIONS FOR COMPILING AND SUBMITTING

                ANNUAL REPORT FOR LICENSED QUALIFIED HEALTH PLANS

Please submit the Annual Report in a 3-ring binder with tabs for each component
report. Please prepare each component report in the format specified in the
instructions and for the different product lines, as indicated. Please submit
one complete copy each to the assigned licensing officer and contract manager.


TAB NO.  COMPONENT REPORT                                  PRODUCT LINE
- -----------------------------------------------------------------------------
         ADMINISTRATIVE
- -----------------------------------------------------------------------------
  1      Summary Annual Report for Subscribers                   T
- -----------------------------------------------------------------------------
  2      Health Plan Profile                                     T
- -----------------------------------------------------------------------------
         FINANCIAL
- -----------------------------------------------------------------------------
  3      Financial                                               *
- -----------------------------------------------------------------------------
         QUALITY
- -----------------------------------------------------------------------------
  4      Complaints & Grievances                                M, T
- -----------------------------------------------------------------------------
  5      Litigation                                             M, T
- -----------------------------------------------------------------------------
         UTILIZATION
- -----------------------------------------------------------------------------
  6      Enrollment                                              E
- -----------------------------------------------------------------------------
  7      HEDIS                                                   E
- -----------------------------------------------------------------------------
  8      Abortion                                                M
- -----------------------------------------------------------------------------
  9      Vaccine                                                 M
- -----------------------------------------------------------------------------
         PROVIDER
- -----------------------------------------------------------------------------
 10      Physician Incentive Program (PIP) Reporting             M
- -----------------------------------------------------------------------------
         DOCUMENTS
- -----------------------------------------------------------------------------
 11      Provider Directory                                      E
- -----------------------------------------------------------------------------
 12      Certificate of Coverage                                 E
- -----------------------------------------------------------------------------
 13      Member Handbook                                         E
=============================================================================

         Product Line Key:

         M = Medicaid
         T = Total for all product lines
         E = Each product line separately
         * = NAIC format addresses product line information

                                                  1999 Health Plan Annual Report



[LOGO OF MDCH]

                     MICHIGAN DEPARTMENT OF COMMUNITY HEALTH

                    INSTRUCTIONS FOR COMPILING AND SUBMITTING

                ANNUAL REPORT FOR LICENSED QUALIFIED HEALTH PLANS

1.   Summary Annual Report for Subscribers. The summary shall contain a
     statement indicating that relevant documents are on file with the
     Department or the Insurance Bureau, as applicable, and with the plan, and
     are available for public inspection. The summary annual report to
     subscribers shall include: (a) a summary of current activities of the plan,
     (b) the current members of the governing body with identification of the
     subscriber representatives, and (c) the procedures for enrollee contact
     with the governing body members.

2.   Health Plan Profile. Form MSA-126 (9-99) is attached.

3.   Financial. A copy of: (a) the 1999 NAIC "Annual Statement" as submitted to
     the Insurance Bureau, reduced to 8 1/2" by 11," (b) the Michigan Insurance
     Bureau INS-317 "Revenue and Expense" Report for HMOs (10/98),(c) Management
     Discussion and Analysis, (d) Statement of Actuarial Opinion,
     (e) Compensation Schedule B (INS 86), and (f) certified audited financial
     statements for calendar year 1999.

4.   Complaints and Grievances. Form MSA-131 (9-99) is attached.

5.   Litigation. Form MSA-129 (9-99) is attached. This information should be
     submitted in a separate, sealed envelope marked "Confidential."

6.   Enrollment. Form MSA-130 (9-99) is attached. Please provide a breakdown by
     each product line for each county in the plan's approved service area as of
     the end of the calendar year being reported.

7.   HEDIS. This report is due on June 30. Please submit two (2) hard copies and
     two (2) electronic copies of the Medicaid and commercial HEDIS reports.
     Electronic submission must be on the data submission tool (DST) as
     distributed by NCQA. Please indicate if any HEDIS reports being submitted
     were audited. If audited, please provide the name of the firm conducting
     the audit and whether the auditing firm is NCQA-certified.

8.   Abortion. Form MSA-128 (9-99) is attached.

9.   Vaccine. Form MSA-127 (9-99) is attached.

10.  Physician Incentive Program (PIP) Reporting. Use HCFA annual update format.

For each of the following, please provide a copy of the most current document
for each product line:

11.  Provider Directory.

12.  Certificate of Coverage.

13.  Member Handbook.

                                                  1999 Health Plan Annual Report



                  HEALTH PLAN PROFILE
         MICHIGAN DEPARTMENT OF COMMUNITY HEALTH    Report Date     Report Year
                                                    ----------------------------
Please Type or Print Clearly
- -------------------------------------------------------------------------------
???RPORATED Name of Health Plan                     HMO License Number

- -------------------------------------------------------------------------------
OPERATING Name of Health Plan                       License Expiration Date

- -------------------------------------------------------------------------------
Describe the Ownership of Health Plan: (attach an organization chart)

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

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

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

===============================================================================
Organization Status is:
[ ] PROFIT                                       [ ] NONPROFIT
- -------------------------------------------------------------------------------
Name of EXTERNAL Organization that has ACCREDITED Health Plan

- -------------------------------------------------------------------------------
Date Accreditation     Date Accreditation        TYPE of Accreditation Received
 RECEIVED               EXPIRES

- -------------------------------------------------------------------------------
If NOT Accredited      If YES, Name of Organization from which the
by an external         Health Plan has applied for accreditation
organization, is
accreditation being
applied for?           --------------------------------------------------------
[ ] NO    [ ] YES      Date Accreditation    Expected Site Visit Date
                       Applied for
===============================================================================
KEY ADMINISTRATIVE STAFF: (Enter names as applicable)
  . Also attach a list of Governing Body Members, indicate which members are
    elected enrollee members, and the date each member's term expires.
===============================================================================
President                                    Medical Director

- -------------------------------------------------------------------------------
C.E.O.                                       Authorized Representative

- -------------------------------------------------------------------------------
C.O.O.                                       Quality Management Director

- -------------------------------------------------------------------------------
C.F.O.                                       Complaint / Grievance Director

- -------------------------------------------------------------------------------
C.I.O. / M.I.S. Director                     Other (specify):

===============================================================================
Number of Enrolled Members as of             Financial Information for Calendar
December 19____                              Year ________
===============================================================================
 Commercial............._______________         Total Revenues ..._____________
 Medicaid..............._______________         Total Expenses...._____________
 Medicare Risk.........._______________         Net Income (Loss)._____________
 Medicare Supplemental.._______________         Working Capital..._____________
 Other.................._______________         Other............._____________

                  TOTAL:_______________               NET WORTH:_______________
===============================================================================
Name of Person Completing This Report        Title
(Typed or Printed)

- -------------------------------------------------------------------------------
Signature                                    Telephone Number
                                             (       )
                                             ----------------------------------
                                             Email Address

- -------------------------------------------------------------------------------
 AUTHORITY:  PA 368 of 1978, as amended
             or CHP Contract.
COMPLETION:  Is Required. Failure to           The Department of Community
             file this report may result       Health is an equal opportunity
             in regulatory actions as          employer, services, and programs
             permitted under PA 368 or         provider.
             sanctions as permitted
             under the CHP Contract.
- -------------------------------------------------------------------------------
MSA-126 (9-99)



             HEALTH PLAN COMPLAINT/GRIEVANCE SUMMARY REPORT FOR 2000
                     MICHIGAN DEPARTMENT OF COMMUNITY HEALTH

     The purposes of this report, a Level 1 complaint is an issue a member
presents to the health plan, either in written or oral form, requesting specific
corrective action that can not be resolved at the time of initial contact. This
Level 1 complaint is subject to formal review and investigation by the health
plan, according to the health plan's written complaint/grievance procedure.

If a health plan has fewer levels of review in its complaint/grievance procedure
than designated in this complaint/grievance summary, the health plan should note
this by entering "NA" for the levels that do not exist. If a health plan has
additional levels of review, the health plan should include the requested
information on additional pages.

For each level of the health plan's complaint/grievance process, attach a short
summary description of: (1) the individuals (by position title) who are involved
in rendering a determination, and (2) the process and procedures of the health
plan.

- -------------------------------------------------------------------------------
Enter Name of Health Plan                                    Report Date

- -------------------------------------------------------------------------------
2000 COMPLAINT / GRIEVANCE SUMMARY:
- -------------------------------------------------------------------------------
LEVEL 1:
  Total Number of Level 1 complaints resolved in 2000.....   ________________

  Health plan's position was upheld.......................   ________________

  Health plan's position was overturned...................   ________________

  A compromise resolution was reached.....................   ________________
- -------------------------------------------------------------------------------
 LEVEL 2:
  Total Number of Level 2 complaints resolved in 2000.....   ________________

  Health plan's position was upheld.......................   ________________

  Health plan's position was overturned...................   ________________

  A compromise resolution was reached.....................   ________________
- -------------------------------------------------------------------------------
 LEVEL 3:
  Total Number of Level 3 complaints resolved in 2000.....   ________________

  Health plan's position was upheld.......................   ________________

  Health plan's position was overturned...................   ________________

  A compromise resolution was reached.....................   ________________
- -------------------------------------------------------------------------------
 LAST LEVEL AVAILABLE TO A MEMBER WITHIN THE HEALTH PLAN:
  Total Number of complaints in 2000 resolved at the
  health plan's last level................................   ________________

  Health plan's position was upheld.......................   ________________

  Health plan's position was overturned...................   ________________

  A compromise resolution was reached.....................   ________________
- -------------------------------------------------------------------------------
 HMO TASK FORCE:
  Number of complaints heard before the HMO Task Force
  and resolved in 2000....................................   ________________

  Health plan's position was upheld ......................   ________________

  Health plan's position was overturned...................   ________________

  Settlement was reached before Task Force hearing........   ________________
- -------------------------------------------------------------------------------
MSA-131 (07-00)



OTHER COMPLAINT AND GRIEVANCE INFORMATION:
- -------------------------------------------------------------------------------
Please provide the number of Level 1 complaints resolved by the health plan in
2000 for each of the following categories,

- -------------------------------------------------------------------------------
     Access:              Administrative:              Clinical:
- -------------------------------------------------------------------------------
Explain the actions being taken by the health plan to address these complaints.

   __________________________________________________________________________

   __________________________________________________________________________

   __________________________________________________________________________

   __________________________________________________________________________

===============================================================================
In 2000, did the health plan resolve fewer or more complaints at each level than
in 1999?

             [ ] FEWER               [ ] MORE
- -------------------------------------------------------------------------------
Explain the health plan's rationale for the changes in the number of complaints:
(Use additional Sheets as Needed)

   __________________________________________________________________________

   __________________________________________________________________________

   __________________________________________________________________________

   __________________________________________________________________________

===============================================================================
How many complaints took longer than 90 calendar days to
resolve as allowed under MCL 333.21035(1)(c).............  ___________________
- -------------------------------------------------------------------------------
Information regarding the expedited grievances filed with the health plan during
2000 including:

     1.  Total number of expedited grievances filed with
         the health plan.................................  ___________________
     2.  Total number of initial expedited grievance
         determinations made by the health plan            ___________________

         i.   Number of determinations made approving the
              member's request...........................  ___________________
         ii.  Number of determinations  made denying the
              member's request ..........................  ___________________
         iii. Number of  determinations  denying  the
              member's request resulting in a request
              for further review by the health plan......  ___________________
         iv.  Number of determinations denying the
              member's request resulting in the member
              appealing to the Department................  ___________________

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

- -------------------------------------------------------------------------------
Name of Person Completing This                    Signature
Report (Typed or Printed)

- -------------------------------------------------------------------------------
Title                                             Area Code / Telephone Number
                                                  (         )
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
         AUTHORITY:    PA 368 of 1978, as amended or CHP Contract.
        COMPLETION:    Is Required. Failure to file this report may result
                       in regulatory actions as permitted under PA 368 or
                       sanctions as permitted under the CHP Contract.
- -------------------------------------------------------------------------------

        The Department of Community Health is an equal opportunity employer,
        services, and programs provider.

- -------------------------------------------------------------------------------
MSA-131 (07-00) (BACK)



                                                              ------------------
                                                              Page       Of
         HEALTH PLAN MALPRACTICE LITIGATION REPORT
                                                              ------------------
          MICHIGAN DEPARTMENT OF COMMUNITY HEALTH             Report Date

- --------------------------------------------------------------------------------
Health Plan Name                                              Report Year

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

INSTRUCTIONS:
 .   Please list all malpractice litigation for more than $50,000 that names any
     of the following as a party:
       (1)  the health plan,
       (2)  a provider contracted with the health plan, or
       (3)  an employee of the health plan.
 .   Attach additional pages as necessary.
 .   The state reserves the right to request additional information, as
     necessary.

MALPRACTICE LITIGATION:
- --------------------------------------------------------------------------------
                              STATUS
  DATE        AMOUNT     (PENDING, SETTLEMENT,  BRIEF DESCRIPTION OF CLAIM AND
  FILED       CLAIMED          ETC.)              RESOLUTION (IF APPLICABLE)
================================================================================
LITIGATION PENDING FROM PREVIOUS CALENDAR YEAR
- --------------------------------------------------------------------------------


- --------------------------------------------------------------------------------
LITIGATION FILED DURING REPORTING YEAR:
- --------------------------------------------------------------------------------


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

- --------------------------------------------------------------------------------
Name of Person Completing Report               Title
(Typed or Printed)
                                               --------------------------------
                                               Telephone Number
                                               (        )
================================================================================
  AUTHORITY: PA 368 of 1978, as amended
             or CHP Contract.
 COMPLETION: Is Required. Failure to           The Department of Community
             file this report may result       Health is an equal opportunity
             in regulatory actions as          employer, services, and programs
             permitted under PA 368 or         provider.
             sanctions as permitted
             under the CHP Contract.
- --------------------------------------------------------------------------------
MSA-129 (9-99)



                                                                ----------------
   ANNUAL REPORT OF ENROLLMENT BY LINE OF BUSINESS AND COUNTY   Page:     Of:
          MICHIGAN DEPARTMENT OF COMMUNITY HEALTH
                                                                ----------------

INSTRUCTIONS: Copy and attach this form if needed to list additional counties.

- --------------------------------------------------------------------------------
Name of Health Plan                    Report Date           Report Year

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

ENROLLMENT INFORMATION:



- ------------------------------------------------------------------------------------------------------------------------------------
               COMMERCIAL ENROLLMENT by LINE OF BUSINESS or CONTRACT TYPE               GOVERNMENT RELATED ENROLLMENT
            ------------------------------------------------------------------------------------------------------------------------
                                                           OTHER                                                          Government
  COUNTY                Commercial                        Explain  Commercial            Medicare    Medicare     OTHER   Sub-Total
   NAME     Commercial     POS      MIChild   Non-Group      #1    Sub-Total   Medicaid    Risk    Supplemental  Explain     #2
====================================================================================================================================
                                                                                         
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                          -                                                     -
====================================================================================================================================
TOTALS:            -           -        -           -         -           -         -         -             -        -          -
====================================================================================================================================


- -----------------------
             ENROLLMENT
  COUNTY       GRAND
   NAME        TOTAL
=======================
              
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
- -----------------------
                 -
=======================
TOTALS:          -
=======================


#1 - Explain OTHER (Line of COMMERCIAL Business):

- --------------------------------------------------------------------------------
#2 - Explain OTHER (Line of GOVERNMENT Business):

================================================================================
  AUTHORITY: PA 368, of the Public Acts        The Department of Community
             of 1978, as amended               Health is an equal opportunity
             or CHP Contract.                  employer, services, and programs
 COMPLETION: Is Required. Failure to           provider.
             file this report may result
             in regulatory actions as
             permitted under PA 368 or
             sanctions as permitted
             under the CHP Contract.
- --------------------------------------------------------------------------------
MSA-130 (Excel) (9-99)



                                                              ------------------
                 HEALTH PLAN ABORTION REPORT                  Page       Of

           MICHIGAN DEPARTMENT OF COMMUNITY HEALTH            ------------------
                                                              Report Date

- --------------------------------------------------------------------------------
Health Plan Name                                              Report Year

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

INSTRUCTIONS:
  . Attach additional sheets as necessary.

The Health Plan covered abortions during this period for the following reasons:
(check only ONE)

BENEFICIARY                                                     TO SAVE LIFE OF
ID NUMBER               RAPE                INCEST                  MOTHER
================================================================================
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
- --------------------------------------------------------------------------------
                        [ ]                  [ ]                      [ ]
================================================================================
 TOTALS: -->
================================================================================

- --------------------------------------------------------------------------------
Name of Person Completing Report         Title
(Typed or Printed)
                                        ----------------------------------------
                                         Telephone Number
                                         (        )
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
   AUTHORITY: CHP Contract                     The Department of Community
  COMPLETION: Is Required. Failure to          Health is an equal opportunity
              file this report may             employer, services, and programs
              result in sanctions as           provider.
              permitted under the CHP
              Contract.
- --------------------------------------------------------------------------------
MSA-0128 (9-99) (W)



                                                                ----------------
                 HEALTH PLAN VACCINE DOSE REPORT                Report Date

             MICHIGAN DEPARTMENT OF COMMUNITY HEALTH            ----------------

- --------------------------------------------------------------------------------
Health Plan Name                                                Report Year

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

BACKGROUND:
One of the important health services that health plans provide is immunizations.
Most vaccines for immunizations that are covered for Medicaid beneficiaries are
available free from the Local Health Department. The Vaccines for Children (VFC)
Program provides free vaccines for all Medicaid eligibles age 18 and under and
the Michigan Vaccine Replacement Program (VPR) provides hepatitis B, MMR, OPV,
TD, and IPV, free for all beneficiaries age 19 and older. Most physicians who
immunize Medicaid patients are already taking advantage of this program.

The federal government requires accountability for vaccines distributed through
the VFC. Until contracting health plans have fully operational encounter data
reporting systems, it is necessary that all plans continue to report vaccine
use.

The report below is to be used for this requirement, or you may develop your own
report mechanism that provides the requested information.

VACCINE DOSE REPORT:
- --------------------------------------------------------------------------------
                                    NUMBER OF DOSES            NUMBER OF DOSES
  VACCINE NAME    HCPCS CODE        AGE 18 AND UNDER           AGE 19 AND OLDER
================================================================================
DTaP                90700                                           N/A
- --------------------------------------------------------------------------------
DTP                 90701                                           N/A
- --------------------------------------------------------------------------------
??? (under 7
 years old)         907022                                          N/A
- --------------------------------------------------------------------------------
MMR                 90707
- --------------------------------------------------------------------------------
OPV                 90712
- --------------------------------------------------------------------------------
IPV                 90713
- --------------------------------------------------------------------------------
Varicella *         90716
- --------------------------------------------------------------------------------
Td (7 years
and older)          90718
- --------------------------------------------------------------------------------
DTP / Hib           90720                                           N/A
- --------------------------------------------------------------------------------
DTaP / Hib          90721                                           N/A
- --------------------------------------------------------------------------------
Hib                 90737                                           N/A
- --------------------------------------------------------------------------------
Hepatitis B
(child)             90744                                           N/A
- --------------------------------------------------------------------------------
Hepatitis B
(adolescent)        90745
- --------------------------------------------------------------------------------
Hepatitis B
(adult)             90746                 N/A
- --------------------------------------------------------------------------------
Hib/ Hep B          Q0158                                           N/A
- --------------------------------------------------------------------------------
 * Varicella is NOT available free for persons age 19 and older.

- --------------------------------------------------------------------------------
Name of Person Completing Report         Title
(Typed or Printed)
                                         ---------------------------------------
                                         Telephone Number
                                         (       )
- --------------------------------------------------------------------------------
   AUTHORITY: CHP Contract                 The Department of Community Health is
  COMPLETION: Is Required. Failure to      an equal opportunity employer,
              file this report may         services, and programs provider.
              result in sanctions as
              permitted under the CHP
              Contract.
- --------------------------------------------------------------------------------
MSA-127 (9-99)



         2000 REPORTING REQUIREMENTS FOR MEDICAID HEALTH PLANS AND HMOs



                          Product                  Period                           Instructions
        Report             Line     Due Date       Covered        Submitted to:      (Format)          Authority        Focus Area
====================================================================================================================================
                                                                                                  
         ANNUAL
====================================================================================================================================

Consolidated Annual         All      3/31/00    Jan 1-Dec 31       CM, LO          Reminder letter   MCL 333.21083      All areas
Report*                                                                               and forms        R325.6815
                                                                                                    Contract(II-B-4
                                                                                                       and II-X)
- ------------------------------------------------------------------------------------------------------------------------------------
HEDIS(R)                   C/MC      6/30/00    Jan 1-Dec 31         LO                 NCQA         MCL 333.21083       Quality,
                                                                                                       R325.6815       Utilization
- ------------------------------------------------------------------------------------------------------------------------------------
HEDIS(R)                     M       6/30/00    Jan 1-Dec 31         CM                98-05           Contract          Quality,
                                       **                                               NCQA           (II-X-1)        Utilization
====================================================================================================================================
      SEMI-ANNUAL
====================================================================================================================================
Complaint and                M       1/30/00    July 1-Dec 31        CM               MSA-131          Contract          Quality
Grievance                            7/30/00    Jan 1-June 30                                          (II-X-4)
====================================================================================================================================
       QUARTERLY
====================================================================================================================================
Financial                   All      8/15/00    Apr 1-Jun 30       CM, LO               NAIC         Contract II-X       Financial
                                    11/15/00    Jul 1-Sep 30                          INS-317
- ------------------------------------------------------------------------------------------------------------------------------------
Enrollment Data             All      6/15/00    Jan 1-Mar 31         LO               12/23/98         R325.6815        Utilization
Inpat Disch Data                     9/15/00    Apr 1-Jun 30                      J. Griffith memo
(lic. HMOs only)                    12/15/00    Jul 1-Sep 30
- ------------------------------------------------------------------------------------------------------------------------------------
Utilization                  M       1/30/00    Jan 1-Dec31          CM             98-05, 98-06       Contract         Utilization
                                     4/30/00    Jan 1-Mar31                                             (II-X)
                                     7/30/00    Jan 1-Jun 30
                                    10/30/00    Jan 1-Sep 30
====================================================================================================================================
       MONTHLY
====================================================================================================================================
Financial                    M       30 days    30 days after        CM               Variable         Contract         Financial
(shared risk only)                  after end    end of month                                          (II-X-5)
                                    of month
- ------------------------------------------------------------------------------------------------------------------------------------
Claims Processing            M       30 days    30 days after        CM               MSA-2009         Contract         Financial
                                    after end    end of month                                           (II-X)
                                    of month
- ------------------------------------------------------------------------------------------------------------------------------------
Encounter Data               M       Monthly      Minimum of         DEG           Encounter Data      Contract          Quality,
(as capacity develops)                             Monthly       electronically      Submission        (II-X-2)        Utilization
                                                                                      Manual
- ------------------------------------------------------------------------------------------------------------------------------------


          M = Medicaid, C = Commercial, MC = Medicare    LO = Licensing Officer,
                                                         CM = Contract Manager
* A single consolidated Annual Report is required from all licensed Health
  Maintenance Organizations and Medicaid contracted health plans.
The 2000 Annual Report is due 3/30/2001 and will include the following
components:
    Summary Annual Report for Subscribers - MCL 333.21085
    Health Plan Profile--MSA-126
    Financial--NAIC, INS-317, Audited Financial Statements
    Complaint & Grievance--MSA-131
    Litigation--MSA-129 (limited to litigation directly naming health plan)
    Annual Report of Enrollment--MSA-130 (licensed HMOs only)
    Enrollment by Line of Business--MSA-2005 (licensed HMOs only)
    Inpatient Discharge Data--MSA-2006 (licensed HMOs only)
    Abortion--MSA-128
    Vaccines--MSA-127
    Physician Incentive Program (PIP) Reporting--HCFA annual update format
    Provider Directory
    Certificate of Coverage
    Member Handbook
**Refer to January 20, 2000 letter from Richard Murdock for additional details
  about 1999 Medicaid HEDIS filing instructions.

                                                                         5/12/00



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT A

                           CONTRACTOR'S AWARDED PRICES



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT A
                       Molina Healthcare of Michigan, Inc.
                        dba Molina Healthcare of Michigan
                                 AWARDED PRICES

                                AFDC        ABAD          OAA          Maternity
                                ----        ----          ---          ---------
Region I
       Wayne

Region II
       No approved counties

Region III
       No approved counties

Region IV
       Ionia                     [*]         [*]          [*]             [*]
       Kent                      [*]         [*]          [*]             [*]
       Lake                      [*]         [*]          [*]             [*]
       Manistee                  [*]         [*]          [*]             [*]
       Mason                     [*]         [*]          [*]             [*]
       Mecosta                   [*]         [*]          [*]             [*]
       Missaukee                 [*]         [*]          [*]             [*]
       Montcalm                  [*]         [*]          [*]             [*]
       Muskegon                  [*]         [*]          [*]             [*]
       Newaygo                   [*]         [*]          [*]             [*]
       Oceana                    [*]         [*]          [*]             [*]
       Ottawa                    [*]         [*]          [*]             [*]
       Wexford                   [*]         [*]          [*]             [*]

Region V
       No approved counties

Region VI
       No approved counties

Region VII
       Alpena                    [*]         [*]          [*]             [*]
       Arenac                    [*]         [*]          [*]             [*]
       Bay                       [*]         [*]          [*]             [*]
       Crawford                  [*]         [*]          [*]             [*]
       Gladwin                   [*]         [*]          [*]             [*]
       Gratiot                   [*]         [*]          [*]             [*]
       Huron                     [*]         [*]          [*]             [*]



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT A
                       Molina Healthcare of Michigan, Inc.
                  dba Molina Healthcare of Michigan - continued
                                 AWARDED PRICES

Region VII--continued
       Iosco                        [*]         [*]          [*]             [*]
       Midland                      [*]         [*]          [*]             [*]
       Montmorency                  [*]         [*]          [*]             [*]
       Ogemaw                       [*]         [*]          [*]             [*]
       Oscoda                       [*]         [*]          [*]             [*]
       Otsego                       [*]         [*]          [*]             [*]
       Presque Isle                 [*]         [*]          [*]             [*]
       Roscommon                    [*]         [*]          [*]             [*]
       Saginaw                      [*]         [*]          [*]             [*]
       Sanilac                      [*]         [*]          [*]             [*]
       Tuscola                      [*]         [*]          [*]             [*]

Region VIII
       No approved counties

Region IX

       Macomb                       [*]         [*]          [*]             [*]

Region X
       Oakland                      [*]         [*]          [*]             [*]



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT B

                             APPROVED SERVICE AREAS



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT B
                       Molina Healthcare of Michigan, Inc.
                        dba Molina Healthcare of Michigan

Approved Service Area

Region I
       Wayne

Region II
       No approved counties

Region III
       No approved counties

Region IV
       Ionia
       Kent
       Lake
       Manistee
       Mason
       Mecosta
       Missaukee
       Montcalm
       Muskegon
       Oceana
       Ottawa
       Wexford

Region V
       No approved counties

Region VI
       No approved counties

Region VII
       Alpena
       Arenac
       Bay
       Crawford
       Gladwin
       Gratiot
       Huron
       Iosco
       Midland



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                             ATTACHMENT B-continued
                       Molina Healthcare of Michigan, Inc.
                        dba Molina Healthcare of Michigan

Region VII-continued
       Montmorency
       Ogemaw
       Oscoda
       Otsego
       Presque Isle
       Roscommon
       Saginaw
       Sanilac
       Tuscola

Region VIII
       No approved counties

Region IX
       No approved counties

Region X
       No approved counties



                                                           CONTRACT #071B1001026
[GRAPHIC APPEARS HERE]

                                  ATTACHMENT C

                             CORRECTIVE ACTION PLANS
                        (to be developed at a later date)



Form No. DMB 234 (Rev. 1/96)
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Contract will not be executed unless form is filed

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET
                              OFFICE OF PURCHASING
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                            CONTRACT NO. 071B1001026
                                     between
                              THE STATE OF MICHIGAN
                                      and

NAME & ADDRESS OF VENDOR                       TELEPHONE  Michael A. Graham
   Molina Healthcare of Michigan, Inc.         (248) 454-1070
   dba Molina Healthcare of Michigan           --------------------------------
   43097, Woodward Avenue, Suite 200           VENDOR NUMBER/MAIL CODE
   Bloomfield Hills, MI 48302                  (2) 38-3341599 (008)
                                               --------------------------------
                                               BUYER (517) 373-2467
                                               /s/ Ray E. Irvine
                                               ---------------------------------
                                               Ray E. Irvine
- --------------------------------------------------------------------------------
Contract Administrator: Rick Murdock
  Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries
         in Selected Michigan Counties -- Department of Community Health
- --------------------------------------------------------------------------------
CONTRACT PERIOD:             From:  October 1, 2000        To:  October 1, 2002*
- --------------------------------------------------------------------------------
TERMS                                     SHIPMENT
                   N/A                                          N/A
- --------------------------------------------------------------------------------
F.O.B.                                    SHIPPED FROM
                   N/A                                          N/A
- --------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- --------------------------------------------------------------------------------
MISCELLANEOUS INFORMATION:

The terms and conditions of this Contract are those of ITB #07110000251, this
Contract Agreement and the vendor's quote dated 5-1-00, and subsequent Best And
Final Offer. In the event of any conflicts between the specifications, terms and
conditions indicated by the State and those indicated by the vendor, those of
the State take precedence.

Estimated Contract Value: The exact dollar value of this contract is unknown;
the Contractor will be paid based on actual beneficiary enrollment at the rates
(prices) specified in Attachment A to the Contract
- --------------------------------------------------------------------------------
THIS IS NOT AN ORDER: This Contract Agreement is awarded on the basis of our
inquiry bearing the ITB No.07110000251. A Purchase Order Form will be issued
only as the requirements of the State Departments are submitted to the Office of
Purchasing. Orders for delivery may be issued directly by the State Departments
through the issuance of a Purchase Order Form.

All terms and conditions of the invitation to bid are made a part hereof.
================================================================================

FOR THE VENDOR:                        FOR THE STATE:
 Molina Healthcare of Michigan, Inc.
 dba Molina Healthcare of Michigan     /s/ David F. Ancell
- ----------------------------------     ---------------------------------------
            Firm Name                                Signature
     /s/ Michael A. Graham                        David F. Ancell
- ----------------------------------     ---------------------------------------
   Authorized Agent Signature                         Name
       Michael A. Graham,
    Chief Executive Officer                  State Purchasing Director
- ----------------------------------     ---------------------------------------
 Authorized Agent (Print or Type)                     Title
            9/28/00                                [ILLEGIBLE]
- ----------------------------------     ---------------------------------------
              Date                                    Date



Form No. DMB 234A (Rev. 1/96)
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Failure to deliver in accordance with Contract
terms and conditions and this notice, may be considered
in default of Contract

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET      January 19, 2001
                              OFFICE OF PURCHASING
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                               CHANGE NOTICE NO.2
                                       TO
                            CONTRACT NO. 071B1001026
                                     BETWEEN
                              THE STATE OF MICHIGAN
                                       AND

NAME & ADDRESS OF VENDOR                       TELEPHONE  Michael A. Graham
   Molina Healthcare of Michigan, Inc.         (248) 454-1070
   dba Molina Healthcare of Michigan           ---------------------------------
   43097 Woodward Avenue, Suite 200            VENDOR NUMBER/MAIL CODE
   Bloomfield Hills, MI 48302                  (2) 38-3341599 (008)
                                               ---------------------------------
                                               BUYER (517) 373-2467
                                               /s/ Ray E. Irvine,
                                               ---------------------------------
                                               Ray E. Irvine, C.P.M
- --------------------------------------------------------------------------------
Contract Administrator: Rick Murdock
  Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries
         in Selected Michigan Counties -- Department of Community Health
- --------------------------------------------------------------------------------
CONTRACT PERIOD:     From:  October 1, 2000          To:  October 1, 2002*
- --------------------------------------------------------------------------------
TERMS                                     SHIPMENT
                   N/A                                          N/A
- --------------------------------------------------------------------------------
F.O.B.                                    SHIPPED FROM
                   N/A                                          N/A
- --------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- --------------------------------------------------------------------------------
NATURE OF CHANGE(S):

     The attached three (3) pages of Contract Changes are effective February 1,
     2001. A revised contract document incorporating these changes will be
     distributed by Department of Community Health (DCH) (Mr. Rick Murdock's
     office) at a later date.

AUTHORITY/REASON:

     Request of agency per memo from Rick Murdock dated 1-17-01, and Section I-T
     (Modification of Contract).

TOTAL ESTIMATED CONTRACT VALUE REMAINS:

     The exact dollar value of this contract is unknown; the contractor will be
     paid based upon actual beneficiary enrollment at the rates (prices)
     specified in Attachment A to the original Notice of Contract.



                                CONTRACT CHANGES

             (LISTED IN PAGE NUMBER ORDER AS FOUND IN THE CONTRACT)

1.   Page vii (Definition section), "Department", delete the word "it" and
     insert "its".

(Rationale: Clerical Change)

2.   Page viii (Definition section), "HMO", delete the words "defined in
     Michigan Compiled Laws (MCL 333.21005(2)

     (Rationale: New State Statue)

3.   Page 4, Section I-J, (Contract Invoicing and Payment) Insert the following
     at the end of the first paragraph:

          "The contractor shall be responsible for billing for the approved
          maternity case rate consistent with the department's billing
          requirements."

(Rationale: Technical Change--Language to be consistent with Medicaid Procedures
for payment of Maternity Case Rate)

4.   Page 16, Section II-D-2, (Multiple Region Service Areas), Delete "IT" from
     the third sentence, second paragraph, and insert "it".

(Rationale: Clerical Change)

5.   Page 23, II-H-2 (Enhanced Services). Delete "nominal" in the second to last
     line of the page.

(Rationale: Clarifying change as no fee, even "nominal" can be charged under
this circumstance)

6.   Page 32, II-J-1 (Special Waiver Provisions for the CHCP), In the third line
     of last of the subsection insert an "e" to "th"

(Rationale: Clerical Change)

7.   Page 37, II-M-2-f (Member Services Staff). Delete "Staff" in the Title of
     the subsection and first line and insert, "Director".
     Page 37, II-M-2-g (Provider Services Staff). Delete "Staff" in the Title of
     the subsection and first line and insert, "Director".

(Rationale: Clarifying Change and to be consistent with Site Visit Criteria)

8.   Page 42, II-M, 6(f),(Provider Contracts) Insert an additional bullet to
     this subsection to read:
   . Provides for continuity of treatment in the event a provider's
     participation terminates during the course of a member's treatment by that
     provider.

                                     Page 2                             01/25/01



(Rationale: Change required in order to be consistent with overall Contract
requirements regarding continuity of care)

9.   Page 42, II-M, 6(h) (Provider Credentialling), Change phrase in parenthesis
     from at least every two years to (at least every three years)

     (Rationale: To be comparable to Senate bill 1209, Chapter 35 section
     3528(4) language that, A HMO shall obtain primary verification of
     participating health professionals at least every 3 years. Also NCQA's
     allowance of three year re-credentialing cycle for all products.

10.  Page 44, II-N-1 (Electronic Billing Capacity) make the following changes:

     Delete subsection (a) and re-letter the remaining subsections.

     Delete subsection (b) current language and insert the following as
     re-lettered (a).
          (a) Be capable of accepting electronic billing for UB 92 (inpatient
              and outpatient claims) in the Medicare version 050 electronic
              format.

     Delete subsection (c) current language and insert the following as
     re-lettered (b):
          (b) Be capable of accepting professional claims electronically using
              the National Electronic Data Interchange Transaction Set Health
              Care Claim: Professional 837 (ASC X12N 837, version 3051) format
              no later than August 1,2001. DCH will publish guidelines
              describing the electronic format requirements.

(Rationale: To be consistent with current timeframe and requirements)

11.  Page 44, II-N-1, (Electronic Billing Capacity). Insert the following
     language at the end of Subsection (1):

          "The promulgation of Medicaid policy and provider manuals will specify
          the coding and procedures that will be acceptable. Therefore, a
          provider should be able to bill a health plan using the same format
          and coding instructions as that required for the Medicaid Fee for
          Service program. Health plans may not require providers to complete
          additional fields on the electronic forms that are not specified under
          the Medicaid Fee for Service policy and provider manuals.

     The distinction in billing between health plans and the Medicaid Fee for
     Service program will be limited to requests of additional documentation and
     identification of services requiring prior authorization. Health plans may
     require additional documentation, such as medical records, to justify the
     level of care provided. In addition, health plans may require prior
     authorization for services for which the Medicaid Fee for Service program
     does not require prior authorization.

     DCH has published and will update the web-site addresses or e-mail address
     of health plans. This information will make it more convenient for
     providers; (including out of network providers) to be aware of and contact
     respective health plans regarding the documentation, prior authorization
     issues, and provider appeal processes. The DCH web-site location is:
     www.mdch.mi.state.us

(Rationale:   To be consistent with current instructions regarding uniform
billing)

                                     Page 3                             01/25/01



12.  Page 45, II-N-4 (Arbitration) Delete the last two paragraphs under this
     subsection.

(Rationale: To be consistent with the provisions of 2000 PA 187 and the
guidelines established by the Insurance Commissioner)

13.  Page 50, II-Q, (Utilization Management) Insert the following after
     "policies" in the first bullet: "review decision criteria".

(Rationale: Necessary to assure that Contractors have "written decision
criteria" that is used in their utilization management program.)

14.  Page 55, Section II-U-1 (Contract Grievance/Complaint Procedure
     Requirements). Correct the legal citation to read "MCL 500.2213".

(Rationale: Clerical Change)

15.  Page 55, Section II-U-3, (State Medicaid Appeal Process) Insert the
     following at the end of subsection (3):

          The Contractor must include the Medicaid Fair Hearing Process as part
          of the written internal process for resolution of complaints and
          grievances as well as including references of the Medicaid Fair
          Hearing process in the Member Handbook.

(Rationale: To clarify the intent of federal and state procedures and
requirements regarding the Medicaid Fair Hearing Process)

16.  Page 59, Section II-X, (Data Reporting) delete "E" from the first
     paragraph, line - 6, and insert "F".

(Rationale: Clerical Change)

17.  Page 60, II-X, (Data Reporting) Insert a new category # 5 as follows:
     5. Semi-annual complaint and grievance report

(Rationale: HCFA's Waiver requirement is to maintain the semi-annual
complaint/grievance reporting from plans.)

18.  Page 61, Section II-AA, (Special Payment Provisions-DCH Processing
     Inpatient Claims). Insert the following at the end of subsection (1):
     "Until September 30, 2001 Contractors may elect the above option. After
     September 30,2001, Contractors will be responsible for inpatient claims
     payments."

     (Rationale: The DCH will no longer be providing this assistance to
     Contractors after 9-30-01)

                                     Page 4                             01/25/01



Form No. DMB 234A (Rev. 1/96)
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Failure to deliver in accordance with Contract
terms and conditions and this notice, may be considered
in default of Contract

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET     February 21, 2001
                              OFFICE OF PURCHASING
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                               CHANGE NOTICE NO.3
                                       TO
                            CONTRACT NO. 071B1001026
                                     BETWEEN
                              THE STATE OF MICHIGAN
                                       AND

NAME & ADDRESS OF VENDOR                       TELEPHONE  Michael A. Graham
   Molina Healthcare of Michigan, Inc.         (248) 454-1070
   dba Molina Healthcare of Michigan           ---------------------------------
   43097, Woodward Avenue, Suite 200           VENDOR NUMBER/MAIL CODE
   Bloomfield Hills, MI 48302                  (2) 38-3341599 (009)
                                               ---------------------------------
                                               BUYER (517) 241-1647
                                               /s/ Irene Pena
                                               ---------------------------------
                                               Irene Pena
- --------------------------------------------------------------------------------
Contract Administrator: Rick Murdock
  Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries
         in Selected Michigan Counties -- Department of Community Health
- --------------------------------------------------------------------------------
CONTRACT PERIOD:        From:  October 1, 2000      To:  October 1, 2002*
- --------------------------------------------------------------------------------
TERMS                                     SHIPMENT
                   N/A                                          N/A
- --------------------------------------------------------------------------------
F.O.B.                                    SHIPPED FROM
                   N/A                                          N/A
- --------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- --------------------------------------------------------------------------------

NATURE OF CHANGE:
     Please note that the buyer for this contract is now Irene Pena.
     Also please note change in mail code. Correct mail code for the above
     address is Mail Code 009.

AUTHORITY/REASON:
     DMB/OOP

TOTAL ESTIMATED CONTRACT VALUE REMAINS:
     The exact dollar value of this contract is unknown; the contractor will be
     paid based upon actual beneficiary enrollment at the rates (prices)
     specified in Attachment A to the original Notice of Contract.



Form No. DMB 234A (Rev. 1/96)
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Failure to deliver in accordance with Contract
terms and conditions and this notice, may be considered
in default of Contract

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET      November 7, 2001
                              OFFICE OF PURCHASING
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                               CHANGE NOTICE NO.4
                                       TO
                            CONTRACT NO. 071B1001026
                                     between
                              THE STATE OF MICHIGAN
                                       and

NAME & ADDRESS OF VENDOR                       TELEPHONE  Michael A. Graham
   Molina Healthcare of Michigan, Inc.         (248) 454-1070
   dba Molina Healthcare of Michigan           ---------------------------------
   43097 Woodward Avenue, Suite 200            VENDOR NUMBER/MAIL CODE
   Bloomfield Hills, MI 48302                  (2) 38-3341599 (009)
                                               ---------------------------------
                                               BUYER (517) 241-1467
                                               /s/ Irene Pena
                                               ---------------------------------
                                               Irene Pena
- --------------------------------------------------------------------------------
Contract Administrator: Rick Murdock
  Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries
         in Selected Michigan Counties -- Department of Community Health
- --------------------------------------------------------------------------------
CONTRACT PERIOD:    From:  October 1, 2000     To:  October 1, 2002*
- --------------------------------------------------------------------------------
TERMS                               SHIPMENT
           N/A                                         N/A
- --------------------------------------------------------------------------------
F.O.B.                              SHIPPED FROM
           N/A                                         N/A
- --------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- --------------------------------------------------------------------------------

NATURE OF CHANGE(S):

     Effective 10/1/01 the attached document is hereby incorporated into this
     contract.

AUTHORITY/REASON:

     Per agency's request from Rick Murdock on 9/27/01 and in accordance with
     the modification clause

TOTAL ESTIMATED CONTRACT VALUE REMAINS:

     The exact dollar value of this contract is unknown; the contractor will be
     paid based upon actual beneficiary enrollment at the rates (prices)
     specified in Attachment A to the original Notice of Contract.



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

                  PROPOSED HEALTH PLAN CONTRACT CHANGES NOTICES
                    RFP CONTRACT AWARDED FOR BID #071I0000251

DEFINITIONS

     1.   Insert on Page vi a new definition, "Abuse" as follows:

          "Abuse" means practices that are inconsistent with sound fiscal,
          business or medical practices, resulting in unnecessary cost to the
          Medicaid Program, or reimburse for services that are not medically
          necessary or fail to meet professionally recognized standards of
          care."

Rationale: Consistent with the MDCH Medicaid Fraud and Abuse Policy.

     2.   "Clean Claim", (Page vi). Delete current definition and insert,

          "Clean Claim," means that as defined in MCL 400.111i and the Michigan
          Office of Financial and Insurance Services Bulletin 2000/09.

Rationale: Consistent with Statutory obligation for Health Plans.

     3.   "Contractor", (Page vii). Insert:

          "HMO," after "Contractor,"

Rationale: Consistent with use of terms by DCH in policy.

     4.   Insert on Page viii, a new definition, "Fraud", as follows:

     "Fraud" means the intentional misrepresentation or deception made by a
     person with the knowledge that the deception or misrepresentation could
     result in unauthorized benefit to that person or another person."

Rationale: Consistent with the MDCH Medicaid Fraud and Abuse Policy

5.   "HCFA", (Page viii). Delete current definition and insert (and reorder with
     new term):

"CMS". Replace HCFA throughout Contract and replace with CMS

Rationale: Consistent with recent federal name change.

                                                                               1
                                                                         9/27/01



           HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1,2001

SECTION I: CONTRACTUAL SERVICES TERMS AND CONDITIONS

6.   Section I-B, (Issuing Office), Page 1. Delete

   "Ray Irvine" and insert "Irene Pena".

Rationale: To update formal point of Contact with the Office of Purchasing.

7.   Section I-GG, (Year 2000 Software Compliance) Page 12.

   Delete entire section.

Rationale: No longer necessary to include in Contract.

SECTION II. WORK STATEMENT

8.   Section II-D-2, (Multiple Service Area) Page 17. Delete the following
     from last sentence of subsection.

"Service area expansion will only be approved in those counties requiring
additional capacity as determined by DCH."

Rationale: Current language limits flexibility of DCH to meet changing needs of
provider network changes and impact on existing service areas.

9.   Section II-D-4, (Contractor Minimum Capacity) Page 17. Delete entire
     subsection (4).

Rationale: Due to drafting error, this subsection was not able to be implemented
and is no longer needed at this time.

10.       Section II-E-2 (Medicaid Eligible Groups Who May Voluntarily Enroll in
          the CHCP), Page 18. Delete the last bullet and insert the following:

     .    Pregnant women, whose pregnancy is the basis for Medicaid Eligibility
          and Pregnant women who are in their third trimester of pregnancy

Rationale: To be consistent with State Appropriations Boilerplate direction to
the DCH.

11.  Section II-G-3, (Enrollment Lock In) Page 20. Delete the paragraph
     following the last bullet in subsection.

                                                                               2
                                                                         9/27/01



           HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1,2001

Rationale: Language was inserted to permit additional open enrollment period
following FY 01 rebid and is no longer necessary.

12.  Section II-G-4, (Rural Area Exception), Page 20. Delete current language
     of the subsection (4) and insert the following:

   "During Fiscal Year 2001/2002, following appropriate federal approval, the
   DCH will implement a "Rural Area Exception" policy that will permit mandatory
   enrollment of Medicaid Beneficiaries into a health plan that has service area
   approval within a county and is the only health plan with service area
   approval in the respective county. The health plan must provide enrolled
   Beneficiaries a choice of individual providers and permit out of network
   referrals if specialist and other providers are not available for appropriate
   medically necessary services. The DCH will notify Contractors once federal
   approval has been secured. The DCH will provide notice to Contractors of the
   effective date of this policy. This policy will only be implemented in
   counties that are designated as "Rural"."

Rationale: Certain counties of the state can only support one system of provider
network. As long as choice is provided for Beneficiaries mandatory enrollment
should occur. Implementation will be taken through either amendment to the
current waiver for the CHCP program or final rules developed by CMS followed by
development of target counties appropriate for this policy and Beneficiary
notification

13.  Section II-G-11, (Disenrollment Requests Initiated by the Contractor), Page
     22. Insert

     "medically" after "becomes" in the second line of the first sentence of the
     paragraph following the last bullet of this subsection.

   Section II-G-11, (Disenrollment Requests Initiated by the Contractor), Page
   22. Insert the following after "Act" in the second line of the first sentence
   of the paragraph following the last bullet of this subsection:

   "as described in Section II-U-4-cv" (page 56)

Rationale: To clarify that disenrollment related to CSHCS eligibility also
requires enrollment into CSHCS.

14.  Section II-G-13, (Disenrollment for Cause Initiated by the Enrollee), Page
     22. Insert the following before the last sentence of this subsection:

   "Beneficiaries must demonstrate that adequate care is not available by
   providers within the Health Plan's provider network. Further criteria, as
   necessary, will be developed by DCH."

                                                                               3
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     Rationale: Clarification is needed to protect Beneficiaries yet assure that
     other resources of the Health Plan are utilized prior to disenrollment and
     enrollment into another Health Plan.

     15.  Section II-I-4 (Maternal and Infant Support Services), Page 27. Delete
          the last paragraph of the subsection.

     Rationale: The subsection was drafted for the first RFP in 1996 as
     transitions were made between FFS and managed care for the MSS/ISS program.
     The criteria have been met every year.

     16.  Section II-I-6 (Co-payments) Page 28. Insert the following language at
          the end of the subsection.

        "Subject to the same limitations identified in this subsection, the DCH
        will permit Co-payments to be implemented by Health Plans outside of the
        annual open enrollment period if the Health Plan provides notification
        to all of their Medicaid Enrollees and waives the 12-month lock-in from
        date of notification to enrollees through 30 days following the
        effective date of the co-payment. Approval outside of the annual open
        enrollment period will be permitted only once a year consistent with a
        DCH developed schedule."

     Rationale: The DCH has been requested to consider this provision and is
     willing to implement within parameters that will require the least
     disruption to the enrollment procedures and communications.

     17.  Section II-I-18, (20 Visit Mental Health Outpatient Benefit), Page 32.
          Insert a new Subsection 18 (and insert a corresponding bullet on the
          bottom on page 24) to read as follows:

          "18. 20 Visit Mental Health Outpatient Benefit.

          The Contractor shall provide the 20 Visit Mental Health Outpatient
          Benefit consistent with the policy and procedures established by
          Medicaid Policy Bullet (QHP 00-08). Services may be provided through
          contracts with Community Mental Health Services Program, CMHSP, or
          through contracts with other appropriate providers within the service
          area.

     Rationale: Language necessary to provide specific linkage between Medicaid
     policy and this Contract.

     18.  Section II-L-1, (Administrative and Organizational Criteria), Page 34.
          Delete the bullet reference to accreditation and insert a new bullet
          to read:

                                                                               4
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      .   Be accredited as a managed care organization by either the National
          Committee on Quality Assurance, NCQA, or Joint Commission on
          Accreditation of Health Care Organizations, JCAHO, no later than
          September 30, 2002 or have a formal NCQA or JCAHO site visit
          scheduled;

     Rationale: Previous language stipulated timeline to seek accreditation and
     is no longer necessary. Accreditation status will be consideration for
     renewal or rebidding Contract in October 1, 2002.

     19.  Section II-L-3, (Provider Network and Health Services Delivery
          Criteria), Page 34. Insert a new bullet to read:

     (The Contractor):
      .   complies with Medicaid Policy regarding procedures for authorization
          and reimbursement for out of network providers.

     Rationale: A product of the Model Hospital/Health Plan Contract process
     will be Medicaid policy regarding "non-par" procedures that will assure
     access to care and reimbursement procedures.

     20.  Section H-M-6-I, (PCP Standards), Page 43. Insert the following as a
          new paragraph before the first full paragraph on page 43:

          "The Contractor will permit enrollees to choose a "clinic" as a PCP
          provided that the provider files submitted to the Enrollment Services
          Contractor is completed consistent with DCH requirements.

     Rationale: Through discussions between DCH and Health Plans at the
     Enrollment Subcommittee, this arrangement has been developed to respond to
     Beneficiary requests.

     21.  Section II-N-7, (Case Rate Payments for Emergency Services), Pages
          45-46. Delete the last two sentences of the subsection.

     Rationale: The language is no longer necessary as it described how the DCH
     would implement the policy.

     22.  Section II-O, (Provider Services (Network and Out of Network), Page
          46. Insert a new bullet to read:

     (The Contractor will)
      .   Make its provider policies, procedures and appeal processes available
          over its website. Updates to the policies and procedures will be
          available on the website as well as through other media used by the
          Contractor.

                                                                               5
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     Rationale: Because of numerous out of network services, it is important
     that non-par providers have access to the individual policies, procedures
     and provider appeal process. The use of websites provides this
     accessibility.

     23.  Section II-P, 2 & 3, (Performance Objectives and Statewide Performance
          Improvement) Page 48, Delete both subsections and replace with the
          following as a new subsection (2) and renumber remaining subsections:

               2.   Annual Performance Improvement Objectives

          In addition to its internal Quality Assessment and Performance
          Improvement Program, the Contractor may be required to participate in
          statewide focused studies and meet minimum performance objectives.

          The DCH will collaborate with the CAC and Contractors to determine
          priority areas for statewide focused studies and performance
          improvement initiatives. This will include the establishment of time
          frames for submission of data and information, and review and approval
          of the methodologies associated with the focused studies to assure
          that comparisons among Contractors are possible. The clinical priority
          areas may vary from one year to the next and will reflect the needs of
          the population; such as care of children, pregnant women, and persons
          with special health care needs (e.g. HIV/AIDs).

          The Contractor will assess performance for the priority area(s)
          identified by the CAC as requested by DCH, using measurable
          indicators. The Contractor must submit data and information for
          priority area(s) as requested by DCH. The Contractor will address the
          statewide focused study findings for priority area(s) through its
          Quality Assessment and Performance Improvement Program and develop
          performance improvement goals, objectives and activities specific to
          the Contractor.

          DCH will establish and attach annual performance objectives to the
          Contract, (Attachment D). The Contractor will incorporate any
          statewide performance improvement objectives, established as a result
          of a statewide focus study or performance improvement initiative, into
          the written plan for its Quality Assessment and Performance
          Improvement Program. DCH will use the results of performance
          assessments as part of the formula for automatic enrollment
          assignments.

          The CAC may recommend standards of care and related protocols in areas
          including, but not limited to: family planning, diabetes, asthma, end
          stage renal disease, AIDS, and maternal and infant support. The
          Contractor must implement these standards of care and related
          protocols through its Quality Assessment and Performance Improvement
          Program if required by DCH.

                                                                               6
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     Rationale: The new language updates the Contract to be consistent with
     current work with the Clinical Advisory Committee and incorporates
     references to the Annual Performance Standards that will be part of the
     Contract as Attachment D.

     24.  Section II-S-1, (Allowed Marketing Locations/Practices directed at the
          general population), Page 51. Insert the following bullets at the end
          of the subsection:
                .    Individual Contractor "Health Fair" for Enrollee Members
                .    Malls or Commercial retail establishments
                .    Community Centers
                .    Churches

     Section  II-S-2,  (Prohibited  Marketing  Locations/Practices  which target
     individual Beneficiaries), Page 51. Delete the following bullets:
                .    "Individual Contractor "Health Fair",
                .    Malls or commercial retail establishments,
                .    Community Centers
                .    Churches

     Rationale: The change is intended to be clarifying language and to be
     consistent with other parts of the Contract that emphasize health promotion
     and education. Marketing of health education and health promotion messages
     and programs are essential programs for patient compliance. Changes in the
     contract are intended to permit more flexibility in this area.

     26.  Section II-S, (Marketing), Page 51. Insert the following at the end of
          the second paragraph:

          "Upon receipt by DCH on a complete file for allowed marketing
          practices and locations, the DCH will provide a decision to the
          Contractor within 30 days or the Contractor's request will be deemed
          approved."

     Rationale: Many of the proposed marketing initiatives by Contractors
     require a prompt response by DCH in order for the Contractor to meet
     printing or other media schedules.

     27.  Section II-T.3 (Member Handbook/Provider Directory), Page 53. In the
          second line of the first paragraph, delete: "five (5)" and insert ten
          (10).

          Insert a new sentence after the first sentence of the first paragraph
          to read: "Contractors may select the option of distributing new member
          packets to each household, provided that the mailing includes
          individual Health Plan membership cards for each member enrolled in
          the household."

     Rationale: Language intended to provide options for plans to conduct
     mailings in more cost effective ways.

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     28.  Section II-U-4-b, (Termination of Coverage), Page 56. Insert a period
          after "newborns" in the fifth line of this subsection and delete the
          remainder of the subsection.

          Section II-U-4-b 9Termination of Coverage, Page 56. Insert the
          following after "newborns":

          "During Contract year beginning October 1, 2001, the DCH will initiate
          a process to prospectively re-enroll Medicaid Beneficiaries with the
          Contractor who have regained eligibility within 93 days from the date
          eligibility was lost. Until that process is implemented, the
          Contractor will remain responsible for medically necessary services
          provided to Beneficiaries who were retroactively reinstated with the
          Contractor."

          Section II-U-4-c-viii (c), Page 58. Delete this subsection.

     Rationale: Based upon recommendations from the Model Health Plan and
     Hospital Contract workgroup, the DCH will implement a change in enrollment
     policy that will eliminate retroactive enrollment when a beneficiary
     regains eligibility within 93 days--and will re-instate enrollment on a
     prospective basis into the same health plan. The change will not affect
     continuity of care issues but will eliminate issues of authorization and
     coverage decisions made during the retro enrollment period. Since the
     change will not be implemented on October 1st, it is necessary to retain
     language governing retro reinstatements until the process or prospective
     reinstatement is implemented

     29.  Section II-V, (Contractor on-site reviews), Page 58. Delete last
          sentence of current paragraph. Insert the following at the end of the
          section:

          "The DCH shall establish findings of pass, incomplete, fail, or deemed
          status for each criteria included in the annual site visit and tool
          used to assess health plan compliance. Findings of incomplete or fail
          shall require the development of a corrective action plan that will be
          included each year as Attachment C to this Contract."

     Rationale: The language describes current operational procedures of DCH in
     the conduct of annual site visits and development of findings from such
     site visits.

     30.  Section II-W, (Contract Remedies), Page 59. Insert the following
          bullet at the end of listing of bullets:

               .    Performance Standards included at Attachment D to the
                    Contract.

                                                                               8
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

          Section II-W, (Contract Remedies), Page 59. Insert the following at
          the end of the Section:

          "The application of Contract Remedies related to the Performance
          Standards included as Attachment D to the Contract is not intended to
          be applied during Contract Year 2001/2002 and will not take place
          until the DCH has provided Contractors with at least 90 days notice."

     Rationale: The additional bullet is intended to be consistent with the DCH
     focus on performance and the inclusion of specific performance measures
     that will be Attachment D to the Contract.

     31.  Section II-AA-1, (DCH Processing Inpatient Claims), Page 61. Delete
          the entire subsection.

     Rationale: As HMOs, each of the Contractors is expected to be fully
     prepared to process all provider claims.

     32.  Section II-AA-3, (Contractor Performance Bonus), Page 62. Insert the
          following language at the end of the subsection:

          "In establishing the annual performance bonus criteria, the DCH will
          use the following reports and assessments for the applicable
          calendar/fiscal year and consult with Contractors:
             .    External Quality Review, EQR;
             .    Medicaid HEDIS Report;
             .    Consumer (enrollee member) survey results;
             .    Beneficiary hotline summary data for the most current 12 month
                  reporting period;
             .    Administrative, claims payment, and encounter reporting
                  performance; and
             .    Current nationally recognized NCQA or JCAHO accreditation
                  status.

     Rationale: The intent of the new language is to provide Contractors with
     the listing of data sources used to determine performance bonus criteria.

     33.  Section II-BB, (Responsibilities of the DCH), Page 63. Insert an
          additional bullet to read:

             .    Provide timely data to Health Plans at least 60 days before
                  the effective date of fee for service pricing or coding
                  changes or DRG changes.

     Rationale: Health Plans have contracted with many providers using FFS
     contracts that obligate the Health Plan to pay at current FFS rates. If
     changes are

                                                                               9
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     made in FFS or DRGs without timely submission of the same changes to the
     Health Plan, there is risk that the Health Plan will not be able to honor
     terms of their provider contract.

     33.  Section II-CC, (Responsibilities of the Department of Attorney
          General), Page 63. Delete the heading and language in this section and
          replace with the following:

          II-CC RESPONSIBILITIES OF THE DEPARTMENT OF COMMUNITY HEALTH FOR
          MEDICAID FRAUD AND ABUSE

          The DCH has responsibility and authority to make all fraud and/or
          abuse referrals to the Office of Attorney General, Health Care Fraud
          Division. Contractors who have any suspicion or knowledge of fraud
          and/or abuse within any of the DCH's programs must report directly to
          the DCH by calling (517) 335-5239 or sending a memo or letter to:
                    Program Investigations Section
                    Capitol Commons Center Building
                    400 S. Pine Street, 6th Floor
                    Lansing, Michigan 48909
          When reporting suspected fraud and/or abuse, the Contractor should
          provide to the DCH the following information:

            .    Nature of the Complaint
            .    The name of the individuals and/or entity involved in the
                 suspected fraud and/or abuse, including their address, phone
                 number and Medicaid identification number, and any other
                 identifying information.

          The Contractor shall not attempt to investigate or resolve the
          reported suspicion, knowledge or action without informing the DCH and
          must cooperate fully in any investigation by the DCH or Office of
          Attorney General and any subsequent legal action that may result from
          such investigation.

     Rationale: Language is necessary to be consistent with DCH Policy on
     Medicaid Fraud and Abuse.

CONTRACT ATTACHMENTS

     34.  Attachment D (NEW) (Medicaid Managed Care Performance Standards).
          Include the Performance Standards as a new Attachment D to the
          Contract.

     Rationale: Each contract year, the DCH will establish the critical
     performance measures against which measurement of performance will be made.

                                                                              10
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

     The standards will also be used to develop "benchmark" measurement and
     minimum standards for continued contract. Incentives and penalties will
     also be associated with the performance standards.

     35.  Attachment E (New) (Model Health Plan/Hospital Contract). Include the
          Model Health Plan/Hospital Contract that has been developed by a
          workgroup of hospital, health plan and DCH representatives.

     Rationale: The Model Health Plan/Hospital Contract is intended to provide
     standard language for negotiating arrangements for hospital services.
     Parties will still have to negotiate reimbursement and other arrangements.
     A Medicaid Policy Bulletin will describe the non-par arrangements.

                                                                              11
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

                      ATTACHMENT D - PERFORMANCE STANDARDS

PURPOSE: The purpose of the performance standards is to establish an explicit
process for the ongoing monitoring of health plan performance in important areas
of quality, access, customer services and reporting and to be part of the
Contract between the State of Michigan and Contracting Health Plans (Attachment
D).

The process is intended to be dynamic and reflect statewide issues that may
change on a year-to-year basis. Performance measurement will be shared with
Health Plans during FY 02 that will compare performance of each Plan over time,
to other health plans, and to industry standards. Because the FY 02 Contract
year is the initial year for establishing explicit "performance standards", the
full development of this process will not be completed.

Consequently, identification of incentives/remedies, "benchmark" targets for
each area, and selection of additional performance areas for subsequent years
will be established in consultation with Contracting Plans during FY 02.

Once fully developed, (expected for FY 03), the Performance Standards will
reflect the following characteristics:

          .    Target Areas

          .    Goals for each Target Area

          .    Minimum Performance Standard for each Target Area

          .    Monitoring Intervals, (monthly, quarterly, annual) to be used by
               DCH

          .    Source of data that will be used by DCH to monitor the
               Performance Standards

          .    Monitoring Trigger(s) that will be used by DCH as an "sentinel"
               indicating substandard performance that may require intervention
               or corrective action

          .    Identification of both incentives and remedies to be used
               depending on outstanding performance or sub-standard performance

                                                                              12
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001



- ------------------------------------------------------------------------------------------------------------------------------------
      PERFORMANCE                                                               INTERIM           DATA            MONITORING
         AREA                                       GOAL                       STANDARD          SOURCE            FREQUENCY
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
     .    Quality of Care:           Fully immunize children who turn        Combination 1    HEDIS report           Annual
                                     two years old during the calendar        Rate = 50%
              Childhood                            year.
              Immunization
- ------------------------------------------------------------------------------------------------------------------------------------
     .    Quality of Care:           Pregnant women receive an initial          >= 55%        HEDIS report           Annual
                                       prenatal care visit in the first
           Prenatal care               trimester or within 42 days of
                                                 enrollment
- ------------------------------------------------------------------------------------------------------------------------------------
     .    Access to care:               Children 0-15 months of age             >= 90%        Encounter data          Quarterly
                                       receive one or more well child                                           (Rolling 12 months)
          Well child visits 0-15        visits during 12 month
          months                                   period
- ------------------------------------------------------------------------------------------------------------------------------------
     .    Access to care:             Children three, four, five, and six       >= 45%        Encounter data       Quarterly
                                      old receive one or more well child                                        (Rolling 12 months)
          Well child visits 3-6        visits during twelve-month
          years                                    period.
- ------------------------------------------------------------------------------------------------------------------------------------


                                                                              13
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001



- --------------------------------------------------------------------------------------------------------------------------
      PERFORMANCE                                                         INTERIM          DATA              MONITORING
          AREA                                  GOAL                     STANDARD         SOURCE             FREQUENCY
- --------------------------------------------------------------------------------------------------------------------------
                                                                                                   
 .    Customer Services:        Voluntarily enrolled beneficiaries          90%          Random sample         Quarterly
                                  receive provider of choice                            of 30 completed
      Provider Choice                                                                     surveys of
                                                                                         voluntarily
                                                                                          assigned
                                                                                          enrollees
- --------------------------------------------------------------------------------------------------------------------------
 .    Customer Services:        Auto assigned enrollees receive             75%          Random sample         Quarterly
                                provider selection information and                      of 30 completed
      Provider Selection          make PCP selection                                     surveys of
                                                                                         surveyed auto
                                                                                           assigned
                                                                                           enrollees
- --------------------------------------------------------------------------------------------------------------------------
 .    Customer Services:        Achieve and maintain enrollee             Verified         Beneficiary         Monthly
                                        satisfaction                 complaint rate *       hotline
      Complaint and grievance                                           5 per 1000
      monitoring                                                        members per
                                                                          month
- --------------------------------------------------------------------------------------------------------------------------
 .    Encounter data                Timely encounter data                  100%          MDCH                  Monthly
      reporting                  submission by the 15th of the                           Data Exchange
                                            month                                        Gateway (DEG)
- --------------------------------------------------------------------------------------------------------------------------
 .    Provider File               Timely provider file submission          100%            MI Enrolls          Monthly
      Reporting                      by the 1st of the month
- --------------------------------------------------------------------------------------------------------------------------
 .    Claims Reporting           Health Plans are compliant with           100%           Claims report        Monthly
                                   statutory requirements for                             submitted by
                                 payment of clean claims within                            health plan
                                            45 days
- --------------------------------------------------------------------------------------------------------------------------


* less than
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

                                  ATTACHMENT E

                       MODEL HOSPITAL/HEALTH PLAN CONTRACT

This agreement ("Agreement") shall be effective as of the __________________ day
of ___________________________200_ between______________________________________
("Health Plan"), a (profit/nonprofit) corporation and Health Maintenance
Organization licensed under the laws of the State of Michigan, and
_______________________, ("Hospital") a Hospital licensed under the laws of the
State of Michigan.

1.    OBLIGATIONS OF HOSPITAL

1.1.  Provision of Covered Services. Hospital agrees to provide Prior Authorized
      Medically Necessary Covered Services to Members in the same manner, in
      accordance with the same standards, and within the same time availability,
      as provided to its other patients within the existing resources of
      Hospital, subject to Hospital's compliance with Health Plan's Prior
      Authorization policies. Hospital shall not, other than for reasons of
      safety, segregate Members in any way or treat them in a location or manner
      different from any of its other patients. Hospital shall provide all
      services required by the Emergency Medical Treatment and Active Labor Act,
      ("EMTALA") and may do so without Prior Authorization. Hospital shall
      accept Prior Authorized Medically Necessary Elective Admissions of Members
      that have been arranged by physicians having admitting privileges at
      Hospital.

1.2.  Non-Discrimination. Hospital shall not unlawfully discriminate in the
      acceptance or treatment of a Member because of the Member's religion,
      race, color, national origin, age sex, income level, health status,
      marital status, disability or such other categories of unlawful
      discrimination as are or may be defined by federal or state law.

1.3.  Non-Covered Services. In the event a Member requests services that are
      Non-Covered Services, such services may be provided by Hospital at the
      Member's sole cost and expense. Hospital shall be under no obligation to
      furnish Non-covered Services to Members. Health Plan is not responsible
      to pay the costs of any Non-Covered Service. The Hospital must receive a
      signed agreement from the Member prior to the provision of Non-Covered
      Services in which the Member states that he/she will assume responsibility
      for the costs of the Non-Covered Service. Hospital agrees not to charge
      amounts in excess of its normal and customary charge for such services. In
      the event Hospital does not obtain a signed release, Hospital shall hold
      Health Plan and Member harmless from any costs or obligations related to
      such service. Hospital agrees to cooperate with

                                                                              15
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      Health Plan in resolving any grievances related to the provision of
      Non-Covered Services

1.4.  Verification of Member Eligibility. Hospital shall verify the Medicaid
      eligibility and Health Plan enrollment status of Members.

1.5.  Hospital Admission and Services.
      1.5.1. Elective Admissions and Services. All Elective Admissions and
           Services provided to a Member must have Prior Authorization. Any
           elective Admission shall be arranged by a physician with admitting
           privileges at Hospital. Hospital shall have the responsibility to
           verify Prior Authorization at the time of admission.
      1.5.2. Screening and Stabilization. Hospital shall provide all services
           required by EMTALA, and such services do not require Prior
           Authorization. Hospital must obtain Prior Authorization for any
           services provided after Member has been stabilized as provided by
           EMTALA.
      1.5.3. Notification Requirement. Hospital shall notify Health Plan within
           twenty-four (24) hours of any service provided for an Emergency
           Medical Condition of a Member (including screening pursuant to
           EMTALA) regardless of whether Member has been stabilized.
      1.5.4. Post-Stabilization Services. In all cases where the treating
           physician has screened a Member and determined that the Member is
           stabilized and does not have an Emergency Medical Condition requiring
           immediate admission and treatment, Hospital must contact Health Plan
           to obtain Prior Authorization before providing additional services,
           admitting the Member or referring the Member to other services that
           the treating physician feels are clinically indicated.
      1.5.5. Request for Post Stabilization Services. In seeking Prior
           Authorization for continuing health services or inpatient
           hospitalization following stabilization of a Member treated pursuant
           to EMTALA, Hospital shall provide Health Plan with requested
           information obtained from the medical screening examination, provided
           in accordance with EMTALA, and including presenting symptoms,
           physical findings, current medical status, and current diagnosis.

1.6.  Government Agency Access. Hospital shall permit authorized government
      agencies and their subcontractors to conduct on-site evaluations of
      Hospital's facilities, offices and records as required by State and
      Federal laws and regulations. If Health Plan receives such notice, Health
      Plan shall give Hospital reasonable notice of any agency's plans to
      conduct a site visit, unless Health Plan is prohibited from providing such
      notice by law.

1.7.  Health Plan Access. Upon reasonable notice from Health Plan, Hospital will
      allow Health Plan personnel to: (i) inspect Hospital's facilities,
      offices, and equipment during normal business hours; (ii) inspect and
      review the medical records of Health Plan Members; and (iii) obtain copies
      of Members' medical

                                                                              16
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      records and claims records for quality and utilization management and
      investigations of fraud or abuse. Hospital agrees to furnish copies of the
      medical and claims records reasonably requested by Health Plan for
      $____per page.

1.8.  Maintenance of License. Hospital shall maintain in good standing all
      licenses required by state and federal law or regulation and shall
      maintain certification under Titles XVIII and XIX of the Social Security
      Act for all services Hospital has agreed to provide pursuant to this
      Agreement. Hospital shall maintain accreditation of all applicable
      facilities and services by the Joint Commission on the Accreditation of
      Healthcare Organizations (JCAHO) or the American Osteopathic Association
      (AOA). [Delete this sentence if Hospital is not accredited.]

1.9.  Maintenance of Records. Hospital shall maintain all pertinent financial
      and accounting records and evidence pertaining to the provision Covered
      Services to Members in accordance with generally accepted accounting
      principles and other procedures specified by federal or state governments.
      Hospital shall maintain legible, comprehensive and chronological medical
      records documenting each episode of service to Members and detailing, as
      appropriate, history, physical findings, diagnoses and treatment plans.
      Financial and medical records shall be maintained by Hospital for such
      times as are or may be required by state and federal law and regulations.

1.10. Insurance. Hospital shall maintain at all times policies of general
      liability and professional liability insurance or self insurance with
      minimum limits of liability of One Million ($1,000,000.00) Dollars per
      occurrence and Three Million ($3,000,000.00) Dollars in annual aggregate
      covering Hospital, its agents and employees against any claims for damages
      out of any act or omission by Hospital, its agents and employees during
      terms of this Agreement. Hospital shall also maintain at all times
      automobile insurance, unemployment compensation insurance and workers'
      compensation insurance or self-insurance in accordance with the
      requirements of applicable federal and state laws and regulations. Upon
      request, Hospital shall furnish Health Plan with original certificates of
      insurance evidencing the insurances coverages and riders required.

1.11. Medical Treatment. Hospital agrees that Health Plan shall have no
      liability for the medical judgment of health care providers employed by or
      under contract with Hospital.

1.12. Required Disclosures. Hospital shall notify Health Plan in writing within
      ten (10) days of any of the following events:
      1.12.1.Suspension, termination, or cancellation of Hospital's state
           license, Medicaid certification or Medicare certification;

      1.12.2.Failure to maintain insurance coverage or self-insurance as
           prescribed in Section 1.10;

                                                                              17
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      1.12.3. Loss, Suspension or termination of JACHO or AOA accreditation;

      1.12.4. Hospital becomes aware that the license or admitting privileges of
           a Hospital-Based Physician who is employed by it are terminated or
           suspended for quality reasons

      1.12.5. Any change in assumed name(s) or taxpayer identification number(s)
           through which Hospital provides services and under which Hospital may
           submit claims under this Agreement.

      1.12.6.
1.13. Hospital Compliance with Health Plan Policies. Hospital agrees to be bound
      by the Plan Policies under the conditions set forth in section 2.2 and
      2.2.1 below.

1.14. PHYSICIAN QUALIFICATIONS.
      1.14.1. Hospital Credentialing/Re-Credentialing. Hospital shall cooperate
           with the credentialing and re-credentialing processes of Health Plan.
           Hospital represents that its Hospital-Based Physicians are licensed
           and in good standing to practice medicine in the State of Michigan.
           Hospital agrees to notify Health Plan of the termination or
           suspension admitting privileges of any physician known to Hospital to
           be a Health Plan Participating Physician.
      1.14.2. Admitting Physicians. Hospital represents that all physicians
           providing services at Hospital to Members shall be members of the
           medical staff of the Hospital in accordance with the Hospital's
           corporate and medical staff bylaws, policies, procedures, rules and
           regulations. No physician shall obtain or maintain medical staff
           membership or clinical privileges at Hospital by virtue of being a
           Participating Physician with Health Plan. A physician shall not be
           denied or granted admitting privileges based solely on whether the
           physician is or is not a Participating Physician.
      1.14.3. Hospital-Based Physicians. Hospital represents that it has the
           full legal power and authority to bind its Hospital-Based Physicians
           who are employees to the terms and conditions of this Agreement

1.15  Payment Administration. Hospital will cooperate with Health Plan's claims
      payment administration as set forth in Plan Policies including, but not
      limited to, coordination of benefits, subrogation, verification of
      coverage, prior certification and record keeping.

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

1.16  No Unfair Labor Practices. Hospital represents and warrants that
      Hospital's name does not appear in the current register of employers
      failing to correct an unfair labor practice compiled pursuant to Section 2
      of 1980 PA 278 as amended, MCL 423.322. Hospital agrees and acknowledges
      that, pursuant to Section 4 of 1980 PA 278, MCL 423.324, Health Plan may
      void this Agreement, if subsequent to the effective date of this
      Agreement, the name of Hospital appears in the register.

1.17  Non-Discriminatory Hiring. In the performance of services pursuant to this
      Agreement, Hospital agrees not to discriminate against any employee or
      applicant for employment, with respect to their hire, tenure, terms,
      conditions or privileges of employment, or any matter directly or
      indirectly related to employment, because of race, color, religion,
      national origin, ancestry, age, sex, height, weight, marital status,
      physical or mental handicap or disability. Further, Hospital agrees to
      comply with the provisions of the Americans with Disabilities Act of 1990
      (42 USC 12101 et seq., and 47 USC 225).

1.18  Quality, Utilization and Risk Management. Hospital agrees to allow Health
      Plan to perform the review of the admission and continuation of
      hospitalization of Members and to cooperate with Health Plan's policies
      and procedures as set forth in Plan Policies for Q/U/RM or any other
      program of review that may be established to promote high standards of
      medical care. Hospital agrees to allow a "Utilization Review Coordinator"
      designated by Health Plan to assist Hospital personnel with discharge
      planning and utilization review for Members.

1.19  Compliance with Laws and Regulations. In performing its obligations under
      this Agreement, Hospital shall comply with all applicable laws, rules and
      regulations.

2.    OBLIGATIONS OF HEALTH PLAN

2.1.  Prior Authorization. All Hospital Services provided to Members that are
      not mandated by EMTALA require Prior Authorization by Health Plan pursuant
      to Plan Policies. Health Plan shall provide twenty-four (24) hour, seven
      (7) day a week availability for Prior Authorization requests by Hospital
      for treatment, admission or other services. Hospital shall provide Health
      Plan with information obtained from the medical screening examination,
      provided in accordance with EMTALA, and presenting symptoms, physical
      findings, current medical status, and current diagnosis. Upon receipt of
      this information, Health Plan shall respond within sixty (60) minutes to a
      Hospital request for Prior Authorization to treat or admit a Member who is
      stable and has been evaluated and screened pursuant to the mandates of
      EMTALA.
      2.1.1. Documentation of Prior Authorization Process. Medical information
            submitted as required in Section 2.1 in support of the Prior
            Authorization request may be provided orally or in writing. If
            provided orally, the Health Plan Prior Authorization employee who
            takes the telephone request from Hospital shall write down or tape
            record the information provided. Both

                                                                              19
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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

            Health Plan and Hospital staff will record each other's name and the
            time of telephone contact. If Health Plan gives Prior Authorization
            for treatment or admission, Health Plan shall provide Hospital with
            an authorization number or code.
      2.1.2.Authorization Response. Failure of Health Plan to respond to
            Hospital with approval or denial of Prior Authorization within the
            time frame set in Section 2.1 shall be deemed as Prior Authorization
            for Medically Necessary treatment appropriate to the diagnosis
            presented when seeking Prior Authorization.
      2.1.3.Effect of Prior Authorization. Prior Authorization by Health Plan
            shall not prevent Health Plan from a retrospective evaluation of
            medical services provided by Hospital pursuant to Plan Policies.
            Health Plan agrees that the grant of Prior Authorization for Covered
            Services shall create a rebuttable presumption that Medically
            Necessary services appropriate to the diagnosis presented at the
            time of Prior Authorization shall be paid for pursuant to this
            Agreement. Health Plan shall bear the burden to support denial of
            payment for Prior Authorized services through the dispute resolution
            process provided in Agreement.

2.2.  Health Plan Policies. Health Plan shall provide Hospital with all Plan
      Polices upon execution of this Agreement.

      2.2.1. Amendments to Health Plan Policies. During the term of this
            Agreement, Health Plan may implement changes in the Plan Policies as
            may be required by state or federal law or regulation, Medicaid
            policy or at its discretion. If changes in the Plan Policies are
            required due to changes in law, regulation, and policy beyond the
            control of Health Plan, Health Plan shall provide a minimum of
            thirty (30) days notice to Hospital prior to implementation unless
            the required changes are mandated to be implemented in less time.
            For changes in Plan Policies that are not required by law,
            regulation or policy, Health Plan shall provide a minimum of (___)
            days notice to Hospital prior to implementation of such change. If
            Hospital does not exercise its option to terminate the agreement,
            Hospital agrees to comply with the amendments.

2.3.  Insurance. Health Plan shall maintain at all times managed care errors and
      omissions liability insurance or self-insurance with minimum coverage of
      $1,000,000 per occurrence and $3,000,000 annual aggregate, covering Health
      Plan and its agents and employees against any claims for damage arising
      directly or indirectly in connection with its activities under this
      Agreement. Health Plan shall also maintain such amounts of insolvency or
      stop-loss insurance as may be required by OFIS pursuant to the laws of the
      State of Michigan pertaining to Health Maintenance Organizations.
      Additionally, Health Plan shall maintain at all times automobile
      insurance, unemployment compensation insurance, and workers' compensation
      insurance or self-insurance in accordance with the requirements of all
      applicable federal and state laws and regulations. Upon

                                                                              20
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      reasonable request, Health Plan shall furnish Hospital with original
      certificates of insurance evidencing the insurances coverages and riders
      required.

2.4.  Health Plan Determinations. Health Plan agrees that, provided the
      information supplied by Hospital is accurate, Hospital shall have no
      liability for determinations, including without limitation, determinations
      regarding coverage, Prior Authorization and Medical Necessity, that are
      made by Health Plan employees or contractors.

2.5.  Compliance with Laws and Regulations. Health Plan represents that it is a
      Health Maintenance Organization licensed under the laws of the State of
      Michigan, that it has never been suspended, excluded or terminated as a
      contractor under Medicaid, Medicare, or other state or federal health care
      program, and that it-operates and will continue to operate in conformity
      with the statutes and regulations applicable to Medicaid contractors. In
      performing its obligations under this Agreement, Health Plan shall comply
      with all laws, rules and regulations of the United States and of the State
      of Michigan. All health professionals and laboratories providing services
      under this Contract shall be licensed and/or certified as required by law.

2.6.  Quality, Utilization and Risk Management. (Q/U/RM) Health Plan agrees to
      perform Q/U/RM services required in connection with this Agreement and
      Plan Policies. Health Plan will reimburse Hospital $_____per page
      for copying expenses incurred by Hospital in conducting Q/U/RM.

2.7.  Information. Health Plan will provide Hospital with the following
      documents (i) the current Credentialing, Re-Credentialing and Hearing
      Policy and; (ii) the current Utilization and Quality Management programs
      and, within a reasonable time after adoption, any changes or amendments;
      and, (iii) the current grievance procedures and, within a reasonable time
      after adoption, any changes or amendments; and, (iv), if Hospital bears
      risk under this Agreement, Hospital quarterly reports measuring actual
      utilization against utilization targets for Hospital.

2.8.  Maintenance of Records. Health Plan shall maintain all pertinent financial
      and accounting records pertaining to the operation of this Agreement in
      accordance with generally accepted accounting principles or other
      procedures specified or accepted by the state or federal government.
      Health Plan will, from time to time and upon reasonable notice from
      Hospital, permit Hospital to inspect during regular business hours those
      financial statements and enrollment records which Health Plan maintains
      and which pertain to the operation of this Agreement. Health Plan shall
      maintain financial records for such time period as is or may be required
      under state or federal law or regulation.

                                                                              21
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2.9.  Member Disputes. Health Plan will notify Hospital of all Member complaints
      involving Hospital. Health Plan agrees to assist Hospital in resolving
      disputes with Members.

2.10. Member Identification. Health Plan shall provide for distribution of
      identification cards to its Members. Each card will include a toll-free
      number that Hospital may use during normal business hours to check
      eligibility and enrollment in Health Plan. During non-business hours,
      eligibility verification and plan membership will be available through the
      state enrollment broker.

3.    PAYMENT FOR SERVICES

3.1.  Compensation. Health Plan shall pay for all services required by EMTALA
      and for Prior Authorized Covered Services that Hospital provides to
      Members in accordance with the payment rates or schedules set forth in
      Attachment____ incorporated in this Agreement. Absent an agreement
      establishing different rates or schedules, Health Plan shall pay Hospital
      according to the Medicaid Rates as established and published by MDCH.
      Hospital shall not be paid for Covered Services where Prior Authorization
      was required under the terms of this Agreement and was not obtained in
      accordance with Section 2.1 or the Plan Policies.

3.2.  Billing. Hospital shall exhaust all other insurance resources which could
      cover all or part of the costs of services delivered to a Member prior to
      submitting any bill for services to Health Plan pursuant to this
      agreement. Hospital shall bill Health Plan for Prior Authorized Covered
      Services and services provided pursuant to EMTALA.
      3.2.1. Electronic Billing. Any electronic billing statement submitted by
            the Hospital to Health Plan shall include all information required
            in the UB-92 form, (UB-92 Version 050), including detailed and
            descriptive medical, service and patient data and identifying
            information. If the Hospital uses a clearing house for electronic
            claims processing, the date of receipt by Health Plan will be the
            date the Health Plan or Health Plan's clearinghouse receives control
            of the claim from the Hospital's clearinghouse. If the Hospital's
            clearinghouse returns the claim for incorrect or incomplete
            information, the billing statement will not be considered received
            by Health Plan and the time limits for payment will not begin to run
            until actually received. If both the Hospital and (Health Plan) use
            the same clearinghouse, the date of receipt by the (Health Plan)
            will be considered the date on which the clearinghouse has
            determined pursuant to the contract with the Hospital that all
            ordered checks and edits are complete.
      3.2.2. Billing Submission Deadline. Hospital shall present Health Plan
            with the billing statement within (________) days from the date of
            performance of Covered Services to Members. It is acknowledged that
            situations may necessitate the extension of the (______) day
            submission deadline and the parties may agree to extend this
            deadline on a case-by-case basis. Among the justifications for

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           HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

            delaying submission of a claim are, changes in eligibility,
            coordination of benefits, other third-party payor issues or internal
            Hospital risk management. Absent an agreement to extend the time for
            submission of a bill, Health Plan shall have no obligation to pay
            any bill submitted beyond this (____) day limit.

3.3.  Payment. Health Plan shall make payment to Hospital within forty-five (45)
      days of receipt of a Clean Claim. Hospital shall not resubmit any billing
      during this 45-day period except in response to a Health Plan request for
      additional information pursuant to Section 3.4. Health Plan shall pay
      simple interest at a rate of (____)% per annum on payment amount of any
      Clean Claim not paid within (____) days.

3.4.  Rejected Claims. Health Plan shall provide Hospital with a written request
      for additional information within thirty (30) days after receipt of an
      inaccurate or insufficient billing statement. A corrected bill submitted
      by Hospital pursuant to this section shall reinitiate Section 3.3's time
      for processing a Clean Claim. A bill rejected after resubmission pursuant
      to this section shall be referred to the dispute resolution process and
      will not bear interest unless imposed under the dispute resolution
      process.

3.5.  Adjusted Payments. Health Plan may make an adjusted payment on a submitted
      claim within forty-five days from the date of receipt where the
      circumstances do not support the billing criteria for the level of service
      submitted on the claim. Any adjusted payment shall include a full and
      complete explanation and remittance advice. Hospital reserves the right to
      contest any adjustment and pursue any remedies through the dispute
      resolution processes in this Agreement.

3.6.  Recoupment. Health Plan may recoup from, or offset against, amounts owed
      to Hospital under this Agreement, any payments made by Health Plan to
      Hospital that are in violation of Medicaid policy, Plan Policies or this
      Agreement. Hospital has the right to dispute any action by Health Plan to
      recoup or offset claims pursuant to this section through resort to the
      Dispute Resolution Procedures of this Agreement.

3.7.  Member Hold Harmless. Except for applicable Member co-payments and
      deductibles provided under Benefit Certificates Hospital shall look only
      to Health Plan for compensation for Covered Services rendered to a Member
      and shall accept the payments set forth in this Agreement as payment in
      full for all Covered Services rendered to a Member. In no event, including
      but not limited to nonpayment by Health Plan, insolvency of Health Plan or
      breach of this Agreement, shall Hospital bill, charge, collect a deposit
      from, seek compensation, remuneration or reimbursement from, seek
      deductibles or co-pays from or have any recourse against a Member or
      persons (other than Health Plan) acting on his/her behalf for Covered
      Services provided pursuant to this Agreement. Hospital shall give notice
      to Members regarding any charges for Non-Covered

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      Services. Notwithstanding the foregoing, Hospital may accept payments from
      third-party payors (e.g. Blue Cross blue Shield of Michigan, auto
      insurance, etc.) or others who are legally responsible for payment of a
      Member's medical bill. This Section shall survive termination of this
      Agreement, regardless of the cause of termination and shall be construed
      to be for the benefit of Members. Hospital further agrees that this
      Section supersedes any oral or written agreement hereafter entered into
      between Hospital and Member or persons acting on the Member's behalf
      insofar as such agreement relates to payment for Covered Services provided
      under the terms and conditions of this contract. Except as otherwise
      provided in this Agreement or as required by MDCH Medicaid policies,
      bulletins and federal law, this Section is not intended to apply to
      services provided after this contract has been terminated or to
      Non-Covered Services.

3.8.  Third-Party Payors and Coordination of Benefits. In the event that a
      Member's medical expenses are eligible, in whole or in part, to be paid by
      any governmental program, other than by Medicaid, or by a public or
      private insurance or benefit plan (collectively, "third-party payors"),
      Health Plan shall coordinate primary and secondary payment responsibility
      with such other third party payors pursuant to federal and state third
      party liability statutes and regulations including 42 C.F.R. 433.135-139,
      MCLA: 400.106(l)(b)(ii), MCLA 500.3101 et seq., as amended (Michigan
      No-Fault Law), and the Michigan Workers' Compensation Disability Act of
      1969, as amended. Hospital shall cooperate with Health Plan's efforts to
      recover such payments or reimbursements.

3.9.  Billing Disputes. At least quarterly throughout the term of this Agreement
      the parties will make a good faith effort to negotiate and resolve all
      billing disputes. Every bill must be considered in such a quarterly
      billing resolution conference prior to submission to mediation or
      arbitration under the provisions of Section 5.2.

3.10. Financial Relationship with Health Plan. Health Plan will not prohibit
      Hospital from discussing Hospital's financial relationship with Member.

4.    TERMINATION

4.1.  Term and Renewal. The term of this Agreement is for one (1) year unless,
      terminated by either party pursuant to this Agreement. The Agreement
      begins at 12:01 AM on the effective date stated above. This Agreement
      shall automatically renew on an annual basis unless either party notifies
      the other in writing ninety (90) days prior to the renewal day of the
      Party's intention to terminate the Agreement.

4.2.  Termination without Cause. After the first six (6) months, this Agreement
      may be terminated without cause by either party upon written notice given
      ninety (90) days in advance of such termination.

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4.3.  Termination for Cause. Either party may terminate this Agreement for a
      material breach of this Agreement upon written notice given forty-five
      (45) days in advance of such termination. The failure of Health Plan to
      make payments required under this Agreement may be deemed to be a material
      breach. The failure of Hospital to comply with the policies and procedures
      of the Plan Policies may be deemed a material breach. In the event of
      notification of intent to terminate with cause by either party, the
      breaching party shall have twenty-one (21) days to cure such breach.
      Unless the material breach is cured, the 21 day period to cure will not
      extend termination date.

4.4.  Automatic Termination. This Agreement will automatically terminate if any
      of the following events occur:
      4.4.1  Suspension or termination for any reason of Health Plan as a
             Medicaid contractor
      4.4.1. Health Plan loss of licensure as an HMO.
      4.4.2. Hospital's state license, Medicare or Medicaid certification or
             JCAHO or AOA accreditation is revoked, terminated, or suspended.
      4.4.3. Suspension or termination of Hospital status as a Medicaid
             Provider.

4.5.  Termination due to Material Change in Plan Policies. Pursuant to section
      2.2.1 above, Health Plan must notify Hospital of changes in Plan Policies
      in a timely manner prior to implementation. In the event that Health Plan
      elects to amend Plan Policies, and such amendment affects Hospital
      adversely, Hospital shall be entitled to terminate this Agreement.
      Hospital shall notify Health Plan immediately of its intent to terminate
      under the section. Termination pursuant to the section shall be effective
      on the effective date of such amendment but no case less than Fourteen
      (14) days following such notification of termination pursuant to this
      section.

4.6.  Rights upon Termination. Upon termination of this Agreement, the rights of
      each party hereunder shall terminate, provided however, that Hospital
      shall be required to treat Members receiving authorized treatment at the
      time of termination of this Agreement until Member is discharged. Health
      Plan shall be required to pay Hospital pursuant to payment terms of this
      Agreement for all services performed in connection with such treatment.
      Subject to treatment concerns of the Member including continuity of care
      involving attending specialists and availability of alternative hospital
      providers, Health Plan shall use its best efforts to arrange for the
      reassignment and transfer of Members as soon as possible following the
      termination of this Agreement.

5.    DISPUTE RESOLUTION

5.1.  Notice. When either party perceives the existence of a dispute, it shall
      give written notice to the other party describing the nature of the
      dispute and a proposed resolution. The parties shall negotiate in good
      faith in an attempt to

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      resolve the dispute. Section 5.2 of this Agreement shall not apply to
      matters relating to Health Plan credentialing, re-credentialing or peer
      review activities.

5.2.  Mediation and Binding Arbitration.
      5.2.1.  Mediation. If the negotiations required in Section 5.1 fail to
           resolve the dispute, either party may request mediation under the
           Rules for Mediation of the Alternative Dispute Resolution Service of
           the American Health Lawyers Association. If the other party agrees,
           then both parties shall participate in that mediation. Costs shall be
           apportioned in accordance with the Rules for Mediation. The legal and
           administrative costs of the parties shall not be considered costs of
           mediation subject to apportionment.

      5.2.2.  Binding Arbitration. If the parties do not mediate or mediation
           does not resolve the dispute within sixty (60) days of the request
           for mediation, either party may seek binding arbitration either under
           the Rules for Arbitration of the Alternative Dispute Resolution
           Service of the American Health Lawyers Association or though the
           auspices of MDCH. Both parties must agree to binding arbitration. If
           MDCH arbitration is chosen, costs shall be shared equally. If the
           American Health Lawyers Association process is chosen, costs shall be
           apportioned pursuant to the Rules for Arbitration. The legal and
           administrative costs of the parties shall in neither case be
           considered costs of arbitration subject to apportionment. An award
           entered by the arbitrator shall be final and judgment may be entered
           on it in accordance with applicable law. A request for binding
           arbitration is not valid if it is made after the date when the
           institution of legal or equitable proceedings on the underlying
           dispute would be barred by the applicable statue of limitations.

5.3.  Limitation on Binding Arbitration. The binding arbitration procedures
      described in Section 5.2.3 above shall not apply to any claims between the
      parties arising out of third party claims asserting malpractice or
      professional negligence and the parties are not precluded from asserting
      claims against each other based on contribution, indemnity, breach of
      contract, or other legal theories, by way of cross-claim or third-party
      complaint in any court action commenced by a third party which alleges
      malpractice or professional negligence against either or both of the
      parties to this contract.

5.4.  MDCH Rapid Dispute Process. Notwithstanding the provisions of Section 5.2,
      the parties may utilize any dispute resolution process developed and
      implemented by MDCH. Costs of any such dispute resolution process will be
      born in accordance with the policies established by MDCH in establishing
      such a dispute resolution process.

5.5.  OFIS Claims Processing Appeals. Notwithstanding the provisions of Section
      5.2, disputes involving timely claims processing within the provisions of
      Public Act 187 of 2000, which amended MCL 400.111a and 400.111b and added
      MCL

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      400.111i may be appealed to OFIS. Procedures and requirements of OFIS
      apply to any appeal under these provisions. OFIS will not entertain
      appeals of claims which have already been subject to binding arbitration.

6.    MISCELLANEOUS PROVISIONS

6.1.  Definitions. Attachment A contains definitions of terms utilized
      throughout this Agreement and is hereby expressly incorporated into and
      made part of this Agreement.

6.2.  Relationship of Parties. The relationship of Hospital to Health Plan is
      that of an independent contractor. Neither Hospital nor any of its
      employees shall be considered under the provisions of this Agreement or
      otherwise as being an employee of Health Plan nor shall Health Plan nor
      any of its employees be considered under the terms of this Agreement or
      otherwise as being an employee of Hospital. Each party is solely
      responsible to meet its own financial obligations to its employees
      including provision of workers' compensation and unemployment insurance
      coverage, malpractice and other liability insurance, payment of federal
      state and local taxes and any other costs or expenses necessary to carry
      out its obligations under this contract. No work, act, commission or
      omission of any party, its agents, servants or employees, pursuant to the
      terms and conditions of this Agreement, shall be construed to make or
      render any party, its agents, servants or employees, an agent, servant,
      representative or employee of, or joint venturer with, the other party.

6.3.  Treatment Options. Hospital shall not be prohibited from discussing
      treatment options with Health Plan Members that may not reflect Health
      Plan's position or may not be covered by Health Plan.

6.4.  Advocating on Behalf of Health Plan Members. Hospital shall not be
      prohibited from advocating on behalf of a Health Plan Member in any
      grievance or utilization review process or individual authorization
      process to obtain necessary health care services.

6.5.  Orderly Transfer. Hospital agrees, in the event of termination of this
      Agreement, to cooperate with Health Plan in the orderly transfer of
      Members being treated or evaluated.

6.6.  Accreditation. Both parties agree to cooperate and facilitate the efforts
      of the other party to obtain and maintain appropriate accreditation from
      JACHO, AOA, National Committee for Quality Assurance (NCQA), Accreditation
      Association for Ambulatory Health Care (AAAHC), American Accreditation
      HealthCare Commission (URAC) or other appropriate accrediting body.

6.7.  Confidential Information. The parties agree that the items of information
      subject to confidentiality under this Agreement are: (i) medical
      information

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      relating to individual Members; (ii) the schedule of compensation to be
      paid to Hospital; (iii) all Q/U/RM documents and peer review information;
      and, (iv) any financial or utilization information provided by Hospital to
      Health Plan including charge masters the compensation schedule (if
      different from Medicaid Rates) set forth in the relevant attachments to
      this Agreement. Otherwise, all other information, including the general
      manner by which Hospital is paid under this Agreement and the general
      terms and conditions of this Agreement, may be shared with Members in the
      reasonable and prudent judgment of the parties to this Agreement.

      6.7.1. Notwithstanding the above designation as confidential, Health Plan
            may disclose financial or utilization information to third parties
            as necessary: (i) to satisfy internal quality and utilization
            requirements; (ii) to share with employees or agents of Health Plan
            who need to know the information carry out Health Plan's quality and
            utilization obligations; (iii) to satisfy mandatory governmental or
            regulatory reporting requirements; (iv) to compare cost, quality and
            service among providers with whom Health Plan has contracted or
            intends to contract; (v) for premium setting purposes; (vi) for
            HEDIS reporting; (vii) for JCAHO, NCQA or other reporting necessary
            for accreditation purposes; or (viii) to perform any of Health
            Plan's obligations under this Agreement. Any information disclosed
            to third parties pursuant to this subsection shall remain
            confidential and Health Plan shall require third party recipients of
            such information to maintain confidentiality.

      6.7.2. Health Plan shall be permitted to prepare and disclose to a third
            party a report of Hospital's quality data provided however, that
            Hospital quality data shall not include any information that
            identifies an individual Member or an individual Hospital or
            information that is privileged or confidential under peer review or
            patient confidentiality state or federal laws. For purposes of this
            subsection, Hospital's quality data includes, without limitation:
            (i) utilization data of all contracted Hospitals in the aggregate;
            (ii) HEDIS data production and performance evaluation; (iii) Member
            satisfaction data; (iv) overall compliance with JCAHO or other
            comparable quality standards (i.e., NCQA) and (v) Health Plan's
            disenrollment data.

6.8.  Grievances. Health Plan shall notify Hospital of any and all Member
      complaints involving Hospital. Hospital shall notify Health Plan of any
      and all Member complaints received from Members. Hospital and Health Plan
      shall make good faith efforts to investigate complaints and work together
      to resolve Member complaints in a fair and equitable manner. Hospital
      shall participate in and cooperate with the Health Plan grievance
      procedure and comply with final determinations provided in accordance with
      that procedure. A copy of the Health Plan grievance procedure shall be
      provided to a Member at the time of enrollment and to Hospital upon
      execution of this Agreement. This provision shall survive termination of
      this contract.

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6.9.  Ownership of Medical Records. All medical records shall belong to
      Hospital. The release, disclosure, removal or transfer of such records
      shall be governed by state and federal law and the parties established
      policies and procedures. Hospital agrees to make a Member's medical
      records available to Health Plan for purposes of assessing quality of
      care, conducting medical care evaluations and audits and determining on a
      concurrent basis the medical necessity and appropriateness of care
      provided to Health Plan Members. Hospital also agrees to make Member
      medical records available to appropriate state and federal authorities and
      their agents for purposes of assessing quality of care or investigating
      Member grievances. Hospital agrees to comply with all applicable state
      laws and administrative rules and federal laws and regulations related to
      privacy and confidentiality of medical records.

6.10. Indemnification by Health Plan. At all times during the term of this
      Agreement, Health Plan shall indemnify, defend and hold harmless Hospital,
      its officers, directors, employees, and/or agents from and against all
      claims, damages, causes of action, cost or expense, including court costs
      and reasonable attorney's fees, to the extent the liabilities and damages
      are the result of the sole negligence or other wrongful conduct by Health
      Plan, its agents and/or employees, arising from this contract.

6.11. Indemnification by Hospital. At all times during the term of this
      Agreement, Hospital shall indemnify, defend and hold harmless Health Plan,
      its officers, directors, employees and/or agents against all claims,
      damages, causes of action, cost or expense, including court costs and
      reasonable attorney's fees, to the extent that the liabilities and damages
      are the result of the sole negligence or other wrongful conduct by
      Hospital, its agents and/or employees, arising from this contract.

6.12. Indemnification for Peer Review. Health Plan will indemnify and hold
      Hospital harmless against any and all liability or loss, including costs
      and expenses of defending any such claim, arising from Hospital's
      participation in Health Plan's peer review.

[Sections 6.9, 6.10, and 6.11 are optional. The decision whether to include them
is subject to negotiation between the parties and requires assessment of impact
on insurance.]

6.13. Assignment. Neither this Agreement nor any rights or obligations hereunder
      shall be assignable by either party without the prior written consent of
      the other party, nor shall the duties imposed herein upon either party be
      subcontracted or delegated without the prior written approval of the other
      party.

6.14. Entire Agreement. This Agreement (including attachments) and the Plan
      Policies contain the entire agreement between the parties with respect to
      the subject matter of this Agreement. If a conflict develops between this
      Agreement

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      and the Plan Policies, Plan Policies shall take precedence. Neither
      Hospital nor Health Plan shall be subject to any requirements other than
      as set forth in this Agreement or the Plan Polices. The failure of a party
      to insist on the strict performance of any condition, promise, agreement
      or undertaking set forth herein shall not be construed as a waiver or
      relinquishment of the right to insist upon strict performance of the same
      condition, promise, agreement or undertaking at a future time.

6.15. Severability. If any provision of this Agreement or portion is declared
      invalid or unenforceable, the remaining provisions shall nevertheless
      remain in full force and effect.

6.16. Notices. Any notice required to be given pursuant to the terms and
      provisions of this Agreement may be sent by first class mail, facsimile,
      or by certified mail, return receipt requested, postage prepaid, to the
      following parties: Health Plan Designated Party and
      Address_________________________________________________________________
      Hospital Designated Party and Address
      ________________________________________.

6.17. Controlling Law. This Agreement shall be construed and enforced in
      accordance with the laws of the State of Michigan.

6.18. Marketing. Each party to this Agreement specifically authorizes the other
      party to include it in any and all marketing and advertising materials.
      Each will provide the other copies of any written marketing materials
      referencing the other. The parties further acknowledge that this Agreement
      may be terminated and agree to hold the other harmless for any continued
      use of marketing materials if such materials were prepared before the
      receipt of a notice of termination. The parties shall hold each other
      harmless from reliance upon inaccurate or incomplete information provided
      by the other in such materials. Except for purposes encompassed by this
      Section, neither party may utilize the trademarks or service marks of the
      other party without the express written approval of the other party.

6.19. Limitation of Third Party Rights. This Agreement is intended solely for
      the benefit of the parties, and is not intended to create any rights or
      benefits, either express or implied, in any other person, including,
      without limitation, patients of Hospital, Hospital's successors or
      assigns. Health Plan may not subcontract or resell any rights to Hospital
      access or prices created by this Agreement to any third party without the
      express written approval of Hospital.

6.20. Regulatory Approval. The parties acknowledge and agree that this Agreement
      may be subject to approval by OFIS.

6.21. Mutual Cooperation. To the extent a conflict of interest is not created
      hereby each party shall cooperate with the other with respect to any
      action, suit or

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      proceeding commenced against either party by a person or entity not a
      party hereto with respect to the subject matter thereof.

Signed                                            Date
       -------------------------                       -------------------------
Signed                                            Date
       -------------------------                       -------------------------

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          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

                           ATTACHMENT A. DEFINITIONS.

The following definitions apply to the entire contract and all attachments.

1)    Benefits Certificate means the written document approved by the Division
      of Insurance, as issued to the Member, which explains the scope of
      benefits, limitations of coverage and exclusions governing the Member's
      health care benefit coverage pursuant to the Health Plan's Medicaid
      Contract with the State of Michigan. Health Plan represents that the
      Benefit Certificate includes at a minimum all required services as defined
      by (i) Section 400.105 of the Michigan Compiled Laws; (ii) title XIS of
      the federal Social Security Act, 42 USC 1936 et seq; (iii) MDCH Program
      Manuals and Bulletins; (iv) the Comprehensive Health Care Program
      Contractor agreement between Health Plan and the State of Michigan.
      2) Clean Claim means a claim as defined in OFIS Bulletin 2000-09 as
         follows:
            (a)   Is submitted within the time frame required under this
                  Agreement;
            (b)   identifies the name and appropriate tax identification number
                  of the health professional or the health facility that
                  provided treatment or service and includes a matching provider
                  ID number assigned by Health Plan;
            (c)   identifies the patient (member ID number assigned by Health
                  Plan, address, and date of birth);
            (d)   identifies Health Plan (Health Plan name and/or ID number)
            (e)   lists the date (m/d/y) and place of service;
            (f)   is for covered service (Services must be described using
                  uniform billing coding and instructions (ANSI X12 837) and
                  ICD-9-CM diagnosis. Claims submitted solely for the purpose of
                  determining if a service is covered are not considered clean
                  claims.)
            (g)   if necessary, substantiates the medical necessity and
                  appropriateness of the care or services provided, that
                  includes any applicable authorization number if prior
                  authorization is required by Health Plan;
            (h)   includes additional documentation based upon services rendered
                  as reasonably required by Plan Policies;
            (i)   is certified by Hospital that the claim is true, accurate,
                  prepared with the knowledge and consent of Hospital, and does
                  not contain untrue, misleading, or deceptive information, that
                  identifies each attending, referring, or prescribing
                  physician, dentist, or other practitioner by means of a
                  program identification number on each claim or adjustment of a
                  claim;
            (j)   is a claim for which Hospital has verified the member's
                  Medicaid eligibility and enrollment in Health Plan before the
                  claim was submitted;
            (k)   is not a duplicate of a claim submitted within 45 days of the
                  previous submission;

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            (1)   is submitted in compliance with all of Health Plan's prior
                  authorization and claims submission guidelines and procedures;
            (m)   is a claim for which Hospital has exhausted all known other
                  insurance resources;
            (n)   is submitted electronically if Hospital has the ability to
                  submit claims electronically
            (o)   uses the data elements of UB92, (UB92 Version 050), as
                  appropriate.

3)    Co-Payment means the predetermined amount a Member must pay, whether
      stated as a percentage or a fixed dollar, to receive a specific service or
      benefit.

4)    Covered Services means those health care services that Health Plan has
      committed to provide to Members under the Benefit Certificate

5)    Credentialing and Re-Credentialing means the policy that Health Plan will
      follow in credentialing a new applicant in providing Covered Services and
      recredentialing every two years.

6)    Elective Admissions and Services means all health services not necessary
      to evaluate, screen and stabilize an Emergency Medical Condition as
      required by the Emergency Medical Treatment and Active Labor Act, 42 USC
      1395dd ("EMTALA").

7)    Emergency Medical Condition means a medical condition manifesting itself
      by acute symptoms of sufficient severity (including severe pain) such that
      a prudent lay person, with an average knowledge of health and medicine,
      could reasonably expect the absence of immediate medical attention to
      result in: (i) serious jeopardy to the health of the individual or in the
      case of a pregnant woman, the health of the woman or her unborn child;
      (ii) serious impairment to bodily functions; or (iii) serious dysfunction
      of any bodily organ or part.

8)    Hospital-Based Physician means a licensed physician employed by the
      Hospital or under contract with the Hospital for the provision of
      professional medical services to patients of the Hospital, including,
      without limitation, radiologists, anesthesiologists, pathologists, and
      emergency room physicians.

9)    Hospital Services means Covered Services customarily provided by a
      hospital including, without limitation, inpatient services, outpatient
      services and emergency services, treatment and supplies.

10)   Inpatient Services means all Hospital Services that a Hospital provides to
      a Member who is admitted to Hospital for a period twenty-four (24) hours
      or more. This term shall not include any professional component of the
      services, or any personal, non-medical expenses incurred by Member.

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11)   MDCH means the Michigan Department of Community Health.

12)   MDCH/Health Plan Agreement means the agreement between the State of
      Michigan and Health Plan pursuant to which Health Plan agrees to arrange
      for the delivery of Covered Services to Members.

13)   Medicaid Rates means the entire amount payable by MDCH to Hospitals for
      covered medical services provided to Medicaid beneficiaries who are not
      enrolled in health plan pursuant to an MDCH/Health Plan Agreement. It
      includes, without limitation, Diagnosis Related Group (DRG) payments, Per
      Diem payments for exempt units, outpatient fee screen payments and
      applicable Pass-Through payments. The amount payable is reduced by any
      other available resource such as Medicare, other insurance or a
      beneficiary's patient pay amount or spend down amount required to be
      collected by the Hospital.

14)   Medical Director means the individual designated by Health Plan to act as
      its Medical Director.

15)   Medically Necessary or Medical Necessity means health care services which
      are all of the following:

      a)  appropriate and necessary for the diagnosis or treatment of a medical
          condition;
      b)  provided for the diagnosis or direct care and treatment of a medical
          condition;
      c)  within the standards of good and accepted medical practice within the
          established medical community;
      d)  not primarily for the convenience of the Member, the Member's
          physician or another health care provider;
      e)  the most appropriate level of service which can be provided safely.

16)   Member means a Medicaid beneficiary who is enrolled in the Health Plan.

17)   Non-Covered Service means health services that (i) are not included in the
      definition of Covered Services, or (ii) are services provided before an
      individual becomes a Member or after an individual ceases to be enrolled
      as a Member of Health Plan or, (iii) services not required by EMTALA for
      which Hospital did not secure Prior Authorization.

18)   OFIS means the Office of Financial and Insurance Services in the Michigan
      Department of Consumer and Industry Services.

19)   Outpatient Services means all Covered Services other than Inpatient
      Services.

20)   Participating Physician means a duly licensed physician by the State of
      Michigan who has individually agreed or is an employee, independent
      contractor or member of a professional service corporation that has agreed
      to provide Covered Services

                                                                              34
                                                                         9/27/01



          HEALTH PLAN CONTRACT CHANGES TO BE EFFECTIVE OCTOBER 1, 2001

      for Members on behalf of Health Plan pursuant to a contract or agreement
      with Health Plan.

21)   Participating Provider means a health care provider, including
      individuals, organizations and facilities, who/which have entered into
      agreements with Health Plan to provide Covered Services to Members. A
      Participating Physician is also a Participating Provider.

22)   Plan Policies refers not only to documents so titled by Health Plan but
      also to Health Plan Provider Manual, Health Plan Formulary, procedures,
      and guidelines developed by Health Plan which address matters such as
      verification of eligibility, coordination of benefits, transfer policies,
      quality management, utilization management, peer review and Medicaid
      Member grievance procedures, standards, bulletins and subsequent
      additions, revisions and deletions.

23)   Physician Services mean Covered Services provided by a physician and
      include primary care and specialty care services.

24)   Health Plan means the Medicaid managed care plan, which is part of the
      MDCH program to provide medical assistance established by Section 105 of
      Act No.280 of the Public Acts of 1939, as amended, being 400.105 et seq.
      of the Michigan Compiled Laws and Title XIX of the federal Social Security
      Act, 42 U.S.C. 1396 et seq. and the Medicaid Contract between Health Plan
      and the State of Michigan.

25)   Primary Care Physician (PCP) means a physician who has the responsibility
      for providing initial and primary care to and for managing the total
      patient care of Members. A Primary Care Physician may be a general
      practitioner, internist, pediatrician, family practitioner or
      obstetrician/gynecologist.

26)   Prior Authorization or Authorized refers to Hospital securing the approval
      of Health Plan before delivery to provide non-emergency services to a
      Member. The standards governing prior authorization and the procedure for
      obtaining are delineated in Plan Policies.

27)   Utilization and Quality Management means the prospective, concurrent, and
      retrospective utilization management and quality management that Health
      Plan applies to Covered Services.

END

                                                                              35
                                                                         9/27/01



Form No. DMB 234A (Rev. 1/96)                                             [SEAL]
AUTHORITY: Act 431 of 1984
COMPLETION: Required
PENALTY: Failure to deliver in accordance with contract
terms and conditions and this notice, may be considered
in default of Contract

                                STATE OF MICHIGAN
                       DEPARTMENT OF MANAGEMENT AND BUDGET        April 30, 2002
                              ACQUISITION SERVICES
                        P.O. BOX 30026, LANSING, MI 48909
                                       OR
                        530 W. ALLEGAN, LANSING, MI 48933

                               CHANGE NOTICE NO. 5
                                       TO
                            CONTRACT NO. 071B1001026
                                     between
                              THE STATE OF MICHIGAN
                                       and
- --------------------------------------------------------------------------------
 NAME & ADDRESS OF VENDOR                           TELEPHONE Michael A. Graham
   Molina Healthcare of Michigan, Inc.              (248) 454-1070
   dba Molina Healthcare of Michigan                ---------------------------
   43097 Woodward Avenue, Suite 200                 VENDOR NUMBER/MAIL CODE
   Bloomfield Hills, MI 48302                       (2) 38-3341599  (009)
                                                    ---------------------------
                                                    BUYER  (517)241-1647
                                                    /s/ Irene Pena
                                                    ---------------------------
                                                    Irene Pena
- -------------------------------------------------------------------------------
Contract Administrator. Rick Murdock
 Comprehensive Health Care Program (CHCP) Services for Medicaid Beneficiaries in
          Selected Michigan Counties -- Department of Community Health
- -------------------------------------------------------------------------------
CONTRACT PERIOD:        From: October 1, 2000            To: October 1, 2004
- -------------------------------------------------------------------------------
 TERMS                                      SHIPMENT
          N/A                                                N/A
- -------------------------------------------------------------------------------
 F.O.B.                                     SHIPPED FROM
          N/A                                                N/A
- -------------------------------------------------------------------------------
MINIMUM DELIVERY REQUIREMENTS
*Plus three (3) each possible one-year extensions
- -------------------------------------------------------------------------------

NATURE OF CHANGE (S):

      Effective immediately, the attached list of changes are hereby
      incorporated into this contract per agency request from Rick Murdock.

TOTAL ESTIMATED CONTRACT VALUE REMAINS:

      The exact dollar value of this contract is unknown; the contractor will be
      paid based upon actual beneficiary enrollment at the rates (prices)
      specified in Attachment A to the original Notice of Contract.



                         Proposed Contract Change Notice
                        Comprehensive Health Care Program
                   For Contracts Awarded under ITB 17110000251

1.   PROPOSED CONTRACT CHANGE NO. 1:

     Amend Title Page of Contract, under "Contract Period" by deleting "October
     1, 2002" and inserting "October 1, 2004."

     Amend Section I-A (Purpose) by deleting the last two sentences and
     inserting with following:
          The term of the Contract shall be effective October 1, 2000 and
     continue until October 1, 2004. The Contract may be extended for no more
     than one (1) year extension after September 30, 2004.

     Amend Section I-D (Term of Contract) by deleting the first two sentences
     and inserting the following:
          The term of the Contract shall be effective October 1, 2000 and
     continue until October 1, 2004. The Contract may be extended for no more
     than one (1) year extension after September 30, 2004.

     Rationale: This is the first possible contract extension permitted under
     the current agreement. The State of Michigan will not be initiating a
     competitive re-bid for the Comprehensive Health Care Program over the next
     several years. Therefore, extending the contract for additional two years
     is requested. The original contract anticipated a possible five year
     contract if all extensions were used. With implementation of the Contract
     Change Notice, the Contract will be a total of four years and defers the
     decision on re-bidding until FY 04/05, unless the final potential extension
     is implemented at that time.

2.   PROPOSED CONTRACT CHANGE NO. 2:

     Amend Section I-C, (Contract Administrator) by deleting the current listed
     "Contract Administrator" and replacing with the following Contract
     Administrator:
          Cheryl Bupp
          Manager, Plan Management Section
          Comprehensive Health Plan Division
          Michigan Department of Community Health
          P.O. Box 30479
          Lansing, Michigan 48909

     Rationale: The change reflects the responsibility of the Ms. Bupp for the
     day-to-day management of the Contract.

3.   PROPOSED CONTRACT CHANGE NO. 3:

     Amend Section II-W, (Contract Remedies), by inserting the following at the
     end of the section:
          "The DCH will not apply any Contract Remedy to two Performance
     Standards listed in Attachment D that address the issue of Customer
     Services: (Provider Choice and Provider Selection)."

     Rationale: The change is to assure Contracting Health Plans that the
     Performance Standard (Attachment D of the Contract) based "solely on
     consumer surveys" will not be subject to application of any future Contract
     Remedy.

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY "[*]".
CONFIDENTIAL INFORMATION OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.


                                                                    EXHIBIT 10.4

                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City, Utah 84116

                                    CONTRACT
    H9920205                                                   006146
- ---------------------                                 -------------------------
Department Log Number                                   State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AMERICAN FAMILY CARE.

2.   CONTRACTING PARTIES:
     This Contract is between the Utah Department of Health (DEPARTMENT), and
     American Family Care (CONTRACTOR).

3.   CONTRACT PERIOD:
     The service period of this Contract will be July 1, 1999 through June 30,
     2004, unless terminated or extended by agreement in accordance with the
     terms and conditions of this Contract.

4.   CONTRACT AMOUNT:
     The Contractor will be paid up to a maximum amount of $    [*]     for the
                                                            -----------
     Contract period in accordance with the provisions in this Contract. This
     Contract is funded with 71.61% Federal funds and with 28.39% State funds.
     The CFDA# is 93.778 and relates to the federal funds provided.

5.   CONTRACT INQUIRIES:
     Inquiries regarding this Contract shall be directed to the following
     individuals:

     CONTRACTOR:       AMERICAN FAMILY CARE      DEPARTMENT OF HEALTH
     Contact Person:   Brian Monsen
     Business Address: American Family Care      Program: Managed Health Care
                       2120 South 1300 East,     Contact Person: Ed Ewia
                       Suite 303
                       Salt Lake City, UT 84106  Phone Number: (801) 538-6505
     Phone Number:     (801) 524-2725

6.   REFERENCE TO ATTACHMENTS INCLUDED AS PART OF THIS CONTRACT:
     Attachment A:   Utah Department of Health General Provisions
     Attachment B:   Special Provisions
     Attachment C:   Covered Services
     Attachment D:   Quality Assurance & Utilization Management
     Attachment E:   Medicaid Enrollment (Table 1), Cost Data (Table 2),
                     Utilization Data (Table 3), Medicaid Malpractice
                     Information (Table 4)
     Attachment F:   Rates and Rate-Related Terms
     Attachment G:   Quality Assurance Monitoring Plan

7.   PROVISIONS INCORPORATED INTO THIS CONTRACT BY REFERENCE, BUT NOT ATTACHED
     HERETO:
     A. All other governmental laws, rules, regulations, or actions applicable
        to services provided herein.
     B. If the Contractor has provided the Department with Assurances, then the
        Department is entering into this agreement based upon the Assurances
        provided by the Contractor and the Assurances are incorporated by
        reference.

8.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract must be signed
     by a representative of the State Division of Finance and the State Division
     of Purchasing to bind the State and the Department to this Contract.

9.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract.

CONTRACTOR: AMERICAN FAMILY CARE            UTAH DEPARTMENT OF HEALTH

By: /s/                      26 Aug 99  By: /s/                      9/16/99
    ------------------------ ----------     ------------------------ -----------
    Signature of Authorized  Date           Shari A. Watkins, C.P.A. Date
    Individual                              Director
                                            Official of Fiscal
                                            Operations

Print Name:     Kirk Olsen
           ----------------------------

Title:     Chief Executive Officer           [SEAL]                  10/4/99
      ---------------------------------      ----------------------- -----------
                                             State Finance:          Date

           33-0617992
- ------------------------------------
Federal Tax Identification Number or         /s/                     SEP 24 1999
      Social Security Number                 ----------------------- -----------
                                             State Purchasing:       Date

                                     Page 1



                                 ATTACHMENT "A"

                            UTAH DEPARTMENT OF HEALTH

                               GENERAL PROVISIONS

I.     CONTRACT DEFINITIONS ...................................  1

II.    AUTHORITY ..............................................  1

III.   MISCELLANEOUS PROVISIONS ...............................  2

IV.    UTAH INDOOR CLEAN AIR ACT ..............................  3

V.     RELATED PARTIES & CONFLICTS OF INTEREST ................  3

VI.    OTHER CONTRACTS ........................................  3

VII.   SUBCONTRACTS & ASSIGNMENTS .............................  4

VIII.  FURTHER WARRANTY .......................................  4

IX.    INFORMATION OWNERSHIP ..................................  4

X.     SOFTWARE OWNERSHIP .....................................  4

XI.    INFORMATION PRACTICES ..................................  5

XII.   INDEMNIFICATION ........................................  5

XIII.  SUBMISSION OF REPORTS ..................................  5

XIV.   PAYMENT ................................................  5

XV.    RECORD KEEPING, AUDITS, & INSPECTIONS ..................  6

XVI.   CONTRACT ADMINISTRATION REQUIREMENTS ...................  6

XVII.  DEFAULT, TERMINATION, & PAYMENT ADJUSTMENT .............  9

XVIII. FEDERAL REQUIREMENTS ...................................  9

                                        i



                                 ATTACHMENT "A"

                  UTAH DEPARTMENT OF HEALTH GENERAL PROVISIONS

                             I. CONTRACT DEFINITIONS
The following definitions apply in these general provisions:
     "Assign" or "Assignment" means the transfer of all rights and delegation of
        all duties in the contract to another person.
     "Business" means any corporation, partnership, individual, sole
        proprietorship, joint stock company, joint venture, or any other private
        legal entity.
     "This Contract" means this agreement between the Department and the
        Contractor, including both the General Provisions and the Special
        Provisions.
     "The Contractor" means the person who delivers the services or goods
        described in this Contract, other than the state or the Department.
     "The Department" means the Utah Department of Health.
     "Director" means the Executive Director of the Department or authorized
        representative.
     "Equipment" means capital equipment which costs at least $1,000 and has a
        useful life of one year or more unless a different definition or amount
        is set forth in the Special Provisions or specific Department Program
        policy as described in writing to Contractor.
     "Federal law" means the constitution, orders, case law, statutes, rules,
        and regulations of the federal government.
     "General provisions" means those provisions of this Contract which are set
        forth under the heading "General Provisions."
     "Governmental entity" means a federal, state, local, or
        federally-recognized Indian tribal government, or any subdivision
        thereof.
     "Individual" means a living human being.
     "Local health department" means a local health department as defined
        in Section 26A-1-102, Utah Code Annotated, 1953 as amended (UCA.).
     "Non-governmental entity" means privately held non-profit or for profit
        organization not classified as a "Governmental entity."
     "Person" means any governmental entity, business, individual, union,
        committee, club, other organization, or group of individuals.
     "Recipient" means an individual who is eligible for services provided by
        the Department or by an authorized Contractor of the Department under
        the terms of this Contract.
     "Services" means the furnishing of labor, time, or effort by a Contractor,
        not involving the delivery of a specific end product other than reports
        which are merely incidental to the required performance.
     "Special provisions" means those provisions of this Contract which are in
        addition to the General Provisions and which more fully describe the
        goods or services covered by this Contract.
     "State" means the State of Utah.
     "State law" means the constitution, orders, case law, statutes, and rules,
        of the state.
     "Subcontract" means any signed agreement between the Contractor and a third
        party to provide goods or services for which the Contractor is
        obligated, except purchase orders for standard commercial equipment,
        products, or services.
     "Subcontractor" means the person who performs the services or delivers the
        goods described in a subcontract.

                                  II. AUTHORITY
1. The Department's authority to enter into this Contract is derived from
Chapter 56, Title 63, UCA; Titles 26 and 26A, UCA; and from related statutes.

                                  Page 1 of 13



                                 ATTACHMENT "A"

2. The Contractor represents that it has the institutional, managerial, and
financial capability to ensure proper planning, management, and completion of
the project or services described in this Contract.

                          III. MISCELLANEOUS PROVISIONS
1. For reference clarity, as used in these general provisions: "ARTICLE" refers
to a major topic designated by capitalized roman numerals; "SECTION" refers to
the next lower numbered heading designated by arabic numerals, and "SUBSECTIONS"
refers to the next two lower headings designated by lower case letters and lower
case roman numerals.
2. If the general provisions and the special provisions of this Contract
conflict, the special provisions govern.
3. These provisions distinguish between two Contractor types: Governmental and
Non-governmental. Unspecified text applies to both types. Type-specific
statements appear in bold print (e.g., Non-governmental entities only).
4. Once signed by the Director and the State Division of Finance, when
applicable, and the State Division of Purchasing, when applicable, this Contract
becomes effective on the date specified in this Contract. Changes made to the
unsigned Contract document shall be initialed by both persons signing this
Contract on page one. Changes made to this Contract after the signatures are
made on page one may only be made by a separate written amendment signed by
persons authorized to amend this Contract.
5. Neither party may enlarge, modify, or reduce the terms, scope of work, or
dollar amount in this Contract, except by written amendment as provided in
section 4.
6. This Contract and the contracts that incorporate its provisions contain the
entire agreement between the Department and the Contractor. Any statements,
promises, or inducements made by either party or the agent of either party which
are not contained in the written Contract or other contracts are not valid or
binding.
7. The Contractor shall comply with all applicable laws regarding federal and
state taxes, unemployment insurance, disability insurance, and workers'
compensation.
8. The Contractor is an independent Contractor, having no authorization, express
or implied, to bind the Department to any agreement, settlement, liability, or
understanding whatsoever, and agrees not to perform any acts as agent for the
Department unless expressly set forth herein. Compensation stated herein shall
be the total amount payable to the Contractor by the Department. The Contractor
shall be responsible for the payment of all income tax and social security
amounts due as a result of payments received from the Department for these
contract services.
9. The Contractor shall maintain all licenses, permits, and authority required
to accomplish its obligations under this Contract.
10. The Contractor shall obtain prior written Department approval before
purchasing any equipment with contract funds.
11. Notice shall be in writing, directed to the contact person on page one of
this Contract, and delivered by certified mail or by hand to the other party's
most currently known address. The notice shall be effective when placed in the
U.S. mail or hand-delivered.
12. The Department and the Contractor shall attempt to resolve contract disputes
through available administrative remedies prior to initiating any court action.
13. This Contract shall be construed and governed by the laws of the State of
Utah. The Contractor submits to the jurisdiction of the courts of the State of
Utah for any dispute arising out of this Contract or the breach thereof. The
proper venue of any legal action arising under this contract shall be in Salt
Lake City, Utah.
14. Any court ruling or other binding legal declaration which declares that any
provision of this Contract is illegal or void, shall not affect the legality and
enforceability of any other provision of this Contract, unless the provisions
are mutually dependent.
15. The Contractor agrees to maintain the confidentiality of records that it
holds as agent for the Department as required by the Government Records Access
and Management Act, Title 63, Chapter 2, UCA and the confidentiality of records
requirements of Title 26, UCA.
16. The Contractor agrees to abide by the State of Utah's executive order, dated
June 30, 1989, which prohibits

                                  Page 2 of 13



                                 ATTACHMENT "A"

sexual harassment in the workplace.
17. The waiver by either party of any provision, term, covenant or condition of
this Contract shall not be deemed to be a waiver of any other provision,
covenant or condition of this Contract nor any subsequent breach of the same or
any other provision, term, covenant or condition of this Contract.
18. The Contractor agrees to warrant and assume responsibility for each
hardware, firmware, and/or software product (hereafter called the product) that
it licenses, or sells, to the Department under this Contract. The Contractor
acknowledges that the Uniform Commercial Code applies to this Contract. In
general, the Contractor warrants that: (1) the product will do what the
salesperson said it would do, (2) the product will live up to all specific
claims that the manufacturer makes in their advertisements, (3) the product will
be suitable for the ordinary purposes for which such product is used, (4) the
product will be suitable for any special purposes that the Department has relied
on the Contractor's skill or judgement to consider when it advised the
Department about the product, especially to ensure year 2000 compatibility and
fitness, (5) the product has been properly designed and manufactured, and (6)
the product is free of significant defects or unusual problems about which the
Department has not been warned. In general, "year 2000 compatibility and
fitness" means: (1) the product warranted by the Contractor will not cease to
perform before, during, or after the calendar year 2000, (2) the product will
not produce abnormal, invalid, and/or incorrect results before, during, or after
the calendar year 2000, (3) will include, but not be limited to, date data
century recognition, calculations that accommodate same century and
multi-century formats, date data values that reflect century, and (4) accurately
process date data (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
including leap year calculations.
     If problems arise, the Contractor will repair or replace (at no charge to
the Department) the product whose noncompliance is discovered and made known to
the Contractor in writing. If there is a Year 2000 problem, the Contractor
agrees to immediately assign senior engineering staff to work continuously until
the product problem is corrected, time being of the essence.
     The Contractor warrants that it is Year 2000 compliant with respect to all
aspects of performing this Contract. The Contractor bears the risk of loss for
Year 2000 failures on its behalf, its subcontractors, or agents relevant to the
performance of this Contract.
     Nothing in this warranty will be construed to limit any rights or remedies
the Department may otherwise have under this Contract with respect to defects
other than Year 2000 performance.
19. The State of Utah's sales and use tax exemption number is E33399. The
tangible personal property or services being purchased are being paid for from
State funds and used in the exercise of that entity's essential functions. If
the items purchased are construction materials, they will be converted into real
property by employees of this government entity, unless otherwise stated in the
contract.

                          IV. UTAH INDOOR CLEAN AIR ACT
The Contractor, for all personnel operating within the State of Utah, shall
comply with the Utah Indoor Clean Air Act, Title 26, Chapter 38, UCA, which
prohibits smoking in public places.

                   V. RELATED PARTIES & CONFLICTS OF INTEREST
1. The Contractor may not pay related parties for goods, services, facilities,
leases, salaries, wages, professional fees, or the like for contract expenses
without the prior written consent of the Department. The Department may consider
the payments to the related parties as disallowed expenditures and accordingly
adjust the Department's payment to the Contractor for all related party payments
made without the Department's consent. As used in this section, "related
parties" means any person related to the Contractor by blood, marriage,
partnership, common directors or officers, or 10% or greater direct or indirect
ownership in a common entity.
2. The Contractor shall comply with the Public Officers' and Employees' Ethics
Act, Section 67-16-10, UCA, which prohibits actions that may create or that are
actual or potential conflicts of interest. It also provides that "no person
shall induce or seek to induce any public officer or public employee to violate
any of the provisions of this act." The Contractor represents that none of its
officers or employees are officers or employees of the State of Utah,

                                  Page 3 of 13



                                 ATTACHMENT "A"

unless disclosure has been made in accordance with Section 67-16-8, UCA.

                               VI. OTHER CONTRACTS
1. The Department may perform additional work related to this Contract or award
other contracts for such work. The Contractor shall cooperate fully with other
contractors, public officers, and public employees in scheduling and
coordinating contract work. The Contractor shall give other contractors
reasonable opportunity to execute their work and shall not interfere with the
scheduled work of other contractors, public officers, and public employees.
2. The Department shall not unreasonably interfere with the Contractor's
performance of its obligations under this Contract.

                         VII. SUBCONTRACTS & ASSIGNMENTS
The Contractor shall not assign this Agreement without the written consent of
the Department. The Department agrees that the Contractor may partially
subcontract services, provided that the Contractor retains ultimate
responsibility for performance of all terms, conditions and provisions of this
Agreement. When subcontracting, the Contractor agrees to use written
subcontracts that conform with Federal and State laws. The Contractor shall
request Department approval for any assignment at least 20 days prior to its
effective date.

                             VIII. FURTHER WARRANTY
The Contractor warrants that (a) all services shall be performed in conformity
with the requirements of this Contract by qualified personnel in accordance with
generally recognized standards; and (b) all goods or products furnished pursuant
to this Contract shall be free from defects and shall conform to contract
requirements. For any item that the Department determines does not conform with
the warranty, the Department may arrange to have the item repaired or replaced,
either by the Contractor or by a third party at the Department's option, at the
Contractor's expense.

                            IX. INFORMATION OWNERSHIP
Except for confidential medical records held by direct care providers, the
Department shall own exclusive title to all information gathered, reports
developed, and conclusions reached in performance of this Contract. The
Contractor may not use, except in meeting its obligations under this Contract,
information gathered, reports developed, or conclusions reached in performance
of this Contract without the express written consent of the Department.

                              X. SOFTWARE OWNERSHIP
1. If the Contractor develops or pays to have developed computer software
exclusively with funds or proceeds from this Contract to perform its obligations
under this Contract, or to perform computerized tasks that it was not previously
performing to meet its obligations under this Contract, the computer software
shall be exclusively owned by or licensed to the Department. In the case of
software owned by the Department, the Department grants to the Contractor a
nontransferable, nonexclusive license to use the software in the performance of
this Contract. In the case of software licensed to the Department, the
Department grants to the Contractor permission to use the software in the
performance of this Contract. This license or permission, as the case may be,
terminates when the Contractor has completed its work under this Contract.
2. If the Contractor develops or pays to have developed computer software which
is an addition to existing software owned by or licensed exclusively with funds
or proceeds from this Contract, or to modify software to perform computerized
tasks in a manner different than previously performed, to meet its obligations
under this Contract, the addition shall be exclusively owned by or licensed to
the Department. In the case of software owned by the Department, the Department
grants to the Contractor a nontransferable, nonexclusive license to use the
software in the performance of this Contract. In the case of software licensed
to the Department, the Department grants to the Contractor permission to use the
software in the performance of this Contract. This license or permission, as the
case may be, terminates when the Contractor has completed its work under this
Contract.

                                  Page 4 of 13



                                 ATTACHMENT "A"

3. If the Contractor uses computer software licensed to it which it does not
modify or program to handle the specific tasks required by this Contract, then
to the extent allowed by the license agreement between the Contractor and the
owner of the software, the Contractor grants to the Department a continuing
nonexclusive license to use the software, either by the Department or by a
different Contractor, to perform work substantially identical to the work
performed by the Contractor under this Contract. If the Contractor cannot grant
the license as required by this section, then the Contractor shall reveal the
input screens, report formats, data structures, linkages, and relations used in
performing its obligations under this Contract in such a manner to allow the
Department or another contractor to continue the work performed by the
Contractor under this Contract.
4. The Contractor shall deliver to the Department a copy of the software or
information required by this Article within 90 days after the commencement of
this Contract and thereafter immediately upon making a modification to any of
the software which is the subject of this Contract.

                            XI. INFORMATION PRACTICES
1. (Governmental entities only) The Contractor shall establish, maintain, and
practice information procedures and controls that comply with Federal and State
law. The Contractor assures that any information about an individual that it
receives or requests from the Department pursuant to this Contract is necessary
to the performance of its duties and functions and that the information will be
used only for the purposes set forth in this Contract. The Department shall
inform the Contractor of any non-public designation of any information it
provides to the Contractor.
2. (Non-governmental entities only) The Contractor shall establish, maintain,
and practice information procedures and controls that comply with Federal and
State law. The Contractor may not release any information regarding any person
from any information provided by the Department, unless the Department first
consents in writing to the release.

                              XII. INDEMNIFICATION
1. (Governmental entities only) It is mutually agreed that each party assumes
liability for the negligent or wrongful acts committed by its own agents,
officials, or employees, regardless of the source of funding for this Contract.
Neither party waives any rights or defenses otherwise available under the
Governmental Immunity Act.
2. (Non-governmental entities only) To the extent authorized by law, the
Contractor shall indemnify and hold harmless the Department and any of its
agents, officers, and employees, from any claims, demands, suits, actions,
proceedings, loss, injury, death, and damages of every kind and description,
including any attorney's fees and litigation expenses, which may be brought,
made against, or incurred by that party on account of loss or damage to any
property, or for injuries to or death of any person, caused by, arising directly
or indirectly out of, or contributed to in whole or in part, by reason of any
alleged act, omission, professional error, fault, mistake, or negligence of the
Contractor or its employees, agents, or representatives, or subcontractors or
their employees, agents, or representatives, in connection with, incident to, or
arising directly or indirectly out of this Contract, or arising out of workers'
compensation claims, unemployment, or claims under similar such laws or
obligations.

                           XIII. SUBMISSION OF REPORTS
If the Contractor is a Local Health Department, it shall submit monthly
expenditure reports to the Department in a format approved by the Department.
All other Contractors shall submit monthly summarized billing statements to the
Department. Expenditure reports and billing statements must be submitted to the
Department within 20 days following the last day of the month in which the
expenditures were incurred or the services provided.

                                  XIV. PAYMENT
1. If a recipient, a recipient's insurance, or any third-party is responsible to
pay for services rendered pursuant to this Contract, the Contractor shall bill
and collect for the goods or services provided to the recipient. The Department
shall reimburse total actual expenditures, less amounts collected as required by
this section.
2. Under no circumstances shall the Department authorize payment to the
Contractor that exceeds the amount

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                                 ATTACHMENT "A"

specified in this Contract without an amendment to the Contract.
3. The Department agrees to make every effort to pay for completed services, and
payments are conditioned upon receipt of applicable, accurate, and completed
reports prepared by the Contractor and delivered to the Department. The
Department may delay or deny payment for final expenditure reports received more
than 20 days after the Contractor has satisfied all Contract requirements.

                    XV. RECORD KEEPING, AUDITS, & INSPECTIONS
1. The Contractor shall use an accrual or a modified accrual basis for reporting
annual fiscal data, as required by Generally Accepted Accounting Principles
(GAAP). Required monthly or quarterly reports may be reported using a cash
basis.
2. The Contractor and any subcontractors shall maintain financial and operation
records relating to contract services, requirements, collections, and
expenditures in sufficient detail to document all contract fund transactions.
The Contractor and any subcontractors shall maintain and make all records
necessary and reasonable for a full and complete audit available for audit or
inspection during normal business hours or by appointment, until all audits
initiated by federal and state auditors are completed, or for a period of four
years from the date of termination of this Contract, whichever is longer, or for
any period required elsewhere in this Contract.
3. The Contractor shall retain all records which relate to disputes,
litigations, claim settlements arising from contract performance, or
cost/expense exceptions initiated by the Director, until all disputes,
litigations, claims, or exceptions are resolved.
4. The Contractor shall comply with federal and state regulations concerning
cost principles, audit requirements, and grant administration requirements,
cited in Table 1. Unless specifically exempted in this Contract's special
provisions, the Contractor must comply with applicable federal cost principles
and grant administration requirements if state funds are received. The
Contractor shall also provide the Department with a copy of all reports required
by the State Legal Compliance Audit Guide (SLCAG) as defined in Chapter 2, Title
51, UCA. All federal and state principles and requirements cited in Table 1 are
available for inspection at the Utah Department of Health during normal business
hours. A Contractor who receives $50,000.00 or more in a year from all federal
or from all state sources may be subject to federal and state audit
requirements. A Contractor who receives $300,000.00 or more per year from
federal sources may be subject to the federal single audit requirement.
Counties, cities, towns, school districts, and all non-profit corporations that
receive 50% or more of their funds from federal, state or local governmental
entities are subject to the State of Utah Legal Compliance Audit Guide. Copies
of required audit reports shall be sent to the Utah Department of Health, Bureau
of Financial Audit, Box 144002, Salt Lake City, Utah 84114-4002.

                  FEDERAL AND STATE PRINCIPLES AND REQUIREMENTS



                          Cost                Federal Audit        State Audit    Grant Admin.
Contractor                Principles          Requirements         Requirements   Requirements
- -----------------------   -----------------   ------------------   ------------   ------------------
                                                                      
State or Local Govt. &
Indian Tribal Govts.      OMB Circular A-87   OMB Circular A-133   SLCAG          OMB Common Rule

Hospitals                 45 CFR 74, App. E   OMB Circular A-133   SLCAG          OMB Common Rule or
                                                                                   Circular A-110

College or University     OMB Circular A-21   OMB Circular A-133   SLCAG          OMB Circular A-110

Non-Profit Organization   OMB Circular A-122  OMB Circular A-133   SLCAG          OMB Circular A-110

For-Profit Organization   48 CFR 31                   n/a           n/a           OMB Circular A-110


Table 1

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                                 ATTACHMENT "A"

                    XVI. CONTRACT ADMINISTRATION REQUIREMENTS
The Contractor agrees to administer this Contract in compliance with either OMB
Common Rule or OMB Circular A-l10 depending upon the legal status of the
Contractor as shown in Table 1. Financial management, procurement, and
affirmative step requirements specify that:
1. the Contractor must have fiscal control and accounting procedures sufficient
to:
          a. permit preparation of reports required by this Contract, and
          b. permit the tracing of funds to a level of expenditures adequate to
          establish that such funds have not been used in violation of the
          restrictions and prohibitions of applicable statutes.
2. the Contractor's financial management systems must meet the following
standards:
          a. financial reporting. Accurate, current, and complete disclosure of
          the financial results of financially assisted activities must be made
          in accordance with the financial reporting requirements of this
          Contract.
          b. accounting records. The Contractor must maintain records which
          adequately identify the source and application of funds provided for
          federally financially-assisted activities. These records must contain
          information pertaining to the Contract's awards and authorizations,
          obligations, unobligated balances, assets, liabilities, outlays or
          expenditures, and income.
          c. internal control. Effective control and accountability must be
          maintained for all Contract cash, real and personal property, and
          other assets. The Contractor must adequately safeguard all such
          property and must assure that it is used solely for authorized
          purposes.
          d. budget control. Actual expenditures or outlays must be compared
          with budgeted amounts for the Contract. Financial information must be
          related to performance or productivity data, including the development
          of unit cost information whenever appropriate or specifically required
          in this Contract. If unit cost data are required, estimates based on
          available documentation will be accepted whenever possible.
3. Federal OMB cost principles, federal agency program regulations, and the
terms of grant and subgrant, and contract agreements will be followed in
determining the reasonableness, allowability, and allocability of costs.
          a. source documentation. Accounting records must be supported by such
          source documentation as canceled checks, paid bills, payrolls, time
          and attendance records, contract and subcontract award documents, etc.
          b. cash management. Procedures for minimizing the time elapsing
          between the transfer of funds from the U.S. Treasury and disbursement
          by the Department and the Contractor must be followed whenever advance
          payment procedures are used.
4. the Contractor shall use its own procurement procedures which reflect
applicable State and local laws, rules, and regulations, provided that the
procurements conform to applicable Federal law and the standards identified in
this Contract.
          a. The Contractor will maintain a contract administration system which
ensures that subcontractors perform in accordance with the terms, conditions,
and specifications of its contracts or purchase orders.
          b. The Contractor will maintain a written code of standards of conduct
governing the performance of its employees engaged in the award and
administration of contracts. No employee, officer or agent of the Department or
the Contractor shall participate in selection, or in the award or administration
of a contract supported by federal funds if a conflict of interest, real or
apparent, would be involved. Such a conflict would arise when:
                  i.   the employee, officer or agent,
                  ii.  any member of his immediate family,
                  iii. his or her partner; or
                  iv.  an organization which employs, or is about to employ, any
                  of the above, has a financial or other interest in the firm
                  selected for award. The Department's or the Contractor's
                  officer, employees or agents will neither solicit nor accept
                  gratuities, favors or anything of monetary value from
                  contractors, potential contractors, or parties to
                  subagreements. The Department and the Contractor may set
                  minimum rules where the financial interest is not substantial
                  or the gift is

                                  Page 7 of 13



                                 ATTACHMENT "A"

                  an unsolicited item of nominal intrinsic value. To the extent
                  permitted by State or local law or regulations, such standards
                  or conduct will provide for penalties, sanctions, or other
                  disciplinary actions for violations of such standards by the
                  Department's or the Contractor's officers, employees, or
                  agents, or by subcontractors or their agents.
          c. The Contractor's procedures will provide for a review of proposed
procurements to avoid purchase of unnecessary or duplicative items.
Consideration should be given to consolidating or breaking out procurements to
obtain a more economical purchase. Where appropriate, an analysis will be made
of lease versus purchase alternatives, and any other appropriate analysis to
determine the most economical approach.
          d. To foster greater economy and efficiency, the Contractor, if a
governmental entity, is encouraged to enter into State and local
intergovernmental agreements for procurement or use of common goods and
services.
          e. If allowed by law, the Contractor is encouraged to use Federal
excess and surplus property in lieu of purchasing new equipment and property
whenever such use is feasible and reduces project costs.
          f. The Contractor may contract only with responsible contractors
possessing the ability to perform successfully under the terms and conditions of
a proposed procurement.
          g. The Contractor shall maintain records sufficient to detail the
significant history of a procurement. These records shall include, but are not
necessarily limited to the following:
                  i.   the rationale for the method of procurement,
                  ii.  selection of contract type,
                  iii. contractor selection or rejection, and
                  iv.  the basis for the contract price.
          h. The Contractor may use time and material type contracts only:
                  i.   after a determination that no other contract is suitable,
                       and
                  ii.  if the Contract includes a ceiling price that the
                       Contractor exceeds at its own risk.
          i. The Contractor alone will be responsible, in accordance with good
administrative practice and sound business judgment, for the settlement of all
contractual and administrative issues arising out of procurements. These issues
include, but are not limited to source evaluation, protests, disputes, and
claims. These standards do not relieve the Contractor of any contractual
responsibilities under its contracts.
          j. The Contractor shall have protest procedures to handle and resolve
disputes relating to its procurements and shall in all instances disclose
information regarding the protest to the federal funding agency. A protestor
must exhaust all administrative remedies with the Department and the Contractor
before pursuing a protest with the federal funding agency.
5. the Contractor shall take all necessary affirmative steps to assure that
minority firms, women's business enterprises, and labor surplus area firms are
used when possible. Affirmative steps shall include:
          a. placing qualified small and minority businesses and women's
          business enterprises on solicitation lists;
          b. assuring that small and minority businesses, and women's business
          enterprises are solicited whenever they are potential sources;
          c. dividing total requirements, when economically feasible, into
          smaller tasks or quantities to permit maximum participation by small
          and minority business, and women's business enterprises;
          d. establishing delivery schedules, where the requirement permits,
          which encourage participation by small and minority business, and
          women's business enterprises;
          e. using the services and assistance of the Small Business
          Administration, and the Minority Business Development Agency of the
          Department of Commerce; and
          f. requiring the prime contractor, if subcontracts are to be let, to
          take the affirmative steps listed in Article XVI, section 5,
          subsections a - e.

                XVII. DEFAULT, TERMINATION, & PAYMENT ADJUSTMENT
1. Each party may terminate this Contract with cause. If the cause for
termination is due to the default of a party, the non-defaulting party shall
send a notice, which meets the notice requirements of this Contract, citing the
default and giving notice to the defaulting party of its intent to terminate.
The defaulting party may cure the default within

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                                 ATTACHMENT "A"

fifteen days of the notice. If the default is not cured within the fifteen days,
the party giving notice may terminate this Contract 45 days from the date of the
initial notice of default or at a later date specified in the notice.
2. The Department may terminate this Contract without cause, in advance of the
specified termination date, upon 30 days written notice.
3. The Department agrees to use its best efforts to obtain funding for
multi-year contracts. If continued funding for this Contract is not appropriated
or budgeted at any time throughout the multi-year contract period, the
Department may terminate this Contract upon 30 days notice.
4. If funding to the Department is reduced due to an order by the Legislature or
the Governor, or is required by federal or state law, the Department may
terminate this Contract or proportionately reduce the services and goods due and
the amount due from the Department upon 30 days written notice. If the specific
funding source for the subject matter of this Contract is reduced, the
Department may terminate this Contract or proportionately reduce the services
and goods due and the amount due from the Department upon 30 written notice
being given to the Contractor.
5. If the Department terminates this Contract, the Department may procure
replacement goods or services upon terms and conditions necessary to replace the
Contractor's obligations. If the termination is due to the Contractor's failure
to perform, and the Department procures replacement goods or services, the
Contractor agrees to pay the excess costs associated with obtaining the
replacement goods or services.
6. If the Contractor terminates this Contract without cause, the Department may
treat the Contractor's action as a default under this Contract.
7. The Department may terminate this Contract if the Contractor becomes
debarred, insolvent, files bankruptcy or reorganization proceedings, sells 30%
or more of the company's assets or corporate stock, or gives notice of its
inability to perform its obligations under this Contract.
8. If the Contractor defaults in any manner in the performance of any obligation
under this Contract, or if audit exceptions are identified, the Department may,
at its option, either adjust the amount of payment or withhold payment until
satisfactory resolution of the default or exception. Default and audit
exceptions for which payment may be adjusted or withheld include disallowed
expenditures of federal or state funds as a result of the Contractor's failure
to comply with federal regulations or state rules. In addition, the Department
may withhold amounts due the Contractor under this Contract, any other current
contract between the Department and the Contractor, or any future payments due
the Contractor to recover the funds. The Department shall notify the Contractor
of the Department's action in adjusting the amount of payment or withholding
payment. This Contract is executory until such repayment is made.
9. The rights and remedies of the Department enumerated in this article are in
addition to any other rights or remedies provided in this Contract or available
in law or equity.

                           XVIII. FEDERAL REQUIREMENTS
The Contractor shall comply with all applicable federal requirements. To the
extent that the Department is able, the Department shall give further
clarification of federal requirements upon the Contractor's request. If the
Contractor is receiving federal funds under this Contract, certain federal
requirements apply. The Contractor agrees to comply with the federal
requirements to the extent that they are applicable to the subject matter of
this Contract and are required by the amount of federal funds involved in this
Contract.

1. CIVIL RIGHTS REQUIREMENTS:

          a. The Civil Rights Act of 1964, Title VI, provides that no person in
          the United States shall, on the grounds of race, color, or national
          origin, be excluded from participation in, be denied the benefits of,
          or be subjected to discrimination under any program or activity
          receiving federal financial assistance. The Health and Human Services
          regulation implementing this requirement is 45 CFR Part 80.
          b. The Civil Rights Act of 1964, Title VII, (P.L. 88-352 & 42 U.S.C.
          Section 2000e) prohibits employers from discriminating against
          employees on the basis of race, color, religion, national origin, and
          sex. Title VII applies to employers of fifteen or more employees, and
          prohibits all discriminatory employment

                                  Page 9 of 13



                                 ATTACHMENT "A"

          practices.
          c. The Rehabilitation Act of 1973, as amended, section 504, provides
          that no otherwise qualified handicapped individual in the United
          States shall, solely by reason of the handicap, be excluded from
          participation in, be denied the benefits of, or be subjected to
          discrimination under any program or activity receiving federal
          financial assistance. The Health and Human Services regulation 45 CFR
          Part 84 implements this requirement.
          d. The Age Discrimination Act of 1975, as amended (42 U.S.C. Sections
          6101-6107), prohibits unreasonable discrimination on the basis of age
          in any program or activity receiving federal financial assistance. The
          Health and Human Services regulation implementing the provisions of
          the Age Discrimination Act is 45 CFR Part 91.
          e. The Education Amendments of 1972, Title IX, (20 U.S.C. Sections
          1681-1683 and 1685-1686), section 901, provides that no person in the
          United States shall, on the basis of sex, be excluded from
          participation in, be denied the benefits of, or be subjected to
          discrimination under any educational program or activity receiving
          federal financial assistance. Health and Human Services regulation 45
          CFR Part 86 implements this requirement.
          f. Executive Order No. 11246, as amended by Executive Order 11375
          relates to "Equal Employment Opportunity," (all construction contracts
          and subcontracts in excess of $10,000.00)
          g. Americans with Disabilities Act of 1990, (P.L. 101-336), section
          504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. Section
          794), prohibits discrimination on the basis of disability.
          h. The Public Health Service Act, as amended, Title VII, section 704
          and TITLE VIII, section 855, forbids the extension of federal support
          for health manpower and nurse training programs authorized under those
          titles to any entity that discriminates on the basis of sex in the
          admission of individuals to its training programs. Health and Human
          Services regulation implementing this requirement is 45 CFR Part 83.
          i. The Public Health Service Act, as amended, section 526, provides
          that drug abusers who are suffering from medical conditions shall not
          be discriminated against in admission or treatment because of their
          drug abuse or drug dependence, by any private or public general
          hospital that receives support in any form from any federally funded
          program. This prohibition is extended to all outpatient facilities
          receiving or benefitting from federal financial assistance by 45 CFR
          Part 84.
          j. The Public Health Service Act, as amended, section 522, provides
          that alcohol abusers and alcoholics who are suffering from medical
          conditions shall not be discriminated against in admission or
          treatment, solely because of their alcohol abuse or alcoholism, by any
          private or public general hospital that receives support in any form
          from any federally funded program. This prohibition is extended to all
          outpatient facilities receiving or benefitting from federal financial
          assistance by 45 CFR Part 84.
2. Confidentiality: The Public Health Service Act, as amended, sections 301(d)
and 543, require that certain records be kept confidential except under certain
specified circumstances and for specified purposes. Confidential records include
records of the identity, diagnosis, prognosis, or treatment of any patient that
are maintained in connection with the performance of any activity or program
relating to drug abuse prevention, i.e., drug abuse education, training,
treatment, or research, or alcoholism or alcohol abuse education, training,
treatment, rehabilitation, or research that is directly or indirectly assisted
by the federal government. Public Health Service regulations 42 CFR Parts 2 and
2a implement these requirements.
3. Lobbying Restrictions: Lobbying restrictions as required by 31 U.S.C. Section
1352, requires the Contractor to abide by this section and to place it's
language in all of it's contracts:
          a. No federal 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 federal 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 agreement, or the
          extension, continuation, renewal, amendment, or modification of any
          federal contract, grant, loan, or cooperative agreement.

                                  Page 10 of 13



                                 ATTACHMENT "A"

          b. If any funds other than federal appropriated funds have been paid
          or will be paid to any person for influencing or attempting to
          influence an officer or employee of any federal agency, a member of
          Congress, an officer or employee of Congress, or an employee of a
          member of Congress in connection with the federal contract, grant,
          loan, or cooperative agreement, the Contractor shall complete and
          submit Federal Standard Form LLL, "Disclosure Form to report
          Lobbying," in accordance with its instructions.
          c. The Contractor shall require that the language of this article be
          included in the award documents for all subcontracts and that
          subcontractors shall certify and disclose accordingly.
4. Debarment, suspension or other ineligibility: The Contractor must notify the
Department in accordance with the notification requirements specified in Article
III, section 11 of this Contract if the Contractor has been debarred within the
contract period. Debarment regulations are stated in Health and Human Services
regulation 45 CFR Part 76.
5. Environmental Impact: The National Environmental Policy Act of 1969 (NEPA)
(Public Law 91-190) establishes national policy goals and procedures to protect
and enhance the environment. NEPA applies to all federal agencies and requires
them to consider the probable environmental consequences of any major federal
activity, including activities of other organizations operating with the
concurrence or support of a federal agency. This includes grant-supported
activities under this Contract if federal funds are involved. Additional
environmental requirements include:
          a. the institution of environmental quality control measures under the
          National Environmental Policy Act of 1969 (P.L. 91-190) and Executive
          Order 11514;
          b. the notification of violating facilities pursuant to Executive
          Order 11738 (all contracts, subcontracts, and subgrants in excess of
          $100,000.00);
          c. the protection of wetlands pursuant to Executive Order 11990;
          d. the evaluation of flood hazards in floodplains in accordance with
          Executive Order 11988;
          e. the assurance of project consistency with the approved State
          management program developed under the Coastal Zone Management Act of
          1972 (16 U.S.C. Sections 1451 et seq.);
          f. the conformity of Federal actions to State (Clear Air)
          Implementation Plans under Section 176(c) of the Clear Air Act of
          1955, as amended (42 U.S.C. Section 7401 et seq.);
          g. the protection of underground sources of drinking water under the
          Safe Drinking Water Act of 1974, as amended, (P.L. 93-523),
          h. the protection of endangered species under the Endangered Species
          Act of 1973, as amended, (P.L. 93-205) and;
          i. the protection of the national wild and scenic rivers system under
          the Wild and Scenic Rivers Act of 1968 (16 U.S.C. Sections 1271 et
          seq.).
6. Human Subjects: The Public Health Service Act, section 474(a), implemented by
45 CFR Part 46, requires basic protection for human subjects involved in Public
Health Service grant supported research activities. Human subject is defined in
the regulation as "a living individual about whom an investigator (whether
professional or student) conducting research obtains data through intervention
or interaction with the individual or identifiable private information." The
regulation extends to the use of human organs, tissues, and body fluids from
individually identifiable human subjects as well as to graphic, written, or
recorded information derived from individually identifiable human subjects. The
regulation also specifies additional protection for certain classes of human
research involving fetuses, pregnant women, human in vitro fertilization, and
prisoners. However, the regulation exempts certain categories of research
involving human subjects which normally involve little or no risk. The
exemptions are listed in 45 CFR Part 46.101(b). The protection of human subjects
involved in research, development, and related activities is found in P.L.
93-348.
7. Sterilization: Health and Human Services and Public Health Service have
established certain limitations on the performance of nonemergency
sterilizations by Public Health Service grant-supported programs or projects
that are otherwise authorized to perform such sterilizations. Public Health
Service has issued regulations that establish safeguards to ensure that such
sterilizations are performed on the basis of informed consent and that the

                                  Page 11 of 13



                                 ATTACHMENT "A"

solicitation of consent is not based on the withholding of benefits. These
regulations, published at 42 CFR Part 50, Subpart B, apply to the performance of
nonemergency sterilizations on persons legally capable of consenting to the
sterilization. Federal financial participation is not available for any
sterilization procedure performed on an individual who is under the age of 21,
legally incapable of consenting to the sterilization, declared mentally
incompetent, or is institutionalized.
8. Abortions and Related Medical Services: Federal financial participation is
generally not available for the performance of an abortion in a grant-supported
health services project. For further information on this subject, consult the
regulation at 42 CFR Part 50. Subpart C.
9. Recombinant DNA and Institutional Biosafety Committees: Each institution
where research involving recombinant DNA technology is being or will be
conducted must establish a standing Biosafety Committee. Requirements for the
composition of such a committee are given in Section IV of Guidelines for
Research Involving Recombinant DNA Molecules, (49 FR 46266 or latest revision),
which also discusses the roles and responsibilities of principal investigators
and grantee institutions. Guidelines for Research Involving Recombinant DNA
Molecules and Administrative Practices Supplement should be consulted for
complete requirements for the conduct of projects involving recombinant DNA
technology.
10. Animal Welfare: The Public Health Service Policy on Humane Care and Use of
Laboratory Animals By Awardee Institutions requires that applicant organizations
establish and maintain appropriate policies and procedures to ensure the humane
care and use of live vertebrate animals involved in research activities
supported by Public Health Service. This policy implements and supplements the
U.S. Government Principles for the Utilization and Care of Vertebrate Animals
Used in Testing, Research, and Training and requires that institutions use the
Guide for the Care and Use of Laboratory Animals as a basis for developing and
implementing an institutional animal care and use program. This policy does not
affect applicable State or local laws or regulations which impose more stringent
standards for the care and use of laboratory animals. All institutions are
required to comply, as applicable, with the Animal Welfare Act as amended (7
U.S.C. 2131 et seq.) and other federal statutes and regulations relating to
animals. These documents are available from the Office for Protection from
Research Risks (OPRR), National Institutes of Health, Bethesda, MD 20892, (301)
496-7005.
11. Contract Provisions: The Contractor must include the following provisions in
its contracts, as limited by the statements enclosed within the parentheses
following each provision:
          a. administrative, contractual, or legal remedies in instances where
          contractors violate or breach contract terms, and provides for such
          sanctions and penalties as may be appropriate. (Contracts other than
          small purchases. Small purchase involve relatively simple and informal
          procurement methods that do not cost more than $100,000 in aggregate.)
          b. termination for cause and for convenience by the grantee or
          subgrantee including the manner by which it will be effected and the
          basis for settlement. (All contracts in excess of $10,000)
          c. compliance with Executive Order 11246 of September 24, 1965
          entitled "Equal Employment Opportunity," as amended by Executive Order
          11375 of October 13, 1967 and as supplemented in Department of Labor
          regulations (41 CFR Chapter 60). (All construction contracts awarded
          in excess of $10,000 by the Contractor and its contractors or
          subgrantees)
          d. compliance with the Copeland "Anti-Kickback" Act (18 U.S.C. 874) as
          supplemented in Department of Labor regulations (29 CFR Part 3). (All
          contracts and subgrants for construction or repair)
          e. compliance with the Davis-Bacon Act (40 U.S.C. 276a to a-7) as
          supplemented by Department of Labor regulations (29 CFR Part 5).
          (Construction contracts in excess of $2,000 awarded when required by
          Federal grant program legislation)
          f. compliance with the Contract Work Hours and Safety Standards Act,
          sections 103 and 107, (40 U.S.C. 327-330) as supplemented by
          Department of Labor regulations (29 CFR Part 5). (Construction
          contracts awarded in excess of $2,000, and in excess of $2,500 for
          other contracts which involve the employment of mechanics or laborers)
          g. notice of the federal awarding agency requirements and regulations
          pertaining to reporting.
          h. notice of federal awarding agency requirements and regulations
          pertaining to patent rights with

                                  Page 12 of 13



                                 ATTACHMENT "A"

          respect to any discovery or invention which arises or is developed in
          the course of or under such contract.
          i. federal awarding agency requirements and regulations pertaining to
          copyrights and rights in data.
          j. access by the Department, the Contractor, the Federal funding
          agency, the Comptroller General of the United States, or any of their
          duly authorized representatives to any books, documents, papers, and
          records of the contractor which are directly pertinent to that
          specific contract for the purpose of making audit, examination,
          excerpts, and transcriptions.
          k. compliance with all applicable standards, orders, or requirements
          of the Clear Air Act, section 306, (42 U.S.C. 1857(h)), the Clean
          Water Act, section 508, (33 U.S.C. 1368), Executive Order 11738, and
          Environmental Protection Agency regulations (40 CFR Part 15).
          (Contracts, subcontracts, and subgrants of amounts in excess of
          $100,000)
          1. mandatory standards and policies relating to energy efficiency
          which are contained in the state energy conservation plan issued in
          compliance with the Energy Policy and Conservation Act (Pub. L.
          94-163).

12. (Governmental entities only) Merit System Standards: The Intergovernmental
Personnel Act of 1970 (42 U.S.C. Section 4728-4763), requires adherence to
prescribed standards for merit systems funded with federal funds.
13. Misconduct in Science: The United States Public Health Service requires
certain levels of ethical standards for all PHS grant-supported projects and
requires recipient institutions to inquire into, investigate and resolve all
instances of alleged or apparent misconduct in science. Issues involving
potential criminal violations must be promptly reported to the HHS Office of
Inspector General. (See regulations in 42 CFR Part 50, Subpart A)

                            END OF GENERAL PROVISIONS

                                  Page 13 of 13



                        ATTACHMENT B - SPECIAL PROVISIONS

                                                                                                                
Article I - Definitions ........................................................................................   1
          Advance Directives ...................................................................................   1
          Balance Bill .........................................................................................   1
          CHEC Eligible ........................................................................................   1
          CHEC Program .........................................................................................   1
          Division of Health Care Financing ....................................................................   1
          Emergency Services ...................................................................................   1
          Enrollee .............................................................................................   1
          Enrollment Area ......................................................................................   2
          Family Member ........................................................................................   2
          Home and Community-Based Services ....................................................................   2
          Managed Care Organization or MCO .....................................................................   2
          Marketing Material ...................................................................................   2
          Medically Necessary ..................................................................................   2
          Member Services ......................................................................................   2
          Physician Incentive Plan .............................................................................   2
          Prepaid Mental Health Plan ...........................................................................   2
          Primary Care Provider ................................................................................   3
          Restriction Program ..................................................................................   3
          State Plan ...........................................................................................   3

Article II - Service Area ......................................................................................   3

Article III - Enrollment, Orientation, Marketing, and Disenrollment ............................................   3
          A.    Enrollment Process .............................................................................   3
                1.      Enrollee Choice ........................................................................   3
                2.      Period of Enrollment ...................................................................   3
                3.      Open Enrollment ........................................................................   4
                4.      No Health Screening ....................................................................   4
                5.      Independent Enrollment .................................................................   4
                6.      Representative Population ..............................................................   4
                7.      Eligibility Transmission ...............................................................   4
                        a.      In general .....................................................................   4
                        b.      New Enrollees ..................................................................   5
                        c.      Retroactive Enrollees ..........................................................   5
                        d.      Reinstated Enrollees ...........................................................   5
                        e.      Deleted Enrollees ..............................................................   5
                        f.      Advanced Notification Transmission .............................................   5
                8.      Change of Enrollment Procedures ........................................................   5
          B.    Member Orientation .............................................................................   6
                1.      Initial Contact - General Orientation ..................................................   6
                2.      Identification of Enrollees with Special Health Care Needs .............................   6
                3.      Inability to Contact Enrollee for Orientation ..........................................   7
                4.      Enrollees Receiving Out-of-Plan Care Prior to Orientation ..............................   7
          C.    Marketing and Member Education .................................................................   7
                1.      Approval of Marketing Materials ........................................................   7
                        a.      No Door-to-Door, Telephonic, or "Cold Call" Marketing ..........................   7
                        b.      Distribution of Marketing Materials ............................................   8
                2.      Enrollee Materials Must be Comprehensible ..............................................   8
                3.      Member Handbook ........................................................................   8
                4.      Plan Card ..............................................................................   9
                5.      Notification to Enrollees of Policies and Procedures ...................................   9


                                        i




                                                                                                               
                        a.      Changes to Policies and Procedures..............................................   9
                        b.      Annual Education on Emergency Care and Grievance Procedures.....................   9
                6.      Monthly Notification to DEPARTMENT of Changes in Provider Network.......................   9
          D.    Disenrollment by Enrollee.......................................................................   9
                1.      Enrollee's Right to Disenroll...........................................................   9
                2.      Enrollee's in an Inpatient Hospital Setting.............................................  10
                3.      Annual Study of Enrollees who Disenrolled...............................................  10
          E.    Disenrollment by CONTRACTOR   ..................................................................  10
                1.      Cannot Disenroll for Adverse Change in Enrollee's Health................................  10
                2.      Valid Reasons for Disenrollment.........................................................  10
                3.      Approval by DEPARTMENT Required.........................................................  11
                4.      Enrollee's Right to File a Grievance....................................................  11
                5.      Refusal of Re-enrollment................................................................  11
          F.    Enrollee Transition Between MCOs/Health Plans...................................................  11
                1.      Must Accept Pre-enrollment Prior Authorizations.........................................  11
                2.      Must Provide Medical Records to Enrollee's New MCO......................................  11

Article IV - Benefits...........................................................................................  12
          A.    In General......................................................................................  12
          B.    Provider Services Function......................................................................  12
          C.    Scope of Services...............................................................................  12
                1.      Underwriting Risk.......................................................................  12
                2.      Responsible for all Benefits in Attachment C (Covered Services).........................  12
                3.      Changes to Benefits.....................................................................  12
          D.    Subcontracts....................................................................................  13
                1.      No Discrimination Based on License or Certification.....................................  13
                2.      Any Covered Service may be Subcontracted................................................  13
                3.      No Provisions to Reduce or Limit Medically Necessary Services...........................  13
                4.      Requirement of 60 Days Written Notice Prior to Termination of Contract..................  13
                5       Compliance with CONTRACTOR's Quality Assurance Plan.....................................  13
                6.      Unique Identifier Required..............................................................  14
                7.      Payment of Provider Claims..............................................................  14
          E.    Clarification of Covered Services...............................................................  14
                1.      Emergency Services......................................................................  14
                        a.      In General......................................................................  14
                        b.      Determining Liability for Emergency Services....................................  15
                        c.      Co-payments.....................................................................  16
                2.      Care Provided in Skilled Nursing Facilities.............................................  16
                        a.      In General: Stays Lasting 30 Days or Less.......................................  16
                        b.      Process for Stays Longer than 30 Days...........................................  16
                        c.      Process for Stays Less than 30 Days.............................................  17
                3.      Enrollees with Special Health Care Needs................................................  17
                        a.      In General......................................................................  17
                        b.      Identification..................................................................  18
                        c.      Choosing a Primary Care Provider................................................  18
                        d.      Referrals and Access to Specialty Providers.....................................  18
                        e.      Survey of Enrollees with Special Health Care Needs..............................  18
                        f.      Collaboration with Other Programs...............................................  19
                        g.      Required Elements of a Case Management System...................................  19
                        h.      Hospice.........................................................................  20
                4.      Inpatient Hospital Services.............................................................  20
                5.      Maternity Stays.........................................................................  20
                        a.      The Newborns' and Mothers' Health Protection Act (NMHPA)........................  20
                        b.      Early Discharges................................................................  20
                        c.      Post-Delivery Care..............................................................  21


                                       ii




                                                                                                               
                        d.      Timely Post-Delivery Care.......................................................  21
                6.      Children in Custody of the Department of Human Services.................................  21
                        a.      In General......................................................................  21
                        b.      Schedule of Visits..............................................................  22
                7.      Organ Transplantations..................................................................  22
                        a.      In General......................................................................  22
                        b.      Specific Organ Transplantations Covered.........................................  23
                        c.      Psychosocial Assessment Required................................................  23
                        d.      Out-of-State Transplantations...................................................  23
                8.      Mental Health Services..................................................................  23
                9.      Developmental and Organic Disorders.....................................................  24
                        a.      Covered Services for Child Enrollees through Age 20.............................  24
                        b.      Covered Services for Adult Enrollees Age 21 and Older...........................  24
                        c.      Non-covered Services............................................................  24
                        d.      Responsibility of the Prepaid Mental Health Plan................................  24
                10.     Out-of-State Accessory Services.........................................................  25
                11.     Non-Contractor Prior Authorizations.....................................................  25
                        a.      Prior Authorizations - General..................................................  25
                        b.      When the CONTRACTOR has not Authorized the Service..............................  25
          F.    Clarification of Payment Responsibilities.......................................................  26
                1.      Covered Services Received Outside CONTRACTOR's Network but Paid by
                        CONTRACTOR..............................................................................  26
                2.      When Covered Services are not the CONTRACTOR's Responsibility...........................  26
                3.      The DEPARTMENT's Responsibility.........................................................  26
                4.      Covered Services Provided by the Department of Health, Division of Community
                        and Family Health Services..............................................................  26
                5.      Enrollee Transition Between MCOs, or Between Fee-For-Service and
                        CONTRACTOR..............................................................................  27
                        a.      Inpatient Hospital..............................................................  27
                        b.      Home Health Services............................................................  27
                        c.      Medical Equipment...............................................................  28
                6.      Surveys.................................................................................  28

Article V - Enrollee Rights/Services............................................................................  28
          A.    Member Services Function........................................................................  28
          B.    Enrollee Liability..............................................................................  29
          C.    General Information to be Provided to Enrollees.................................................  29
          D.    Access..........................................................................................  29
                1.      In General..............................................................................  29
                2.      Specific Provisions.....................................................................  30
                        a.      Elimination of Access Problems Caused by Geographic, Cultural and
                                Language Barriers and Physical Disabilities.....................................  30
                        b.      Interpretive Services...........................................................  30
                        c.      No Restrictions of Provider's Ability to Advise and Counsel.....................  29
                        d.      Waiting Time Benchmarks.........................................................  30
                        e.      No Delay While Coordinating Coverage with a Prepaid Mental Health
                                Plan............................................................................  31
          E.    Choice..........................................................................................  31
          F.    Coordination....................................................................................  31
                1.      In General..............................................................................  31
                2.      Prepaid Mental Health Plan..............................................................  31
          G.    Billing Enrollees...............................................................................  32
                1.      In General....... ......................................................................  32
                2.      Circumstances When an Enrollee May be Billed............................................  32
                3.      CONTRACTOR May Not Hold Enrollee's Medicaid Card........................................  33
                4.      Criminal Penalties......................................................................  33


                                       iii




                                                                                                               
Article VI - Grievance Procedures...............................................................................  33
          A.    In General......................................................................................  33
          B.    Nondiscrimination...............................................................................  33
          C.    Minimum Requirements of Grievance Procedures....................................................  33
          D.    Final Review by DEPARTMENT......................................................................  34

Article VII - Other Requirements................................................................................  34
          A.    Compliance with Public Health Service Act.......................................................  34
          B.    Compliance with OBRA'90 Provision and 42 CFR 434.28.............................................  34
          C.    Fraud and Abuse Requirements....................................................................  35
          D.    Disclosure of Ownership and Control Information.................................................  36
          E.    Safeguarding Confidential Information on Enrollees..............................................  36
          F.    Disclosure of Provider Incentive Plans..........................................................  36
          G.    Debarred or Suspended Individuals...............................................................  37
          H.    HCFA Consent Required...........................................................................  37

Article VIII - Payments.........................................................................................  38
          A.    Risk Contract...................................................................................  38
          B.    Payment Amounts.................................................................................  38
                1.      Payment Schedule........................................................................  38
                2.      Calculation of Premiums.................................................................  38
                3.      Federally Qualified Health Centers (FQHCs)..............................................  38
                4.      Time Frame for Request of Delivery Payment..............................................  38
                5.      Contract Maximum........................................................................  38
          C.    Medicare........................................................................................  39
                1.      Payment of Medicare Part B Premiums.....................................................  39
                2.      Payment of Medicare Deductible and Coinsurance..........................................  39
                3.      Must Not Balance Bill Enrollees.........................................................  39
          D.    Third Party Liability (Coordination of Benefits)................................................  39
                1.      TPL Collections.........................................................................  39
                2.      Duplication of Benefits.................................................................  40
                3.      Reconciliation of Other TPL.............................................................  40
                4.      When TPL is Denied......................................................................  40
                5.      Notification of Personal Injury Cases...................................................  40
                6.      ORS to Pursue Collections...............................................................  41
                7.      Rebate of Duplicate Premiums............................................................  41
                8.      Insurance Buy-Out Program...............................................................  41
                9.      CONTRACTOR Must Pay Provider Administrative Fee for Immunizations.......................  42

          E.    Third Party Responsibility (Including Worker's Compensation)....................................  42
                1.      CONTRACTOR to Bill Usual and Customary Charges..........................................  42
                2.      Third Party's Obligation to Pay for Covered Services....................................  42
                3.      First Dollar Coverage for Accidents.....................................................  42
                4.      Notification of Stop-Loss...............................................................  42
          F.    Changes in Covered Services.....................................................................  42

Article IX - Records, Reports and Audits........................................................................  43
          A.    Federally Required Reports......................................................................  43
                1.      Financial Disclosure Report.............................................................  43
                2.      Disclosure of Ownership and Control Interest Statement..................................  43
                3.      CHEC/EPSDT Reports......................................................................  43
                        a.      CHEC/EPSDT Screenings...........................................................  43
                        b.      Immunization Data...............................................................  43


                                       iv




                                                                                                               
          B.    Periodic Reports................................................................................  43
                1.      Enrollment, Cost and Utilization Reports (Attachment E).................................  43
                2.      Semi-Annual Reports.....................................................................  44
                        a.      Organ Transplants...............................................................  44
                        b.      Obstetrical Information.........................................................  44
                        c.      Complaints and Formal Grievances................................................  44
                        d.      Aberrant Physician Behavior.....................................................  44
                3.      Quality Assurance Activities............................................................  45
                4.      HEDIS...................................................................................  45
                5.      Encounter Data..........................................................................  45
                6.      Documents Due Prior to Quality Monitoring Reviews.......................................  45
                7.      Audit of Abortions, Sterilizations and Hysterectomies...................................  46
                8.      Development of New Reports..............................................................  46
          C.    Record System Requirements......................................................................  46
          D.    Medical Records.................................................................................  46
          E.    Audits..........................................................................................  46
                1.      Right of DEPARTMENT and HCFA to Audit...................................................  46
                2.      Information to Determine Allowable Costs................................................  47
                3.      Management and Utilization Audits.......................................................  47
          F.    Independent Quality Review......................................................................  47
                1.      In General..............................................................................  47
                2.      Specific Requirements...................................................................  48
                        a.      Liaison for Routine Communication...............................................  48
                        b.      Representative to Assist with Projects..........................................  48
                        c.      Copies and On-Site Access.......................................................  48
                        d.      Format of Enrollee Files........................................................  48
                        e.      Time-frame for Providing Data...................................................  48
                        f.      Work Space for On-Site Reviews..................................................  48
                        g.      Staff Assistance During On-Site Visits..........................................  49
                        h.      Confidentiality.................................................................  49

Article X - Sanctions...........................................................................................  49

Article XI - Termination of the Contract........................................................................  50
          A.    Automatic Termination...........................................................................  50
          B.    Optional Year-End Termination ..................................................................  50
          C.    Termination for Failure to Agree Upon Rates.....................................................  50
          D.    Effect of Termination...........................................................................  50
                1.      Coverage................................................................................  50
                2.      Enrollee Not Liable for Debts of CONTRACTOR or its Subcontractors.......................  50
                3.      Information for Claims Payment..........................................................  50
                4.      Changes in Enrollment Process...........................................................  50
                5.      Hearing Prior to Termination............................................................  51
          E.    Assignment......................................................................................  51

Article XII - Miscellaneous.....................................................................................  51
          A.    Integration.....................................................................................  51
          B.    Enrollees May Not Enforce Contract..............................................................  51
          C.    Interpretation of Laws and Regulations..........................................................  51
          D.    Adoption of Rules...............................................................................  52

Article XIII - Effect of General Provisions.....................................................................  52


                                        v



                         ATTACHMENT C - COVERED SERVICES

                                                                                                                
A.        In General............................................................................................   1

B.        Hospital Services.....................................................................................   1
          1.    Inpatient Hospital..............................................................................   1
          2.    Outpatient Hospital.............................................................................   1
          3.    Emergency Department Services...................................................................   1

C.        Physician Services....................................................................................   1

D.        General Preventive Services...........................................................................   1

E.        Vision Care...........................................................................................   2

F.        Lab and Radiology Services............................................................................   2

G.        Physical and Occupational Therapy.....................................................................   2
          1.    Physical Therapy................................................................................   2
          2.    Occupational Therapy............................................................................   2

H.        Speech and Hearing Services...........................................................................   3

I.        Podiatry Services.....................................................................................   3

J.        End Stage Renal Disease - Dialysis....................................................................   3

K.        Home Health Services..................................................................................   3

L.        Hospice Services......................................................................................   3

M.        Private Duty Nursing..................................................................................   3

N.        Medical Supplies and Medical Equipment................................................................   3

O.        Abortions and Sterilizations..........................................................................   4

P.        Treatment for Substance Abuse and Dependency..........................................................   4

Q.        Organ Transplants.....................................................................................   4

R.        Other Outside Medical Services........................................................................   4

S.        Long Term Care........................................................................................   4

T.        Transportation Services...............................................................................   4

U.        Services to CHEC Enrollees............................................................................   5
          1.    CHEC Services...................................................................................   5
          2.    CHEC Policies and Procedures....................................................................   5

V.        Family Planning Services..............................................................................   5

W.        High-Risk Prenatal Services...........................................................................   6
          1.    In General - Ensure Service are Appropriate and Coordinated.....................................   6


                                       vi




                                                                                                               
          2.    Risk Assessment.................................................................................   6
                a.      Criteria................................................................................   6
                b.      Recommended Prenatal Screening..........................................................   6
                c.      Classification..........................................................................   6
          3.    Prenatal Initiative Program.....................................................................   8

X.        Services for Children with Special Needs..............................................................   8
          1.    In General......................................................................................   8
          2.    Services Requiring Timely Access................................................................   9
          3.    Definition of Children with Special Health Care Needs...........................................   9

Y.        Medical and Surgical Services of a Dentist............................................................  10
          1.    Who May Provide Services........................................................................  10
          2.    Universe of Covered Services....................................................................  10
          3.    Services Specifically Covered...................................................................  10
          4.    Dental Services Not Covered.....................................................................  11

Z.        Diabetes Education....................................................................................  11

AA. HIV Prevention..............................................................................................  11
          1.    General Program.................................................................................  11
          2.    Focused Program for Women.......................................................................  11

            ATTACHMENT D - QUALITY ASSURANCE & UTILIZATION MANAGEMENT

A.        Quality of Care.......................................................................................   1
          1.    In General......................................................................................   1
          2.    Required Elements of Plans......................................................................   1

B.        Internal Monitoring...................................................................................   1
          1.    In General......................................................................................   1
          2     Elements of Internal Quality Assurance Plan.....................................................   2
          3.    Demonstration of High Quality Health Care.......................................................   2

C.        Quality Assurance Monitoring..........................................................................   3
          1.    Objective.......................................................................................   3
          2.    Monitoring of Providers and Recipients Necessary to Achieve Objective...........................   3

D.        The DEPARTMENT'S Quality Assurance Monitoring Plan....................................................   3

E.        Corrective Action.....................................................................................   3
          1.    When Corrective Actions are Necessary...........................................................   3
          2.    Initial Response by CONTRACTOR..................................................................   4
          3.    Submission of Corrective Action to DEPARTMENT...................................................   4
          4.    Initial Appeal of DEPARTMENT's Findings.........................................................   5
          5.    Formal Hearing..................................................................................   5
          6.    CONTRACTOR Unwilling or Unable to Implement Corrective Action Plan..............................   6
          7.    Collection of Financial Penalties...............................................................   6

F.        Federal Sanctions for Comprehensive Contracts.........................................................   6


                                       vii



For the purpose of the Contract all article, section, and subsection headings in
these Attachments B, C, and D are for convenience in referencing the provisions
of the Contract. They are not enforceable as part of the text of the Contract
and may not be used to interpret the meaning of the provisions that lie beneath
them.

                        ATTACHMENT B - SPECIAL PROVISIONS

                             ARTICLE I - DEFINITIONS

For the purpose of the Contract:

A.   "Advance Directives" means oral and written instructions about an
     individual's medical care, in the event the individual is unable to
     communicate. There are two types of Advance Directives: a living will and a
     medical power of attorney.

B.   "Balance Bill" means the practice of billing patients for charges that
     exceed the amount that the MCO will pay.

C.   "CHEC Eligible" means any Medicaid recipient under the age of 21 who is
     eligible to receive Early Periodic Screening Diagnostic and Treatment
     (EPSDT) services in accordance with 42 CFR Part 441, Subpart B.

D.   "CHEC Program" or Child Health Evaluation and Care program is Utah's
     version of the federally mandated Early Periodic Screening, Diagnosis and
     Treatment (EPSDT) program as defined in 42 CFR Part 441, Subpart B. (See
     Attachment C, Covered Services, 21.)

E.   "Division of Health Care Financing" or "DHCF" means the division within the
     Department of Health responsible for the administration of the Utah
     Medicaid program.

F.   "Emergency Services" means those services provided in a hospital, clinic,
     office, or other facility that is equipped to furnish the required care,
     after the sudden onset of a medical condition manifesting itself by acute
     symptoms of sufficient severity (including severe pain) such that a prudent
     layperson, who possesses an average knowledge of health and medicine, could
     reasonably expect that the absence of immediate medical attention to result
     in:

     1. Placing the health of the individual (or, with respect to a pregnant
        woman, the health of a woman or her unborn child) in serious jeopardy;

     2. Serious impairment to bodily functions; or

     3. Serious dysfunction of any bodily organ or part.

G.   "Enrollee" means any Medicaid eligible: (1) who, at the time of enrollment
     resides within the geographical limits of the CONTRACTOR's Service Area;
     (2) whose name appears on the DEPARTMENT's Eligibility Transmission as a
     new, reinstate, or retroactive Enrollee; and (3) who is accepted for
     enrollment by the CONTRACTOR according to the conditions set forth in this
     Contract excluding residents of the Utah State Hospital, Utah State
     Developmental Center, and long-term care facilities except as defined in
     Attachment C.

                                  Page 1 of 52



H.   "Enrollment Area" or "Service Area" means the counties enumerated in
     Article II.

I.   "Family Member" means all Medicaid eligibles who are members of the same
     family living at home.

J.   "Home and Community-Based Services" means services, not otherwise furnished
     under the State's Medicaid plan, that are furnished under a waiver of
     statutory requirements granted under the provisions of CFR Part 441,
     subpart G. These services cover an array of Home and Community-Based
     Services that are cost-effective and necessary for an individual to avoid
     institutionalization.

K.   "Managed Care Organization" or "MCO" means an organization that meets the
     State Plan's definition of an HMO or prepaid health plan and which
     provides, either directly or through arrangement with other providers,
     comprehensive general medical services to Medicaid eligibles on a
     contractual prepayment basis.

L.   "Marketing Material" means materials in all mediums, including member
     handbooks, brochures and leaflets, newspaper, magazine, radio, television,
     billboard and yellow pages advertisements, and presentation materials used
     by marketing representatives. It includes materials mailed to, distributed
     to, or aimed at Medicaid clients specifically, and any material that
     mentions "Medicaid," "Medicaid Assistance," or "Title XIX."

M.   "Medically Necessary" means any medical service that (a) is reasonably
     calculated to prevent, diagnose, or cure conditions in the Enrollee that
     endanger life, cause suffering or pain, cause deformity or malfunction, or
     threaten to cause a handicap, and (b) there is no equally effective course
     of treatment available or suitable for the Enrollee requesting the service
     which is more conservative or substantially less costly. Medical services
     will be of a quality that meets professionally recognized standards of
     health care, and will be substantiated by records including evidence of
     such medical necessity and quality. Those records will be made available to
     the DEPARTMENT upon request. For CHEC enrollees, "Medically Necessary"
     means preventive screening services and other medical care, diagnostic
     services, treatment, and other measures necessary to correct or ameliorate
     defects and physical and mental illnesses and conditions, even if the
     services are not included in the Utah State Medicaid Plan.

N.   "Member Services" means a method of assisting Enrollees in understanding
     CONTRACTOR policies and procedures, facilitating referrals to participating
     specialists, and assisting in the resolution of problems and member
     complaints. The purpose of Member Services is to improve access to services
     and promote Enrollee satisfaction.

O.   "Physician Incentive Plan" means any compensation between a contracting
     organization and a physician group that may directly or indirectly have the
     effect of reducing or limiting services provided with respect to Enrollees
     in the organization.

P.   "Prepaid Mental Health Plan" means the mental health centers that contract
     with the DEPARTMENT to provide inpatient and outpatient mental health
     services to Medicaid clients living within each mental health center's
     jurisdiction.

                                  Page 2 of 52



Q.   "Primary Care Provider" or "PCP" means a health care provider the majority
     of whose practice is devoted to internal medicine, family/general practice
     or pediatrics. The MCO may allow other specialists to be PCPs, when
     appropriate. PCPs are responsible for delivering primary care services,
     coordinating and managing Enrollees' overall health and, authorizing
     referrals for other necessary care.

R.   "Restriction Program" means the Federally mandated program (42 CFR
     431.54(e)) for Medicaid clients who over-utilize Medicaid services. If the
     DEPARTMENT in conjunction with the CONTRACTOR finds that an Enrollee has
     utilized Medicaid services at a frequency or amount that is not Medically
     Necessary, as determined in accordance with utilization guidelines adopted
     by the DEPARTMENT, the DEPARTMENT may place the Enrollee under the
     Restriction Program for a reasonable period of time to obtain Medicaid
     services from designated providers only.

S.   "State Plan" means the State Plan for organization and operation of the
     Medicaid program as defined pursuant to Section 1102 of the Social Security
     Act (42 U.S.C. 1302).

                            ARTICLE II - SERVICE AREA

The Service Area is limited to the urban counties of Davis, Salt Lake, Utah and
Weber.

       ARTICLE III - ENROLLMENT, ORIENTATION, MARKETING, AND DISENROLLMENT

A.   ENROLLMENT PROCESS

     1.   ENROLLEE CHOICE

          The DEPARTMENT will offer potential Enrollees a choice among all MCOs
          available in the Enrollment Area. The DEPARTMENT will inform potential
          Enrollees of Medicaid benefits. The Medicaid client's intent to enroll
          is established when the applicant selects The CONTRACTOR, either
          verbally or by signing a choice of health care delivery form or
          equivalent. This initiates the action to send an advance notification
          to the CONTRACTOR. Medicaid Enrollees made eligible for a retroactive
          period prior to the current month are not eligible for CONTRACTOR
          enrollment during the retroactive period.

     2.   PERIOD OF ENROLLMENT

          Each Enrollee will be enrolled for the period of the Contract or the
          period of Medicaid eligibility or until such person disenrolls or is
          disenrolled, whichever is earlier. Until the DEPARTMENT notifies the
          CONTRACTOR that an Enrollee is no longer Medicaid eligible, the
          CONTRACTOR may assume that the Enrollee continues to be eligible. Each
          Enrollee will be automatically re-enrolled at the end of each month
          unless that Enrollee notifies the DEPARTMENT's Health Program
          Representative of an intent not to re-enroll in the MCO prior to the
          benefit issuance date.

                                  Page 3 of 52



     3.   OPEN ENROLLMENT

          The CONTRACTOR will have a continuous open enrollment period that
          meets the requirements of Section 1301(d) of the Public Health Service
          Act. The DEPARTMENT will certify, and the CONTRACTOR agrees to accept
          individuals who are eligible to be enrolled in the MCO under the
          provisions of this Contract:

          a. in the order in which they apply; and

          b. without restrictions unless authorized by the DEPARTMENT.

     4.   NO HEALTH SCREENING

          The DEPARTMENT and the CONTRACTOR agree that no potential Enrollee
          will be pre-screened or selected by either party for enrollment on the
          basis of pre-existing health problems or on the basis of race, color,
          national origin, disability or age.

     5.   INDEPENDENT ENROLLMENT

          Each Medicaid eligible can be enrolled or disenrolled in the MCO,
          independent of any other Family Member's enrollment or disenrollment.

     6.   REPRESENTATIVE POPULATION

          The CONTRACTOR will service a population representative of the
          categories of eligibility within the area it serves.

     7.   ELIGIBILITY TRANSMISSION

          a.   IN GENERAL

               Before the close of business of each day, the DEPARTMENT will
               provide to the CONTRACTOR an Eligibility Transmission which is an
               electronic file that includes individuals which the DEPARTMENT
               certifies as Medicaid eligible and who enrolled in the MCO.
               Eligibility transmissions include new Enrollees, reinstated
               Enrollees, retroactive Enrollees, deleted Enrollees and Enrollees
               whose eligibility information results in a change to a critical
               field. The Eligibility Transmission will be in accordance with
               the Utah Health Information Network (UHIN) standard. The
               DEPARTMENT represents and warrants to the CONTRACTOR that the
               appearance of an individual's name on the Eligibility
               Transmission, other than a deleted Enrollee, will be conclusive
               evidence for purposes of this Contract, that such person is
               enrolled in the program and qualifies for medical assistance
               under Medicaid Title XIX and that the DEPARTMENT agrees to pay
               premiums for such Enrollees.

                                  Page 4 of 52



          b.   NEW ENROLLEES

               New Enrollees are enrolled in this MCO until otherwise specified;
               these Enrollees will not appear on future transmissions unless
               there is a change in a critical field. Critical fields are
               coverage dates, recipient name, date of birth, date of death,
               sex, social security number, case information, address, telephone
               number, payment code, coordination of benefits, and the
               Enrollee's provider under the Restriction Program. Enrollees with
               a spenddown requirement will appear on the eligibility
               transmission on a month by month basis after the spenddown is
               met.

          c.   RETROACTIVE ENROLLEES

               Retroactive Enrollees are those who were Enrollees previous to
               the current month. Retroactive Enrollees include newborn
               Enrollees or Enrollees who have been reported in one payment
               category in a previous month but have been changed to a new
               payment category for that previous month.

          d.   REINSTATED ENROLLEES

               Reinstated Enrollees are those who were enrolled for the previous
               month and also closed at the end of the previous month. These
               Enrollees are eligible retroactively to the beginning of the
               current month.

          e.   DELETED ENROLLEES

               Deleted Enrollees are those who are no longer eligible for
               Medicaid or who were disenrolled from the MCO.

          f.   ADVANCED NOTIFICATION TRANSMISSION

               An Advanced Notification Transmission is another electronic file
               (separate from the Eligibility Transmission) that will be sent to
               the CONTRACTOR when an individual has selected the MCO prior to
               becoming eligible for Medicaid. These individuals may or may not
               become eligible for Medicaid. Use of information about such
               individuals is restricted to providing the individual with an
               orientation to the MCO prior to the individual's eligibility for
               Medicaid. The CONTRACTOR is not required to orient individuals
               until they appear on the Eligibility Transmission.

     8.   CHANGE OF ENROLLMENT PROCEDURES

          The CONTRACTOR will be advised of anticipated changes in DEPARTMENT
          policies and procedures as they relate to the enrollment process and
          their comments will be solicited. The CONTRACTOR agrees to be bound by
          such changes in DEPARTMENT policies and procedures that are mutually
          agreed upon by the CONTRACTOR and the DEPARTMENT.

                                  Page 5 of 52



B.   MEMBER ORIENTATION

     1.   INITIAL CONTACT - GENERAL ORIENTATION

          The CONTRACTOR will make a good faith effort to ensure that each
          Enrollee or Enrollee's family or guardian receives the CONTRACTOR's
          member handbook. The CONTRACTOR Representative will make a good faith
          effort, as evidenced in written or electronic records, to make an
          initial contact with the Enrollee within 10 working days after the
          CONTRACTOR has been notified through the Eligibility Transmission of
          the Enrollee's MCO enrollment. The initial contact will be in person
          or by telephone (or in writing, but only if reasonable attempts have
          been made to make the contact in person by telephone) and will inform
          the Enrollee of the MCO rules and policies. The CONTRACTOR must ensure
          that Enrollees are provided interpreters, Telecommunication Device for
          the Deaf (TDD), and other auxiliary aids to ensure that Enrollees
          understand their rights and responsibilities. During the initial
          contact the CONTRACTOR Representative will provide, at a minimum, the
          following information to the Enrollee or potential Enrollee:

          a.   specific written and oral instructions on the use of the
               CONTRACTOR's Covered Services and procedures;

          b.   availability and accessibility of all Covered Services, including
               the availability of family planning services and that the
               Enrollee may obtain family planning services from Medicaid
               providers other than providers affiliated with the CONTRACTOR;

          c.   the client's rights and responsibilities as an Enrollee of the
               Health Plan, including the right to file a grievance and how to
               file a grievance;

          d.   the right to terminate enrollment with the MCO; and

          e.   encouragement to make a medical appointment with a CONTRACTOR
               provider.

     2.   IDENTIFICATION OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          During the initial contact with each Enrollee the CONTRACTOR
          representative will use a process that will identify children and
          adults with special health care needs. The CONTRACTOR representative
          will clearly describe to each Enrollee during the initial contact the
          process for requesting specialist care. When an Enrollee is identified
          as having special health care needs, the CONTRACTOR Representative
          will forward this information to a CONTRACTOR individual with
          knowledge of coordination of care and services necessary for such
          Enrollees. The CONTRACTOR individual with knowledge of coordination of
          care for Enrollees with special health care needs will make a good
          faith effort to contact Enrollees within ten working days after
          identification to begin coordination of health care needs, if
          necessary. The CONTRACTOR will not discriminate on the basis of health
          status or the need for health care services.

                                  Page 6 of 52



          The DEPARTMENT's Health Program Representatives are responsible to
          forward information, i.e., pink sheets identifying Enrollees with
          special health care needs and limited language proficiency needs to
          the CONTRACTOR in a timely way coinciding with the daily Eligibility
          Transmission as much as possible.

     3.   INABILITY TO CONTACT ENROLLEE FOR ORIENTATION

          If the CONTRACTOR Representative cannot contact the Enrollee within 10
          working days or at all, the CONTRACTOR Representative will document
          its efforts to contact the Enrollee.

     4.   ENROLLEES RECEIVING OUT-OF-PLAN CARE PRIOR TO ORIENTATION

          If the Enrollee receives Covered Services by an out-of-plan provider
          after the first day of the month in which the client's enrollment
          became effective, and if a CONTRACTOR orientation either in-person or
          by telephone (or in writing, but only if reasonable attempts have been
          made to make the contact in person or by telephone) has not taken
          place prior to receiving such services, the CONTRACTOR is responsible
          for payment of the services rendered provided the DEPARTMENT informs
          the CONTRACTOR by the 20th of any month prior to the month that MCO
          enrollment begins.

C.   MARKETING AND MEMBER EDUCATION

     1.   APPROVAL OF MARKETING MATERIALS

          The CONTRACTOR's marketing plans, procedures and materials will be
          accurate, and may not mislead, confuse, or defraud either Enrollees or
          the DEPARTMENT. All Medicaid marketing plans, procedures and materials
          will be reviewed and approved by the DEPARTMENT in consultation with
          the Medical Care Advisory Committee for Marketing Review before
          implemented or released by the CONTRACTOR. The DEPARTMENT will notify
          the CONTRACTOR of its approval or disapproval, in writing, of such
          materials within ten working days after receiving them unless the
          DEPARTMENT and the CONTRACTOR agree to another time frame. If the
          DEPARTMENT does not respond within the agreed upon time frame, the
          CONTRACTOR shall deem such materials approved. Marketing materials
          will not be approved if the DEPARTMENT determines that the material is
          materially inaccurate or misleading or otherwise makes material
          misrepresentations. Health education materials and newsletters not
          specifically related to Enrollees do not need to be approved by the
          DEPARTMENT.

          a.   NO DOOR-TO-DOOR, TELEPHONIC, OR "COLD CALL" MARKETING

               The Contractor cannot, either directly or indirectly, conduct
               door-to-door, telephonic or "cold call" marketing of enrollment.
               These three marketing practices are prohibited whether conducted
               by the Health Plan itself ("directly") or by an agent or
               independent contractor ("indirectly"). Cold call marketing is any
               unsolicited personal contact with a potential enrollee by an
               employee or agent of a managed care entity for the purpose of
               influencing the individual to

                                  Page 7 of 52



               enroll with the Health Plan. The Contractor may not entice a
               potential enrollee to join the Health Plan by offering the sale
               of any other type of insurance as a bonus for enrollment. All
               other non-requested marketing approaches to Medicaid clients by
               the CONTRACTOR are also prohibited unless specifically approved
               in advance by the DEPARTMENT.

          b.   DISTRIBUTION OF MARKETING MATERIALS

               Marketing materials must be distributed to the entire Service
               Area.

     2.   ENROLLEE MATERIALS MUST BE COMPREHENSIBLE

          The CONTRACTOR will attempt to write all Enrollee and potential
          enrollee information, instructional and educational materials,
          including member handbooks, at no greater than a sixth grade reading
          level. If the MCO has more than 5% of its Enrollees who speak a
          language other than English as a first language, the CONTRACTOR must
          make available written material (e.g. member handbooks, educational
          newsletters) in that language. Marketing materials must include a
          statement that the CONTRACTOR does not discriminate against any
          Enrollee on the basis of race, color, national origin, disability, or
          age in admission, treatment, or participation in its programs,
          services and activities. In addition, the materials must include the
          phone number of the nondiscrimination coordinator for Enrollees to
          call if they have questions about the nondiscrimination policy or
          desire to file a complaint or grievance alleging violations of the
          nondiscrimination policy.

     3.   MEMBER HANDBOOK

          The CONTRACTOR will produce a member handbook that must be submitted
          to the DEPARTMENT for review and approval before distribution. The
          DEPARTMENT will notify the CONTRACTOR in writing of its approval or
          disapproval within ten working days after receiving the member
          handbook unless the DEPARTMENT and CONTRACTOR agree to another time
          frame. If the DEPARTMENT does not respond within the agreed upon time
          frame, the CONTRACTOR may deem such materials are approved. If there
          are changes to the content of the material in the handbook, the
          CONTRACTOR must update the member handbook and submit a draft to the
          DEPARTMENT for review and approval before distribution to its
          Enrollees. At a minimum, the member handbook must explain in clear
          terms the following information:

          a.   The scope of benefits provided by the MCO;
          b.   Instructions on where and how to obtain Covered Services,
               including referral requirements;
          c.   Instructions on what to do in an emergency or urgent medical
               situation, including emergency numbers;
          d.   Enrollee options on obtaining family planning services;
          e.   Instructions on how to choose a PCP and how to change PCPs;
          f.   Description on Enrollee cost-sharing requirements (if
               applicable);
          g.   Toll-free telephone number;
          h.   Description of Member Services function;

                                  Page 8 of 52



          i.   How to register a complaint or grievance;
          j.   Information on Advance Directives;
          k.   Services covered by Medicaid, but not covered by the CONTRACTOR;
          1.   Clients' rights and responsibilities;
          m.   A statement that the Contractor does not discriminate against any
               Enrollee on the basis of race, color, national origin,
               disability, or age in admission, treatment, or participation in
               its programs, services and activities; and
          n.   The phone number of the nondiscrimination coordinator for
               Enrollees to call if they have questions about the
               nondiscrimination policy or desire to file a complaint or
               grievance alleging violations of the nondiscrimination policy.

     4.   PLAN CARD

          The CONTRACTOR must issue a generic plan card to all Enrollees
          listing, at a minimum, the name of the MCO and a toll-free number that
          is available to Enrollees twenty-four hours a day, seven days a week.
          The CONTRACTOR must issue the generic plan card to new enrollees
          within fifteen business days after the DEPARTMENT notifies the
          CONTRACTOR of the Medicaid client's enrollment.

     5.   NOTIFICATION TO ENROLLEES OF POLICIES AND PROCEDURES

          a.   CHANGES TO POLICIES AND PROCEDURES

               The CONTRACTOR must periodically notify Enrollees, in writing, of
               changes to its plan such as changes to its policies or procedures
               either through a newsletter or other means.

          b.   ANNUAL EDUCATION ON EMERGENCY CARE AND GRIEVANCE PROCEDURES

               The CONTRACTOR must annually reinforce, in writing, to Enrollees
               how to access emergency and urgent services and how to register a
               complaint or grievance.

     6.   MONTHLY NOTIFICATION TO DEPARTMENT OF CHANGES IN PROVIDER NETWORK

          The CONTRACTOR must notify the DEPARTMENT at least monthly of changes
          in its provider network so that the DEPARTMENT can ensure its listing
          of providers is accurate.

D.   DISENROLLMENT BY ENROLLEE

     1.   ENROLLEE'S RIGHT TO DISENROLL

          Enrollees will have the right to disenroll from this MCO at any time
          with or without cause. The disenrollment will be effective once the
          DEPARTMENT has been notified by the Enrollee and the DEPARTMENT issues
          a new Medicaid card and the disenrollment is indicated on the
          Eligibility Transmission.

                                  Page 9 of 52



     2.   ENROLLEES IN AN INPATIENT HOSPITAL SETTING

          The DEPARTMENT agrees that if a new Enrollee is a patient in an
          inpatient hospital setting on the date the new Enrollee's name appears
          on the CONTRACTOR Eligibility Transmission, the obligation of the
          CONTRACTOR to provide Covered Services to such person will commence
          following discharge. If an Enrollee is a patient in an inpatient
          hospital setting on the date that his or her name appears as a deleted
          Enrollee on the CONTRACTOR Eligibility Transmission or he or she is
          otherwise disenrolled under this Contract, the CONTRACTOR will remain
          financially responsible for such care until discharge.

     3.   ANNUAL STUDY OF ENROLLEES WHO DISENROLLED

          Annually, the DEPARTMENT and CONTRACTOR will work cooperatively to
          conduct an analysis of Enrollees who have voluntarily disenrolled from
          this MCO. The results of the analysis will include explanations of
          patterns of disenrollments and strategies or a corrective action plan
          to address unusual rates or patterns of disenrollment. The DEPARTMENT
          will inform the CONTRACTOR of such disenrollments.

E.   DISENROLLMENT BY CONTRACTOR

     1.   CANNOT DISENROLL FOR ADVERSE CHANGE IN ENROLLEE'S HEALTH

          The CONTRACTOR may not terminate enrollment because of an adverse
          change in the Enrollee's health.

     2.   VALID REASONS FOR DISENROLLMENT

          The CONTRACTOR may initiate disenrollment of any Enrollee's
          participation in the MCO upon one or more of the following grounds:

          a.   For reasons specifically identified in the CONTRACTOR's member
               handbook.
          b.   When the Enrollee ceases to be eligible for medical assistance
               under the State Plan, in accordance with Title 42 USCA, 1396,
               et. seq., and as finally determined by the DEPARTMENT.
          c.   Upon termination or expiration of the Contract.
          d.   Death of the Enrollee.
          e.   Confinement of the Enrollee in an institution when confinement
               is not a Covered Service under this Contract.
          f.   Violation of enrollment requirements developed by the CONTRACTOR
               and approved by the DEPARTMENT but only after the CONTRACTOR
               and/or the Enrollee has exhausted the CONTRACTOR's applicable
               internal grievance procedure.

                                  Page 10 of 52



     3.   APPROVAL BY DEPARTMENT REQUIRED

          To initiate disenrollment of an Enrollee's participation with this
          MCO, the CONTRACTOR will provide the DEPARTMENT with documentation
          justifying the proposed disenrollment. The DEPARTMENT will approve or
          deny the disenrollment request in writing within thirty (30) days of
          receipt of the request. Failure by the DEPARTMENT to deny a
          disenrollment request within such thirty (30) day period will
          constitute approval of such disenrollment requests.

     4.   ENROLLEE'S RIGHT TO FILE A GRIEVANCE

          If the DEPARTMENT approves the CONTRACTOR's disenrollment request, the
          CONTRACTOR will give the Enrollee thirty (30) days written notice of
          the proposed disenrollment, and will notify the Enrollee of his or her
          opportunity to invoke the internal grievance procedure and appeals
          process for a fair hearing. The CONTRACTOR will give a copy of the
          written notice to the DEPARTMENT at the time the notice is sent to the
          Enrollee.

     5.   REFUSAL OF RE-ENROLLMENT

          If a person is disenrolled because of violation of responsibilities
          included in the CONTRACTOR's member handbook, the CONTRACTOR may
          refuse re-enrollment of that Enrollee.

F.   ENROLLEE TRANSITION BETWEEN MCOS/HEALTH PLANS

     1.   MUST ACCEPT PRE-ENROLLMENT PRIOR AUTHORIZATIONS

          For Covered Services other than inpatient, home health services, and
          medical equipment, if authorization has been given for a Covered
          Service and an enrollee transitions between MCOs prior to the delivery
          of such Covered Service, the receiving MCO shall be bound by the
          relinquishing MCO's prior authorization until the receiving MCO has
          evaluated the Enrollee and a new plan of care is established with the
          MCO provider. (See Article IV, Benefits, Section F, Clarification of
          Payment Responsibilities, Subsection 5, for inpatient, home health
          services, and medical equipment explanations.)

     2.   MUST PROVIDE MEDICAL RECORDS TO ENROLLEE'S NEW MCO

          When enrollees are transitioned between MCOs the relinquishing MCO
          provider will submit, upon request of the new MCO provider, any
          critical medical information about the transitioning enrollee prior to
          the transition including, but not limited to, whether the member is
          hospitalized, pregnant, involved in the process of organ
          transplantation, scheduled for surgery or post-surgical follow-up on a
          date subsequent to transition, scheduled for prior-authorized
          procedures or therapies on a date subsequent to transition, receiving
          dialysis or is chronically ill (e.g. diabetic, hemophilic, HIV
          positive).

                                  Page 11 of 52



                              ARTICLE IV - BENEFITS

A.   IN GENERAL

     The CONTRACTOR will provide to Enrollees under this Contract, directly or
     through arrangements with subcontractors, all Medically Necessary Covered
     Services described in Attachment C as promptly and continuously as is
     consistent with generally accepted standards of medical practice. The
     CONTRACTOR provider will follow generally accepted standards of medical
     care in diagnosing Enrollees who request services from the CONTRACTOR.

B.   PROVIDER SERVICES FUNCTION

     The CONTRACTOR must operate a Provider Services function during regular
     business hours. At a minimum, Provider Services staff must be responsible
     for the following:

     1.   Training, including ongoing training, of network providers and
          subcontracting providers in Medicaid rules and regulations that will
          enable providers to appropriately provide services to Enrollees;

     2.   Assisting providers to verify whether an individual is enrolled
          with the MCO;

     3.   Assisting providers with prior authorization and referral
          protocols;

     4.   Assisting providers with claims payment procedures;

     5.   Fielding and responding to provider questions and complaints and
          grievances.

C.   SCOPE OF SERVICES

     1.   UNDERWRITING RISK

          In consideration of the premiums paid by the DEPARTMENT, the
          CONTRACTOR will, for all Enrollees, assume underwriting risk for
          Covered Services in Attachment C.

     2.   RESPONSIBLE FOR ALL BENEFITS IN ATTACHMENT C (COVERED SERVICES)

          Except as otherwise provided for cases of Emergency Services, the
          CONTRACTOR has the exclusive right and responsibility to arrange for
          all benefits listed in Attachment C. The CONTRACTOR is responsible for
          payment of Emergency Services 24 hours a day and 7 days a week whether
          the service was provided by a network or out-of-network provider and
          whether the service was provided in or out of the CONTRACTOR's Service
          Area.

     3.   CHANGES TO BENEFITS

          Amendments, revisions, or additions to the State Plan or to State or
          Federal regulations, guidelines, or policies and court or
          administrative orders will, insofar as they affect the scope or nature
          of benefits available to Enrollees, be amendments to the Covered

                                  Page 12 of 52



          Services under Attachment C. The DEPARTMENT will notify the
          CONTRACTOR, in writing, of any such changes and their effective date.
          Rate adjustments, when appropriate, will be negotiated between the
          DEPARTMENT and the CONTRACTOR.

D.   SUBCONTRACTS

     1.   NO DISCRIMINATION BASED ON LICENSE OR CERTIFICATION

          The CONTRACTOR shall not discriminate against providers with respect
          to participation, reimbursement, or indemnification as to any provider
          who is acting within the scope of that provider's license or
          certification under applicable State law solely on the basis of the
          provider's license or certification.

     2.   ANY COVERED SERVICE MAY BE SUBCONTRACTED.

          Any Covered Service may be subcontracted. All subcontracts will be in
          writing and will include the general requirements of this Contract
          that are appropriate to the service or activity including
          confidentiality requirements and will assure that all duties of the
          CONTRACTOR under this Contract are performed. No subcontract
          terminates the legal responsibility of the CONTRACTOR to the
          DEPARTMENT to assure that all activities under this Contract are
          carried out. The CONTRACTOR will make all subcontracts available upon
          request.

     3.   NO PROVISIONS TO REDUCE OR LIMIT MEDICALLY NECESSARY SERVICES

          The CONTRACTOR will ensure that subcontractors abide by the
          requirements of Section 1128(b) of the Social Security Act prohibiting
          the CONTRACTOR and other such providers from making payments directly
          or indirectly to a physician or other provider as an inducement to
          reduce or limit Medically Necessary services provided to Enrollees.

     4.   REQUIREMENT OF 60 DAYS WRITTEN NOTICE PRIOR TO TERMINATION OF
          CONTRACT

          All subcontracts and agreements will include a provision stating that
          if either party (the subcontractor or CONTRACTOR) wishes to terminate
          the subcontract or agreement, whichever party initiates the
          termination will give the other party written notice of termination at
          least 60 calendar days prior to the effective termination date. The
          CONTRACTOR will notify the DEPARTMENT of the termination on the same
          day that the CONTRACTOR either initiates termination or receives the
          notice of termination from the subcontractor.

     5.   COMPLIANCE WITH CONTRACTOR'S QUALITY ASSURANCE PLAN

          All CONTRACTOR providers must be aware of the CONTRACTOR's Quality
          Assurance Plan and activities. All subcontracts with the CONTRACTOR
          must include a requirement securing cooperation with the CONTRACTOR's
          Quality Assurance Plan and activities and must allow the CONTRACTOR
          access to the subcontractor's medical records of its Enrollees.

                                  Page 13 of 52



     6.   UNIQUE IDENTIFIER REQUIRED

          All physicians who provide services under this Contract must have a
          unique identifier in accordance with the system established under
          section 1173(b) of the Social Security Act and in accordance with the
          Health Insurance Portability and Accountability Act.

     7.   PAYMENT OF PROVIDER CLAIMS

          The CONTRACTOR must pay its participating providers and subcontractors
          on a timely basis consistent with the claims payment procedures
          described in section 1902(a)(37)(A) of the Social Security Act and the
          implementing Federal regulation at 42 CFR 447.45, unless the health
          care provider and the Health Plan agree to an alternate payment
          schedule. The Contractor must ensure that 90 percent of claims for
          payment (for which no further written information or substantiation is
          required in order to make payment) made for Covered Services and
          furnished by subcontracting providers are paid within 30 days of
          receipt of such claims and that 99 percent of such claims are paid
          within 90 days of the date of receipt of such claims.

E.   CLARIFICATION OF COVERED SERVICES

     1.   EMERGENCY SERVICES

          a.   IN GENERAL

               The Health Plan must provide coverage for Emergency Services
               without regard to prior authorizations or the emergency care
               provider's contractual relationship with the MCO. MCOs must
               inform their enrollees that access to emergency services is not
               restricted and that if an enrollee experiences a medical
               emergency, he or she may obtain services from a non-plan
               physician or other qualified provider, without penalty. However,
               the MCO may require the enrollee to notify the MCO within a
               specified time after the Enrollee's condition is stabilized, and
               may require the enrollee to obtain prior authorization for any
               follow-up care delivered pursuant to the emergency. The
               CONTRACTOR must comply with Medicare guidelines for
               post-stabilization of care.

               The CONTRACTOR must pay for services where the presenting
               symptoms are of sufficient severity that a person with average
               knowledge of health and medicine would reasonably expect the
               absence of immediate medical attention to result in (I) placing
               the health of the individual (or, with respect to a pregnant
               woman, the health of a woman or her unborn child) in serious
               jeopardy; serious impairment to bodily functions; or serious
               dysfunction of any bodily organ or part.

               The CONTRACTOR may not retroactively deny a claim for an
               emergency screening examination because the condition, which
               appeared to be an emergency medical condition under the prudent
               layperson standard, turned out to be non-emergency in nature.

                                  Page 14 of 52



          b.   DETERMINING LIABILITY FOR EMERGENCY SERVICES

               1)   Presence of a clinical emergency

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

               2)   Emergency services continue until the Enrollee can be safely
                    discharged or transferred

                    The CONTRACTOR must pay for all emergency services that are
                    Medically Necessary until the clinical emergency is
                    stabilized. This includes all treatment that may be
                    necessary to assure, within reasonable medical probability,
                    that no material deterioration of the Enrollee's condition
                    is likely to result from, or occur during, discharge of the
                    Enrollee or transfer of the Enrollee to another facility. If
                    there is a disagreement between a hospital and the
                    CONTRACTOR concerning whether the Enrollee is stable enough
                    for discharge or transfer, or whether the medical benefits
                    of an unstabilized transfer outweigh the risks, the
                    judgement 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 own physicians with appropriate ER privileges to
                    assume the attending physician's responsibilities to
                    stabilize, treat, and transfer the Enrollee.

               3)   Absence of a clinical emergency

                    If the screening examination leads to a clinical
                    determination by the examining physician that an actual
                    emergency medical condition did not exist, then the
                    determining factor for payment liability should be whether
                    the Enrollee had acute symptoms of sufficient severity at
                    the time of presentation. In these cases, the CONTRACTOR
                    must review the presenting symptoms of the Enrollee and must
                    pay for all services involved in the screening examination
                    where the presenting symptoms (including severe pain) were
                    of sufficient severity to have warranted emergency attention
                    under the prudent layperson standard.

               4)   Referrals

                    When an Enrollee's Primary Care Physician or other plan
                    representative instructs the Enrollee to seek emergency care
                    in or out of network, the CONTRACTOR is responsible for
                    payment of the medical screening examination and for other
                    Medically Necessary emergency services, without regard to
                    whether the Enrollee meets the prudent layperson standard.

                                  Page 15 of 52



          c.   CO-PAYMENTS

               The CONTRACTOR may impose a co-payment of $[*] (or the amount
               Medicaid imposes on fee-for-service Medicaid clients) on
               Enrollees for non-emergency use of the emergency room and who are
               not exempt from being charged a co-payment. Those Enrollees who
               are exempt from liability for a co-payment are children under the
               age of 18 and women who are pregnant.

     2.   CARE PROVIDED IN SKILLED NURSING FACILITIES

          a.   IN GENERAL: STAYS LASTING 30 DAYS OR LESS

               The CONTRACTOR may provide long term care for Enrollees in
               skilled nursing facilities and then reimburse such facilities
               when the plan of care includes a prognosis of recovery and
               discharge within 30 days. It is the responsibility of a
               CONTRACTOR physician to make the determination if the patient
               will require the services of a nursing facility for fewer or
               greater than 30 days.

          b.   PROCESS FOR STAYS LONGER THAN 30 DAYS

               When the prognosis of an Enrollee indicates that long term care
               greater than 30 days will be required, the following process will
               occur:

               1)   The CONTRACTOR will notify the Enrollee, hospital discharge
                    planner, and nursing facility that the CONTRACTOR will not
                    be responsible for the services provided for the Enrollee
                    during the stay at the skilled nursing facility.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care, of this determination to suspend premium
                    payment for that Enrollee.

               3)   If the CONTRACTOR incurs expenses, the Bureau of Managed
                    Health Care will determine if the CONTRACTOR will retain the
                    premium for the month during which the Enrollee is admitted
                    to the skilled nursing facility. If the CONTRACTOR does not
                    incur expenses during the month in which the Enrollee is
                    admitted to a skilled nursing facility, the Bureau of
                    Managed Health Care will retract from the CONTRACTOR the
                    premium for that Enrollee.

               4)   Retraction of the premium payment will be subject to "3"
                    above, but the Eligibility Transmission will indicate the
                    non-payment on the first day of the month following the
                    prognosis determination of greater than 30 days.
               5)   Premium payment to the CONTRACTOR will recommence beginning
                    the first full month that the Enrollee is no longer residing
                    in the nursing facility.

                                  Page l6 of 52



          c.   PROCESS FOR STAYS LESS THAN 30 DAYS

               When the prognosis of skilled nursing facility services is
               anticipated to be less than 30 days, but during the 30-day period
               the CONTRACTOR determines that the Enrollee will require skilled
               nursing facility services for greater than 30 days, the following
               process will be in effect:

               1)   The CONTRACTOR will notify the nursing facility that a
                    determination has been made that the Enrollee will require
                    services for more than 30 days.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care, of the determination that the Enrollee will
                    require services in a nursing facility for more than 30
                    days.

               3)   If the CONTRACTOR incurs expenses for the Enrollee, the
                    Bureau of Managed Health Care will determine if the
                    CONTRACTOR will retain the premium for the month during
                    which the change in status was determined. If the CONTRACTOR
                    does not incur expenses during the month in which the change
                    in status is determined, the Bureau of Managed Health Care
                    will retract from the CONTRACTOR the premium for that
                    Enrollee.

               4)   Retraction of the premium payment will be subject to "3"
                    above, but the Recipient Subsystem will indicate the
                    non-payment on the first day of the month following the
                    prognosis determination of more than 30 days.

               5)   The CONTRACTOR will be responsible for payment for three
                    working days after the CONTRACTOR has notified the nursing
                    facility that skilled nursing care will be required for more
                    than 30 days.

               6)   Premium payment to the CONTRACTOR will recommence
                    beginning the first full month that the recipient is no
                    longer residing in the nursing facility.

     3.   ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          a.   IN GENERAL

               The CONTRACTOR will ensure there is access to all Medically
               Necessary Covered Services to meet the health needs of Enrollees
               with special health care needs. Individuals with special health
               care needs are those 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 or amount beyond that required by adults and children
               generally. Such health conditions limit physical functioning,
               activities of daily living, or social role in comparison to age
               peers.

                                  Page 17 of 52



          b.   IDENTIFICATION

               The CONTRACTOR will identify Enrollees with special health care
               needs using a process at the initial contact made by the
               CONTRACTOR Representative to educate the client and will offer
               the client care coordination or case management services. Care
               coordination services are services to assist the client in
               obtaining Medically Necessary Covered Services from the
               CONTRACTOR or another entity if the medical service is not
               covered under the Contract.

          c.   CHOOSING A PRIMARY CARE PROVIDER

               The CONTRACTOR will have a mechanism to inform care givers and,
               when appropriate, Enrollees with special health care needs about
               primary care providers who have training in caring for such
               Enrollees so that an informed selection of a provider can be
               made. The CONTRACTOR will have primary care providers with skills
               and experience to meet the needs of Enrollees with special health
               care needs. The CONTRACTOR will allow an appropriate specialist
               to be the primary care provider but only if the specialist has
               the skills to monitor the Enrollee's preventive and primary care
               services.

          d.   REFERRALS AND ACCESS TO SPECIALTY PROVIDERS

               The CONTRACTOR will ensure there is access to appropriate
               specialty providers to provide Medically Necessary Covered
               Services for adults and children with special health care needs.
               If the CONTRACTOR does not employ or contract with a specialty
               provider to treat a special health care condition at the time the
               Enrollee needs such Covered Services, the CONTRACTOR will have a
               process to allow the Enrollee to receive Covered Services from a
               qualified specialist who may not be affiliated with the
               CONTRACTOR. The CONTRACTOR will reimburse the specialist for such
               care at no less than Medicaid's rate for the service when the
               service is rendered. The process for requesting specialist's care
               will be clearly described by the CONTRACTOR and explained to each
               Enrollee during the initial contact with the Enrollee.

               If the CONTRACTOR restricts the number of referrals to
               specialists, the CONTRACTOR will not penalize those providers who
               make such referrals for Enrollees with special health care needs.

          e.   SURVEY OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

               At least bi-annually, the CONTRACTOR, in conjunction with the
               DEPARTMENT, will survey a sample of Enrollees with special health
               care needs using a national consumer assessment questionnaire, to
               evaluate their perceptions of services they have received. The
               survey process, including the survey instrument, will be a
               standardized and developed collaboratively between the DEPARTMENT
               and all contracting MCOs. The DEPARTMENT will analyze the results
               of the surveys. The results and analysis of the surveys will be
               reviewed by the CONTRACTOR's quality assurance committee for
               action.

                                  Page 18 of 52



          f.   COLLABORATION WITH OTHER PROGRAMS

               If the individual with special health care needs is enrolled in
               the Prepaid Mental Health Plan or is enrolled in any of the
               Medicaid home and community-based waiver programs and is
               receiving case management services through that program, or is
               covered by one of the other Medicaid targeted case management
               programs, the CONTRACTOR care coordinator will collaborate with
               the appropriate program person, i.e., the targeted case manager,
               etc., for that program once the program person has contacted the
               CONTRACTOR care coordinator. When necessary, the CONTRACTOR care
               coordinator will make an effort to contact the program person of
               those Enrollees who have medical needs that require such
               coordination.

          g.   REQUIRED ELEMENTS OF A CASE MANAGEMENT SYSTEM

               A case management system includes but is not limited to:

               1)   procedures and the capacity to implement the provision of
                    individual needs assessment including the screening for
                    special needs (e.g. mental health, high risk health
                    problems, functional problems, language or comprehension
                    barriers); the development of an individual treatment plan
                    as necessary based on the needs assessment; the
                    establishment of treatment objectives, treatment follow-up,
                    the monitoring of outcomes, and a process to ensure that
                    treatment plans are revised as necessary. These procedures
                    will be designed to accommodate the specific cultural and
                    linguistic needs of the Enrollee;

               2)   procedures designed to address those Enrollees, including
                    children with special health care needs, who may require
                    services from multiple providers, facilities and agencies
                    and require complex coordination of benefits and services,
                    including social services and other community resources;

               3)   a strategy to ensure that all Enrollees and/or authorized
                    Family Members or guardians are involved in treatment
                    planning and consent to the medical treatment;

               4)   procedures and criteria for making referrals and
                    coordinating care by specialists and sub-specialists that
                    will promote continuity as well as cost-effectiveness of
                    care; and

               5)   procedures to provide continuity of care for new Enrollees
                    to prevent disruption in the provision of Covered Services
                    that include, but are not limited to, appropriate case
                    management staff able to evaluate and handle individual case
                    transition and care planning, internal mechanisms to
                    evaluate plan networks and special case needs.

                                  Page 19 of 52



          h.   HOSPICE

               If an Enrollee is receiving hospice services at the time of
               enrollment in the MCO or if the Enrollee is already enrolled in
               the MCO and has less than six months to live, the Enrollee will
               be offered hospice services or the continuation of hospice
               services if he or she is already receiving such services prior to
               enrollment in the MCO.

     4.   INPATIENT HOSPITAL SERVICES

          If a CONTRACTOR provider admits an Enrollee for inpatient hospital
          care, the CONTRACTOR has the responsibility for all services needed by
          the Enrollee during the hospital stay that are ordered by the
          CONTRACTOR provider. Needed services include but are not limited to
          diagnostic tests, pharmacy, and physician services, including services
          provided by psychiatrists. If diagnostic tests conducted during the
          inpatient stay reveal that the Enrollee's condition is outside the
          scope of the CONTRACTOR's responsibility, the CONTRACTOR remains
          responsible for the Enrollee until the Enrollee is discharged or until
          responsibility is transferred to another appropriate entity and the
          appropriate entity agrees to take financial responsibility, including
          negotiating a payment for services. If the Enrollee is discharged and
          needs further services, the admitting CONTRACTOR will coordinate with
          the other appropriate entity to ensure continued care is provided. The
          CONTRACTOR and appropriate entity will work cooperatively in the best
          interest of the Enrollee. The appropriate entity includes, but is not
          limited to, a Prepaid Mental Health Plan or another MCO.

     5.   MATERNITY STAYS

          a.   THE NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT (NMHPA)

               The CONTRACTOR must meet the requirements of the Newborns' and
               Mothers' Health Protection Act (NMHPA). The CONTRACTOR must
               record early discharge information for monitoring, quality, and
               improvement purposes. The CONTRACTOR will ensure that coverage is
               provided with respect to a mother who is an Enrollee and her
               newborn child for a minimum of 48 hours of inpatient care
               following a normal vaginal delivery, and a minimum of 96 hours of
               inpatient care following a caesarean section, without requiring
               the attending provider to obtain authorization from the
               CONTRACTOR in order to keep a mother and her newborn child in the
               inpatient setting for such period of time.

          b.   EARLY DISCHARGES

               Notwithstanding the prior sentence, the CONTRACTOR will not be
               required to provide coverage for post-delivery inpatient care for
               a mother who is an Enrollee and her newborn child during such
               period of time if (1) a decision to discharge the mother and her
               newborn child prior to the expiration of such period is made by
               the attending provider in consultation with the mother; and (2)
               the CONTRACTOR provides coverage for timely post-delivery
               follow-up care.

                                  Page 20 of 52



          c.   POST-DELIVERY CARE

               Post-delivery care will be provided to a mother and her newborn
               child by a registered nurse, physician, nurse practitioner, nurse
               midwife or physician assistant experienced in maternal and child
               health in (1) the home, a provider's office, a hospital, a
               federally qualified health center, a federally qualified rural
               health clinic, or a State health department maternity clinic; or
               (2) another setting determined appropriate under regulations
               promulgated by the Secretary of Health and Human Services,
               (including a birthing center or an intermediate care facility);
               except that such coverage will ensure that the mother has the
               option to be provided with such care in the home.

          d.   TIMELY POST-DELIVERY CARE

               "Timely post-delivery care" means health care that is provided
               (1) following the discharge of a mother and her newborn child
               from the inpatient setting; and (2) in a manner that meets the
               health needs of the mother and her newborn child, that provides
               for the appropriate monitoring of the conditions of the mother
               and child, and that occurs within the 24 to 72 hour period
               immediately following discharge.

     6.   CHILDREN IN CUSTODY OF THE DEPARTMENT OF HUMAN SERVICES

          a.   IN GENERAL

               The CONTRACTOR will work with the Division of Child and Family
               Services (DCFS) or the Division of Youth Corrections (DYC) in the
               Department of Human Services (DHS) to ensure systems are in place
               to meet the health needs of children in custody of the Department
               of Human Services. The CONTRACTOR will ensure these children
               receive timely access to appointments through coordination with
               DCFS or DYC. The CONTRACTOR must have available providers who
               have experience and training in abuse and neglect issues.

               The CONTRACTOR or subcontracting provider will make every
               reasonable effort to ensure that a child who is in custody of the
               Department of Human Services may continue to use the medical
               provider with whom the child has an established professional
               relationship when the medical provider is part of the
               CONTRACTOR's network. The CONTRACTOR will facilitate timely
               appointments with the provider of record to ensure continuity of
               care for the child.

               While it is the CONTRACTOR's responsibility to ensure Enrollees
               who are children in custody of DHS have access to needed
               services, DHS personnel are primarily responsible to assist
               children in custody in arranging for and getting to medical
               appointments and evaluations with the CONTRACTOR's network of
               providers. DHS staff are primarily responsible for contacting the
               CONTRACTOR to coordinate care for children in custody and
               informing the

                                  Page 21 of 52



               CONTRACTOR of the special health care needs of these Enrollees.
               The Fostering Healthy Children staff may assist the DHS staff in
               performing these functions by communicating with the CONTRACTOR.

          b.   SCHEDULE OF VISITS

               1)   Where physical and/or sexual abuse is suspected

                    In cases where the child protection worker suspects physical
                    and/or sexual abuse the CONTRACTOR will ensure that the
                    child has access to an appropriate examination within 24
                    hours of notification that the child was removed from the
                    home. If the CONTRACTOR cannot provide an appropriate
                    examination, the CONTRACTOR will ensure the child has access
                    to a provider who can provide an appropriate examination
                    within the 24 hour period.

               2)   All other cases

                    In all other cases, the CONTRACTOR will ensure that the
                    child has access to an initial health screening within five
                    calendar days of notification that the child was removed
                    from the home. The CONTRACTOR will ensure this exam
                    identifies any health problems that might determine the
                    selection of a suitable placement, or require immediate
                    attention.

               3)   CHEC exams

                    In all cases, the CONTRACTOR will ensure that the child has
                    access to a Child Health Evaluation and Care (CHEC)
                    screening within 30 calendar days of notification that the
                    child was removed from the home. Whenever possible, the CHEC
                    screening should be completed within the five-day time
                    frame. Additionally, the CONTRACTOR will ensure the child
                    has access to a CHEC screening according to the CHEC
                    periodicity schedule until age six, then annually
                    thereafter.

     7.   ORGAN TRANSPLANTATIONS

          a.   IN GENERAL

               All organ transplantation services are the responsibility of the
               CONTRACTOR for all Enrollees in accordance with the criteria set
               forth in Rule R414-10A of the Utah Administrative Code, unless
               amended under the provisions of Attachment B, Article IV
               (Benefits), Section C, Subsection 3 of this Contract. The
               DEPARTMENT's criteria will be provided to the CONTRACTOR.

                                  Page 22 of 52



          b.   SPECIFIC ORGAN TRANSPLANTATIONS COVERED

               The following transplantations are covered under Rule R414-10A:
               Kidney, liver, cornea, bone marrow, heart, intestine, lung,
               pancreas, small bowel, combination heart/lung, combination
               intestine/liver, combination kidney/pancreas, combination
               liver/kidney, multi visceral, and combination liver/small bowel.

          c.   PSYCHOSOCIAL ASSESSMENT REQUIRED

               Medicaid requires that Medicaid eligibles who have applied for
               organ transplantations undergo a psychosocial assessment to
               assist in determining the Enrollees'/families' mental stability,
               commitment and potential to be compliant with the treatment and
               follow-up care that will go on for the rest of the Enrollee's
               life. This psychosocial evaluation is a Covered Service under
               this Contract.

               If a request is made for a transplantation not listed above, the
               CONTRACTOR will contact the DEPARTMENT. Such requests will be
               addressed as set forth in R414-10A-23.

          d.   OUT-OF-STATE TRANSPLANTATIONS

               When the CONTRACTOR arranges the transplantation to be performed
               out-of-state, the CONTRACTOR is responsible for coverage of food,
               lodging, transportation and airfare expenses for the Enrollee and
               attendant. The CONTRACTOR will follow, at a minimum, the
               DEPARTMENT's criteria for coverage of food, lodging,
               transportation and airfare expenses.

     8.   MENTAL HEALTH SERVICES

          When an Enrollee presents with a possible mental health condition to
          his or her CONTRACTOR primary care physician, it is the responsibility
          of the primary care provider to determine whether the Enrollee should
          be referred to a psychologist, pediatric specialist, psychiatrist,
          neurologist, or other specialist. Mental health conditions may be
          handled by the CONTRACTOR primary care provider and referred to the
          Enrollee's Prepaid Mental Health Plan when more specialized services
          are required for the Enrollee. CONTRACTOR primary care providers may
          seek consultation from the Prepaid Mental Health Plan when the primary
          care provider chooses to manage the Enrollee's symptoms.

          An independent panel comprised of specialists appropriate to the
          concern will be established by the DEPARTMENT with representative from
          the CONTRACTOR and Prepaid Mental Health Plan to adjudicate disputes
          regarding which entity (the CONTRACTOR or Prepaid Mental Health Plan)
          is responsible for payment and/or treatment of a condition. The panel
          will be convened on a case-by-case basis. The CONTRACTOR and Prepaid
          Mental Health Plan will adhere to the final decision of the panel.

                                  Page 23 of 52



     9.   DEVELOPMENTAL AND ORGANIC DISORDERS

          a.   COVERED SERVICES FOR CHILD ENROLLEES THROUGH AGE 20

               1)   The CONTRACTOR is responsible for all inpatient and
                    physician outpatient Covered Services for child Enrollees
                    with developmental (ICD-9 codes 299 through 299.8 and 317
                    through 319.9) or organic diagnoses (ICD-9 codes 290 through
                    294.9 and 310 through 310.9) including, but not limited to,
                    diagnostic work-ups and other medical care such as
                    medication management services related to the developmental
                    or organic disorder.

               2)   The CONTRACTOR is responsible for all psychological
                    evaluations and testing including neuropsychological
                    evaluations and testing for child Enrollees with
                    developmental or organic disorders such as brain tumors,
                    brain injuries, and seizure disorders.

          b.   COVERED SERVICES FOR ADULT ENROLLEES AGE 21 AND OLDER

               The CONTRACTOR is responsible for all inpatient and physician
               outpatient Covered Services for adult Enrollees with
               developmental (ICD-9 codes 299 through 299.8 and 317 through
               319.9) and organic diagnoses (ICD-9 codes 290 through 294.9 and
               310 through 310.9) including diagnostic work-ups and other
               medical care such as medication management services related to
               the developmental or organic disorder.

          c.   NON-COVERED SERVICES

               1)   Psychological evaluations and testing including
                    neuropsychological evaluations and testing for adult
                    Enrollees is not the responsibility of the CONTRACTOR.

               2)   Habilitative and behavioral management services are not
                    the responsibility of the CONTRACTOR. If habilitative
                    services are required, the Enrollee should be referred to
                    the Division of Services for People with Disabilities
                    (DSPD), the school system, the Early Intervention Program,
                    or similar support program or agency. The enrollee should
                    also be referred to DSPD for consideration of other benefits
                    and programs that may be available through DSPD.
                    Habilitative services are defined in Section 1915(c)(5)(a)
                    of the Social Security Act as "services designed to assist
                    individuals in acquiring, retaining and improving the
                    self-help, socialization and adaptive skills necessary to
                    reside successfully in home and community based settings."

          d.   RESPONSIBILITY OF THE PREPAID MENTAL HEALTH PLAN

               The Prepaid Mental Health Plan is responsible for needed mental
               health services to individuals with an organic and a psychiatric
               diagnosis or with a developmental and a psychiatric diagnosis..

                                  Page 24 of 52



     10.  OUT-OF-STATE ACCESSORY SERVICES

          When the CONTRACTOR arranges a Covered Service to be performed
          out-of-state, the CONTRACTOR is responsible for coverage of airfare,
          food and lodging for the Enrollee and one attendant during the stay at
          the out-of-state facility and ground transportation costs to and from
          the medical facility at which the Enrollee is receiving services are
          also the responsibility of the CONTRACTOR. The CONTRACTOR will follow,
          at a minimum, the DEPARTMENT's criteria for coverage of food, lodging,
          transportation, and airfare expenses.

     11.  NON-CONTRACTOR PRIOR AUTHORIZATIONS

          a.   PRIOR AUTHORIZATIONS - GENERAL

               The CONTRACTOR shall honor prior authorizations for organ
               transplantations and any other ongoing services initiated by the
               DEPARTMENT while the Enrollee was covered under Medicaid
               fee-for-service until the Enrollee is evaluated by the CONTRACTOR
               and a new plan of care is established.

          b.   WHEN THE CONTRACTOR HAS NOT AUTHORIZED THE SERVICE

               For services that require a prior authorization, the CONTRACTOR
               will pay the provider of the service at the Medicaid rate, if the
               following conditions are met:

               1)   the servicing provider is not a participating provider under
                    contract with the CONTRACTOR; and

               2)   the DEPARTMENT issued a prior authorization for an
                    Enrollee to the servicing provider approving payment of the
                    service; and

               3)   the servicing provider has completed the CONTRACTOR's
                    hearing process without resolution of the claim, and has
                    requested a hearing with the State Formal Hearings Unit
                    requesting payment for the services rendered: and

               4)   in the hearing process it is determined that service
                    rendered was a Medically Necessary service covered under
                    this Contract, and that the CONTRACTOR will be responsible
                    for payment of the claim.

               The CONTRACTOR may elect to have payment of the servicing
               provider's claim made through the DEPARTMENT's MMIS system, with
               an equal reduction in the payments made to the CONTRACTOR

                                  Page 25 of 52



F.   CLARIFICATION OF PAYMENT RESPONSIBILITIES

     1.   COVERED SERVICES RECEIVED OUTSIDE CONTRACTOR'S NETWORK BUT PAID BY
          CONTRACTOR

          The CONTRACTOR will not be required to pay for Covered Services,
          defined in Attachment C, which the Enrollee receives from sources
          outside The CONTRACTOR's network, not arranged for and not authorized
          by the CONTRACTOR except as follows:

          a.   Emergency Services;

          b.   Court ordered services that are Covered Services defined in
               Attachment C and which have been coordinated with the CONTRACTOR;
               or

          c.   Cases where the Enrollee demonstrates that such services are
               Medically Necessary Covered Services and were unavailable from
               the CONTRACTOR.

     2.   WHEN COVERED SERVICES ARE NOT THE CONTRACTOR'S RESPONSIBILITY

          a.   The CONTRACTOR is not responsible for payment when family
               planning services are obtained by an Enrollee from sources other
               than the CONTRACTOR.

          b.   The CONTRACTOR will not be required to provide, arrange for,
               or pay for Covered Services to Enrollees whose illness or injury
               results directly from a catastrophic occurrence or disaster,
               including, but not limited to, earthquakes or acts of war. The
               effective date of excluding such Covered Services will be the
               date specified by the Federal Government or the State of Utah
               that a Federal or State emergency exists or disaster has
               occurred.

     3.   THE DEPARTMENT'S RESPONSIBILITY

          Except as described in Attachment F (Rates and Rate-Related Terms) of
          this Contract, the DEPARTMENT will not be required to pay for any
          Covered Services under Attachment C which the Enrollee received from
          any sources outside the CONTRACTOR except for family planning
          services.

     4.   COVERED SERVICES PROVIDED BY THE DEPARTMENT OF HEALTH, DIVISION OF
          COMMUNITY AND FAMILY HEALTH SERVICES

          For Enrollees who qualify for special services offered by or through
          the Department of Health, Division of Community and Family Health
          Services (DCFHS), the CONTRACTOR agrees to reimburse DCFHS at the
          standard Medicaid rate in effect at the time of service for one
          outpatient team evaluation and one follow-up visit for each Enrollee
          upon each instance that the Enrollee both becomes Medicaid eligible
          and selects the CONTRACTOR as its provider. The CONTRACTOR agrees to
          waive any prior authorization requirement for one outpatient team
          evaluation and one follow-up visit. The services provided in the
          outpatient team evaluation and follow-up visit for

                                  Page 26 of 52



          which the CONTRACTOR will reimburse DCFHS are limited to the services
          that the CONTRACTOR is otherwise obligated to provide under this
          Contract.

          If the CONTRACTOR desires a more detailed agreement for additional
          services to be provided by or through DCFHS for children with special
          health care needs, the CONTRACTOR may subcontract with DCFHS. The
          CONTRACTOR agrees that the subcontract with DCFHS will acknowledge and
          address the specific needs of DCFHS as a government provider.

     5.   ENROLLEE TRANSITION BETWEEN MCOS, OR BETWEEN FEE-FOR-SERVICE AND
          CONTRACTOR

          a.   INPATIENT HOSPITAL

               When an Enrollee is in an inpatient hospital setting and selects
               another MCO or becomes fee-for-service anytime prior to discharge
               from the hospital, the CONTRACTOR is financially responsible for
               the entire hospital stay including all services related to the
               hospital stay, i.e. physician, etc. The MCO in which the
               individual is enrolled at the time of discharge from the hospital
               is financially responsible for services provided during the
               remainder of the month when the individual was discharged. If
               such individual is fee-for-service at the time of discharge from
               the hospital, the DEPARTMENT is financially responsible for the
               remainder of the month when the individual was discharged. If a
               Medicaid eligible is in an inpatient hospital setting and selects
               the MCO anytime prior to discharge from the hospital, the
               DEPARTMENT is financially responsible for the entire hospital
               stay including all services related to the hospital stay, i.e.
               physician, etc. Enrollees who are in an inpatient hospital
               setting at the time the CONTRACTOR terminates this Contract and
               who have enrolled with another MCO are the responsibility of the
               receiving MCO beginning the day after the termination is
               effective.

          b.   HOME HEALTH SERVICES

               Medicaid clients who are under fee-for-service or are enrolled in
               an MCO other than this MCO and are receiving home health services
               from an agency not contracting with the CONTRACTOR will be
               transitioned to the CONTRACTOR's home health agency. The
               CONTRACTOR is responsible for payment, not to exceed Medicaid
               payment, for a period not to exceed seven calendar days, unless
               the CONTRACTOR and the home health agency agree to another time
               period in writing, after the CONTRACTOR notifies the
               non-participating home health agency of the change in status or
               the non-participating home health agency notifies the CONTRACTOR
               that services are being provided by its agency. The CONTRACTOR
               will assess the needs of the Enrollee at the time the CONTRACTOR
               provides the orientation to the Enrollee.

               The CONTRACTOR will include the Enrollee in developing the plan
               of care to be provided by the CONTRACTOR's home health agency
               before the transition is complete. The CONTRACTOR will address
               Enrollee's concerns regarding

                                  Page 27 of 52



               Covered Services provided by the CONTRACTOR's home health agency
               before the new plan of care is implemented.

          c.   MEDICAL EQUIPMENT

               When medical equipment is ordered for an Enrollee by the
               CONTRACTOR and the Enrollee enrolls in a different MCO before
               receiving the equipment, the CONTRACTOR is responsible for
               payment for such equipment. Medical equipment includes
               specialized wheelchairs or attachments, prosthesis, and other
               equipment designed or modified for an individual client. Any
               attachments to the equipment, replacements, or new equipment is
               the responsibility of the MCO in which the client is enrolled at
               the time such equipment is ordered.

     6.   SURVEYS

          All surveys required under this Contract will be funded by the
          CONTRACTOR unless funded by another source such as the Utah Department
          of Health Office of Health Data Analysis. The surveys must be
          conducted by an independent vendor mutually agreed upon by the
          DEPARTMENT and CONTRACTOR. The DEPARTMENT or designee will analyze the
          results of the surveys. Before publishing articles, data, reports,
          etc. related to surveys the DEPARTMENT will provide drafts of such
          material to the CONTRACTOR for review and feedback. The CONTRACTOR
          will not be responsible for the costs incurred for such publishing by
          the DEPARTMENT.

                      ARTICLE V - ENROLLEE RIGHTS/SERVICES

A.   MEMBER SERVICES FUNCTION

     The CONTRACTOR must operate a Member Services function during regular
     business hours. Ongoing training, as necessary, shall be provided by the
     CONTRACTOR to ensure that the Member Services staff is conversant in the
     CONTRACTOR's policies and procedures as they relate to Enrollees. At a
     minimum, Member Services staff must be responsible for the following:

     1.   Explaining the CONTRACTOR's rules for obtaining services;

     2.   Assisting Enrollees to select or change primary care providers;

     3.   Fielding and responding to Enrollee questions and complaints and
          grievances.

     The CONTRACTOR shall conduct ongoing assessment of its orientation staff to
     determine staff member's understanding of the MCO and its Medicaid managed
     care policies and provide training, as needed.

                                  Page 28 of 52



B.   ENROLLEE LIABILITY

     1.   The CONTRACTOR will not hold an Enrollee liable for the following:

          a.   The debts of the CONTRACTOR if it should become insolvent.

          b.   Payment for services provided by the CONTRACTOR if the CONTRACTOR
               has not received payment from the DEPARTMENT for the services, or
               if the provider, under contract with the CONTRACTOR, fails to
               receive payment from the CONTRACTOR.

          c.   The payments to providers that furnish Covered Services under a
               contract or other arrangement with the CONTRACTOR that are in
               excess of the amount that normally would be paid by the Enrollee
               if the service had been received directly from the CONTRACTOR.

C.   GENERAL INFORMATION TO BE PROVIDED TO ENROLLEES

     The CONTRACTOR will make the following information available to Enrollees
     and potential enrollees on request:

     1.   The identity, locations, qualification, and availability of
          participating providers (at a minimum, area of specialty, board
          certification, and any special areas of expertise must be available
          that would be helpful to individuals deciding whether to enroll with
          the CONTRACTOR);

     2.   The rights and responsibilities of Enrollees;

     3.   The procedures available to Enrollees and providers to challenge or
          appeal the failure of the CONTRACTOR to cover a services; and

     4.   All items and services that are available to Enrollees that are
          covered either directly or through a method of referral or prior
          authorization.

D.   ACCESS

     1.   IN GENERAL

          The CONTRACTOR shall provide the DEPARTMENT and the Health Care
          Financing Administration, adequate assurances that the CONTRACTOR,
          with respect to a service area, has the capacity to serve the expected
          enrollment in such service area, including assurances that the
          CONTRACTOR offers an appropriate range of services and access to
          preventive and primary care services for the population expected to
          enroll in such service area, and maintains a sufficient number, mix
          and geographic distribution of providers of services.

          The CONTRACTOR will provide services which are accessible to Enrollees
          and appropriate in terms of timeliness, amount, duration, and scope.

                                  Page 29 of 52



     2.   SPECIFIC PROVISIONS

          a.   ELIMINATION OF ACCESS PROBLEMS CAUSED BY GEOGRAPHIC, CULTURAL AND
               LANGUAGE BARRIERS AND PHYSICAL DISABILITIES

               The CONTRACTOR will minimize, with a goal to eliminate,
               Enrollee's access problems due to geographic, cultural and
               language barriers, and physical disabilities. The CONTRACTOR will
               provide assistance to Enrollees who have communication
               impediments or impairments to facilitate proper diagnosis and
               treatment. The CONTRACTOR must guarantee equal access to services
               and benefits for all Enrollees by making available interpreters,
               Telecommunication Devices for the Deaf (TDD), and other auxiliary
               aids to all Enrollees as needed. The CONTRACTOR will accommodate
               Enrollees with physical and other disabilities in accordance with
               the American Disabilities Act of 1990 (ADA), as amended. If the
               CONTRACTOR's facilities are not accessible to Enrollees with
               physical disabilities, the CONTRACTOR will provide services in
               other accessible locations.

          b.   INTERPRETIVE SERVICES

               The CONTRACTOR will provide interpretive services for languages
               on an as needed basis. These requirements will extend to both
               in-person and telephone communications to ensure that Enrollees
               are able to communicate with the CONTRACTOR and CONTRACTOR
               providers and receive Covered Services. Professional interpreters
               will be used 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. A family member or
               friend may be used as an interpreter if this method is requested
               by the patient, and the use of such a person would not compromise
               the effectiveness of services or violate the patient's
               confidentiality, and the patient is advised that a free
               interpreter is available.

          c.   NO RESTRICTIONS OF PROVIDER'S ABILITY TO ADVISE AND
               COUNSEL

               The CONTRACTOR may not restrict a health care provider's ability
               to advise and counsel Enrollees about Medically Necessary
               treatment options. All contracting providers acting within his or
               her scope of practice, must be permitted to freely advise an
               Enrollee about his or her health status and discuss appropriate
               medical care or treatment for that condition or disease
               regardless of whether the care or treatment is a Covered Service.

          d.   WAITING TIME BENCHMARKS

               The CONTRACTOR will adopt benchmarks for waiting times for
               physician appointments as follows:

                                  Page 30 of 52



               Waiting Time for Appointments

               1)   Primary Care Providers:
                    .    within 30 days for routine, non-urgent appointments
                    .    within 60 days for school physicals
                    .    within 2 days for urgent, symptomatic, but not
                         life-threatening care (care that can be treated in the
                         doctor's office)

               2)   Specialists:
                    .    within 30 days for non-urgent
                    .    within 2 days for urgent, symptomatic, but not
                         life-threatening care (care that can be treated in a
                         doctor's office)

               These benchmarks do not apply to appointments for regularly
               scheduled visits to monitor a chronic medical condition if the
               schedule calls for visits less frequently than once every month.

          e.   NO DELAY WHILE COORDINATING COVERAGE WITH A PREPAID MENTAL HEALTH
               PLAN

               When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR will not delay an Enrollee's access to
               needed services in disputes regarding responsibility for payment.
               Payment issues should be addressed only after needed services are
               rendered. As described in Attachment B, IV (Benefits), Section E
               (Clarification of Covered Services), Subsection 8 of this
               Contract, the independent panel established by the DEPARTMENT
               will assist in adjudicating such disputes when requested to do so
               by either party.

E.   CHOICE

     The CONTRACTOR must allow Enrollees the opportunity to select a
     participating Primary Care Provider. This excludes clients who are under
     the Restriction Program. If an Enrollee's Primary Care Provider ceases to
     participate in the CONTRACTOR's network, the CONTRACTOR must offer the
     Enrollee the opportunity to select a new Primary Care Provider.

F.   COORDINATION

     1.   IN GENERAL

          The CONTRACTOR will provide access to a coordinated, comprehensive and
          continuous array of needed services through coordination with other
          appropriate entities. The CONTRACTOR provider is not responsible for
          directly providing waiver services.

     2.   PREPAID MENTAL HEALTH PLAN

          a.   When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR and Prepaid Mental Health Plan will share
               appropriate information regarding the Enrollee's health care to
               ensure coordination of physical and mental health care services.

                                  Page 31 of 52



          b.   Clients enrolled in the MCO and a Prepaid Mental Health Plan
               who due to a psychiatric condition require lab, radiology and
               similar outpatient services covered under this Contract, but
               prescribed by the Prepaid Mental Health Plan physician, will have
               access to such services in a timely fashion. The CONTRACTOR and
               Prepaid Mental Health Plan will reduce or eliminate unnecessary
               barriers that may delay the Enrollee's access to these critical
               services.

G.   BILLING ENROLLEES

     1.   IN GENERAL

          Except as provided herein Attachment B, Article V (Enrollee
          Rights/Services), Section G (Billing Enrollees), no claim for payment
          will be made at any time by the CONTRACTOR or CONTRACTOR provider to
          an Enrollee accepted by that provider as a Medicaid Enrollee for any
          service covered under this Contract. When a provider accepts an
          Enrollee as a patient he or she will look solely to third party
          coverage or the CONTRACTOR for reimbursement. If the provider fails to
          receive payment from the CONTRACTOR, the Enrollee cannot be held
          responsible for these payments.

     2.   CIRCUMSTANCES WHEN AN ENROLLEE MAY BE BILLED

          An Enrollee may in certain circumstances be billed by the CONTRACTOR
          provider for non-Covered Services. A non-Covered Service is one that
          is not covered under this Contract, or includes special features or
          characteristics that are desired by the Enrollee, such as more
          expensive eyeglass frames, hearing aids, custom wheelchairs, etc., but
          do not meet the Medical Necessity criteria for amount, duration, and
          scope as set forth in the Utah State Plan. The DEPARTMENT will specify
          to the CONTRACTOR the extent of Covered Services and items under the
          Contract, as well as services not covered under the Contract but
          provided by Medicaid on a fee-for-service basis that would effect the
          CONTRACTOR's Covered Services. An Enrollee may be billed for a service
          not covered under this Contract only when the following conditions are
          met:

          a.   The CONTRACTOR has an established policy for billing all patients
               for services not covered by a third party. (Non-Covered Services
               cannot be billed only to Enrollees.)

          b.   The CONTRACTOR will inform Enrollees of its policy and the
               services and items that are non covered under this Contract and
               include this information in the Enrollee's member handbook.

          c.   The CONTRACTOR provider will advise the Enrollee prior to
               rendering the service that the service is not covered under this
               Contract and that the Enrollee will be personally responsible for
               making payment.
          d.   The Enrollee agrees to be personally responsible for the payment
               and an agreement is made in writing between the CONTRACTOR
               provider and the Enrollee which details the service and the
               amount to be paid by the Enrollee.

                                  Page 32 of 52



     3.   CONTRACTOR MAY NOT HOLD ENROLLEE'S MEDICAID CARD

          The CONTRACTOR or CONTRACTOR provider will not hold the Enrollee's
          Medicaid card as guarantee of payment by the Enrollee, nor may any
          other restrictions be placed upon the Enrollee.

     4.   CRIMINAL PENALTIES

          Criminal penalties shall be imposed on MCO providers as authorized
          under section 1128B(d)(l)of the Social Security Act if the provider
          knowingly and willfully charges an Enrollee at a rate other than those
          allowed under this Contract.

                        ARTICLE VI - GRIEVANCE PROCEDURES

A.   IN GENERAL

     The CONTRACTOR will maintain a system for reviewing and adjudicating
     complaints and grievances by Enrollees, and providers. The CONTRACTOR's
     complaint and grievance procedures must permit an Enrollee, or provider on
     behalf of an Enrollee, to challenge the denials of coverage of medical
     assistance or denials of payment for Covered Services. The CONTRACTOR will
     submit such grievance plans and procedures to the DEPARTMENT for approval
     prior to instituting or changing such procedures. Such procedures will
     provide for expeditious resolution of complaints and grievances by the
     CONTRACTOR's personnel who have authority to correct problems.

B.   NONDISCRIMINATION

     The Contractor shall designate a nondiscrimination coordinator who will 1)
     ensure the Contractor complies with Federal Laws and Regulations regarding
     nondiscrimination, and 2) take complaints and grievances from Enrollees
     alleging nondiscrimination violations based on race, color, national
     origin, disability, or age. The nondiscrimination coordinator may also
     handle complaints regarding the violation of other civil rights (sex and
     religion) as other Federal laws and Regulations protect against these forms
     of discrimination. The Contractor will develop and implement a written
     method of administration to assure that the Contractor's programs,
     activities, services, and benefits are equally available to all persons
     without regard to race, color, national origin, disability, or age.

C.   MINIMUM REQUIREMENTS OF GRIEVANCE PROCEDURES

     1.   Definitions of complaints and grievance;
     2.   Details of how, when, where and with whom an Enrollee or provider
          may file a grievance;
     3.   Assurances of the participation of individuals with authority to take
          corrective action;
     4.   Responsibilities of the various components and staff of the
          organization;
     5.   Description of the process for timely review, prompt (45 days)
          resolution of complaints and grievances;
     6.   Details of an appeal process; and

                                  Page 33 of 52



     7.   Provision stating that during the pendency of any grievance procedure
          or an appeal of such grievances, the Enrollee will remain enrolled
          except as otherwise stated in this Contract.

D.   FINAL REVIEW BY DEPARTMENT

     When an Enrollee or provider has exhausted the CONTRACTOR's grievance
     process and a final decision has been made, the CONTRACTOR must provide
     written notification to the party who initiated the grievance of the
     grievance's outcome and explain in clear terms a detailed reason for the
     denial.

     The CONTRACTOR must provide notification to Enrollees and providers that
     the final decision of the CONTRACTOR may be appealed to the DEPARTMENT and
     will give to the Enrollee or provider the DEPARTMENT's form to request a
     formal hearing with the DEPARTMENT. The MCO must inform the Enrollee or
     provider the time frame for filing an appeal with the DEPARTMENT. The
     formal hearing with the DEPARTMENT is a de novo hearing. If the Enrollee or
     provider request a formal hearing with the DEPARTMENT, all parties to the
     formal hearing agree to be bound by the DEPARTMENT's decision until any
     judicial reviews are completed and are in the Enrollee's or provider's
     favor. Any decision made by the DEPARTMENT pursuant to the hearing shall be
     subject to appeal rights as provided by State and Federal laws and rules.

                        ARTICLE VII - OTHER REQUIREMENTS

A.   COMPLIANCE WITH PUBLIC HEALTH SERVICE ACT

     The CONTRACTOR will comply with all requirements of Section 1301 to and
     including 1318 of the Public Health Service Act. The CONTRACTOR will
     provide verification of such compliance to the DEPARTMENT upon the
     DEPARTMENT's request. This Contract is a "prospective risk" contract which
     means that payment is made by means of a capitation rate offered each month
     as reimbursement in advance for services incurred that month regardless of
     the level of utilization actually experienced. Nothing herein will be
     construed or interpreted to mean that this is a cost reimbursement
     contract. Cost reimbursement means payment is made by means of a settlement
     based on cost incurred over a given period.

B.   COMPLIANCE WITH OBRA'90 PROVISION AND 42 CFR 434.28

     The CONTRACTOR will comply with the OBRA '90 provision which requires an
     MCO provide patients with information regarding their rights under State
     law to make decisions about their health care including the right to
     execute a living will or to grant power of attorney to another individual.

     The CONTRACTOR will comply with the requirements of 42 CFR 434.28 relating
     to maintaining written Advance Directives as outlined under Subpart I of
     489.100 through 489.102.

                                  Page 34 of 52



C.   FRAUD AND ABUSE REQUIREMENTS

     The CONTRACTOR agrees to abide by Federal and/or State fraud and abuse
     requirements including, but not limited to, the following:

     1.   Refer in writing to the DEPARTMENT all detected incidents of potential
          fraud or abuse on the part of providers of services to Enrollees or to
          other patients.

     2.   Refer in writing to the DEPARTMENT all detected incidents of patient
          fraud or abuse involving Covered Services provided which are paid for
          in whole, or in part, by the DEPARTMENT.

     3.   Refer in writing to the DEPARTMENT the names and Medicaid ID numbers
          of those Enrollees that the CONTRACTOR suspects of inappropriate
          utilization of services, and the nature of the suspected inappropriate
          utilization.

     4.   Inform the DEPARTMENT in writing when a provider is removed from the
          CONTRACTOR's panel for reasons relating to suspected fraud, abuse or
          quality of care concerns.

     5.   The CONTRACTOR may not employ or subcontract with any sanctioned
          provider. The DEPARTMENT will inform the CONTRACTOR of any provider
          sanctioned by Medicaid or Medicare.

          The CONTRACTOR may not employ or subcontract with any provider who is
          an ineligible entity as defined under the State Medicaid Manual
          Section 2086.16. This section is available upon request. The
          CONTRACTOR will attest that the entities listed below are not involved
          with the CONTRACTOR. Ineligible organizations can be included in the
          following categories as referenced in the Social Security Act (the
          Act):

          a.   Entities which could be excluded under section 1128(b)(8) of
               the Act--these are entities in which a person who is an officer,
               director, agent, or managing employee of the entity, or a person
               who has a direct or indirect ownership or control interest of 5%
               or more in the entity and has been convicted of the following
               crimes:

               1)   any criminal offense related to the delivery of a Medicare
                    or Medicaid item or service (see section 1128(a)(l) of the
                    Act);

               2)   patient abuse (section 1128(a)(2));

               3)   fraud (1128(b)(l));

               4)   obstruction of an investigation (1128(b)(2)); or

               5)   offenses related to controlled substances (1128(b)(3)).

                                  Page 35 of 52



          b.   Entities which have a direct or indirect substantial
               contractual relationship with an individual or entity listed in
               subsection "a" above-- a substantial contractual relationship is
               defined as any contractual relationship which provides for one or
               more of the following:

               1)   the administration, management, or provision of medical
                    services;

               2)   the establishment of policies pertaining to the
                    administration, management or provision of medical services;
                    or

               3)   the provision of operational support for the administration,
                    management, or provision of medical services.

          c.   Entities which employ, contract with, or contract through any
               individual or entity that is excluded from participation in
               Medicaid under Section 1128 or 1128A of the Act, for the
               provision of health care, utilization review, medical social work
               or administration services.

D.   DISCLOSURE OF OWNERSHIP AND CONTROL INFORMATION

     The CONTRACTOR agrees to meet the requirements of 42 CFR 455, Subpart B
     related to disclosure by the CONTRACTOR of ownership and control
     information.

E.   SAFEGUARDING CONFIDENTIAL INFORMATION ON ENROLLEES

     The CONTRACTOR agrees that information about Enrollees is confidential
     information and agrees to safeguard all confidential information and
     conform to the requirements set forth in 42CFR, Part 431, Subpart F as well
     as all other applicable Federal and State confidentiality requirements.

F.   DISCLOSURE OF PROVIDER INCENTIVE PLANS

     Per 42 CFR 417.749(a), 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 Enrollee.

     The CONTRACTOR may operate a physician incentive plan only if the stop-loss
     protection, Enrollee survey, and disclosure requirements are met. The
     CONTRACTOR must disclose to the DEPARTMENT the following information on
     provider incentive plans in sufficient detail to determine whether the
     incentive plan complies with the regulatory requirements. The disclosure
     must contain:

     1.   Whether services not furnished by the physician or physician group
          are covered by the incentive plan. If only the services furnished by
          the physician or physician group are covered by the incentive plan,
          disclosure of other aspects of the plan need not be made.

     2.   The type of incentive arrangement (i.e., withhold, bonus, capitation).

                                  Page 36 of 52



     3.   If the incentive plan involves a withhold or bonus, the percent of
          the withhold or bonus.

     4.   Proof that the physician or physician group has adequate stop-loss
          protection, including the amount and type of stop-loss protection.

     5.   The panel size and, if patients are pooled; the method used.

     6.   To the extent provided for in HCFA implementation guidelines,
          capitation payments paid to primary care physicians for the most
          recent year broken down by percent for primary care services, referral
          services to specialists, and hospital and other types of provider
          services (i.e., nursing home and home health agency) for capitated
          physicians or physician groups.

     7.   In the case of those prepaid plans that are required to conduct
          beneficiary surveys, the survey results. (The Contractor must conduct
          a customer satisfaction of both Enrollees and disenrollees if any
          physicians or physicians groups contracting with the CONTRACTOR are
          placed at substantial financial risk for referral services. The survey
          must include either all current Enrollees and those who have
          disenrolled in the past twelve months, or a sample of these same
          Enrollees and disenrollees. Recognizing that different questions are
          asked of the disenrollees than those asked of Enrollees, the same
          survey cannot be used for both populations.)

     The CONTRACTOR must disclose this information to the DEPARTMENT (1) prior
     to approval of its contract or agreement and (2) upon the contract or
     agreements anniversary or renewal effective date. The CONTRACTOR must
     provide the capitation data required (see 6 above) for the previous
     contract year to the DEPARTMENT three months after the end of the contract
     year. The CONTRACTOR will provide to the Enrollee upon request whether the
     CONTRACTOR uses a physician incentive plan that affects the use of referral
     services, the type of incentive arrangement, whether stop-loss protection
     is provided, and the survey results of any enrollee/disenrollee surveys
     conducted.

G.   DEBARRED OR SUSPENDED INDIVIDUALS

     Under Section 1921(d)(1) of the Social Security Act, the CONTRACTOR may not
     knowingly have a director, officer, partner, or person with beneficial
     ownership of more than 5% of the CONTRACTOR's equity who has been debarred
     or suspended by any federal agency. The CONTRACTOR may not have an
     employment, consulting, or any other agreement with a debarred or suspended
     person for the provision of items or services that are significant and
     material to meeting the provisions under this Contract.

     The CONTRACTOR must certify to the DEPARTMENT that the requirements under
     Section 1921(d)(l) of the Social Security Act are met prior to the
     effective date of this Contract and at any time there is a change from the
     last such certification.

H.   HCFA CONSENT REQUIRED

     If HCFA directs the DEPARTMENT to terminate this Contract, the DEPARTMENT
     will not be permitted to renew this Contract without HCFA consent.

                                  Page 37 of 52



                             ARTICLE VIII - PAYMENTS

A.   RISK CONTRACT

     This Contract is a risk contract as described in 42 CFR 447.361. Payments
     made to the CONTRACTOR may not exceed the cost to the DEPARTMENT of
     providing these same Covered Services on a fee-for-service basis, to an
     actuarially equivalent non-enrolled population.

B.   PAYMENT AMOUNTS

     1.   PAYMENT SCHEDULE

          On or before the 10th day of each month, the DEPARTMENT will pay to
          the CONTRACTOR the premiums due for each category shown for Enrollees
          for that month as determined by the DEPARTMENT from the Eligibility
          Transmission. Premiums shown in Attachment F-3 are based on rate
          negotiations between the CONTRACTOR and the DEPARTMENT.

     2.   CALCULATION OF PREMIUMS

          The premiums do not include payment for recoupment of any previous
          losses incurred by the CONTRACTOR. The premiums established in this
          Contract will be prospectively set so as not to exceed the cost of
          providing the same Covered Services to an actuarially equivalent
          non-enrolled Medicaid population. The actuarially set fee-for-service
          equivalents developed by the DEPARTMENT are prospectively determined
          and conform with Federal guidelines as defined in CFR 447.361.

     3.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHCS)

          If the CONTRACTOR enters into a subcontract with a Federally Qualified
          Health Center (FQHC), the CONTRACTOR will reimburse the FQHC an amount
          equal to what the CONTRACTOR pays comparable providers that are not
          FQHCs. The FQHC may be entitled to additional reimbursement from the
          DEPARTMENT for the difference between CONTRACTOR payments to the FQHC
          and the FQHC's reasonable costs. The cost audits will be conducted by
          the DEPARTMENT. If the CONTRACTOR has a capitated arrangement with an
          FQHC, the DEPARTMENT is not responsible to either the CONTRACTOR or
          the FQHC for 100% of the FQHC's reasonable costs.

     4.   TIME FRAME FOR REQUEST OF DELIVERY PAYMENT

          The CONTRACTOR will submit a request for payment of the lump sum
          delivery amount within six months of the delivery date.

     5.   CONTRACT MAXIMUM

          In no event will the aggregate amount of payments to the Contractor
          exceed the Contract maximum amount. If payments to the CONTRACTOR
          approach or exceed the Contract amount before the renewal date of the
          Contract, the DEPARTMENT shall execute a

                                  Page 38 of 52



          Contract amendment to increase the Contract amount within 30 calendar
          days of the date the Contract amount is exceeded.

C.   MEDICARE

     1.   PAYMENT OF MEDICARE PART B PREMIUMS

          The DEPARTMENT will pay the Medicare Part B premium for each Enrollee
          who is on Medicare. The Enrollee will assign to the CONTRACTOR his or
          her Medicare reimbursement for benefits received under Medicare. The
          Eligibility Transmission includes and identifies those Enrollees who
          are covered under Medicare.

     2.   PAYMENT OF MEDICARE DEDUCTIBLE AND COINSURANCE

          The DEPARTMENT's financial obligation under this Contract for
          Enrollees who are covered by both Medicare and the MCO is limited to
          the Medicare Part B premium and the CONTRACTOR premium. The CONTRACTOR
          is responsible for payment of the Medicare deductible and coinsurance
          for Enrollees when a service is paid for by Medicare. The CONTRACTOR
          is responsible for payment whether or not the Medicare covered service
          is rendered by a CONTRACTOR provider or has been authorized by the
          CONTRACTOR. If a Medicare covered service is rendered by an
          out-of-plan Medicare provider or a non-Medicare participating
          provider, the CONTRACTOR is responsible to pay for no more than the
          Medicare authorized amount. Attachment E, Table 2, will be used to
          identify the total cost to the CONTRACTOR of providing care for
          Enrollees who are also covered by Medicare.

     3.   MUST NOT BALANCE BILL ENROLLEES

          The CONTRACTOR and CONTRACTOR provider will not Balance Bill the
          Enrollee and will consider the reimbursement from Medicare and from
          the CONTRACTOR payment in full.

D.   THIRD PARTY LIABILITY (COORDINATION OF BENEFITS)

The DEPARTMENT will provide the CONTRACTOR a monthly listing of Enrollees
covered under the Buy-out Program, including the premium amount paid by the
DEPARTMENT.

     1.   TPL COLLECTIONS

          The CONTRACTOR will be responsible to coordinate benefits and collect
          third party liability (TPL). The CONTRACTOR will keep TPL collections.
          The DEPARTMENT will set rates net of expected TPL collections
          excluding the lump sum rate set for deliveries. The rate set for
          deliveries is the maximum amount the DEPARTMENT will pay the
          CONTRACTOR for each delivery. The CONTRACTOR must attempt to collect
          TPL before the DEPARTMENT will reimburse the CONTRACTOR the delivery
          rate less TPL. The DHCF audit staff will monitor collections to ensure
          the CONTRACTOR is making a good faith effort to pursue TPL. The
          DEPARTMENT will properly account for TPL in its rate structure.

                                  Page 39 of 52



          The CONTRACTOR will provide a quarterly match of Enrollees to the
          CONTRACTOR's commercial insurance eligibility files. The Office of
          Recovery Services (ORS) will provide an electronic list of

     2.   DUPLICATION OF BENEFITS

          This provision applies when, under another health insurance plan such
          as a prepaid plan, insurance contract, mutual benefit association or
          employer's self-funded group health and welfare program, etc., an
          Enrollee is entitled to any benefits that would totally or partially
          duplicate the benefits that the CONTRACTOR is obligated to provide
          under this Contract. Duplication exists when (1) the CONTRACTOR has a
          duty to provide, arrange for or pay for the cost of Covered Services,
          and (2) another health insurance plan, pursuant to its own terms, has
          a duty to provide, arrange for or pay for the same type of Covered
          Services regardless of whether the duty of the CONTRACTOR is to
          provide the Covered Services and the duty of the other health
          insurance plan is only to pay for the Covered Services. Under State
          and Federal laws and regulations, Medicaid funds are the last dollar
          source and all other health insurance plans as referred to above are
          primarily responsible for the costs of providing Covered Services.

     3.   RECONCILIATION OF OTHER TPL

          In order to assist the CONTRACTOR in billing and collecting from other
          health insurance plans the DEPARTMENT will include on the Eligibility
          Transmission other health insurance plans of each Enrollee when it is
          known. The CONTRACTOR will review the Eligibility Transmission and
          will report to the Office of Recovery Services or the DEPARTMENT any
          TPL discrepancies identified within 30 working days of receipt of the
          Eligibility Transmission. The CONTRACTOR's report will include a
          listing of Enrollees that the CONTRACTOR has independently identified
          as being covered by another health insurance plan.

     4.   WHEN TPL IS DENIED

          On a monthly basis, the CONTRACTOR will report to the Office of
          Recovery Services (ORS) claims that have been billed to other health
          care plans but have been denied which will include the following
          information:

          a.   patient name and Medicaid identification number
          b.   ICD-9-CM code;
          c.   procedure codes; and
          d.   insurance company.

     5.   NOTIFICATION OF PERSONAL INJURY CASES

          The CONTRACTOR will be responsible to notify ORS of all personal
          injury cases, as defined by ORS and agreed to by the CONTRACTOR, no
          later than 30 days after the CONTRACTOR has received a "clean" claim.
          A clean claim is a claim that is ready to adjudicate. The following
          data elements will be provided by the CONTRACTOR to ORS:

                                  Page 40 of 52



          a.   patient name and Medicaid identification number
          b.   date of accident;
          c.   specific type of injury by ICD-9-CM code;
          d.   procedure codes; and
          e.   insurance company, if known.

     6.   ORS TO PURSUE COLLECTIONS

          ORS will pursue collection on all claims described in Attachment B,
          Article VIII (Payments), Section D, Subsections 4 and 5 of this
          Contract. The DEPARTMENT will retain, for administrative costs, one
          third of the collections received for the period during which medical
          services were provided by the CONTRACTOR, and remit the balance to the
          CONTRACTOR.

     7.   REBATE OF DUPLICATE PREMIUMS

          The CONTRACTOR will rebate to the DEPARTMENT on a quarterly basis any
          duplicate premiums paid to the CONTRACTOR for Enrollees. Payments are
          deemed duplicate when the CONTRACTOR receives premium both from the
          DEPARTMENT and from another payment source for the same Enrollee or
          from the DEPARTMENT and from the Medicaid Buy-out Program for the same
          Enrollee.

     8.   INSURANCE BUY-OUT PROGRAM

          The Insurance Buy-out Program is an optional program in which the
          DEPARTMENT purchases group health insurance for a recipient who is
          eligible for Medicaid when it is determined cost-effective for the
          Medicaid program to do so. The insurance buy-out process will be
          coordinated by the DEPARTMENT in cooperation with the Office of
          Recovery Services, and Medicaid eligibility workers. The following
          procedures regarding the buy-out program are:

          a.   the CONTRACTOR will file claims against group MCOs first before
               claiming services against the CONTRACTOR or other MCOs.

          b.   The DEPARTMENT will pay the CONTRACTOR a Medicaid premium for
               every buy-out Enrollee.

          c.   The DEPARTMENT will provide the CONTRACTOR a monthly listing of
               Enrollees covered under the Buy-out Program for the upcoming
               month.

          d.   On a quarterly basis, the Buy-out Program will bill the
               CONTRACTOR the lower of the Buy-out premium or the premium paid
               under this Contract when the Buy-out premium was paid to an
               entity other than the CONTRACTOR, i.e., the Buy-out premium is
               not a duplicate premium as defined in this Article VIII,
               Section D., Item 7. The CONTRACTOR will remit to the Buy-out
               Program the amount billed within 60 days of receipt of the
               Buy-out bill.

                                  Page 41 of 52



     9.   CONTRACTOR MUST PAY PROVIDER ADMINISTRATIVE FEE FOR IMMUNIZATIONS

          When an Enrollee has third party coverage for immunizations, the
          CONTRACTOR will pay the provider the administrative fee for providing
          the immunization and not require the provider to bill the third party
          as a cost avoidance method. The CONTRACTOR may choose to pursue the
          third party amount for the administrative fee after payment has been
          made to the provider.

E.   THIRD PARTY RESPONSIBILITY (INCLUDING WORKER'S COMPENSATION)

     1.   CONTRACTOR TO BILL USUAL AND CUSTOMARY CHARGES

          When a third party has an obligation to pay for Covered Services
          provided by the CONTRACTOR to an Enrollee pursuant to this Contract,
          the CONTRACTOR will bill the third party for the usual and customary
          charges for Covered Services provided and costs incurred. Should any
          sum be recovered by the Enrollee or otherwise, from or on behalf of
          the person responsible for payment for the service, the CONTRACTOR
          will be paid out of such recovery for the charges for service provided
          and costs incurred by the CONTRACTOR.

     2.   THIRD PARTY'S OBLIGATION TO PAY FOR COVERED SERVICES

          Examples of situations where a third party has an obligation to pay
          for Covered Services provided by the CONTRACTOR are when (a) the
          Enrollee is injured by a person due to the negligent or intentional
          acts (or omissions) of the person; or (b) the Enrollee is eligible to
          receive payment through Worker's Compensation Insurance. If the
          Enrollee does not diligently seek such recovery, the CONTRACTOR may
          institute such rights that it may have.

     3.   FIRST DOLLAR COVERAGE FOR ACCIDENTS

          In addition, both parties agree that the following will apply
          regarding first dollar coverage for accidents: If the injured party
          has additional insurance, primary coverage my be given to the motor
          insurance effective at the time of the accident. Once the motor
          vehicle policy is exhausted, the CONTRACTOR will be the secondary
          payer and pay for all of the Enrollee's Covered Services. If medical
          insurance does not exist, the CONTRACTOR will be the primary payer for
          all Covered Services.

     4.   NOTIFICATION OF STOP-LOSS

          The CONTRACTOR will provide ORS with quarterly updates of costs
          incurred by the CONTRACTOR when such costs exceed Stop Loss
          (reinsurance) provisions as defined in the contract between
          TransAmerica and the CONTRACTOR.

F.   CHANGES IN COVERED SERVICES

     If Covered Services are amended under the provisions of Attachment B,
     Article IV (Benefits), Section C, Subsection 3 of this Contract, rates may
     be renegotiated.

                                  Page 42 of 52



                    ARTICLE IX - RECORDS, REPORTS AND AUDITS

A.   FEDERALLY REQUIRED REPORTS

     1.   FINANCIAL DISCLOSURE REPORT

          If this Contract is being renewed, the CONTRACTOR will complete the
          Section 1318 Financial Disclosure Report for transactions (all
          transactions, not just Medicaid) occurring during the prior contract
          period, and submit it to the DEPARTMENT prior to the renewal start
          date. If the Contract is being renewed and the CONTRACTOR has a
          Medicare MCO product, the CONTRACTOR will submit the Medicare report
          to the DEPARTMENT upon request by the DEPARTMENT.

     2.   DISCLOSURE OF OWNERSHIP AND CONTROL INTEREST STATEMENT

          The CONTRACTOR will submit to the DEPARTMENT a copy of the "Disclosure
          of Ownership and Control Interest Statement" (HCFA-1513) prior to the
          effective date of the Contract and by April 15 of each year
          thereafter.

     3.   CHEC/EPSDT REPORTS

          The CONTRACTOR agrees to act as a continuing care provider for the
          CHEC/EPSDT program in compliance with OBRA '89 and Social Security Act
          Sections 1902 (a)(43), 1905(a)(4)(B)and 1905 (r).

          a.   CHEC/EPSDT SCREENINGS

               Annually, the CONTRACTOR will submit to the DEPARTMENT
               information on CHEC/EPSDT screenings to meet the Federal EPSDT
               reporting requirements (Form HCFA-416). The data will be in a
               mutually agreed upon format. The CHEC/EPSDT information is due
               December 31 for the prior federal fiscal year's data (October 1
               through September 30).

          b.   IMMUNIZATION DATA

               The CONTRACTOR will submit immunization data as part of the
               CHEC/EPSDT reporting. Enrollee name, Medicaid ID, type of
               immunization identified by procedure code, and date of
               immunization will be reported in the same format as the
               CHEC/EPSDT data.

B.   PERIODIC REPORTS

     1.   ENROLLMENT, COST AND UTILIZATION REPORTS (ATTACHMENT E)

          Enrollment, cost and utilization reports will be submitted on
          diskettes in Excel or Lotus and in the format specified in Attachment
          E. A hard copy of the report must be submitted as well. The DEPARTMENT
          will send to the CONTRACTOR a template of the Attachment E format on a
          diskette. The CONTRACTOR may not customize or

                                  Page 43 of 52



          change the report format. The financial information for these reports
          will be reported as defined in HCFA Publication 75, and if applicable,
          HCFA 15-1. The CONTRACTOR will certify in writing the accuracy and
          completeness, to the best of its knowledge, of all costs and
          utilization data provided to the DEPARTMENT on Attachment E.

          Two Attachment E reports will be submitted covering dates of service
          for each contract year.

          a.   Attachment E is due May 1 for the preceding six-month reporting
               period (July through December).

          b.   Attachment E is due November 1 for the preceding 12-month
               reporting period (July through June).

          If necessary, the CONTRACTOR may request, in writing, an extension of
          the due date up to 30 days beyond the required due date. The
          DEPARTMENT will approve or deny the extension request writing within
          seven calendar days of receiving the request.

     2.   SEMI-ANNUAL REPORTS

          The following semi-annual reports are due May 1 for the preceding
          six-month reporting period ending December 31 (July through December)
          and are due November 1 for the preceding six month period ending June
          30 (January through June).

          a.   ORGAN TRANSPLANTS

               A report of the total number of organ transplants by type of
               transplant.

          b.   OBSTETRICAL INFORMATION

               A report of obstetrical information including

               1)   total number of obstetrical deliveries by aid category
                    grouping
               2)   total number of caesarean sections and total number of
                    vaginal deliveries;
               3)   total number low birth weight infants; and
               4)   total number of Enrollees requiring prenatal hospital
                    admission.

          c.   COMPLAINTS AND FORMAL GRIEVANCES

               A summary of complaints and formal grievances, by type of
               complaint or grievance, received by the CONTRACTOR under this
               Contract and actions taken to resolve such complaints and
               grievances

          d.   ABERRANT PHYSICIAN BEHAVIOR

               Summary information of corrective actions taken on physicians who
               have been identified by the CONTRACTOR as exhibiting aberrant
               physician behavior and

                                  Page 44 of 52



               the names of physicians who have been removed from the CONTRACTOR
               network due to quality concerns.

     3.   QUALITY ASSURANCE ACTIVITIES

          Annually, the CONTRACTOR will submit their written quality improvement
          plan and their quality improvement work plan within 30 days of
          approval by the CONTRACTOR's governing body.

          Annually, on November 1, the CONTRACTOR will submit a report that
          identifies the CONTRACTOR's internal quality assurance activities,
          results thereof, and corrective actions taken during the previous
          contract year ending (July through June).

     4.   HEDIS

          Audited Health Plan Employer Data and Information Set (HEDIS)
          performance measures will cover services rendered during each calendar
          year and will be reported as set forth in State rule by the Office of
          Health Data Analysis. For example, calendar year 1997 HEDIS measures
          will be reported in 1998.

     5.   ENCOUNTER DATA

          Encounter data, as defined in the DEPARTMENT's Encounter Data
          Technical Manual, is due (including all replacements) nine months
          after the end of the quarter being reported. Encounter data will be
          submitted in accordance with the instructions detailed in the
          Encounter Data User Manual for dates of service beginning July 1,
          1997.

     6.   DOCUMENTS DUE PRIOR TO QUALITY MONITORING REVIEWS

          The following documents are due on request or at least 60 days prior
          to the DEPARTMENT's quality assurance monitoring review unless the
          DEPARTMENT has already received documents that are in effect:

          a.   the CONTRACTOR's most current (may be in draft stage) written
               plan for quality improvement;
          b.   the CONTRACTOR's most current (may be in draft stage) annual
               quality improvement work plan;
          c.   the CONTRACTOR's reports that identify over and under utilization
               of covered services and efforts put in place to resolve
               inappropriate over utilization and under utilization;
          d.   the CONTRACTOR's process for identifying and correcting aberrant
               provider behavior; and
          e.   other information requested by the DEPARTMENT to facilitate the
               DEPARTMENT's review of the CONTRACTOR's compliance to standards
               defined in the Division of Health Care Financing's MCO Quality
               Assurance Monitoring Plan (Attachment G).

                                  Page 45 of 52



          The above  documents  will show evidence of a well defined,  organized
          program designed to improve client care.

     7.   AUDIT OF ABORTIONS, STERILIZATIONS AND HYSTERECTOMIES

          The CONTRACTOR must conduct an annual audit of all abortions in
          addition to an audit of a sample of sterilizations and hysterectomies
          as set by the DEPARTMENT that the CONTRACTOR providers performed
          during each contract year to assure compliance of its providers with
          all Federal and State requirements related to Federal financial
          participation of abortions. On November 1 of each year, the CONTRACTOR
          will submit to the DEPARTMENT the results of the audit for the
          previous calendar year.

     8.   DEVELOPMENT OF NEW REPORTS

          Any new reports/data requirements mandated by the DEPARTMENT will be
          mutually developed by the DEPARTMENT and the CONTRACTOR.

C.   RECORD SYSTEM REQUIREMENTS

     In accordance with Section 4752 of OBRA '90 (amended section 1903 (m)(2)(A)
     of the Social Security Act), the CONTRACTOR agrees to maintain sufficient
     patient encounter data to identify the physician who delivers Covered
     Services to Enrollees. The CONTRACTOR agrees to provide this encounter
     data, upon request of the DEPARTMENT, within 30 days of the request.

D.   MEDICAL RECORDS

     The CONTRACTOR agrees that medical records are considered confidential
     information and agrees to follow Federal and State confidentiality
     requirements.

     The CONTRACTOR will require that subcontracting providers maintain a
     medical record keeping system through which all pertinent information
     relating to the medical management of the Enrollee is maintained,
     organized, and is readily available to appropriate professionals.
     Notwithstanding any other provision of this Contract to the contrary,
     medical records covering Enrollees will remain the property of the
     CONTRACTOR provider, and the CONTRACTOR provider will respect every
     Enrollee's privacy by restricting the use and disclosure of information in
     such records to purposes directly connected with the Enrollee's health care
     and administration of this Contract. The CONTRACTOR will use and disclose
     information pertaining to individual Enrollees and prospective Enrollees
     only for purposes directly connected with the administration of the
     Medicaid Program and this Contract.

E.   AUDITS

     1.   RIGHT OF DEPARTMENT AND HCFA TO AUDIT

          The DEPARTMENT and the Secretary of the Department of Health and Human
          Services within HCFA will have the right to audit and inspect any
          books and records of the CONTRACTOR and its subcontractors pertaining
          (I) to the ability of the

                                  Page 46 of 52



          CONTRACTOR to bear the risk of potential financial losses, or (II) to
          evaluate services performed or determinations of amounts payable under
          the Contract.

     2.   INFORMATION TO DETERMINE ALLOWABLE COSTS

          The CONTRACTOR will make available to the DEPARTMENT all reasonable
          and related financial, statistical, clinical or other information
          needed for the determination of allowable costs to the Medicaid
          program for "related party/home office" transactions as defined in
          HCFA 15-1. These records are to be made available in Utah or the
          CONTRACTOR will pay the increased cost (incremental travel, per diem,
          etc.) of auditing at the out-of-state location. The cost to the
          CONTRACTOR will include round-trip travel and two days per
          diem/lodging. Additional travel costs of the site audit will be shared
          equally by the CONTRACTOR and the DEPARTMENT.

     3.   MANAGEMENT AND UTILIZATION AUDITS

          The MCO will allow the DEPARTMENT and the Department of Health and
          Human Services within HCFA to perform audits for identification and
          collection of management data, including Enrollee satisfaction data,
          quality of care data, patient outcome cost, and utilization data,
          which will include patient profiles, exception reports, etc. The
          CONTRACTOR will provide all data required by the DEPARTMENT or the
          independent quality review examiners in performance of these audits.
          Prior to beginning any audit, the DEPARTMENT will give the CONTRACTOR
          reasonable notice of audit, and the DEPARTMENT will be responsible for
          costs of its auditors or representatives.

F.   INDEPENDENT QUALITY REVIEW

     1.   IN GENERAL

          Pursuant to Section 1932(c)(2)(A) of the Social Security Act the
          DEPARTMENT will provide for an annual external independent review
          conducted by a qualified independent entity of the quality outcomes
          and timeliness of, and access to Covered Services. The CONTRACTOR will
          support the annual external independent review.

          The DEPARTMENT will choose an agency to perform an annual independent
          quality review pursuant to federal law and will pay for such review.
          The CONTRACTOR will maintain all clinical and administrative records
          for use by the quality review contractor.

          The CONTRACTOR agrees to support quality assurance reviews, focused
          studies and other projects performed for the DEPARTMENT by the
          external quality review organization (EQRO). The purpose of the
          reviews and studies are to comply with federal requirements for an
          annual independent audit of the quality outcomes and timeliness of,
          and access to Covered Services. The external independent reviews are
          conducted by the EQRO, with the advice, assistance, and cooperation of
          a planning team composed of representatives from the CONTRACTOR, the
          EQRO and the DEPARTMENT with final approval by the DEPARTMENT.

                                  Page 47 of 52



     2.   SPECIFIC REQUIREMENTS

          a.   LIAISON FOR ROUTINE COMMUNICATION

               The CONTRACTOR will designate an individual to serve as liaison
               with the EQRO for routine communication with the EQRO.

          b.   REPRESENTATIVE TO ASSIST WITH PROJECTS

               The CONTRACTOR will designate a minimum of two representatives
               (unless one individual can service both functions) to serve on
               the planning team for each EQRO project. Representatives will
               include a quality improvement representative and a data
               representative. The planning team is a joint collaborative forum
               between DEPARTMENT staff, the EQRO and the CONTRACTOR. The role
               of the planning team is to participate in the process and
               completion of EQRO projects.

          c.   COPIES AND ON-SITE ACCESS

               The CONTRACTOR will be responsible for obtaining copies of
               Enrollee information and facilitating on-site access to Enrollee
               information as needed by the EQRO. Such information will be used
               to plan and conduct projects and to investigate complaints and
               grievances. Any associated copying costs are the responsibility
               of the CONTRACTOR. Enrollee information includes medical records,
               administrative data such as, but not limited to, enrollment
               information and claims, nurses' notes, medical logs, etc. of the
               CONTRACTOR or its providers.

          d.   FORMAT OF ENROLLEE FILES

               The CONTRACTOR will provide Enrollee information in a mutually
               agreed upon format compatible for the EQRO's use, and in a timely
               fashion to allow the EQRO to select cases for its review.

          e.   TIME-FRAME FOR PROVIDING DATA

               The CONTRACTOR will provide data requests to the EQRO within 15
               working days of the written request from the EQRO and will
               provide medical records within 30 working days of the written
               request from the EQRO. Requests for extensions of these time
               frames will be reviewed and approved or disapproved by the
               DEPARTMENT on a case-by-case basis.

          f.   WORK SPACE FOR ON-SITE REVIEWS

               The CONTRACTOR will assure that the EQRO staff and consultants
               have adequate work space, access to a telephone and copy machines
               at the time of review. The review will be performed during
               agreed-upon hours.

                                  Page 48 of 52



          g.   STAFF ASSISTANCE DURING ON-SITE VISITS

               The CONTRACTOR will assign appropriate person(s) to assist the
               EQRO personnel conduct the reviews during on-site visits and to
               participate in an informal discussion of screening observations
               at the end of each on-site visit, if necessary.

          h.   CONFIDENTIALITY

               For information received from the EQRO, the CONTRACTOR will
               comply with the Department of Health and Human Services
               regulations relating to confidentiality of data and information
               (42 CFR Part 476.107 and 476.108).

                              ARTICLE X - SANCTIONS

     The DEPARTMENT may impose intermediate sanctions on the CONTRACTOR if the
     CONTRACTOR defaults in any manner in the performance of any obligation
     under this Contract including but not limited to the following situations:

     (1)  the CONTRACTOR fails to substantially provide Medically Necessary
          Covered Services to Enrollees;

     (2)  the CONTRACTOR imposes premiums or charges Enrollees in excess of the
          premiums or charges permitted under this Contract;

     (3)  the CONTRACTOR acts to discriminate among Enrollees on the basis of
          their health status or requirements for health care services,
          including expulsion or refusal to re-enroll an individual, except as
          permitted by Title XIX, or engaging in any practice that would
          reasonably be expected to have the effect of denying or discouraging
          enrollment with the MCO by potential enrollees whose medical condition
          or history indicates a need for substantial future medical services;

     (4)  the CONTRACTOR misrepresents or falsifies information furnished to the
          Health Care Financing Administration, the DEPARTMENT, an Enrollee,
          potential Enrollee or health care provider;

     (5)  the CONTRACTOR fails to comply with the physician incentive
          requirements under Section 1903(m)(2)(A)(x) of the Social Security
          Act.

     (6)  the CONTRACTOR distributed directly or through any agent or
          independent contractor marketing materials that contain false or
          misleading information.

     The DEPARTMENT must follow the 1997 Balance Budget Act guidelines on the
     types of intermediate sanctions the DEPARTMENT may impose, including civil
     monetary penalties, the appointment of temporary management, and suspension
     of payment.

                                  Page 49 of 52



                    ARTICLE XI - TERMINATION OF THE CONTRACT

A.   AUTOMATIC TERMINATION

     This Contract will automatically terminate June 30, 2004.

B.   OPTIONAL YEAR-END TERMINATION

     At the end of each contract year, either party may terminate the Contract
     without cause for subsequent years by giving the other party written notice
     of termination at least 90 days prior to the end of the contract year (July
     1 through June 30).

C.   TERMINATION FOR FAILURE TO AGREE UPON RATES

     At least 60 days prior to the end of each contract year, the parties will
     meet and negotiate in good faith the rates (Attachment F) applicable to the
     upcoming year. If the parties cannot agree upon future rates by the end of
     the contract year, then either party may terminate the Contract for
     subsequent years by giving the other party written notice of termination
     and the termination will become effective 90 days after receipt of the
     written notice of termination.

D.   EFFECT OF TERMINATION

     1.   COVERAGE

          Inasmuch as the CONTRACTOR is paid on a monthly basis, the CONTRACTOR
          will continue providing the Covered Services required by this Contract
          until midnight of the last day of the calendar month in which the
          termination becomes effective. If an Enrollee is a patient in an
          inpatient hospital setting during the month in which termination
          becomes effective, the CONTRACTOR is responsible for the entire
          hospital stay including physician charges until discharge or thirty
          days following termination, whichever occurs first.

     2.   ENROLLEE NOT LIABLE FOR DEBTS OF CONTRACTOR OR ITS SUBCONTRACTORS

          If the CONTRACTOR or one of its subcontractors becomes insolvent or
          bankrupt, the Enrollees will not be liable for the debts of the
          CONTRACTOR or its subcontractor. The CONTRACTOR will include this term
          in all of its subcontracts.

     3.   INFORMATION FOR CLAIMS PAYMENT

          The CONTRACTOR will promptly supply to the DEPARTMENT all information
          necessary for the reimbursement of any Medicaid claims not paid by the
          CONTRACTOR.

     4.   CHANGES IN ENROLLMENT PROCESS

          The CONTRACTOR will be advised of anticipated changes in policies and
          procedures as they relate to the enrollment process and their comments
          will be solicited. The

                                  Page 50 of 52



          CONTRACTOR agrees to be bound by such changes in policies and
          procedures unless they are not agreeable to the CONTRACTOR, in which
          case the CONTRACTOR may terminate the Contract in accordance with the
          Contract termination provisions.

     5.   HEARING PRIOR TO TERMINATION

          Regarding the General Provisions, Article XVII (Default, Termination,
          & Payment Adjustment), item 3, if the CONTRACTOR fails to meet the
          requirements of the Contract, the DEPARTMENT must give the CONTRACTOR
          a hearing prior to termination. Enrollees must be informed of the
          hearing and will be allowed to disenroll from the MCO without cause.

E.   ASSIGNMENT

     Assignment of any or all rights or obligations under this Contract without
     the prior written consent of the DEPARTMENT is prohibited. Sale of all or
     any part of the rights or obligations under this Contract will be deemed an
     assignment. Consent may be withheld in the DEPARTMENT's sole and absolute
     discretion.

                           ARTICLE XII - MISCELLANEOUS

A.   INTEGRATION

     This Contract contains the entire agreement between the parties with
     respect to the subject matter of this Contract. There are no
     representations, warranties, understandings, or agreements other than those
     expressly set forth herein. Previous contracts between the parties hereto
     and conduct between the parties which precedes the implementation of this
     Contract will not be used as a guide to the interpretation or enforcement
     of this Contract or any provision hereof.

B.   ENROLLEES MAY NOT ENFORCE CONTRACT

     Although this Contract relates to the provision of benefits for Enrollees
     and others, no Enrollee is entitled to enforce any provision of this
     Contract against the CONTRACTOR nor will any provision of this Contract be
     constructed to constitute a promise by the CONTRACTOR to any Enrollee or
     potential Enrollee.

C.   INTERPRETATION OF LAWS AND REGULATIONS

     The DEPARTMENT will be responsible for the interpretation of all federal
     and State laws and regulations governing or in any way affecting this
     Contract. When interpretations are required, the CONTRACTOR will submit
     written requests to the DEPARTMENT. The DEPARTMENT will retain full
     authority and responsibility for the administration of the Medicaid program
     in accordance with the requirements of Federal and State law.

                                  Page 51 of 52



D.   ADOPTION OF RULES

     Adoption of rules by the DEPARTMENT, subsequent to this amendment, and
     which govern the Medicaid program, will be automatically incorporated into
     this Contract upon receipt by the CONTRACTOR of written notice thereof.

                   ARTICLE XIII - EFFECT OF GENERAL PROVISIONS

If there is a conflict between these Special Provisions (Attachment B) or the
General Provisions (Attachment A), then these Special Provisions will control.

                                  Page 52 of 52



                         ATTACHMENT C - COVERED SERVICES

A.   IN GENERAL

     The CONTRACTOR will provide the following benefits to Enrollees in
     accordance with Medicaid benefits as defined in the Utah State Plan subject
     to the exception or limitations as noted below. The DEPARTMENT reserves the
     right to interpret what is in the State plan. Medicaid services can only be
     limited through utilization criteria based on Medical Necessity. The
     CONTRACTOR will provide at least the following benefits to Enrollees.

     The CONTRACTOR is responsible to provide or arrange for all Medically
     Necessary Covered Services on an emergency basis 24 hours each day, seven
     days a week. The CONTRACTOR is responsible for payment for all covered
     Emergency Services furnished by providers that do not have arrangements
     with the CONTRACTOR.

B.   HOSPITAL SERVICES

     1.   INPATIENT HOSPITAL

          Services furnished in a licensed, certified hospital.

     2.   OUTPATIENT HOSPITAL

          Services provided to Enrollees at a licensed, certified hospital who
          are not admitted to the hospital.

     3.   EMERGENCY DEPARTMENT SERVICES

          Emergency Services provided to Enrollees in designated hospital
          emergency departments.

C.   PHYSICIAN SERVICES

     Services provided directly by licensed physicians or osteopaths, or by
     other licensed professionals such as physician assistants, nurse
     practitioners, or nurse midwives under the physician's or osteopath's
     supervision.

D.   GENERAL PREVENTIVE SERVICES

     The CONTRACTOR must develop or adopt practice guidelines consistent with
     current standards of care, as recommended by professional groups such as
     the American Academy of Pediatric and the U.S. Task Force on Preventive
     Care.

     A minimum of three screening programs for prevention or early intervention
     (e.g. Pap Smear, diabetes, hypertension).

                                  Page 1 of 11



E.   VISION CARE

     Services provided by licensed ophthalmologists or licensed optometrists,
     and opticians within their scope of practice. Eyeglasses will be provided
     to eligible recipients based on medical necessity. Services include, but
     are not limited to, the following:

     1.   Eye refractions, examinations
     2.   Laboratory work
     3.   Lenses
     4.   Eyeglass Frames
     5.   Repair of Frames
     6.   Repair or Replacement of Lenses
     7.   Contact Lenses (when Medically Necessary)

F.   LAB AND RADIOLOGY SERVICES

     Professional and technical laboratory and X-ray services furnished by
     licensed and certified providers. All laboratory testing sites, including
     physician office labs, providing services under this Contract will have
     either a Clinical Laboratory Improvement Amendments (CLIA) certificate of
     Waiver or a certificate of registration along with a CLIA identification
     number.

     Those laboratories with certificates of waiver will provide only the eight
     types of tests permitted under the terms of their waiver. Laboratories with
     certificates of registration may perform a full range of laboratory tests.

G.   PHYSICAL AND OCCUPATIONAL THERAPY

     1.   PHYSICAL THERAPY

          Treatment and services provided by a licensed physical therapist.
          Treatment and services must be authorized by a physician and include
          services prescribed by a physician or other licensed practitioner of
          the healing arts within the scope of his or her practice under State
          law and provided to an Enrollee by or under the direction of a
          qualified physical therapist. Necessary supplies and equipment will be
          reviewed for medical necessity and follow the criteria of the R414.12
          rule.

     2.   OCCUPATIONAL THERAPY

          Treatment of services provided by a licensed occupational therapist.
          Treatment and services must be authorized by a physician and include
          services prescribed by a physician or other licensed practitioner of
          the healing arts within the scope of his or her practice under State
          law and provided to an Enrollee by or under the direction of a
          qualified occupational therapist. Necessary supplies and equipment
          will be reviewed for medical necessity and follow the criteria of the
          R414.12 rule.

                                  Page 2 of 11



H.   SPEECH AND HEARING SERVICES

     Services and appliances, including hearing aids and hearing aid batteries,
     provided by a licensed medical professional to test and treat speech
     defects and hearing loss.

I.   PODIATRY SERVICES

     Services provided by a licensed podiatrist.

J.   END STAGE RENAL DISEASE - DIALYSIS

     Treatment of end stage renal dialysis for kidney failure. Dialysis is to be
     rendered by a Medicare-certified Dialysis facility.

K.   HOME HEALTH SERVICES

     Home health services are defined as intermittent nursing care provided by
     certified nursing professionals (registered nurses, licensed practical
     nurses, and home health aides) in the client's home when the client is
     homebound or semi-homebound. Home health care must be rendered by a
     Medicare-certified Home Health Agency that has a surety bond.

     Personal care services as defined in the DEPARTMENT's Medicaid Personal
     Care Provider Manual are included in this Contract. Personal care services
     may be provided by a State licensed home health agency.

L.   HOSPICE SERVICES

     Services delivered to terminally ill patients (six months life expectancy)
     who elect palliative versus aggressive care. Hospice care is to be rendered
     by a Medicare-certified hospice.

M.   PRIVATE DUTY NURSING

     Services provided by licensed nurses for ventilator-dependent children and
     technology-dependent adults in their home in lieu of hospitalization if
     Medically Necessary, feasible, and safe to be provided in the patient's
     home. Requests for continuous care will be evaluated on a case by case
     basis and must be approved by the CONTRACTOR.

N.   MEDICAL SUPPLIES AND MEDICAL EQUIPMENT

     This Covered Service includes any necessary supplies and equipment used to
     assist the Enrollee's medical recovery, including both durable and
     non-durable medical supplies and equipment, and prosthetic devices. The
     objective of the medical supplies program is to provide supplies for
     maximum reduction of physical disability and restore the Enrollee to his or
     her best functional level. Medical supplies may include any necessary
     supplies and equipment recommended by a physical or occupational therapist,
     but should be ordered by a physician. Durable medical equipment includes,
     but is not limited to, prosthetic devices and specialized wheelchairs.
     Durable medical equipment and supplies must be provided by a durable
     medical

                                  Page 3 of 11



     equipment supplier that has a surety bond. Necessary supplies and equipment
     will be reviewed for medical necessity and follow the criteria of the
     R414.12 of the Utah Administrative Code, with the exception of criteria
     concerning long term care since long term care services are not covered
     under the Contract.

O.   ABORTIONS AND STERILIZATIONS

     These services are provided to the extent permitted by Federal and State
     law and must meet the documentation requirement of 42 CFR 441, Subparts E
     and F. These requirements must be met regardless of whether Medicaid is
     primary or secondary payer.

P.   TREATMENT FOR SUBSTANCE ABUSE AND DEPENDENCY

     Treatment will cover medical detoxification for alcohol or substance abuse
     conditions. Medical services including hospital services will be provided
     for the medical non-psychiatric aspects of the conditions of alcohol/drug
     abuse.

Q.   ORGAN TRANSPLANTS

     The following transplantations are covered for all Enrollees: Kidney,
     liver, cornea, bone marrow, heart, intestine, lung, pancreas, small bowel,
     combination heart/lung, combination intestine/liver, combination
     kidney/pancreas, combination liver/kidney, multi visceral, and combination
     liver/small bowel unless amended under the provisions of Attachment B,
     Article IV (Benefits), Section C, Subsection 3 of this Contract.

R.   OTHER OUTSIDE MEDICAL SERVICES

     The CONTRACTOR, at its discretion and without compromising quality of care,
     may choose to provide services in Freestanding Emergency Centers, Surgical
     Centers and Birthing Centers.

S.   LONG TERM CARE

     The CONTRACTOR may provide long term care for Enrollees in skilled nursing
     facilities requiring such care as a continuum of a medical plan when the
     plan includes a prognosis of recovery and discharge within thirty (30) days
     or less. When the prognosis of an Enrollee indicates that long term care
     (over 30 days) will be required, the CONTRACTOR will notify the DEPARTMENT
     and the skilled nursing facility of the prognosis determination and will
     initiate disenrollment to be effective on the first day of the month
     following the prognosis determination. Skilled nursing care is to be
     rendered in a skilled nursing facility which meets federal regulations of
     participation.

T.   TRANSPORTATION SERVICES

     Ambulance (ground and air) service for medical emergencies. The CONTRACTOR
     is also responsible to pay for authorized emergency transportation for an
     illness or accident episode which, upon subsequent medical evaluation at
     the hospital, is determined to be psychiatric-related. The CONTRACTOR will
     submit its emergency transportation policy to the

                                  Page 4 of 11



     DEPARTMENT for review. The CONTRACTOR is not responsible for transporting
     an Enrollee from an acute care facility to another acute care facility for
     a psychiatric admission. The CONTRACTOR's scope of coverage for emergency
     transportation services is limited to the same scope of coverage as defined
     in the transportation Medicaid provider manual.

U.   SERVICES TO CHEC ENROLLEES

     1.   CHEC SERVICES

          The CONTRACTOR will provide to CHEC Enrollees preventive screening
          services and other necessary medical care, diagnostic services,
          treatment, and other measures necessary to correct or ameliorate
          defects and physical and mental illnesses and conditions discovered by
          the screening services, whether or not such services are covered under
          the State Medicaid Plan. The CONTRACTOR is not responsible for home
          and community-based services available through Utah's Home and
          Community-Based waiver programs.

          The CONTRACTOR will provide the full early and periodic screening,
          diagnosis, and treatment services to all eligible children and young
          adults up to age 21 in accordance with the periodicity schedule as
          described in the Utah CHEC Provider Manual. All children between six
          months and 72 months must be screened for blood lead levels.

     2.   CHEC POLICIES AND PROCEDURES

          The CONTRACTOR agrees to have written policies and procedures for
          conducting tracking, follow-up, and outreach to ensure compliance with
          the CHEC periodicity schedules. These policies and procedures will
          emphasize outreach and compliance monitoring for children and young
          adults, taking into account the multi-lingual, multicultural nature as
          well as other unique characteristics of the CHEC Enrollees.

V.   FAMILY PLANNING SERVICES

     This service includes disseminating information, counseling, and treatments
     relating to family planning services. All services must be provided by or
     authorized by a physician, certified nurse midwife, or nurse practitioner.
     All services must be provided in concert with Utah law.

     Birth control services include information and instructions related to the
     following:

     1.   Birth control pills;
     2.   Norplant;
     3.   Depo Provera;
     4.   IUDs;
     5.   Barrier methods including diaphragms, male and female condoms, and
          cervical caps;
     6.   Vasectomy or tubal ligations; and
     7.   Office calls, examinations or counseling related to contraceptive
          devices.

                                  Page 5 of 11



W.   HIGH-RISK PRENATAL SERVICES

     1.   IN GENERAL - ENSURE SERVICE ARE APPROPRIATE AND COORDINATED

          The CONTRACTOR must ensure that high risk pregnant Enrollees receive
          an appropriate level of quality perinatal care that is coordinated,
          comprehensive and continuous either by direct service or referral to
          an appropriate provider or facility. In the determination of the
          provider and facility to which a high risk prenatal Enrollee will be
          referred, care must be taken to ensure that the provider and facility
          both have the appropriate training, expertise and capability to
          deliver the care needed by the Enrollee and her fetus/infant. Although
          many complications in perinatal health cannot be anticipated, most can
          be identified early in pregnancy. Ideally, preconceptional counseling
          and planned pregnancy are the best ways to assure successful pregnancy
          outcome, but this is often not possible. Provision of routine
          preconceptional counseling must be made available to those women who
          have conditions identified as impacting pregnancy outcome, i.e.,
          diabetes mellitus, medications which may result in fetal anomalies or
          poor pregnancy outcome, or previous severe anomalous fetus/infant,
          among others.

     2.   RISK ASSESSMENT

          a.   CRITERIA

               Enrollees who are pregnant should be risk assessed for medical
               and psychosocial conditions which may contribute to a poor birth
               outcome at their first prenatal visit, preferably in the first
               trimester. The patient who is determined not to be at high risk
               should be evaluated for change in risk status throughout her
               pregnancy. There are a number of complex systems to determine how
               to assess the risk of pregnancies. The DEPARTMENT has developed a
               risk assessment tool available through the Division of Community
               and Family Health Services which is available upon request.

          b.   RECOMMENDED PRENATAL SCREENING

               The DEPARTMENT recommends prenatal screening of every woman for
               hepatitis B surface antigen (HBsAg) to identify all those at high
               risk for transmitting the virus to their newborns. When a woman
               is found to be HBsAg-positive, the CONTRACTOR will provide HBIG
               and HB vaccine at birth. Initial treatments should be given
               during the first 12 hours of life.

          c.   CLASSIFICATION

               Upon identification of pregnancy or the development of a risk
               factor, each patient should be assigned a classification as
               outlined below.

               1)   Group I
                    Group I patients have no significant risk factors. They may
                    receive obstetrical care by an obstetrician/gynecologist
                    (OB/GYN), family

                                  Page 6 of 11



                    practitioner or certified nurse midwife.

               2)   Group II
                    Group II patients have the following risk factors, and
                    require consultation (consultation may be either by
                    telephone or in person, as appropriate) with an OB/GYN:

                    i.      pregnancy beyond 42 weeks
                    ii.     preterm labor in the current pregnancy less than 34
                            weeks
                    iii.    fetal malpresentation at 37 weeks gestation and
                            beyond*
                    iv.     oxytocin or antepartum prostaglandin use is
                            contemplated*
                    v.      arrest of dilatation in labor, or arrest of descent
                            in labor*
                    vi.     bleeding in labor, beyond bloody show*
                    vii.    abnormal fetal heart rate pattern potentially
                            requiring specific intervention*
                    viii.   chorioamnionitis*
                    ix.     preeclampsia
                    x.      VBAC*

                    *Criteria do not apply if family physician has cesarean
                    privileges.

               3.   Group III
                    Group III patients have the following risk factors, and
                    require consultation by a Maternal Fetal Medicine (MFM)
                    specialist (board certified perinatologist)

                    i.      intrauterine growth restriction prior to 37 weeks
                    ii.     patient at increased risk for fetal anomaly
                            (including teratogen exposure)
                    iii.    patient has known fetal anomaly

                    iv.     preterm delivery (less than 36 weeks) in a prior
                            pregnancy

                    v.      abnormal serum screening

                    vi.     previous child with congenital anomaly
                    vii.    antibody sensitization
                    viii.   anemia, excluding iron deficiency
                    ix.     significant concurrent medical illness
                    x.      spontaneous premature rupture of the membranes, not
                            in labor (less than 34 weeks)
                    xi.     history of thromboembolic disease
                    xii.    thromboembolic disease in current pregnancy
                    xiii.   habitual pregnancy loss (3 or more consecutive
                            losses)
                    xiv.    two or more previous stillbirths or neonatal deaths

               4.   Group IV
                    Group IV patients have the following risk factors, and
                    require total obstetric care by an OB/GYN, or co-management
                    with an OB/GYN or MFM

                                  Page 7 of 11



                    i.      any significant medical complication, including
                            patients with insulin dependent diabetes millitus,
                            chronic hypertension requiring medication, maternal
                            neoplastic disease
                    ii.     twins
                    iii.    known or suspected cervical incompetence
                    iv.     placenta previa beyond 28 week gestation
                    v.      severe preeclampsia

               5.   Group V
                    Group V patients have the following risk factors, and
                    require total obstetric care by a MFM (exceptions may be
                    made by a regional MFM specialist, on a case-by-case basis,
                    after MFM consultation)

                    i.      triplets and above
                    ii.     patient has an organ transplant (except cornea)
                    iii.    diabetes mellitus with severe renal impairment
                    iv.     cardiac disease, not functional class I, including
                            all pulmonary hypertension
                    v.      twin-twin transfusion syndrome
                    vi.     patient requires fetal surgical procedure

     3.   PRENATAL INITIATIVE PROGRAM

          Prenatal services provided directly or through agreements with
          appropriate providers includes those services covered under Medicaid's
          Prenatal Initiative Program which includes the following enhanced
          services for pregnant women:

          a.   perinatal care coordination
          b.   prenatal and postnatal home visits
          c.   group prenatal and postnatal education
          d.   nutritional assessment and counseling
          e.   prenatal and postnatal psychosocial counseling

          Psychosocial counseling is a service designed to benefit the pregnant
          client by helping her cope with the stress that may accompany her
          pregnancy. Enabling her to manage this stress improves the likelihood
          that she will have a healthy pregnancy. This counseling is intended to
          be short term and directly related to the pregnancy. However, pregnant
          women who are also suffering from a serious emotional or mental
          illness should be referred to an appropriate mental health care
          provider.

X.   SERVICES FOR CHILDREN WITH SPECIAL NEEDS

     1.   IN GENERAL

          In addition to primary care, children with chronic illnesses and
          disabilities need specialized care provided by trained experienced
          professionals. Since early diagnosis and intervention will prevent
          costly complications later on, the specialized care must be provided
          in a timely manner. The specialized care must comprehensively address
          all

                                  Page 8 of 11



          areas of need to be most effective and must be coordinated with
          primary care and other services to be most efficient. The children's
          families must be involved in the planning and delivery of the care for
          it to be acceptable and successful.

     2.   SERVICES REQUIRING TIMELY ACCESS

          All children with special health care needs must have timely access to
          the following services:

          a.   Comprehensive evaluation for the condition.

          b.   Pediatric subspecialty consultation and care appropriate to the
               condition.

          c.   Rehabilitative services provided by professionals with pediatric
               training in areas such as physical therapy, occupational therapy
               and speech therapy.

          d.   Durable medical equipment appropriate for the condition.

          e.   Care coordination for linkage to early intervention, special
               education and family support services and for tracking progress.

          In addition, children with the conditions marked by * below must have
          timely access to coordinated multispecialty clinics, when Medically
          Necessary, for their disorder.

     3.   DEFINITION OF CHILDREN WITH SPECIAL HEALTH CARE NEEDS

          The definition of children with special health needs includes, but is
          not limited to, the following conditions:

          a.   Nervous System Defects such as
               Spina Bifida*
               Sacral Agenesis*
               Hydrocephalus

          b.   Craniofacial Defects such as
               Cleft Lip and Palate*
               Treacher - Collins Syndrome

          c.   Complex Skeletal Defects such as
               Arthrogryposis*
               Osteogenesis Imperfecta*
               Phocomelia*

          d.   Inborn Metabolic Disorders such as
               Phenylketonuria*
               Galactosemia*

                                  Page 9 of 11



          e.   Neuromotor Disabilities such as
               Cerebral palsy*
               Muscular Dystrophy*
               Complex Seizure Disorders

          f.   Congenital Heart Defects

          g.   Genetic Disorders such as
               Chromosome Disorders
               Genetic Disorders

          h.   Chronic Illnesses such as
               Cystic Fibrosis
               Hemophilia
               Rheumatoid Arthritis
               Bronchopulmonary Dysplasia
               Cancer
               Diabetes
               Nephritis
               Immune Disorders

          i.   Developmental Disabilities with multiple or global delays in
               development such as Down Syndrome or other conditions associated
               with mental retardation.

          The CONTRACTOR agrees to cover all Medically Necessary services for
          children with special health care needs such as the ones listed above.
          The CONTRACTOR further agrees to cooperate with the DEPARTMENTS
          quality assurance monitoring for this population by providing
          requested information.

Y.   MEDICAL AND SURGICAL SERVICES OF A DENTIST

     1.   WHO MAY PROVIDE SERVICES

          Under Utah law, medical and surgical services of a dentist may be
          provided by either a physician or a doctor of dental medicine or
          dental surgery.

     2.   UNIVERSE OF COVERED SERVICES

          Medical and surgical services that under Utah law may be provided by a
          physician or a doctor of dental medicine or dental surgery, are
          covered under the Contract.

     3.   SERVICES SPECIFICALLY COVERED

          Palliative care and pain relief for severe mouth or tooth pain in an
          emergency room are covered services. The CONTRACTOR is responsible for
          authorized/approved medical services provided by oral surgeons
          consistent with injury, accident, or disease including, but not
          limited to, removal of tumors in the mouth, setting and wiring a
          fractured jaw. If

                                  Page 10 of 11



          the emergency room physician determines that it is not an emergency
          and the client requires services at a lesser level, the provider
          should refer the client to a dentist for treatment. If the
          dental-related problem is serious enough for the client to be admitted
          to the hospital the CONTRACTOR is responsible for coverage of the
          inpatient hospital stay.

     4.   DENTAL SERVICES NOT COVERED

          The CONTRACTOR is not responsible for services that are usually
          considered dental such as fillings, pulling of teeth, treatment of
          abscess or infection, orthodontics, and pain relief when provided by a
          dentist in the office or in an outpatient setting such as surgical
          center or scheduled same day surgery in a hospital.

Z.   DIABETES EDUCATION

     The CONTRACTOR shall provide diabetes self-management education from a Utah
     certified or American Diabetes Association recognized program when an
     Enrollee:

     1.   has recently been diagnosed with diabetes, or

     2.   is determined by the health care professional to have experienced a
          significant change in symptoms, progression of the disease or health
          condition that warrants changes in the Enrollee's self-management
          plan, or

     3.   is determined by the health care professional to require re-education
          or refresher training.

AA. HIV PREVENTION

     The CONTRACTOR shall have in place the following:

     1.   GENERAL PROGRAM

          The CONTRACTOR must have educational methods for promoting HIV
          prevention to Enrollees. HIV prevention information, both primary
          (targeted to uninfected Enrollees), as well as secondary (targeted to
          those Enrollees with HIV) should must be culturally and linguistically
          appropriate. All Enrollees should be informed of the availability of
          both in-plan HIV counseling and testing services, as well as those
          available from Utah State-operated programs.

     2.   FOCUSED PROGRAM FOR WOMEN

          Special attention should be paid identifying HIV+ women and engaging
          them in routine care in order to promote treatment including, but not
          limited to, antiretroviral therapy during pregnancy.

                                  Page 11 of 11



                      ATTACHMENT D - QUALITY ASSURANCE AND
                             UTILIZATION MANAGEMENT

A.   QUALITY OF CARE

     1.   IN GENERAL

          The CONTRACTOR will establish a written quality assurance plan, an
          annual quality improvement work plan, and a plan for utilization
          management for covered services. All plans should show evidence of a
          well defined, organized program designed to improve client care, to
          monitor over utilization and under utilization, and to identify and
          correct aberrant provider behavior. Prior to the effective date of the
          Contract, all plans must be reviewed by the DEPARTMENT.

     2.   REQUIRED ELEMENTS OF PLANS

          Together, all plans will:

          a.   Show systematic surveillance and assessment of all modes of
               delivery by appropriate health professionals;

          b.   Show mechanisms and/or designation of individuals with specific
               responsibility to resolve identified problems;

          c.   Provide for monitoring to assure that resolution is achieved and
               maintained with documentary evidence of same;

          d.   Require use of written, clinically sound criteria to enhance
               client services and assure sound clinical performance by health
               care deliveries;

          e.   Result in identification of important client service problems or
               potential problems including utilization of service patterns by
               provider and recipient;

          f.   Monitor the effectiveness of the client grievance process; and

          g.   Be in accordance with the Code of Federal Regulations, Title 42,
               and the Utah State Title XIX Plan. Adherence to the points and
               conditions of Attachment D will assure compliance with this
               requirement unless modified by addendum to this attachment for
               specific services.

B.   INTERNAL MONITORING

     1.   IN GENERAL
          In   order to assess medical necessity, appropriateness, quality of
          care, and timeliness of service, the CONTRACTOR will monitor
          services to all Enrollees in accordance with the CONTRACTOR's
          written quality assurance plans.

                                   Page 1 of 6



     2.   ELEMENTS OF INTERNAL QUALITY ASSURANCE PLAN

          The CONTRACTOR will provide for an internal quality assurance plan
          that:

          a.   Is consistent with the utilization control requirement of part
               456 of 42 CFR;

          b.   Provides for review by appropriate health professionals of the
               process followed in providing health services;

          c.   Provides for systematic data collection of performance and
               patient results;

          d.   Provides for interpretation of this data to the practitioners;
               and

          e.   Provides for making needed changes.

     3.   DEMONSTRATION OF HIGH QUALITY HEALTH CARE

          Provision of high-quality health care services will be demonstrated
          by:

          a.   Adequate and appropriate diagnostic procedures;

          b.   Treatment necessary and relevant to the working diagnosis;

          c.   Appropriate consultation(s);

          d.   Patient compliance with treatment;

          e.   Continuity of care with adequate transfer of information between
               health care providers;

          f.   Appropriate, accurate, and complete client records;

          g.   Patient satisfaction;

          h.   Accessibility and availability of services including Emergency
               Services;

          i.   Patient instruction in self-care, prevention and the use of
               medications and therapies.

          j.   The utilization of the least invasive and most cost-effective
               resources when possible;

          k.   The use of ancillary services consistent with patients' needs;
               and

          l.   Conducting Enrollee satisfaction surveys at least annually.

                                   Page 2 of 6



C.   QUALITY ASSURANCE MONITORING

     1.   OBJECTIVE

          The objective of the quality assurance monitoring process is to ensure
          compliance to State and Federal policies, rules and regulations;
          adherence to community standards; and integrity of Medicaid payments
          made for medical services provided to eligible recipients under the
          CONTRACTOR.

     2.   MONITORING OF PROVIDERS AND RECIPIENTS NECESSARY TO ACHIEVE OBJECTIVE

          a.   The CONTRACTOR will report all cases of program abuse or
               suspected abusive or fraudulent behavior by either providers or
               recipients.

          b.   The CONTRACTOR will inform the DEPARTMENT in writing when a
               provider is removed from the CONTRACTOR's panel for reasons
               relating to quality of care concerns.

          c.   The CONTRACTOR will take appropriate, effective and coordinated
               action on all such information.

          d.   The CONTRACTOR will make reasonable efforts, pursuant to the
               CONTRACTOR's standard procedures, to correct the behavior of
               providers or recipients violating program regulations or
               exhibiting inappropriate program utilization;

          e.   Report to the DEPARTMENT, in writing, any providers or recipients
               who fail to correct aberrant practices and continue to abuse the
               program;

          f.   Ensure that funds do not continue to be disbursed in the presence
               of evidence indicating such practices; and

          g.   Attempt to recover any funds improperly disbursed, as a result of
               such practices.

D.   THE DEPARTMENT'S QUALITY ASSURANCE MONITORING PLAN

     The DEPARTMENT will review the CONTRACTOR for compliance to standards
     defined in the Division of Health Care Financing's MCO Quality Assurance
     Monitoring Plan (Attachment G).

E.   CORRECTIVE ACTION

     1.   WHEN CORRECTIVE ACTIONS ARE NECESSARY

          The CONTRACTOR agrees to implement corrective action as specified by
          the DEPARTMENT when quality assurance monitoring including but not
          limited to site reviews, CONTRACTOR documentation reviews, data
          analysis, medical audits, or complaints/grievances, determines the
          need for such corrective action. In addition, if the

                                   Page 3 of 6



          DEPARTMENT determines that the CONTRACTOR has not provided services in
          accordance with the Contract or within expected professional
          standards, the DEPARTMENT will request in writing that the CONTRACTOR
          correct deficiencies or identified problems by developing a corrective
          action plan.

     2.   INITIAL RESPONSE BY CONTRACTOR

          The CONTRACTOR has 20 working days from the date the DEPARTMENT mails,
          through certified mail, its written request for the CONTRACTOR to
          respond to the problems identified and will either

          a.   submit a corrective action plan,

          b.   submit a letter summarizing the CONTRACTOR's disagreements with
               the DEPARTMENT's findings, or

          c.   request, in writing, an extension of the 20-day time frame. The
               CONTRACTOR may only request an extension if it determines it will
               conduct a medical records review or there are other extenuating
               circumstances.

          If the CONTRACTOR fails to respond in one of the above ways, the
          CONTRACTOR will be subject the following sanction:

               A $500 penalty for each working day, beginning on the
               first day after the 20-day time period has expired, and
               continuing until the day a corrective action plan is
               submitted to the DEPARTMENT.

     3.   SUBMISSION OF CORRECTIVE ACTION TO DEPARTMENT

          a.   ACCEPTANCE OF CORRECTIVE ACTION PLAN

               If the CONTRACTOR submits a corrective action plan to the
               DEPARTMENT within 20 working days (or other agreed upon time
               frame) and the DEPARTMENT accepts the corrective action plan, the
               DEPARTMENT will send written notice to the CONTRACTOR officially
               approving the corrective action plan.

          b.   WHEN CORRECTIVE ACTION PLAN REQUIRES REVISIONS

               If the CONTRACTOR submits a corrective action plan, but the
               DEPARTMENT determines the corrective action plan requires
               revisions, the CONTRACTOR will have 20 working days to submit a
               revised plan from the date the DEPARTMENT mails, through
               certified mail, the request for a revised plan. The DEPARTMENT's
               letter will state the specific revisions to be made in the
               corrective action plan.

               If the CONTRACTOR is unable or unwilling to submit to the
               DEPARTMENT within the established time frame, a revised
               corrective action plan containing the

                                   Page 4 of 6



               DEPARTMENT's requested revisions, the CONTRACTOR will be subject
               to the following sanction:

                    A $500 penalty for each working day, beginning on
                    the first day after the 20-day time period has
                    expired, and continuing until the day a corrective
                    action plan is submitted to the DEPARTMENT.

     4.   INITIAL APPEAL OF DEPARTMENT'S FINDINGS

          If the CONTRACTOR disagrees with the DEPARTMENT's findings and wishes
          to appeal those findings, the CONTRACTOR will submit in writing to the
          DEPARTMENT within the established time frame a detailed explanation of
          the disagreement. If the DEPARTMENT agrees with the CONTRACTOR, the
          DEPARTMENT will provide written notification of its decision and will
          withdraw the request for a corrective action plan.

          If the DEPARTMENT upholds its request for a corrective plan, the
          CONTRACTOR has 20 days from the date the DEPARTMENT mails, through
          certified mail, a letter upholding its request for a corrective action
          plan to submit a corrective action plan. If the CONTRACTOR does not
          submit a corrective action plan within that time frame, the CONTRACTOR
          will be subject to the following sanction:

               A $500 penalty for each working day, beginning on the
               first day after the 20-day time period has expired, and
               continuing until the day a corrective action plan is
               submitted.

     5.   FORMAL HEARING

          If the DEPARTMENT upholds its decision that a corrective action plan
          is required, the CONTRACTOR may file a request for a formal hearing
          with the DEPARTMENT within 30 days from the date the DEPARTMENT mails,
          through certified mail, a letter upholding its decision. If the $500
          penalty has begun, it will discontinue once the DEPARTMENT receives
          the formal hearing request from the CONTRACTOR.

          If the outcome of the formal hearing is in favor of the CONTRACTOR,
          the DEPARTMENT will provide the CONTRACTOR with written notification
          that a corrective action plan is no longer required. The DEPARTMENT
          will reimburse the CONTRACTOR any penalties the CONTRACTOR has paid to
          the DEPARTMENT that accrued beginning on day 21 from the date the
          DEPARTMENT mails, through certified mail, the request for a corrective
          action plan and ending on the day the request for a formal hearing is
          received by the DEPARTMENT.

          If the outcome of the formal hearing is in favor of the DEPARTMENT,
          the CONTRACTOR will submit a corrective action plan, as determined by
          the formal hearing decision, within 20 days of the date of the hearing
          decision, otherwise the CONTRACTOR will be subject to the following
          sanction:

                                   Page 5 of 6



               A $500 penalty for each working day, beginning on the
               first day after the 20-day time period has expired, and
               continuing until the day a corrective action plan that
               complies with the formal hearing decision is submitted
               to the DEPARTMENT. If the DEPARTMENT determines that
               the corrective action plan requires revisions, the
               CONTRACTOR will again be subject to a S500 penalty for
               each working day beginning on the first day after the
               DEPARTMENT verbally notifies the CONTRACTOR that the
               corrective action plan requires revisions and
               continuing until the day the DEPARTMENT receives the
               corrective action plan containing the DEPARTMENT's
               required revisions.

     6.   CONTRACTOR UNWILLING OR UNABLE TO IMPLEMENT CORRECTIVE ACTION PLAN

          If the CONTRACTOR is unwilling or unable to implement the corrective
          action plan to the satisfaction of the DEPARTMENT, the CONTRACTOR will
          be subject to the following sanction:

               A $500 penalty for each working day, beginning on the
               first day after the DEPARTMENT verbally notifies the
               CONTRACTOR that the corrective action plan has not been
               implemented, and continuing until the day the
               CONTRACTOR successfully demonstrates to the DEPARTMENT
               that it has implemented the plan. Following the
               DEPARTMENT's verbal notification, the DEPARTMENT will
               mail, through certified mail, a letter stating the
               penalty has been invoked.

          The CONTRACTOR will be apprized of its right to request a formal
          hearing. If the CONTRACTOR decides to formally appeal the DEPARTMENT's
          decision that the corrective action plan has not been implemented,
          then the procedures detailed in number 2 above apply. If the outcome
          of the formal hearing is in favor of the DEPARTMENT, penalties will
          resume on the date of the formal hearing decision and continue until
          the CONTRACTOR complies with the decision of the formal hearing.

     7.   COLLECTION OF FINANCIAL PENALTIES

          The DEPARTMENT may deduct any financial penalties assessed by the
          DEPARTMENT from the monthly payment to the CONTRACTOR.

F.   FEDERAL SANCTIONS FOR COMPREHENSIVE CONTRACTS

     Per 42 CFR 434.22, payments made to the CONTRACTOR by the DEPARTMENT under
     this Contract will be denied for new Enrollees when, and for so long as,
     payment for those Enrollees are denied by the Health Care Financing
     Administration for the reasons and the manner specified under 42 CFR
     434.67(e).

                                   Page 6 of 6




                                                                                                             
PROVIDER NAME:              ________________________________________________       ATTACHMENT E                       ATTACHMENT E
SERVICE REPORTING PERIOD:     BEGINNING_______________  ENDING  ____________    TABLE 1 PAGE 1 OF 1                        TABLE 1
PAYMENT DATES:                BEGINNING_______________  ENDING  ____________   MEDICAID ENROLLMENT                    Page 1 of 15




  1         2          3          4           5           6           7         8       9         10       11      12       13
- ----------------------------------------------------------------------------------------------------------------------------------
                                 AFDC                    AFDC
                                 MALE                   FEMALE
 LINE               INFANTS      LESS                    LESS
                                 THAN        AFDC        THAN
                                21 YEARS     MALE       21 YEARS                                                        NON AFDC
                                GREATER                  GREATER    AFDC                                  MED     MED   PREGNANT
                                 THAN                      THAN     FEMALE           DISABLED  DISABLED   NEEDY   NEEDY   FEMALE
  NO      MONTH     0-12 MOS    12 MOS    21 + YEARS     12 MOS   21 + YEARS   AGED    MALE     FEMALE    CHILD   OTHER  (SOBRA)
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                            
  1     JULY
- ----------------------------------------------------------------------------------------------------------------------------------
  2     AUGUST
- ----------------------------------------------------------------------------------------------------------------------------------
  3     SEPTEMBER
- ----------------------------------------------------------------------------------------------------------------------------------
  4     OCTOBER
- ----------------------------------------------------------------------------------------------------------------------------------
  5     NOVEMBER
- ----------------------------------------------------------------------------------------------------------------------------------
  6     DECEMBER
- ----------------------------------------------------------------------------------------------------------------------------------
  7     JANUARY
- ----------------------------------------------------------------------------------------------------------------------------------
  8     FEBRUARY
- ----------------------------------------------------------------------------------------------------------------------------------
  9     MARCH
- ----------------------------------------------------------------------------------------------------------------------------------
 10     APRIL
- ----------------------------------------------------------------------------------------------------------------------------------
 11     MAY
- ----------------------------------------------------------------------------------------------------------------------------------
 12     JUNE
- ----------------------------------------------------------------------------------------------------------------------------------
 13     TOTAL              0           0           0           0           0      0         0         0       0       0         0
- ----------------------------------------------------------------------------------------------------------------------------------


  1         2            14          15           16
- ------------------------------------------------------------
                                               MEDICAID
                                                 TOTAL
 LINE                RESTRICTION             (SUM OF COLS
  NO      MONTH        CLIENTS      AIDS       3 THRU 15)
- ------------------------------------------------------------
                                             
  1     JULY                                             0
- ------------------------------------------------------------
  2     AUGUST                                           0
- ------------------------------------------------------------
  3     SEPTEMBER                                        0
- ------------------------------------------------------------
  4     OCTOBER                                          0
- ------------------------------------------------------------
  5     NOVEMBER                                         0
- ------------------------------------------------------------
  6     DECEMBER                                         0
- ------------------------------------------------------------
  7     JANUARY                                          0
- ------------------------------------------------------------
  8     FEBRUARY                                         0
- ------------------------------------------------------------
  9     MARCH                                            0
- ------------------------------------------------------------
 10     APRIL                                            0
- ------------------------------------------------------------
 11     MAY                                              0
- ------------------------------------------------------------
 12     JUNE                                             0
- ------------------------------------------------------------
 13     TOTAL                  0       0                 0
- ------------------------------------------------------------





                                                                                                             
PROVIDER NAME:              ________________________________________________       ATTACHMENT E                       ATTACHMENT E
SERVICE REPORTING PERIOD:     BEGINNING_______________  ENDING  ____________    TABLE 2 PAGE 1 OF 2                        TABLE 2
PAYMENT DATES:                BEGINNING_______________  ENDING  ____________    REVENUES AND COST                     Page 2 of 15




                                              ----------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-----------------
  1                  2                          3             4            5             6            7            8          9
- ------------------------------------------------------------------------------------------------------------------------------------
                                            TOTAL UTAH                     AFDC                      AFDC
                                            OPERATIONS                     MALE                     FEMALE
                                                                           LESS                      LESS
                                                                           THAN                      THAN
LINE                                        (INCLUDING     INFANTS      21 YEARS                   21 YEARS
                                                                         GREATER       AFDC         GREATER       AFDC
                                                                           THAN        MALE           THAN       FEMALE
 NO              DESCRIPTION               ALL MEDICAID)   0-12 MOS      12 MOS      21 + YEARS     12 MOS     21 + YEARS    AGED
- ------------------------------------------------------------------------------------------------------------------------------------
               REVENUES                                                  ROUND TO THE NEAREST DOLLAR
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
- ------------------------------------------------------------------------------------------------------------------------------------
 1    PREMIUMS
- ------------------------------------------------------------------------------------------------------------------------------------
 2    DELIVERY FEES (CHILD BIRTH)
- ------------------------------------------------------------------------------------------------------------------------------------
 3    REINSURANCE
- ------------------------------------------------------------------------------------------------------------------------------------
 4    STOP LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
 5    TPL COLLECTIONS - MEDICARE
- ------------------------------------------------------------------------------------------------------------------------------------
 6    TPL COLLECTIONS - OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
 7    OTHER (SPECIFY)
- ------------------------------------------------------------------------------------------------------------------------------------
 8    OTHER (SPECIFY)
- ------------------------------------------------------------------------------------------------------------------------------------
 9    TOTAL REVENUES                                 $ 0         $ 0           $ 0          $ 0          $ 0          $ 0      $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
            MEDICAL COSTS                                                ROUND TO THE NEAREST DOLLAR
- ------------------------------------------------------------------------------------------------------------------------------------
 10   INPATIENT HOSPITAL SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 11   OUTPATIENT HOSPITAL SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 12   EMERGENCY DEPARTMENT SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 13   PRIMARY CARE PHYSICIAN SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 14   SPECIALTY CARE PHYSICIAN SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 15   ADULT SCREENING SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 16   VISION CARE - OPTOMETRIC SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 17   VISION CARE - OPTICAL SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 18   LABORATORY (PATHOLOGY) SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 19   RADIOLOGY SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 20   PHYSICAL AND OCCUPATIONAL THERAPY
- ------------------------------------------------------------------------------------------------------------------------------------
 21   SPEECH AND HEARING SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 22   PODIATRY SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 23   END STAGE RENAL DISEASE
       (ESRD) SERVICES-DIALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
 24   HOME HEALTH SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 25   HOSPICE SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 26   PRIVATE DUTY NURSING
- ------------------------------------------------------------------------------------------------------------------------------------
 27   MEDICAL SUPPLIES AND MEDICAL
       EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
 28   ABORTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
 29   STERILIZATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
 30   DETOXIFICATION
- ------------------------------------------------------------------------------------------------------------------------------------
 31   ORGAN TRANSPLANTS
- ------------------------------------------------------------------------------------------------------------------------------------
 32   OTHER OUTSIDE MEDICAL SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 33   LONG TERM CARE
- ------------------------------------------------------------------------------------------------------------------------------------
 34   TRANSPORTATION SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
 35   OTHER (SPECIFY)
- ------------------------------------------------------------------------------------------------------------------------------------
 36   TOTAL MEDICAL COSTS                            $ 0         $ 0           $ 0          $ 0          $ 0          $ 0      $ 0
- ------------------------------------------------------------------------------------------------------------------------------------



                                              ----------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-----------------
                                              10         11        12      13        14          15           16           17
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                  NON AFDC                              MEDICAID
                                                                   MED     MED    PREGNANT                                TOTAL
LINE                                        DISABLED   DISABLED   NEEDY   NEEDY    FEMALE    RESTRICTION              (SUM OF COLS
 NO              DESCRIPTION                  MALE      FEMALE    CHILD   OTHER   (SOBRA)      CLIENTS       AIDS       4 THRU 16)
- ----------------------------------------------------------------------------------------------------------------------------------
                 REVENUES                                                ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
 1    PREMIUMS                                                                                                                 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 2    DELIVERY FEES (CHILD BIRTH)                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 3    REINSURANCE                                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 4    STOP LOSS                                                                                                                $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 5    TPL COLLECTIONS - MEDICARE                                                                                               $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 6    TPL COLLECTIONS - OTHER                                                                                                  $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 7    OTHER (SPECIFY)                                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 8    OTHER (SPECIFY)                                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 9    TOTAL REVENUES                             $ 0        $ 0     $ 0     $ 0        $ 0            $ 0      $ 0             $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
              MEDICAL COSTS                                              ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------------------
 10   INPATIENT HOSPITAL SERVICES                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 11   OUTPATIENT HOSPITAL SERVICES                                                                                             $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 12   EMERGENCY DEPARTMENT SERVICES                                                                                            $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 13   PRIMARY CARE PHYSICIAN SERVICES                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 14   SPECIALTY CARE PHYSICIAN SERVICES                                                                                        $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 15   ADULT SCREENING SERVICES                                                                                                 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 16   VISION CARE - OPTOMETRIC SERVICES                                                                                        $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 17   VISION CARE - OPTICAL SERVICES                                                                                           $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 18   LABORATORY (PATHOLOGY) SERVICES                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 19   RADIOLOGY SERVICES                                                                                                       $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 20   PHYSICAL AND OCCUPATIONAL THERAPY                                                                                        $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 21   SPEECH AND HEARING SERVICES                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 22   PODIATRY SERVICES                                                                                                        $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 23   END STAGE RENAL DISEASE
       (ESRD) SERVICES-DIALYSIS                                                                                                $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 24   HOME HEALTH SERVICES                                                                                                     $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 25   HOSPICE SERVICES                                                                                                         $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 26   PRIVATE DUTY NURSING                                                                                                     $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 27   MEDICAL SUPPLIES AND MEDICAL
       EQUIPMENT                                                                                                               $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 28   ABORTIONS                                                                                                                $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 29   STERILIZATIONS                                                                                                           $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 30   DETOXIFICATION                                                                                                           $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 31   ORGAN TRANSPLANTS                                                                                                        $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 32   OTHER OUTSIDE MEDICAL SERVICES                                                                                           $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 33   LONG TERM CARE                                                                                                           $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 34   TRANSPORTATION SERVICES                                                                                                  $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 35   OTHER (SPECIFY)                                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 36   TOTAL MEDICAL COSTS                        $ 0        $ 0     $ 0     $ 0        $ 0            $ 0      $ 0             $ 0
- ----------------------------------------------------------------------------------------------------------------------------------





                                                                                                              
PROVIDER NAME:                                                      ATTACHMENT E                                    ATTACHMENT E

SERVICE REPORTING PERIOD:                                        TABLE 2 PAGE 2 OF 2                                     TABLE 2

PAYMENT DATES:                                                   REVENUES AND COST                                  Page 3 of 15





                                              ----------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-----------------
  1                   2                         3             4            5             6            7            8          9
- ----------------------------------------------------------------------------------------------------------------------------------
                                            TOTAL UTAH                     AFDC                       AFDC
                                            OPERATIONS                     MALE                      FEMALE
                                                                           LESS                       LESS
                                                                           THAN                       THAN
LINE                                        (INCLUDING     INFANTS       21 YEARS                   21 YEARS
                                                                          GREATER       AFDC         GREATER      AFDC
                                                                            THAN        MALE           THAN      FEMALE
 NO              DESCRIPTION               ALL MEDICAID)   0-12 MOS       12 MOS     21 + YEARS      12 MOS     21 + YEARS    AGED
- ----------------------------------------------------------------------------------------------------------------------------------
            ADMINISTRATIVE COSTS                                         ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                          

- ----------------------------------------------------------------------------------------------------------------------------------
 37   ADMINISTRATION - ADVERTISING
- ----------------------------------------------------------------------------------------------------------------------------------
 38   HOME OFFICE INDIRECT COST
       ALLOCATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
 39   UTILIZATION
- ----------------------------------------------------------------------------------------------------------------------------------
 40   ADMINISTRATION - OTHER
- ----------------------------------------------------------------------------------------------------------------------------------
 41   TOTAL ADMINISTRATIVE COSTS                     $ 0         $ 0           $ 0          $ 0          $ 0          $ 0      $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 42   TOTAL COSTS (MED & ADMIN)                      $ 0         $ 0           $ 0          $ 0          $ 0          $ 0      $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 43   NET INCOME [Gain or (Loss)]                    $ 0         $ 0           $ 0          $ 0          $ 0          $ 0      $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 44   ENROLLEE MONTHS                                              0             0            0            0            0        0
- ----------------------------------------------------------------------------------------------------------------------------------
 45   MEDICAL COST @ ENROLLEE MO
0----------------------------------------------------------------------------------------------------------------------------------
 46   ADMIN COST @ ENROLLEE MO
- ----------------------------------------------------------------------------------------------------------------------------------
 47   TOTAL COST @ ENROLLEE MO
- ----------------------------------------------------------------------------------------------------------------------------------
               OTHER DATA
- ------------------------------------------                ------------------------------------------------------------------------
 48   TPL SAVINGS - COST AVOIDANCE **
- ------------------------------------------                ------------------------------------------------------------------------
 49   DUPLICATE PREMIUMS ***
- ------------------------------------------                ------------------------------------------------------------------------
 50   NUMBER OF DELIVERIES ****
- ------------------------------------------                ------------------------------------------------------------------------
 51   FAMILY PLANNING SERVICES
- ------------------------------------------                ------------------------------------------------------------------------
 52   REINSURANCE PREMIUMS RECEIVED
- ------------------------------------------                ------------------------------------------------------------------------
 53   REINSURANCE PREMIUMS PAID
- ------------------------------------------                ------------------------------------------------------------------------
 54   ADMINISTRATIVE REVENUE
       RETAINED BY THE CONTRACTOR
- ------------------------------------------                ------------------------------------------------------------------------



                                              ----------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-----------------
                                              10         11        12      13        14          15           16           17
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                  NON AFDC                              MEDICAID
                                                                   MED     MED    PREGNANT                                TOTAL
LINE                                        DISABLED   DISABLED   NEEDY   NEEDY    FEMALE    RESTRICTION              (SUM OF COLS
 NO              DESCRIPTION                  MALE      FEMALE    CHILD   OTHER   (SOBRA)      CLIENTS       AIDS       4 THRU 16)
- ----------------------------------------------------------------------------------------------------------------------------------
            ADMINISTRATIVE COSTS                                         ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
 37   ADMINISTRATION - ADVERTISING                                                                                             $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 38   HOME OFFICE INDIRECT COST
       ALLOCATIONS                                                                                                             $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 39   UTILIZATION                                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 40   ADMINISTRATION - OTHER                                                                                                   $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 41   TOTAL ADMINISTRATIVE COSTS                 $ 0        $ 0     $ 0     $ 0        $ 0           $ 0        $ 0            $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 42   TOTAL COSTS (MED & ADMIN)                  $ 0        $ 0     $ 0     $ 0        $ 0           $ 0        $ 0            $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 43   NET INCOME [Gain or (Loss)]                $ 0        $ 0     $ 0     $ 0        $ 0           $ 0        $ 0            $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 44   ENROLLEE MONTHS                              0          0       0       0          0             0          0              0
- ----------------------------------------------------------------------------------------------------------------------------------
 45   MEDICAL COST @ ENROLLEE MO
- ----------------------------------------------------------------------------------------------------------------------------------
 46   ADMIN COST @ ENROLLEE MO
- ----------------------------------------------------------------------------------------------------------------------------------
 47   TOTAL COST @ ENROLLEE MO
- ----------------------------------------------------------------------------------------------------------------------------------
               OTHER DATA
- ----------------------------------------------------------------------------------------------------------------------------------
 48   TPL SAVINGS - COST AVOIDANCE **                                                                                          $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 49   DUPLICATE PREMIUMS ***                                                                                                   $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 50   NUMBER OF DELIVERIES ****                                                                                                  0
- ----------------------------------------------------------------------------------------------------------------------------------
 51   FAMILY PLANNING SERVICES                                                                                                 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 52   REINSURANCE PREMIUMS RECEIVED                                                                                            $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 53   REINSURANCE PREMIUMS PAID                                                                                                $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
 54   ADMINISTRATIVE REVENUE
       RETAINED BY THE CONTRACTOR                                                                                              $ 0
- ----------------------------------------------------------------------------------------------------------------------------------


**   COST OF SERVICES PROVIDED TO HMO CLIENTS, NOT PAID FOR BY HMO,
     E.G."AVOIDED", BECAUSE OTHER INSURANCE PAID FOR IT.
***  CASH AMOUNT RETURNED TO MEDICAID BY HMO BECAUSE HMO CLIENT WAS
     COVERED IN THE SAME HMO BY ANOTHER CARRIER.
**** NUMBER OF CHILDREN DELIVERED. THIS NUMBER TIMES RATES SHOULD EQUAL
     DELIVERY REVENUE.

     In this Medicaid portion, include only costs for Medicaid clients under the
     capitation agreement - exclude revenue, costs & TPL categories per this
     form that do not apply to your organization or contract.



                                                                    Attachment E
                                                                    Page 4 of 15

            MEDICAL SERVICES REVENUE AND COST DEFINITIONS FOR TABLE 2

REVENUES (Report all revenues received or receivable at the end-of-period date
on the form)

1.   Premiums

     Report premium payments received or receivable from the DEPARTMENT.

2.   Delivery Fees

     Report the delivery fee received or receivable from the DEPARTMENT.

3.   Reinsurance

     Report the reinsurance payments received or receivable from the REINSURANCE
     CARRIER (See Attachment F, Section D, Items 1 and 2).

4.   Stop Loss

     Report stop loss payments received or receivable from the DEPARTMENT (See
     Attachment F, Section D, Item 2).

5.   TPL Collections - Medicare

     Report all third party collections received from Medicare.

6.   TPL Collections - Other

     Report all third party collections received other than Medicare
     collections. (Report TPL savings because of cost avoidance as a memo amount
     on line 48).

7.   Other (specify)

8.   Other (specify)

     For lines seven and eight: Report all other revenue not included in lines
     one through six. (There may not be any amount to report; however, this line
     can be used to report revenue from total Utah operations that do not fit
     lines one through six.)

9.   TOTAL REVENUES

     Total lines one through eight.

NOTE: Duplicate premiums are not considered a cost or revenue as they are
collected by the CONTRACTOR and paid to the DEPARTMENT. Therefore, the payment
to the DEPARTMENT would reduce or offset the revenue recorded when the duplicate
premium was received. However, line 49 has been established for reporting
duplicate premiums as a memo amount.



                                                                    Attachment E
                                                                    Page 5 of 15

MEDICAL COSTS: Report all costs accrued as of the ending date on the form. In
the first data column (column 3), report all costs for Utah operations per the
general ledger. In the 14 Medicaid data columns (columns 4 through 17), report
only costs for Medicaid Enrollees.

10.  Inpatient Hospital Services

     Costs incurred in providing inpatient hospital services to Enrollees
     confined to a hospital.

11.  Outpatient Hospital Services

     Costs incurred in providing outpatient hospital services to Enrollees, not
     including services provided in the emergency department.

12.  Emergency Department Services

     Costs incurred in providing outpatient hospital emergency room services to
     Enrollees.

13.  Primary Care Physician Services (Including EPSDT Services, Prenatal Care,
     and Family Planning Services)

     All costs incurred for Enrollees as a result of providing primary care
     physician, osteopath, physician assistant, nurse practitioner, and nurse
     midwife services, including payroll expenses, any capitation and/or
     contract payments, fee-for-service payments, fringe benefits, travel and
     office supplies.

14.  Specialty Care Physician Services (Including EPSDT Services, Prenatal Care,
     and Family Planning Services)

     All costs incurred as a result of providing specialty care physician,
     osteopath, physician assistant, nurse practitioner, and nurse midwife
     services to Enrollees, including payroll expenses, any capitation and/or
     contract payments, fee-for-service payments, fringe benefits, travel and
     office supplies.

15.  Adult Screening Services

     Expenses associated with providing screening services to Enrollees.

16.  Vision Care - Optometric Services

     Included are payroll costs, any capitation and/or contract payments, and
     fee-for-service payments for services and procedures performed by an
     optometrist and other non-payroll expenses directly related to providing
     optometric services for Enrollees.

17.  Vision Care - Optical Services

     Included are payroll costs, any capitation and/or contract payments and
     fee-for-service payments for services and procedures performed by an
     optician and other supportive staff, cost of eyeglass frames and lenses and
     other non-payroll expenses directly related to providing optical services
     for Enrollees.



                                                                    Attachment E
                                                                    Page 6 of 15

18.  Laboratory (Pathology) Services

     Costs incurred as a result of providing pathological tests or services to
     Enrollees including payroll expenses, any capitation and/or contract
     payments, fee-for-service payments and other expenses directly related to
     in-house laboratory services. Excluded are costs associated with a hospital
     visit.

19.  Radiology Services

     Cost incurred in providing x-ray services to Enrollees, including x-ray
     payroll expenses, any capitation and/or contract payments, fee-for-service
     payments, and occupancy overhead costs. Excluded are costs associated with
     a hospital visit.

20.  Physical and Occupational Therapy

     Included are payroll costs, any capitation and/or contract payments,
     fee-for-service costs, and other non-payroll expenditures directly related
     to providing physical and occupational therapy services.

21.  Speech and Hearing Services

     Payroll costs, any capitation and/or contract payments, fee-for-service
     payments, and non-payroll costs directly related to providing speech and
     hearing services for Enrollees.

22.  Podiatry Services

     Salary expenses or outside claims, capitation and/or contract payments,
     fee-for-service payments, and non-payroll costs directly related to
     providing services rendered by a podiatrist to Enrollees.

23.  End Stage Renal Disease (ESRD) Services - Dialysis

     Costs incurred in providing renal dialysis (ESRD) services to Enrollees.

24.  Home Health Services

     Included are payroll costs, any capitation and/or contract payments,
     fee-for-service payments, and other non-payroll expenses directly related
     to providing home health services for Enrollees.

25.  Hospice Services

     Expenses related to hospice care for Enrollees including home care, general
     inpatient care for Enrollees suffering terminal illness and inpatient
     respite care for caregivers of Enrollees suffering terminal illness.

26.  Private Duty Nursing

     Expenses associated with private duty nursing for Enrollees.



                                                                    Attachment E
                                                                    Page 7 of 15

27.  Medical Supplies and Medical Equipment

     This cost center contains fee-for-service cost for outside acquisition of
     medical requisites, special appliances as prescribed by the CONTRACTOR to
     Enrollees.

28.  Abortions

     Medical and hospital costs incurred in providing abortions for Enrollees.

29.  Sterilizations

     Medical and hospital costs incurred in providing sterilizations for
     Enrollees.

30.  Detoxification

     Medical and hospital costs incurred in providing treatment for substance
     abuse and dependency (detoxification) for Enrollees.

31.  Organ Transplants

     Medical and hospital costs incurred in providing transplants for Enrollees.

32.  Other Outside Medical Services

     The costs for specialized testing and outpatient surgical centers for
     Enrollees ordered by the CONTRACTOR.

33.  Long Term Care

     Costs incurred in providing long-term care for Enrollees required under
     Attachment C.

34.  Transportation Services

     Costs incurred in providing ambulance (ground and air) services for
     Enrollees.

35.  Other

     Report costs not otherwise reported.

36.  TOTAL MEDICAL COSTS

     Total lines 10 through 35.



                                                                    Attachment E
                                                                    Page 8 of 15

ADMINISTRATIVE COSTS

Report payroll costs, any capitation and/or contract payments, non-payroll costs
and occupancy overhead costs for accounting services, claims processing
services, health plan services, data processing services, purchasing, personnel,
Medicaid marketing and regional administration.

Report the administration cost under four categories - advertising, home office
indirect cost allocation, utilization and all other administrative costs. If
there are no advertising costs or indirect home office cost allocations, report
a zero amount in the applicable lines.

37.  Administration - Advertising

38.  Home Office Indirect Cost Allocations

39.  Utilization

     Payroll cost and any capitation and/or contract payments for utilization
     staff and other non-payroll costs directly associated with controlling and
     monitoring outside physician referral and hospital admission and discharges
     of Enrollees.

40.  Administration - Other

41.  TOTAL ADMINISTRATIVE COSTS

     Total lines 37 through 40.

42.  TOTAL COSTS (Medical and Administrative)

     Total lines 36 and 41.

43.  NET INCOME (Gain or Loss)

     Line 9 minus line 42.

44.  ENROLLEE MONTHS

     Total Enrollee months for period of time being reported.

45.  MEDICAL COSTS PER ENROLLEE MONTH

     Line 36 divided by line 44.

46.  ADMINISTRATIVE COSTS PER ENROLLEE MONTH

     Line 41 divided by line 44.

47.  TOTAL COSTS PER ENROLLEE MONTH

     Line 42 divided by line 44.



                                                                    Attachment E
                                                                    Page 9 of 15

OTHER DATA

48.  TPL Savings - Cost Avoidance

49.  Duplicate Premiums

     Include all premiums received for Enrollees from all sources other than
     Medicaid.

50.  Number of Deliveries

     Total number of Enrollee deliveries when the delivery occurred at 24 weeks
     or later.

51.  Family Planning Services

     Include costs associated with family planning services as defined in
     Attachment C (Covered Services, Section V, Family Planning Services).

52.  Reinsurance Premiums Received

     Include the reinsurance premiums received or receivable from the
     DEPARTMENT.

53.  Reinsurance Premiums Paid.

     Include reinsurance premiums paid to the REINSURANCE CARRIER.

54.  Administrative Revenue Retained by the CONTRACTOR

     Include the administrative revenue retained by the CONTRACTOR from the
     reinsurance premiums received or receivable from the DEPARTMENT.




                                                                                                              
PROVIDER NAME:              ______________________________________________        ATTACHMENT E                          ATTACHMENT E

SERVICE REPORTING PERIOD:   BEGINNING_______________  ENDING  ____________      TABLE 3 PAGE 1 OF 1                          TABLE 3

PAYMENT DATES:              BEGINNING_______________  ENDING  ____________         UTILIZATION                         Page 10 of 15




                                                     -----------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------
  1                   2                                    3             4            5           6            7          8
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                              AFDC
                                                                   AFDC MALE                  FEMALE
                                                                   LESS THAN                  LESS THAN
                   SERVICE                                         21 YEARS                   21 YEARS
                 DESCRIPTION                                       GREATER                    GREATER         AFDC
 LINE  (REFER TO THE UNIT OF SERVICE)                   INFANTS    THAN           AFDC MALE   THAN           FEMALE
  NO   DEFINITIONS IN THE INSTRUCTIONS)                 0-12 MOS   12 MOS        21 + YEARS   12 MOS        21 + YEARS   AGED
- --------------------------------------------------------------------------------------------------------------------------------
    
   1   HOSPITAL SERVICES - GENERAL DAYS
- --------------------------------------------------------------------------------------------------------------------------------
   2   HOSPITAL SERVICES - DISCHARGES
- --------------------------------------------------------------------------------------------------------------------------------
   3   HOSPITAL SERVICES - OUTPATIENT VISITS
- --------------------------------------------------------------------------------------------------------------------------------
   4   EMERGENCY DEPARTMENT VISITS
- --------------------------------------------------------------------------------------------------------------------------------
   5   PRIMARY CARE PHYSICIAN SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
   6   SPECIALTY CARE PHYSICIAN SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
   7   ADULT SCREENING SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
   8   VISION CARE - OPTOMETRIC SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
   9   VISION CARE - OPTICAL SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  10   LABORATORY (PATHOLOGY) PROCEDURES
- --------------------------------------------------------------------------------------------------------------------------------
  11   RADIOLOGY PROCEDURES
- --------------------------------------------------------------------------------------------------------------------------------
  12   PHYSICAL AND OCCUPATIONAL THERAPY SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  13   SPEECH AND HEARING SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  14   PODIATRY SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  15   END STAGE RENAL DISEASE (ESRD) SERVICES - DIALYSIS
- --------------------------------------------------------------------------------------------------------------------------------
  16   HOME HEALTH SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  17   HOSPICE DAYS
- --------------------------------------------------------------------------------------------------------------------------------
  18   PRIVATE DUTY NURSING SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  19   MEDICAL SUPPLIES AND MEDICAL EQUIPMENT
- --------------------------------------------------------------------------------------------------------------------------------
  20   ABORTIONS PROCEDURES
- --------------------------------------------------------------------------------------------------------------------------------
  21   STERILIZATION PROCEDURES
- --------------------------------------------------------------------------------------------------------------------------------
  22   DETOXIFICATION DAYS
- --------------------------------------------------------------------------------------------------------------------------------
  23   ORGAN TRANSPLANTS
- --------------------------------------------------------------------------------------------------------------------------------
  24   OTHER OUTSIDE MEDICAL SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
  25   LONG TERM CARE FACILITY DAYS
- --------------------------------------------------------------------------------------------------------------------------------
  26   TRANSPORTATION TRIPS
- --------------------------------------------------------------------------------------------------------------------------------
  27   OTHER (SPECIFY)
- --------------------------------------------------------------------------------------------------------------------------------


                                                     -----------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------
  1                   2                                  9          10        11     12      13         14        15        16
- ----------------------------------------------------------------------------------------------------------------------------------
                   SERVICE                                                                NON AFDC  RESTRICTION          MEDICAID
                 DESCRIPTION                                                 MED    MED   PREGNANT    CLIENTS             TOTAL
 LINE  (REFER TO THE UNIT OF SERVICE)                 DISABLED   DISABLED   NEEDY  NEEDY   FEMALE   RESTRICTION       (SUM OF COLS
  NO   DEFINITIONS IN THE INSTRUCTIONS)                 MALE      FEMALE    CHILD  OTHER   (SOBRA)    CLIENTS    AIDS   3 THRU 15)
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
   1   HOSPITAL SERVICES - GENERAL DAYS                                                                                          0
- ----------------------------------------------------------------------------------------------------------------------------------
   2   HOSPITAL SERVICES - DISCHARGES                                                                                            0
- ----------------------------------------------------------------------------------------------------------------------------------
   3   HOSPITAL SERVICES - OUTPATIENT VISITS                                                                                     0
- ----------------------------------------------------------------------------------------------------------------------------------
   4   EMERGENCY DEPARTMENT VISITS                                                                                               0
- ----------------------------------------------------------------------------------------------------------------------------------
   5   PRIMARY CARE PHYSICIAN SERVICES                                                                                           0
- ----------------------------------------------------------------------------------------------------------------------------------
   6   SPECIALTY CARE PHYSICIAN SERVICES                                                                                         0
- ----------------------------------------------------------------------------------------------------------------------------------
   7   ADULT SCREENING SERVICES                                                                                                  0
- ----------------------------------------------------------------------------------------------------------------------------------
   8   VISION CARE - OPTOMETRIC SERVICES                                                                                         0
- ----------------------------------------------------------------------------------------------------------------------------------
   9   VISION CARE - OPTICAL SERVICES                                                                                            0
- ----------------------------------------------------------------------------------------------------------------------------------
  10   LABORATORY (PATHOLOGY) PROCEDURES                                                                                         0
- ----------------------------------------------------------------------------------------------------------------------------------
  11   RADIOLOGY PROCEDURES                                                                                                      0
- ----------------------------------------------------------------------------------------------------------------------------------
  12   PHYSICAL AND OCCUPATIONAL THERAPY SERVICES                                                                                0
- ----------------------------------------------------------------------------------------------------------------------------------
  13   SPEECH AND HEARING SERVICES                                                                                               0
- ----------------------------------------------------------------------------------------------------------------------------------
  14   PODIATRY SERVICES                                                                                                         0
- ----------------------------------------------------------------------------------------------------------------------------------
  15   END STAGE RENAL DISEASE (ESRD) SERVICES -
        DIALYSIS                                                                                                                 0
- ----------------------------------------------------------------------------------------------------------------------------------
  16   HOME HEALTH SERVICES                                                                                                      0
- ----------------------------------------------------------------------------------------------------------------------------------
  17   HOSPICE DAYS                                                                                                              0
- ----------------------------------------------------------------------------------------------------------------------------------
  18   PRIVATE DUTY NURSING SERVICES                                                                                             0
- ----------------------------------------------------------------------------------------------------------------------------------
  19   MEDICAL SUPPLIES AND MEDICAL EQUIPMENT                                                                                    0
- ----------------------------------------------------------------------------------------------------------------------------------
  20   ABORTIONS PROCEDURES                                                                                                      0
- ----------------------------------------------------------------------------------------------------------------------------------
  21   STERILIZATION PROCEDURES                                                                                                  0
- ----------------------------------------------------------------------------------------------------------------------------------
  22   DETOXIFICATION DAYS                                                                                                       0
- ----------------------------------------------------------------------------------------------------------------------------------
  23   ORGAN TRANSPLANTS                                                                                                         0
- ----------------------------------------------------------------------------------------------------------------------------------
  24   OTHER OUTSIDE MEDICAL SERVICES                                                                                            0
- ----------------------------------------------------------------------------------------------------------------------------------
  25   LONG TERM CARE FACILITY DAYS                                                                                              0
- ----------------------------------------------------------------------------------------------------------------------------------
  26   TRANSPORTATION TRIPS                                                                                                      0
- ----------------------------------------------------------------------------------------------------------------------------------
  27   OTHER (SPECIFY)                                                                                                           0
- ----------------------------------------------------------------------------------------------------------------------------------


NOTE: MEDICAL REQUISITIONS HAS BEEN DITCHED!!

                                  ATTACHMENT E
                                     TABLE 3

                                  Page 10 of 15



                                                                    Attachment E
                                                                   Page 11 of 15

              MEDICAL SERVICES UTILIZATION DEFINITIONS FOR TABLE 3

MEDICAL SERVICES

1.   Hospital Services - General Days

     Record total number of inpatient hospital days associated with inpatient
     medical care.

2.   Hospital Services - Discharges

     Record total number of inpatient hospital discharges.

3.   Hospital Services - Outpatient Visits

     Record total number of outpatient visits.

4.   Emergency Department Visits

     Record total number of emergency room visits

5.   Primary Care Physician Services

     Number of services and procedures defined by CPT-4 codes provided by
     primary care physicians or licensed physician extenders or assistants under
     direct supervision of a physician inclusive of all services except
     radiology, laboratory and injections/immunizations which should be reported
     in their appropriate section. The reporting of data under this category
     includes both outpatient and inpatient services.

6.   Specialty Care Physician Services

     Number of services and procedures defined by CPT-4 codes provided by
     specialty care physicians or licensed physician extenders or assistants
     under direct supervision of a physician inclusive of all services except
     radiology, laboratory and injections/immunizations which should be reported
     in their appropriate section. The reporting of data under this category
     includes both outpatient and inpatient services.

7.   Adult Screening Services

     Number of adult screenings performed.

8.   Vision Care - Optometric Services

     Number of optometric services and procedures performed by an optometrist.

9.   Vision Care - Optical Services

     Number of eye glasses and contact lenses dispensed.



                                                                    Attachment E
                                                                   Page 12 of 15

10.  Laboratory (Pathology) Procedures

     Number of procedures defined by CPT-4 Codes under the Pathology and
     Laboratory section. Excluded are services performed in conjunction with a
     hospital outpatient or emergency department visit.

11.  Radiology Procedures

     Number of procedures defined by CPT-4 Codes under the Radiology section.
     Excluded are services performed in conjunction with a hospital outpatient
     or emergency department visit.

12.  Physical and Occupational Therapy Services

     Physical therapy refers to physical and occupational therapy services and
     procedures performed by a physician or physical therapist.

13.  Speech and Hearing Services

     Number of services and procedures.

14.  Podiatry Services

     Number of services and procedures.

15.  End Stage Renal Disease (ESRD) Services - Dialysis

     Number of ESRD procedures provided upon referral.

16.  Home Health Services

     Number of home health visits, such as skilled nursing, home health aide,
     and personal care aide visits.

17.  Hospice Days

     Number of days hospice care is provided, including respite care.

18.  Private Duty Nursing Services

     Hours of skilled care delivered.

19.  Medical Supplies and Medical Equipment

     Durable medical equipment such as wheelchairs, hearing aids, etc., and
     nondurable supplies such as oxygen etc.

20.  Abortion Procedures

     Number of procedures performed.



                                                                    Attachment E
                                                                   Page 13 of 15

21.  Sterilization Procedures

     Number of procedures performed.

22.  Detoxification Days

     Days of inpatient detoxification.

23.  Organ Transplants

     Number of transplants.

24.  Other Outside Medical Services

     Specialized testing and outpatient surgical services ordered by IHC.

25.  Long Term Care Facility Days

     Total days associated with long-term care.

26.  Transportation Trips

     Number of ambulance trips.

27.  Other (specify)



                                  ATTACHMENT E
                               TABLE 4 PAGE 1 OF 1
                        MEDICAID MALPRACTICE INFORMATION

PROVIDER NAME:            ______________________________________________________

SERVICE REPORTING PERIOD: BEGINNING ___________  ENDING ____________

ORGANIZATIONS NAMED IN THE MALPRACTICE CLAIM:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

MEDICAL PROFESSIONALS SPECIFIED:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

LOCATIONS WHERE CLAIMS ORIGINATED:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

MEDICAID CLIENT IDENTIFICATION:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

DATES OF SERVICE:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

AWARDS TO MEDICAID CLIENTS - AMOUNTS & DATES PAID

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

HMO'S DIRECT COSTS (IF ANY)

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

ATTACH A SUMMARY OF FACTS FOR EACH CASE, DESCRIBING THE CLAIM, THE CAUSES,
CIRCUMSTANCES, ETC.

                                  ATTACHMENT E
                                     TABLE 4

                                  Page 14 of 15



                                                                    Attachment E
                                                                   Page 15 of 15

The information reported on this form should come from known malpractice cases
of the MCO providers. This may only be applicable if the MCO was named as a
participant in the malpractice suit. However, if suits against MCO providers are
known, provide us with information on the Medicaid client(s) involved and any
large settlements paid when the information is available.



                   ATTACHMENT F - RATES AND RATE-RELATED TERMS

                             Effective July 1, 1999

                              AMERICAN FAMILY CARE

A.   PREMIUM RATES

     1.   MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS

- ------------------------------------------------------------------------------
    Age       TANF Male   TANF Male    TANF Female    TANF Female
   0 to1       1 to 21    21 & Over      1 to 21       21 & Over       Aged
==============================================================================
  $ [*]        $  [*]      $   [*]       $  [*]         $  [*]        $ [*]
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
  Disabled   Disabled   Medically     Medically       Non TANF     Restriction
    Male      Female   Needy Child   Needy Adult      Pregnant F     Program
==============================================================================
  $ [*]        $  [*]      $   [*]       $  [*]         $  [*]        $ [*]
- ------------------------------------------------------------------------------

     2.   SPECIAL RATE

          An AIDS rate of $[*] per month will be paid in addition to the regular
          monthly premium when the T-Cell count is below 200.

B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $[*] per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC SCREENING GOAL

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well-child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Health Care Financing Administration,
          mandates that all states have 80% of all children screened. The
          DEPARTMENT and the CONTRACTOR will work toward that goal.

                                   Page 1 of 3



     2.   CALCULATION OF CHEC INCENTIVE PAYMENT

          The DEPARTMENT will pay the CONTRACTOR $[*] for each percentage point
          over 60% achieved by the CONTRACTOR. The DEPARTMENT will calculate the
          CONTRACTOR's annual participation rate based on information supplied
          by the CONTRACTOR under the EPSDT (CHEC) reporting requirements at the
          same time each federal fiscal year's HCFA-416 is calculated. Payment
          will be based on the percentages determined at that time.

     3.   CONTRACTOR'S USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   STOP-LOSS/REINSURANCE POLICY

     Stop-loss under item #1 below will be administered by a reinsurer,
     TransAmerica Occidental Life Insurance Company (TransAmerica). TransAmerica
     will partially administer stop-loss under item #2 below.

     1.   REINSURANCE (all services including kidney, liver, and cornea and
          excluding specific organ transplantations defined in D.2. below)

          Costs, net of TPL, for all inpatient and outpatient services listed in
          Attachment C (including kidney, liver, and cornea transplantations,
          but excluding bone marrow, heart, intestine, lung, pancreas, small
          bowel, combination heart/lung, combination intestine/liver,
          combination kidney/pancreas, multi visceral, combination liver/small
          bowel, any additional approved transplantations) that are covered on
          the date of service rendered and incurred from July 1, 1999 through
          June 30, 2000 by the MCO for an Enrollee shall be shared by
          Transamerica under the following conditions:

          a.   the date of service is from July 1, 1999 through June 30, 2000
               (based on date of discharge if inpatient hospital stay);

          b.   paid claims incurred by the MCO exceed $50,000; and

          c.   services shall have been incurred by the MCO during the time the
               client is enrolled with the MCO.

          If the above conditions are met, TransAmerica shall bear [*]% and the
          MCO shall bear [*]% of the amount that exceeds $50,000.

     2.   STOP-LOSS/REINSURANCE FOR SPECIFIC ORGAN TRANSPLANTATIONS

          Costs, net of TPL, for bone marrow, heart, intestine, lung, pancreas,
          small bowel, combination heart/lung, combination intestine/liver,
          combination kidney/pancreas, multi visceral, combination liver/small
          bowel, and any additional approved transplantations (other than
          kidney, liver, and cornea) that are covered on the date of service
          rendered and incurred from July 1, 1999 through June 30, 2000 by the

                                   Page 2 of 3



          MCO for an Enrollee shall be shared by the DEPARTMENT, Transamerica
          and the MCO under the following conditions:

          a.   the date of service is from July 1, 1999 through June 30, 2000
               (based on date of discharge if inpatient hospital stay);

          b.   paid claims incurred by the MCO exceed $40,000; and

          c.   services shall have been incurred by the MCO during the time the
               client is enrolled with the MCO;

          d.   the stop-loss billings for the first $40,000 must be submitted to
               the DEPARTMENT in a format mutually agreed upon; and

          e.   stop-loss billings for the first $40,000 must be submitted to the
               DEPARTMENT within six months of the end of the Contract year.

          If the above conditions are met, the DEPARTMENT shall reimburse the
          MCO the first $40,000; TransAmerica, shall bear [*]% and the MCO shall
          bear [*]% of the amount that exceeds $40,000.

          Stop-loss/reinsurance provisions are normally based on services
          provided within the contract period ending June 30. However, for
          purposes of this stop-loss/ reinsurance provision the Contract period
          is extended for transplantations performed between April 1, 2000 and
          June 30, 2000. When the transplantation is performed between April 1,
          2000 and June 30, 2000 the payment for the first $40,000 of the
          transplantation costs and the costs that exceed $40,000 can be applied
          to this stop-loss/reinsurance provision for up to 90 days after the
          transplantation is performed.

E.   REIMBURSEMENT FOR REINSURANCE

     The CONTRACTOR agrees to purchase reinsurance from TransAmerica at the rate
     negotiated by the DEPARTMENT of $[*] per Enrollee per month. The DEPARTMENT
     will reimburse the CONTRACTOR for their premium payments to TransAmerica.
     In addition, the DEPARTMENT will pay the CONTRACTOR [*]% of the premium to
     cover reinsurance administrative costs.

     1.   INTERIM PAYMENTS

          Beginning July 1, 1999, the DEPARTMENT will make monthly interim
          payments to the CONTRACTOR based on the reinsurance premiums the
          CONTRACTOR pays to Insurance Strategies, an agent of TransAmerica. The
          reinsurance premiums will be calculated using the previous month's
          number of Enrollees.

     2.   FINAL SETTLEMENT

          The DEPARTMENT will calculate the actual reinsurance amount due to the
          CONTRACTOR one month after the end of each contract year. The
          settlement will be based on actual Enrollee months.

                                   Page 3 of 3



                                                                    ATTACHMENT G

                   UTAH MCO QUALITY ASSURANCE MONITORING PLAN

                                     [SEAL]

                         Utah State Department of Health
                        Division of Health Care Financing
                         Bureau of Managed Health Care
                                  July 1, 1999



                   UTAH MCO QUALITY ASSURANCE MONITORING PLAN
                          BUREAU OF MANAGED HEALTH CARE
                     UTAH DIVISION OF HEALTH CARE FINANCING

AUTHORITY

     The authority for the evaluation of care provided to Medicaid clients by
the Managed Care Organizations (MCOs) contracting with the State is found in CFR
417; and 443 Subpart C, D, and E.

PURPOSE

     The purpose of the Utah MCO Quality Assurance Monitoring Plan is to assure
quality care is received by the Medicaid client in a cost-effective manner and
to monitor that problems identified are addressed to continually improve the
quality of services delivered.

METHOD OF REVIEW

     A. Accreditation by a nationally recognized accreditation agency that is
        also recognized by the State will be accepted to fulfill some
        standards and requirements. The MCO will have to show proof of
        accreditation in that area.

     B. State staff and/or an external quality review organization (EQRO) or a
        combination of the two will monitor other standards and requirements.
        This will be done by an on-site review or by documentation submitted
        by the MCO.

DEFINITIONS AND ABBREVIATIONS

     A. Division of Health Care Financing (DHCF)

     B. External Quality Review Organization (EQRO)

     C. Health Maintenance Organization (HMO) - means a public or private
        organization operating under State law that is federally qualified or
        meets the State Plan's definition of an HMO. The HMO operates under a
        prepaid arrangement to provide specified services to a specific group
        of clients.

     D. Managed Care Organization (MCO) - means an organization that meets the
        State Plan's definition of an HMO or the State Plan's definition of a
        prepaid health plan and which provides, either directly or through
        arrangements with other providers, comprehensive general medical
        services to Medicaid eligibles on a contractual prepayment basis.

     E. Quality Assurance Plan (QAP)

     F. State Medicaid Agency - means Division of Health Care Financing (DHCF)

Utah division of health care financing                              Page 2 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

QUALITY ASSURANCE STANDARDS

     All MCOs contracting with the Utah Division of Health Care Financing will
be monitored for compliance of the following standards.

Standards I through IX, XV and XVI should be addressed in the MCO's Quality
Assurance Plan (QAP). The QAP should also address confidentiality of the
information gathered during quality assurance activities.

STANDARD I: WRITTEN QUALITY ASSURANCE PLAN DESCRIPTION. The organization must
have a written description of its QAP. The written description must meet the
following criteria.

     A. Goals and Objectives - The written description contains a detailed set
        of quality assurance objectives which are developed annually and include
        a timetable for implementation and accomplishment.

     B. Scope:

        1.   The scope of the QAP is comprehensive, addressing both the quality
             of clinical care and the quality of non-clinical aspects of
             service, such as and including: availability, accessibility,
             coordination, and continuity of care.

        2.   The QAP methodology provides for review of the entire range of care
             provided by the organization, by assuring that all demographic
             groups, care settings (e.g. inpatient, ambulatory [including care
             provided in private practice offices], and home care), and types of
             services (e.g., preventative, primary, specialty care, and
             ancillary) are included in the scope of the review.

             This review of the entire range of care is expected to be carried
             out over multiple review periods and not on a concurrent basis.

     C. Specific Activities: - The written description specifies quality of care
        studies and other activities to be undertaken over a prescribed period
        of time, and methodologies and organizational arrangements to be used to
        accomplish them. Individuals responsible for the studies and other
        activities are clearly identified and are appropriate.

     D. Continuous Activity - The written description provides for continuous
        performance of the activities, including tracking of issues over time.

     E. Provider Review - The QAP provides for:

        1.   Review by physicians and other health professionals of the process
             followed in the provision of health services; and

        2.   Feedback to health professionals and MCO staff regarding
             performance and patient results.

     F. Focus on health outcomes - The QAP methodology addresses health outcomes
        to the extent consistent with existing technology.

Utah division of health care financing                              Page 3 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

STANDARD II: SYSTEMATIC PROCESS OF QUALITY ASSESSMENT AND IMPROVEMENT. The QAP
objectively and systematically monitors and evaluates the quality and
appropriateness of care and service to members, through quality of care studies
and related activities, and pursues opportunities for improvement on an ongoing
basis. The QAP has written guidelines for its quality of care studies and
related activities which include:

     A. Specification of clinical or health services delivery areas to be
        monitored.

        1.   The monitoring and evaluation of care reflects the population
             served by the MCO in terms of age groups, disease categories, and
             special risk status.

        2.   For the Medicaid population, the QAP monitors and evaluates, at a
             minimum, care and services in certain priority areas of concern
             selected by the State. This would include studies specified in the
             Medicaid contract with each individual MCO.

     B. Use of Quality Indicators - Quality indicators are measurable variables
        relating to a specified clinical or health services delivery area, which
        are reviewed over a period of time to monitor the process of care
        delivered in that area.

        1.   The organization identifies and uses quality indicators that are
             objective, measurable, and based on current knowledge and clinical
             experience.

        2.   For the priority areas selected by the State from the HCFA Medicaid
             Bureau's list of priority clinical and health services delivery
             areas of concern, the organization monitors and evaluates quality
             of care through studies which include, but are not limited to those
             specified in Attachment A.

        3.   Methods and frequency of data collection are appropriate and
             sufficient to detect need for program change.

     C. Use of clinical care standards\practice guidelines.

        1.   The studies or other activities of the QAP specify the health
             service delivery standards or practice guidelines used to monitor
             the quality of care for each area identified in Standard II A.

        2.   The standards/guidelines are based on reasonable scientific
             evidence and are developed or reviewed by plan providers.

        3.   The standards/guidelines focus on the process and outcomes of
             health care delivery, as well as access to care.

        4.   A mechanism is in place for continuously updating the
             standard/guidelines.

        5.   The standards/guidelines shall be disseminated to providers as they
             are adopted.

        6.   The standards/guidelines address preventive health services.

        7.   Standards/guidelines are developed for the full spectrum of
             populations enrolled in the plan.

Utah division of health care financing                              Page 4 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

        8.   The QAP shall use these standards/guidelines to evaluate the
             quality of care provided by the MCO's providers.

     D. Analysis of clinical care and related services.

        1.   Appropriate clinicians monitor and evaluate quality through review
             of individual cases where there are questions about care, and
             through studies analyzing patterns of clinical care and related
             service. For quality issues identified in the QAP's targeted
             clinical areas, the analysis includes the identified quality
             indicators and uses clinical care standards or practice guidelines.

        2.   Multidisciplinary teams are used, where indicated, to analyze and
             address systems issues.

        3.   From 1 and 2, clinical and related service areas requiring
             improvement are identified.

     E. Implementation of remedial/corrective actions.

        The QAP includes written procedures for taking appropriate remedial
        action whenever services are furnished, or services that should have
        been furnished were not, as determined under the QAP as inappropriate or
        substandard. These written remedial/corrective action procedures
        include:

        1.   specification of the types of problems requiring
             remedial/corrective action;

        2.   specification of the person(s) or body responsible for making the
             final determinations regarding quality problems;

        3.   specific actions to be taken;

        4.   provision of feedback to appropriate health professionals,
             providers and staff;

        5.   the schedule and accountability for implementing corrective
             actions;

        6.   the approach to modifying the corrective action if improvements do
             not occur; and

        7.   procedures for terminating the affiliation with the physician, or
             other health professional or provider.

     F. Assess effectiveness of corrective actions.

        1.   As actions are taken to improve care, there is monitoring and
             evaluation of corrective actions to assure that appropriate changes
             have been made. In addition, changes in practice patterns are
             tracked.

        2.   The MCO assures follow-up on identified issues to ensure that
             actions for improvement have been effective.

     G. Evaluation of continuity and effectiveness of the QAP.

        1.   The MCO conducts a regular and periodic examination of the scope
             and content of the QAP to ensure it covers all types of services in
             all settings, as specified in STANDARD I-B-2.

Utah division of health care financing                              Page 5 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

        2.   At the end of each year, a written report on the QAP is prepared,
             which addresses: Quality assurance studies and other activities
             completed; trending of clinical and services indicators and other
             performance data; demonstrated improvements in quality; areas of
             deficiency and recommendations for corrective action, and an
             evaluation of the overall effectiveness of the QAP.

        3.   There is evidence that quality assurance activities have
             contributed to significant improvements in the care delivered to
             members.

STANDARD III: ACCOUNTABILITY TO THE GOVERNING BODY. The governing body of the
organization is the 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 MCO. Responsibilities of the Governing Body for monitoring,
evaluation, and making improvements to care includes:

     A. Oversight of QAP - there is documentation that the Governing Body has
        approved the overall QAP and an annual QAP.

     B. Oversight - The Governing Body has formally designated an accountable
        entity or entities within the organization to provide oversight for
        quality assurance activities or has formally decided to provide such
        oversight as a committee of the whole.

     C. QAP progress reports - The Governing Body routinely receives written
        reports from the QAP describing actions taken, progress in meeting
        quality assurance objectives, and improvements made.

     D. Annual QAP review - The Governing Body formally reviews on a periodic
        basis (but no less frequently than annually) a written report on the QAP
        that includes: studies undertaken, results, subsequent actions, and
        aggregate data on utilization and quality of services rendered to assess
        the QAP's continuity, effectiveness and current acceptability.

     E. Program modification - Upon receipt of regular written reports from the
        QAP delineating actions taken and improvements made, the Governing Body
        takes action when appropriate and directs that the operational QAP be
        modified on an ongoing basis to accommodate review findings and issues
        of concern within the MCO. This activity is documented in the minutes of
        the meetings of the Governing Board in sufficient detail to demonstrate
        that it has directed and followed up on necessary actions pertaining to
        quality assurance.

STANDARD IV: ACTIVE QUALITY ASSURANCE COMMITTEE. The QAP delineates an
identifiable structure responsible for performing quality assurance functions
within the MCO. This committee has:

     A. Regular meetings -- The committee meets on a regular basis. The
        frequency of meetings is sufficient to demonstrate that the committee
        is following-up on all findings and required actions, but in no case
        are meeting less frequently than quarterly;

     B. Established parameters for operating - The role, structure and function
        of the committee are specified;

     C. Documentation -- There are records documenting the committee's
        activities, finding, recommendations and actions;

Utah division of health care financing                              Page 6 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

     D. Accountability -- The QAP committee is accountable to the Governing Body
        and reports to it (or its designee) on a scheduled basis on activities,
        findings, recommendations and actions; and

     E. Membership -- there is active participation on the Quality Assurance
        Committee from health plan providers, who are representative of the
        composition of the health plan's providers.

STANDARD V: QUALITY ASSURANCE PLAN SUPERVISION. There is a designated senior
executive who is responsible for QAP implementation. The organization's Medical
Director has substantial involvement in quality assurance activities.

STANDARD VI: ADEQUATE RESOURCES. The QAP has sufficient material resources; and
staff with the necessary education, experience, or training; to effectively
carry out its specified activities.

STANDARD VII: PROVIDER PARTICIPATION IN THE QUALITY ASSURANCE PLAN.

     A. Participating physicians and other providers are kept informed about the
        written QAP.

     B. The MCO includes in all its provider contracts and employment
        agreements, for both physicians and non-physician providers, a
        requirement securing cooperation with the QAP.

     C. Contracts specify that hospitals and other contractors will allow the
        MCO access to the medical records of its members.

STANDARD VIII: DELEGATION OF QAP. The MCO remains accountable for all QAP
functions, even if certain functions are delegated to other entities. If the MCO
delegates any quality assurance activities to contractors:

     A. There is a written description of: the delegated activities; the
        delegate's accountability for these activities; and the frequency of
        reporting to the MCO.

     B. The MCO has written procedures for monitoring and evaluating the
        implementation of the delegated functions and for verifying the actual
        quality of care being provided.

     C. There is evidence of continuous and ongoing evaluation of delegated
        activities, including approval of quality improvement plans and regular
        specified reports.

STANDARD IX: CREDENTIALING AND RECREDENTIALING. The QAP contains the following
provisions to determine whether physicians and other health care professionals,
who are licensed by the State and who are under contract to the MCO, are
qualified to perform their services.

     A. Written policies and procedures - The MCO has written policies and
        procedures for the credentialing process, which includes the
        organization's initial credentialing of practitioners, as well as its
        subsequent recredentialing, recertifying and/or reappointment of
        practitioners.

     B. Oversight by governing body - The Governing Body, or the group or
        individual to which the governing body has formally delegated the
        credentialing function, has reviewed and approved the credentialing
        policies and procedures.

     C. Credentialing entity - The plan designates a credentialing committee or
        other peer review body which makes recommendations regarding
        credentialing decision.

Utah division of health care financing                              Page 7 of 39



Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

     D. Process - The initial credentialing process obtains and reviews
        verification of the following information, at a minimum:

        1.   the practitioner holds a current valid license to practice;

        2.   valid DEA (Drug Enforcement Agency) or CDS (Controlled Dangerous
             Substances) certificate, as applicable;

        3.   graduation from medical school and completion of a residency, or
             other post-graduate training, as applicable;

        4.   work history;

        5.   professional liability claims history;

        6.   good standing of clinical privileges at the hospital designated
             by the practitioner as the primary admitting facility (This
             requirement may be waived for practices which do not have or do
             not need access to hospital.);

        7.   the practitioner holds current, adequate malpractice insurance
             according to the plan's policy;

        8.   any revocation or suspension of a state license or DEA (Drug
             Enforcement Agency) number;

        9.   any curtailment or suspension of medical staff privileges (other
             than for incomplete medical records);

        10.  any sanctions imposed by Medicare and/or Medicaid; and

        11.  any censure by the State or local Medical Association.

        12.  The organization requests information on the practitioner from
             the National Practitioner Data Bank and the State Department of
             Professional Licensing.

        13.  The application process includes a statement by the applicant
             regarding;

                  a.   any physical or mental health problems that may affect
                       current ability to provide health care;

                  b.   history of loss of license and/or felony convictions;

                  c.   history of loss or limitation of privileges or
                       disciplinary activity; and

                  d.   an attestation to correctness/ completeness of the
                       application.

             This information should be used to evaluate the practitioners's
             current ability to practice.

     E. Recredentialing - A process for the periodic reverification of
        clinical credentials (recredentialing, reappointment, or
        recertification) is described in the organization's policies and
        procedures.

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        1.   There is evidence that the procedure is implemented at least
             every two years.

        2.   The MCO conducts periodic review of information from the National
             Practitioner Data Bank, along with performance data, on all
             physicians, to decide whether to renew the participating physician
             agreement. At a minimum, the recredentialing, recertification or
             reappointment process is organized to verify current standing on
             items listed in "D-l" through "D-12", above.

        3.   The recredentialing, recertification or reappointment process also
             includes review of data from:

                  a.   member complaints;

                  b.   results of quality reviews;

                  c.   utilization management;

                  d.   member satisfaction surveys; and

                  e.   reverification of hospital privileges and current
                       licensure.

     F. Delegation of credentialing activities - If the MCO delegates
        credentialing (and recredentialing, recertification, or reappointment)
        activities, there is a written description of the delegated
        activities, and the delegate's accountability for these activities.
        There is also evidence that the delegate accomplished the
        credentialing activities. The MCO monitors the effectiveness of the
        delegate's credentialing and reappointment or recertification process.

     G. Retention of credentialing authority - The MCO retains the right to
        approve new providers and sites, and to terminate or suspend
        individual providers. The organization has policies and procedures for
        the suspension, reduction or termination of practitioner privileges.

     H. Reporting requirement - There is a mechanism for, and evidence of
        implementation of, the reporting of serious quality deficiencies
        resulting in suspension or termination of a practitioner, to the
        appropriate authorities.

     I. Appeals process - There is a provider appellate process for instances
        where the MCO chooses to reduce, suspend or terminate a practitioner's
        privileges with the organization.

STANDARD X: ENROLLEE RIGHTS AND RESPONSIBILITIES. The organization demonstrates
a commitment to treating members in a manner that acknowledges their rights and
responsibilities.

     A. Written policy and enrollee rights. The organization has a written
        policy that recognizes the following rights of members:

        1.   to be treated with respect, and recognition of their dignity and
             need for privacy;

        2.   to be provided with information about the organization, its
             services, the practitioners providing care, and members rights
             and responsibilities;

        3.   to be allowed to choose practitioners, within the limits of the
             plan network, including the right to refuse care from specific
             practitioners;

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        4.   to participate in decision-making regarding their health care;

        5.   to voice grievances about the organization or care provided;

        6.   to formulate advance directives; and

        7.   to have access to his/her medical records in accordance with
             applicable federal and state laws.

     B. Written policy on enrollee responsibilities. The organization has a
        written policy that addresses members' responsibility for cooperating
        with those providing health care services. This written policy
        addresses members' responsibility for:

        1.   providing, to the extent possible, information needed by
             professional staff in caring for the member; and

        2.   following instructions and guidelines given by those providing
             health care services.

     C. Communication of policies to providers - A copy of the organization's
        policies on members' rights and responsibilities is provided to all
        participating providers.

     D. Communication of policies to enrollees/members - Upon enrollment,
        members are provided a written statement that includes information on
        the following:

        1.   rights and responsibilities of members;

        2.   benefits and services included and excluded as a condition of
             membership, and how to obtain them, including a description of:

                  a.   any special benefit provisions that may apply to
                       service obtained outside the system; and

                  b.   the procedures for obtaining out-of-area coverage.

        3.   provisions for after-hours and emergency coverage;

        4.   the organization's policy on referrals for specialty care;

        5.   procedures for notifying those members affected by the
             termination or change in any benefits, services, or service
             delivery office/site;

        6.   procedures for appealing decisions adversely affecting the
             members's coverage, benefits, or relationship to the
             organization;

        7.   procedures for changing practitioners;

        8.   procedures for disenrollment; and

        9.   procedures for voicing complaints and/or grievances and for
             recommending changes in policies and services.

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     E. Enrollee/member grievance procedures. The organization has a system(s)
        for resolving members complaints and formal grievances. This system
        includes:

        1.   procedures for registering and responding to complaints and
             grievances in a timely fashion (organizations should establish
             and monitor standard for timeliness);

        2.   documentation of the substance of complaints or grievances, and
             actions taken;

        3.   procedures to ensure a resolution of the complaint or grievance;

        4.   aggregation and analysis of complaint and grievance data and use
             of the data for quality improvement; and

        5.   an appeal process for grievances.

     F. Enrollee/member suggestions. Opportunity is provided for members to
        offer suggestions for changes in policies and procedures.

     G. Steps to assure accessibility of services. The MCO takes steps to
        promote accessibility of services offered to members. These steps
        include:

        1.   points of access to primary care, specialty care, and hospital
             services are identified for members; and

        2.   at a minimum, members are given information about:

                  a.   how to obtain services during regular hours of
                       operations,

                  b.   how to obtain emergency and after-hours care, and

                  c.   how to obtain the names, qualifications, and titles of
                       the professionals providing and/or responsible for
                       their care.

     H. Cultural and ethnic sensitivity is shown to members when accessing and
        receiving care.

     I. Written information for members. Written information provided to
        members must:

        1.   be written in prose that is readable and easily understood (for
             example, subscriber brochures, announcements, handbooks); and

        2.   be available, as needed, in the languages of the major population
             groups served-- a "major" population group is one which
             represents at least 10% of a plan's membership.

     J. Confidentiality of patient information. The organization acts to
        ensure that the confidentiality of specific patient information and
        records is protected. The organization must:

        1.   establish in writing, and enforce, policies and procedures on
             confidentiality, including confidentiality of medical records;

        2.   ensure that patient care offices/sites have implemented
             mechanisms that guard against the unauthorized or inadvertent
             disclosure of confidential information to persons outside of

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             the medical care organization;

        3.   shall hold confidential all information obtained by its personnel
             about enrollees related to their examination, care and treatment
             and should not divulge it without the enrollee's authorization,
             unless

                  a.   it is required by law;

                  b.   it is necessary to coordinate the patient's care with
                       physicians, hospitals, or other health care entities,
                       or to coordinate insurance or other matters pertaining
                       to payment; or

                  c.   it is necessary in compelling circumstances to protect
                       the health or safety of an individual.

        4.   report to the patient in a timely manner any release of
             information in response to a court order; and

        5.   ensure that when enrollee records may be disclosed, whether or
             not authorized by the enrollee, to qualified personnel for the
             purpose of conducting scientific research, these organizations
             and personnel may not identify, directly or indirectly, any
             individual enrollee in any report of the research or otherwise
             disclose participant identity in any manner.

     K. Treatment of minors. The organization has written policies regarding
        the appropriate treatment of minors.

     L. Assessment of member satisfaction. The organization conducts periodic
        surveys of member satisfaction with its services. The surveys:

        1.   include content on perceived problems in the quality,
             availability, and accessibility or care;

        2.   assess at least a sample of:

                  a.   Medicaid members,

                  b.   Medicaid member requests to change practitioners and/or
                       facilities, and

                  c.   disenrollment by Medicaid members;

        3.   and, as a result of the surveys, the organization:

                  a.   identifies and investigates sources of dissatisfaction,

                  b.   outlines action steps to follow-up on the findings, and

                  c.   informs practitioners and providers of assessment
                       results; and

        4.   the organization reevaluates the effects of the above activities.

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STANDARD XI: STANDARD FOR AVAILABILITY AND ACCESSIBILITY. The MCO has
established standards for access (e.g., to routine, urgent and emergency care;
telephone appointments; advice; and member service lines). Performance on these
dimensions of access are assessed against the standards.

STANDARD XII: MEDICAL RECORD STANDARDS.

     A. Accessibility and availability of medical records.

        1.   The MCO shall include provisions in provider contracts for
             appropriate access to the medical records of its enrollees for
             purposes of quality review.

        2.   Records are available to health care practitioners at each
             encounter.

     B. Record keeping. Medical records may be on paper or electronic. The MCO
        takes steps to promote maintenance of medical records in a legible,
        current, detailed, organized and comprehensive manner that permits
        effective patient care and quality review.

        1.   Medical record standards. The organization sets standards for
             medical records. The records reflect all aspects of patient care,
             including ancillary services. These standards shall, at a minimum
             include requirements for:

                  a.   patient identification information -- each page or
                       electronic file in the record contains the patient's
                       name or patient ID number;

                  b.   personal/biographical data -- including age, sex,
                       address, employer, home and work telephone numbers, and
                       marital status;

                  c.   entry date -- all entries are dated;

                  d.   provider identification -- all entries are identified
                       as to author;

                  e.   legibility -- the record is legible to someone other
                       than the writer. Any record judged illegible by one
                       physician reviewer should be evaluated by a second
                       reviewer.

                  f.   allergies -- medication allergies and adverse reactions
                       are prominently noted on the record absence of
                       allergies (no known allergies -- NKA) is noted in an
                       easily recognizable location;

                  g.   past medical history -- (for patients seen three or
                       more times) past medical history is easily identified
                       including serious accidents, operations, illnesses; for
                       children, past medical history relates to prenatal care
                       and birth;

                  h.   immunizations -- for pediatric records (ages 12 and
                       under) there is a completed immunization record or a
                       notation that immunizations are up-to-date;

                  i.   diagnostic information;

                  j.   medication information;

                  k.   identification of current problems-- significant
                       illnesses, medical conditions and health maintenance
                       concerns are identified in the medical record;

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                  l.   smoking/alcohol/substance abuse-- notation concerning
                       cigarettes and alcohol use and substance abuse is
                       present;

                  m.   consultations, referrals and specialist reports --
                       notes from any consultations are in the record;
                       consultation, lab, and x-ray reports filed in the chart
                       have the ordering physician's initials or other
                       documentation signifying review; consultation and
                       significantly abnormal lab and imaging study results
                       have an explicit notation in the record of follow-up
                       plans;

                  n.   emergency care;

                  o.   hospital discharge summaries-- discharge summaries are
                       included as part of the medical record for 1), all
                       hospital admission which occur while the patient is
                       enrolled in the MCO, and 2), prior admissions as
                       necessary;

                  p.   advance directive -- for medical records of adults, the
                       medical record documents whether or not the individual
                       has executed an advance directive which is a written
                       instruction such as a living will or durable power of
                       attorney for health care relating to the provision of
                       health care when the individual is incapacitated;

        2.   Patient visit data. Documentation of individual encounters must
             provide adequate evidence of, at a minimum:

                  a.   history and physical examination-- appropriate
                       subjective and objective information is obtained for
                       the presenting complaints;

                  b.   plan of treatment;

                  c.   diagnostic tests;

                  d.   therapies and other prescribed regimens;

                  e.   follow-up -- encounter forms or notes have a notation,
                       when indicated, concerning follow-up care, call or
                       visit and the specific time to return is noted in
                       weeks, months, or PRN, with unresolved problems from
                       previous visits being addressed in subsequent visits;

                  f.   referrals and results thereof; and

                  g.   all other aspects of patient care, including ancillary
                       services.

     C. Record review process. The MCO:

        1.   has a system (record review process) to assess the content of
             medical records for legibility, organization, completion and
             conformance to its standards; and

        2.   the record assessment system addresses documentation of the items
             listed in XII(B), above.

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STANDARD XIII: UTILIZATION REVIEW.

     A. Written program description. The organization has a written
        utilization management program description which includes, at a
        minimum, procedures to evaluate medical necessity, criteria used,
        information sources and the process used to review and approve the
        provision of medical services.

     B. Scope. The program has mechanisms to detect under utilization as well
        as over utilization.

     C. Preauthorization and concurrent review requirements. For organization
        with preauthorization or concurrent review programs:

        1.   preauthorization and concurrent review decisions are supervised
             by qualified medical professionals;

        2.   efforts are made to obtain all necessary information, including
             pertinent clinical information, and consult with the treating
             physician as appropriate;

        3.   the reasons for decisions are clearly documented and available to
             the member;

        4.   there are well-publicized and readily available appeals
             mechanisms for both providers and patients. Notification of a
             denial includes a description of how to file an appeal;

        5.   decisions and appeals are made in a timely manner as required by
             the exigencies of the situation;

        6.   here are mechanisms to evaluate the effects of the program using
             data on member satisfaction, provider satisfaction or other
             appropriate measures; and

        7.   the organization has mechanisms, if it delegates responsibility
             for utilization management, to ensure that these standards are
             met by the delegate.

STANDARD XIV: CONTINUITY OF CARE SYSTEM. The MCO has put a basic system in place
which promotes continuity of care and case management.

STANDARD XV: QUALITY ASSURANCE PLAN DOCUMENTATION.

     A. Scope. The MCO shall document that it is monitoring the quality of
        care across all services and all treatment modalities, according to
        its written QAP.

     B. Maintenance and availability of documentation. The MCO must maintain
        and make available to the State studies, reports, protocols,
        standards, worksheets, minutes, or such other documentation as may be
        appropriate, concerning its quality assurance activities and
        corrective actions.

STANDARD XVI: COORDINATION OF QUALITY ASSURANCE ACTIVITY WITH OTHER MANAGEMENT
ACTIVITY. The findings, conclusions, recommendations, actions taken, and results
of the actions taken as a result of quality assurance activity, are documented
and reported to appropriate individuals within the organization and through
established quality assurance channels.

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     A. Quality assurance information is used in recredentialing,
        recontracting and/or annual performance evaluations.

     B. Quality assurance activities are coordinated with other performance
        monitoring activities, including utilization management, risk
        management, and resolution and monitoring of member complaints and
        grievances.

     C. There is a linkage between quality assurance and the other management
        functions of the health plan such as:

        1.   network changes;

        2.   benefits redesign;

        3.   medical management systems (e.g. pre-certification);

        4.   practice feedback to physicians;

        5.   patient education; and

        6.   member services.

STANDARD XVII: DATA COLLECTION.

     A. The MCO will submit information to DHCF using HEDIS (Health Plan
        Employer Data and Information Set) performance measures and reports.
        Data for measures of quality, utilization, member satisfaction and
        access will be reported for the plan in general as well as Medicaid
        specific.

     B. Specific areas of study required will be stated in the contract with
        each individual MCO (See Attachment A).

     C. Data or studies required by the contract must be submitted timely, be
        accurate and complete.

     D. Studies involving grievance/complaint information, childhood
        immunization, prenatal and obstetrical care are required annually.

STANDARD XVIII: FINANCIAL SOLVENCY.

     A. The MCO will submit their annual report as submitted to the Utah
        Department of Insurance.

     B. The MCO will submit annually Measures of Financial Performance from
        the HEDIS report.

MONITORING ACCOUNTABILITY

  An annual review will be conducted for all contracting MCO's. In addition
DHCF will monitor and analyze complaints/grievances and periodically conduct
patient satisfaction surveys.

  If DHCF through quality assurance monitoring such as on-site reviews, MCO
documentation review, data analysis, medical audits, or complaints/grievances
determines that the MCO has not provided services in accordance with the
contract or within expected professional standards, DHCF will request in

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writing that the MCO correct the deficiencies or identified problems. The MCO
will be given 15 calendar days to respond to the problem and develop a
corrective action plan or appeal the DHCF findings. In complaint cases involving
the need for medical record review, the MCO may send a written request to DHCF
for extension of the time frames. If the MCO's plan requires revisions, as
determined by the DHCF, the MCO will have 15 calendar days from the date the
plan is returned by the DHCF to make revisions and resubmit the plan to the
DHCF. If the MCO is unable or unwilling to develop a plan within 15 calendar
days or to satisfactorily revise a plan within 15 calendar days, the MCO will be
subject to the following sanctions:

     $500 for each day, beginning on the first day after the 15 day
     time period has expired, and continuing until the day a
     corrective action plan is submitted or a revised corrective
     action plan containing DHCF recommendations for implementation by
     the MCO is submitted.

  If the MCO is unwilling or unable to implement a corrective action plan to
the satisfaction of the DHCF by the date(s) included in the DHCF approved plan,
the MCO will be subject to the following sanctions:

     $500 for each day, beginning on the first day after the DHCF
     determines that the MCO has not implemented the corrective action
     plan, and continuing until the day the MCO successfully
     demonstrates to the DHCF that it has implemented the plan; and
     other remedies included in the general provisions of the
     contract.

  Any financial sanctions assessed by the DHCF will be deducted from the
monthly payment to the MCO.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

                                  ATTACHMENT A

                          Areas for Studies and Reviews

Required studies will be listed in the Managed Care Organization (MCO) contract
with the Utah Division of Health Care Finance (DHCF) as determined by the
Managed Health Care and MCO staff. Amendments to the contract may be made as
necessary during the contract period. Additional studies will be conducted by an
external quality review organization (EQRO). Determination of study subjects
will by made by the DHCF/Managed Health Care staff with input from the EQRO and
the contracting MCOs.

Clinical Areas of Concern:

      1.  Childhood Immunizations (Required)
      2.  Pregnancy (Required)
      3.  Breast Cancer/Mammography
      4.  Cervical Cancer/Pap Smears
      5.  Lead toxicity/Screening
      6.  Comprehensive Well Child Periodic Health Assessment
      7.  HIV Status
      8.  Asthma
      9.  Hysterectomies
     10.  Diabetes
     11.  Hypertension
     12.  Sexually Transmitted Diseases
     13.  Heritable Diseases (newborn screens)
     14.  Coronary Artery Disease
     15.  Motor Vehicle Accidents
     16.  Pregnancy prevention
     17.  Tuberculosis
     18.  Failure to thrive
     19.  Hepatitis B
     20.  Otitis Media
     21.  Prescription Drug Abuse
     22.  Hip Fractures
     23.  Cholesterol Screening and Management
     24.  Treatment of Myocardial Infarctions
     25.  Prevention of Influenza
     26.  Smoking Prevention and Cessation
     27.  Hearing and Vision Screening and Services for Individuals Less Than 21
          Years of Age
     28.  Dental Screening and Services for Individuals Less Than 21 Years of
          Age
     29.  Domestic Violence

Health Services Delivery Areas of Concern:

      1.  Access to care
      2.  Utilization of services
      3.  Coordination of care
      4.  Continuity of care

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      5.  Health Education
      6.  Emergency services

The EQRO may periodically conduct the following reviews at the request of
Managed Health Care Staff.

      1.  Sterilizations
      2.  Abortions
      3.  Children with multiple medical problems

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

                                  ATTACHMENT B

                             Quality Review Process

If the MCO is accredited by a nationally recognized accreditation board, DHCF
will accept that as compliance in the following standards.

     Standard III:      Accountability to the Governing Body
     Standard IV:       Active Quality Assurance Committee
     Standard V:        Quality Assurance Plan Supervision
     Standard VI:       Adequate Resources
     Standard VII:      Provider Participation in the Quality Assurance Plan
     Standard VIII:     Delegation of Quality Assurance Plan Activities
     Standard IX:       Credentialing and Recredentialing
     Standard XII:      Medical Records Standards
     Standard XIII:     Utilization Review
     Standard XIV:      Continuity of Care System
     Standard XVI:      Coordination of Quality Assurance Activity with
                        Other Management Activity

The following standards will be reviewed annually by DHCF staff:

     Standard I:        Written Quality Assurance Plan Description
     Standard II:       Systematic Process of Quality Assessment and Improvement
     Standard X:        Enrollee Rights and Responsibilities
     Standard XI:       Standard For Availability and Accessibility
     Standard XV:       Quality Assurance Plan Documentation
     Standard XVII:     Data Collection
     Standard XVIII:    Financial Solvency

If the MCO is not accredited by a nationally recognized accreditation board,
DHCF staff will monitor all standards.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

                                  ATTACHMENT C

                              Monitoring Work Sheet

The ...[following] work sheets will be used to monitor all MCOs contracting with
the Utah Division of Health Care Finance. It is the responsibility of the MCO to
submit a plan of correction for any deficiencies identified. List of Work
Sheets:


                     
     Standard I:        Written Quality Assurance Plan Description
     Standard II:       Systematic Process of Quality Assessment and Improvement
     Standard III:      Accountability to the Governing Body
     Standard IV:       Active Quality Assurance Committee
     Standard V:        Quality Assurance Plan Supervision and Standard VI: Adequate Resources
     Standard VII:      Provider Participation in the Quality Assurance Plan and Delegation of Quality
                        Assurance Plan Activities
     Standard VIII:     Delegation of Quality Assurance Plan Activities
     Standard IX:       Credentialing and Recredentialing
     Standard X:        Enrollee Rights and Responsibilities
     Standard XI:       Standard for Availability and Accessibility
     Standard XII:      Medical Records Standards
     Standard XIII:     Utilization Review
     Standard XIV:      Continuity of Care System and
     Standard XV:       Quality Assurance Plan Documentation
     Standard XVI:      Coordination of Quality Assurance Activity with Other Management Activity
     Standard XVII:     Data Collection
     Standard XVIII:    Financial Solvency


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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

STANDARD I -- WRITTEN QUALITY ASSURANCE PLAN DESCRIPTION

Contractor:_____________________ Review Date:_____________

Reviewer Signature:___________________________________

1.   MET  NOT MET   The QAP contains a detailed set of objectives that are
                    developed annually and include a timetable for
                    implementation and accomplishment.

2.   MET  NOT MET   The QAP is comprehensive in scope and provides for review
                    of the entire range of care (clinical as well as
                    non-clinical) provided under the contract. The needs of all
                    demographic groups are considered in the QAP.

3.   MET  NOT MET   The QAP specifies activities to be undertaken,
                    methodologies to be used and individuals responsible for
                    implementing them. The activities undertaken are on a
                    continuing basis with tracking of issues over time.

4.   MET  NOT MET   The QAP provides for review of the process followed by
                    health professionals and feedback to the health
                    professionals on the results of the review.

5.   MET  NOT MET   The QAP methodology addresses health outcomes to the extent
                    consistent with existing technology.

6.   MET  NOT MET   The contractor regularly monitors provider and
                    subcontractor performance/compliance with program policies
                    and contractual requirements.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD II -- SYSTEMATIC PROCESS OF QUALITY ASSESSMENT AND IMPROVEMENT

Contractor:___________________________ Date:_________

Reviewer Signature:____________________________________

1.   MET  NOT MET   The QAP specifies the clinical or health services delivery
                    areas to be monitored, which includes certain priority areas
                    of concern selected by the DHCF for Medicaid clients and
                    reflects the population served in terms of age groups,
                    disease categories and special risk status.

2.   MET  NOT MET   The QAP identifies and utilizes quality indicators that are
                    objective, measurable and based on current knowledge and
                    clinical experience.

3.   MET  NOT MET   Clinical care standards or practice guidelines are used to
                    monitor the quality of care provided. The standards used are
                    based upon reasonable scientific evidence and are included
                    in provider education materials.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

4.   MET  NOT MET   There is on-going analysis of care and services by
                    appropriate clinical and/or multidisciplinary teams. Areas
                    requiring improvement are identified.

5.   MET  NOT MET   Data from studies required in the contract with the Medicaid
                    Agency are submitted in the format and time frames specified
                    in the contract.

6.   MET  NOT MET   Standards/guidelines used focus on the process and outcomes
                    of health care delivery, as well as access to care.

7.   MET  NOT MET   Standards/guidelines address preventive health services.

8.   MET  NOT MET   There is a mechanism in place for continuously updating the
                    standard/guidelines.

9.   MET  NOT MET   The QAP includes procedures for remedial action when
                    deficiencies are identified. It specifies the types of
                    problem requiring corrective action, the individuals
                    responsible for making final determinations regarding
                    quality problems, the actions to be taken, provision for
                    providing feedback to appropriate individuals, the next
                    steps should improvement not occur and procedures and
                    conditions for terminating a provider.

10.  MET  NOT MET   The QAP includes provisions for monitoring and evaluation of
                    corrective actions to ensure that actions for improvement
                    have been effective.

11.  MET  NOT MET   The organization routinely evaluates the QAP and produces
                    quality assurance reports.

12.  MET  NOT MET   Written reports on the QAP are prepared that address:
                    Quality assurance studies and other activities completed;
                    trending of clinical and service indicators and other
                    performance data; demonstrated improvement in quality; areas
                    of deficiency and recommendations for corrective action; and
                    an evaluation of the overall effectiveness of the QAP.
                    Reports are submitted to the Medicaid Agency in accordance
                    with the contract.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD III -- ACCOUNTABILITY TO THE GOVERNING BODY;

Contractor:______________________ Date:__________ Met By Accreditation:___

Reviewer Signature:__________________________________

1.   MET  NOT MET   There is documentation that the Governing Body has approved
                    the overall QAP and an annual QAP.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

2.   MET  NOT MET   There is evidence that the Governing Body has formally
                    designated an accountable entity or entities to provide
                    oversight and quality assurance.

3.   MET  NOT MET   There is evidence that the Governing Body receives written
                    progress reports of the activities of the QAP and directs
                    that the operational QAP be modified on an ongoing basis to
                    accommodate review findings and issues of concern.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


Standard IV -- ACTIVE QUALITY ASSURANCE COMMITTEE

Contractor:________________________ Date:________Met By Accreditation:____

Reviewer Signature:_________________________________

1.   MET  NOT MET   The QAP delineates an identifiable structure responsible for
                    performing quality assurance functions.

2.   MET  NOT MET   There is evidence that the committee or other structure has
                    regular meetings, established parameters for operating,
                    documentation of activities, and active participation of
                    providers who are representative of the composition of the
                    health plan's providers.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD V -- QUALITY ASSURANCE PLAN SUPERVISION

Contractor:____________________Date:___________ Met By Accreditation:________

Reviewer Signature:_________________________________

1.   MET  NOT MET   There is a designated senior executive who is responsible
                    for program implementation.

2.   MET  NOT MET   The medical director is actively involved in the
                    administration of the plan.

3.   MET  NOT MET   There is evidence that the medical director is actively
                    involved in peer review/education.

4.   MET  NOT MET   The medical director is readily available to staff to
                    provide daily consultation.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD VI -- ADEQUATE RESOURCES

Contractor:_______________________ Date:_______Met By Accreditation:_________

Reviewer Signature:____________________________________

1.   MET  NOT MET   The QAP staffing conforms with usual and customary industry
                    practices.

2.   MET  NOT MET   The organization has established contingency plans to
                    fulfill the responsibilities of any vacant key positions.

3.   MET  NOT MET   There is evidence of open communication between divisions
                    within the plan such as: provider services, member services,
                    contracting, planning and management.

4.   MET  NOT MET   Managers/staff from the above specialty division participate
                    in planning and quality improvement activities.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD VII -- PROVIDER PARTICIPATION IN THE QUALITY ASSURANCE PLAN

Contractor:____________________ Date:________Met By Accreditation:________

Reviewer Signature:__________________________________

1.   MET  NOT MET   All providers both physician and non-physician are aware of
                    the QAP and kept apprised of quality assurance activities.

2.   MET  NOT MET   All provider contracts/agreements require cooperation with
                    the QAP.

3.   MET  NOT MET   All contracts/agreements require access to medical records
                    of enrollees.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

STANDARD VIII -- DELEGATION OF QUALITY ASSURANCE PLAN ACTIVITIES

Contractor:______________________ Date:______Met By Accreditation:_________

Reviewer Signature:___________________________________

1.   MET  NOT MET N/A  QAP activities delegated to contractors include a written
                       description of activities and the delegates
                       accountability for the activities.

2.   MET  NOT MET N/A  There is evidence that there is continuous and ongoing
                       evaluation of the delegated activities by the MCO.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD IX -- CREDENTIALING AND RECREDENTIALING

Contractor:_____________________Date:__________Met By Accreditation:________

Reviewer Signature:____________________________________

1.   MET  NOT MET   The contractor has written credentialing standards and/or
                    procedures.

2.   MET  NOT MET   The credentialing activities include the following:

                       Yes  No   Verification of licensure

                       Yes  No   Verification of board and specialty
                                 certification

                       Yes  No   Verification of acceptable levels of
                                 malpractice coverage

                       Yes  No   Evaluation of practice history, particularly
                                 related to participation in the Medicaid
                                 program

                       Yes  No   Verification of hospital admitting privileges

3.   MET  NOT MET   The contractor has an established recredentialing process.

4.   MET  NOT MET   The recredentialing process includes the same elements as
                    the initial credentialing process. (Note differences in
                    comment section)

5.   MET  NOT MET   Board certification or board admissibility is required for
                    specialists.

6.   MET  NOT MET   There are procedures in place to identify/address situations
                    where a participating physician loses licensure, admitting
                    privileges, or board certification.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD X -- ENROLLEE RIGHTS AND RESPONSIBILITIES

Contractor:___________________Date:_________________

Reviewer Signature:_________________________________

 1.  MET  NOT MET   There is an established member services function.

 2.  MET  NOT MET   Member service representatives are qualified.

 3.  MET  NOT MET   Multilingual service representatives are available as
                    necessary.

 4.  MET  NOT MET   Members are informed of the availability/role of member
                    services.

 5.  MET  NOT MET   Members services handbooks are issued upon enrollment.

 6.  MET  NOT MET   Written materials are accurate and appropriate (e.g.
                    available in foreign languages and low reading levels when
                    necessary).

 7.  MET  NOT MET   Member services handbooks inform members of all relevant
                    policies and procedures and include information on obtaining
                    further explanations.

 8.  MET  NOT MET   Updated handbooks are regularly distributed to existing
                    members.

 9.  MET  NOT MET   If the contractor disseminates a newsletter to members, it
                    is distributed to Medicaid enrollees, also.

10.  MET  NOT MET   Members are presented written and oral information on
                    appropriate utilization of services, prior authorization
                    procedures, appropriate use of the emergency room, use of
                    out-of-plan services, and obtaining care when outside the
                    plan's service area.

11.  MET  NOT MET   Written materials that describe coverage and how to access
                    services include a contact person to call if the enrollee
                    has difficulty understanding the procedures.

12.  MET  NOT MET   Written policies/procedures are followed.

13.  MET  NOT MET   Changes in primary care providers are processed promptly and
                    in accordance with contractual requirements.

14.  MET  NOT MET   Member service representative appropriately address
                    inquiries from members.

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15.  MET  NOT MET   The contractor offers health education programs for members
                    and these programs are based on a needs assessment of
                    Medicaid members.

16.  MET  NOT MET   Health education programs are accessible to Medicaid members
                    considering such factors as cost, location, child care, etc.

17.  MET  NOT MET   The contractor regularly evaluates the effectiveness of its
                    health promotion activities and such activities are
                    restructured as a result of such evaluations.

18.  MET  NOT MET   The contractor conducts out reach efforts to: 1) enhance
                    pediatric preventive care; 2) promote early access to
                    prenatal care services; 3) promote early diagnosis and
                    treatment for HIV disease; and 4) promote use of other
                    preventive services, such as family planning.

19.  MET  NOT MET   Protocols for non-compliant members are present.

20.  MET  NOT MET   The contractors written complaint/grievance procedures are
                    consistent with those approved by Medicaid. (Note
                    discrepancies in "comments" section)

21.  MET  NOT MET   Complaints and/or grievances filed within the past contract
                    year were handled in accordance with approved procedures.

22.  MET  NOT MET   Grievances are effectively tracked.

23.  MET  NOT MET   Grievances are handled in a timely manner

24.  MET  NOT MET   Unresolved grievances are promptly referred to Medicaid for
                    resolution.

25.  MET  NOT MET   Complaints and/or grievances are reported to the
                    contractor's quality assurance committee.

26.  MET  NOT MET   Member services representative actively participate in
                    complaint/grievance resolution.

27.  MET  NOT MET   Employees, providers, and subcontractors are aware of the
                    grievance policies and procedures.

28.  MET  NOT MET   Members have received written copies of the
                    complaint/grievance procedures.

29.  MET  NOT MET   Materials distributed to members include the following:

                       Yes  No   Titles and telephone numbers of individuals to
                                 whom a grievance should be directed;

                       Yes  No   Where and how to obtain any forms or
                                 documentation that may be necessary;

                       Yes  No   How and with whom a face-to-face meeting can be
                                 held to

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                                 discuss the complaint/grievance;

                       Yes  No   The appeals process and options available in
                                 the event that the enrollee is not satisfied
                                 with contractor's response (including an appeal
                                 to the Medicaid agency and the right to a fair
                                 hearing) and the time frames to be followed in
                                 responding to the initial grievance and any
                                 appeals;

                       Yes  No   Titles of the personnel participating in the
                                 process who have the authority to require
                                 corrective action; and

                       Yes  No   An explanation of applicable time frames.

30.  MET  NOT MET   The member is advised in writing of the status/outcome of
                    the complaint or grievance and of the next step in the
                    process if the issue is not resolved.

31.  MET  NOT MET   The contractor regularly inform members about changes in the
                    grievance procedures.

32.  MET  NOT MET   There is evidence that the primary care providers understand
                    member complaint/grievance procedures.

33.  MET  NOT MET   Recorded grievances identify areas for improvement in the
                    contractor's policies and procedures, provider network,
                    benefits design, etc. When areas are identified, the
                    information is incorporated into the contractor's quality
                    assurance activities.

34.  MET  NOT MET   The quality assurance committee evaluates if there is a
                    correlation between complaint/grievances and disenrollment
                    from coordinated care.

35.  MET  NOT MET   The policies and procedures used by the contractor safeguard
                    client information including: name, address, medical
                    services provided, social and economic circumstances, agency
                    evaluation of personal information, medical data (including
                    diagnosis) and information related to medical assistance
                    eligibility and third party coverage.

36.  MET  NOT MET   The contractor has written policies/procedures that address
                    the use and disclosure of information concerning Medicaid
                    enrollees.

37.  MET  NOT MET   The types of information to be safeguarded and the
                    conditions for release of safeguarded information is clearly
                    defined.

38.  MET  NOT MET   There are procedures in place to protect against
                    unauthorized disclosure.

39.  MET  NOT MET   The records regarding family planning services are kept
                    confidential.

40.  MET  NOT MET   There are written policies regarding the appropriate
                    treatment of minors.

41.  MET  NOT MET   The plan conducts patient satisfaction surveys at least
                    yearly.

42.  MET  NOT MET   The results of the survey of Medicaid member satisfaction
                    compares

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                    favorably with results of the survey of commercial members.

43.  MET  NOT MET   The survey results do not indicate critical areas for
                    further investigation/ action. If indications present
                    explain in comment section.

44.  MET  NOT MET   Enrollees change primary care providers at a frequency
                    comparable to other plans.

45.  MET  NOT MET   Enrollees disenroll from the plan at a rate comparable to
                    enrollees of other plans.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XI -- STANDARD FOR AVAILABILITY AND ACCESSIBILITY

Contractor:__________________________Date:___________

Reviewer Signature:____________________________________

 1.  MET  NOT MET   There are established standards for access (e.g., to
                    routine, urgent and emergency care, telephone appointments;
                    advice; and member service lines).

 2.  MET  NOT MET   There is an effective system for authorizing care (prompt
                    and appropriate authorization).

 3.  MET  NOT MET   There is an effective system for monitoring follow-up care.

 4.  MET  NOT MET   Member service telephone calls are answered promptly.

 5.  MET  NOT MET   Non-English speaking members and hearing impaired members
                    can reach a member services representative by telephone.

 6.  MET  NOT MET   The availability of materials in languages other than
                    English is sufficient to meet the needs of the eligible
                    population.

 7.  MET  NOT MET   Staff is educated in ways to show cultural and ethnic
                    sensitivity to members.

 8.  MET  NOT MET   Member services representatives assist members in their
                    selection of primary care providers.

 9.  MET  NOT MET   The contractor has agreements in place with primary care
                    practitioners, specialists, hospitals, home health agencies,
                    pharmacies, and other providers of services offered to plan
                    members.

10.  MET  NOT MET   Special population groups are accessing needed services.

11.  MET  NOT MET   The contractor has appropriate linkages to social service
                    agencies to be used

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                    with their case management services.

12.  MET  NOT MET   Providers are located near mass transportation (at least to
                    the extent that non-plan Medicaid providers are located
                    near transportation).

13.  MET  NOT MET   Provider facilities are accessible to individuals with
                    limited mobility and other disabilities.

14.  MET  NOT MET   The contractor accepts new enrollees in the order they apply
                    until reaching full capacity.

15.  MET  NOT MET   There is no evidence of discrimination in marketing
                    practices related to health status or health care needs
                    (i.e., use of a pre-enrollment "health screening" form).

16.  MET  NOT MET   Members have a choice of at least two primary care
                    physicians- -within a specified radius of their residence
                    (i.e., 40 miles/40 minutes).

17.  MET  NOT MET   The contractor has written standards for clinically
                    appropriate waiting times for medical appointments.

18.  MET  NOT MET   The contractor regularly monitors waiting times.

19.  MET  NOT MET   The contractor has a formal outreach effort targeted to
                    pregnant women.

20.  MET  NOT MET   The contractor has a mechanism to identify pregnant women
                    already enrolled in the plan and to help them enter prenatal
                    care.

21.  MET  NOT MET   The contractor has a mechanism established to track the
                    prenatal care that pregnant members receive.

22.  MET  NOT MET   The contractor has protocols established to follow up on
                    members who do not comply with prenatal care visits.

23.  MET  NOT MET   The contractor assigns an obstetrician or other qualified
                    provider to pregnant women on enrollment, or in a timely
                    manner as soon as the pregnancy is identified.

24.  MET  NOT MET   The contractor has mechanisms to ensure early entry to care
                    for pregnant women.

25.  MET  NOT MET   The plan's percentage of sick newborns relative to total
                    births have decreased. (Trend and not a single reporting
                    period phenomenon)

26.  MET  NOT MET   The contractor monitors provider compliance with CHEC/EPSDT
                    requirements.

27.  MET  NOT MET   The contractor provides training and education on CHEC/EPSDT
                    requirements to providers and their staff.

28.  MET  NOT MET   All members are notified of CHEC/EPSDT screening services
                    and notified in

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                    writing when appointments need to be scheduled.

29.  MET  NOT MET   Referrals are tracked to ensure that members receive needed
                    care.

30.  MET  NOT MET   Follow-up tracking is done on members who do not make
                    appointments or keep appointments to investigate any low
                    penetration of CHEC/EPSDT services (i.e. outreach plans for
                    protocols for the age group which is not seeking services).

31.  MET  NOT MET   Outreach programs are being actively developed to encourage
                    eligible members to utilize available services.

32.  MET  NOT MET   A sufficient sample of CHEC/EPSDT charts are audited on
                    a regular basis.

33.  MET  NOT MET   System management reports and other utilization reports are
                    reviewed in the health plan's assessment of the
                    effectiveness and utilization of CHEC/EPSDT services.

34.  MET  NOT MET   The contractor enforces policies and procedures that protect
                    the client's freedom to choose any qualified provider of
                    family planning services.

35.  MET  NOT MET   Family planning services are geographically accessible to
                    each member in the health plan's service area.

36.  MET  NOT MET   The member's participation in family planning services
                    (utilization of services) are on a voluntary basis, and not
                    a prerequisite to eligibility or receipt of other services.

37.  MET  NOT MET   The medical care components of family planning services are
                    overseen by the plan's medical director.

38.  MET  NOT MET   The contractor's network contains physicians with special
                    training or experience in family planning services.

39.  MET  NOT MET   The contractor has developed written protocols that detail
                    specific procedures for the provision of each family
                    planning service offered.

40.  MET  NOT MET   Hysterectomies and sterilization procedures are conducted
                    according to Federal and State regulation.

41.  MET  NOT MET   The contractor has developed measures to monitor the
                    utilization of family planning services.

42.  MET  NOT MET   Utilization data regarding family planning services is
                    monitored by the contractor.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

STANDARD XII -- MEDICAL RECORDS STANDARDS

Contractor:_____________________Date:________Met By Accreditation:________

Reviewer Signature:____________________________________

1.   MET  NOT MET   The contractor has written procedures for record keeping.

2.   MET  NOT MET   The medical records keeping system is designed to capture
                    the following information:

                       Yes  No   Enrollee identifiers (i.e. name, date of birth,
                                 and enrollee identification number)

                       Yes  No   Whether or not the patient has written an
                                 advance directive.

                       Yes  No   Patient background and medical history
                                 including allergies, immunizations, and
                                 medication information.

                       Yes  No   Date of service

                       Yes  No   Description of service

                       Yes  No   Place of service

                       Yes  No   Date of request/referral

                       Yes  No   Name of servicing provider(s)

                       Yes  No   Name of referring provider, if applicable

                       Yes  No   Diagnosis

                       Yes  No   The terms of any referrals/authorization made
                                 by the primary care physician (i.e. number of
                                 visits authorized, open ended referral vs.
                                 specified number of visits)

                       Yes  No   Documentation of emergency care, hospital
                                 discharge summaries, ancillary services

                       Yes  No   Clinical indicators

                       Yes  No   Outcome measures

3.   MET  NOT MET   All entries in the medical record are dated and all authors
                    identified.

4.   MET  NOT MET   Records are available to providers at each patient
                    encounter.

5.   MET  NOT MET   Records are maintained for the amount of time specified in
                    the contract.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

6.   MET  NOT MET   Records (medical, financial, enrollment, disenrollment,
                    administrative, quality assurance and operating records) are
                    accessible to personnel and government authorities as
                    necessary and appropriate.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XIII -- UTILIZATION REVIEW

Contractor:_________________ Date:______Met By Accreditation:_________

Reviewer Signature:_______________________________

 1.  MET  NOT MET   The contractor has written policies and procedures
                    describing its utilization review program.

 2.  MET  NOT MET   The contractor has a formally established utilization review
                    committee.

 3.  MET  NOT MET   Appropriate medical consultants participate in the UR
                    committee.

 4.  MET  NOT MET   The utilization review system include the following
                    components.

                       Yes  No   Prior approval review

                       Yes  No   Second opinion program

                       Yes  No   Concurrent review

                       Yes  No   Discharge planning

                       Yes  No   Physician profile reports

                       Yes  No   Trend reports

                       Yes  No   Identification of patterns of care

                       Yes  No   Tracking of clinical indicators

                       Yes  No   Referral tracking

 5.  MET  NOT MET   The UR program identifies both over and under utilization.

 6.  MET  NOT MET   The contractor's outreach activities are sufficient given
                    the size of the plan.

 7.  MET  NOT MET   The Contractor's utilization review program is effective.

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 8.  MET  NOT MET   There are sufficient qualified personnel/resources devoted
                    to utilization review.

 9.  MET  NOT MET   The contractor regularly evaluate the effectiveness of the
                    utilization review program.

10.  MET  NOT MET   Members receive necessary and appropriate services.

11.  MET  NOT MET   Enrollees receive appropriate diagnostic test and specialty
                    referrals.

12.  MET  NOT MET   Preauthorization and concurrent review decisions are
                    supervised by qualified medical professionals.

13.  MET  NOT MET   Efforts are made to obtain all necessary information and
                    consult with the treating physician as appropriate during
                    preauthorization and concurrent review.

14.  MET  NOT MET   Reasons for decisions are clearly documented and available
                    to the member.

15.  MET  NOT MET   Providers and members are informed of the utilization review
                    appeals process.

16.  MET  NOT MET   Appeals are handled in a timely manner.

17.  MET  NOT MET   Analysis of data from the UR system is part of the quality
                    assurance process.

18.  MET  NOT MET   Utilization review activities reflect use of alternative
                    health care services in lieu of hospitalization.

19.  MET  NOT MET   Physician profiling is part of the utilization review
                    process.

20.  MET  NOT MET   The physician profile information is shared with plan
                    providers for educational purposes.

 Comments:______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XIV -- CONTINUITY OF CARE SYSTEM

Contractor:____________________Date:_______Met By Accreditation:________

Reviewer Signature:___________________________________

1.   MET  NOT MET   There is a basic system in place to assure continuity of
                    care to all enrollees.

2.   MET  NOT MET   There is a case management system in place to assist
                    enrollees requiring these services.

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XV -- QUALITY ASSURANCE PLAN DOCUMENTATION

Contractor:_________________________Date:____________

Reviewer Signature:____________________________________

1.   MET  NOT MET   There is documentation that the MCO is monitoring the
                    quality of care across all services and all treatment
                    modalities, according to its written QAP.

2.   MET  NOT MET   Documentation of QAP activities including corrective actions
                    is maintained and available for review by the State Agency
                    or its designee. (studies, protocols, standards, meeting
                    minutes, reports, worksheets, etc.)

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XVI -- COORDINATION OF QUALITY ASSURANCE ACTIVITY WITH OTHER MANAGEMENT
                ACTIVITY

Contractor:___________________Date:_______Met By Accreditation:________

Reviewer Signature:_________________________________

1.   MET  NOT MET   The quality assurance activities are coordinated with other
                    performance monitoring activities.

2.   MET  NOT MET   There is linkage between quality assurance and the other
                    management functions of the health plan, such as network
                    changes, benefits redesign, medical management systems,
                    physician education and patient education.

3.   MET  NOT MET   Data from the utilization review system is used to educate
                    providers regarding norms and expected utilization patterns.

4.   MET  NOT MET   Utilization review findings are incorporated into quality
                    assurance activities, provider recredentialing activities
                    and long range planning.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

STANDARD XVII -- DATA COLLECTION

Contractor:____________________ Date:___________

Reviewer Signature:__________

1.   MET  NOT MET   The data provided is in accordance with contract
                    requirements.

2.   MET  NOT MET   Membership reports are timely, accurate and complete:

                       Yes No    Enrollment data

                       Yes  No   Disenrollment summaries (reasons for leaving
                                 plan)

                       Yes  No   Outreach activities

                       Yes  No   Satisfaction surveys

                       Yes  No   Grievance reports

3.   MET  NOT MET   Quality assurance/access reports are timely, accurate and
                    complete.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


STANDARD XVIII -- FINANCIAL SOLVENCY

Contractor:________________________Date:___________

Reviewer Signature:_________________________________

1.   MET  NOT MET   The contractor complies with requirements to allow
                    inspection/audit of financial records.

2.   MET  NOT MET   The contractor is found to be financially solvent by the
                    Utah State Insurance Commission.

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

                                WORK SHEET TOTALS

MET   NOT MET                   STANDARD

___     ____     Standard I     - Written Quality Assurance Plan Description

___     ____     Standard II    - Systematic Process of Quality Assessment and
                                  Improvement

___     ____     Standard III   - Accountability to the Governing Body

___     ____     Standard IV    - Active Quality Assurance Committee

___     ____     Standard V     - Quality Assurance Plan Supervision

___     ____     Standard VI    - Adequate Resources

___     ____     Standard VII   - Provider Participation and Delegation of
                                  Quality Assurance Plan Activities

___     ____     Standard VIII  - Delegation of Quality Assurance Plan
                                  Activities

___     ____     Standard IX    - Credentialing and Recredentialing

___     ____     Standard X     - Enrollee Rights and Responsibilities

___     ____     Standard XI    - Availability and Accessibility

___     ____     Standard XII   - Medical Records

___     ____     Standard XIII  - Utilization Review

___     ____     Standard XIV   - Continuity of Care System

___     ____     Standard XV    - Quality Assurance Plan Documentation

___     ____     Standard XVI   - Coordination of Quality Assurance Activity
                                  with other Management Activity

___     ____     Standard XVII  - Data Collection

___     ____     Standard XVIII - Financial Solvency

================================================================================

___     ____   TOTAL

Comments:_______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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Bureau of Managed Health Care         Utah MCO Quality Assurance Monitoring Plan

                                      NOTES


Utah Division of Health Care Financing                             Page 39 of 39



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City, Utah 84116

                               CONTRACT AMENDMENT
    H9920205-01                                                   00-6146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AMERICAN FAMILY CARE the Contract number
     assigned by the State Division of Finance is 00-6146 the Department log
     number assigned by the Utah Department of Health is H9920205, and this
     Amendment is number 01.

2.   CONTRACTING PARTIES:
     This Contract Amendment is between the Utah Department of Health
     (DEPARTMENT), and American Family Care (CONTRACTOR).

3.   PURPOSE OF CONTRACT AMENDMENT:
     To add rural counties to the Contractor's service area effective January 1,
     2000; to establish rates specifically for the rural counties, and to
     increase the Contract amount from $ [*] to $ [*]

4.   CHANGES TO CONTRACT:

     A.   Under Page 1, Item 4, CONTRACT AMOUNT is changed to read:
          "The Contractor will be paid up to a maximum amount of $ [*]
          for the Contract period in accordance with the provisions in this
          Contract. This Contract is funded with 71.61% Federal funds and with
          28.39% State funds. The CFDA # is 93.778 and relates to the federal
          funds provided."

     B.   Under Page 1, Item 6, REFERENCE TO ATTACHMENTS INCLUDED AS PART OF
          THIS CONTRACT is amended by adding Attachment F-1, Rates and Rate
          Related Terms for the Rural counties.

     C.   Under Attachment B, Special Provisions, Article II, Service Area is
          changed to read:
          "The Service Area is limited to the urban counties of Davis, Salt
          Lake, Utah and Weber, and the rural counties of Box Elder, Cache,
          Beaver, Garfield, Iron, Kane, and Washington."

     D.   Attachment F-1, Rates and Rate-Related Terms for the Rural Counties is
          added to the Contract as attached to this Amendment.

     E.   All other provisions of the Contract remain unchanged.

5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR: AMERICAN FAMILY CARE          UTAH DEPARTMENT OF HEALTH

By: /s/ Kirk Olsen            4 Jan 2000  By: /s/ Shari A. Watkins,   01/07/2000
   -------------------------  ----------     ------------------------ ----------
   Signature of Authorized    Date           Shari A. Watkins, C.P.A. Date
   Individual                                Director
                                             Official of Fiscal
                                             Operations

Print Name:     Kirk Olsen                [SEAL]                      1/7/00
            ----------------------------  -------------------------   ----------
                                          State Finance:              Date
Title:     Chief Executive Officer
      ----------------------------------  /s/ [ILLEGIBLE]             1/7/2000
                                          -------------------------   ----------
           33-0617992                     State Purchasing:           Date
- ------------------------------------
Federal Tax Identification Number or
      Social Security Number

                                     Page 1



                ATTACHMENT F-1 RURAL RATES AND RATE-RELATED TERMS

                            Effective January 1, 2000

                              AMERICAN FAMILY CARE

 A.  PREMIUM RATES

     7.   MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS



- ----------------------------------------------------------------------------------------------------
    Age         TANF Male        TANF Male       TANF Female       TANF Female
   0 to 1        1 to 21         21 & Over        1 to 21           21 & Over           Aged
====================================================================================================
                                                                         
 $   [*]         $ [*]            $ [*]           $    [*]         $     [*]            $ [*]
- ----------------------------------------------------------------------------------------------------




- ----------------------------------------------------------------------------------------------------
 Disabled         Disabled          Medically         Medically        Non TANF       Restriction
   Male            Female          Needy Child       Needy Adult      Pregnant F        Program
====================================================================================================
                                                                         
 $   [*]         $ [*]            $ [*]           $    [*]         $     [*]            $ [*]
- ----------------------------------------------------------------------------------------------------


     8.   SPECIAL RATE

          An AIDS rate of $[*] per month will be paid in addition to the regular
          monthly premium when the T-Cell count is below 200.

B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $[*] per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC Screening Goal

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well-child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Health Care Financing Administration,
          mandates that all states have 80% of all children screened. The
          DEPARTMENT and the CONTRACTOR will work toward that goal.

                                   Page 1 of 4



     2.   Calculation of CHEC Incentive Payment

          The DEPARTMENT will pay the CONTRACTOR $ [*] for each percentage point
          over 60% achieved by the CONTRACTOR. The DEPARTMENT will calculate the
          CONTRACTOR'S annual participation rate based on information supplied
          by the CONTRACTOR under the EPSDT (CHEC) reporting requirements at the
          same time each federal fiscal year's HCFA-416 is calculated. Payment
          will be based on the percentages determined at that time.

     3.   CONTRACTOR's Use of Incentive Payment

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   STOP-LOSS/REINSURANCE POLICY

     Stop-loss under item #1 below will be administered by a reinsurer,
     TransAmerica Occidental Life Insurance Company (TransAmerica). TransAmerica
     will partially administer stop-loss under item #2 below.

     1.   REINSURANCE (all services including kidney, liver, and cornea and
          excluding specific organ transplantations defined in D.2. below)

          Costs, net of TPL, for all inpatient and outpatient services listed in
          Attachment C (including kidney, liver, and cornea transplantations,
          but excluding bone marrow, heart, intestine, lung, pancreas, small
          bowel, combination heart/lung, combination intestine/liver,
          combination kidney/pancreas, multi visceral, combination liver/small
          bowel, any additional approved transplantations) that are covered on
          the date of service rendered and incurred from July 1, 1999 through
          June 30, 2000 by the MCO for an Enrollee shall be shared by
          Transamerica under the following conditions:

          a.   the date of service is from July 1, 1999 through June 30, 2000
               (based on date of discharge if inpatient hospital stay);

          b.   paid claims incurred by the MCO exceed $50,000; and

          c.   services shall have been incurred by the MCO during the time the
               client is enrolled with the MCO.

          If the above conditions are met, TransAmerica shall bear [*]% and the
          MCO shall bear [*]% of the amount that exceeds $50,000.

                                   Page 2 of 4



     2.   STOP-LOSS/REINSURANCE FOR SPECIFIC ORGAN TRANSPLANTATIONS

          Costs, net of TPL, for bone marrow, heart, intestine, lung, pancreas,
          small bowel, combination heart/lung, combination intestine/liver,
          combination kidney/pancreas, multi visceral, combination liver/small
          bowel, and any additional approved transplantations (other than
          kidney, liver, and cornea) that are covered on the date of service
          rendered and incurred from July 1, 1999 through June 30, 2000 by the
          MCO for an Enrollee shall be shared by the DEPARTMENT, Transamerica
          and the MCO under the following conditions:

          a.   the date of service is from July 1, 1999 through June 30, 2000
               (based on date of discharge if inpatient hospital stay);

          b.   paid claims incurred by the MCO exceed $40,000; and

          c.   services shall have been incurred by the MCO during the time the
               client is enrolled with the MCO;

          d.   the stop-loss billings for the first $40,000 must be submitted to
               the DEPARTMENT in a format mutually agreed upon; and

          e.   stop-loss billings for the first $40,000 must be submitted to the
               DEPARTMENT within six months of the end of the Contract year.

          If the above conditions are met, the DEPARTMENT shall reimburse the
          MCO the first $40,000; TransAmerica, shall bear [*]% and the MCO shall
          bear [*]% of the amount that exceeds $40,000.

          Stop-loss/reinsurance provisions are normally based on services
          provided within the contract period ending June 30. However, for
          purposes of this stop-loss/reinsurance provision the Contract period
          is extended for transplantations performed between April 1, 2000 and
          June 30, 2000. When the transplantation is performed between April 1,
          2000 and June 30, 2000 the payment for the first $40,000 of the
          transplantation costs and the costs that exceed $40,000 can be applied
          to this stop-loss/reinsurance provision for up to 90 days after the
          transplantation is performed.

E.   REIMBURSEMENT FOR REINSURANCE

     The CONTRACTOR agrees to purchase reinsurance from TransAmerica at the rate
     negotiated by the DEPARTMENT of $ [*] per Enrollee per month. The
     DEPARTMENT will reimburse the CONTRACTOR for their premium payments to
     TransAmerica.
        In addition, the DEPARTMENT will pay the CONTRACTOR [*]% of the premium
     to cover reinsurance administrative costs.

                                   Page 3 of 4



     1.   INTERIM PAYMENTS

          Beginning July 1, 1999, the DEPARTMENT will make monthly interim
          payments to the CONTRACTOR based on the reinsurance premiums the
          CONTRACTOR pays to Insurance Strategies, an agent of TransAmerica. The
          reinsurance premiums will be calculated using the previous month's
          number of Enrollees.

     2.   FINAL SETTLEMENT

          The DEPARTMENT will calculate the actual reinsurance amount due to the
          CONTRACTOR one month after the end of each contract year. The
          settlement will be based on actual Enrollee months.

F.   RISK SHARING PROVISION

     The DEPARTMENT agrees to retroactively adjust annual payments made to the
     CONTRACTOR under this Contract for clients living in the rural counties of
     Box Elder, Cache, Iron, Kane, Washington, Garfield and Beauer.

     1.   CONTRACTOR'S CLAIM EXPENDITURES EXCEEDING PREMIUMS, ETC.

          If the CONTRACTOR'S claim expenditures exceed the premiums paid plus
          other contract payments, the DEPARTMENT will reimburse the CONTRACTOR
          for the unrecovered costs related to claim expenditures. Claim
          contract payments include stop-loss payments. Therefore, the paid
          claims expenditures will also include stop-loss claims paid by the
          CONTRACTOR.

     2.   CONTRACTOR'S CLAIM EXPENDITURES LESS THAN PREMIUMS, ETC.

          If the CONTRACTOR'S claim expenditures are less than the premiums paid
          plus other contract payments, the CONTRACTOR can retain up to [*]% of
          the excess premiums paid and other payments. If there are additional
          savings after the CONTRACTOR has recovered the 10%, the DEPARTMENT and
          CONTRACTOR will share these savings on a 50-50 basis. Claim contract
          payments include stop-loss payments. Therefore, the paid claims
          expenditures will also include stop-loss claims paid by the
          CONTRACTOR.

          A request for a risk sharing adjustment shall be submitted to the
          DEPARTMENT no later than six months after the close of the contract
          year. The CONTRACTOR agrees to use its Medicaid payment rates and fee
          schedules used to price their Medicaid product as a basis for the risk
          sharing calculation.

                                   Page 4 of 4



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City, Utah 84116

                               CONTRACT AMENDMENT

    H9920205-02                                                  00-6146
- ---------------------                                     ---------------------
Department Log Number                                     State Contract Number

1. CONTRACT NAME:
   The name of this Contract is HMO-AMERICAN FAMILY CARE, the Contract number
   assigned by the State Division of Finance is 006146, the Department log
   number assigned by the Utah Department of Health is H9920205, and this
   Amendment is number 2.

2. CONTRACTING PARTIES:
   This Contract Amendment is between the Utah Department of Health
   (DEPARTMENT), and American Family Care of Utah, Inc. (CONTRACTOR).

3. PURPOSE OF CONTRACT AMENDMENT:
   To modify some of the provisions under Attachments B, C, and E; to add
   provisions under Attachment B; and to increase the rates effective July 1,
   2000.

4. CHANGES TO CONTRACT:
   A. Effective July 1, 2000, under Attachment B (Special Provisions), Article I
      - Definitions, item D. "CHEC Program," delete "(See Attachment C, Covered
      Services, 21.)."

   B. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      IV - Benefits, Section C. Scope of Services, add Subsection "4" as
      follows:

      4.  MEDICAL NECESSITY DENIALS

          When the CONTRACTOR determines that a service will not be covered due
          to the lack of medical necessity, the CONTRACTOR must send all
          documentation supporting their decision to the DEPARTMENT for its
          review before the CONTRACTOR's determination is deemed final, when the
          following conditions are met:

          a.   there are no established national standards for determining
               medical necessity; and

          b.   the DEPARTMENT does not have medical necessity criteria for the
               service.

          The DEPARTMENT will review the documentation and determine what the
          DEPARTMENT's decision would be regarding coverage for the service. The
          DEPARTMENT and the CONTRACTOR will work collaboratively in making a
          final decision on whether the service is to be covered by the
          CONTRACTOR.

   C. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      IV-Benefits, Section E. Clarification of Covered Services, Subsection 1
      Emergency Services, delete item "c."

   D. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      V-Enrollee Rights/Services, Section F. Coordination, add Subsection "3"
      as follows:

      3.  DOMESTIC VIOLENCE

          The CONTRACTOR will ensure that providers are knowledgeable about
          methods to detect domestic violence and about resources in the
          community to which they can refer patients.

   E. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      VII - Other Requirements, Section C. Fraud and Abuse Requirements, add the
      following language:

      "The CONTRACTOR must have a compliance program to identify and refer
      suspected fraud and abuse activities. The compliance program should
      outline the CONTRACTOR's internal processes for identifying fraud and
      abuse."

                                   Page 1 of 3



   F. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      IX - Record, Reports and Audits, Section B. Periodic Reports, add
      Subsection 2. Interpretive Services as follows and renumber subsequent
      sections "3" through "9":

      2.  INTERPRETIVE SERVICES

          Annually, the CONTRACTOR will submit to the DEPARTMENT information
          about the use of interpretive services as follows: all sources of
          interpreter services, the languages for which interpreter services
          were secured, the amount of time spent by language, the expenditures
          by language, the amount of time spent by clinical versus
          administrative purposes, and the expenditures by clinical versus
          administrative purposes.

   G. Effective July 1, 2000, under Attachment B (Special Provisions), Article
      IX - Records, Reports and Audits, Section B. Periodic Reports, Subsection
      5. Encounter Data, is changed to Subsection 6 and changed to read:

      "Encounter data, as defined in the DEPARTMENT's "Encounter Records
      Technical Manual," is due (including all replacements) six months after
      the end of the quarter being reported. Encounter data will be submitted in
      accordance with the instructions detailed in the Encounter Records
      Technical Manual for dates of service beginning July 1, 1996."

   H. Effective July 1, 2000, under Attachment C. Covered Services, Item Y.
      Medical and Surgical Services of a Dentist, number 3. Services
      Specifically Covered, is changed to read as follows:

      3.  SERVICES SPECIFICALLY COVERED

          The CONTRACTOR is responsible for palliative care and pain relief for
          severe mouth or tooth pain in an emergency room. If the emergency room
          physician determines that it is not an emergency and the client
          requires services at a lesser level, the provider should refer the
          client to a dentist for treatment. If the dental-related problem is
          serious enough for the client to be admitted to the hospital, the
          CONTRACTOR is responsible for coverage of the inpatient hospital stay.
          The CONTRACTOR is responsible for authorized/ approved medical
          services provided by oral surgeons consistent with injury, accident,
          or disease (excluding dental decay and periodontal disease) including,
          but not limited to, removal of tumors in the mouth, setting and wiring
          a fractured jaw. Also covered are injuries to sound natural teeth and
          associated bone and tissue resulting from accidents including services
          by dentists performed in facilities other than the emergency room or
          hospital.

   I. Effective July 1, 2000, under Attachment C. Covered Services, Item Y.
      Medical and Surgical Services of a Dentist, number 4. Dental Services Not
      Covered, is changed to read as follows:

      4.  DENTAL SERVICES NOT COVERED

          The CONTRACTOR is not responsible for routine dental services such as
          fillings, extractions, treatment of abscess or infection,
          orthodontics, and pain relief when provided by a dentist in the office
          or in an outpatient setting such as a surgical center or scheduled
          same day surgery in a hospital including the surgical facilities
          charges.

   J. Effective July 1, 2000, under Attachment E, replace Table 2 (Cost Data)
      with Table 2 (Cost Data) and MEDICAL SERVICES REVENUE AND COST DEFINITIONS
      FOR TABLE 2 as attached to this Amendment #1.

   K. Effective July 1, 2000, replace Attachment F - Rates and Rate-Related
      Terms with Attachment F - Urban Rates and Rate-Related Terms, Effective
      July 1, 2000, as attached to this Amendment #2.

   L. Effective July 1, 2000, replace Attachment F-1 Rural Rates and
      Rate-Related Terms with Attachment F-1 Rural Rates and Rate-Related Terms,
      Effective July 1, 2000, as attached to this Amendment #2.

   M. All other provisions of the Contract remain unchanged.

                                   Page 2 of 3



5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR: American Family Care of Utah,     UTAH DEPARTMENT OF HEALTH
Inc.

By: /s/ Kirk Olsen          5 September 2000 By:/s/ Shari A. Watkins 9/12/2000
    ----------------------- ----------------    -------------------- -----------
    Signature of Authorized Date                Shari A. Watkins,    Date
    Individual                                  C.P.A.
                                                Director
                                                Office of Fiscal
                                                Operations

Print Name: Kirk Olsen                          [SEAL]               9/26/2000
           --------------------------           -------------------- -----------
                                                State Finance:       Date
Title: Chief Executive Officer
       ------------------------------
                                                /s/ [ILLEGIBLE]      SEP 22 2000
              33-0617992                        -------------------- -----------
- ---------------------------------------         State Purchasing     Date
Federal Tax Identification Number or
       Social Security Number

                                   Page 3 of 3




                                                                                                            
PROVIDER NAME:                   _________________________________________         ATTACHMENT E                      ATTACHMENT E
SERVICE REPORTING PERIOD:        BEGINNING____________  ENDING____________      TABLE 1 PAGE 1 OF 1                       TABLE 1
PAYMENT DATES:                   BEGINNING____________  ENDING____________      MEDICAID ENROLLMENT                  Page 1 of 15




   1           2             3          4             5             6          7          8        9         10        11      12
- ------------------------------------------------------------------------------------------------------------------------------------
                                        AFDC                       AFDC
                                        MALE         AFDC         FEMALE       AFDC                                    MED     MED
 LINE                     INFANTS    * 21 YEARS      MALE       * 21 YEARS    FEMALE            DISABLED   DISABLED   NEDDY   NEDDY
  NO         MONTH        0-12 MOS  ** 12 MOS     21 + YEARS   **12 MOS    21 + YEARS   AGED     MALE      FEMALE    CHILD   OTHER
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                               
   1       JULY
- ------------------------------------------------------------------------------------------------------------------------------------
   2       AUGUST
- ------------------------------------------------------------------------------------------------------------------------------------
   3       SEPTEMBER
- ------------------------------------------------------------------------------------------------------------------------------------
   4       OCTOBER
- ------------------------------------------------------------------------------------------------------------------------------------
   5       NOVEMBER
- ------------------------------------------------------------------------------------------------------------------------------------
   6       DECEMBER
- ------------------------------------------------------------------------------------------------------------------------------------
   7       JANUARY
- ------------------------------------------------------------------------------------------------------------------------------------
   8       FEBRUARY
- ------------------------------------------------------------------------------------------------------------------------------------
   9       MARCH
- ------------------------------------------------------------------------------------------------------------------------------------
  10       APRIL
- ------------------------------------------------------------------------------------------------------------------------------------
  11       MAY
- ------------------------------------------------------------------------------------------------------------------------------------
  12       JUNE
- ------------------------------------------------------------------------------------------------------------------------------------
  13       TOTAL                 0           0             0           0            0     0          0          0       0       0
- ------------------------------------------------------------------------------------------------------------------------------------
* less than
** greater than


   1           2             13          14         15       16
- ----------------------------------------------------------------------
                          NON AFDC                          MEDICAID
                          PREGNANT                            TOTAL
 LINE                      FEMALE    RESTRICTION          (SUM OF COLS
  NO         MONTH        (SOBRA)      CLIENTS     AIDS     3 THRU 15)
- ----------------------------------------------------------------------
                                                      
   1       JULY                                                      0
- ----------------------------------------------------------------------
   2       AUGUST                                                    0
- ----------------------------------------------------------------------
   3       SEPTEMBER                                                 0
- ----------------------------------------------------------------------
   4       OCTOBER                                                   0
- ----------------------------------------------------------------------
   5       NOVEMBER                                                  0
- ----------------------------------------------------------------------
   6       DECEMBER                                                  0
- ----------------------------------------------------------------------
   7       JANUARY                                                   0
- ----------------------------------------------------------------------
   8       FEBRUARY                                                  0
- ----------------------------------------------------------------------
   9       MARCH                                                     0
- ----------------------------------------------------------------------
  10       APRIL                                                     0
- ----------------------------------------------------------------------
  11       MAY                                                       0
- ----------------------------------------------------------------------
  12       JUNE                                                      0
- ----------------------------------------------------------------------
  13       TOTAL                 0             0      0              0
- ----------------------------------------------------------------------





                                                                                                               
PROVIDER NAME:                  _________________________________________         ATTACHMENT E                          ATTACHMENT E
SERVICE REPORTING PERIOD:       BEGINNING____________  ENDING____________       TABLE 2 PAGE 1 OF 2                          TABLE 2
PAYMENT DATES:                  BEGINNING____________  ENDING____________       REVENUES AND COST                       PAGE 2 OF 15




                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)---------------
    1             2                     3              4        5            6           7          8
- ----------------------------------------------------------------------------------------------------------------------
                                     TOTAL UTAH                 AFDC                          AFDC
                                     OPERATIONS                 MALE           AFDC          FEMALE          AFDC
LINE                                 (INCLUDING     INFANTS    * 21 YEARS      MALE       * 21 YEARS        FEMALE
 NO          DESCRIPTION            ALL MEDICAID)   0-12 MOS  ** 12 MOS     21 + YEARS   ** 12 MOS        21 + YEARS
- ----------------------------------------------------------------------------------------------------------------------
               REVENUES                              ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------
                                                                                            
  1  PREMIUMS
- ----------------------------------------------------------------------------------------------------------------------
  2  DELIVERY FEES (CHILD BIRTH)
- ----------------------------------------------------------------------------------------------------------------------
  3  REINSURANCE
- ----------------------------------------------------------------------------------------------------------------------
  4  STOP LOSS
- ----------------------------------------------------------------------------------------------------------------------
  5  TPL COLLECTIONS - MEDICARE
- ----------------------------------------------------------------------------------------------------------------------
  6  TPL COLLECTIONS - OTHER
- ----------------------------------------------------------------------------------------------------------------------
  7  OTHER (SPECIFY)
- ----------------------------------------------------------------------------------------------------------------------
  8  OTHER (SPECIFY)
- ----------------------------------------------------------------------------------------------------------------------
  9  TOTAL REVENUES                          $ 0         $ 0           $ 0         $  0           $ 0            $  0
- ----------------------------------------------------------------------------------------------------------------------
             MEDICAL COSTS                           ROUND TO THE NEAREST DOLLAR
- ----------------------------------------------------------------------------------------------------------------------
 10  INPATIENT HOSPITAL SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 11  OUTPATIENT HOSPITAL SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 12  EMERGENCY DEPARTMENT SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 13  PRIMARY CARE PHYSICIAN
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 14  SPECIALTY CARE PHYSICIAN
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 15  ADULT SCREENING SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 16  VISION CARE - OPTOMETRIC
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 17  VISION CARE - OPTICAL
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 18  LABORATORY (PATHOLOGY)
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 19  RADIOLOGY SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 20  PHYSICAL AND OCCUPATIONAL
      THERAPY
- ----------------------------------------------------------------------------------------------------------------------
 21  SPEECH AND HEARING SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 22  PODIATRY SERVICES
      END STAGE RENAL DISEASE
- ----------------------------------------------------------------------------------------------------------------------
 23  (ESRD) SERVICES - DIALYSIS
- ----------------------------------------------------------------------------------------------------------------------
 24  HOME HEALTH SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 25  HOSPICE SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 26  PRIVATE DUTY NURSING
- ----------------------------------------------------------------------------------------------------------------------
 27  MEDICAL SUPPLIES AND MEDICAL
      EQUIPMENT
- ----------------------------------------------------------------------------------------------------------------------
 28  ABORTIONS
- ----------------------------------------------------------------------------------------------------------------------
 29  STERILIZATIONS
- ----------------------------------------------------------------------------------------------------------------------
 30  DETOXIFICATION
- ----------------------------------------------------------------------------------------------------------------------
 31  ORGAN TRANSPLANTS
- ----------------------------------------------------------------------------------------------------------------------
 32  OTHER OUTSIDE MEDICAL
      SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 33  LONG TERM CARE
- ----------------------------------------------------------------------------------------------------------------------
 34  TRANSPORTATION SERVICES
- ----------------------------------------------------------------------------------------------------------------------
 35  ACCRUED COSTS
- ----------------------------------------------------------------------------------------------------------------------
 36  OTHER (SPECIFY)
- ----------------------------------------------------------------------------------------------------------------------
 37  OTHER (SPECIFY)
- ----------------------------------------------------------------------------------------------------------------------
 38  TOTAL MEDICAL COSTS                     $ 0         $ 0           $ 0         $  0           $ 0            $  0
- ----------------------------------------------------------------------------------------------------------------------

* less than
** greater than


                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)---------------
    1             2                   9        10         11       12       13        14         15          16        17
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                  NON AFDC                           MEDICAID
                                                                  MED     MED     PREGNANT                             TOTAL
LINE                                       DISABLED   DISABLED   NEDDY   NEEDY     FEMALE    RESTRICTION           (SUM OF COLS
 NO          DESCRIPTION            AGED     MALE      FEMALE    CHILD   OTHER     (SOBRA)    CLIENTS      AIDS      4 THRU 16)
- -------------------------------------------------------------------------------------------------------------------------------
             REVENUES                                ROUND TO THE NEAREST DOLLAR
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                              

  1  PREMIUMS
- -------------------------------------------------------------------------------------------------------------------------------
  2  DELIVERY FEES (CHILD BIRTH)
- -------------------------------------------------------------------------------------------------------------------------------
  3  REINSURANCE
- -------------------------------------------------------------------------------------------------------------------------------
  4  STOP LOSS
- -------------------------------------------------------------------------------------------------------------------------------
  5  TPL COLLECTIONS - MEDICARE
- -------------------------------------------------------------------------------------------------------------------------------
  6  TPL COLLECTIONS - OTHER
- -------------------------------------------------------------------------------------------------------------------------------
  7  OTHER (SPECIFY)
- -------------------------------------------------------------------------------------------------------------------------------
  8  OTHER (SPECIFY)
- -------------------------------------------------------------------------------------------------------------------------------
  9  TOTAL REVENUES                  $ 0        $ 0        $ 0     $ 0     $ 0         $ 0           $ 0    $ 0             $ 0
- -------------------------------------------------------------------------------------------------------------------------------
             MEDICAL COSTS                           ROUND TO THE NEAREST DOLLAR
- -------------------------------------------------------------------------------------------------------------------------------
 10  INPATIENT HOSPITAL SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 11  OUTPATIENT HOSPITAL SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 12  EMERGENCY DEPARTMENT SERVICE
- -------------------------------------------------------------------------------------------------------------------------------
 13  PRIMARY CARE PHYSICIAN
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 14  SPECIALTY CARE PHYSICIAN
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 15  ADULT SCREENING SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 16  VISION CARE - OPTOMETRIC
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 17  VISION CARE - OPTICAL
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 18  LABORATORY (PATHOLOGY)
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 19  RADIOLOGY SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 20  PHYSICAL AND OCCUPATIONAL
      THERAPY
- -------------------------------------------------------------------------------------------------------------------------------
 21  SPEECH AND HEARING SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 22  PODIATRY SERVICES
      END STAGE RENAL DISEASE
- -------------------------------------------------------------------------------------------------------------------------------
 23  (ESRD) SERVICES - DIALYSIS
- -------------------------------------------------------------------------------------------------------------------------------
 24  HOME HEALTH SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 25  HOSPICE SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 26  PRIVATE DUTY NURSING
- -------------------------------------------------------------------------------------------------------------------------------
 27  MEDICAL SUPPLIES AND MEDICAL
      EQUIPMENT
- -------------------------------------------------------------------------------------------------------------------------------
 28  ABORTIONS
- -------------------------------------------------------------------------------------------------------------------------------
 29  STERILIZATIONS
- -------------------------------------------------------------------------------------------------------------------------------
 30  DETOXIFICATION
- -------------------------------------------------------------------------------------------------------------------------------
 31  ORGAN TRANSPLANTS
- -------------------------------------------------------------------------------------------------------------------------------
 32  OTHER OUTSIDE MEDICAL
      SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 33  LONG TERM CARE
- -------------------------------------------------------------------------------------------------------------------------------
 34  TRANSPORTATION SERVICES
- -------------------------------------------------------------------------------------------------------------------------------
 35  ACCRUED COSTS
- -------------------------------------------------------------------------------------------------------------------------------
 36  OTHER (SPECIFY)
- -------------------------------------------------------------------------------------------------------------------------------
 37  OTHER (SPECIFY)
- -------------------------------------------------------------------------------------------------------------------------------
 38  TOTAL MEDICAL COSTS             $ 0        $ 0        $ 0     $ 0     $ 0         $ 0           $ 0    $ 0             $ 0
- -------------------------------------------------------------------------------------------------------------------------------





                                                                                                             
PROVIDER NAME:                                                                    ATTACHMENT E                     ATTACHMENT E
SERVICE REPORTING PERIOD:                                                       TABLE 2 PAGE 1 OF 2                    TABLE 2
PAYMENT DATES:                                                                  REVENUES AND COST                  PAGE 3 OF 15




                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------------
 1                 2                     3              4              5              6              7              8
- ---------------------------------------------------------------------------------------------------------------------------
                                    TOTAL UTAH                       AFDC                          AFDC
                                    OPERATIONS                       MALE           AFDC          FEMALE         AFDC
LINE                                (INCLUDING       INFANTS      * 21 YEARS        MALE        * 21 YEARS      FEMALE
 NO           DESCRIPTION          ALL MEDICAID)     0-12 MOS    ** 12 MOS       21 + YEARS   ** 12 MOS      21 + YEARS
- ---------------------------------------------------------------------------------------------------------------------------
        ADMINISTRATIVE COSTS                                      ROUND TO THE NEAREST DOLLAR
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
 39  ADMINISTRATION - ADVERTISING
- ---------------------------------------------------------------------------------------------------------------------------
 40  HOME OFFICE INDIRECT COST
      ALLOCATIONS
- ---------------------------------------------------------------------------------------------------------------------------
 41  UTILIZATION
- ---------------------------------------------------------------------------------------------------------------------------
 42  ADMINISTRATION - OTHER
- ---------------------------------------------------------------------------------------------------------------------------
 43  TOTAL ADMINISTRATIVE COSTS            $ 0          $ 0             $ 0            $ 0           $ 0            $ 0
- ---------------------------------------------------------------------------------------------------------------------------
 44  TOTAL COSTS (MED & ADMIN)             $ 0          $ 0             $ 0            $ 0           $ 0            $ 0
- ---------------------------------------------------------------------------------------------------------------------------
 45  NET INCOME [Gain or (Loss)]           $ 0          $ 0             $ 0            $ 0           $ 0            $ 0
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
 46  ENROLLEE MONTHS                                      0               0              0             0              0
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
 47  MEDICAL COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
 48  ADMIN COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
 49  TOTAL COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
            OTHER DATA
- ---------------------------------------------------------------------------------------------------------------------------
 50  TPL SAVINGS  COST AVOIDANCE"
- ----------------------------------                -------------------------------------------------------------------------
 51  DUPLICATE PREMIUMS ***
- ----------------------------------                -------------------------------------------------------------------------
 52  NUMBER OF DELIVERIES ****
- ----------------------------------                -------------------------------------------------------------------------
 53  FAMILY PLANNING SERVICES
- ----------------------------------                -------------------------------------------------------------------------
 54  REINSURANCE PREMIUMS RECEIVED
- ----------------------------------                -------------------------------------------------------------------------
 55  REINSURANCE PREMIUMS PAID
- ----------------------------------                -------------------------------------------------------------------------
 56  ADMINISTRATIVE REVENUE
      RETAINED BY THE CONTRACTOR
- ----------------------------------                -------------------------------------------------------------------------

* less than
** greater than


                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------------
  1                2                     9             10             11              12            13             14
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                                NON AFDC
                                                                                    MED             MED         PREGNANT
LINE                                                DISABLED       DISABLED        NEDDY           NEDDY         FEMALE
 NO           DESCRIPTION              AGED           MALE          FEMALE         CHILD           OTHER         (SOBRA)
- ---------------------------------------------------------------------------------------------------------------------------
        ADMINISTRATIVE COSTS                                      ROUND TO THE NEAREST DOLLAR
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
- ---------------------------------------------------------------------------------------------------------------------------
 39  ADMINISTRATION -ADVERTISING
- ---------------------------------------------------------------------------------------------------------------------------
 40  HOME OFFICE INDIRECT COST
      ALLOCATIONS
- ---------------------------------------------------------------------------------------------------------------------------
 41  UTILIZATION
- ---------------------------------------------------------------------------------------------------------------------------
 42  ADMINISTRATION - OTHER
- ---------------------------------------------------------------------------------------------------------------------------
 43  TOTAL ADMINISTRATIVE COSTS        $ 0              $ 0           $  0          $ 0             $ 0             $ 0
- ---------------------------------------------------------------------------------------------------------------------------
 44  TOTAL COSTS (MED & ADMIN)         $ 0              $ 0           $  0          $ 0             $ 0             $ 0
- ---------------------------------------------------------------------------------------------------------------------------
 45  NET INCOME [Gain or (Loss)]       $ 0              $ 0           $  0          $ 0             $ 0             $ 0
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
 46  ENROLLEE MONTHS                     0                0              0            0               0               0
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
 47  MEDICAL COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
 48  ADMIN COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
 49  TOTAL COST @ ENROLLEE MO
- ---------------------------------------------------------------------------------------------------------------------------
            OTHER DATA
- ---------------------------------------------------------------------------------------------------------------------------
 50  TPL SAVINGS COST AVOIDANCE **
- ---------------------------------------------------------------------------------------------------------------------------
 51  DUPLICATE PREMIUMS ***
- ---------------------------------------------------------------------------------------------------------------------------
 52  NUMBER OF DELIVERIES ****
- ---------------------------------------------------------------------------------------------------------------------------
 53  FAMILY PLANNING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 54  REINSURANCE PREMIUMS RECEIVED
- ---------------------------------------------------------------------------------------------------------------------------
 55  REINSURANCE PREMIUMS PAID
- ---------------------------------------------------------------------------------------------------------------------------
 56  ADMINISTRATIVE REVENUE
      RETAINED BY THE CONTRACTOR
- ---------------------------------------------------------------------------------------------------------------------------


                                -MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-
  1               2                     15             16             17
- ------------------------------------------------------------------------------
                                                                   MEDICAID
                                                                     TOTAL
LINE                                RESTRICTION                  (SUM OF COLS
 NO           DESCRIPTION             CLIENTS         AIDS         4 THRU 16)
- ------------------------------------------------------------------------------
        ADMINISTRATIVE COSTS            ROUND TO THE NEAREST DOLLAR
- ------------------------------------------------------------------------------
                                                             
 39  ADMINISTRATION -ADVERTISING
- ------------------------------------------------------------------------------
 40  HOME OFFICE INDIRECT COST
      ALLOCATIONS
- ------------------------------------------------------------------------------
 41  UTILIZATION
- ------------------------------------------------------------------------------
 42  ADMINISTRATION - OTHER
- ------------------------------------------------------------------------------
 43  TOTAL ADMINISTRATIVE COSTS            $ 0         $ 0               $ 0
- ------------------------------------------------------------------------------
 44  TOTAL COSTS (MED & ADMIN)             $ 0         $ 0               $ 0
- ------------------------------------------------------------------------------
 45  NET INCOME [Gain or (Loss)]           $ 0         $ 0               $ 0
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
 46  ENROLLEE MONTHS                         0           0                 0
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
 47  MEDICAL COST @ ENROLLEE MO
- ------------------------------------------------------------------------------
 48  ADMIN COST @ ENROLLEE MO
- ------------------------------------------------------------------------------
 49  TOTAL COST @ ENROLLEE MO
- ------------------------------------------------------------------------------
            OTHER DATA
- ------------------------------------------------------------------------------
 50  TPL SAVINGS o COST AVOIDANCE"                                       $ 0
- ------------------------------------------------------------------------------
 51  DUPLICATE PREMIUMS ***                                              $ 0
- ------------------------------------------------------------------------------
 52  NUMBER OF DELIVERIES ****                                             0
- ------------------------------------------------------------------------------
 53  FAMILY PLANNING SERVICES                                            $ 0
- ------------------------------------------------------------------------------
 54  REINSURANCE PREMIUMS RECEIVED                                       $ 0
- ------------------------------------------------------------------------------
 55  REINSURANCE PREMIUMS PAID                                           $ 0
- ------------------------------------------------------------------------------
 56  ADMINISTRATIVE REVENUE
      RETAINED BY THE CONTRACTOR                                         $ 0
- ------------------------------------------------------------------------------


**   COST OF SERVICES PROVIDED TO HMO CLIENTS. NOT PAID FOR BY HMO, E.G.
     "AVOIDED", BECAUSE OTHER INSURANCE PAID FOR IT.
***  CASH AMOUNT RETURNED TO MEDICAID BY HMO BECAUSE HMO CLIENT WAS COVERED IN
     THE SAME HMO BY ANOTHER CARRIER.
**** NUMBER OF CHILDREN DELIVERED. THIS NUMBER TIMES RATES SHOULD EQUAL DELIVERY
     REVENUE.

      In this Medicaid portion, include only costs for Medicaid clients under
      the capitation agreement - exclude revenue, costs & TPL categories per
      this form that do not apply to your organization or contract.



                                                                    Attachment E
                                                                    Page 4 of 15

            MEDICAL SERVICES REVENUE AND COST DEFINITIONS FOR TABLE 2

REVENUES (Report all revenues received or receivable at the end-of-period date
on the form)

1.   Premiums

     Report premium payments received or receivable from the DEPARTMENT.

2.   Delivery Fees

     Report the delivery fee received or receivable from the DEPARTMENT.

3.   Reinsurance

     Report the reinsurance payments received or receivable from the REINSURANCE
     CARRIER (See Attachment F, Section D, Items 1 and 2).

4.   Stop Loss

     Report stop loss payments received or receivable from the DEPARTMENT (See
     Attachment F, Section D, Item 2).

5.   TPL Collections - Medicare

     Report all third party collections received from Medicare.

6.   TPL Collections - Other

     Report all third party collections received other than Medicare
     collections. (Report TPL savings because of cost avoidance as a memo amount
     on line 48).

7.   Other (specify)

8.   Other (specify)

     For lines seven and eight: Report all other revenue not included in lines
     one through six. (There may not be any amount to report; however, this line
     can be used to report revenue from total Utah operations that do not fit
     lines one through six.)

9.   TOTAL REVENUES

     Total lines one through eight.

NOTE: Duplicate premiums are not considered a cost or revenue as they are
collected by the CONTRACTOR and paid to the DEPARTMENT. Therefore, the payment
to the DEPARTMENT would reduce or offset the revenue recorded when the duplicate
premium was received. However, line 49 has been established for reporting
duplicate premiums as a memo amount.



                                                                    Attachment E
                                                                    Page 5 of 15

MEDICAL COSTS: Report all costs accrued as of the ending date on the form. In
the first data column (column 3), report all costs for Utah operations per the
general ledger. In the 14 Medicaid data columns (columns 4 through 17), report
only costs for Medicaid Enrollees.

10.  Inpatient Hospital Services

     Costs incurred in providing inpatient hospital services to Enrollees
     confined to a hospital.

11.  Outpatient Hospital Services

     Costs incurred in providing outpatient hospital services to Enrollees, not
     including services provided in the emergency department.

12.  Emergency Department Services

     Costs incurred in providing outpatient hospital emergency room services to
     Enrollees.

13.  Primary Care Physician Services (Including EPSDT Services, Prenatal Care,
     and Family Planning Services)

     All costs incurred for Enrollees as a result of providing primary care
     physician, osteopath, physician assistant, nurse practitioner, and nurse
     midwife services, including payroll expenses, any capitation and/or
     contract payments, fee-for-service payments, fringe benefits, travel and
     office supplies.

14.  Specialty Care Physician Services (Including EPSDT Services, Prenatal Care,
     and Family Planning Services)

     All costs incurred as a result of providing specialty care physician,
     osteopath, physician assistant, nurse practitioner, and nurse midwife
     services to Enrollees, including payroll expenses, any capitation and/or
     contract payments, fee-for-service payments, fringe benefits, travel and
     office supplies.

15.  Adult Screening Services

     Expenses associated with providing screening services to Enrollees.

16.  Vision Care - Optometric Services

     Included are payroll costs, any capitation and/or contract payments, and
     fee-for-service payments for services and procedures performed by an
     optometrist and other non-payroll expenses directly related to providing
     optometric services for Enrollees.

17.  Vision Care - Optical Services

     Included are payroll costs, any capitation and/or contract payments and
     fee-for-service payments for services and procedures performed by an
     optician and other supportive staff, cost of eyeglass frames and lenses and
     other non-payroll expenses directly related to providing optical services
     for Enrollees.



                                                                    Attachment E
                                                                    Page 6 of 15

18.  Laboratory (Pathology) Services

     Costs incurred as a result of providing pathological tests or services to
     Enrollees including payroll expenses, any capitation and/or contract
     payments, fee-for-service payments and other expenses directly related to
     in-house laboratory services. Excluded are costs associated with a hospital
     visit.

19.  Radiology Services

     Cost incurred in providing x-ray services to Enrollees, including x-ray
     payroll expenses, any capitation and/or contract payments, fee-for-service
     payments, and occupancy overhead costs. Excluded are costs associated with
     a hospital visit.

20.  Physical and Occupational Therapy

     Included are payroll costs, any capitation and/or contract payments,
     fee-for-service costs, and other non-payroll expenditures directly related
     to providing physical and occupational therapy services.

21.  Speech and Hearing Services

     Payroll costs, any capitation and/or contract payments, fee-for-service
     payments, and non-payroll costs directly related to providing speech and
     hearing services for Enrollees.

22.  Podiatry Services

     Salary expenses or outside claims, capitation and/or contract payments,
     fee-for-service payments, and non-payroll costs directly related to
     providing services rendered by a podiatrist to Enrollees.

23.  End Stage Renal Disease (ESRD) Services - Dialysis

     Costs incurred in providing renal dialysis (ESRD) services to Enrollees.

24.  Home Health Services

     Included are payroll costs, any capitation and/or contract payments,
     fee-for-service payments, and other non-payroll expenses directly related
     to providing home health services for Enrollees.

25.  Hospice Services

     Expenses related to hospice care for Enrollees including home care, general
     inpatient care for Enrollees suffering terminal illness and inpatient
     respite care for caregivers of Enrollees suffering terminal illness.

26.  Private Duty Nursing

     Expenses associated with private duty nursing for Enrollees.



                                                                    Attachment E
                                                                    Page 7 of 15

27.  Medical Supplies and Medical Equipment

     This cost center contains fee-for-service cost for outside acquisition of
     medical requisites, special appliances as prescribed by the CONTRACTOR to
     Enrollees.

28.  Abortions

     Medical and hospital costs incurred in providing abortions for Enrollees.

29.  Sterilizations

     Medical and hospital costs incurred in providing sterilizations for
     Enrollees.

30.  Detoxification

     Medical and hospital costs incurred in providing treatment for substance
     abuse and dependency (detoxification) for Enrollees.

31.  Organ Transplants

     Medical and hospital costs incurred in providing transplants for Enrollees.

32.  Other Outside Medical Services

     The costs for specialized testing and outpatient surgical centers for
     Enrollees ordered by the CONTRACTOR.

33.  Long Term Care

     Costs incurred in providing long-term care for Enrollees required under
     Attachment C.

34.  Transportation Services

     Costs incurred in providing ambulance (ground and air) services for
     Enrollees.

35.  Accrued Costs

     Costs Incurred for services rendered to Enrollees but not yet billed.

36 & 37.   Other

     Report costs not otherwise reported.

38.  TOTAL MEDICAL COSTS

     Total lines 10 through 38.



                                                                    Attachment E
                                                                    Page 8 of 15

ADMINISTRATIVE COSTS

Report payroll costs, any capitation and/or contract payments, non-payroll costs
and occupancy overhead costs for accounting services, claims processing
services, health plan services, data processing services, purchasing, personnel,
Medicaid marketing and regional administration.

Report the administration cost under four categories - advertising, home office
indirect cost allocation, utilization and all other administrative costs. If
there are no advertising costs or indirect home office cost allocations, report
a zero amount in the applicable lines.

39.  Administration - Advertising

40.  Home Office Indirect Cost Allocations

41.  Utilization

     Payroll cost and any capitation and/or contract payments for utilization
     staff and other non-payroll costs directly associated with controlling and
     monitoring outside physician referral and hospital admission and discharges
     of Enrollees.

42.  Administration - Other

43.  TOTAL ADMINISTRATIVE COSTS

     Total lines 39 through 43.

44.  TOTAL COSTS (MEDICAL AND ADMINISTRATIVE)

     Total lines 38 and 44.

45.  NET INCOME (GAIN OR LOSS)

     Line 9 minus line 44.

46.  ENROLLEE MONTHS

     Total Enrollee months for period of time being reported.

47.  MEDICAL COSTS PER ENROLLEE MONTH

     Line 38 divided by line 46.

48.  ADMINISTRATIVE COSTS PER ENROLLEE MONTH

     Line 43 divided by line 46.

49.  TOTAL COSTS PER ENROLLEE MONTH

     Line 44 divided by line 46.



                                                                    Attachment E
                                                                    Page 9 of 15

OTHER DATA

50.  TPL Savings - Cost Avoidance

51.  Duplicate Premiums

     Include all premiums received for Enrollees from all sources other than
     Medicaid.

52.  Number of Deliveries

     Total number of Enrollee deliveries when the delivery occurred at 24 weeks
     or later.

53.  Family Planning Services

     Include costs associated with family planning services as defined in
     Attachment C (Covered Services, Section V, Family Planning Services).

54.  Reinsurance Premiums Received

     Include the reinsurance premiums received or receivable from the
     DEPARTMENT.

55.  Reinsurance Premiums Paid

     Include reinsurance premiums paid to the REINSURANCE CARRIER.

56.  Administrative Revenue Retained by the CONTRACTOR

     Include the administrative revenue retained by the CONTRACTOR from the
     reinsurance premiums received or receivable from the DEPARTMENT.




                                                                                                     
PROVIDER NAME:                     _______________________________          ATTACHMENT E                       ATTACHMENT E

SERVICE REPORTING PERIOD:          BEGINNING________ENDING________      TABLE 3 PAGE 1 OF 1                         TABLE 3

PAYMENT DATES:                     BEGINNING________ENDING________          UTILIZATION                       PAGE 10 OF 15




                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------------
 1                 2                     3              4              5              6            7              8
- ---------------------------------------------------------------------------------------------------------------------------
                SERVICE
              DESCRIPTION                             AFDC                          AFDC
         (REFER TO THE UNIT FOR                       MALE           AFDC          FEMALE        AFDC
LINE   SERVICE DEFINITIONS IN THE     INFANTS      * 21 YEARS        MALE        * 21 YEARS     FEMALE
 NO          INSTRUCTIONS             0-12 MOS    ** 12 MOS       21 + YEARS    ** 12 MOS      21 + YEARS        AGED
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
  1  HOSPITAL SERVICES - GENERAL
      DAYS
- ---------------------------------------------------------------------------------------------------------------------------
  2  HOSPITAL SERVICES -
      DISCHARGES
- ---------------------------------------------------------------------------------------------------------------------------
  3  HOSPITAL SERVICES -
      OUTPATIENT VISITS
- ---------------------------------------------------------------------------------------------------------------------------
  4  EMERGENCY DEPARTMENT
      VISITS
- ---------------------------------------------------------------------------------------------------------------------------
  5  PRIMARY CARE PHYSICIAN
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  6  SPECIALTY CARE PHYSICIAN
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  7  ADULT SCREENING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  8  VISION CARE - OPTOMETRIC
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  9  VISION CARE - OPTICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 10  LABORATORY (PATHOLOGY)
      PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 11  RADIOLOGY PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 12  PHYSICAL AND OCCUPATIONAL
      THERAPY SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 13  SPEECH AND HEARING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 14  PODIATRY SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 15  END STAGE RENAL DISEASE(ESRD)
      SERVICES - DIALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
 16  HOME HEALTH SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 17  HOSPICE DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 18  PRIVATE DUTY NURSING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 19  MEDICAL SUPPLIES AND MEDICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 20  ABORTIONS PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 21  STERILIZATION PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 22  DETOXIFICATION DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 23  ORGAN TRANSPLANTS
- ---------------------------------------------------------------------------------------------------------------------------
 24  OTHER OUTSIDE MEDICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 25  LONG TERM CARE FACILITY DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 26  TRANSPORTATION TRIPS
- ---------------------------------------------------------------------------------------------------------------------------
 27  OTHER (SPECIFY)
- ---------------------------------------------------------------------------------------------------------------------------

* less than
** greater than


                                        -------------------MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)-------------------
 1                 2                     9             10             11             12             13             14
- ---------------------------------------------------------------------------------------------------------------------------
                SERVICE
              DESCRIPTION                                                                      NON AFDC
         (REFER TO THE UNIT FOR                                   MED            MED           PREGNANT
LINE   SERVICE DEFINITIONS IN THE     DISABLED     DISABLED      NEEDY          NEEDY           FEMALE          RESTRICTION
 NO          INSTRUCTIONS               MALE        FEMALE       CHILD          OTHER           (SOBRA)           CLIENTS
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
  1  HOSPITAL SERVICES - GENERAL
      DAYS
- ---------------------------------------------------------------------------------------------------------------------------
  2  HOSPITAL SERVICES -
      DISCHARGES
- ---------------------------------------------------------------------------------------------------------------------------
  3  HOSPITAL SERVICES -
      OUTPATIENT VISITS
- ---------------------------------------------------------------------------------------------------------------------------
  4  EMERGENCY DEPARTMENT
      VISITS
- ---------------------------------------------------------------------------------------------------------------------------
  5  PRIMARY CARE PHYSICIAN
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  6  SPECIALTY CARE PHYSICIAN
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  7  ADULT SCREENING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  8  VISION CARE - OPTOMETRIC
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
  9  VISION CARE - OPTICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 10  LABORATORY (PATHOLOGY)
      PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 11  RADIOLOGY PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 12  PHYSICAL AND OCCUPATIONAL
      THERAPY SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 13  SPEECH AND HEARING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 14  PODIATRY SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 15  END STAGE RENAL DISEASE(ESRD)
      SERVICES - DIALYSIS
- ---------------------------------------------------------------------------------------------------------------------------
 16  HOME HEALTH SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 17  HOSPICE DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 18  PRIVATE DUTY NURSING SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 19  MEDICAL SUPPLIES AND MEDICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 20  ABORTIONS PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 21  STERILIZATION PROCEDURES
- ---------------------------------------------------------------------------------------------------------------------------
 22  DETOXIFICATION DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 23  ORGAN TRANSPLANTS
- ---------------------------------------------------------------------------------------------------------------------------
 24  OTHER OUTSIDE MEDICAL
      SERVICES
- ---------------------------------------------------------------------------------------------------------------------------
 25  LONG TERM CARE FACILITY DAYS
- ---------------------------------------------------------------------------------------------------------------------------
 26  TRANSPORTATION TRIPS
- ---------------------------------------------------------------------------------------------------------------------------
 27  OTHER (SPECIFY)
- ---------------------------------------------------------------------------------------------------------------------------


                                 --MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)--
 1                 2                                      15             16
- ----------------------------------------------------------------------------------
                SERVICE
              DESCRIPTION                                              MEDICAID
         (REFER TO THE UNIT OF                                          TOTAL
LINE   SERVICE DEFINITIONS IN THE                                    (SUM OF COLS
 NO          INSTRUCTIONS                                 AIDS        3 THRU 15)
- ----------------------------------------------------------------------------------
                                                                        
  1  HOSPITAL SERVICES - GENERAL
      DAYS                                                                    0
- ----------------------------------------------------------------------------------
  2  HOSPITAL SERVICES -
      DISCHARGES                                                              0
- ----------------------------------------------------------------------------------
  3  HOSPITAL SERVICES -
      OUTPATIENT VISITS                                                       0
- ----------------------------------------------------------------------------------
  4  EMERGENCY DEPARTMENT
      VISITS                                                                  0
- ----------------------------------------------------------------------------------
  5  PRIMARY CARE PHYSICIAN
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
  6  SPECIALTY CARE PHYSICIAN
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
  7  ADULT SCREENING SERVICES                                                 0
- ----------------------------------------------------------------------------------
  8  VISION CARE - OPTOMETRIC
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
  9  VISION CARE - OPTICAL
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
 10  LABORATORY (PATHOLOGY)
      PROCEDURES                                                              0
- ----------------------------------------------------------------------------------
 11  RADIOLOGY PROCEDURES                                                     0
- ----------------------------------------------------------------------------------
 12  PHYSICAL AND OCCUPATIONAL
      THERAPY SERVICES                                                        0
- ----------------------------------------------------------------------------------
 13  SPEECH AND HEARING SERVICES                                              0
- ----------------------------------------------------------------------------------
 14  PODIATRY SERVICES                                                        0
- ----------------------------------------------------------------------------------
 15  END STAGE RENAL DISEASE(ESRD)
      SERVICES - DIALYSIS                                                     0
- ----------------------------------------------------------------------------------
 16  HOME HEALTH SERVICES                                                     0
- ----------------------------------------------------------------------------------
 17  HOSPICE DAYS                                                             0
- ----------------------------------------------------------------------------------
 18  PRIVATE DUTY NURSING SERVICES                                            0
- ----------------------------------------------------------------------------------
 19  MEDICAL SUPPLIES AND MEDICAL
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
 20  ABORTIONS PROCEDURES                                                     0
- ----------------------------------------------------------------------------------
 21  STERILIZATION PROCEDURES                                                 0
- ----------------------------------------------------------------------------------
 22  DETOXIFICATION DAYS                                                      0
- ----------------------------------------------------------------------------------
 23  ORGAN TRANSPLANTS                                                        0
- ----------------------------------------------------------------------------------
 24  OTHER OUTSIDE MEDICAL
      SERVICES                                                                0
- ----------------------------------------------------------------------------------
 25  LONG TERM CARE FACILITY DAYS                                             0
- ----------------------------------------------------------------------------------
 26  TRANSPORTATION TRIPS                                                     0
- ----------------------------------------------------------------------------------
 27  OTHER (SPECIFY)                                                          0
- ----------------------------------------------------------------------------------


NOTE: MEDICAL REQUISITIONS HAS BEEN DITCHED!!

                                  ATTACHMENT E
                                     TABLE 3
                                  Page 10 of 15



                                                                    Attachment E
                                                                   Page 11 of 15

              MEDICAL SERVICES UTILIZATION DEFINITIONS FOR TABLE 3

MEDICAL SERVICES

1.   Hospital Services - General Days

     Record total number of inpatient hospital days associated with inpatient
     medical care.

2.   Hospital Services - Discharges

     Record total number of inpatient hospital discharges.

3.   Hospital Services - Outpatient Visits

     Record total number of outpatient visits.

4.   Emergency Department Visits

     Record total number of emergency room visits

5.   Primary Care Physician Services

     Number of services and procedures defined by CPT-4 codes provided by
     primary care physicians or licensed physician extenders or assistants under
     direct supervision of a physician inclusive of all services except
     radiology, laboratory and injections/immunizations which should be reported
     in their appropriate section. The reporting of data under this category
     includes both outpatient and inpatient services.

6.   Specialty Care Physician Services

     Number of services and procedures defined by CPT-4 codes provided by
     specialty care physicians or licensed physician extenders or assistants
     under direct supervision of a physician inclusive of all services except
     radiology, laboratory and injections/immunizations which should be reported
     in their appropriate section. The reporting of data under this category
     includes both outpatient and inpatient services.

7.   Adult Screening Services

     Number of adult screenings performed.

8.   Vision Care - Optometric Services

     Number of optometric services and procedures performed by an optometrist.

9.   Vision Care - Optical Services

     Number of eye glasses and contact lenses dispensed.



                                                                    Attachment E
                                                                   Page 12 of 15

10.  Laboratory (Pathology) Procedures

     Number of procedures defined by CPT-4 Codes under the Pathology and
     Laboratory section. Excluded are services performed in conjunction with a
     hospital outpatient or emergency department visit.

11.  Radiology Procedures

     Number of procedures defined by CPT-4 Codes under the Radiology section.
     Excluded are services performed in conjunction with a hospital outpatient
     or emergency department visit.

12.  Physical and Occupational Therapy Services

     Physical therapy refers to physical and occupational therapy services and
     procedures performed by a physician or physical therapist.

13.  Speech and Hearing Services

     Number of services and procedures.

14.  Podiatry Services

     Number of services and procedures.

15.  End Stage Renal Disease (ESRD) Services - Dialysis

     Number of ESRD procedures provided upon referral.

16.  Home Health Services

     Number of home health visits, such as skilled nursing, home health aide,
     and personal care aide visits.

17.  Hospice Days

     Number of days hospice care is provided, including respite care.

18.  Private Duty Nursing Services

     Hours of skilled care delivered.

19.  Medical Supplies and Medical Equipment

     Durable medical equipment such as wheelchairs, hearing aids, etc., and
     nondurable supplies such as oxygen etc.

20.  Abortion Procedures

     Number of procedures performed.



                                                                    Attachment E
                                                                   Page 13 of 15
21.  Sterilization Procedures

     Number of procedures performed.

22.  Detoxification Days

     Days of inpatient detoxification.

23.  Organ Transplants

     Number of transplants.

24.  Other Outside Medical Services

     Specialized testing and outpatient surgical services ordered by IHC.

25.  Long Term Care Facility Days

     Total days associated with long-term care.

26.  Transportation Trips

     Number of ambulance trips.

27.  Other (specify)



                                  ATTACHMENT E
                               TABLE 4 PAGE 1 OF 1
                        MEDICAID MALPRACTICE INFORMATION

PROVIDER NAME:             _____________________________________________________

SERVICE REPORTING PERIOD:  BEGINNING __________ ENDING  ________________________

ORGANIZATIONS NAMED IN THE MALPRACTICE CLAIM:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

MEDICAL PROFESSIONALS SPECIFIED:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

LOCATIONS WHERE CLAIMS ORIGINATED:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

MEDICAID CLIENT IDENTIFICATION:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

DATES OF SERVICE:

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

AWARDS TO MEDICAID CLIENTS - AMOUNTS & DATES PAID

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

HMO'S DIRECT COSTS (IF ANY)

     CLAIM NUMBER 1 ____________________________________________________________

     CLAIM NUMBER 2 ____________________________________________________________

     CLAIM NUMBER 3 ____________________________________________________________

ATTACH A SUMMARY OF FACTS FOR EACH CASE, DESCRIBING THE CLAIM, THE CAUSES,
CIRCUMSTANCES, ETC.

                                  ATTACHMENT E
                                     TABLE 4
                                  Page 14 of 15



                                                                    Attachment E
                                                                   Page 15 of 15

     The information reported on this form should come from known malpractice
     cases of the MCO providers. This may only be applicable if the MCO was
     named as a participant in the malpractice suit. However, if suits against
     MCO providers are known, provide us with information on the Medicaid
     client(s) involved and any large settlements paid when the information is
     available.



                                                            Attachment F - Urban
                                                          Effective July 1, 2000

                ATTACHMENT F - URBAN RATES AND RATE-RELATED TERMS

                             Effective July 1, 2000

                       AMERICAN FAMILY CARE OF UTAH, INC.

A.   PREMIUM RATES

     1.   MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS

- -----------------------------------------------------------------------------
   Age       TANF Male    TANF Male    TANF Female  TANF Female
  0 to 1      1 to 21     21 & Over      1 to 21     21 & Over      Aged
=============================================================================
  $ [*]       $ [*]        $ [*]         $ [*]        $ [*]         $ [*]
- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
  Disabled     Disabled    Medically    Medically    Non TANF     Restriction
    Male        Female    Needy Child  Needy Adult  Pregnant F      Program
=============================================================================
  $ [*]        $ [*]       $ [*]        $ [*]        $ [*]          $ [*]
- -----------------------------------------------------------------------------

     2.   SPECIAL RATE

          An AIDS rate of $ [*] per month will be paid in addition to the
          regular monthly premium when the T-Cell count is below 200.

B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $ [*] per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC Screening Goal

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well- child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Health Care Financing Administration,
          mandates that all states have 80% of all children screened. The
          DEPARTMENT and the CONTRACTOR will work toward that goal.

                                   Page 1 of 2



                                                            Attachment F - Urban
                                                          Effective July 1, 2000

     2.   Calculation of CHEC Incentive Payment

          The DEPARTMENT will pay the CONTRACTOR $ [*]    for each percentage
          point over 60% achieved by the CONTRACTOR. The DEPARTMENT will
          calculate the CONTRACTOR'S annual participation rate based on
          information supplied by the CONTRACTOR under the EPSDT (CHEC)
          reporting requirements at the same time each federal fiscal year's
          HCFA-416 is calculated. Payment will be based on the percentages
          determined at that time.

     3.   CONTRACTOR's Use of Incentive Payment

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   REINSURANCE POLICY

     Reinsurance will be administered by a reinsurer, Zurich Insurance.

     Costs, net of TPL, for all inpatient and outpatient services listed in
     Attachment C that are covered on the date of service rendered and incurred
     from July 1, 2000 through June 30, 2001 by the CONTRACTOR for an Enrollee
     shall be shared by Zurich Insurance under the following conditions:

     1.   the date of service is from July 1, 2000 through June 30, 2001 (based
          on the date of discharge if inpatient hospital stay);

     2.   paid claims incurred by the CONTRACTOR exceed $50,000.00; and

     3.   services shall have been incurred by the CONTRACTOR during the time
          the client is enrolled with the CONTRACTOR.

          If the above conditions are met, Zurich Insurance shall bear [*]% and
          the CONTRACTOR shall bear [*]% of the amount that exceeds $50,000.00.

E.   REIMBURSEMENT FOR REINSURANCE

     The CONTRACTOR agrees to purchase reinsurance from Zurich Insurance at the
     rate negotiated by the DEPARTMENT of $ [*] per Enrollee per month. The
     DEPARTMENT will reimburse the CONTRACTOR for their premium payments to
     Zurich Insurance. In addition, the DEPARTMENT will pay the CONTRACTOR
     $ [*] to cover reinsurance administrative costs.

     Beginning July 1, 2000, the DEPARTMENT will make monthly payments to the
     CONTRACTOR based on the reinsurance premiums the CONTRACTOR pays to Zurich
     Insurance. The DEPARTMENT will calculate the reinsurance premiums using the
     DEPARTMENT's data on the number of Enrollees.

                                   Page 2 of 2



                                                            Attachment F-1 Rural
                                                          Effective July 1, 2000

               ATTACHMENT F-1 - RURAL RATES AND RATE-RELATED TERMS

                             Effective July 1, 2000

                       AMERICAN FAMILY CARE OF UTAH, INC.

A.   PREMIUM RATES

     1.   MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS

- -----------------------------------------------------------------------------
   Age       TANF Male    TANF Male    TANF Female  TANF Female
  0 to 1      1 to 21     21 & Over      1 to 21     21 & Over      Aged
=============================================================================
  $  [*]      $ [*]        $ [*]        $  [*]       $  [*]        $ [*]
- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
  Disabled    Disabled     Medically    Medically     Non TANF    Restriction
    Male       Female     Needy Child  Needy Adult   Pregnant F     Program
=============================================================================
  $  [*]      $ [*]        $ [*]        $  [*]       $  [*]        $ [*]
- -----------------------------------------------------------------------------

     2.   SPECIAL RATE

          An AIDS rate of $ [*] per month will be paid in addition to the
          regular monthly premium when the T-Cell count is below 200.

B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $ [*] per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC SCREENING GOAL

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well- child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Health Care Financing Administration,
          mandates that all states have 80% of all children screened. The
          DEPARTMENT and the CONTRACTOR will work toward that goal.

                                   Page 1 of 3



                                                            Attachment F-1 Rural
                                                          Effective July 1, 2000

     2.   CALCULATION OF CHEC INCENTIVE PAYMENT

          The DEPARTMENT will pay the CONTRACTOR $ [*] for each percentage
          point over 60% achieved by the CONTRACTOR. The DEPARTMENT will
          calculate the CONTRACTOR's annual participation rate based on
          information supplied by the CONTRACTOR under the EPSDT (CHEC)
          reporting requirements at the same time each federal fiscal year's
          HCFA-416 is calculated. Payment will be based on the percentages
          determined at that time.

     3.   CONTRACTOR'S USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   REINSURANCE POLICY

     Reinsurance will be administered by a reinsurer, Zurich Insurance.

     Costs, net of TPL, for all inpatient and outpatient services listed in
     Attachment C that are covered on the date of service rendered and incurred
     from July 1, 2000 through June 30, 2001 by the CONTRACTOR for an Enrollee
     shall be shared by Zurich Insurance under the following conditions:

     1.   The date of service is from July 1, 2000 through June 30, 2001 (based
          on the date of discharge if inpatient hospital stay);

     2.   paid claims incurred by the CONTRACTOR exceed $50,000.00; and

     3.   services shall have been incurred by the CONTRACTOR during the time
          the client is enrolled with the CONTRACTOR.

          If the above conditions are met, Zurich Insurance shall bear [*]% and
          the CONTRACTOR shall bear [*]% of the amount that exceeds $50,000.00.

E.   REIMBURSEMENT FOR REINSURANCE

     The CONTRACTOR agrees to purchase reinsurance from Zurich Insurance at the
     rate negotiated by the DEPARTMENT of $ [*] per Enrollee per month. The
     DEPARTMENT will reimburse the CONTRACTOR for their premium payments to
     Zurich Insurance. In addition, the DEPARTMENT will pay the CONTRACTOR
     $ [*] to cover reinsurance administrative costs.

     Beginning July 1, 2000, the DEPARTMENT will make monthly payments to the
     CONTRACTOR based on the reinsurance premiums the CONTRACTOR pays to Zurich
     Insurance. The DEPARTMENT will calculate the reinsurance premiums using the
     DEPARTMENT's data on the number of Enrollees.

                                   Page 2 of 3



                                                            Attachment F-1 Rural
                                                          Effective July 1, 2000

F.   RISK SHARING PROVISION

     The DEPARTMENT agrees to retroactively adjust annual payments made to the
     CONTRACTOR under this Contract for clients living in the rural counties
     served by the CONTRACTOR.

     1.   CONTRACTOR's CLAIM EXPENDITURES EXCEEDING PREMIUMS, ETC.

          If the CONTRACTOR's claim expenditures exceed the premiums paid plus
          other Contract payments, the DEPARTMENT will reimburse the CONTRACTOR
          for the unrecovered costs related to claim expenditures. Claim
          contract payments include stop-loss payments. Therefore, the paid
          claims expenditures will also include stop-loss claims paid by the
          CONTRACTOR.

     2.   CONTRACTOR'S CLAIM EXPENDITURES LESS THAN PREMIUMS, ETC.

          If the CONTRACTOR's claim expenditures are less than the premiums paid
          plus other Contract payments, the CONTRACTOR can retain up to [*]% of
          the excess premiums paid and other payments. If there are additional
          savings after the CONTRACTOR has recovered the [*]%, the DEPARTMENT
          and the CONTRACTOR will share these savings on a [*] basis. Claim
          contract payments include stop-loss payments. Therefore, the paid
          claims expenditures will also include stop-loss claims paid by the
          CONTRACTOR.

     A request for a risk sharing adjustment shall be submitted to the
     DEPARTMENT no later than six months after the close of the Contract year.
     The CONTRACTOR agrees to use its Medicaid payment rates and fee schedules
     used to price their Medicaid product as a basis for the risk sharing
     calculation.

                                   Page 3 of 3



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City, Utah 84116
                               CONTRACT AMENDMENT

   H992020205-03                                                 00-6146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AFC/MOLINA, the Department log number
     assigned by the Utah Department of Health is H992020205, and this Amendment
     is number 3.

2.   CONTRACTING PARTIES:
     This Contract Amendment is between the Utah Department of Health
     (DEPARTMENT), and Molina Healthcare of Utah (CONTRACTOR).

3.   PURPOSE OF CONTRACT AMENDMENT:
     To change the names of the Contract and CONTRACTOR, clarify some of the
     Contract provisions, add provisions, and to change the rates and
     rate-related provisions effective July 1, 2001.

4.   CHANGES TO CONTRACT:
     A.   On Page 1, item #1, CONTRACT NAME is changed to read "HMO-AFC/MOLINA."

     B.   On Page 1, item #2, CONTRACTOR is changed to read "Molina Healthcare
          of Utah."

     C.   Effective July 1, 2001, replace Attachment B with Attachment B as
          attached to this Amendment #3.

     D.   Effective July 1, 2001, replace Attachment F - Urban Rates and
          Rate-Related Terms and Attachment F-1 Rural Rates and Rate-Related
          Terms with Attachment F - Urban & Rural Rates and Rate-Related Terms
          as attached to this Amendment #3.

     E.   All other provisions of the Contract remain unchanged.

5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR: Molina Healthcare of Utah       UTAH DEPARTMENT OF HEALTH

By: /s/ Kirk Olsen          30 Aug 2001   By: /s/ Shari A. Watkins     09/17/01
   -----------------------  -----------      ------------------------  --------
   Signature of Authorized  Date             Shari A. Watkins, C.P.A.  Date
   Individual                                Director
                                             Office of Fiscal
                                             Operations

Print Name: Kirk Olsen
            ---------------------------

Title: Chief Executive Officer            [SEAL]                       10-12-01
       ---------------------------------  ---------------              --------
                                          State Finance:               Date

       33-0617992
- --------------------------                [ILLEGIBLE]
Federal Tax Identification                ---------------              --------
 Number or Social Security                State Purchasing:            Date
 Number

                                     Page 1



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

For the purpose of the Contract all article. section, and subsection headings in
these Attachments B, C, and D are for convenience in referencing the provisions
of the Contract. They are not enforceable as part of the text of the Contract
and may not be used to interpret the meaning of the provisions that lie beneath
them.

                        ATTACHMENT B - SPECIAL PROVISIONS
                              Effective July 1,2001

                             ARTICLE I - DEFINITIONS

For the purpose of the Contract:

A.   "Advance Directives" means oral and written instructions about an
     individual's medical care, in the event the individual is unable to
     communicate. There are two types of Advance Directives: a living will and a
     medical power of attorney.

B.   "Balance Bill" means the practice of billing patients for charges that
     exceed the amount that the MCO will pay.

C.   "CHEC Eligible" means any Medicaid recipient under the age of 21 who is
     eligible to receive Early Periodic Screening Diagnostic and Treatment
     (EPSDT) services in accordance with 42 CFR Part 441, Subpart B.

D.   "CHEC Program" or Child Health Evaluation and Care program is Utah's
     version of the federally mandated Early Periodic Screening, Diagnosis and
     Treatment (EPSDT) program as defined in 42 CFR Part 441, Subpart B. (See
     Attachment C, Covered Services, U.)

E.   "Child with Special Health Care Needs" means a child under 21 who has or is
     at increased risk for chronic physical, developmental, behavioral, or
     emotional conditions and requires health and related services of a type or
     amount beyond that required by children generally, including a child who,
     consistent with 1932(a)(2)(A) of the Social Security Act, 42 U.S.C.,
     Section 1396u-2(a)(2)(A):

     (1)  is blind or disabled or in a related population (eligible for SSI
     under title XVI of the Social Security Act);
     (2)  is in foster care or other out-of-home placement;
     (3)  is receiving foster care or adoption assistance; or
     (4)  is receiving services through a family-centered, community-based
     coordinated care system that receives grant funds described in section
     501(a)(l)(D) of title V.

F.   "Division of Health Care Financing" or "DHCF" means the division within the
     Department of Health responsible for the administration of the Utah
     Medicaid program.

G.   "Emergency Services" means those services provided in a hospital, clinic,
     office, or other facility that is equipped to furnish the required care,
     after the sudden onset of a medical condition manifesting itself by acute
     symptoms of sufficient severity (including severe pain) such that a

                                  Page 1 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     prudent layperson, who possesses an average knowledge of health and
     medicine, could reasonably expect that the absence of immediate medical
     attention to result in:

     1.   Placing the health of the individual (or, with respect to a pregnant
          woman, the health of a woman or her unborn child) in serious jeopardy;

     2.   Serious impairment to bodily functions; or

     3.   Serious dysfunction of any bodily organ or part.

H.   "Enrollee" means any Medicaid eligible: (1) who, at the time of enrollment
     resides within the geographical limits of the CONTRACTOR's Service Area;
     (2) whose name appears on the DEPARTMENT's Eligibility Transmission as a
     new, reinstate, or retroactive Enrollee; and (3) who is accepted for
     enrollment by the CONTRACTOR according to the conditions set forth in this
     Contract excluding residents of the Utah State Hospital, Utah State
     Developmental Center, and long-term care facilities except as defined in
     Attachment C.

I.   "Enrollees with Special Health Care Needs" means enrollees 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 or amount beyond that required by adults and children generally.

J.   "Enrollment Area" or "Service Area" means the counties enumerated in
     Article II.

K.   "Family Member" means all Medicaid eligibles who are members of the same
     family living at home.

L.   "Home and Community-Based Services" means services, not otherwise furnished
     under the State's Medicaid plan, that are furnished under a waiver of
     statutory requirements granted under the provisions of CFR Part 441,
     subpart G. These services cover an array of Home and Community-Based
     Services that are cost-effective and necessary for an individual to avoid
     institutionalization.

M.   "Managed Care Organization" or "MCO" means an organization that meets the
     State Plan's definition of an HMO or prepaid health plan and which
     provides, either directly or through arrangement with other providers,
     comprehensive general medical services to Medicaid eligibles on a
     contractual prepayment basis.

N.   "Marketing Material" means materials in all mediums, including member
     handbooks, brochures and leaflets, newspaper, magazine, radio, television,
     billboard and yellow pages advertisements, and presentation materials used
     by marketing representatives. It includes materials mailed to, distributed
     to, or aimed at Medicaid clients specifically, and any material that
     mentions "Medicaid," "Medicaid Assistance," or "Title XIX."

O.   "Medically Necessary" means any medical service that (a) is reasonably
     calculated to prevent,

                                  Page 2 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     diagnose, or cure conditions in the Enrollee that endanger life, cause
     suffering or pain, cause deformity or malfunction, or threaten to cause a
     handicap, and (b) there is no equally effective course of treatment
     available or suitable for the Enrollee requesting the service which is more
     conservative or substantially less costly. Medical services will be of a
     quality that meets professionally recognized standards of health care, and
     will be substantiated by records including evidence of such medical
     necessity and quality. Those records will be made available to the
     DEPARTMENT upon request. For CHEC Enrollees, "Medically Necessary" means
     preventive screening services and other medical care, diagnostic services,
     treatment, and other measures necessary to correct or ameliorate defects
     and physical and mental illnesses and conditions, even if the services are
     not included in the Utah State Medicaid Plan.

P.   "Member Services" means a method of assisting Enrollees in understanding
     CONTRACTOR policies and procedures, facilitating referrals to participating
     specialists, and assisting in the resolution of problems and member
     complaints. The purpose of Member Services is to improve access to services
     and promote Enrollee satisfaction.

Q.   "Physician Incentive Plan" means any compensation between a contracting
     organization and a physician group that may directly or indirectly have the
     effect of reducing or limiting services provided with respect to Enrollees
     in the organization.

R.   "Prepaid Mental Health Plan" means the mental health centers that contract
     with the DEPARTMENT to provide inpatient and outpatient mental health
     services to Medicaid clients living within each mental health center's
     jurisdiction.

S.   "Primary Care Provider" or "PCP" means a health care provider the majority
     of whose practice is devoted to internal medicine, family/general practice
     or pediatrics. The MCO may allow other specialists to be PCPs, when
     appropriate. PCPs are responsible for delivering primary care services,
     coordinating and managing Enrollees' overall health and, authorizing
     referrals for other necessary care.

T.   "Restriction Program" means the Federally mandated program (42 CFR
     431.54(e)) for Medicaid clients who over-utilize Medicaid services. If the
     DEPARTMENT in conjunction with the CONTRACTOR finds that an Enrollee has
     utilized Medicaid services at a frequency or amount that is not Medically
     Necessary, as determined in accordance with utilization guidelines adopted
     by the DEPARTMENT, the DEPARTMENT may place the Enrollee under the
     Restriction Program for a reasonable period of time to obtain Medicaid
     services from designated providers only.

U.   "State Plan" means the State Plan for organization and operation of the
     Medicaid program as defined pursuant to Section 1102 of the Social Security
     Act (42 U.S.C. 1302).

                                  Page 3 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

                            ARTICLE II - SERVICE AREA

The Service Area is limited to the urban counties of Cache, Davis, Iron, Salt
Lake, Utah, Washington and Weber.

       ARTICLE III - ENROLLMENT, ORIENTATION, MARKETING, AND DISENROLLMENT

A.   ENROLLMENT PROCESS

     1.   ENROLLEE CHOICE

          The DEPARTMENT will offer potential Enrollees a choice among all MCOs
          available in the Enrollment Area. The DEPARTMENT will inform potential
          Enrollees of Medicaid benefits. The Medicaid client's intent to enroll
          is established when the applicant selects The CONTRACTOR, either
          verbally or by signing a choice of health care delivery form or
          equivalent. This initiates the action to send an advance notification
          to the CONTRACTOR. Medicaid Enrollees made eligible for a retroactive
          period prior to the current month are not eligible for CONTRACTOR
          enrollment during the retroactive period.

     2.   PERIOD OF ENROLLMENT

          Each Enrollee will be enrolled for the period of the Contract or the
          period of Medicaid eligibility or until such person disenrolls or is
          disenrolled, whichever is earlier. Until the DEPARTMENT notifies the
          CONTRACTOR that an Enrollee is no longer Medicaid eligible, the
          CONTRACTOR may assume that the Enrollee continues to be eligible. Each
          Enrollee will be automatically re-enrolled at the end of each month
          unless that Enrollee notifies the DEPARTMENT'S Health Program
          Representative of an intent not to re-enroll in the MCO prior to the
          benefit issuance date.

     3.   OPEN ENROLLMENT

          The CONTRACTOR will have a continuous open enrollment period that
          meets the requirements of Section 1301(d) of the Public Health Service
          Act. The DEPARTMENT will certify, and the CONTRACTOR agrees to accept
          individuals who are eligible to be enrolled in the MCO under the
          provisions of this Contract:

          a.   in the order in which they apply; and

          b.   without restrictions unless authorized by the DEPARTMENT.

                                  Page 4 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     4.   NO HEALTH SCREENING

          The DEPARTMENT and the CONTRACTOR agree that no potential Enrollee
          will be pre-screened or selected by either party for enrollment on the
          basis of pre-existing  health problems or on the basis of race, color,
          national origin, disability or age.

     5.   INDEPENDENT ENROLLMENT

          Each Medicaid eligible can be enrolled or disenrolled in the MCO,
          independent of any other Family Member's enrollment or disenrollment.

     6.   REPRESENTATIVE POPULATION

          The CONTRACTOR will service a population representative of the
          categories of eligibility within the area it serves.

     7.   ELIGIBILITY TRANSMISSION

          a.   IN GENERAL

               Before the close of business of each day, the DEPARTMENT will
               provide to the CONTRACTOR an Eligibility Transmission which is an
               electronic file that includes individuals which the DEPARTMENT
               certifies as Medicaid eligible and who enrolled in the MCO.
               Eligibility transmissions include new Enrollees, reinstated
               Enrollees, retroactive Enrollees, deleted Enrollees and Enrollees
               whose eligibility information results in a change to a critical
               field. The Eligibility Transmission will be in accordance with
               the Utah Health Information Network (UHIN) standard. The
               DEPARTMENT represents and warrants to the CONTRACTOR that the
               appearance of an individual's name on the Eligibility
               Transmission, other than a deleted Enrollee, will be conclusive
               evidence for purposes of this Contract, that such person is
               enrolled in the program and qualifies for medical assistance
               under Medicaid Title XIX and that the DEPARTMENT agrees to pay
               premiums for such Enrollees.

          b.   NEW ENROLLEES

               New Enrollees are enrolled in this MCO until otherwise specified;
               these Enrollees will not appear on future transmissions unless
               there is a change in a critical field. Critical fields are
               coverage dates, recipient name, date of birth, date of death,
               sex, social security number, case information, address, telephone
               number, payment code, coordination of benefits, and the
               Enrollee's provider under the Restriction Program. Enrollees with
               a spenddown requirement will appear on the eligibility
               transmission on a month by month basis after the spenddown is
               met.

                                  Page 5 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          c.   RETROACTIVE ENROLLEES

               Retroactive Enrollees are those who were Enrollees previous to
               the current month. Retroactive Enrollees include newborn
               Enrollees or Enrollees who have been reported in one payment
               category in a previous month but have been changed to a new
               payment category for that previous month.

          d.   REINSTATED ENROLLEES

               Reinstated Enrollees are those who were enrolled for the previous
               month and also closed at the end of the previous month. These
               Enrollees are eligible retroactively to the beginning of the
               current month.

          e.   DELETED ENROLLEES

               Deleted Enrollees are those who are no longer eligible for
               Medicaid or who were disenrolled from the MCO.

          f.   ADVANCED NOTIFICATION TRANSMISSION

               An Advanced Notification Transmission is another electronic file
               (separate from the Eligibility Transmission) that will be sent to
               the CONTRACTOR when an individual has selected the MCO prior to
               becoming eligible for Medicaid. These individuals may or may not
               become eligible for Medicaid. Use of information about such
               individuals is restricted to providing the individual with an
               orientation to the MCO prior to the individual's eligibility for
               Medicaid. The CONTRACTOR is not required to orient individuals
               until they appear on the Eligibility Transmission.

     8.   CHANGE OF ENROLLMENT PROCEDURES

          The CONTRACTOR will be advised of anticipated changes in DEPARTMENT
          policies and procedures as they relate to the enrollment process and
          their comments will be solicited. The CONTRACTOR agrees to be bound by
          such changes in DEPARTMENT policies and procedures that are mutually
          agreed upon by the CONTRACTOR and the DEPARTMENT.

B.   MEMBER ORIENTATION

     1.   INITIAL CONTACT - GENERAL ORIENTATION

          The CONTRACTOR will make a good faith effort to ensure that each
          Enrollee or Enrollee's family or guardian receives the CONTRACTOR's
          member handbook. The CONTRACTOR representative will make a good faith
          effort, as evidenced in written or electronic records, to make an
          initial contact with the Enrollee within 10 working days

                                  Page 6 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July I, 2001

          after the CONTRACTOR has been notified through the Eligibility
          Transmission of the Enrollee's MCO enrollment. The initial contact
          will be in person or by telephone (or in writing, but only if
          reasonable attempts have been made to make the contact in person by
          telephone) and will inform the Enrollee of the MCO rules and policies.
          The CONTRACTOR must ensure that Enrollees are provided interpreters,
          Telecommunication Device for the Deaf (TDD), and other auxiliary aids
          to ensure that Enrollees understand their rights and responsibilities.
          During the initial contact the CONTRACTOR Representative will provide,
          at a minimum, the following information to the Enrollee or potential
          Enrollee:

          a.   specific written and oral instructions on the use of the
               CONTRACTOR's Covered Services and procedures;

          b.   availability and accessibility of all Covered Services, including
               the availability of family planning services and that the
               Enrollee may obtain family planning services from Medicaid
               providers other than providers affiliated with the CONTRACTOR;

          c.   the client's rights and responsibilities as an Enrollee of the
               Health Plan, including the right to file a grievance and how to
               file a grievance;

          d.   the right to terminate enrollment with the MCO; and

          e.   encouragement to make a medical appointment with a provider.

     2.   IDENTIFICATION OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          During the initial contact with each Enrollee, the CONTRACTOR
          representative will use a process that will identify children and
          adults with special health care needs. The CONTRACTOR representative
          will clearly describe to each Enrollee during the initial contact the
          process for requesting specialist care. When an Enrollee is identified
          as having special health care needs, the CONTRACTOR Representative
          will forward this information to a CONTRACTOR individual with
          knowledge of coordination of care and services necessary for such
          Enrollees. The CONTRACTOR individual with knowledge of coordination of
          care for Enrollees with special health care needs will make a good
          faith effort to contact Enrollees within ten working days after
          identification to begin coordination of health care needs, if
          necessary. The CONTRACTOR will not discriminate on the basis of health
          status or the need for health care services.

          The DEPARTMENT's Health Program Representatives are responsible to
          forward information, i.e., pink sheets identifying Enrollees with
          special health care needs and limited language proficiency needs to
          the CONTRACTOR in a timely way coinciding with the daily Eligibility
          Transmission as much as possible.

                                  Page 7 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     3.   INABILITY TO CONTACT ENROLLEE FOR ORIENTATION

          If the CONTRACTOR's representative cannot contact the Enrollee within
          10 working days or at all, the CONTRACTOR representative will document
          its efforts to contact the Enrollee.

     4.   ENROLLEES RECEIVING OUT-OF-PLAN CARE PRIOR TO ORIENTATION

          If the Enrollee receives Covered Services by an out-of-plan provider
          after the first day of the month in which the client's enrollment
          became effective, and if a CONTRACTOR orientation either in-person or
          by telephone (or in writing, but only if reasonable attempts have been
          made to make the contact in person or by telephone) has not taken
          place prior to receiving such services, the CONTRACTOR is responsible
          for payment of the services rendered provided the DEPARTMENT informs
          the CONTRACTOR by the 20th of any month prior to the month that MCO
          enrollment begins.

C.   MARKETING AND MEMBER EDUCATION

     1.   APPROVAL OF MARKETING MATERIALS

          The CONTRACTOR's marketing plans, procedures and materials will be
          accurate, and may not mislead, confuse, or defraud either Enrollees or
          the DEPARTMENT. All Medicaid marketing plans, procedures and materials
          will be reviewed and approved by the DEPARTMENT in consultation with
          the Medical Care Advisory Committee for Marketing Review before
          implemented or released by the CONTRACTOR. The DEPARTMENT will notify
          the CONTRACTOR of its approval or disapproval, in writing, of such
          materials within ten working days after receiving them unless the
          DEPARTMENT and the CONTRACTOR agree to another time frame. If the
          DEPARTMENT does not respond within the agreed upon time frame, the
          CONTRACTOR shall deem such materials approved. Marketing materials
          will not be approved if the DEPARTMENT determines that the material is
          materially inaccurate or misleading or otherwise makes material
          misrepresentations. Health education materials and newsletters not
          specifically related to Enrollees do not need to be approved by the
          DEPARTMENT.

          a.   NO DOOR-TO-DOOR, TELEPHONIC, OR "COLD CALL" MARKETING

               The CONTRACTOR cannot, either directly or indirectly, conduct
               door-to-door, telephonic or "cold call" marketing of enrollment.
               These three marketing practices are prohibited whether conducted
               by the Health Plan itself ("directly") or by an agent or
               independent contractor ("indirectly"). Cold call marketing is any
               unsolicited personal contact with a potential Enrollee by an
               employee or agent of a managed care entity for the purpose of
               influencing the individual to enroll with the Health Plan. The
               CONTRACTOR may not entice a potential Enrollee to join the Health
               Plan by offering the sale of any other type of

                                  Page 8 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               insurance as a bonus for enrollment. All other non-requested
               marketing approaches to Medicaid clients by the CONTRACTOR are
               also prohibited unless specifically approved in advance by the
               DEPARTMENT.

          b.   DISTRIBUTION OF MARKETING MATERIALS

               Marketing materials must be distributed to the entire Service
               Area.

     2.   ENROLLEE MATERIALS MUST BE COMPREHENSIBLE

          The CONTRACTOR will attempt to write all Enrollee and potential
          Enrollee information, instructional and educational materials,
          including member handbooks, at no greater than a sixth grade reading
          level. If the MCO has more than 5% of its Enrollees who speak a
          language other than English as a first language, the CONTRACTOR must
          make available written material (e.g. member handbooks, educational
          newsletters) in that language. Marketing materials must include a
          statement that the CONTRACTOR does not discriminate against any
          Enrollee on the basis of race, color, national origin, disability, or
          age in admission, treatment, or participation in its programs,
          services and activities. In addition, the materials must include the
          phone number of the nondiscrimination coordinator for Enrollees to
          call if they have questions about the nondiscrimination policy or
          desire to file a complaint or grievance alleging violations of the
          nondiscrimination policy.

     3.   MEMBER HANDBOOK

          The CONTRACTOR will produce a member handbook that must be submitted
          to the DEPARTMENT for review and approval before distribution. The
          DEPARTMENT will notify the CONTRACTOR in writing of its approval or
          disapproval within ten working days after receiving the member
          handbook unless the DEPARTMENT and CONTRACTOR agree to another time
          frame. If the DEPARTMENT does not respond within the agreed upon time
          frame, the CONTRACTOR may deem such materials are approved. If there
          are changes to the content of the material in the handbook, the
          CONTRACTOR must update the member handbook and submit a draft to the
          DEPARTMENT for review and approval before distribution to its
          Enrollees. At a minimum, the member handbook must explain in clear
          terms the following information:

          a.   The scope of benefits provided by the MCO;

          b.   Instructions on where and how to obtain Covered Services,
               including referral requirements;

          c.   Instructions on what to do in an emergency or urgent medical
               situation, including emergency numbers;

          d.   Enrollee options on obtaining family planning services;

                                  Page 9 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1. 2001

          e.   Instructions on how to choose a PCP and how to change PCPs;

          f.   Description on Enrollee cost-sharing requirements
               (if applicable);

          g.   Toll-free telephone number;

          h.   Description of Member Services function;

          i.   How to register a complaint or grievance;

          j.   Information on Advance Directives;

          k.   Services covered by Medicaid, but not covered by the CONTRACTOR;

          l.   Clients' rights and responsibilities;

          m.   A statement that the CONTRACTOR does not discriminate against any
               Enrollee on the basis of race, color, national origin,
               disability, or age in admission, treatment, or participation in
               its programs, services and activities; and

          n.   The phone number of the nondiscrimination coordinator for
               Enrollees to call if they have questions about the
               nondiscrimination policy or desire to file a complaint or
               grievance alleging violations of the nondiscrimination policy.

     4.   NOTIFICATION TO ENROLLEES OF POLICIES AND PROCEDURES

          a.   CHANGES TO POLICIES AND PROCEDURES

               The CONTRACTOR must periodically notify Enrollees, in writing, of
               changes to its plan such as changes to its policies or procedures
               either through a newsletter or other means.

          b.   ANNUAL EDUCATION ON EMERGENCY CARE AND GRIEVANCE PROCEDURES

               The CONTRACTOR must annually reinforce, in writing, to Enrollees
               how to access emergency and urgent services and how to register a
               complaint or grievance.

     5.   MONTHLY NOTIFICATION TO DEPARTMENT OF CHANGES IN PROVIDER NETWORK

          The CONTRACTOR must notify the DEPARTMENT at least monthly of changes
          in its provider network so that the DEPARTMENT can ensure its listing
          of providers is accurate.

                                  Page 10 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

D.   DISENROLLMENT BY ENROLLEE

     1.   ENROLLEE'S RIGHT TO DISENROLL

          Enrollees will have the right to disenroll from this MCO at any time
          with or without cause. The disenrollment will be effective once the
          DEPARTMENT has been notified by the Enrollee and the DEPARTMENT issues
          a new Medicaid card and the disenrollment is indicated on the
          Eligibility Transmission.

     2.   ENROLLEES IN AN INPATIENT HOSPITAL SETTING

          The DEPARTMENT agrees that if a new Enrollee is a patient in an
          inpatient hospital setting on the date the new Enrollee's name appears
          on the CONTRACTOR Eligibility Transmission, the obligation of the
          CONTRACTOR to provide Covered Services to such person will commence
          following discharge. If an Enrollee is a patient in an inpatient
          hospital setting on the date that his or her name appears as a deleted
          Enrollee on the CONTRACTOR Eligibility Transmission or he or she is
          otherwise disenrolled under this Contract, the CONTRACTOR will remain
          financially responsible for such care until discharge.

     3.   ANNUAL STUDY OF ENROLLEES WHO DISENROLLED

          Annually, the DEPARTMENT and CONTRACTOR will work cooperatively to
          conduct an analysis of Enrollees who have voluntarily disenrolled from
          this MCO. The results of the analysis will include explanations of
          patterns of disenrollments and strategies or a corrective action plan
          to address unusual rates or patterns of disenrollment. The DEPARTMENT
          will inform the CONTRACTOR of such disenrollments.

E.   DISENROLLMENT BY CONTRACTOR

     1.   CANNOT DISENROLL FOR ADVERSE CHANGE IN ENROLLEE'S HEALTH

          The CONTRACTOR may not terminate enrollment because of an adverse
          change in the Enrollee's health.

     2.   VALID REASONS FOR DISENROLLMENT

          The CONTRACTOR may initiate disenrollment of any Enrollee's
          participation in the MCO upon one or more of the following grounds:

          a.   For reasons specifically identified in the CONTRACTOR's member
               handbook.

          b.   When the Enrollee ceases to be eligible for medical assistance
               under the State Plan, in accordance with Title 42 USCA, 1396, et.
               seq., and as finally determined by the DEPARTMENT.

                                  Page 11 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          c.   Upon termination or expiration of the Contract.

          d.   Death of the Enrollee.

          e.   Confinement of the Enrollee in an institution when confinement is
               not a Covered Service under this Contract.

          f.   Violation of enrollment requirements developed by the CONTRACTOR
               and approved by the DEPARTMENT but only after the CONTRACTOR
               and/or the Enrollee has exhausted the CONTRACTOR's applicable
               internal grievance procedure.

     3.   APPROVAL BY DEPARTMENT REQUIRED

          To initiate disenrollment of an Enrollee's participation with this
          MCO, the CONTRACTOR will provide the DEPARTMENT with documentation
          justifying the proposed disenrollment. The DEPARTMENT will approve or
          deny the disenrollment request in writing within thirty (30) days of
          receipt of the request. Failure by the DEPARTMENT to deny a
          disenrollment request within such thirty (30) day period will
          constitute approval of such disenrollment requests.

     4.   ENROLLEE'S RIGHT TO FILE A GRIEVANCE

          If the DEPARTMENT approves the CONTRACTOR's disenrollment request, the
          CONTRACTOR will give the Enrollee thirty (30) days written notice of
          the proposed disenrollment, and will notify the Enrollee of his or her
          opportunity to invoke the internal grievance procedure and appeals
          process for a fair hearing. The CONTRACTOR will give a copy of the
          written notice to the DEPARTMENT at the time the notice is sent to the
          Enrollee.

     5.   REFUSAL OF RE-ENROLLMENT

          If a person is disenrolled because of violation of responsibilities
          included in the CONTRACTOR'S member handbook, the CONTRACTOR may
          refuse re-enrollment of that Enrollee.

F.   ENROLLEE TRANSITION BETWEEN MCOs/HEALTH PLANS

     1.   MUST ACCEPT PRE-ENROLLMENT PRIOR AUTHORIZATIONS

          For Covered Services other than inpatient, home health services, and
          medical equipment, if authorization has been given for a Covered
          Service and an enrollee transitions between MCOs prior to the delivery
          of such Covered Service, the receiving MCO shall be bound by the
          relinquishing MCO's prior authorization until the receiving MCO has
          evaluated the Enrollee and a new plan of care is established. (See
          Article IV, Benefits, Section F,

                                  Page 12 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          Clarification of Payment Responsibilities, Subsection 5, for
          inpatient, home health services, and medical equipment explanations.)

     2.   MUST PROVIDE MEDICAL RECORDS TO ENROLLEE'S NEW MCO

          When enrollees are transitioned between MCOs the relinquishing MCO's
          provider will submit, upon request of the new MCO's provider, any
          critical medical information about the transitioning enrollee prior to
          the transition including, but not limited to, whether the member is
          hospitalized, pregnant, involved in the process of organ
          transplantation, scheduled for surgery or post-surgical follow-up on a
          date subsequent to transition, scheduled for prior-authorized
          procedures or therapies on a date subsequent to transition, receiving
          dialysis or is chronically ill (e.g. diabetic, hemophilic, HIV
          positive).

                              ARTICLE IV - BENEFITS

A.   IN GENERAL

     The CONTRACTOR will provide to Enrollees under this Contract, directly or
     through arrangements with subcontractors, all Medically Necessary Covered
     Services described in Attachment C as promptly and continuously as is
     consistent with generally accepted standards of medical practice. The
     subcontractors will follow generally accepted standards of medical care in
     diagnosing Enrollees who request services from the CONTRACTOR.

B.   PROVIDER SERVICES FUNCTION

     The CONTRACTOR must operate a Provider Services function during regular
     business hours. At a minimum, Provider Services staff must be responsible
     for the following:

     1.   Training, including ongoing training, of the CONTRACTOR's providers on
          Medicaid rules and regulations that will enable providers to
          appropriately render services to Enrollees;

     2.   Assisting providers to verify whether an individual is enrolled with
          the MCO;

     3.   Assisting providers with prior authorization and referral protocols;

     4.   Assisting providers with claims payment procedures;

     5.   Fielding and responding to provider questions and complaints and
          grievances.

C.   SCOPE OF SERVICES

     1.   UNDERWRITING RISK

                                  Page 13 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          In consideration of the premiums paid by the DEPARTMENT, the
          CONTRACTOR will, for all Enrollees, assume underwriting risk for
          Covered Services in Attachment C.

     2.   RESPONSIBLE FOR ALL BENEFITS IN ATTACHMENT C (COVERED SERVICES)

          Except as otherwise provided for cases of Emergency Services, the
          CONTRACTOR has the exclusive right and responsibility to arrange for
          all benefits listed in Attachment C. The CONTRACTOR is responsible for
          payment of Emergency Services 24 hours a day and 7 days a week whether
          the service was provided by a network or out-of-network provider and
          whether the service was provided in or out of the CONTRACTOR's Service
          Area.

     3.   CHANGES TO BENEFITS

          Amendments, revisions, or additions to the State Plan or to State or
          Federal regulations, guidelines, or policies and court or
          administrative orders will, insofar as they affect the scope or nature
          of benefits available to Enrollees, be amendments to the Covered
          Services under Attachment C. The DEPARTMENT will notify the
          CONTRACTOR, in writing, of any such changes and their effective date.
          Rate adjustments, when appropriate, will be negotiated between the
          DEPARTMENT and the CONTRACTOR.

     4.   MEDICAL NECESSITY DENIALS

          When the CONTRACTOR determines that a service will not be covered due
          to the lack of medical necessity, the CONTRACTOR must send all
          documentation supporting their decision to the DEPARTMENT for its
          review before the CONTRACTOR's determination is deemed final, when the
          following conditions are met:

          a.   there are no established national standards for determining
               medical necessity; and

          b.   the DEPARTMENT does not have medical necessity criteria for the
               service.

          The DEPARTMENT will review the documentation and determine what the
          DEPARTMENT's decision would be regarding coverage for the service. The
          DEPARTMENT and the CONTRACTOR will work collaboratively in making a
          final decision on whether the service is to be covered by the
          CONTRACTOR.

D.   SUBCONTRACTS

     1.   NO DISCRIMINATION BASED ON LICENSE OR CERTIFICATION

          The CONTRACTOR shall not discriminate against providers with respect
          to participation, reimbursement, or indemnification as to any provider
          who is acting within the scope of that provider's license or
          certification under applicable State law solely on

                                  Page 14 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          the basis of the provider's license or certification.

     2.   ANY COVERED SERVICE MAY BE SUBCONTRACTED.

          Any Covered Service may be subcontracted. All subcontracts will be in
          writing and will include the general requirements of this Contract
          that are appropriate to the service or activity including
          confidentiality requirements and will assure that all duties of the
          CONTRACTOR under this Contract are performed. No subcontract
          terminates the legal responsibility of the CONTRACTOR to the
          DEPARTMENT to assure that all activities under this Contract are
          carried out. The CONTRACTOR will make all subcontracts available upon
          request.

     3.   NO PROVISIONS TO REDUCE OR LIMIT MEDICALLY NECESSARY SERVICES

          The CONTRACTOR will ensure that subcontractors abide by the
          requirements of Section 1128(b) of the Social Security Act prohibiting
          the CONTRACTOR and other such providers from making payments directly
          or indirectly to a physician or other provider as an inducement to
          reduce or limit Medically Necessary services provided to Enrollees.

     4.   REQUIREMENT OF 60 DAYS WRITTEN NOTICE PRIOR TO TERMINATION OF CONTRACT

          All subcontracts and agreements will include a provision stating that
          if either party (the subcontractor or CONTRACTOR) wishes to terminate
          the subcontract or agreement, whichever party initiates the
          termination will give the other party written notice of termination at
          least 60 calendar days prior to the effective termination date. The
          CONTRACTOR will notify the DEPARTMENT of the termination on the same
          day that the CONTRACTOR either initiates termination or receives the
          notice of termination from the subcontractor.

     5.   COMPLIANCE WITH CONTRACTOR's QUALITY ASSURANCE PLAN

          All of the CONTRACTOR's providers must be aware of the CONTRACTOR's
          Quality Assurance Plan and activities. All subcontracts with the
          CONTRACTOR must include a requirement securing cooperation with the
          CONTRACTOR's Quality Assurance Plan and activities and must allow the
          CONTRACTOR access to the subcontractor's medical records of its
          Enrollees.

     6.   UNIQUE IDENTIFIER REQUIRED

          All physicians who provide services under this Contract must have a
          unique identifier in accordance with the system established under
          section 1173(b) of the Social Security Act and in accordance with the
          Health Insurance Portability and Accountability Act.

                                  Page 15 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     7.   PAYMENT OF PROVIDER CLAIMS

          The CONTRACTOR must pay its providers on a timely basis consistent
          with the claims payment procedures described in section 1902(a)(37)(A)
          of the Social Security Act and the implementing Federal regulation at
          42 CFR 447.45, unless the provider and CONTRACTOR agree to an
          alternate payment schedule. The Contractor must ensure that 90 percent
          of claims for payment (for which no further written information or
          substantiation is required in order to make payment) made for Covered
          Services and furnished by its providers are paid within 30 days of
          receipt of such claims and that 99 percent of such claims are paid
          within 90 days of the date of receipt of such claims.

E.   CLARIFICATION OF COVERED SERVICES

     1.   EMERGENCY SERVICES

          a.   IN GENERAL

               The CONTRACTOR must provide coverage for Emergency Services
               without regard to prior authorizations or the emergency care
               provider's contractual relationship with the CONTRACTOR. The
               CONTRACTOR must inform their Enrollees that access to Emergency
               Services is not restricted and that if an Enrollee experiences a
               medical emergency, he or she may obtain services from a non-plan
               physician or other qualified provider, without penalty. However,
               the CONTRACTOR may require the Enrollee to notify the CONTRACTOR
               within a specified time after the Enrollee's condition is
               stabilized, and may require the Enrollee to obtain prior
               authorization for any follow-up care delivered pursuant to the
               emergency. The CONTRACTOR must comply with Medicare guidelines
               for post-stabilization of care.

               The CONTRACTOR must pay for services where the presenting
               symptoms are of sufficient severity that a person with average
               knowledge of health and medicine would 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 a woman or her unborn child) in serious jeopardy;
               serious impairment to bodily functions; or serious dysfunction of
               any bodily organ or part.

               The CONTRACTOR may not retroactively deny a claim for an
               emergency screening examination because the condition, which
               appeared to be an emergency medical condition under the prudent
               layperson standard, turned out to be non-emergency in nature.

          b.   DETERMINING LIABILITY FOR EMERGENCY SERVICES

               1)   Presence of a clinical emergency

                                  Page 16 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

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

               2)   Emergency services continue until the Enrollee can be safely
                    discharged or transferred

                    The CONTRACTOR must pay for all Emergency Services that are
                    Medically Necessary until the clinical emergency is
                    stabilized. This includes all treatment that may be
                    necessary to assure, within reasonable medical probability,
                    that no material deterioration of the Enrollee's condition
                    is likely to result from, or occur during, discharge of the
                    Enrollee or transfer of the Enrollee to another facility. If
                    there is a disagreement between a hospital and the
                    CONTRACTOR concerning whether the Enrollee is stable enough
                    for discharge or transfer, or whether the medical benefits
                    of an unstabilized transfer outweigh the risks, the
                    judgement 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 own physicians with appropriate ER privileges to
                    assume the attending physician's responsibilities to
                    stabilize, treat, and transfer the Enrollee.

               3)   Absence of a clinical emergency

                    If the screening examination leads to a clinical
                    determination by the examining physician that an actual
                    emergency medical condition did not exist, then the
                    determining factor for payment liability should be whether
                    the Enrollee had acute symptoms of sufficient severity at
                    the time of presentation. In these cases, the CONTRACTOR
                    must review the presenting symptoms of the Enrollee and must
                    pay for all services involved in the screening examination
                    where the presenting symptoms (including severe pain) were
                    of sufficient severity to have warranted emergency attention
                    under the prudent layperson standard.

               4)   Referrals

                    When an Enrollee's Primary Care Physician or other plan
                    representative instructs the Enrollee to seek emergency care
                    in or out of network, the CONTRACTOR is responsible for
                    payment of the medical screening examination and for other
                    Medically Necessary Emergency Services, without regard to
                    whether the Enrollee meets the prudent layperson standard.

                                  Page 17 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     2.   CARE PROVIDED IN SKILLED NURSING FACILITIES

          a.   IN GENERAL: STAYS LASTING 30 DAYS OR LESS

               The CONTRACTOR may provide long term care for Enrollees in
               skilled nursing facilities and then reimburse such facilities
               when the plan of care includes a prognosis of recovery and
               discharge within 30 days. It is the responsibility of a
               CONTRACTOR physician to make the determination if the patient
               will require the services of a nursing facility for fewer or
               greater than 30 days.

          b.   PROCESS FOR STAYS LONGER THAN 30 DAYS

               When the prognosis of an Enrollee indicates that long term care
               greater than 30 days will be required, the following process will
               occur:

               1)   The CONTRACTOR will notify the Enrollee, hospital discharge
                    planner, and nursing facility that the CONTRACTOR will not
                    be responsible for the services provided for the Enrollee
                    during the stay at the skilled nursing facility.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care, of this determination to suspend premium
                    payment for that Enrollee.

               3)   If the CONTRACTOR incurs expenses, the Bureau of Managed
                    Health Care will determine if the CONTRACTOR will retain the
                    premium for the month during which the Enrollee is admitted
                    to the skilled nursing facility. If the CONTRACTOR does not
                    incur expenses during the month in which the Enrollee is
                    admitted to a skilled nursing facility, the Bureau of
                    Managed Health Care will retract from the CONTRACTOR the
                    premium for that Enrollee.

               4)   Retraction of the premium payment will be subject to "3"
                    above, but the Eligibility Transmission will indicate the
                    non-payment on the first day of the month following the
                    prognosis determination of greater than 30 days.

               5)   Premium payment to the CONTRACTOR will recommence beginning
                    the first full month that the Enrollee is no longer residing
                    in the nursing facility.

          c.   PROCESS FOR STAYS LESS THAN 30 DAYS

               When the prognosis of skilled nursing facility services is
               anticipated to be less than 30 days, but during the 30-day period
               the CONTRACTOR determines that

                                  Page 18 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               the Enrollee will require skilled nursing facility services for
               greater than 30 days, the following process will be in effect:

               1)   The CONTRACTOR will notify the nursing facility that a
                    determination has been made that the Enrollee will require
                    services for more than 30 days.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care, of the determination that the Enrollee will
                    require services in a nursing facility for more than 30
                    days.

               3)   If the CONTRACTOR incurs expenses for the Enrollee, the
                    Bureau of Managed Health Care will determine if the
                    CONTRACTOR will retain the premium for the month during
                    which the change in status was determined. If the CONTRACTOR
                    does not incur expenses during the month in which the change
                    in status is determined, the Bureau of Managed Health Care
                    will retract from the CONTRACTOR the premium for that
                    Enrollee.

               4)   Retraction of the premium payment will be subject to "3"
                    above, but the Recipient Subsystem will indicate the
                    non-payment on the first day of the month following the
                    prognosis determination of more than 30 days.

               5)   The CONTRACTOR will be responsible for payment for three
                    working days after the CONTRACTOR has notified the nursing
                    facility that skilled nursing care will be required for more
                    than 30 days.

               6)   Premium payment to the CONTRACTOR will recommence beginning
                    the first full month that the recipient is no longer
                    residing in the nursing facility.

     3.   ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          a.   IN GENERAL

               The CONTRACTOR will ensure there is access to all Medically
               Necessary Covered Services to meet the health needs of Enrollees
               with special health care needs. Individuals with special health
               care needs are those 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 or amount beyond that required by adults and children
               generally.

          b.   IDENTIFICATION

               The CONTRACTOR will identify Enrollees with special health care
               needs using

                                  Page 19 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               a process at the initial contact made by the CONTRACTOR
               Representative to educate the client and will offer the client
               care coordination or case management services. Care coordination
               services are services to assist the client in obtaining Medically
               Necessary Covered Services from the CONTRACTOR or another entity
               if the medical service is not covered under the Contract.

          c.   CHOOSING A PRIMARY CARE PROVIDER

               The CONTRACTOR will have a mechanism to inform care givers and,
               when appropriate, Enrollees with special health care needs about
               primary care providers who have training in caring for such
               Enrollees so that an informed selection of a provider can be
               made. The CONTRACTOR will have primary care providers with skills
               and experience to meet the needs of Enrollees with special health
               care needs. The CONTRACTOR will allow an appropriate specialist
               to be the primary care provider but only if the specialist has
               the skills to monitor the Enrollee's preventive and primary care
               services.

          d.   REFERRALS AND ACCESS TO SPECIALTY PROVIDERS

               The CONTRACTOR will ensure there is access to appropriate
               specialty providers to provide Medically Necessary Covered
               Services for adults and children with special health care needs.
               If the CONTRACTOR does not employ or contract with a specialty
               provider to treat a special health care condition at the time the
               Enrollee needs such Covered Services, the CONTRACTOR will have a
               process to allow the Enrollee to receive Covered Services from a
               qualified specialist who may not be affiliated with the
               CONTRACTOR. The CONTRACTOR will reimburse the specialist for such
               care at no less than Medicaid's rate for the service when the
               service is rendered. The process for requesting specialist's care
               will be clearly described by the CONTRACTOR and explained to each
               Enrollee during the initial contact with the Enrollee.

               If the CONTRACTOR restricts the number of referrals to
               specialists, the CONTRACTOR will not penalize those providers who
               make such referrals for Enrollees with special health care needs.

          e.   SURVEY OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

               At least every two years, the CONTRACTOR in conjunction with the
               DEPARTMENT will survey a sample of Enrollees with special health
               care needs using a national consumer assessment questionnaire. to
               evaluate their perceptions of services they have received. The
               survey process, including the survey instrument, will be
               standardized and developed collaboratively between the DEPARTMENT
               and all contracting MCOs. The DEPARTMENT will analyze the results
               of the surveys. The results and analysis of the surveys will be
               reviewed by the CONTRACTOR's quality assurance committee for
               action.

                                  Page 20 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          f.   COLLABORATION WITH OTHER PROGRAMS

               If the individual with special health care needs is enrolled in
               the Prepaid Mental Health Plan or is enrolled in any of the
               Medicaid home and community-based waiver programs and is
               receiving case management services through that program, or is
               covered by one of the other Medicaid targeted case management
               programs, the CONTRACTOR care coordinator will collaborate with
               the appropriate program person, i.e., the targeted case manager,
               etc., for that program once the program person has contacted the
               CONTRACTOR care coordinator. When necessary, the CONTRACTOR care
               coordinator will make an effort to contact the program person of
               those Enrollees who have medical needs that require such
               coordination.

               The CONTRACTOR must coordinate health care needs for children
               with special health care needs with the services of other
               agencies (e.g., mental and substance abuse, public health
               departments, transportation, home and community based care,
               developmental disabilities, Title V, local schools, IDA programs,
               and child welfare), and with families, caregivers, and advocates.

          g.   REQUIRED ELEMENTS OF A CASE MANAGEMENT SYSTEM

               A case management system includes but is not limited to:

               1)   procedures and the capacity to implement the provision of
                    individual needs assessment including the screening for
                    special needs (e.g. mental health, high risk health
                    problems, functional problems, language or comprehension
                    barriers); the development of an individual treatment plan
                    as necessary based on the needs assessment; the
                    establishment of treatment objectives, treatment follow-up,
                    the monitoring of outcomes, and a process to ensure that
                    treatment plans are revised as necessary. These procedures
                    will be designed to accommodate the specific cultural and
                    linguistic needs of the Enrollee;

               2)   procedures designed to address those Enrollees, including
                    children with special health care needs, who may require
                    services from multiple providers, facilities and agencies
                    and require complex coordination of benefits and services,
                    including social services and other community resources;

               3)   a strategy to ensure that all Enrollees and/or authorized
                    Family Members or guardians are involved in treatment
                    planning and consent to the medical treatment;

               4)   procedures and criteria for making referrals and
                    coordinating care by specialists and sub-specialists that
                    will promote continuity as well as

                                  Page 21 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

                    cost-effectiveness of care; and

               5)   procedures to provide continuity of care for new Enrollees
                    to prevent disruption in the provision of Covered Services
                    that include, but are not limited to, appropriate case
                    management staff able to evaluate and handle individual case
                    transition and care planning, internal mechanisms to
                    evaluate plan networks and special case needs.

          h.   HOSPICE

               If an Enrollee is receiving hospice services at the time of
               enrollment in the MCO or if the Enrollee is already enrolled in
               the MCO and has less than six months to live, the Enrollee will
               be offered hospice services or the continuation of hospice
               services if he or she is already receiving such services prior to
               enrollment in the MCO.

     4.   INPATIENT HOSPITAL SERVICES

          If a CONTRACTOR's provider admits an Enrollee for inpatient hospital
          care, the CONTRACTOR has the responsibility for all services needed by
          the Enrollee during the hospital stay that are ordered by the
          CONTRACTOR's provider. Needed services include but are not limited to
          diagnostic tests, pharmacy, and physician services, including services
          provided by psychiatrists. If diagnostic tests conducted during the
          inpatient stay reveal that the Enrollee's condition is outside the
          scope of the CONTRACTOR's responsibility, the CONTRACTOR remains
          responsible for the Enrollee until the Enrollee is discharged or until
          responsibility is transferred to another appropriate entity and the
          appropriate entity agrees to take financial responsibility, including
          negotiating a payment for services. If the Enrollee is discharged and
          needs further services, the admitting CONTRACTOR will coordinate with
          the other appropriate entity to ensure continued care is provided. The
          CONTRACTOR and appropriate entity will work cooperatively in the best
          interest of the Enrollee. The appropriate entity includes, but is not
          limited to, a Prepaid Mental Health Plan or another MCO.

     5.   MATERNITY STAYS

          a.   THE NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT (NMHPA)

               The CONTRACTOR must meet the requirements of the Newborns' and
               Mothers' Health Protection Act (NMHPA). The CONTRACTOR must
               record early discharge information for monitoring, quality, and
               improvement purposes. The CONTRACTOR will ensure that coverage is
               provided with respect to a mother who is an Enrollee and her
               newborn child for a minimum of 48 hours of inpatient care
               following a normal vaginal delivery, and a minimum of 96 hours of
               inpatient care following a caesarean section, without requiring
               the attending provider to obtain authorization from the
               CONTRACTOR in order to keep a

                                  Page 22 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               mother and her newborn child in the inpatient setting for such
               period of time.

          b.   EARLY DISCHARGES

               Notwithstanding the prior sentence, the CONTRACTOR will not be
               required to provide coverage for post-delivery inpatient care for
               a mother who is an Enrollee and her newborn child during such
               period of time if (1) a decision to discharge the mother and her
               newborn child prior to the expiration of such period is made by
               the attending provider in consultation with the mother; and (2)
               the CONTRACTOR provides coverage for timely post-delivery
               follow-up care.

          c.   POST-DELIVERY CARE

               Post-delivery care will be provided to a mother and her newborn
               child by a registered nurse, physician, nurse practitioner, nurse
               midwife or physician assistant experienced in maternal and child
               health in (1) the home, a provider's office, a hospital, a
               federally qualified health center, a federally qualified rural
               health clinic, or a State health department maternity clinic; or
               (2) another setting determined appropriate under regulations
               promulgated by the Secretary of Health and Human Services,
               (including a birthing center or an intermediate care facility);
               except that such coverage will ensure that the mother has the
               option to be provided with such care in the home.

          d.   TIMELY POST-DELIVERY CARE

               "Timely post-delivery care" means health care that is provided
               (1) following the discharge of a mother and her newborn child
               from the inpatient setting; and (2) in a manner that meets the
               health needs of the mother and her newborn child, that provides
               for the appropriate monitoring of the conditions of the mother
               and child, and that occurs within the 24 to 72 hour period
               immediately following discharge.

     6.   CHILDREN IN CUSTODY OF THE DEPARTMENT OF HUMAN SERVICES

          a.   IN GENERAL

               The CONTRACTOR will work with the Division of Child and Family
               Services (DCFS) or the Division of Youth Corrections (DYC) in the
               Department of Human Services (DHS) to ensure systems are in place
               to meet the health needs of children in custody of the Department
               of Human Services. The CONTRACTOR will ensure these children
               receive timely access to appointments through coordination with
               DCFS or DYC. The CONTRACTOR must have available providers who
               have experience and training in abuse and neglect issues.

               The CONTRACTOR or its providers will make every reasonable effort
               to ensure

                                  Page 23 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               that a child who is in custody of the Department of Human
               Services may continue to use the provider with whom the child has
               an established professional relationship when the provider is
               part of the CONTRACTOR's network. The CONTRACTOR will facilitate
               timely appointments with the provider of record to ensure
               continuity of care for the child.

               While it is the CONTRACTOR's responsibility to ensure Enrollees
               who are children in the custody of DHS have access to needed
               services, DHS personnel are primarily responsible to assist
               children in custody in arranging for and getting to medical
               appointments and evaluations with the CONTRACTOR's network of
               providers. DHS staff are primarily responsible for contacting the
               CONTRACTOR to coordinate care for children in custody and
               informing the CONTRACTOR of the special health care needs of
               these Enrollees. The Fostering Healthy Children staff may assist
               the DHS staff in performing these functions by communicating with
               the CONTRACTOR.

          b.   SCHEDULE OF VISITS

               1)   Where physical and/or sexual abuse is suspected

                    In cases where the child protection worker suspects physical
                    and/or sexual abuse, the CONTRACTOR will ensure that the
                    child has access to an appropriate examination within 24
                    hours of notification that the child was removed from the
                    home. If the CONTRACTOR cannot provide an appropriate
                    examination, the CONTRACTOR will ensure the child has access
                    to a provider who can provide an appropriate examination
                    within the 24 hour period.

               2)   All other cases

                    In all other cases, the CONTRACTOR will ensure that the
                    child has access to an initial health screening within five
                    calendar days of notification that the child was removed
                    from the home. The CONTRACTOR will ensure this exam
                    identifies any health problems that might determine the
                    selection of a suitable placement, or require immediate
                    attention.

               3)   CHEC exams

                    In all cases, the CONTRACTOR will ensure that the child has
                    access to a Child Health Evaluation and Care (CHEC)
                    screening within 30 calendar days of notification that the
                    child was removed from the home. Whenever possible, the CHEC
                    screening should be completed within the five-day time
                    frame. Additionally, the CONTRACTOR will ensure the child
                    has access to a CHEC screening according to the CHEC
                    periodicity

                                  Page 24 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

                    schedule until age six, then annually thereafter.

     7.   ORGAN TRANSPLANTATIONS

          a.   IN GENERAL

               All organ transplantation services are the responsibility of the
               CONTRACTOR for all Enrollees in accordance with the criteria set
               forth in Rule R414-10A of the Utah Administrative Code, unless
               amended under the provisions of Attachment B, Article IV
               (Benefits), Section C, Subsection 3 of this Contract. The
               DEPARTMENT's criteria will be provided to the CONTRACTOR.

          b.   SPECIFIC ORGAN TRANSPLANTATIONS COVERED

               The following transplantations are covered under Rule R414-10A:
               Kidney, liver, cornea, bone marrow, heart, intestine, lung,
               pancreas, small bowel, combination heart/lung, combination
               intestine/liver, combination kidney/pancreas, combination
               liver/kidney, multi visceral, and combination liver/small bowel.

          c.   PSYCHOSOCIAL EVALUATION REQUIRED

               Enrollees who have applied for organ transplantations, except
               cornea or kidney, must undergo a comprehensive psycho-social
               evaluation by a board-certified or board-eligible psychiatrist.
               The evaluation must include a comprehensive history regarding
               substance abuse and compliance with medical treatment. In
               addition, the parent(s) or guardian(s) of Enrollees who are less
               than 18 years of age must undergo a psycho-social evaluation that
               includes a comprehensive history regarding substance abuse, and
               past and present compliance with medical treatment.

               If a request is made for a transplantation not listed above, the
               CONTRACTOR will contact the DEPARTMENT. Such requests will be
               addressed as set forth in R414-10A-23.

          d.   OUT-OF-STATE TRANSPLANTATIONS

               When the CONTRACTOR arranges the transplantation to be performed
               out-of- state, the CONTRACTOR is responsible for coverage of
               food, lodging, transportation and airfare expenses for the
               Enrollee and attendant. The CONTRACTOR will follow, at a minimum,
               the DEPARTMENT's criteria for coverage of food, lodging,
               transportation and airfare expenses.

     8.   MENTAL HEALTH SERVICES

          When an Enrollee presents with a possible mental health condition to
          his or her

                                  Page 25 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          CONTRACTOR primary care physician, it is the responsibility of the
          primary care provider to determine whether the Enrollee should be
          referred to a psychologist, pediatric specialist, psychiatrist,
          neurologist, or other specialist. Mental health conditions may be
          handled by the CONTRACTOR primary care provider and referred to the
          Enrollee's Prepaid Mental Health Plan when more specialized services
          are required for the Enrollee. CONTRACTOR primary care providers may
          seek consultation from the Prepaid Mental Health Plan when the primary
          care provider chooses to manage the Enrollee's symptoms.

          An independent panel comprised of specialists appropriate to the
          concern will be established by the DEPARTMENT with representatives
          from the CONTRACTOR and Prepaid Mental Health Plan to adjudicate
          disputes regarding which entity (the CONTRACTOR or Prepaid Mental
          Health Plan) is responsible for payment and/or treatment of a
          condition. The panel will be convened on a case-by-case basis. The
          CONTRACTOR and Prepaid Mental Health Plan will adhere to the final
          decision of the panel.

     9.   DEVELOPMENTAL AND ORGANIC DISORDERS

          a.   COVERED SERVICES FOR CHILD ENROLLEES THROUGH AGE 20

               1)   The CONTRACTOR is responsible for all inpatient and
                    physician outpatient Covered Services for child Enrollees
                    with developmental (ICD-9 codes 299 through 299.8 and 317
                    through 319.9) or organic diagnoses (ICD-9 codes 290 through
                    294.9 and 310 through 310.9) including, but not limited to,
                    diagnostic work-ups and other medical care such as
                    medication management services related to the developmental
                    or organic disorder.

               2)   The CONTRACTOR is responsible for all psychological
                    evaluations and testing including neuropsychological
                    evaluations and testing for child Enrollees with
                    developmental or organic disorders such as brain tumors,
                    brain injuries, and seizure disorders.

          b.   COVERED SERVICES FOR ADULT ENROLLEES AGE 21 AND OLDER

               The CONTRACTOR is responsible for all inpatient and physician
               outpatient Covered Services for adult Enrollees with
               developmental (ICD-9 codes 299 through 299.8 and 317 through
               319.9) and organic diagnoses (ICD-9 codes 290 through 294.9 and
               310 through 310.9) including diagnostic work-ups and other
               medical care such as medication management services related to
               the developmental or organic disorder.

          c.   NON-COVERED SERVICES

               1)   Psychological evaluations and testing including
                    neuropsychological

                                  Page 26 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July I, 2001

                    evaluations and testing for adult Enrollees is not the
                    responsibility of the CONTRACTOR.

               2)   Habilitative and behavioral management services are not the
                    responsibility of the CONTRACTOR. If habilitative services
                    are required, the Enrollee should be referred to the
                    Division of Services for People with Disabilities (DSPD),
                    the school system, the Early Intervention Program, or
                    similar support program or agency. The Enrollee should also
                    be referred to DSPD for consideration of other benefits and
                    programs that may be available through DSPD. Habilitative
                    services are defined in Section 1915(c)(5)(a) of the Social
                    Security Act as "services designed to assist individuals in
                    acquiring, retaining and improving the self-help,
                    socialization and adaptive skills necessary to reside
                    successfully in home and community based settings."

          d.   RESPONSIBILITY OF THE PREPAID MENTAL HEALTH PLAN

               The Prepaid Mental Health Plan is responsible for needed mental
               health services to individuals with an organic and a psychiatric
               diagnosis or with a developmental and a psychiatric diagnosis.

     10.  OUT-OF-STATE ACCESSORY SERVICES

          When the CONTRACTOR arranges a Covered Service to be performed
          out-of-state, the CONTRACTOR is responsible for coverage of airfare,
          food and lodging for the Enrollee and one attendant during the stay at
          the out-of-state facility. Ground transportation costs only from the
          airport to the hotel or hospital and back to the airport, one time
          only are also the responsibility of the CONTRACTOR. The CONTRACTOR
          will follow, at a minimum, the DEPARTMENT's criteria for coverage of
          food, lodging, transportation, and airfare expenses.

     11.  NON-CONTRACTOR PRIOR AUTHORIZATIONS

          a.   PRIOR AUTHORIZATIONS - GENERAL

               The CONTRACTOR shall honor prior authorizations for organ
               transplantations and any other ongoing services initiated by the
               DEPARTMENT while the Enrollee was covered under Medicaid
               fee-for-service until the Enrollee is evaluated by the CONTRACTOR
               and a new plan of care is established.

          b.   WHEN THE CONTRACTOR HAS NOT AUTHORIZED THE SERVICE

               For services that require a prior authorization, the CONTRACTOR
               will pay the provider of the service at the Medicaid rate, if the
               following conditions are met:

                                  Page 27 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               1)   the servicing provider is not a participating provider under
                    contract with the CONTRACTOR; and

               2)   the DEPARTMENT issued a prior authorization for an Enrollee
                    to the servicing provider approving payment of the service;
                    and

               3)   the servicing provider has completed the CONTRACTOR's
                    hearing process without resolution of the claim, and has
                    requested a hearing with the State Formal Hearings Unit
                    requesting payment for the services rendered: and

               4)   in the hearing process it is determined that service
                    rendered was a Medically Necessary service covered under
                    this Contract, and that the CONTRACTOR will be responsible
                    for payment of the claim.

               The CONTRACTOR may elect to have payment of the servicing
               provider's claim made through the DEPARTMENT's MMIS system, with
               an equal reduction in the payments made to the CONTRACTOR

F.   CLARIFICATION OF PAYMENT RESPONSIBILITIES

     1.   COVERED SERVICES RECEIVED OUTSIDE CONTRACTOR's NETWORK BUT PAID BY
          CONTRACTOR

          The CONTRACTOR will not be required to pay for Covered Services,
          defined in Attachment C, which the Enrollee receives from sources
          outside The CONTRACTOR's network, not arranged for and not authorized
          by the CONTRACTOR except as follows:

          a.   Emergency Services;

          b.   Court ordered services that are Covered Services defined in
               Attachment C and which have been coordinated with the CONTRACTOR;
               or

          c.   Cases where the Enrollee demonstrates that such services are
               Medically Necessary Covered Services and were unavailable from
               the CONTRACTOR.

     2.   WHEN COVERED SERVICES ARE NOT THE CONTRACTOR's RESPONSIBILITY

          a.   The CONTRACTOR is not responsible for payment when family
               planning services are obtained by an Enrollee from sources other
               than the CONTRACTOR.

          b.   The CONTRACTOR will not be required to provide, arrange for, or
               pay for Covered Services to Enrollees whose illness or injury
               results directly from a catastrophic occurrence or disaster,
               including, but not limited to, earthquakes or

                                  Page 28 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               acts of war. The effective date of excluding such Covered
               Services will be the date specified by the Federal Government or
               the State of Utah that a Federal or State emergency exists or
               disaster has occurred.

     3.   THE DEPARTMENT'S RESPONSIBILITY

          Except as described in Attachment F (Rates and Rate-Related Terms) of
          this Contract, the DEPARTMENT will not be required to pay for any
          Covered Services under Attachment C which the Enrollee received from
          any sources outside the CONTRACTOR except for family planning
          services.

     4.   COVERED SERVICES PROVIDED BY THE DEPARTMENT OF HEALTH, DIVISION OF
          COMMUNITY AND FAMILY HEALTH SERVICES

          For Enrollees who qualify for special services offered by or through
          the Department of Health, Division of Community and Family Health
          Services (DCFHS), the CONTRACTOR agrees to reimburse DCFHS at the
          standard Medicaid rate in effect at the time of service for one
          outpatient team evaluation and one follow-up visit for each Enrollee
          upon each instance that the Enrollee both becomes Medicaid eligible
          and selects the CONTRACTOR as its provider. The CONTRACTOR agrees to
          waive any prior authorization requirement for one outpatient team
          evaluation and one follow-up visit. The services provided in the
          outpatient team evaluation and follow-up visit for which the
          CONTRACTOR will reimburse DCFHS are limited to the services that the
          CONTRACTOR is otherwise obligated to provide under this Contract.

          If the CONTRACTOR desires a more detailed agreement for additional
          services to be provided by or through DCFHS for children with special
          health care needs, the CONTRACTOR may subcontract with DCFHS. The
          CONTRACTOR agrees that the subcontract with DCFHS will acknowledge and
          address the specific needs of DCFHS as a government provider.

     5.   ENROLLEE TRANSITION BETWEEN MCOS, OR BETWEEN FEE-FOR-SERVICE AND
          CONTRACTOR

          a.   INPATIENT HOSPITAL

               When an Enrollee is in an inpatient hospital setting and selects
               another MCO or becomes fee-for-service anytime prior to discharge
               from the hospital, the CONTRACTOR is financially responsible for
               the entire hospital stay including all services related to the
               hospital stay, i.e. physician, etc. The MCO in which the
               individual is enrolled at the time of discharge from the hospital
               is financially responsible for services provided during the
               remainder of the month when the individual was discharged. If
               such individual is fee-for-service at the time of discharge from
               the hospital, the DEPARTMENT is financially responsible for the
               remainder of the month when the individual was discharged. If a
               Medicaid

                                  Page 29 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               eligible is in an inpatient hospital setting and selects the MCO
               anytime prior to discharge from the hospital, the DEPARTMENT is
               financially responsible for the entire hospital stay including
               all services related to the hospital stay, i.e. physician, etc.
               Enrollees who are in an inpatient hospital setting at the time
               the CONTRACTOR terminates this Contract and who have enrolled
               with another MCO are the responsibility of the receiving MCO
               beginning the day after the termination is effective.

          b.   HOME HEALTH SERVICES

               Medicaid clients who are under fee-for-service or are enrolled in
               an MCO other than this MCO and are receiving home health services
               from an agency not contracting with the CONTRACTOR will be
               transitioned to the CONTRACTOR's home health agency. The
               CONTRACTOR is responsible for payment, not to exceed Medicaid
               payment, for a period not to exceed seven calendar days, unless
               the CONTRACTOR and the home health agency agree to another time
               period in writing, after the CONTRACTOR notifies the non-
               participating home health agency of the change in status or the
               non-participating home health agency notifies the CONTRACTOR that
               services are being provided by its agency. The CONTRACTOR will
               assess the needs of the Enrollee at the time the CONTRACTOR
               provides the orientation to the Enrollee.

               The CONTRACTOR will include the Enrollee in developing the plan
               of care to be provided by the CONTRACTOR's home health agency
               before the transition is complete. The CONTRACTOR will address
               Enrollee's concerns regarding Covered Services provided by the
               CONTRACTOR's home health agency before the new plan of care is
               implemented.

          c.   MEDICAL EQUIPMENT

               When medical equipment is ordered for an Enrollee by the
               CONTRACTOR and the Enrollee enrolls in a different MCO before
               receiving the equipment, the CONTRACTOR is responsible for
               payment for such equipment. Medical equipment includes
               specialized wheelchairs or attachments, prosthesis, and other
               equipment designed or modified for an individual client. Any
               attachments to the equipment, replacements, or new equipment is
               the responsibility of the MCO in which the client is enrolled at
               the time such equipment is ordered.

     6.   SURVEYS

          All surveys required under this Contract will be funded by the
          CONTRACTOR unless funded by another source such as the Utah Department
          of Health, Office of Health Care Statistics. The surveys must be
          conducted by an independent vendor mutually agreed upon by the
          DEPARTMENT and CONTRACTOR. The DEPARTMENT or designee will analyze the
          results of the surveys. Before publishing articles, data, reports,
          etc.

                                  Page 30 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          related to surveys the DEPARTMENT will provide drafts of such material
          to the CONTRACTOR for review and feedback. The CONTRACTOR will not be
          responsible for the costs incurred for such publishing by the
          DEPARTMENT.

                      ARTICLE V - ENROLLEE RIGHTS/SERVICES

A.   MEMBER SERVICES FUNCTION

     The CONTRACTOR must operate a Member Services function during regular
     business hours. Ongoing training, as necessary, shall be provided by the
     CONTRACTOR to ensure that the Member Services staff is conversant in the
     CONTRACTOR's policies and procedures as they relate to Enrollees. At a
     minimum, Member Services staff must be responsible for the following:

     1.   Explaining the CONTRACTOR's rules for obtaining services;

     2.   Assisting Enrollees to select or change primary care providers;

     3.   Fielding and responding to Enrollee questions and complaints and
          grievances.

     The CONTRACTOR shall conduct ongoing assessment of its orientation staff to
     determine staff member's understanding of the MCO and its Medicaid managed
     care policies and provide training, as needed.

B.   ENROLLEE LIABILITY

     1.   The CONTRACTOR will not hold an Enrollee liable for the following:

          a.   The debts of the CONTRACTOR if it should become insolvent.

          b.   Payment for services provided by the CONTRACTOR if the CONTRACTOR
               has not received payment from the DEPARTMENT for the services, or
               if the provider, under contract with the CONTRACTOR, fails to
               receive payment from the CONTRACTOR.

          c.   The payments to providers that furnish Covered Services under a
               contract or other arrangement with the CONTRACTOR that are in
               excess of the amount that normally would be paid by the Enrollee
               if the service had been received directly from the CONTRACTOR.

C.   GENERAL INFORMATION TO BE PROVIDED TO ENROLLEES

     The CONTRACTOR will make the following information available to Enrollees
     and potential Enrollees on request:

     1.   The identity, locations, qualification, and availability of
          participating providers (at a

                                  Page 31 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          minimum, area of specialty, board certification, and any special areas
          of expertise must be available that would be helpful to individuals
          deciding whether to enroll with the CONTRACTOR);

     2.   The rights and responsibilities of Enrollees;

     3.   The procedures available to Enrollees and providers to challenge or
          appeal the failure of the CONTRACTOR to cover a services; and

     4.   All items and services that are available to Enrollees that are
          covered either directly or through a method of referral or prior
          authorization.

D.   ACCESS

     1.   IN GENERAL

          The CONTRACTOR shall provide the DEPARTMENT and the Department of
          Health and Human Services, Centers for Medicare and Medicaid, adequate
          assurances that the CONTRACTOR, with respect to a service area, has
          the capacity to serve the expected enrollment in such service area,
          including assurances that the CONTRACTOR offers an appropriate range
          of services and access to preventive and primary care services for the
          population expected to enroll in such service area, and maintains a
          sufficient number, mix and geographic distribution of providers of
          services.

          The CONTRACTOR will provide services which are accessible to Enrollees
          and appropriate in terms of timeliness, amount, duration, and scope.

     2.   SPECIFIC PROVISIONS

          a.   ELIMINATION OF ACCESS PROBLEMS CAUSED BY GEOGRAPHIC, CULTURAL AND
               LANGUAGE BARRIERS AND PHYSICAL DISABILITIES

               The CONTRACTOR will minimize, with a goal to eliminate,
               Enrollee's access problems due to geographic, cultural and
               language barriers, and physical disabilities. The CONTRACTOR will
               provide assistance to Enrollees who have communication
               impediments or impairments to facilitate proper diagnosis and
               treatment. The CONTRACTOR must guarantee equal access to services
               and benefits for all Enrollees by making available interpreters,
               Telecommunication Devices for the Deaf (TDD), and other auxiliary
               aids to all Enrollees as needed. The CONTRACTOR will accommodate
               Enrollees with physical and other disabilities in accordance with
               the American Disabilities Act of 1990 (ADA), as amended. If the
               CONTRACTOR's facilities are not accessible to Enrollees with
               physical disabilities, the CONTRACTOR will provide services in
               other accessible locations.

                                  Page 32 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          b.   INTERPRETIVE SERVICES

               The CONTRACTOR will provide interpretive services for languages
               on an as needed basis. These requirements will extend to both
               in-person and telephone communications to ensure that Enrollees
               are able to communicate with the CONTRACTOR and CONTRACTOR's
               providers and receive Covered Services. Professional interpreters
               will be used 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. A family member or
               friend may be used as an interpreter if this method is requested
               by the patient, and the use of such a person would not compromise
               the effectiveness of services or violate the patient's
               confidentiality, and the patient is advised that a free
               interpreter is available.

          c.   CULTURAL COMPETENCE REQUIREMENTS

               The CONTRACTOR shall incorporate in its policies, administration,
               and delivery of services the values of honoring Enrollee's
               beliefs; being sensitive to cultural diversity; and promoting
               attitudes and interpersonal communication styles with staff and
               providers which respect Enrollees' cultural backgrounds. The
               CONTRACTOR must foster cultural competency among its providers.
               Culturally competent care is care given by a provider who can
               communicate with the Enrollee and provide care with sensitivity,
               understanding, and respect for the Enrollee's culture, background
               and beliefs. The CONTRACTOR shall strive to ensure its providers
               provide culturally sensitive services to Enrollees. These
               services shall include but are not limited to providing training
               to providers regarding how to promote the benefits of health care
               services as well as training about health care attitudes,
               beliefs, and practices that affect access to health care
               services.

          d.   NO RESTRICTIONS OF PROVIDER's ABILITY TO ADVISE AND COUNSEL

               The CONTRACTOR may not restrict a health care provider's ability
               to advise and counsel Enrollees about Medically Necessary
               treatment options. All contracting providers acting within his or
               her scope of practice, must be permitted to freely advise an
               Enrollee about his or her health status and discuss appropriate
               medical care or treatment for that condition or disease
               regardless of whether the care or treatment is a Covered Service.

          e.   WAITING TIME BENCHMARKS

               The CONTRACTOR will adopt benchmarks for waiting times for
               physician appointments as follows:

               Waiting Time for Appointments

                                  Page 33 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               1)   Primary Care Providers:
                    .    within 30 days for routine, non-urgent appointments
                    .    within 60 days for school physicals
                    .    within 2 days for urgent, symptomatic, but not
                         life-threatening care (care that can be treated in the
                         doctor's office)

               2)   Specialists:
                    .    within 30 days for non-urgent
                    .    within 2 days for urgent, symptomatic, but not
                         life-threatening care (care that can be treated in a
                         doctor's office)

               These benchmarks do not apply to appointments for regularly
               scheduled visits to monitor a chronic medical condition if the
               schedule calls for visits less frequently than once every month.

          f.   NO DELAY WHILE COORDINATING COVERAGE WITH A PREPAID MENTAL HEALTH
               PLAN

               When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR will not delay an Enrollee's access to
               needed services in disputes regarding responsibility for payment.
               Payment issues should be addressed only after needed services are
               rendered. As described in Attachment B, IV (Benefits), Section E
               (Clarification of Covered Services), Subsection 8 of this
               Contract, the independent panel established by the DEPARTMENT
               will assist in adjudicating such disputes when requested to do so
               by either party.

E.   CHOICE

     The CONTRACTOR must allow Enrollees the opportunity to select a
     participating Primary Care Provider. This excludes clients who are under
     the Restriction Program. If an Enrollee's Primary Care Provider ceases to
     participate in the CONTRACTOR's network, the CONTRACTOR must offer the
     Enrollee the opportunity to select a new Primary Care Provider.

F.   COORDINATION

     1.   IN GENERAL

          The CONTRACTOR will ensure access to a coordinated, comprehensive and
          continuous array of needed services through coordination with other
          appropriate entities. The CONTRACTOR's providers are not responsible
          for rendering waiver services.

     2.   PREPAID MENTAL HEALTH PLAN

          a.   When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR and Prepaid Mental Health Plan will share
               appropriate information regarding the Enrollee's health care to
               ensure coordination of physical and mental health care services.

                                  Page 34 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                           Effective July 1,2001

          b.   Clients enrolled in the MCO and a Prepaid Mental Health Plan who
               due to a psychiatric condition require lab, radiology and similar
               outpatient services covered under this Contract, but prescribed
               by the Prepaid Mental Health Plan physician, will have access to
               such services in a timely fashion. The CONTRACTOR and Prepaid
               Mental Health Plan will reduce or eliminate unnecessary barriers
               that may delay the Enrollee's access to these critical services.

     3.   DOMESTIC VIOLENCE

          The CONTRACTOR will ensure that providers are knowledgeable about
          methods to detect domestic violence and about resources in the
          community to which they can refer patients.

     4.   RESTRICTION PCP

          The CONTRACTOR will ensure that Enrollees who are on the Restriction
          Program are linked to a primary care physician (PCP). If the
          restricted Enrollee's PCP chooses to no longer serve as the Enrollee's
          PCP or the provider ceases participation with the CONTRACTOR, the
          CONTRACTOR must assist the Enrollee in finding a new PCP.

G.   BILLING ENROLLEES

     1.   IN GENERAL

          Except as provided herein Attachment B, Article V (Enrollee
          Rights/Services), Section G (Billing Enrollees), subsection 2, no
          claim for payment will be made at any time by the CONTRACTOR or its
          providers to an Enrollee accepted by that provider as an Enrollee for
          any Covered Service. When a provider accepts an Enrollee as a patient
          he or she will look solely to the CONTRACTOR and any third party
          coverage for reimbursement. If the provider fails to receive payment
          from the CONTRACTOR, the Enrollee cannot be held responsible for these
          payments.

     2.   CIRCUMSTANCES WHEN AN ENROLLEE MAY BE BILLED

          An Enrollee may in certain circumstances be billed by the provider for
          non-Covered Services. A non-Covered Service is one that is not covered
          under this Contract, or includes special features or characteristics
          that are desired by the Enrollee, such as more expensive eyeglass
          frames, hearing aids, custom wheelchairs, etc., but do not meet the
          Medical Necessity criteria for amount, duration, and scope as set
          forth in the Utah State Plan. The DEPARTMENT will specify to the
          CONTRACTOR the extent of Covered Services and items under the
          Contract, as well as services not covered under the Contract but
          provided by Medicaid on a fee-for-service basis that would effect the
          CONTRACTOR's Covered Services. An Enrollee may be billed for a service
          not covered under this Contract only when all of the following
          conditions are met:

                                  Page 35 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          a.   the provider has an established policy for billing all patients
               for services not covered by a third party (non-Covered Services
               cannot be billed only to Enrollees.);

          b.   the provider has informed the Enrollee of its policy and the
               services and items that are not covered under this Contract and
               included this information in the Enrollee's member handbook;

          c.   the provider has advised the Enrollee prior to rendering the
               service that the service is not covered under this Contract and
               that the Enrollee will be personally responsible for making
               payment; and

          d.   the Enrollee agrees to be personally responsible for the payment
               and an agreement is made in writing between the provider and the
               Enrollee which details the service and the amount to be paid by
               the Enrollee.

     3.   CONTRACTOR MAY NOT HOLD ENROLLEE'S MEDICAID CARD

          The CONTRACTOR or its providers will not hold the Enrollee's Medicaid
          card as guarantee of payment by the Enrollee, nor may any other
          restrictions be placed upon the Enrollee.

     4.   CRIMINAL PENALTIES

          Criminal penalties shall be imposed on MCO providers as authorized
          under section 1128B(d)(1)of the Social Security Act if the provider
          knowingly and willfully charges an Enrollee at a rate other than those
          allowed under this Contract.

H.   SURVEY REQUIREMENTS

     Surveys will be conducted of the CONTRACTOR's Enrollees that will include
     questions about Enrollees' perceptions of access to and the quality of care
     received through the CONTRACTOR. The survey process, including the survey
     instrument, will be standardized and developed collaboratively among the
     DEPARTMENT and all contracting MCOs. The DEPARTMENT will analyze the
     results of the surveys. The CONTRACTOR's quality assurance committee will
     review the results of the surveys, identify areas needing improvement,
     outline action steps to follow up on findings, and inform (at a minimum),
     subcontractors, and member and provider services staff, when applicable.

     1.   GENERAL POPULATION SURVEY

          At least every two years, the CONTRACTOR in conjunction with the
          DEPARTMENT will survey a sample of its general population Enrollees;
          i.e.,

                                  Page 36 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          Enrollees who do not meet the definition of those with special health
          care needs.

     2.   SPECIAL NEEDS SURVEY

          At least every two years, the CONTRACTOR in conjunction with the
          DEPARTMENT will survey a sample of Enrollees with special health care
          needs.

                        ARTICLE VI - GRIEVANCE PROCEDURES

A.   IN GENERAL

     The CONTRACTOR will maintain a system for reviewing and adjudicating
     complaints and grievances by Enrollees and providers. The CONTRACTOR's
     complaint and grievance procedures must permit an Enrollee, or provider on
     behalf of an Enrollee, to challenge the denials of coverage of medical
     assistance or denials of payment for Covered Services. The CONTRACTOR will
     submit such grievance plans and procedures to the DEPARTMENT for approval
     prior to instituting or changing such procedures. Such procedures will
     provide for expeditious resolution of complaints and grievances by the
     CONTRACTOR's personnel who have authority to correct problems. The
     CONTRACTOR shall ensure that each Enrollee with limited English proficiency
     shall have the right to receive oral interpreter services without charge to
     the Enrollee at each stage of the CONTRACTOR's complaint and grievance
     process, including final determination.

B.   NONDISCRIMINATION

     The CONTRACTOR shall designate a nondiscrimination coordinator who will 1)
     ensure the CONTRACTOR complies with Federal Laws and Regulations regarding
     nondiscrimination, and 2) take complaints and grievances from Enrollees
     alleging nondiscrimination violations based on race, color, national
     origin, disability, or age. The nondiscrimination coordinator may also
     handle complaints regarding the violation of other civil rights (sex and
     religion) as other Federal laws and Regulations protect against these forms
     of discrimination. The CONTRACTOR, will develop and implement a written
     method of administration to assure that the CONTRACTOR's programs,
     activities, services, and benefits are equally available to all persons
     without regard to race, color, national origin, disability, or age.

C.   MINIMUM REQUIREMENTS OF GRIEVANCE PROCEDURES

     At a minimum, the CONTRACTOR's complaint and grievance procedures must
     include

     1.   definitions of complaints and grievance;

     2.   details of how, when, where and with whom an Enrollee or provider may
          file a

                                  Page 37 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          grievance;

     3.   assurances of the participation of individuals with authority to take
          corrective action;

     4.   responsibilities of the various components and staff of the
          organization;

     5.   a description of the process for timely review, prompt (45 days)
          resolution of complaints and grievances;

     6.   details of an appeal process; and

     7.   a provision stating that during the pendency of any grievance
          procedure or an appeal of such grievances, the Enrollee will remain
          enrolled except as otherwise stated in this Contract.

D.   FINAL REVIEW BY DEPARTMENT

     When an Enrollee or provider has exhausted the CONTRACTOR's grievance
     process and a final decision has been made, the CONTRACTOR must provide
     written notification to the party who initiated the grievance of the
     grievance's outcome and explain in clear terms a detailed reason for the
     denial.

     The CONTRACTOR must provide notification to Enrollees and providers that
     the final decision of the CONTRACTOR may be appealed to the DEPARTMENT and
     will give to the Enrollee or provider the DEPARTMENT's form to request a
     formal hearing with the DEPARTMENT. The MCO must inform the Enrollee or
     provider the time frame for filing an appeal with the DEPARTMENT. The
     formal hearing with the DEPARTMENT is a de novo hearing. If the Enrollee or
     provider request a formal hearing with the DEPARTMENT, all parties to the
     formal hearing agree to be bound by the DEPARTMENT's decision until any
     judicial reviews are completed and are in the Enrollee's or provider's
     favor. Any decision made by the DEPARTMENT pursuant to the hearing shall be
     subject to appeal rights as provided by State and Federal laws and rules.

                        ARTICLE VII - OTHER REQUIREMENTS

A.   COMPLIANCE WITH PUBLIC HEALTH SERVICE ACT

     The CONTRACTOR will comply with all requirements of Section 1301 to and
     including 1318 of the Public Health Service Act. The CONTRACTOR will
     provide verification of such compliance to the DEPARTMENT upon the
     DEPARTMENT's request. This Contract is a "prospective risk" contract which
     means that payment is made by means of a capitation rate offered each month
     as reimbursement in advance for services incurred that month regardless of
     the level of utilization

                                  Page 38 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     actually experienced. Nothing herein will be construed or interpreted to
     mean that this is a cost reimbursement contract. Cost reimbursement means
     payment is made by means of a settlement based on cost incurred over a
     given period.

B.   COMPLIANCE WITH OBRA'90 PROVISION AND 42 CFR 434.28

     The CONTRACTOR will comply with the OBRA '90 provision which requires an
     MCO provide patients with information regarding their rights under State
     law to make decisions about their health care including the right to
     execute a living will or to grant power of attorney to another individual.

     The CONTRACTOR will comply with the requirements of 42 CFR 434.28 relating
     to maintaining written Advance Directives as outlined under Subpart I of
     489.100 through 489.102.

C.   FRAUD AND ABUSE REQUIREMENTS

     The CONTRACTOR must have a compliance program to identify and refer
     suspected fraud and abuse activities. The compliance program must outline
     the CONTRACTOR's internal processes for identifying fraud and abuse. The
     CONTRACTOR agrees to abide by Federal and/or State fraud and abuse
     requirements including, but not limited to, the following:

     1.   Refer in writing to the DEPARTMENT all detected incidents of potential
          fraud or abuse on the part of providers of services to Enrollees or to
          other patients.

     2.   Refer in writing to the DEPARTMENT all detected incidents of patient
          fraud or abuse involving Covered Services provided which are paid for
          in whole, or in part, by the DEPARTMENT.

     3.   Refer in writing to the DEPARTMENT the names and Medicaid ID numbers
          of those Enrollees that the CONTRACTOR suspects of inappropriate
          utilization of services, and the nature of the suspected inappropriate
          utilization.

     4.   Inform the DEPARTMENT in writing when a provider is removed from the
          CONTRACTOR's panel for reasons relating to suspected fraud, abuse or
          quality of care concerns.

     5.   The CONTRACTOR may not employ or subcontract with any sanctioned
          provider. The DEPARTMENT shall notify the CONTRACTOR how to access
          information on providers sanctioned by Medicaid or Medicare. It is the
          responsibility of the CONTRACTOR to keep apprized of sanctioned
          providers.

          The CONTRACTOR may not employ or subcontract with any provider who is
          an ineligible entity as defined under the State Medicaid Manual
          Section 2086.16. This

                                  Page 39 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          section is available upon request. The CONTRACTOR will attest that the
          entities listed below are not involved with the CONTRACTOR. Entities
          that must be excluded -

          a.   Entities that could be excluded under section 1128(b)(8) of the
               Social Security Act (the Act)--these are entities in which a
               person who is an officer, director, agent, or managing employee
               of the entity, or a person who has a direct or indirect ownership
               or control interest of 5% or more in the entity and has been
               convicted of the following crimes:

               1)   any criminal offense related to the delivery of a Medicare
                    or Medicaid item or service (see section 1128(a)(1) of the
                    Act);

               2)   patient abuse (section 1128(a)(2));

               3)   fraud (1128(b)(1));

               4)   obstruction of an investigation (1128(b)(2)); or

               5)   offenses related to controlled substances (1128(b)(3)).

          b.   Entities that have a direct or indirect substantial contractual
               relationship with an individual or entity listed in subsection
               "a" above--a substantial contractual relationship is defined as
               any contractual relationship which provides for one or more of
               the following:

               1)   the administration, management, or provision of medical
                    services;

               2)   the establishment of policies pertaining to the
                    administration, management or provision of medical
                    services; or

               3)   the provision of operational support for the
                    administration, management, or provision of medical
                    services.

          c.   Entities which employ, contract with, or contract through any
               individual or entity that is excluded from Medicaid participation
               under Section 1128 or Section 1128A of the Act, for the provision
               of health care, utilization review, medical social work or
               administration services.

D.   DISCLOSURE OF OWNERSHIP AND CONTROL INFORMATION

     The CONTRACTOR agrees to meet the requirements of 42 CFR 455, Subpart B
     related to disclosure by the CONTRACTOR of ownership and control
     information.

                                  Page 40 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

E.   SAFEGUARDING CONFIDENTIAL INFORMATION ON ENROLLEES

     The CONTRACTOR agrees that information about Enrollees is confidential
     information and agrees to safeguard all confidential information and
     conform to the requirements set forth in 42CFR, Part 431, Subpart F as well
     as all other applicable Federal and State confidentiality requirements.

F.   DISCLOSURE OF PROVIDER INCENTIVE PLANS

     The CONTRACTOR must submit to the DEPARTMENT information on its physician
     incentive plans as listed in 42 CFR 417.479(h)(1) and summarized in this
     Article VII, Section F, Subsections 1 through 5, by May 1 of each year. The
     CONTRACTOR must provide to the DEPARTMENT the enrollee/disenrollee survey
     results when beneficiary surveys are required as specified in 42 CFR
     417.479(g) and summarized in this Article VII, Section F, Subsection 7, by
     October 1 or three months after the end of the Contract year. The
     CONTRACTOR must submit to the DEPARTMENT information on capitation payments
     paid to primary care physicians as specified in 42 CFR 417.479(h)(1)(vi).

     Per 42 CFR 417.479(a), no specific payment may be made directly or
     indirectly under a physician incentive plan to a physician or physician
     group as an inducement to reduce or limit Medically Necessary services
     furnished to an Enrollee.

     The CONTRACTOR may operate a physician incentive plan only if the stop-loss
     protection, Enrollee survey, and disclosure requirements are met. The
     CONTRACTOR must disclose to the DEPARTMENT the following information on
     provider incentive plans in sufficient detail to determine whether the
     incentive plan complies with the regulatory requirements. The disclosure
     must contain:

     1.   Whether services not furnished by the physician or physician group are
          covered by the incentive plan. If only the services furnished by the
          physician or physician group are covered by the incentive plan,
          disclosure of other aspects of the plan need not be made.

     2.   The type of incentive arrangement (i.e., withhold, bonus, capitation).

     3.   If the incentive plan involves a withhold or bonus, the percent of the
          withhold or bonus.

     4.   Proof that the physician or physician group has adequate stop-loss
          protection, including the amount and type of stop-loss protection.

     5.   The panel size and, if patients are pooled; the method used.

     6.   To the extent provided for in the Department of Health and Human
          Services, Centers for Medicare and Medicaid Services' (CMS)
          implementation guidelines, capitation payments paid to primary care
          physicians for the most recent year broken down by percent for primary
          care services, referral services to specialists, and hospital and
          other types of

                                  Page 41 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          provider services (i.e., nursing home and home health agency) for
          capitated physicians or physician groups.

     7.   In the case of those prepaid plans that are required to conduct
          beneficiary surveys, the survey results. (The CONTRACTOR must conduct
          a customer satisfaction of both Enrollees and disenrollees if any
          physicians or physicians groups contracting with the CONTRACTOR are
          placed at substantial financial risk for referral services. The survey
          must include either all current Enrollees and those who have
          disenrolled in the past twelve months, or a sample of these same
          Enrollees and disenrollees. Recognizing that different questions are
          asked of the disenrollees than those asked of Enrollees, the same
          survey cannot be used for both populations.)

     The CONTRACTOR must disclose this information to the DEPARTMENT (1) prior
     to approval of its Contract or agreement and (2) upon the Contract or
     agreements anniversary or renewal effective date. The CONTRACTOR must
     provide the capitation data required (see 6 above) for the previous
     Contract year to the DEPARTMENT three months after the end of the Contract
     year. The CONTRACTOR will provide to the Enrollee upon request whether the
     CONTRACTOR uses a physician incentive plan that affects the use of referral
     services, the type of incentive arrangement, whether stop-loss protection
     is provided, and the survey results of any enrollee/disenrollee surveys
     conducted.

G.   DEBARRED OR SUSPENDED INDIVIDUALS

     Under Section 1921(d)(1) of the Social Security Act, the CONTRACTOR may
     not knowingly have a director, officer, partner, or person with beneficial
     ownership of more than 5% of the CONTRACTOR's equity who has been debarred
     or suspended by any federal agency. The CONTRACTOR may not have an
     employment, consulting, or any other agreement with a debarred or suspended
     person for the provision of items or services that are significant and
     material to meeting the provisions under this Contract.

     The CONTRACTOR must certify to the DEPARTMENT that the requirements under
     Section 1921(d)(1) of the Social Security Act are met prior to the
     effective date of this Contract and at any time there is a change from the
     last such certification.

H.   CMS CONSENT REQUIRED

     If the Department of Health and Human Services, Centers for Medicare and
     Medicaid (CMS) directs the DEPARTMENT to terminate this Contract, the
     DEPARTMENT will not be permitted to renew this Contract without CMS
     consent.

                             ARTICLE VIII - PAYMENTS

A.   RISK CONTRACT

                                  Page 42 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     This Contract is a risk contract as described in 42 CFR 447.361. Payments
     made to the CONTRACTOR may not exceed the cost to the DEPARTMENT of
     providing these same Covered Services on a fee-for-service basis, to an
     actuarially equivalent non-enrolled population.

B.   PAYMENT AMOUNTS

     1.   PAYMENT SCHEDULE

          On or before the 10th day of each month, the DEPARTMENT will pay to
          the CONTRACTOR the premiums due for each category shown for Enrollees
          for that month as determined by the DEPARTMENT from the Eligibility
          Transmission. Premiums shown in Attachment F-3 are based on rate
          negotiations between the CONTRACTOR and the DEPARTMENT.

     2.   CALCULATION OF PREMIUMS

          The premiums do not include payment for recoupment of any previous
          losses incurred by the CONTRACTOR. The premiums established in this
          Contract will be prospectively set so as not to exceed the cost of
          providing the same Covered Services to an actuarially equivalent
          non-enrolled Medicaid population. The actuarially set fee-for-service
          equivalents developed by the DEPARTMENT are prospectively determined
          and conform with Federal guidelines as defined in CFR 447.361.

     3.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHCs)

          If the CONTRACTOR enters into a subcontract with a Federally Qualified
          Health Center (FQHC), the CONTRACTOR will reimburse the FQHC an amount
          not less than what the CONTRACTOR pays comparable providers that are
          not FQHCs.

     4.   TIME FRAME FOR REQUEST OF DELIVERY PAYMENT

          The CONTRACTOR will submit a request for payment of the lump sum
          delivery amount within six months of the delivery date.

     5.   CONTRACT MAXIMUM

          In no event will the aggregate amount of payments to the CONTRACTOR
          exceed the Contract maximum amount. If payments to the CONTRACTOR
          approach or exceed the Contract amount before the renewal date of the
          Contract, the DEPARTMENT shall execute a Contract amendment to
          increase the Contract amount within 30 calendar days of the date the
          Contract amount is exceeded.

C.   MEDICARE

     1.   PAYMENT OF MEDICARE PART B PREMIUMS

                                  Page 43 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          The DEPARTMENT's will pay the Medicare Part B premium for each
          Enrollee who is on Medicare. The Enrollee will assign to the
          CONTRACTOR his or her Medicare reimbursement for benefits received
          under Medicare. The Eligibility Transmission includes and identifies
          those Enrollees who are covered under Medicare.

     2.   PAYMENT OF MEDICARE DEDUCTIBLE AND COINSURANCE

          The DEPARTMENTs financial obligation under this Contract for Enrollees
          who are covered by both Medicare and the MCO is limited to the
          Medicare Part B premium and the CONTRACTOR premium. The CONTRACTOR is
          responsible for payment of the Medicare deductible and coinsurance for
          Enrollees when a service is paid for by Medicare whether or not the
          service is covered under this Contract. The CONTRACTOR is responsible
          for payment whether or not the Medicare covered service is rendered by
          a network provider or has been authorized by the CONTRACTOR. If a
          Medicare covered service is rendered by an out-of-network Medicare
          provider or a non-Medicare participating provider, the CONTRACTOR is
          responsible to pay for no more than the Medicare authorized amount.
          Attachment E, Table 2, will be used to identify the total cost to the
          CONTRACTOR of providing care for Enrollees who are also covered by
          Medicare.

     3.   MUST NOT BALANCE BILL ENROLLEES

          The CONTRACTOR or its providers will not Balance Bill the Enrollee and
          will consider reimbursement from Medicare and from the CONTRACTOR as
          payment in full.

D.   THIRD PARTY LIABILITY (COORDINATION OF BENEFITS)

     The DEPARTMENT will provide the CONTRACTOR a monthly listing of Enrollees
     covered under the Buy-out Program, including the premium amount paid by the
     DEPARTMENT.

     1.   TPL COLLECTIONS

          The CONTRACTOR will be responsible to coordinate benefits and collect
          third party liability (TPL). The CONTRACTOR will keep TPL collections.
          The DEPARTMENT will set rates net of expected TPL collections
          excluding the lump sum rate set for deliveries. The rate set for
          deliveries is the maximum amount the DEPARTMENT will pay the
          CONTRACTOR for each delivery. The CONTRACTOR must attempt to collect
          TPL before the DEPARTMENT will finalize payment for the lump sum
          delivery. The DHCF audit staff will monitor collections to ensure the
          CONTRACTOR is making a good faith effort to pursue TPL. The DEPARTMENT
          will properly account for TPL in its rate structure.

                                  Page 44 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

2.   DUPLICATION OF BENEFITS

     This provision applies when, under another health insurance plan such as a
     prepaid plan, insurance contract, mutual benefit association or employer's
     self-funded group health and welfare program, etc., an Enrollee is entitled
     to any benefits that would totally or partially duplicate the benefits that
     the CONTRACTOR is obligated to provide under this Contract. Duplication
     exists when (1) the CONTRACTOR has a duty to provide, arrange for or pay
     for the cost of Covered Services, and (2) another health insurance plan,
     pursuant to its own terms, has a duty to provide, arrange for or pay for
     the same type of Covered Services regardless of whether the duty of the
     CONTRACTOR is to provide the Covered Services and the duty of the other
     health insurance plan is only to pay for the Covered Services. Under State
     and Federal laws and regulations, Medicaid funds are the last dollar source
     and all other health insurance plans as referred to above are primarily
     responsible for the costs of providing Covered Services.

3.   RECONCILIATION OF OTHER TPL

     In order to assist the CONTRACTOR in billing and collecting from other
     health insurance plans the DEPARTMENT will include on the Eligibility
     Transmission other health insurance plans of each Enrollee when it is
     known. The CONTRACTOR will review the Eligibility Transmission and will
     report to the Office of Recovery Services or the DEPARTMENT any TPL
     discrepancies identified within 30 working days of receipt of the
     Eligibility Transmission. The CONTRACTOR's report will include a listing of
     Enrollees that the CONTRACTOR has independently identified as being covered
     by another health insurance plan.

4.   WHEN TPL IS DENIED

     On a monthly basis, the CONTRACTOR will report to the Office of Recovery
     Services (ORS) claims that have been billed to other health care plans but
     have been denied which will include the following information:

     a.   patient name and Medicaid identification number

     b.   ICD-9-CM code;

     c.   procedure codes; and

     d.   insurance company.

5.   NOTIFICATION OF PERSONAL INJURY CASES

     The CONTRACTOR will be responsible to notify ORS of all personal injury
     cases, as defined by ORS and agreed to by the CONTRACTOR, no later than 30
     days after the

                                  Page 45 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     CONTRACTOR has received a "clean" claim. A clean claim is a claim that is
     ready to adjudicate. The following data elements will be provided by the
     CONTRACTOR to ORS:

     a.   patient name and Medicaid identification number

     b.   date of accident;

     c.   specific type of injury by ICD-9-CM code;

     d.   procedure codes; and

     e.   insurance company, if known.

6.   ORS TO PURSUE COLLECTIONS

     ORS will pursue collection on all claims described in Attachment B, Article
     VIII (Payments), Section D, Subsections 4 and 5 of this Contract. The
     DEPARTMENT will retain, for administrative costs, one third of the
     collections received for the period during which medical services were
     provided by the CONTRACTOR, and remit the balance to the CONTRACTOR.

7.   INSURANCE BUY-OUT PROGRAM

     The Insurance Buy-out Program is an optional program in which the
     DEPARTMENT purchases group health insurance for a recipient who is eligible
     for Medicaid when it is determined cost-effective for the Medicaid program
     to do so. The insurance buy-out process will be coordinated by the
     DEPARTMENT in cooperation with the Office of Recovery Services, and
     Medicaid eligibility workers. The following procedures regarding the
     buy-out program are:

     a.   the CONTRACTOR will file claims against group MCOs first before
          claiming services against the CONTRACTOR or other MCOs.

     b.   The DEPARTMENT will pay the CONTRACTOR a Medicaid premium for every
          buy-out Enrollee.

     c.   The DEPARTMENT will provide the CONTRACTOR a monthly listing of
          Enrollees covered under the Buy-out Program for the upcoming month.

     d.   On a quarterly basis, the Buy-out Program will bill the CONTRACTOR the
          lower of the Buy-out premium or the premium paid under this Contract
          when the Buy-out premium was paid to an entity other than the
          CONTRACTOR, i.e., the Buy-out premium is not a duplicate premium as
          defined in this Article VIII,

                                  Page 46 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               Section D, Item 7. The CONTRACTOR will remit to the Buy-out
               Program the amount billed within 60 days of receipt of the
               Buy-out bill.

     8.   CONTRACTOR MUST PAY PROVIDER ADMINISTRATIVE FEE FOR IMMUNIZATIONS

          When an Enrollee has third party coverage for immunizations, the
          CONTRACTOR will pay the provider the administrative fee for providing
          the immunization and not require the provider to bill the third party
          as a cost avoidance method. The CONTRACTOR may choose to pursue the
          third party amount for the administrative fee after payment has been
          made to the provider.

E.   THIRD PARTY RESPONSIBILITY (INCLUDING WORKER'S COMPENSATION)

     1.   CONTRACTOR TO BILL USUAL AND CUSTOMARY CHARGES

          When a third party has an obligation to pay for Covered Services
          provided by the CONTRACTOR to an Enrollee pursuant to this Contract,
          the CONTRACTOR will bill the third party for the usual and customary
          charges for Covered Services provided and costs incurred. Should any
          sum be recovered by the Enrollee or otherwise, from or on behalf of
          the person responsible for payment for the service, the CONTRACTOR
          will be paid out of such recovery for the charges for service provided
          and costs incurred by the CONTRACTOR.

     2.   THIRD PARTY'S OBLIGATION TO PAY FOR COVERED SERVICES

          Examples of situations where a third party has an obligation to pay
          for Covered Services provided by the CONTRACTOR are when (a) the
          Enrollee is injured by a person due to the negligent or intentional
          acts (or omissions) of the person; or (b) the Enrollee is eligible to
          receive payment through Worker's Compensation Insurance. If the
          Enrollee does not diligently seek such recovery, the CONTRACTOR may
          institute such rights that it may have.

     3.   FIRST DOLLAR COVERAGE FOR ACCIDENTS

          In addition, both parties agree that the following will apply
          regarding first dollar coverage for accidents: if the injured party
          has additional insurance, primary coverage may be given to the motor
          insurance effective at the time of the accident. Once the motor
          vehicle policy is exhausted, the CONTRACTOR will be the secondary
          payer and pay for all of the Enrollee's Covered Services. If medical
          insurance does not exist, the CONTRACTOR will be the primary payer for
          all Covered Services.

                                  Page 47 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     4.   NOTIFICATION OF STOP-LOSS

          The CONTRACTOR will provide ORS with quarterly updates of costs
          incurred by the CONTRACTOR when such costs exceed Stop Loss
          (reinsurance) provisions as defined in the Contract between the
          reinsurer and the CONTRACTOR.

F.   CHANGES IN COVERED SERVICES

     If Covered Services are amended under the provisions of Attachment B,
     Article IV (Benefits), Section C, Subsection 3 of this Contract, rates may
     be renegotiated.

                    ARTICLE IX - RECORDS, REPORTS AND AUDITS

A.   FEDERALLY REQUIRED REPORTS

     1.   CHEC/EPSDT REPORTS

          The CONTRACTOR agrees to act as a continuing care provider for the
          CHEC/EPSDT program in compliance with OBRA '89 and Social Security Act
          Sections 1902(a)(43), 1905(a)(4)(B)and l905(r).

          a.   CHEC/EPSDT SCREENINGS

               Annually, the CONTRACTOR will submit to the DEPARTMENT
               information on CHEC/EPSDT screenings to meet the Federal EPSDT
               reporting requirements (Form HCFA-416). The data will be in a
               mutually agreed upon format. The CHEC/EPSDT information is due
               December 31 for the prior federal fiscal year's data (October 1
               through September 30).

          b.   IMMUNIZATION DATA

               The CONTRACTOR will submit immunization data as part of the
               CHEC/EPSDT reporting. Enrollee name, Medicaid ID, type of
               immunization identified by procedure code, and date of
               immunization will be reported in the same format as the
               CHEC/EPSDT data.

     2.   DISCLOSURE OF PHYSICIAN INCENTIVE PLANS

          The CONTRACTOR must submit to the DEPARTMENT information on its
          physician incentive plans as listed in 42 CFR 417.479(h)(1) [or
          Article VII - Other Requirements, F - Disclosure of Provider Incentive
          Plans, 1 through 5] by May 1 of each year. The CONTRACTOR must provide
          to the DEPARTMENT the enrollee/disenrollee survey

                                  Page 48 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          results when beneficiary surveys are required as specified in 42 CFR
          417.479(g) [or #7 under Article VII.F.] by October 1 or three months
          after the end of the Contract year. The CONTRACTOR must submit to the
          DEPARTMENT information on capitation payments paid to primary care
          physicians as specified in 42 CFR 417.479(h)(1)(vi).

B.   PERIODIC REPORTS

     1.   ENROLLMENT, COST AND UTILIZATION REPORTS (ATTACHMENT E)

          Enrollment, cost and utilization reports will be submitted on
          diskettes in Excel or Lotus and in the format specified in Attachment
          E. A hard copy of the report must be submitted as well. The DEPARTMENT
          will send to the CONTRACTOR a template of the Attachment E format on a
          diskette. The CONTRACTOR may not customize or change the report
          format. The financial information for these reports will be reported
          as defined in HCFA Publication 75, and if applicable, HCFA 15-1. The
          CONTRACTOR will certify in writing the accuracy and completeness, to
          the best of its knowledge, of all costs and utilization data provided
          to the DEPARTMENT on Attachment E.

          Two Attachment E reports will be submitted covering dates of service
          for each Contract year.

          a.   Attachment E is due May 1 for the preceding six-month reporting
               period (July through December).

          b.   Attachment E is due November 1 for the preceding 12-month
               reporting period (July through June).

          If necessary, the CONTRACTOR may request, in writing, an extension of
          the due date up to 30 days beyond the required due date. The
          DEPARTMENT will approve or deny the extension request writing within
          seven calendar days of receiving the request.

     2.   INTERPRETIVE SERVICES

          Annually, on November 1, the CONTRACTOR will submit summary
          information about the use of interpretive services during the previous
          Contract year (July 1 through June 30). The information must include
          the following, broken out by month and by county:

          a.   a list of all sources of interpreter services;

          b.   the total amount of time interpretive services were used broken
               out by clinical versus administrative;

          c.   total expenditures for each language;

                                  Page 49 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          d.   total expenditures for clinical versus administrative;

          e.   number of Enrollees who used interpretive services for each
               language;

          f.   number of services provided by type of service within clinical
               versus administrative.

     3.   SEMI-ANNUAL REPORTS

          The following semi-annual reports are due May 1 for the preceding
          six-month reporting period ending December 31 (July through December)
          and are due November 1 for the preceding six month period ending June
          30 (January through June).

          a.   ORGAN TRANSPLANTS

               A report of the total number of organ transplants by type of
               transplant.

          b.   OBSTETRICAL INFORMATION

               A report of obstetrical information including

               1)   total number of obstetrical deliveries by aid category
                    grouping;

               2)   total number of caesarean sections and total number of
                    vaginal deliveries;

               3)   total number low birth weight infants; and

               4)   total number of Enrollees requiring prenatal hospital
                    admission.

          c.   COMPLAINTS AND FORMAL GRIEVANCES

               A summary of complaints and formal grievances, by type of
               complaint or grievance, received by the CONTRACTOR under this
               Contract and actions taken to resolve such complaints and
               grievances

          d.   ABERRANT PHYSICIAN BEHAVIOR

               Summary information of corrective actions taken on physicians who
               have been identified by the CONTRACTOR as exhibiting aberrant
               physician behavior and the names of physicians who have been
               removed from the CONTRACTOR's network due to aberrant behavior.
               The summary shall include the reasons for the corrective action
               or removal.

                                  Page 50 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     4.   QUALITY ASSURANCE ACTIVITIES

          Annually, the CONTRACTOR will submit its written quality improvement
          plan, quality improvement work plan, and a report that identifies the
          CONTRACTOR's internal quality assurance activities, results thereof,
          and corrective actions taken during the previous year. These reports
          are due within three months of the CONTRACTOR's new year; i.e., by
          March 31 if on a calendar year.

     5.   HEDIS

          Audited Health Plan Employer Data and Information Set (HEDIS)
          performance measures will cover services rendered during each calendar
          year and will be reported as set forth in State rule by the Office of
          Health Data Analysis. For example, calendar year 1997 HEDIS measures
          will be reported in 1998.

          The CONTRACTOR must receive certification from an independent,
          credible vendor that its electronic submissions of encounter data are
          compliant with the Health Insurance Portability and Accountability Act
          (HIPAA) requirements. At a minimum, the CONTRACTOR must be
          HIPAA-compliant in the first four levels of HIPAA compliance: Level 1
          - Integrity Testing, Level 2 - Requirement Testing, Level 3 -
          Balancing, and Level 4 - Situation Testing.

     6.   ENCOUNTER DATA

          Encounter data, as defined in the DEPARTMENT's "Encounter Records
          Technical Manual," is due (including all replacements) six months
          after the end of the quarter being reported. Encounter data will be
          submitted in accordance with the instructions detailed in the
          Encounter Records Technical Manual for dates of service beginning July
          1, 1996. The CONTRACTOR must receive certification from an
          independent, credible vendor that their electronic submissions of
          encounter data are compliant with the Health Insurance Portability and
          Accountability Act (HIPAA) requirements. At a minimum, the CONTRACTOR
          must be HIPAA-compliant in the first four levels of HIPAA compliance:
          Level 1 - Integrity Testing, Level 2 - Requirement Testing, Level 3 -
          Balancing, and Level 4 - Situation Testing.

     7.   DOCUMENTS DUE PRIOR TO QUALITY MONITORING REVIEWS

          The following documents are due on request or at least 60 days prior
          to the DEPARTMENT's quality assurance monitoring review unless the
          DEPARTMENT has already received documents that are in effect:

          a.   the CONTRACTOR's most current (may be in draft stage) written
               plan for quality improvement;

                                  Page 51 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          b.   the CONTRACTOR's most current (may be in draft stage) annual
               quality improvement work plan;

          c.   the CONTRACTOR's reports that identify over and under utilization
               of covered services and efforts put in place to resolve
               inappropriate over utilization and under utilization;

          d.   the CONTRACTOR's process for identifying and correcting aberrant
               provider behavior; and

          e.   other information requested by the DEPARTMENT to facilitate the
               DEPARTMENT's review of the CONTRACTOR's compliance to standards
               defined in the Division of Health Care Financing's MCO Quality
               Assurance Monitoring Plan (Attachment G).

          The above documents must show evidence of a well defined, organized
          program designed to improve client care.

     8.   AUDIT OF ABORTIONS, STERILIZATIONS AND HYSTERECTOMIES

          The CONTRACTOR must conduct an annual audit of all abortions in
          addition to an audit of a sample of sterilizations and hysterectomies
          as set by the DEPARTMENT that the CONTRACTOR's providers performed
          during each Contract year to assure compliance of its providers with
          all federal and state requirements related to federal financial
          participation of abortions.

          On November 1 of each year, the CONTRACTOR will submit to the
          DEPARTMENT the following information on the results of the abortion,
          sterilization and hysterectomy audit for the previous calendar year.
          For the sterilization and hysterectomy audit, submit documentation of
          the methodology used to pull the sample of sterilization and
          hysterectomies and sampling proportions for each sample.

          In an Excel file, submit the following information for all abortions,
          the sample of sterilizations, and the sample of hysterectomies:

          .    client name
          .    Medicaid ID number
          .    procedure code
          .    date of service
          .    history/physical (yes/no)
          .    operative report (yes/no)
          .    pathology report (yes/no)
          .    consent form (yes/no)

                                  Page 52 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          .    medical necessity criteria - hysterectomies only

     9.   DEVELOPMENT OF NEW REPORTS

          Any new reports/data requirements mandated by the DEPARTMENT will be
          mutually developed by the DEPARTMENT and the CONTRACTOR.

C.   RECORD SYSTEM REQUIREMENTS

     In accordance with Section 4752 of OBRA '90 (amended section 1903 (m)(2)(A)
     of the Social Security Act), the CONTRACTOR agrees to maintain sufficient
     patient encounter data to identify the physician who delivers Covered
     Services to Enrollees. The CONTRACTOR agrees to provide this encounter
     data, upon request of the DEPARTMENT, within 30 days of the request.

D.   MEDICAL RECORDS

     The CONTRACTOR agrees that medical records are considered confidential
     information and agrees to follow Federal and State confidentiality
     requirements.

     The CONTRACTOR will require that its providers maintain a medical record
     keeping system through which all pertinent information relating to the
     medical management of the Enrollee is maintained, organized, and is readily
     available to appropriate professionals. Notwithstanding any other provision
     of this Contract to the contrary, medical records covering Enrollees will
     remain the property of the provider, and the provider will respect every
     Enrollee's privacy by restricting the use and disclosure of information in
     such records to purposes directly connected with the Enrollee's health care
     and administration of this Contract. The CONTRACTOR will use and disclose
     information pertaining to individual Enrollees and prospective Enrollees
     only for purposes directly connected with the administration of the
     Medicaid Program and this Contract.

E.   AUDITS

     1.   RIGHT OF DEPARTMENT AND CMS TO AUDIT

          The DEPARTMENT and the Department of Health and Human Services,
          Centers for Medicare and Medicaid Services may audit and inspect any
          financial records of the CONTRACTOR or its subcontractors relating (I)
          to the ability of the CONTRACTOR to bear the risk of potential
          financial losses, or (II) to evaluate services performed or
          determinations of amounts payable under the Contract.

     2.   INFORMATION TO DETERMINE ALLOWABLE COSTS

          The CONTRACTOR will make available to the DEPARTMENT all reasonable
          and related financial, statistical, clinical or other information
          needed for the determination of allowable costs to the Medicaid
          program for "related party/home office" transactions as

                                  Page 53 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          defined in HCFA 15-1. These records are to be made available in Utah
          or the CONTRACTOR will pay the increased cost (incremental travel, per
          diem, etc.) of auditing at the out-of-state location. The cost to the
          CONTRACTOR will include round-trip travel and two days per
          diem/lodging. Additional travel costs of the site audit will be shared
          equally by the CONTRACTOR and the DEPARTMENT.

     3.   MANAGEMENT AND UTILIZATION AUDITS

          The MCO will allow the DEPARTMENT and the Department of Health and
          Human Services, Centers for Medicare and Medicaid Services, to perform
          audits for identification and collection of management data, including
          Enrollee satisfaction data, quality of care data, fraud-related data,
          abuse-related data, patient outcome data, and cost and utilization
          data, which will include patient profiles, exception reports, etc. The
          CONTRACTOR will provide all data required by the DEPARTMENT or the
          independent quality review examiners in performance of these audits.
          Prior to beginning any audit, the DEPARTMENT will give the CONTRACTOR
          reasonable notice of audit, and the DEPARTMENT will be responsible for
          costs of its auditors or representatives.

F.   INDEPENDENT QUALITY REVIEW

     1.   IN GENERAL

          Pursuant to Section 1932(c)(2)(A) of the Social Security Act the
          DEPARTMENT will provide for an annual external independent review
          conducted by a qualified independent entity of the quality outcomes
          and timeliness of and access to Covered Services. The CONTRACTOR will
          support the annual external independent review.

          The DEPARTMENT will choose an agency to perform an annual independent
          quality review pursuant to federal law and will pay for such review.
          The CONTRACTOR will maintain all clinical and administrative records
          for use by the quality review contractor.

          The CONTRACTOR agrees to support quality assurance reviews, focused
          studies and other projects performed for the DEPARTMENT by the
          external quality review organization (EQRO). The purpose of the
          reviews and studies are to comply with federal requirements for an
          annual independent audit of the quality outcomes and timeliness of,
          and access to, Covered Services. The external independent reviews are
          conducted by the EQRO, with the advice, assistance, and cooperation of
          a planning team composed of representatives from the CONTRACTOR, the
          EQRO and the DEPARTMENT with final approval by the DEPARTMENT.

     2.   SPECIFIC REQUIREMENTS

          a.   LIAISON FOR ROUTINE COMMUNICATION

                                  Page 54 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

               The CONTRACTOR will designate an individual to serve as liaison
               with the EQRO for routine communication with the EQRO.

          b.   REPRESENTATIVE TO ASSIST WITH PROJECTS

               The CONTRACTOR will designate a minimum of two representatives
               (unless one individual can service both functions) to serve on
               the planning team for each EQRO project. Representatives will
               include a quality improvement representative and a data
               representative. The planning team is a joint collaborative forum
               between DEPARTMENT staff, the EQRO and the CONTRACTOR. The role
               of the planning team is to participate in the process and
               completion of EQRO projects.

          c.   COPIES AND ON-SITE ACCESS

               The CONTRACTOR will be responsible for obtaining copies of
               Enrollee information and facilitating on-site access to Enrollee
               information as needed by the EQRO. Such information will be used
               to plan and conduct projects and to investigate complaints and
               grievances. Any associated copying costs are the responsibility
               of the CONTRACTOR. Enrollee information includes medical records,
               administrative data such as, but not limited to, enrollment
               information and claims, nurses' notes, medical logs, etc. of the
               CONTRACTOR or its providers.

          d.   FORMAT OF ENROLLEE FILES

               The CONTRACTOR will provide Enrollee information in a mutually
               agreed upon format compatible for the EQRO's use, and in a timely
               fashion to allow the EQRO to select cases for its review.

          e.   TIME-FRAME FOR PROVIDING DATA

               The CONTRACTOR will provide data requests to the EQRO within 15
               Working days of the written request from the EQRO and will
               provide medical records within 30 working days of the written
               request from the EQRO. Requests for extensions of these time
               frames will be reviewed and approved or disapproved by the
               DEPARTMENT on a case-by-case basis.

          f.   WORK SPACE FOR ON-SITE REVIEWS

               The CONTRACTOR will assure that the EQRO staff and consultants
               have adequate work space, access to a telephone and copy machines
               at the time of review. The review will be performed during
               agreed-upon hours.

                                  Page 55 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

          g.   STAFF ASSISTANCE DURING ON-SITE VISITS

               The CONTRACTOR will assign appropriate person(s) to assist the
               EQRO personnel conduct the reviews during on-site visits and to
               participate in an informal discussion of screening observations
               at the end of each on-site visit, if necessary.

          h.   CONFIDENTIALITY

               For information received from the EQRO, the CONTRACTOR will
               comply with the Department of Health and Human Services
               regulations relating to confidentiality of data and information
               (42 CFR Part 476.107 and 476.108).

                              ARTICLE X - SANCTIONS

     The DEPARTMENT may impose intermediate sanctions on the CONTRACTOR if the
     CONTRACTOR defaults in any manner in the performance of any obligation
     under this Contract including but not limited to the following situations:

     (1)  the CONTRACTOR fails to substantially provide Medically Necessary
          Covered Services to Enrollees;

     (2)  the CONTRACTOR imposes premiums or charges Enrollees in excess of the
          premiums or charges permitted under this Contract;

     (3)  the CONTRACTOR acts to discriminate among Enrollees on the basis of
          their health status or requirements for health care services,
          including expulsion or refusal to re-enroll an individual, except as
          permitted by Title XIX, or engaging in any practice that would
          reasonably be expected to have the effect of denying or discouraging
          enrollment with the MCO by potential Enrollees whose medical condition
          or history indicates a need for substantial future medical services;

     (4)  the CONTRACTOR misrepresents or falsifies information furnished to the
          Department of Health and Human Services, Centers for Medicare and
          Medicaid Services, the DEPARTMENT, an Enrollee, potential Enrollee or
          health care provider;

     (5)  the CONTRACTOR fails to comply with the physician incentive
          requirements under Section 1903(m)(2)(A)(x) of the Social Security
          Act.

     (6)  the CONTRACTOR distributed directly or through any agent or
          independent contractor marketing materials that contain false or
          misleading information.

     The DEPARTMENT must follow the 1997 Balance Budget Act guidelines on the
     types of

                                  Page 56 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     intermediate sanctions the DEPARTMENT may impose, including civil monetary
     penalties, the appointment of temporary management, and suspension of
     payment.

                    ARTICLE XI - TERMINATION OF THE CONTRACT

A.   AUTOMATIC TERMINATION

     This Contract will automatically terminate June 30, 2004.

B.   OPTIONAL YEAR-END TERMINATION

     At the end of each Contract year, either party may terminate the Contract
     without cause for subsequent years by giving the other party written notice
     of termination at least 90 days prior to the end of the Contract year (July
     1 through June 30).

C.   TERMINATION FOR FAILURE TO AGREE UPON RATES

     At least 60 days prior to the end of each Contract year, the parties will
     meet and negotiate in good faith the rates (Attachment F) applicable to the
     upcoming year. If the parties cannot agree upon future rates by the end of
     the Contract year, then either party may terminate the Contract for
     subsequent years by giving the other party written notice of termination
     and the termination will become effective 90 days after receipt of the
     written notice of termination.

D.   EFFECT OF TERMINATION

     1.   COVERAGE

          In as much as the CONTRACTOR is paid on a monthly basis, the
          CONTRACTOR will continue providing the Covered Services required by
          this Contract until midnight of the last day of the calendar month in
          which the termination becomes effective. If an Enrollee is a patient
          in an inpatient hospital setting during the month in which termination
          becomes effective, the CONTRACTOR is responsible for the entire
          hospital stay including physician charges until discharge or thirty
          days following termination, whichever occurs first.

     2.   ENROLLEE NOT LIABLE FOR DEBTS OF CONTRACTOR OR ITS SUBCONTRACTORS

          If the CONTRACTOR or one of its subcontractors becomes insolvent or
          bankrupt, the Enrollees will not be liable for the debts of the
          CONTRACTOR or its subcontractor. The CONTRACTOR will include this term
          in all of its subcontracts.

                                  Page 57 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

     3.   INFORMATION FOR CLAIMS PAYMENT

          The CONTRACTOR will promptly supply to the DEPARTMENT all information
          necessary for the reimbursement of any Medicaid claims not paid by the
          CONTRACTOR.

     4.   CHANGES IN ENROLLMENT PROCESS

          The CONTRACTOR will be advised of anticipated changes in policies and
          procedures as they relate to the enrollment process and their comments
          will be solicited. The CONTRACTOR agrees to be bound by such changes
          in policies and procedures unless they are not agreeable to the
          CONTRACTOR, in which case the CONTRACTOR may terminate the Contract in
          accordance with the Contract termination provisions.

     5.   HEARING PRIOR TO TERMINATION

          Regarding the General Provisions, Article XVII (Default, Termination,
          & Payment Adjustment), item 3, if the CONTRACTOR fails to meet the
          requirements of the Contract, the DEPARTMENT must give the CONTRACTOR
          a hearing prior to termination. Enrollees must be informed of the
          hearing and will be allowed to disenroll from the MCO without cause.

E.   ASSIGNMENT

     Assignment of any or all rights or obligations under this Contract without
     the prior written consent of the DEPARTMENT is prohibited. Sale of all or
     any part of the rights or obligations under this Contract will be deemed an
     assignment. Consent may be withheld in the DEPARTMENT's sole and absolute
     discretion.

                           ARTICLE XII - MISCELLANEOUS

A.   INTEGRATION

     This Contract contains the entire agreement between the parties with
     respect to the subject matter of this Contract. There are no
     representations, warranties, understandings, or agreements other than those
     expressly set forth herein. Previous contracts between the parties hereto
     and conduct between the parties which precedes the implementation of this
     Contract will not be used as a guide to the interpretation or enforcement
     of this Contract or any provision hereof.

                                  Page 58 of 59



                                                                    Attachment B
                                                       Molina Healthcare of Utah
                                                          Effective July 1, 2001

B.   ENROLLEES MAY NOT ENFORCE CONTRACT

     Although this Contract relates to the provision of benefits for Enrollees
     and others, no Enrollee is entitled to enforce any provision of this
     Contract against the CONTRACTOR nor will any provision of this Contract be
     constructed to constitute a promise by the CONTRACTOR to any Enrollee or
     potential Enrollee.

C.   INTERPRETATION OF LAWS AND REGULATIONS

     The DEPARTMENT will be responsible for the interpretation of all federal
     and State laws and regulations governing or in any way affecting this
     Contract. When interpretations are required, the CONTRACTOR will submit
     written requests to the DEPARTMENT. The DEPARTMENT will retain full
     authority and responsibility for the administration of the Medicaid program
     in accordance with the requirements of Federal and State law.

D.   ADOPTION OF RULES

     Adoption of rules by the DEPARTMENT, subsequent to this amendment, and
     which govern the Medicaid program, will be automatically incorporated into
     this Contract upon receipt by the CONTRACTOR of written notice thereof.

                   ARTICLE XIII - EFFECT OF GENERAL PROVISIONS

If there is a conflict between these Special Provisions (Attachment B) or the
General Provisions (Attachment A), then these Special Provisions will control.

                                  Page 59 of 59



                                                  Attachment F - Urban and Rural
                                                          Effective July 1, 2001

                                   AFC/MOLINA

                   URBAN & RURAL RATES AND RATE-RELATED TERMS
                              Effective July 1,2001

A.   PREMIUM RATES

     1.   URBAN MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS

- --------------------------------------------------------------------------------
   Age     TANF Male       TANF Male       TANF Female     TANF Female
  0 to l    1 to 21        21 & Over         1 to 21        21 & Over      Aged
================================================================================
  $  [*]   $ [*]           $ [*]           $  [*]          $  [*]          $ [*]
- --------------------------------------------------------------------------------



- --------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically         Medically           Non TANF                    Restriction
    Male           Female         Needy Child       Needy Adult         Pregnant F        BCC          Program
====================================================================================================================
                                                                                    
  $ [*]           $ [*]           $ [*]             $ [*]               $ [*]             $  [*]      $ [*]
- --------------------------------------------------------------------------------------------------------------------


     2.   RURAL MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS

- --------------------------------------------------------------------------------
  Age     TANF Male       TANF Male       TANF Female     TANF Female
 0 to l    1 to 21        21 & Over         1 to 21        21 & Over      Aged
================================================================================
 $  [*]   $ [*]           $ [*]           $  [*]          $  [*]          $ [*]
- --------------------------------------------------------------------------------



- --------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically         Medically          Non TANF                     Restriction
    Male           Female         Needy Child       Needy Adult        Pregnant F          BCC         Program
====================================================================================================================
                                                                                   
  $ [*]           $ [*]           $ [*]             $ [*]               $ [*]             $  [*]      $ [*]
- --------------------------------------------------------------------------------------------------------------------


     3.   SPECIAL RATE

          An AIDS rate of $ [*]  per month will be paid in addition to the
          regular monthly premium when the T-Cell count is below 200.

                                   Page 1 of 5



                                                  Attachment F - Urban and Rural
                                                          Effective July 1, 2001

B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $  [*]  per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC SCREENING GOAL

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well-child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Health Care Financing Administration,
          mandates that all states have 80% of all children screened. The
          DEPARTMENT and the CONTRACTOR will work toward that goal.

     2.   CALCULATION OF CHEC INCENTIVE PAYMENT

          The DEPARTMENT will calculate the CONTRACTOR's annual participation
          rate based on information supplied by the CONTRACTOR under the
          HCFA-416 EPSDT (CHEC) reporting requirements. Based on the HCFA-416
          data, the CONTRACTOR's well-child participation rate was 100% for
          Federal Fiscal Year (FFY) 2000 (October 1999 through September 2000).
          The incentive payment for the contract year ending June 30, 2002 will
          be based on the CONTRACTOR's FFY 2001 (October 1, 2000 through
          September 30, 2001) HCFA-416 participation rate. The DEPARTMENT will
          pay the CONTRACTOR $ [*]  if a rate of 90% or higher is maintained
          during FFY 2001. The participation rate will be calculated no later
          than April 15, 2002; the CONTRACTOR will be notified of the incentive
          payment, if applicable, no later than April 30, 2002.

     3.   CONTRACTOR's USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   IMMUNIZATION INCENTIVE CLAUSE

     The CONTRACTOR will ensure that Enrollees have access to recommended
     immunizations.
     The CONTRACTOR will follow the Advisory Committee on Immunization
     Practices'

                                   Page 2 of 5



                                                  Attachment F - Urban and Rural
                                                          Effective July 1, 2001

     recommendations for immunizations for children.

     1.   IMMUNIZATIONS FOR TWO-YEAR-OLDS

          Utah has achieved a statewide immunization level of 76% for
          two-year-olds. The average Medicaid HMO rate was 53.2% for the 1999
          HEDIS Combination 1 immunization measure for two-year-olds.

          Based on the CONTRACTOR's 2000 HEDIS measure for the Combination I
          immunization for two-year-olds, the DEPARTMENT will pay the CONTRACTOR
          $ [*] for each full percentage point above 53.2%.

     2.   IMMUNIZATIONS FOR ADOLESCENTS

          The DEPARTMENT realizes it is important that adolescents are
          vaccinated according to schedule as recommended by the Advisory
          Committee on Immunization Practices. The average Medicaid HMO rate was
          3.7% for the 1999 HEDIS Combination I immunization measure for
          adolescents.

          Based on the CONTRACTOR's 2000 HEDIS measure for adolescent
          immunizations, the DEPARTMENT will pay the CONTRACTOR $ [*] for
          each full percentage point above 3.7% up to 53.7%.

     3.   IMMUNIZATIONS FOR ADULTS

          The HEDIS immunization measure for adults is not reported for Medicaid
          clients age 65 and older. The DEPARTMENT intends to expand this
          incentive clause to include improved immunization rates for influenza
          and pneumonia vaccines among Enrollees age 65 and older. The
          DEPARTMENT will work with contractors to collect this data during this
          Contract year (July 1, 2001 - June 30, 2002).

     4.   CONTRACTOR's USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the HEDIS
          immunization measures.

E.   REINSURANCE POLICY

     Reinsurance will be administered by a reinsurer, Centre Insurance Company.

     Costs, net of TPL, for all inpatient and outpatient services listed in
     Attachment C that are covered on the date of service rendered and incurred
     from July 1, 2001 through June 30, 2002 by the

                                   Page 3 of 5



                                                  Attachment F - Urban and Rural
                                                          Effective July 1, 2001

     MCO for an Enrollee shall be shared by Centre Insurance Company under the
     following conditions:

     1.   the date of service is from July 1, 2001 through June 30, 2002 (based
          on date of discharge if inpatient hospital stay);

     2.   paid claims incurred by the MCO exceed $50,000; and

     3.   services shall have been incurred by the MCO during the time the
          client is enrolled with the MCO.

          If the above conditions are met, Centre Insurance Company shall bear
          [*]% and the MCO shall bear [*]% of the amount that exceeds $50,000.

F.   REIMBURSEMENT FOR REINSURANCE

     The CONTRACTOR agrees to purchase reinsurance from Centre Insurance Company
     at the per Enrollee per month rate negotiated by the DEPARTMENT and the
     reinsurer. The DEPARTMENT will reimburse the CONTRACTOR for its premium
     payments to Centre Insurance Company. In addition, the DEPARTMENT will pay
     the CONTRACTOR $ [*] per Enrollee per month to cover reinsurance
     administrative costs.

     Beginning July 1, 2001, the DEPARTMENT will make monthly payments to the
     CONTRACTOR based on the reinsurance premiums the CONTRACTOR pays to Centre
     Insurance Company. The DEPARTMENT will calculate the reinsurance premiums
     using the DEPARTMENT's data on the number of Enrollees.

G.   RETROSPECTIVE ADJUSTMENT

     The DEPARTMENT agrees to retroactively adjust annual payments to the
     CONTRACTOR under this Contract for Enrollees who qualify for Medicaid due
     to a diagnosis of breast cancer or cervical cancer.

     If the CONTRACTOR's claim expenditures for Enrollees in the Breast/
     Cervical Cancer (BCC) rate cell exceed the premiums plus other BCC
     payments, the DEPARTMENT will reimburse the CONTRACTOR for the unrecovered
     costs related to BCC claim expenditures. Claim contract payments include
     reinsurance and TPL payments. Therefore, paid claim expenditures will also
     include reinsurance (stop-loss) claims paid by the CONTRACTOR for BCC
     Enrollees.

     If the CONTRACTOR's claim expenditures for BCC Enrollees are less than the
     BCC premiums paid plus other BCC contract payments, the CONTRACTOR can
     retain up to [*]% of the excess premiums and other payments paid for BCC
     Enrollees. If there are additional savings after the

                                   Page 4 of 5



                                                  Attachment F - Urban and Rural
                                                          Effective July 1, 2001

CONTRACTOR has recovered the [*]%, the excess premium and other payment amounts
for BCC Enrollees will be reimbursed to the DEPARTMENT. Claim contract payments
include reinsurance and TPL payments. Therefore, paid claims expenditures will
also include reinsurance (stop-loss) claims paid by the CONTRACTOR for BCC
Enrollees.

The CONTRACTOR shall submit to the DEPARTMENT a request for this retrospective
adjustment no later than six months after the close of the contract year. agrees
to use its Medicaid payment rates and fee schedules used to price their Medicaid
product as a basis for the retrospective adjustment calculation.

                                   Page 5 of 5



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City, Utah 84116

                               CONTRACT AMENDMENT

    H992020205-04                                                 006146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AFC/MOLINA, the Contract number assigned
     by the State Division of Finance is 006146, the Contract number assigned by
     the Utah Department of Health is H992020205, and this Amendment is number
     4.

2.   CONTRACTING PARTIES:
     This Contract Amendment is between the Utah Department of Health
     (DEPARTMENT), and Molina Healthcare of Utah (CONTRACTOR).

3.   PURPOSE OF CONTRACT AMENDMENT:
     To change the rates effective November 1, 2001 due to the co-payment
     policy; to change the rates effective February 1, 2002 due to the
     co-insurance policy; and to replace the reinsurance provision with
     stop-loss provision.

4.   CHANGES TO CONTRACT:
     A.   Effective July 1, 2001, under Attachment E, Medical Services Revenue
          and Cost Definitions for Table 2, replace the language in items 3, 4,
          54, 55, and 56 with the following:

          1.   On Page 4 of Attachment E, under Revenue, replace item 3,
               Reinsurance, as follows:
               "Report the reinsurance payments received or receivable from a
               reinsurance carrier other than the DEPARTMENT."
          2.   On Page 4 of Attachment E, under Revenue, replace item 4, Stop
               Loss, as follows:
               "Report stop loss payments received or receivable from the
               DEPARTMENT."
          3.   On Page 9 of Attachment E, under Other Data, replace item 54,
               Reinsurance Premiums Received, as follows:
               "Include the reinsurance premiums received or receivable that are
               not counted as revenue."
          4.   On Page 9 of Attachment E, under Other Data, replace item 55,
               Reinsurance Premiums Paid, as follows:
               "Include reinsurance premiums paid to a reinsurance carrier other
               than the DEPARTMENT."
          5.   On Page 9 of Attachment E, under Other Data, replace item 56,
               Administrative Revenue Retained by the CONTRACTOR, as follows:
               "Include the administrative revenue retained by the CONTRACTOR
               from the reinsurance premiums received or receivable."

     B.   Effective July 1, 2001, replace Attachment F - Urban and Rural Rates
          with Rate-Related Terms with Attachment F - Urban and Rural Rates and
          Rate-Related Terms as attached to this Amendment #4.

     C.   All other provisions of the Contract remain unchanged.

5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

                                   Page 1 of 2



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City. Utah 84116

                               CONTRACT AMENDMENT

    H992020205-04                                                 00-6146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR: Molina Healthcare of Utah     UTAH DEPARTMENT OF HEALTH

By: /s/ Kirk Olsen          13 Mar 2002 By: /s/ Shari A. Watkins     4/03/02
    ----------------------- -----------     ------------------------ -----------
    Signature of Authorized Date            Shari A. Watkins, C.P.A. Date
    Individual                              Director
                                            Office Of Fiscal
                                            Operations

Print Name: Kirk Olsen
           --------------------------

Title: Chief Executive Officer          [SEAL]                       4/17/02
       ------------------------------   ---------------------------- -----------
                                        State Finance:               Date

         33-0617992
- ------------------------------------    [ILLEGIBLE]                  APR 18 2002
Federal Tax Identification Number or    ---------------------------- -----------
   Social Security Number               State Purchasing:            Date

                                   Page 2 of 2



                                                      Attachment F-Urban & Rural
                                                          Effective July 1, 2001

                                   AFC/MOLINA
                   URBAN & RURAL RATES AND RATE-RELATED TERMS

A.   PREMIUM RATES

     1.   URBAN MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          JULY 1, 2001 THROUGH OCTOBER 31, 2001)

- --------------------------------------------------------------------------------
     Age     TANF Male     TANF Male     TANF Female   TANF Female     Aged
    0 to 1    1 to 21      21 & Over       1 to 21      21 & Over
================================================================================
    $ [*]    $ [*]         $ [*]         $ [*]         $ [*]           $ [*]
- --------------------------------------------------------------------------------



- --------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically         Medically           Non TANF                     Restriction
    Male           Female         Needy Child       Needy Adult         Pregnant F         BCC          Program
====================================================================================================================
                                                                                    
  $ [*]           $ [*]           $  [*]            $ [*]               $ [*]              $ [*]       $ [*]
- --------------------------------------------------------------------------------------------------------------------


     2.   URBAN MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          NOVEMBER 1, 2001 THROUGH JANUARY 31, 2002)

- --------------------------------------------------------------------------------
      Age     TANF Male     TANF Male    TANF Female    TANF Female    Aged
    0 to 1     1 to 21      21 & Over      1 to 21       21 & Over
================================================================================
    $ [*]     $ [*]         $ [*]        $ [*]          $ [*]          $ [*]
- --------------------------------------------------------------------------------



- -------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically          Medically          Non TANF                     Restriction
    Male           Female         Needy Child        Needy Adult        Pregnant F          BCC         Program
===================================================================================================================
                                                                                    
  $ [*]           $ [*]           $ [*]              $ [*]              $ [*]               $ [*]     $  [*]
- -------------------------------------------------------------------------------------------------------------------


     3.   URBAN MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          FEBRUARY 1, 2002 THROUGH JUNE 30, 2002)

- --------------------------------------------------------------------------------
    Age      TANF Male    TANF Male     TANF Female    TANF Female    Aged
   0 to 1     1 to 21     21 & Over      1 to 21        21 & Over
================================================================================
   $ [*]     $ [*]        $ [*]         $ [*]          $ [*]          $ [*]
- --------------------------------------------------------------------------------



- -------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically          Medically          Non TANF                     Restriction
    Male           Female         Needy Child        Needy Adult        Pregnant F          BCC         Program
===================================================================================================================
                                                                                    
  $ [*]           $ [*]           $ [*]              $ [*]              $ [*]               $ [*]     $ [*]
- -------------------------------------------------------------------------------------------------------------------


                                   Page 1 of 5



     4.   RURAL MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          JULY 1, 2001 THROUGH OCTOBER 31, 2001)

- --------------------------------------------------------------------------------
    Age      TANF Male    TANF Male     TANF Female    TANF Female    Aged
   0 to 1     1 to 21     21 & Over      1 to 21        21 & Over
================================================================================
   $ [*]     $ [*]        $ [*]         $ [*]          $ [*]          $ [*]
- --------------------------------------------------------------------------------



- -------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically          Medically          Non TANF                     Restriction
    Male           Female         Needy Child        Needy Adult        Pregnant F          BCC         Program
===================================================================================================================
                                                                                    
  $ [*]           $ [*]           $ [*]              $ [*]              $ [*]              $ [*]        $ [*]
- -------------------------------------------------------------------------------------------------------------------


     5.   RURAL MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          NOVEMBER 1, 2001 THROUGH JANUARY 31, 2002)

- --------------------------------------------------------------------------------
    Age      TANF Male    TANF Male     TANF Female    TANF Female    Aged
   0 to 1     1 to 21     21 & Over       1 to 21       21 & Over
================================================================================
   $ [*]     $ [*]        $ [*]         $ [*]          $ [*]          $ [*]
- --------------------------------------------------------------------------------



- -------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically          Medically          Non TANF                     Restriction
    Male           Female         Needy Child        Needy Adult        Pregnant F          BCC         Program
===================================================================================================================
                                                                                    
  $ [*]           $ [*]           $ [*]              $ [*]             $ [*]               $ [*]       $ [*]
- -------------------------------------------------------------------------------------------------------------------


     6.   RURAL MONTHLY PREMIUM RATES BASED ON ENROLLEES' RATE CELLS (EFFECTIVE
          FEBRUARY 1, 2002 THROUGH JUNE 30, 2002)

- --------------------------------------------------------------------------------
    Age      TANF Male    TANF Male     TANF Female    TANF Female
   0 to 1     1 to 21     21 & Over      1 to 21        21 & Over     Aged
================================================================================
   $ [*]      $ [*]        $ [*]         $ [*]          $ [*]         $ [*]
- --------------------------------------------------------------------------------



- -------------------------------------------------------------------------------------------------------------------
  Disabled        Disabled         Medically          Medically          Non TANF                     Restriction
    Male            Female         Needy Child        Needy Adult        Pregnant F          BCC         Program
===================================================================================================================
                                                                                    
  $ [*]            $ [*]           $ [*]              $ [*]              $ [*]               $ [*]     $ [*]
- -------------------------------------------------------------------------------------------------------------------


     7.   SPECIAL RATE

          An AIDS rate of $ [*] per month will be paid in addition to the
          regular monthly premium when the T-Cell count is below 200.

                                   Page 2 of 5



B.   PER DELIVERY REIMBURSEMENT SCHEDULE

     The DEPARTMENT shall reimburse the CONTRACTOR $ [*] per delivery to cover
     all Medically Necessary antepartum care, delivery, and postpartum
     professional, facility and ancillary services. The monthly premium amount
     for the enrollee is in addition to the delivery fee. The delivery payment
     will be made when the delivery occurs at 22 weeks or later, regardless of
     viability.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC SCREENING GOAL

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well-child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Centers for Medicare and Medicaid
          Services (CMS), mandates that all states have 80% of all children
          screened. The DEPARTMENT and the CONTRACTOR will work toward that
          goal.

     2.   CALCULATION OF CHEC INCENTIVE PAYMENT

          The DEPARTMENT will calculate the CONTRACTOR's annual participation
          rate based on information supplied by the CONTRACTOR under the CMS-416
          EPSDT (CHEC) reporting requirements. Based on the CMS-416 data, the
          CONTRACTOR's well-child participation rate was 100% for Federal Fiscal
          Year (FFY) 2000 (October 1999 through September 2000). The incentive
          payment for the Contract year ending June 30, 2002 will be based on
          the CONTRACTOR's FFY 2001 (October 1, 2000 through September 30, 2001)
          CMS-416 participation rate. The DEPARTMENT will pay the CONTRACTOR
          $ [*] if a rate of 90% or higher is maintained during FFY 2001. The
          participation rate will be calculated no later than April 15, 2002;
          the CONTRACTOR will be notified of the incentive payment, if
          applicable, no later than April 30, 2002.

     3.   CONTRACTOR's USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   IMMUNIZATION INCENTIVE CLAUSE

     The CONTRACTOR will ensure that Enrollees have access to recommended
     immunizations. The CONTRACTOR will follow the Advisory Committee on
     Immunization Practices recommendations for immunizations for children.

     1.   IMMUNIZATIONS FOR TWO-YEAR-OLDS

          Utah has achieved a statewide immunization level of 76% for
          two-year-olds. The average Medicaid HMO rate was 53.2% for the 1999
          HEDIS Combination 1 immunization measure for two-year-olds.

                                   Page 3 of 5



          Based on the CONTRACTOR's 2000 HEDIS measure for the Combination I
          immunization for two-year-olds, the DEPARTMENT will pay the CONTRACTOR
          $ [*]  for each full percentage point above 53.2%.

     2.   IMMUNIZATIONS FOR ADOLESCENTS

          The DEPARTMENT realizes it is important that adolescents are
          vaccinated according to schedule as recommended by the Advisory
          Committee on Immunization Practices. The average Medicaid HMO rate was
          3.7% for the 1999 HEDIS Combination I immunization measure for
          adolescents.

          Based on the CONTRACTOR's 2000 HEDIS measure for adolescent
          immunizations, the DEPARTMENT will pay the CONTRACTOR $  [*]  for each
          full percentage point above 3.7% up to 53.7%.

     3.   IMMUNIZATIONS FOR ADULTS

          The HEDIS immunization measure for adults is not reported for Medicaid
          clients age 65 and older. The DEPARTMENT intends to expand this
          incentive clause to include improved immunization rates for influenza
          and pneumonia vaccines among Enrollees age 65 and older. The
          DEPARTMENT will work with contractors to collect this data during this
          Contract year (July 1, 2001 - June 30, 2002).

     4.   CONTRACTOR's USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the HEDIS
          immunization measures.

E.   STOP LOSS

     1.   Costs, net of TPL, for all inpatient and outpatient services listed in
          Attachment C that are covered on the date of service rendered and
          incurred from July 1, 2001 through June 30, 2002 by the MCO for an
          Enrollee shall be shared by the DEPARTMENT under the following
          conditions:

          a.   the date of service is from July 1, 2001 through June 30, 2002;

          b.   inpatient claims that overlap years will be prorated to each
               contract year, based on patient days:

          c.   paid claims incurred by the MCO exceed $50,000.00;

          d.   services shall have been incurred by the MCO during the time the
               client is enrolled with the MCO;

          e.   the stop-loss billing must be in a format mutually agreed upon
               and must include, at a minimum. Enrollee Medicaid identification
               number, date of birth, type of service, beginning date of
               service, ending date of service, billed charge. HMO payment,
               third party liability (TPL) collected, and primary diagnosis:

                                   Page 4 of 5



          f.   stop-loss billing must be submitted to the DEPARTMENT within
               seven months of the end of the Contract year;

          If the above conditions are met, the DEPARTMENT shall bear 80% and the
          MCO shall bear 20% of the amount that exceeds $  [*]  The maximum
          amount the DEPARTMENT will reimburse the CONTRACTOR under the
          stop-loss  provision is $  [*]  per Enrollee per Contract year.

     2.   PAYMENT OF STOP-LOSS

          The DEPARTMENT will make interim payments to the CONTRACTOR equal to
          90% of the expected payment pending an audit of the stop-loss claims
          submitted by the CONTRACTOR.

          The DEPARTMENT will calculate the actual stop-loss amount due to the
          CONTRACTOR by July 1, 2003. The final settlement will be based on an
          audit conducted by the DEPARTMENT. The allowed payment for inpatient
          hospital stop-loss claims will be limited to 90% of the Medicaid fee
          schedule when the claim is from a related hospital as defined by CMS
          Pub. 15-I.

F.   RETROSPECTIVE ADJUSTMENT

     The DEPARTMENT agrees to retroactively adjust annual payments to the
     CONTRACTOR under this contract for Enrollees who qualify for Medicaid due
     to a diagnosis of breast cancer or cervical cancer.

     If the CONTRACTOR's claim expenditures for Enrollees in the Breast/
     Cervical Cancer (BCC) rate cell exceed the premiums plus other BCC
     payments, the DEPARTMENT will reimburse the CONTRACTOR for the unrecovered
     costs related to BCC claim expenditures. Claim contract payments include
     reinsurance and TPL payments.

     If the CONTRACTOR's claim expenditures for BCC Enrollees are less than the
     BCC premiums paid plus other BCC contract payments, the CONTRACTOR can
     retain up to 10% of the excess premiums and other payments paid for BCC
     Enrollees. If there are additional savings after the CONTRACTOR has
     recovered the 10%, the excess premium and other payment amounts for BCC
     Enrollees will be reimbursed to the DEPARTMENT. Claim contract payments
     include reinsurance and TPL payments.

     The CONTRACTOR shall submit to the DEPARTMENT a request for this
     retrospective adjustment no later than six months after the close of the
     Contract year. The CONTRACTOR agrees to use its Medicaid payment rates and
     fee schedules used to price their Medicaid product as a basis for the
     retrospective adjustment calculation.

                                   Page 5 of 5




                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City. Utah 84116

                               CONTRACT AMENDMENT

    H9920205-05                                                   006146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AFC/MOLINA, the Contract number assigned
     by the State Division of Finance is 006146, the Contract number assigned by
     the Utah Department of Health is H9920205, and this Amendment is number 5.

2.   CONTRACTING PARTIES:
     This Contract Amendment is between the Utah Department of Health
     (DEPARTMENT), and Molina Healthcare of Utah (CONTRACTOR).

3    PURPOSE OF CONTRACT AMENDMENT:
     The purpose is to increase the maximum Contract Amount.

4.   CHANGES TO CONTRACT:
     A. On Page 1, Paragraph 4, CONTRACT AMOUNT, is changed to read as follows:
        "The Contractor will be paid up to a maximum amount of $[*] for the
        Contract Period in accordance with the provisions in this Contract. This
        Contract is funded with 70% Federal funds and 30% State funds. The CFDA
        # is 93.778 and relates to the federal funds provided."
             ------

     B. All other provisions of the Contract remain unchanged.

5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR:  Molina Healthcare of Utah   UTAH DEPARTMENT OF HEALTH
             -------------------------


By: /s/ G. K. Olsen           8-8-02   By: /s/                       8/9/02
    -----------------------   ------       ------------------------  ------
    Signature of Authorized   Date         Shari A. Watkins, C.P.A.   Date
    Individual                             Director
                                           Office of Fiscal
                                           Operations

Print Name:  Kirk Olsen                    CONTRACT RECEIVED AND
             -----------------------           PROCESSED BY
                                            DIVISION OF FINANCE      AUG 12 2002
                                           ------------------------  -----------
                                           State Finance:            Date

Title:  Chief Executive Officer
        ----------------------------

           33-0617992                      /s/ [ILLEGIBLE]           [ILLEGIBLE]
- ------------------------------------       ------------------------  -----------
Federal Tax identification Number or       State Purchasing:         Date
  Social Security Number

                                                    Doc # 98-001 amd Rev.5/18/98
                                                         hmo/molina am6 (8/7/02)

                                     Page 1



                            UTAH DEPARTMENT OF HEALTH
                 288 North 1460 West, Salt Lake City. Utah 84116
                               CONTRACT AMENDMENT

    H9920205-06                                                   006146
- ---------------------                                      ---------------------
Department Log Number                                      State Contract Number

1.   CONTRACT NAME:
     The name of this Contract is HMO-AFC/MOLINA, the Contract number assigned
     by the State Division of Finance is 006146, the Department log number
     assigned by the Utah Department of Health is H9920205, and this Amendment
     is number 6.

2.   CONTRACTING PARTIES:
     This Contract Amendment is between the Utah Department of Health
     (DEPARTMENT), and Molina Healthcare of Utah (CONTRACTOR or MHU).

3.   PURPOSE OF CONTRACT AMENDMENT:
     Effective July 1, 2002 this contract amendment clarifies and adds some
     provisions; delineates the reduced benefit package for the Non-Traditional
     Medicaid population; changes the benefit package for the Traditional
     Medicaid group; outlines the co-payment and co-insurance requirements for
     both Traditional and Non-Traditional Medicaid populations; and sets forth
     the payment methodology.

4.   CHANGES TO CONTRACT:
     A. Effective July 1, 2002, replace Attachment B, Special Provisions, with
        Attachment B dated July 1, 2002, as attached to this Amendment #6.

     B. Effective July 1, 2002, replace Attachment C, Covered Services, with
        Attachment C dated July 1, 2002, as attached to this Amendment #6.

     C. Effective July 1, 2002, replace Attachment E (Tables 1, 2, 3, and
        revenue and cost definitions for Table 2) with Attachment E dated July
        1, 2002, as attached to this Amendment #6.

     D. Effective July 1, 2002, replace Attachment F, Rates and Rate-Related
        Terms with Attachment F-4 dated July 1, 2002, as attached to this
        Amendment #6.

     E. All other provisions of the Contract remain unchanged.

5.   If the Contractor is not a local public procurement unit as defined by the
     Utah Procurement Code (UCA Section 63-56-5), this Contract Amendment must
     be signed by a representative of the State Division of Finance and the
     State Division of Purchasing to bind the State and the Department to this
     Contract Amendment.

6.   This Contract, its attachments, and all documents incorporated by reference
     constitute the entire agreement between the parties and supercede all prior
     negotiations, representations, or agreements, either written or oral
     between the parties relating to the subject matter of this Contract.

IN WITNESS WHEREOF, the parties sign this Contract Amendment.

CONTRACTOR:  Molina Healthcare of Utah   UTAH DEPARTMENT OF HEALTH
             -------------------------

By: /s/ G. K. Olsen                    By: /s/                       10/10/02
    -----------------------   ------       ------------------------  --------
    Signature of Authorized   Date         Shari A. Watkins, C.P.A.   Date
    Individual                             Director
                                           Office of Fiscal
                                           Operations

Print Name:  Kirk Olsen
             -----------------------
                                           ------------------------  --------
                                           State Finance:            Date

Title:  Chief Executive Officer
        ----------------------------

           33-0617992                      /s/ [ILLEGIBLE]           10/17/02
- ------------------------------------       ------------------------  --------
Federal Tax identification Number or       State Purchasing:         Date
  Social Security Number

                                                    Doc # 98-001 amd Rev 5/18/98
                                                        hmo/molina am6 (9/05/02)

                                     Page 1



                                TABLE OF CONTENTS

                                  ATTACHMENT B
                SPECIAL PROVISIONS FOR AMENDMENT 6 (JULY 1, 2002)

ARTICLE I.    DEFINITIONS......................................................1

ARTICLE II.   SERVICE AREA.....................................................4

ARTICLE III.  ENROLLMENT, ORIENTATION, MARKETING, AND DISENROLLMENT............4

        A.    Enrollment Process...............................................4
        B.    Member Orientation...............................................6
        C.    Marketing and Member Education...................................8
        D.    Disenrollment by Enrollee.......................................10
        E.    Disenrollment by Contractor.....................................10
        F.    Enrollee Transition Between MCOs ...............................11
        G.    Enrollee Transition from Fee-For-Service to MCO or from MCO to
              Fee-For-Service.................................................12

ARTICLE IV.   BENEFITS........................................................12

        A.    In General......................................................12
        B.    Provider Services Function......................................13
        C.    Scope of Services...............................................13
        D.    Subcontracts....................................................14
        E.    Clarification of Covered Services...............................15
        F.    Clarification of Payment Responsibilities.......................26

ARTICLE V.    ENROLLEE RIGHTS/SERVICES........................................29

        A.    Member Services Function........................................29
        B.    Enrollee Liability..............................................29
        C.    General Information to be Provided to Enrollees.................29
        D.    Access..........................................................30
        E.    Choice..........................................................32
        F.    Coordination....................................................32
        G.    Billing Enrollees...............................................33
        H.    Survey Requirements.............................................35

ARTICLE VI.   GRIEVANCE PROCEDURES............................................35

        A.    In General......................................................35

                                        i



        B.    Nondiscrimination...............................................35
        C.    Minimum Requirements of Grievance Procedures....................36
        D.    Final Review by Department......................................36

ARTICLE VII.  OTHER REQUIREMENTS..............................................37

        A.    Compliance with Public Health Service Act.......................37
        B.    Compliance with OBRA '90 Provision and 42 CFR 434.28............37
        C.    Fraud and Abuse Requirements....................................37
        D.    Disclosure of Ownership and Control Information.................38
        E.    Safeguarding Confidential Information on Enrollees..............38
        F.    Disclosure of Provider Incentive Plans..........................38
        G.    Debarred or Suspended Individuals...............................40
        H.    CMS Consent Required............................................40

ARTICLE VIII. PAYMENTS........................................................40

        A.    Non-Risk Contract...............................................40
        B.    Payment Methodology.............................................40
        C.    Contract Maximum................................................40
        D.    Medicare........................................................40
        E.    Third Party Liability (Coordination of Benefits)................41
        F.    Third Party Responsibility (including Worker's
              Compensation)...................................................43
        G.    Changes in Covered Services.....................................44

ARTICLE IX.   RECORDS, REPORTS AND AUDITS.....................................44

        A.    Records, Reports and Audits.....................................44
        B.    Periodic Reports................................................45
        C.    Record System Requirements......................................48
        D.    Medical Records.................................................49
        E.    Audits..........................................................49
        F.    Independent Quality Review......................................50

ARTICLE X.    SANCTIONS.......................................................51

ARTICLE XI.   TERMINATION OF THE CONTRACT.....................................52

        A.    Automatic Termination...........................................52
        B.    Optional Year-End Termination...................................52
        C.    Termination for Failure to Agree Upon Rates.....................52
        D.    Effect of Termination...........................................52
        E.    Assignment......................................................53

                                       ii



ARTICLE XII.  MISCELLANEOUS...................................................53

        A.    Integration.....................................................53
        B.    Enrollees May Not Enforce Contract..............................54
        C.    Interpretation of Laws and Regulations..........................54
        D.    Adoption of Rules...............................................54

ARTICLE XIII. EFFECT OF GENERAL PROVISIONS....................................54

                                       iii



                                               Attachment B - Special Provisions
                                                                          Molina
                                                                    July 1, 2002

For the purpose of the Contract all article, section, and subsection headings in
these Attachments B, C, and D are for convenience in referencing the provisions
of the Contract. They are not enforceable as part of the text of the Contract
and may not be used to interpret the meaning of the provisions that lie beneath
them.

                        ATTACHMENT B - SPECIAL PROVISIONS
                             Effective July 1, 2002

                             ARTICLE I - DEFINITIONS

For the purpose of the Contract:

A.   "ADVANCE DIRECTIVES" means oral and written instructions about an
     individual's medical care, in the event the individual is unable to
     communicate. There are two types of Advance Directives: a living will and a
     medical power of attorney.

B.   "BALANCE BILL" means the practice of billing patients for charges that
     exceed the amount that the MCO will pay.

C.   "CHEC ELIGIBLE" means any Medicaid recipient under the age of 21 who is
     eligible to receive Early Periodic Screening Diagnostic and Treatment
     (EPSDT) services in accordance with 42 CFR Part 441, Subpart B.

D.   "CHEC PROGRAM" or Child Health Evaluation and Care program is Utah's
     version of the federally mandated Early Periodic Screening, Diagnosis and
     Treatment (EPSDT) program as defined in 42 CFR Part 441, Subpart B.
     Medicaid recipients who are eligible for the Non-Traditional Medicaid Plan
     are not eligible to receive EPSDT services. (See Attachment C, Covered
     Services, U.)

E.   "CHILD WITH SPECIAL HEALTH CARE NEEDS" means a child under 21 who has or is
     at increased risk for chronic physical, developmental, behavioral, or
     emotional conditions and requires health and related services of a type or
     amount beyond that required by children generally, including a child who,
     consistent with 1932(a)(2)(A) of the Social Security Act, 42 U.S.C.,
     Section 1396u- 2(a)(2)(A):
     (1) is blind or disabled or in a related population (eligible for SSI under
     title XVI of the Social Security Act);
     (2) is in foster care or other out-of-home placement;
     (3) is receiving foster care or adoption assistance; or
     (4) is receiving services through a family-centered, community-based
     coordinated care system that receives grant funds described in section
     501(a)(l)(D) of title V.

F.   "DIVISION OF HEALTH CARE FINANCING" or "DHCF" means the division within the
     Department of Health responsible for the administration of the Utah
     Medicaid program.

G.   "EMERGENCY SERVICES" means those services provided in a hospital, clinic,
     office, or other facility that is equipped to furnish the required care,
     after the sudden onset of a medical condition manifesting itself by acute
     symptoms of sufficient severity (including severe pain) such that a prudent
     layperson, who possesses an average knowledge of health and medicine, could
     reasonably expect that the absence of immediate medical attention to result
     in:

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                                                                    Attachment B
                                                          Effective July 1, 2002

     1.   Placing the health of the individual (or, with respect to a pregnant
          woman, the health of a woman or her unborn child) in serious jeopardy;
     2.   Serious impairment to bodily functions; or
     3.   Serious dysfunction of any bodily organ or part.

H.   "ENROLLEE" means any Medicaid eligible: (1) who, at the time of enrollment
     resides within the geographical limits of the CONTRACTOR's Service Area;
     (2) whose name appears on the DEPARTMENT's Eligibility Transmission as a
     new, reinstate, or retroactive Enrollee; and (3) who is accepted for
     enrollment by the CONTRACTOR according to the conditions set forth in this
     Contract excluding residents of the Utah State Hospital, Utah State
     Developmental Center, and long-term care facilities except as defined in
     Attachment C.

I.   "ENROLLEES WITH SPECIAL HEALTH CARE NEEDS" means enrollees 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 or amount beyond that required by adults and children generally.

J.   "ENROLLMENT AREA" or "Service Area" means the counties enumerated in
     Article II.

K.   "FAMILY MEMBER" means all Medicaid eligibles who are members of the same
     family living at home.

L.   "HOME AND COMMUNITY-BASED SERVICES" means services, not otherwise furnished
     under the State's Medicaid plan, that are furnished under a waiver of
     statutory requirements granted under the provisions of CFR Part 441,
     subpart G. These services cover an array of Home and Community-Based
     Services that are cost-effective and necessary for an individual to avoid
     institutionalization.

M.   "MANAGED CARE ORGANIZATION" or "MCO" means an organization that meets the
     State Plan's definition of an HMO or prepaid health plan and which
     provides, either directly or through arrangement with other providers,
     comprehensive general medical services to Medicaid eligibles on a
     contractual prepayment basis.

N.   "MARKETING MATERIAL" means materials in all mediums, including member
     handbooks, brochures and leaflets, newspaper, magazine, radio, television,
     billboard and yellow pages advertisements, and presentation materials used
     by marketing representatives. It includes materials mailed to, distributed
     to, or aimed at Medicaid clients specifically, and any material that
     mentions "Medicaid," "Medicaid Assistance," or "Title XIX."

O.   "MEDICALLY NECESSARY" means any medical service that (a) is reasonably
     calculated to prevent, diagnose, or cure conditions in the Enrollee that
     endanger life, cause suffering or pain, cause deformity or malfunction, or
     threaten to cause a handicap, and (b) there is no equally effective course
     of treatment available or suitable for the Enrollee requesting the service
     which is more conservative or substantially less costly. Medical services
     will be of a quality that meets professionally recognized standards of
     health care, and will be substantiated by records including evidence of
     such medical necessity and quality. Those records will be made available to
     the DEPARTMENT upon request. FOR CHEC ENROLLEES, "Medically Necessary"
     means preventive screening services and other medical care, diagnostic
     services, treatment, and other measures necessary to correct or ameliorate
     defects and physical and mental illnesses and conditions, even

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                                                                    Attachment B
                                                          Effective July 1, 2002

     if the services are not included in the Utah State Medicaid Plan.

P.   "MEMBER SERVICES" means a method of assisting Enrollees in understanding
     CONTRACTOR policies and procedures, facilitating referrals to participating
     specialists, and assisting in the resolution of problems and member
     complaints. The purpose of Member Services is to improve access to services
     and promote Enrollee satisfaction.

Q.   "NON-TRADITIONAL MEDICAID PLAN" means the reduced benefit plan provided to
     Medicaid eligibles age 19 through 64 who are in certain TANF, Medically
     Needy, and Transitional Medicaid aid categories. Services covered under the
     reduced benefit plan are similar to the Traditional Medicaid Plan with some
     limitations and exclusions.

R.   "PHYSICIAN INCENTIVE PLAN" means any compensation between a contracting
     organization and a physician group that may directly or indirectly have the
     effect of reducing or limiting services provided with respect to Enrollees
     in the organization.

S.   "PREPAID MENTAL HEALTH PLAN" means the mental health centers that contract
     with the DEPARTMENT to provide inpatient and outpatient mental health
     services to Medicaid clients living within each mental health center's
     jurisdiction.

T.   "PRIMARY CARE PROVIDER" or "PCP" means a health care provider the majority
     of whose practice is devoted to internal medicine, family/general practice
     or pediatrics. The MCO may allow other specialists to be PCPs, when
     appropriate. PCPs are responsible for delivering primary care services,
     coordinating and managing Enrollees' overall health and, authorizing
     referrals for other necessary care.

U.   "RESTRICTION PROGRAM" means the Federally mandated program (42 CFR
     431.54(e)) for Medicaid clients who over-utilize Medicaid services. If the
     DEPARTMENT in conjunction with the CONTRACTOR finds that an Enrollee has
     utilized Medicaid services at a frequency or amount that is not Medically
     Necessary, as determined in accordance with utilization guidelines adopted
     by the DEPARTMENT, the DEPARTMENT may place the Enrollee under the
     Restriction Program for a reasonable period of time to obtain Medicaid
     services from designated providers only.

V.   "STATE PLAN" means the State Plan for organization and operation of the
     Medicaid program as defined pursuant to Section 1102 of the Social Security
     Act (42 U.S.C. 1302).

W.   "TRADITIONAL MEDICAID PLAN" means the scope of services contained in the
     state plan provided to Medicaid eligibles who fall under one of the
     following eligibility groups:

     (1) Section 1931 children and related poverty level populations
         (TANF/AFDC);
     (2) Section 1931 pregnant women (TANF/AFDC);
     (3) Blind/disabled children and related populations (SSI);
     (4) Blind/disabled adults and related populations (SSI);
     (5) Aged and related populations (SSI, QMB and Medicaid, Medicare and
         Medicaid);
     (6) Foster care children;
     (7) Individuals who qualify for Medicaid by paying a spenddown and are
         under age 19 or are also aged or disabled;
     (8) Pregnant women (non-TANF/AFDC)

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                                                                    Attachment B
                                                          Effective July 1, 2002

                            ARTICLE II - SERVICE AREA

The Service Area is limited to the counties of Cache, Davis, Iron, Salt Lake,
Utah, Washington, and Weber.

       ARTICLE III - ENROLLMENT, ORIENTATION, MARKETING, AND DISENROLLMENT

A.   ENROLLMENT PROCESS

     1.   ENROLLEE CHOICE

          The DEPARTMENT will offer potential Enrollees a choice among all MCOs
          available in the Enrollment Area. The DEPARTMENT will inform potential
          Enrollees of Medicaid benefits. The Medicaid client's intent to enroll
          is established when the applicant selects The CONTRACTOR, either
          verbally or by signing a choice of health care delivery form or
          equivalent. This initiates the action to send an advance notification
          to the CONTRACTOR. Medicaid Enrollees made eligible for a retroactive
          period prior to the current month are not eligible for CONTRACTOR
          enrollment during the retroactive period.

     2.   PERIOD OF ENROLLMENT

          Each Enrollee will be enrolled for the period of the Contract or the
          period of Medicaid eligibility or until such person disenrolls or is
          disenrolled, whichever is earlier. Until the DEPARTMENT notifies the
          CONTRACTOR that an Enrollee is no longer Medicaid eligible, the
          CONTRACTOR may assume that the Enrollee continues to be eligible. Each
          Enrollee will be automatically re-enrolled at the end of each month
          unless that Enrollee notifies the DEPARTMENT's Health Program
          Representative of an intent not to re-enroll in the MCO prior to the
          benefit issuance date.

     3.   OPEN ENROLLMENT

          The CONTRACTOR will have a continuous open enrollment period that
          meets the requirements of Section 1301(d) of the Public Health Service
          Act. The DEPARTMENT will certify, and the CONTRACTOR agrees to accept
          individuals who are eligible to be enrolled in the MCO under the
          provisions of this Contract:

          a.   in the order in which they apply; and
          b.   without restrictions unless authorized by the DEPARTMENT.

     4.   NO HEALTH SCREENING

          The DEPARTMENT and the CONTRACTOR agree that no potential Enrollee
          will be pre-screened or selected by either party for enrollment on the
          basis of pre-existing health problems or on the basis of race, color,
          national origin, disability or age.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     5.   INDEPENDENT ENROLLMENT

          Each Medicaid eligible can be enrolled or disenrolled in the MCO,
          independent of any other Family Member's enrollment or disenrollment.

     6.   REPRESENTATIVE POPULATION

          The CONTRACTOR will service a population representative of the
          categories of eligibility within the area it serves.

     7.   ELIGIBILITY TRANSMISSION

          a.   IN GENERAL

               Before the close of business of each day, the DEPARTMENT will
               provide to the CONTRACTOR an Eligibility Transmission which is an
               electronic file that includes individuals which the DEPARTMENT
               certifies as Medicaid eligible and who enrolled in the MCO.
               Eligibility transmissions include new Enrollees, reinstated
               Enrollees, retroactive Enrollees, deleted Enrollees and Enrollees
               whose eligibility information results in a change to a critical
               field. The Eligibility Transmission will be in accordance with
               the Utah Health Information Network (UHIN) standard. The
               DEPARTMENT represents and warrants to the CONTRACTOR that the
               appearance of an individual's name on the Eligibility
               Transmission, other than a deleted Enrollee, will be conclusive
               evidence for purposes of this Contract, that such person is
               enrolled in the program and qualifies for medical assistance
               under Medicaid Title XIX.

          b.   NEW ENROLLEES

               New Enrollees are enrolled in this MCO until otherwise specified;
               these Enrollees will not appear on future transmissions unless
               there is a change in a critical field. Critical fields are
               coverage dates, recipient name, date of birth, date of death,
               sex, social security number, case information, address, telephone
               number, payment code, coordination of benefits, and the
               Enrollee's provider under the Restriction Program. Enrollees with
               a spenddown requirement will appear on the eligibility
               transmission on a month by month basis after the spenddown is
               met.

          c.   RETROACTIVE ENROLLEES

               Retroactive Enrollees are those who were Enrollees previous to
               the current month. Retroactive Enrollees include newborn
               Enrollees or Enrollees who have been reported in one payment
               category in a previous month but have been changed to a new
               payment category for that previous month.

          d.   REINSTATED ENROLLEES

               Reinstated Enrollees are those who were enrolled for the previous
               month and also closed at the end of the previous month. These
               Enrollees are eligible

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                                                                    Attachment B
                                                          Effective July 1, 2002

               retroactively to the beginning of the current month.

          e.   DELETED ENROLLEES

               Deleted Enrollees are those who are no longer eligible for
               Medicaid or who were disenrolled from the MCO.

          f.   ADVANCED NOTIFICATION TRANSMISSION

               An Advanced Notification Transmission is another electronic file
               (separate from the Eligibility Transmission) that will be sent to
               the CONTRACTOR when an individual has selected the MCO prior to
               becoming eligible for Medicaid. These individuals may or may not
               become eligible for Medicaid. Use of information about such
               individuals is restricted to providing the individual with an
               orientation to the MCO prior to the individual's eligibility for
               Medicaid. The CONTRACTOR is not required to orient individuals
               until they appear on the Eligibility Transmission.

     8.   CHANGE OF ENROLLMENT PROCEDURES

          The CONTRACTOR will be advised of anticipated changes in DEPARTMENT
          policies and procedures as they relate to the enrollment process and
          their comments will be solicited. The CONTRACTOR agrees to be bound by
          such changes in DEPARTMENT policies and procedures that are mutually
          agreed upon by the CONTRACTOR and the DEPARTMENT.

B.   MEMBER ORIENTATION

     1.   INITIAL CONTACT - GENERAL ORIENTATION

          The CONTRACTOR will make a good faith effort to ensure that each
          Enrollee or Enrollee's family or guardian receives the CONTRACTOR's
          member handbook. The CONTRACTOR representative will make a good faith
          effort, as evidenced in written or electronic records, to make an
          initial contact with the Enrollee within 10 working days after the
          CONTRACTOR has been notified through the Eligibility Transmission of
          the Enrollee's MCO enrollment. The initial contact will be in person
          or by telephone (or in writing, but only if reasonable attempts have
          been made to make the contact in person by telephone) and will inform
          the Enrollee of the MCO rules and policies. The CONTRACTOR must ensure
          that Enrollees are provided interpreters, Telecommunication Device for
          the Deaf (TDD), and other auxiliary aids to ensure that Enrollees
          understand their rights and responsibilities. During the initial
          contact the CONTRACTOR Representative will provide, at a minimum, the
          following information to the Enrollee or potential Enrollee
          appropriate to the Enrollee's eligibility (Traditional versus
          Non-Traditional Medicaid):

          a.   specific written and oral instructions on the use of the
               CONTRACTOR's Covered Services and procedures;
          b.   availability and accessibility of all Covered Services, including
               the availability of family planning services and that the
               Enrollee may obtain family planning

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                                                                    Attachment B
                                                          Effective July 1, 2002

               services from Medicaid providers other than providers affiliated
               with the CONTRACTOR;
          c.   the client's rights and responsibilities as an Enrollee of the
               MCO, including the right to file a grievance and how to file a
               grievance;
          d.   the right to terminate enrollment with the MCO; and
          e.   encouragement to make a medical appointment with a provider.

     2.   IDENTIFICATION OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          During the initial contact with each Enrollee, the CONTRACTOR
          representative will use a process that will identify children and
          adults with special health care needs. The CONTRACTOR representative
          will clearly describe to each Enrollee during the initial contact the
          process for requesting specialist care. When an Enrollee is identified
          as having special health care needs, the CONTRACTOR Representative
          will forward this information to a CONTRACTOR individual with
          knowledge of coordination of care and services necessary for such
          Enrollees. The CONTRACTOR individual with knowledge of coordination of
          care for Enrollees with special health care needs will make a good
          faith effort to contact Enrollees within ten working days after
          identification to begin coordination of health care needs, if
          necessary. The CONTRACTOR will not discriminate on the basis of health
          status or the need for health care services.

          The DEPARTMENT's Health Program Representatives are responsible to
          forward information, i.e., pink sheets identifying Enrollees with
          special health care needs and limited language proficiency needs to
          the CONTRACTOR in a timely way coinciding with the daily Eligibility
          Transmission as much as possible.

     3.   INABILITY TO CONTACT ENROLLEE FOR ORIENTATION

          If the CONTRACTOR's representative cannot contact the Enrollee within
          10 working days or at all, the CONTRACTOR representative will document
          its efforts to contact the Enrollee.

     4.   ENROLLEES RECEIVING OUT-OF-PLAN CARE PRIOR TO ORIENTATION

          If the Enrollee receives Covered Services by an out-of-plan provider
          after the first day of the month in which the client's enrollment
          became effective, and if a CONTRACTOR orientation either in-person or
          by telephone (or in writing, but only if reasonable attempts have been
          made to make the contact in person or by telephone) has not taken
          place prior to receiving such services, the CONTRACTOR is responsible
          for payment of the services rendered provided the DEPARTMENT informs
          the CONTRACTOR by the 20th of any month prior to the month that MCO
          enrollment begins.

C.   MARKETING AND MEMBER EDUCATION

     1.   APPROVAL OF MARKETING MATERIALS

          The CONTRACTOR's marketing plans, procedures and materials will be
          accurate, and may not mislead, confuse, or defraud either Enrollees or
          the DEPARTMENT. All Medicaid marketing plans, procedures and materials
          will be reviewed and approved by

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                                                                    Attachment B
                                                          Effective July 1, 2002

          the DEPARTMENT in consultation with the Medical Care Advisory
          Committee for Marketing Review before implemented or released by the
          CONTRACTOR. The DEPARTMENT will notify the CONTRACTOR of its approval
          or disapproval, in writing, of such materials within ten working days
          after receiving them unless the DEPARTMENT and the CONTRACTOR agree to
          another time frame. If the DEPARTMENT does not respond within the
          agreed upon time frame, the CONTRACTOR shall deem such materials
          approved. Marketing materials will not be approved if the DEPARTMENT
          determines that the material is materially inaccurate or misleading or
          otherwise makes material misrepresentations. Health education
          materials and newsletters not specifically related to Enrollees do not
          need to be approved by the DEPARTMENT.

          a.   NO DOOR-TO-DOOR, TELEPHONIC, OR "COLD CALL" MARKETING

               The CONTRACTOR cannot, either directly or indirectly, conduct
               door-to-door, telephonic or "cold call" marketing of enrollment.
               These three marketing practices are prohibited whether conducted
               by the CONTRACTOR itself ("directly") or by an agent or
               independent contractor ("indirectly"). Cold call marketing is any
               unsolicited personal contact with a potential Enrollee by an
               employee or agent of a managed care entity for the purpose of
               influencing the individual to enroll with the CONTRACTOR's health
               plan. The CONTRACTOR may not entice a potential Enrollee to join
               its health plan by offering the sale of any other type of
               insurance as a bonus for enrollment. All other non-requested
               marketing approaches to Medicaid clients by the CONTRACTOR are
               also prohibited unless specifically approved in advance by the
               DEPARTMENT.

          b.   DISTRIBUTION OF MARKETING MATERIALS

               Marketing materials must be distributed to the entire Service
               Area.

     2.   ENROLLEE MATERIALS MUST BE COMPREHENSIBLE

          The CONTRACTOR will attempt to write all Enrollee and potential
          Enrollee information, instructional and educational materials,
          including member handbooks, at no greater than a sixth grade reading
          level. If the MCO has more than 5% of its Enrollees who speak a
          language other than English as a first language, the CONTRACTOR must
          make available written material (e.g. member handbooks, educational
          newsletters) in that language. Marketing materials must include a
          statement that the CONTRACTOR does not discriminate against any
          Enrollee on the basis of race, color, national origin, disability, or
          age in admission, treatment, or participation in its programs,
          services and activities. In addition, the materials must include the
          phone number of the nondiscrimination coordinator for Enrollees to
          call if they have questions about the nondiscrimination policy or
          desire to file a complaint or grievance alleging violations of the
          nondiscrimination policy.

     3.   MEMBER HANDBOOK

          The CONTRACTOR will produce a member handbook that must be submitted
          to the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          DEPARTMENT for review and approval before distribution. The DEPARTMENT
          will notify the CONTRACTOR in writing of its approval or disapproval
          within ten working days after receiving the member handbook unless the
          DEPARTMENT and CONTRACTOR agree to another time frame. If the
          DEPARTMENT does not respond within the agreed upon time frame, the
          CONTRACTOR may deem such materials are approved. If there are changes
          to the content of the material in the handbook, the CONTRACTOR must
          update the member handbook and submit a draft to the DEPARTMENT for
          review and approval before distribution to its Enrollees. At a
          minimum, the member handbook must explain in clear terms the following
          information:

          a.   The scope of benefits provided by the CONTRACTOR delineating
               Traditional versus Non-Traditional Medicaid scopes of service;
          b.   Instructions on where and how to obtain Covered Services,
               including referral requirements;
          c.   Instructions on what to do in an emergency or urgent medical
               situation, including emergency numbers;
          d.   Enrollee options on obtaining family planning services;
          e.   Instructions on how to choose a PCP and how to change PCPs;
          f.   Description on Enrollee cost-sharing requirements (if
               applicable);
          g.   Toll-free telephone number;
          h.   Description of Member Services function;
          i.   How to register a complaint or grievance;
          j.   Information on Advance Directives;
          k.   Services covered by Medicaid, but not covered by the CONTRACTOR;
          1.   Clients' rights and responsibilities;
          m.   A statement that the CONTRACTOR does not discriminate against any
               Enrollee on the basis of race, color, national origin,
               disability, or age in admission, treatment, or participation in
               its programs, services and activities; and
          n.   The phone number of the nondiscrimination coordinator for
               Enrollees to call if they have questions about the
               nondiscrimination policy or desire to file a complaint or
               grievance alleging violations of the nondiscrimination policy.

     4.   NOTIFICATION TO ENROLLEES OF POLICIES AND PROCEDURES

          a.   CHANGES TO POLICIES AND PROCEDURES

               The CONTRACTOR must periodically notify Enrollees, in writing, of
               changes to its plan such as changes to its policies or procedures
               either through a newsletter or other means.

          b.   ANNUAL EDUCATION ON EMERGENCY CARE AND GRIEVANCE PROCEDURES

               The CONTRACTOR must annually reinforce, in writing, to Enrollees
               how to access emergency and urgent services and how to register a
               complaint or grievance.

     5.   MONTHLY NOTIFICATION TO DEPARTMENT OF CHANGES IN PROVIDER NETWORK

          The CONTRACTOR must notify the DEPARTMENT at least monthly of changes
          in its

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                                                                    Attachment B
                                                          Effective July 1, 2002

          provider network so that the DEPARTMENT can ensure its listing of
          providers is accurate.

D.   DISENROLLMENT BY ENROLLEE

     1.   ENROLLEE's RIGHT TO DISENROLL

          Enrollees will have the right to disenroll from this MCO at any time
          with or without cause. The disenrollment will be effective once the
          DEPARTMENT has been notified by the Enrollee and the DEPARTMENT issues
          a new Medicaid card and the disenrollment is indicated on the
          Eligibility Transmission.

     2.   ENROLLEES IN AN INPATIENT HOSPITAL SETTING

          The DEPARTMENT agrees that if a new Enrollee is a patient in an
          inpatient hospital setting on the date the new Enrollee's name appears
          on the CONTRACTOR Eligibility Transmission, the obligation of the
          CONTRACTOR to provide Covered Services to such person will commence
          following discharge. If an Enrollee is a patient in an inpatient
          hospital setting on the date that his or her name appears as a deleted
          Enrollee on the CONTRACTOR Eligibility Transmission or he or she is
          otherwise disenrolled under this Contract, the CONTRACTOR will remain
          financially responsible for such care until discharge.

     3.   ANNUAL STUDY OF ENROLLEES WHO DISENROLLED

          Annually, the DEPARTMENT and CONTRACTOR will work cooperatively to
          conduct an analysis of Enrollees who have voluntarily disenrolled from
          this MCO. The results of the analysis will include explanations of
          patterns of disenrollments and strategies or a corrective action plan
          to address unusual rates or patterns of disenrollment. The DEPARTMENT
          will inform the CONTRACTOR of such disenrollments.

E.   DISENROLLMENT BY CONTRACTOR

     1.   CANNOT DISENROLL FOR ADVERSE CHANGE IN ENROLLEE's HEALTH

          The CONTRACTOR may not terminate enrollment because of an adverse
          change in the Enrollee's health.

     2.   VALID REASONS FOR DISENROLLMENT

          The CONTRACTOR may initiate disenrollment of any Enrollee's
          participation in the MCO upon one or more of the following grounds:

          a.   For reasons specifically identified in the CONTRACTOR's member
               handbook.
          b.   When the Enrollee ceases to be eligible for medical assistance
               under the State Plan, in accordance with Title 42 USCA, 1396, et.
               seq., and as finally determined by the DEPARTMENT.
          c.   Upon termination or expiration of the Contract.
          d.   Death of the Enrollee.

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                                                                    Attachment B
                                                          Effective July 1, 2002

          e.   Confinement of the Enrollee in an institution when confinement is
               not a Covered Service under this Contract.
          f.   Violation of enrollment requirements developed by the CONTRACTOR
               and approved by the DEPARTMENT but only after the CONTRACTOR
               and/or the Enrollee has exhausted the CONTRACTOR's applicable
               internal grievance procedure.

     3.   APPROVAL BY DEPARTMENT REQUIRED

          To initiate disenrollment of an Enrollee's participation with this
          MCO, the CONTRACTOR will provide the DEPARTMENT with documentation
          justifying the proposed disenrollment. The DEPARTMENT will approve or
          deny the disenrollment request in writing within thirty (30) days of
          receipt of the request. Failure by the DEPARTMENT to deny a
          disenrollment request within such thirty (30) day period will
          constitute approval of such disenrollment requests.

     4.   ENROLLEE's RIGHT TO FILE A GRIEVANCE

          If the DEPARTMENT approves the CONTRACTOR's disenrollment request, the
          CONTRACTOR will give the Enrollee thirty (30) days written notice of
          the proposed disenrollment, and will notify the Enrollee of his or her
          opportunity to invoke the internal grievance procedure and appeals
          process for a fair hearing. The CONTRACTOR will give a copy of the
          written notice to the DEPARTMENT at the time the notice is sent to the
          Enrollee.

     5.   REFUSAL OF RE-ENROLLMENT

          If a person is disenrolled because of violation of responsibilities
          included in the CONTRACTOR's member handbook, the CONTRACTOR may
          refuse re-enrollment of that Enrollee.

F.   ENROLLEE TRANSITION BETWEEN MCOs

     1.   MUST ACCEPT PRE-ENROLLMENT PRIOR AUTHORIZATIONS

          For Covered Services other than inpatient, home health services, and
          medical equipment, if authorization has been given for a Covered
          Service and an enrollee transitions between MCOs prior to the delivery
          of such Covered Service, the receiving MCO shall be bound by the
          relinquishing MCO's prior authorization until the receiving MCO has
          evaluated the medical necessity of the service and agrees with the
          relinquishing MCO's prior authorization or has made a different
          determination. (See Article IV, Benefits, Section F, Clarification of
          Payment Responsibilities, Subsection 5, for inpatient, home health
          services, and medical equipment explanations.)

     2.   MUST PROVIDE MEDICAL RECORDS TO ENROLLEE's NEW MCO

          When enrollees are transitioned between MCOs the relinquishing MCO's
          provider will submit, upon request of the new MCO's provider, any
          critical medical information about the transitioning enrollee prior to
          the transition including, but not limited to, whether the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          member is hospitalized, pregnant, involved in the process of organ
          transplantation, scheduled for surgery or post-surgical follow-up on a
          date subsequent to transition, scheduled for prior-authorized
          procedures or therapies on a date subsequent to transition, receiving
          dialysis or is chronically ill (e.g. diabetic, hemophilic, HIV
          positive).

G.   ENROLLEE TRANSITION FROM FEE-FOR-SERVICE TO MCO OR FROM MCO TO
     FEE-FOR-SERVICE

     1.   CONTRACTOR MUST ACCEPT PRE-ENROLLMENT PRIOR AUTHORIZATIONS

          For Covered Services other than inpatient, home health services, and
          medical equipment, if authorization has been given for a Covered
          Service and a Medicaid client transitions from Medicaid
          fee-for-service to enrollment with the CONTRACTOR's health plan prior
          to the delivery of such Covered Service, the CONTRACTOR shall be bound
          by the DEPARTMENT's fee-for-service prior authorization until the
          CONTRACTOR has evaluated the medical necessity of the service and
          agrees with the DEPARTMENT's fee-for-service prior authorization or
          has made a different determination. (See Article IV, Benefits, Section
          F, Clarification of Payment Responsibilities, Subsection 5, for
          inpatient, home health services, and medical equipment explanations.)

     2.   DEPARTMENT MUST ACCEPT CONTRACTOR's PRIOR AUTHORIZATION

          For Covered Services other than inpatient, home health services, and
          medical equipment, if authorization has been given for a Covered
          Service and an Enrollee transitions to Medicaid fee-for-service prior
          to the delivery of such Covered Service, the DEPARTMENT shall be bound
          by the CONTRACTOR's prior authorization until the DEPARTMENT has
          evaluated the medical necessity of the service and agrees with the
          CONTRACTOR's fee-for-service prior authorization or has made a
          different determination. (See Article IV, Benefits, Section F,
          Clarification of Payment Responsibilities, Subsection 5, for
          inpatient, home health services, and medical equipment explanations.)

     3.   MUST PROVIDE MEDICAL RECORDS TO ENROLLEE's MCO OR TO THE DEPARTMENT

          When enrollees are transitioned from MCO to fee-for-service or from
          fee-for-service to MCO, the relinquishing entity (MCO or DEPARTMENT)
          will submit, upon request of the new entity, any critical medical
          information about the transitioning Medicaid client prior to the
          transition including, but not limited to, whether the member is
          hospitalized, pregnant, involved in the process of organ
          transplantation, scheduled for surgery or post-surgical follow-up on a
          date subsequent to transition, scheduled for prior-authorized
          procedures or therapies on a date subsequent to transition, receiving
          dialysis or is chronically ill (e.g. diabetic, hemophilic, HIV
          positive).

                              ARTICLE IV - BENEFITS

A.   IN GENERAL

     The CONTRACTOR will provide to Enrollees under this Contract, directly or
     through arrangements with subcontractors, all Medically Necessary Covered
     Services described in

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                                                                    Attachment B
                                                          Effective July 1, 2002

     Attachment C as promptly and continuously as is consistent with generally
     accepted standards of medical practice. The subcontractors will follow
     generally accepted standards of medical care in diagnosing Enrollees who
     request services from the CONTRACTOR.

B.   PROVIDER SERVICES FUNCTION

     The CONTRACTOR must operate a Provider Services function during regular
     business hours. At a minimum, Provider Services staff must be responsible
     for the following:

     1.   Training, including ongoing training, of the CONTRACTOR's providers on
          Medicaid rules and regulations that will enable providers to
          appropriately render services to Enrollees;
     2.   Assisting providers to verify whether an individual is enrolled with
          the MCO;
     3.   Assisting providers with prior authorization and referral protocols;
     4.   Assisting providers with claims payment procedures;
     5.   Fielding and responding to provider questions and complaints and
          grievances.

C.   SCOPE OF SERVICES

     1.   RESPONSIBLE FOR ALL BENEFITS IN ATTACHMENT C (COVERED SERVICES)

          Except as otherwise provided for cases of Emergency Services, the
          CONTRACTOR has the exclusive right and responsibility to arrange for
          all benefits listed in Attachment C. The CONTRACTOR is responsible for
          payment of Emergency Services 24 hours a day and 7 days a week whether
          the service was provided by a network or out-of-network provider and
          whether the service was provided in or out of the CONTRACTOR's Service
          Area.

     2.   CHANGES TO BENEFITS

          Amendments, revisions, or additions to the State Plan or to State or
          Federal regulations, guidelines, or policies and court or
          administrative orders will, insofar as they affect the scope or nature
          of benefits available to Enrollees, be amendments to the Covered
          Services under Attachment C. The DEPARTMENT will notify the
          CONTRACTOR, in writing, of any such changes and their effective date.
          Rate adjustments, when appropriate, will be negotiated between the
          DEPARTMENT and the CONTRACTOR.

     3.   MEDICAL NECESSITY DENIALS

          When the CONTRACTOR determines that a service will not be covered due
          to the lack of medical necessity, the CONTRACTOR must send all
          documentation supporting their decision to the DEPARTMENT for its
          review before the CONTRACTOR's determination is deemed final, when the
          following conditions are met:

          a.   there are no established national standards for determining
               medical necessity and
          b.   the DEPARTMENT does not have medical necessity criteria for the
               service.

          The  DEPARTMENT will review the documentation and determine what the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          DEPARTMENT's decision would be regarding coverage for the service. The
          DEPARTMENT and the CONTRACTOR will work collaboratively in making a
          final decision on whether the service is to be covered by the
          CONTRACTOR.

D.   SUBCONTRACTS

     1.   NO DISCRIMINATION BASED ON LICENSE OR CERTIFICATION

          The CONTRACTOR shall not discriminate against providers with respect
          to participation, reimbursement, or indemnification as to any provider
          who is acting within the scope of that provider's license or
          certification under applicable State law solely on the basis of the
          provider's license or certification.

     2.   ANY COVERED SERVICE MAY BE SUBCONTRACTED.

          Any Covered Service may be subcontracted. All subcontracts will be in
          writing and will include the general requirements of this Contract
          that are appropriate to the service or activity including
          confidentiality requirements and will assure that all duties of the
          CONTRACTOR under this Contract are performed. No subcontract
          terminates the legal responsibility of the CONTRACTOR to the
          DEPARTMENT to assure that all activities under this Contract are
          carried out. The CONTRACTOR will make all subcontracts available upon
          request.

     3.   NO PROVISIONS TO REDUCE OR LIMIT MEDICALLY NECESSARY SERVICES

          The CONTRACTOR will ensure that subcontractors abide by the
          requirements of Section 1128(b) of the Social Security Act prohibiting
          the CONTRACTOR and other such providers from making payments directly
          or indirectly to a physician or other provider as an inducement to
          reduce or limit Medically Necessary services provided to Enrollees.

     4.   REQUIREMENT OF 60 DAYS WRITTEN NOTICE PRIOR TO TERMINATION OF CONTRACT

          All subcontracts and agreements will include a provision stating that
          if either party (the subcontractor or CONTRACTOR) wishes to terminate
          the subcontract or agreement, whichever party initiates the
          termination will give the other party written notice of termination at
          least 60 calendar days prior to the effective termination date. The
          CONTRACTOR will notify the DEPARTMENT of the termination on the same
          day that the CONTRACTOR either initiates termination or receives the
          notice of termination from the subcontractor.

     5.   COMPLIANCE WITH CONTRACTOR's QUALITY ASSURANCE PLAN

          All of the CONTRACTOR's providers must be aware of the CONTRACTOR's
          Quality Assurance Plan and activities. All subcontracts with the
          CONTRACTOR must include a requirement securing cooperation with the
          CONTRACTOR's Quality Assurance Plan and activities and must allow the
          CONTRACTOR access to the subcontractor's medical records of its
          Enrollees.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     6.   UNIQUE IDENTIFIER REQUIRED

          All physicians who provide services under this Contract must have a
          unique identifier in accordance with the system established under
          section 1173(b) of the Social Security Act and in accordance with the
          Health Insurance Portability and Accountability Act.

     7.   PAYMENT OF PROVIDER CLAIMS

          The CONTRACTOR must pay its providers on a timely basis consistent
          with the claims payment procedures described in section 1902(a)(37)(A)
          of the Social Security Act and the implementing Federal regulation at
          42 CFR 447.45, unless the provider and CONTRACTOR agree to an
          alternate payment schedule. The Contractor must ensure that 90 percent
          of claims for payment (for which no further written information or
          substantiation is required in order to make payment) made for Covered
          Services and furnished by its providers are paid within 30 days of
          receipt of such claims and that 99 percent of such claims are paid
          within 90 days of the date of receipt of such claims.

     8.   FEDERALLY QUALIFIED HEALTH CENTERS (FQHCs)

          If the CONTRACTOR enters into a subcontract with a Federally Qualified
          Health Center (FQHC), the CONTRACTOR will reimburse the FQHC an amount
          not less than what the CONTRACTOR pays comparable providers that are
          not FQHCs.

E.   CLARIFICATION OF COVERED SERVICES

     1.   EMERGENCY SERVICES

          a.   IN GENERAL

               The CONTRACTOR must provide coverage for Emergency Services
               without regard to prior authorizations or the emergency care
               provider's contractual relationship with the CONTRACTOR. The
               CONTRACTOR must inform their Enrollees that access to Emergency
               Services is not restricted and that if an Enrollee experiences a
               medical emergency, he or she may obtain services from a non-plan
               physician or other qualified provider, without penalty. However,
               the CONTRACTOR may require the Enrollee to notify the CONTRACTOR
               within a specified time after the Enrollee's condition is
               stabilized, and may require the Enrollee to obtain prior
               authorization for any follow-up care delivered pursuant to the
               emergency. The CONTRACTOR must comply with Medicare guidelines
               for post-stabilization of care.

               The CONTRACTOR must pay for services where the presenting
               symptoms are of sufficient severity that a person with average
               knowledge of health and medicine would 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 a woman or her unborn child) in serious jeopardy;
               serious impairment to bodily functions; or serious dysfunction of
               any bodily organ or part.

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                                                                    Attachment B
                                                          Effective July 1, 2002

               The CONTRACTOR may not retroactively deny a claim for an
               emergency screening examination because the condition, which
               appeared to be an emergency medical condition under the prudent
               layperson standard, turned out to be non-emergency in nature.

          b.   DETERMINING LIABILITY FOR EMERGENCY SERVICES

               1)   Presence of a clinical emergency

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

               2)   Emergency services continue until the Enrollee can be safely
                    discharged or transferred

                    The CONTRACTOR must pay for all Emergency Services that are
                    Medically Necessary until the clinical emergency is
                    stabilized. This includes all treatment that may be
                    necessary to assure, within reasonable medical probability,
                    that no material deterioration of the Enrollee's condition
                    is likely to result from, or occur during, discharge of the
                    Enrollee or transfer of the Enrollee to another facility. If
                    there is a disagreement between a hospital and the
                    CONTRACTOR concerning whether the Enrollee is stable enough
                    for discharge or transfer, or whether the medical benefits
                    of an unstabilized transfer outweigh the risks, the
                    judgement 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 own physicians with appropriate ER privileges to
                    assume the attending physician's responsibilities to
                    stabilize, treat, and transfer the Enrollee.

               3)   Absence of a clinical emergency

                    If the screening examination leads to a clinical
                    determination by the examining physician that an actual
                    emergency medical condition did not exist, then the
                    determining factor for payment liability should be whether
                    the Enrollee had acute symptoms of sufficient severity at
                    the time of presentation. In these cases, the CONTRACTOR
                    must review the presenting symptoms of the Enrollee and must
                    pay for all services involved in the screening examination
                    where the presenting symptoms (including severe pain) were
                    of sufficient severity to have warranted emergency attention
                    under the prudent layperson standard.

               4)   Referrals

                    When an Enrollee's Primary Care Physician or other plan
                    representative instructs the Enrollee to seek emergency care
                    in or out of network, the

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                                                                    Attachment B
                                                          Effective July 1, 2002

                    CONTRACTOR is responsible for payment of the medical
                    screening examination and for other Medically Necessary
                    Emergency Services, without regard to whether the Enrollee
                    meets the prudent layperson standard.

     2.   CARE PROVIDED IN SKILLED NURSING FACILITIES

          a.   IN GENERAL: STAYS LASTING 30 DAYS OR LESS

               The CONTRACTOR may provide long term care for Enrollees in
               skilled nursing facilities and then reimburse such facilities
               when the plan of care includes a prognosis of recovery and
               discharge within 30 days. It is the responsibility of a
               CONTRACTOR physician to make the determination if the patient
               will require the services of a nursing facility for fewer or
               greater than 30 days.

          b.   PROCESS FOR STAYS LONGER THAN 30 DAYS

               When the prognosis of an Enrollee indicates that long term care
               greater than 30 days will be required, the following process will
               occur:

               1)   The CONTRACTOR will notify the Enrollee, hospital discharge
                    planner, and nursing facility that the CONTRACTOR will not
                    be responsible for the services provided for the Enrollee
                    during the stay at the skilled nursing facility.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care (BMHC) of this determination and the BMHC will
                    change the status of the Enrollee to fee-for-service.

          c.   PROCESS FOR STAYS LESS THAN 30 DAYS

               When the prognosis of skilled nursing facility services is
               anticipated to be less than 30 days, but during the 30-day period
               the CONTRACTOR determines that the Enrollee will require skilled
               nursing facility services for greater than 30 days, the following
               process will be in effect:

               1)   The CONTRACTOR will notify the nursing facility that a
                    determination has been made that the Enrollee will require
                    services for more than 30 days.

               2)   The CONTRACTOR will notify the DHCF, Bureau of Managed
                    Health Care, of the determination that the Enrollee will
                    require services in a nursing facility for more than 30
                    days.

               3)   The CONTRACTOR will be responsible for payment for three
                    working days after the CONTRACTOR has notified the nursing
                    facility that skilled nursing care will be required for more
                    than 30 days.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     3.   ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

          a.   IN GENERAL

               The CONTRACTOR will ensure there is access to all Medically
               Necessary Covered Services to meet the health needs of Enrollees
               with special health care needs. Individuals with special health
               care needs are those 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 or amount beyond that required by adults and children
               generally.

          b.   IDENTIFICATION

               The CONTRACTOR will identify Enrollees with special health care
               needs using a process at the initial contact made by the
               CONTRACTOR Representative to educate the client and will offer
               the client care coordination or case management services. Care
               coordination services are services to assist the client in
               obtaining Medically Necessary Covered Services from the
               CONTRACTOR or another entity if the medical service is not
               covered under the Contract.

          c.   CHOOSING A PRIMARY CARE PROVIDER

               The CONTRACTOR will have a mechanism to inform care givers and,
               when appropriate, Enrollees with special health care needs about
               primary care providers who have training in caring for such
               Enrollees so that an informed selection of a provider can be
               made. The CONTRACTOR will have primary care providers with skills
               and experience to meet the needs of Enrollees with special health
               care needs. The CONTRACTOR will allow an appropriate specialist
               to be the primary care provider but only if the specialist has
               the skills to monitor the Enrollee's preventive and primary care
               services.

          d.   REFERRALS AND ACCESS TO SPECIALTY PROVIDERS

               The CONTRACTOR will ensure there is access to appropriate
               specialty providers to provide Medically Necessary Covered
               Services for adults and children with special health care needs.
               If the CONTRACTOR does not employ or contract with a specialty
               provider to treat a special health care condition at the time the
               Enrollee needs such Covered Services, the CONTRACTOR will have a
               process to allow the Enrollee to receive Covered Services from a
               qualified specialist who may not be affiliated with the
               CONTRACTOR. The CONTRACTOR will reimburse the specialist for such
               care at no less than Medicaid's rate for the service when the
               service is rendered. The process for requesting specialist's care
               will be clearly described by the CONTRACTOR and explained to each
               Enrollee during the initial contact with the Enrollee.

               If the CONTRACTOR restricts the number of referrals to
               specialists, the CONTRACTOR will not penalize those providers who
               make such referrals for Enrollees with special health care needs.

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                                                                    Attachment B
                                                          Effective July 1, 2002

          e.   SURVEY OF ENROLLEES WITH SPECIAL HEALTH CARE NEEDS

               At least every two years, the CONTRACTOR in conjunction with the
               DEPARTMENT will survey a sample of Enrollees with special health
               care needs using a national consumer assessment questionnaire, to
               evaluate their perceptions of services they have received. The
               survey process, including the survey instrument, will be
               standardized and developed collaboratively between the DEPARTMENT
               and all contracting MCOs. The DEPARTMENT will analyze the results
               of the surveys. The results and analysis of the surveys will be
               reviewed by the CONTRACTOR's quality assurance committee for
               action.

          f.   COLLABORATION WITH OTHER PROGRAMS

               If the individual with special health care needs is enrolled in
               the Prepaid Mental Health Plan or is enrolled in any of the
               Medicaid home and community-based waiver programs and is
               receiving case management services through that program, or is
               covered by one of the other Medicaid targeted case management
               programs, the CONTRACTOR care coordinator will collaborate with
               the appropriate program person, i.e., the targeted case manager,
               etc., for that program once the program person has contacted the
               CONTRACTOR care coordinator. When necessary, the CONTRACTOR care
               coordinator will make an effort to contact the program person of
               those Enrollees who have medical needs that require such
               coordination.

               The CONTRACTOR must coordinate health care needs for children
               with special health care needs with the services of other
               agencies (e.g., mental and substance abuse, public health
               departments, transportation, home and community based care,
               developmental disabilities, Title V, local schools, IDA programs,
               and child welfare), and with families, caregivers, and advocates.

          g.   REQUIRED ELEMENTS OF A CASE MANAGEMENT SYSTEM

               A case management system includes but is not limited to:

               1)   procedures and the capacity to implement the provision of
                    individual needs assessment including the screening for
                    special needs (e.g. mental health, high risk health
                    problems, functional problems, language or comprehension
                    barriers); the development of an individual treatment plan
                    as necessary based on the needs assessment; the
                    establishment of treatment objectives, treatment follow-up,
                    the monitoring of outcomes, and a process to ensure that
                    treatment plans are revised as necessary. These procedures
                    will be designed to accommodate the specific cultural and
                    linguistic needs of the Enrollee;

               2)   procedures designed to address those Enrollees, including
                    children with special health care needs, who may require
                    services from multiple providers, facilities and agencies
                    and require complex coordination of benefits and services,
                    including social services and other community resources;

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                                                                    Attachment B
                                                          Effective July 1, 2002

               3)   a strategy to ensure that all Enrollees and/or authorized
                    Family Members or guardians are involved in treatment
                    planning and consent to the medical treatment;

               4)   procedures and criteria for making referrals and
                    coordinating care by specialists and sub-specialists that
                    will promote continuity as well as cost-effectiveness of
                    care; and

               5)   procedures to provide continuity of care for new Enrollees
                    to prevent disruption in the provision of Covered Services
                    that include, but are not limited to, appropriate case
                    management staff able to evaluate and handle individual case
                    transition and care planning, internal mechanisms to
                    evaluate plan networks and special case needs.

          h.   HOSPICE

               If an Enrollee is receiving hospice services at the time of
               enrollment in the MCO or if the Enrollee is already enrolled in
               the MCO and has less than six months to live, the Enrollee will
               be offered hospice services or the continuation of hospice
               services if he or she is already receiving such services prior to
               enrollment in the MCO.

     4.   INPATIENT HOSPITAL SERVICES

          If a CONTRACTOR's provider admits an Enrollee for inpatient hospital
          care, the CONTRACTOR has the responsibility for all services needed by
          the Enrollee during the hospital stay that are ordered by the
          CONTRACTOR's provider. Needed services include but are not limited to
          diagnostic tests, pharmacy, and physician services, including services
          provided by psychiatrists. If diagnostic tests conducted during the
          inpatient stay reveal that the Enrollee's condition is outside the
          scope of the CONTRACTOR's responsibility, the CONTRACTOR remains
          responsible for the Enrollee until the Enrollee is discharged or until
          responsibility is transferred to another appropriate entity and the
          entity agrees to take financial responsibility, including negotiating
          a payment for services. If the Enrollee is discharged and needs
          further services, the admitting CONTRACTOR will coordinate with the
          other appropriate entity to ensure continued care is provided. The
          CONTRACTOR and appropriate entity will work cooperatively in the best
          interest of the Enrollee. The appropriate entity includes, but is not
          limited to, a Prepaid Mental Health Plan or another MCO.

     5.   MATERNITY STAYS

          a.   THE NEWBORNS' AND MOTHERS' HEALTH PROTECTION ACT (NMHPA)

               The CONTRACTOR must meet the requirements of the Newborns' and
               Mothers' Health Protection Act (NMHPA). The CONTRACTOR must
               record early discharge information for monitoring, quality, and
               improvement purposes. The CONTRACTOR will ensure that coverage is
               provided with respect to a mother who is an Enrollee and her
               newborn child for a minimum of 48 hours of inpatient care
               following a normal vaginal delivery, and a minimum of 96 hours

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                                                                    Attachment B
                                                          Effective July 1, 2002

               of inpatient care following a caesarean section, without
               requiring the attending provider to obtain authorization from the
               CONTRACTOR in order to keep a mother and her newborn child in the
               inpatient setting for such period of time.

          b.   EARLY DISCHARGES

               Notwithstanding the prior sentence, the CONTRACTOR will not be
               required to provide coverage for post-delivery inpatient care for
               a mother who is an Enrollee and her newborn child during such
               period of time if (1) a decision to discharge the mother and her
               newborn child prior to the expiration of such period is made by
               the attending provider in consultation with the mother; and (2)
               the CONTRACTOR provides coverage for timely post-delivery
               follow-up care.

          c.   POST-DELIVERY CARE

               Post-delivery care will be provided to a mother and her newborn
               child by a registered nurse, physician, nurse practitioner, nurse
               midwife or physician assistant experienced in maternal and child
               health in (1) the home, a provider's office, a hospital, a
               federally qualified health center, a federally qualified rural
               health clinic, or a State health department maternity clinic; or
               (2) another setting determined appropriate under regulations
               promulgated by the Secretary of Health and Human Services,
               (including a birthing center or an intermediate care facility);
               except that such coverage will ensure that the mother has the
               option to be provided with such care in the home.

          d.   TIMELY POST-DELIVERY CARE

               "Timely post-delivery care" means health care that is provided
               (1) following the discharge of a mother and her newborn child
               from the inpatient setting; and (2) in a manner that meets the
               health needs of the mother and her newborn child, that provides
               for the appropriate monitoring of the conditions of the mother
               and child, and that occurs within the 24 to 72 hour period
               immediately following discharge.

     6.   CHILDREN IN CUSTODY OF THE DEPARTMENT OF HUMAN SERVICES

          a.   IN GENERAL

               The CONTRACTOR will work with the Division of Child and Family
               Services (DCFS) or the Division of Youth Corrections (DYC) in the
               Department of Human Services (DHS) to ensure systems are in place
               to meet the health needs of children in custody of the Department
               of Human Services. The CONTRACTOR will ensure these children
               receive timely access to appointments through coordination with
               DCFS or DYC. The CONTRACTOR must have available providers who
               have experience and training in abuse and neglect issues.

               The CONTRACTOR or its providers will make every reasonable effort
               to ensure that a child who is in custody of the Department of
               Human Services may

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                                                                    Attachment B
                                                          Effective July 1, 2002

               continue to use the provider with whom the child has an
               established professional relationship when the provider is part
               of the CONTRACTOR's network. The CONTRACTOR will facilitate
               timely appointments with the provider of record to ensure
               continuity of care for the child.

               While it is the CONTRACTOR's responsibility to ensure Enrollees
               who are children in the custody of DHS have access to needed
               services, DHS personnel are primarily responsible to assist
               children in custody in arranging for and getting to medical
               appointments and evaluations with the CONTRACTOR's network of
               providers. DHS staff are primarily responsible for contacting the
               CONTRACTOR to coordinate care for children in custody and
               informing the CONTRACTOR of the special health care needs of
               these Enrollees. The Fostering Healthy Children staff may assist
               the DHS staff in performing these functions by communicating with
               the CONTRACTOR.

          b.   SCHEDULE OF VISITS

               1)   Where physical and/or sexual abuse is suspected

                    In cases where the child protection worker suspects physical
                    and/or sexual abuse, the CONTRACTOR will ensure that the
                    child has access to an appropriate examination within 24
                    hours of notification that the child was removed from the
                    home. If the CONTRACTOR cannot provide an appropriate
                    examination, the CONTRACTOR will ensure the child has access
                    to a provider who can provide an appropriate examination
                    within the 24 hour period.

               2)   All other cases

                    In all other cases, the CONTRACTOR will ensure that the
                    child has access to an initial health screening within five
                    calendar days of notification that the child was removed
                    from the home. The CONTRACTOR will ensure this exam
                    identifies any health problems that might determine the
                    selection of a suitable placement, or require immediate
                    attention.

               3)   CHEC exams

                    In all cases, the CONTRACTOR will ensure that the child has
                    access to a Child Health Evaluation and Care (CHEC)
                    screening within 30 calendar days of notification that the
                    child was removed from the home. Whenever possible, the CHEC
                    screening should be completed within the five-day time
                    frame. Additionally, the CONTRACTOR will ensure the child
                    has access to a CHEC screening according to the CHEC
                    periodicity schedule until age six, then annually
                    thereafter.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     7.   ORGAN TRANSPLANTATIONS

          a.   IN GENERAL

               All organ transplantation services are the responsibility of the
               CONTRACTOR for all Enrollees in accordance with the criteria set
               forth in Rule R414-10A of the Utah Administrative Code, unless
               amended under the provisions of Attachment B, Article IV
               (Benefits), Section C, Subsection 3 of this Contract. The
               DEPARTMENT's criteria will be provided to the CONTRACTOR.

          b.   SPECIFIC ORGAN TRANSPLANTATIONS COVERED

               The following transplantations are covered for Enrollees under
               the Traditional Medicaid Plan as described in Rule R414-10A:
               Kidney, liver, cornea, bone marrow, stem cell, heart, intestine,
               lung, pancreas, small bowel, combination heart/lung, combination
               intestine/liver, combination kidney/pancreas, combination
               liver/kidney, multi visceral, and combination liver/small bowel.
               Transplantations for Enrollees under the Non-Traditional Medicaid
               Plan are limited to kidney, liver, cornea, bone marrow, stem
               cell, heart, and lung.

          c.   PSYCHOSOCIAL EVALUATION REQUIRED

               Enrollees who have applied for organ transplantations, except
               cornea or kidney, must undergo a comprehensive psycho-social
               evaluation by a board-certified or board-eligible psychiatrist.
               The evaluation must include a comprehensive history regarding
               substance abuse and compliance with medical treatment. In
               addition, the parent(s) or guardian(s) of Enrollees who are less
               than 18 years of age must undergo a psycho-social evaluation that
               includes a comprehensive history regarding substance abuse, and
               past and present compliance with medical treatment.

               If a request is made for a transplantation not listed above, the
               CONTRACTOR will contact the DEPARTMENT. Such requests will be
               addressed as set forth in R414-10A-23.

          d.   OUT-OF-STATE TRANSPLANTATIONS

               When the CONTRACTOR arranges the transplantation to be performed
               out-of-state, the CONTRACTOR is responsible for coverage of food,
               lodging, transportation and airfare expenses for the Enrollee and
               attendant. The CONTRACTOR will follow, at a minimum, the
               DEPARTMENT's criteria for coverage of food, lodging,
               transportation and airfare expenses.

     8.   MENTAL HEALTH SERVICES

          When an Enrollee presents with a possible mental health condition to
          his or her CONTRACTOR primary care physician, it is the responsibility
          of the primary care provider to determine whether the Enrollee should
          be referred to a psychologist, pediatric specialist, psychiatrist,
          neurologist, or other specialist. Mental health

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                                                                    Attachment B
                                                          Effective July 1, 2002

          conditions may be handled by the CONTRACTOR primary care provider and
          referred to the Enrollee's Prepaid Mental Health Plan when more
          specialized services are required for the Enrollee. CONTRACTOR primary
          care providers may seek consultation from the Prepaid Mental Health
          Plan when the primary care provider chooses to manage the Enrollee's
          symptoms.

          An independent panel comprised of specialists appropriate to the
          concern will be established by the DEPARTMENT with representatives
          from the CONTRACTOR and Prepaid Mental Health Plan to adjudicate
          disputes regarding which entity (the CONTRACTOR or Prepaid Mental
          Health Plan) is responsible for payment and/or treatment of a
          condition. The panel will be convened on a case-by-case basis. The
          CONTRACTOR and Prepaid Mental Health Plan will adhere to the final
          decision of the panel.

     9.   DEVELOPMENTAL AND ORGANIC DISORDERS

          a.   COVERED SERVICES FOR CHILD ENROLLEES THROUGH AGE 20

               1)   The CONTRACTOR is responsible for all inpatient and
                    physician outpatient Covered Services for child Enrollees
                    with developmental (ICD-9 codes 299 through 299.8 and 317
                    through 319.9) or organic diagnoses (ICD-9 codes 290 through
                    294.9 and 310 through 310.9) including, but not limited to,
                    diagnostic work-ups and other medical care such as
                    medication management services related to the developmental
                    or organic disorder.

               2)   The CONTRACTOR is responsible for all psychological
                    evaluations and testing including neuropsychological
                    evaluations and testing for child Enrollees with
                    developmental or organic disorders such as brain tumors,
                    brain injuries, and seizure disorders.

          b.   COVERED SERVICES FOR ADULT ENROLLEES AGE 21 AND OLDER

               The CONTRACTOR is responsible for all inpatient and physician
               outpatient Covered Services for adult Enrollees with
               developmental (ICD-9 codes 299 through 299.8 and 317 through
               319.9) and organic diagnoses (ICD-9 codes 290 through 294.9 and
               310 through 310.9) including diagnostic work-ups and other
               medical care such as medication management services related to
               the developmental or organic disorder.

          c.   NON-COVERED SERVICES

               1)   Psychological evaluations and testing including
                    neuropsychological evaluations and testing for adult
                    Enrollees is not the responsibility of the CONTRACTOR.

               2)   Habilitative and behavioral management services are not the
                    responsibility of the CONTRACTOR. If habilitative services
                    are required, the Enrollee should be referred to the
                    Division of Services for

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                                                                    Attachment B
                                                          Effective July 1, 2002

                    People with Disabilities (DSPD), the school system, the
                    Early Intervention Program, or similar support program or
                    agency. The Enrollee should also be referred to DSPD for
                    consideration of other benefits and programs that may be
                    available through DSPD. Habilitative services are defined in
                    Section 1915(c)(5)(a) of the Social Security Act as
                    "services designed to assist individuals in acquiring,
                    retaining and improving the self-help, socialization and
                    adaptive skills necessary to reside successfully in home and
                    community based settings."

          d.   RESPONSIBILITY OF THE PREPAID MENTAL HEALTH PLAN

               The Prepaid Mental Health Plan is responsible for the treatment
               of the mental illness to individuals with both an organic and a
               psychiatric diagnosis or with both a developmental and a
               psychiatric diagnosis.

     10.  OUT-OF-STATE ACCESSORY SERVICES

          When the CONTRACTOR arranges a Covered Service to be performed
          out-of-state, the CONTRACTOR is responsible for coverage of airfare,
          food and lodging for the Enrollee and one attendant during the stay at
          the out-of-state facility. Ground transportation costs only from the
          airport to the hotel or hospital and back to the airport, one time
          only are also the responsibility of the CONTRACTOR. The CONTRACTOR
          will follow, at a minimum, the DEPARTMENT's criteria for coverage of
          food, lodging, transportation, and airfare expenses.

     11.  NON-CONTRACTOR PRIOR AUTHORIZATIONS

          a.   PRIOR AUTHORIZATIONS - GENERAL

               The CONTRACTOR shall honor prior authorizations for organ
               transplantations and any other ongoing services initiated by the
               DEPARTMENT while the Enrollee was covered under Medicaid
               fee-for-service until the Enrollee is evaluated by the CONTRACTOR
               and a new plan of care is established.

          b.   WHEN THE CONTRACTOR HAS NOT AUTHORIZED THE SERVICE AND THE
               PROVIDER IS NOT A PARTICIPATING PROVIDER

               For services that require a prior authorization, the CONTRACTOR
               will pay the provider of the service at the Medicaid rate, if all
               of the following conditions are met:

               1)   the servicing provider is not a participating provider under
                    contract with the CONTRACTOR; and

               2)   the DEPARTMENT issued a prior authorization for an Enrollee
                    to the servicing provider; and

               3)   the servicing provider has completed the CONTRACTOR's
                    appeals process without resolution of the claim, and has
                    requested a hearing with

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                                                                    Attachment B
                                                          Effective July 1, 2002

                    the State Formal Hearings Unit requesting payment for the
                    services rendered; and

               4)   in the hearing process it is determined that the service
                    rendered was a Medically Necessary service covered under
                    this Contract, and that the CONTRACTOR will be responsible
                    for payment of the claim.

F.   CLARIFICATION OF PAYMENT RESPONSIBILITIES

     1.   COVERED SERVICES RECEIVED OUTSIDE CONTRACTOR's NETWORK BUT PAID BY
          CONTRACTOR

          The CONTRACTOR will not be required to pay for Covered Services,
          defined in Attachment C, which the Enrollee receives from sources
          outside The CONTRACTOR's network, not arranged for and not authorized
          by the CONTRACTOR except as follows:

          a.   Emergency Services;
          b.   Court ordered services that are Covered Services defined in
               Attachment C and which have been coordinated with the CONTRACTOR;
               or
          c.   Cases where the Enrollee demonstrates that such services are
               Medically Necessary Covered Services and were unavailable from
               the CONTRACTOR.

     2.   PAYMENT TO NON-NETWORK PROVIDERS AND TO PROVIDERS OUT OF THE SERVICE
          AREA

          Payment by the CONTRACTOR to an out-of-network provider for emergency
          services and/or to a provider out of the Service Area for services
          that are approved for payment by the CONTRACTOR shall not exceed the
          lower of the following rates applicable at the time the services were
          rendered to an Enrollee, unless there is a negotiated arrangement:

          a.   The usual charges made to the general public by the provider;
          b.   The rate equal to the applicable Medicaid fee-for-service rate;
               or
          c.   The rate agreed to by the CONTRACTOR and the provider.

     3.   WHEN COVERED SERVICES ARE NOT THE CONTRACTOR's RESPONSIBILITY

          a.   The CONTRACTOR is not responsible for payment when family
               planning services are obtained by an Enrollee from sources other
               than the CONTRACTOR.

          b.   The CONTRACTOR will not be required to provide, arrange for, or
               pay for Covered Services to Enrollees whose illness or injury
               results directly from a catastrophic occurrence or disaster,
               including, but not limited to, earthquakes or acts of war. The
               effective date of excluding such Covered Services will be the
               date specified by the Federal Government or the State of Utah
               that a Federal or State emergency exists or disaster has
               occurred.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     4.   THE DEPARTMENT's RESPONSIBILITY

          Except as described in Attachment F (Rates and Rate-Related Terms) of
          this Contract, the DEPARTMENT will not be required to pay for any
          Covered Services under Attachment C which the Enrollee received from
          any sources outside the CONTRACTOR except for family planning
          services.

     5.   COVERED SERVICES PROVIDED BY THE DEPARTMENT OF HEALTH, DIVISION OF
          COMMUNITY AND FAMILY HEALTH SERVICES

          For Enrollees who qualify for special services offered by or through
          the Department of Health, Division of Community and Family Health
          Services (DCFHS), the CONTRACTOR agrees to reimburse DCFHS at the
          standard Medicaid rate in effect at the time of service for one
          outpatient team evaluation and one follow-up visit for each Enrollee
          upon each instance that the Enrollee both becomes Medicaid eligible
          and selects the CONTRACTOR as its provider. The CONTRACTOR agrees to
          waive any prior authorization requirement for one outpatient team
          evaluation and one follow-up visit. The services provided in the
          outpatient team evaluation and follow-up visit for which the
          CONTRACTOR will reimburse DCFHS are limited to the services that the
          CONTRACTOR is otherwise obligated to provide under this Contract.

          If the CONTRACTOR desires a more detailed agreement for additional
          services to be provided by or through DCFHS for children with special
          health care needs, the CONTRACTOR may subcontract with DCFHS. The
          CONTRACTOR agrees that the subcontract with DCFHS will acknowledge and
          address the specific needs of DCFHS as a government provider.

     6.   ENROLLEE TRANSITION BETWEEN MCOs, OR BETWEEN FEE-FOR-SERVICE AND
          CONTRACTOR

          a.   INPATIENT HOSPITAL

               When an Enrollee is in an inpatient hospital setting and selects
               another MCO or becomes fee-for-service anytime prior to discharge
               from the hospital, the CONTRACTOR is financially responsible for
               the entire hospital stay including all services related to the
               hospital stay, i.e. physician, etc. The MCO in which the
               individual is enrolled when discharged from the hospital is
               financially responsible for services provided during the
               remainder of the month when the individual was discharged. If
               such individual is fee-for-service when discharged from the
               hospital, the DEPARTMENT is financially responsible for the
               remainder of the month when the individual was discharged. If a
               Medicaid eligible is fee-for-service when admitted to the
               hospital and selects an MCO anytime prior to discharge from the
               hospital, the DEPARTMENT is financially responsible for the
               entire hospital stay including all services related to the
               hospital stay, i.e. physician, etc. The MCO in which the
               individual is enrolled when discharged from the hospital is
               financially responsible for services provided during the
               remainder of the month when the individual was discharged. When
               an Enrollee is in an inpatient hospital setting at the time the
               CONTRACTOR terminates this Contract and the Enrollee selects
               another MCO

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                                                                    Attachment B
                                                          Effective July 1, 2002

               anytime prior to discharge from the hospital, the receiving MCO
               is financially responsible for the hospital stay beginning 30
               days after termination of the Contract.

          b.   HOME HEALTH SERVICES

               Medicaid clients who are under fee-for-service or are enrolled in
               an MCO other than this MCO and are receiving home health services
               from an agency not contracting with the CONTRACTOR will be
               transitioned to the CONTRACTOR's home health agency. The
               CONTRACTOR is responsible for payment, not to exceed Medicaid
               payment, for a period not to exceed seven calendar days, unless
               the CONTRACTOR and the home health agency agree to another time
               period in writing, after the CONTRACTOR notifies the
               non-participating home health agency of the change in status or
               the non-participating home health agency notifies the CONTRACTOR
               that services are being provided by its agency. The CONTRACTOR
               will assess the needs of the Enrollee at the time the CONTRACTOR
               provides the orientation to the Enrollee.

               The CONTRACTOR will include the Enrollee in developing the plan
               of care to be provided by the CONTRACTOR's home health agency
               before the transition is complete. The CONTRACTOR will address
               Enrollee's concerns regarding Covered Services provided by the
               CONTRACTOR's home health agency before the new plan of care is
               implemented.

          c.   MEDICAL EQUIPMENT

               When medical equipment is ordered for an Enrollee by the
               CONTRACTOR and the Enrollee enrolls in a different MCO or becomes
               fee-for-service before receiving the equipment, the CONTRACTOR is
               responsible for payment of such equipment. When medical equipment
               is ordered for a Medicaid eligible by the DEPARTMENT and the
               Enrollee selects an MCO, the DEPARTMENT is responsible for
               payment of such equipment. Medical equipment includes, but is not
               limited to, specialized wheelchairs or attachments, prostheses,
               and other equipment designed or modified for an individual
               client. Any attachments to the equipment, replacements, or new
               equipment is the responsibility of the MCO in which the client is
               enrolled at the time such equipment is ordered.

     7.   SURVEYS

          All surveys required under this Contract will be funded by the
          CONTRACTOR unless funded by another source such as the Utah Department
          of Health, Office of Health Care Statistics. The surveys must be
          conducted by an independent vendor mutually agreed upon by the
          DEPARTMENT and CONTRACTOR. The DEPARTMENT or designee will analyze the
          results of the surveys. Before publishing articles, data, reports,
          etc. related to surveys the DEPARTMENT will provide drafts of such
          material to the CONTRACTOR for review and feedback. The CONTRACTOR
          will not be responsible for the costs incurred for such publishing by
          the DEPARTMENT.

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                                                                    Attachment B
                                                          Effective July 1, 2002

                      ARTICLE V - ENROLLEE RIGHTS/SERVICES

A.   MEMBER SERVICES FUNCTION

     The CONTRACTOR must operate a Member Services function during regular
     business hours. Ongoing training, as necessary, shall be provided by the
     CONTRACTOR to ensure that the Member Services staff is conversant in the
     CONTRACTOR's policies and procedures as they relate to Enrollees. At a
     minimum, Member Services staff must be responsible for the following:

     1.   Explaining the CONTRACTOR's rules for obtaining services;

     2.   Assisting Enrollees to select or change primary care providers;

     3.   Fielding and responding to Enrollee questions and complaints and
          grievances.

     The CONTRACTOR shall conduct ongoing assessment of its orientation staff to
     determine staff member's understanding of the MCO and its Medicaid managed
     care policies and provide training, as needed.

B.   ENROLLEE LIABILITY

     1.   The CONTRACTOR will not hold an Enrollee liable for the following:

          a.   The debts of the CONTRACTOR if it should become insolvent.

          b.   Payment for services provided by the CONTRACTOR if the CONTRACTOR
               has not received payment from the DEPARTMENT for the services, or
               if the provider, under contract with the CONTRACTOR, fails to
               receive payment from the CONTRACTOR.

          c.   The payments to providers that furnish Covered Services under a
               contract or other arrangement with the CONTRACTOR that are in
               excess of the amount that normally would be paid by the Enrollee
               if the service had been received directly from the CONTRACTOR.

C.   GENERAL INFORMATION TO BE PROVIDED TO ENROLLEES

     The CONTRACTOR will make the following information available to Enrollees
     and potential Enrollees on request:

     1.   The identity, locations, qualification, and availability of
          participating providers (at a minimum, area of specialty, board
          certification, and any special areas of expertise must be available
          that would be helpful to individuals deciding whether to enroll with
          the CONTRACTOR);

     2.   The rights and responsibilities of Enrollees;

     3.   The procedures available to Enrollees and providers to challenge or
          appeal the failure of

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                                                                    Attachment B
                                                          Effective July 1, 2002

          the CONTRACTOR to cover a services; and

     4.   All items and services that are available to Enrollees that are
          covered either directly or through a method of referral or prior
          authorization.

D.   ACCESS

     1.   IN GENERAL

          The CONTRACTOR shall provide the DEPARTMENT and the Department of
          Health and Human Services, Centers for Medicare and Medicaid, adequate
          assurances that the CONTRACTOR, with respect to a service area, has
          the capacity to serve the expected enrollment in such service area,
          including assurances that the CONTRACTOR offers an appropriate range
          of services and access to preventive and primary care services for the
          population expected to enroll in such service area, and maintains a
          sufficient number, mix and geographic distribution of providers of
          services.

          The CONTRACTOR will provide services which are accessible to Enrollees
          and appropriate in terms of timeliness, amount, duration, and scope.

     2.   SPECIFIC PROVISIONS

          a.   ELIMINATION OF ACCESS PROBLEMS CAUSED BY GEOGRAPHIC, CULTURAL AND
               LANGUAGE BARRIERS AND PHYSICAL DISABILITIES

               The CONTRACTOR will minimize, with a goal to eliminate,
               Enrollee's access problems due to geographic, cultural and
               language barriers, and physical disabilities. The CONTRACTOR will
               provide assistance to Enrollees who have communication
               impediments or impairments to facilitate proper diagnosis and
               treatment. The CONTRACTOR must guarantee equal access to services
               and benefits for all Enrollees by making available interpreters,
               Telecommunication Devices for the Deaf (TDD), and other auxiliary
               aids to all Enrollees as needed. The CONTRACTOR will accommodate
               Enrollees with physical and other disabilities in accordance with
               the American Disabilities Act of 1990 (ADA), as amended. If the
               CONTRACTOR's facilities are not accessible to Enrollees with
               physical disabilities, the CONTRACTOR will provide services in
               other accessible locations.

          b.   INTERPRETIVE SERVICES

               The CONTRACTOR will provide interpretive services for languages
               on an as needed basis. These requirements will extend to both
               in-person and telephone communications to ensure that Enrollees
               are able to communicate with the CONTRACTOR and CONTRACTOR's
               providers and receive Covered Services. Professional interpreters
               will be used 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. A family member or
               friend may be used as an interpreter if this method is requested
               by the patient, and the use of such a

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                                                                    Attachment B
                                                          Effective July 1, 2002

               person would not compromise the effectiveness of services or
               violate the patient's confidentiality, and the patient is advised
               that a free interpreter is available.

          c.   CULTURAL COMPETENCE REQUIREMENTS

               The CONTRACTOR shall incorporate in its policies, administration,
               and delivery of services the values of honoring Enrollee's
               beliefs; being sensitive to cultural diversity; and promoting
               attitudes and interpersonal communication styles with staff and
               providers which respect Enrollees' cultural backgrounds. The
               CONTRACTOR must foster cultural competency among its providers.
               Culturally competent care is care given by a provider who can
               communicate with the Enrollee and provide care with sensitivity,
               understanding, and respect for the Enrollee's culture, background
               and beliefs. The CONTRACTOR shall strive to ensure its providers
               provide culturally sensitive services to Enrollees. These
               services shall include but are not limited to providing training
               to providers regarding how to promote the benefits of health care
               services as well as training about health care attitudes,
               beliefs, and practices that affect access to health care
               services.

          d.   NO RESTRICTIONS OF PROVIDER's ABILITY TO ADVISE AND COUNSEL

               The CONTRACTOR may not restrict a health care provider's ability
               to advise and counsel Enrollees about Medically Necessary
               treatment options. All contracting providers acting within his or
               her scope of practice, must be permitted to freely advise an
               Enrollee about his or her health status and discuss appropriate
               medical care or treatment for that condition or disease
               regardless of whether the care or treatment is a Covered Service.

          e.   WAITING TIME BENCHMARKS

               The CONTRACTOR will adopt benchmarks for waiting times for
               physician appointments as follows:

               Waiting Time for Appointments
               1)   Primary Care Providers:
                    .      within 30 days for routine, non-urgent appointments
                    .      within 60 days for school physicals
                    .      within 2 days for urgent, symptomatic, but not
                           life-threatening care (care that can be treated in
                           the doctor's office)

               2)   Specialists:
                    .      within 30 days for non-urgent
                    .      within 2 days for urgent, symptomatic, but not
                           life-threatening care (care that can be treated in a
                           doctor's office)

               These benchmarks do not apply to appointments for regularly
               scheduled visits to monitor a chronic medical condition if the
               schedule calls for visits less frequently than once every month.

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                                                                    Attachment B
                                                          Effective July 1, 2002

E.   CHOICE

     The CONTRACTOR must allow Enrollees the opportunity to select a
     participating Primary Care Provider. This excludes clients who are under
     the Restriction Program. If an Enrollee's Primary Care Provider ceases to
     participate in the CONTRACTOR's network, the CONTRACTOR must offer the
     Enrollee the opportunity to select a new Primary Care Provider.

F.   COORDINATION

     1.   IN GENERAL

          The CONTRACTOR will ensure access to a coordinated, comprehensive and
          continuous array of needed services through coordination with other
          appropriate entities. The CONTRACTOR's providers are not responsible
          for rendering waiver services.

     2.   PREPAID MENTAL HEALTH PLAN

          a.   When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR and Prepaid Mental Health Plan will share
               appropriate information regarding the Enrollee's health care to
               ensure coordination of physical and mental health care services.

          b.   The CONTRACTOR will educate its subcontracted providers regarding
               an effective model of coordination such as the model developed by
               the PMHP/MCO Coordination of Care Committee. The CONTRACTOR will
               ensure its subcontracted providers coordinate the provision of
               physical health care services with mental health care services as
               appropriate.

          c.   When an Enrollee is also enrolled in a Prepaid Mental Health
               Plan, the CONTRACTOR will not delay an Enrollee's access to
               needed services in disputes regarding responsibility for payment.
               Payment issues should be addressed only after needed services are
               rendered. As described in Attachment B, IV (Benefits), Section E
               (Clarification of Covered Services), Subsection 8 of this
               Contract, the independent panel established by the DEPARTMENT
               will assist in adjudicating such disputes when requested to do so
               by either party.

          d.   Clients enrolled in the MCO and a Prepaid Mental Health Plan who
               due to a psychiatric condition require lab, radiology and similar
               outpatient services covered under this Contract, but prescribed
               by the Prepaid Mental Health Plan physician, will have access to
               such services in a timely fashion. The CONTRACTOR and Prepaid
               Mental Health Plan will reduce or eliminate unnecessary barriers
               that may delay the Enrollee's access to these critical services.

     3.   DOMESTIC VIOLENCE

          The CONTRACTOR will ensure that providers are knowledgeable about
          methods to detect domestic violence and about resources in the
          community to which they can refer patients.

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                                                                    Attachment B
                                                          Effective July 1, 2002

     4.   RESTRICTION PCP

          The CONTRACTOR will ensure that Enrollees who are on the Restriction
          Program are linked to a primary care physician (PCP) who agrees to
          serve as a Restriction PCP. The Restriction PCP must agree to the
          following:

          a.   manage all of the Enrollee's medical care;

          b.   educate the Enrollee regarding appropriate use of medical
               services;

          c.   provide a referral to another physician when needed care is not
               within the PCP's field of expertise, or when for some other
               reason the care cannot be provided by the PCP;

          d.   must be telephonically available 24 hours a day, seven days a
               week (or make certain a provider of comparable specialty is
               available) for urgent/emergent medical situations to assure the
               availability of prompt, quality, medical services and continuity
               of care;

          e.   manage acute and/or chronic long term pain through a variety of
               services or treatment options including office calls, medication
               administration, physical therapy, counseling and mental health
               referral with emphasis on teaching Enrollees to manage their pain
               by adapting actions and behaviors;

          f.   approve or deny drugs prescribed by other providers when
               contacted by the pharmacy to which the Enrollee is restricted;

          g.   work with the Restriction pharmacy, specialists, dentists, etc.
               sharing pertinent information regarding the Enrollee; and

          h.   provide information to the DEPARTMENT's Restriction staff that
               will help assess Restriction Enrollees' progress and that may
               include periodic written or telephonic evaluations when requested
               by the Restriction staff.

          If the Restricted Enrollee's PCP chooses to no longer serve as the
          Enrollee's PCP, the CONTRACTOR must assist the Enrollee in finding a
          new PCP and coordinate with the DEPARTMENT's Restriction staff.

          If a Restriction PCP ceases participation with the CONTRACTOR, the
          CONTRACTOR must communicate this immediately to the DEPARTMENT's
          Restriction staff. The CONTRACTOR must assist all affected Enrollees
          in finding a new PCP and notify the DEPARTMENT when the new PCP is
          selected.

G.   BILLING ENROLLEES

     1.   IN GENERAL

          Except as provided herein Attachment B. Article V (Enrollee
          Rights/Services), Section G (Billing Enrollees). subsection 2, no
          claim for payment will be made at any time by the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          CONTRACTOR or its providers to an Enrollee accepted by that provider
          as an Enrollee for any Covered Service. When a provider accepts an
          Enrollee as a patient he or she will look solely to the CONTRACTOR and
          any third party coverage for reimbursement. If the provider fails to
          receive payment from the CONTRACTOR, the Enrollee cannot be held
          responsible for these payments.

     2.   CIRCUMSTANCES WHEN AN ENROLLEE MAY BE BILLED

          An Enrollee may in certain circumstances be billed by the provider for
          non-Covered Services and/or for unpaid Medicaid co-payments or
          Medicaid co-insurance. A non-Covered Service is one that is not
          covered under this Contract, or includes special features or
          characteristics that are desired by the Enrollee, such as more
          expensive eyeglass frames, hearing aids, custom wheelchairs, etc., but
          do not meet the Medical Necessity criteria for amount, duration, and
          scope as set forth in the Utah State Plan. The DEPARTMENT will specify
          to the CONTRACTOR the extent of Covered Services and items under the
          Contract, as well as services not covered under the Contract but
          provided by Medicaid on a fee-for-service basis that would effect the
          CONTRACTOR's Covered Services. An Enrollee may be billed for a service
          not covered under this Contract and/or for unpaid Medicaid co-payment
          or co-insurance only when all of the following conditions are met:

          a.   the provider has an established policy for billing all patients
               for services not covered by a third party and/or for billing all
               patients for unpaid co-payment or co-insurance (non-Covered
               Services cannot be billed only to Enrollees.);

          b.   the provider has informed the Enrollee of its policy and the
               services and items that are not covered under this Contract
               and/or Medicaid co-payment or co insurance requirements and
               included this information in the Enrollee's member handbook;

          c.   the provider has advised the Enrollee prior to rendering the
               service that the service is not covered under this Contract
               and/or that a Medicaid co-payment or co-insurance is required and
               that the Enrollee will be personally responsible for making
               payment; and

          d.   in the case of non-Covered Services, the Enrollee agrees to be
               personally responsible for the payment of the non-Covered Service
               and an agreement is made in writing between the provider and the
               Enrollee which details the service and the amount to be paid by
               the Enrollee.

     3.   CONTRACTOR MAY NOT HOLD ENROLLEE's MEDICAID CARD

          The CONTRACTOR or its providers will not hold the Enrollee's Medicaid
          card as guarantee of payment by the Enrollee. nor may any other
          restrictions be placed upon the Enrollee.

     4.   CRIMINAL PENALTIES

          Criminal penalties shall be imposed on MCO providers as authorized
          under section

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                                                                    Attachment B
                                                          Effective July 1, 2002

          1128B(d)(1)of the Social Security Act if the provider knowingly and
          willfully charges an Enrollee at a rate other than those allowed under
          this Contract.

H.   SURVEY REQUIREMENTS

     Surveys will be conducted of the CONTRACTOR's Enrollees that will include
     questions about Enrollees' perceptions of access to and the quality of care
     received through the CONTRACTOR. The survey process, including the survey
     instrument, will be standardized and developed collaboratively among the
     DEPARTMENT and all contracting MCOs. The DEPARTMENT will analyze the
     results of the surveys. The CONTRACTOR's quality assurance committee will
     review the results of the surveys, identify areas needing improvement,
     outline action steps to follow up on findings, and inform (at a minimum),
     subcontractors, and member and provider services staff, when applicable.

     1.   GENERAL POPULATION SURVEY

          At least every two years, the CONTRACTOR in conjunction with the
          DEPARTMENT will survey a sample of its general population Enrollees;
          i.e., Enrollees who do not meet the definition of those with special
          health care needs.

     2.   SPECIAL NEEDS SURVEY

          At least every two years, the CONTRACTOR in conjunction with the
          DEPARTMENT will survey a sample of Enrollees with special health care
          needs.

                        ARTICLE VI - GRIEVANCE PROCEDURES

A.   IN GENERAL

     The CONTRACTOR will maintain a system for reviewing and adjudicating
     complaints and grievances by Enrollees and providers. The CONTRACTOR's
     complaint and grievance procedures must permit an Enrollee, or provider on
     behalf of an Enrollee, to challenge the denials of coverage of medical
     assistance or denials of payment for Covered Services. The CONTRACTOR will
     submit such grievance plans and procedures to the DEPARTMENT for approval
     prior to instituting or changing such procedures. Such procedures will
     provide for expeditious resolution of complaints and grievances by the
     CONTRACTOR's personnel who have authority to correct problems. The
     CONTRACTOR shall ensure that each Enrollee with limited English proficiency
     shall have the right to receive oral interpreter services without charge to
     the Enrollee at each stage of the CONTRACTOR's complaint and grievance
     process, including final determination. The CONTRACTOR shall separately
     track complaints and grievances that are related to Children with Special
     Health Care Needs and those related to Non-Traditional Medicaid Enrollees.

B.   NONDISCRIMINATION

     The CONTRACTOR shall designate a nondiscrimination coordinator who will 1)
     ensure the CONTRACTOR complies with Federal Laws and Regulations regarding
     nondiscrimination, and 2) take complaints and grievances from Enrollees
     alleging nondiscrimination violations based on

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                                                                    Attachment B
                                                          Effective July 1, 2002

     race, color, national origin, disability, or age. The nondiscrimination
     coordinator may also handle complaints regarding the violation of other
     civil rights (sex and religion) as other Federal laws and Regulations
     protect against these forms of discrimination. The CONTRACTOR will develop
     and implement a written method of administration to assure that the
     CONTRACTOR's programs, activities, services, and benefits are equally
     available to all persons without regard to race, color, national origin,
     disability, or age.

C.   MINIMUM REQUIREMENTS OF GRIEVANCE PROCEDURES

     At a minimum, the CONTRACTOR's complaint and grievance procedures must
     include

     1.   definitions of complaints and grievance;

     2.   details of how, when, where and with whom an Enrollee or provider may
          file a grievance;

     3.   assurances of the participation of individuals with authority to take
          corrective action;

     4.   responsibilities of the various components and staff of the
          organization;

     5.   a description of the process for timely review, prompt (45 days)
          resolution of complaints and grievances;

     6.   details of an appeal process; and

     7.   a provision stating that during the pendency of any grievance
          procedure or an appeal of such grievances, the Enrollee will remain
          enrolled except as otherwise stated in this Contract.

D.   FINAL REVIEW BY DEPARTMENT

     When an Enrollee or provider has exhausted the CONTRACTOR's grievance
     process and a final decision has been made, the CONTRACTOR must provide
     written notification to the party who initiated the grievance of the
     grievance's outcome and explain in clear terms a detailed reason for the
     denial.

     The CONTRACTOR must provide notification to Enrollees and providers that
     the final decision of the CONTRACTOR may be appealed to the DEPARTMENT and
     will give to the Enrollee or provider the DEPARTMENT's form to request a
     formal hearing with the DEPARTMENT. The MCO must inform the Enrollee or
     provider the time frame for filing an appeal with the DEPARTMENT. The
     formal hearing with the DEPARTMENT is a de novo hearing. If the Enrollee or
     provider request a formal hearing with the DEPARTMENT, all parties to the
     formal hearing agree to be bound by the DEPARTMENT's decision until any
     judicial reviews are completed and are in the Enrollee's or provider's
     favor. Any decision made by the DEPARTMENT pursuant to the hearing shall be
     subject to appeal rights as provided by State and Federal laws and rules.

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                                                                    Attachment B
                                                          Effective July 1, 2002

                        ARTICLE VII - OTHER REQUIREMENTS

A.   COMPLIANCE WITH PUBLIC HEALTH SERVICE ACT

     The CONTRACTOR will comply with all requirements of Section 1301 to and
     including 1318 of the Public Health Service Act, as applicable. The
     CONTRACTOR will provide verification of such compliance to the DEPARTMENT
     upon the DEPARTMENT's request.

B.   COMPLIANCE WITH OBRA'90 PROVISION AND 42 CFR 434.28

     The CONTRACTOR will comply with the OBRA '90 provision which requires an
     MCO provide patients with information regarding their rights under State
     law to make decisions about their health care including the right to
     execute a living will or to grant power of attorney to another individual.

     The CONTRACTOR will comply with the requirements of 42 CFR 434.28 relating
     to maintaining written Advance Directives as outlined under Subpart I of
     489.100 through 489.102.

C.   FRAUD AND ABUSE REQUIREMENTS

     The CONTRACTOR must have a compliance program to identify and refer
     suspected fraud and abuse activities. The compliance program must outline
     the CONTRACTOR's internal processes for identifying fraud and abuse. The
     CONTRACTOR agrees to abide by Federal and/or State fraud and abuse
     requirements including, but not limited to, the following:

     1.   Refer in writing to the DEPARTMENT all detected incidents of potential
          fraud or abuse on the part of providers of services to Enrollees or to
          other patients.

     2.   Refer in writing to the DEPARTMENT all detected incidents of patient
          fraud or abuse involving Covered Services provided which are paid for
          in whole, or in part, by the DEPARTMENT.

     3.   Refer in writing to the DEPARTMENT the names and Medicaid ID numbers
          of those Enrollees that the CONTRACTOR suspects of inappropriate
          utilization of services, and the nature of the suspected inappropriate
          utilization.

     4.   Inform the DEPARTMENT in writing when a provider is removed from the
          CONTRACTOR's panel for reasons relating to suspected fraud, abuse or
          quality of care concerns.

     5.   The CONTRACTOR may not employ or subcontract with any sanctioned
          provider. The DEPARTMENT shall notify the CONTRACTOR how to access
          information on providers sanctioned by Medicaid or Medicare. It is the
          responsibility of the CONTRACTOR to keep apprized of sanctioned
          providers. The CONTRACTOR may not employ or subcontract with any
          provider who is an ineligible entity as defined under the State
          Medicaid Manual Section 2086.16. This section is available upon
          request. The CONTRACTOR will attest that the entities listed below are
          not involved with the CONTRACTOR. Entities that must be excluded -

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                                                                    Attachment B
                                                          Effective July 1, 2002

          a.   Entities that could be excluded under section 1128(b)(8) of the
               Social Security Act (the Act)~these are entities in which a
               person who is an officer, director, agent, or managing employee
               of the entity, or a person who has a direct or indirect ownership
               or control interest of 5% or more in the entity and has been
               convicted of the following crimes:

               1)   any criminal offense related to the delivery of a Medicare
                    or Medicaid item or service (see section 1128(a)(l) of the
                    Act);
               2)   patient abuse (section 1128(a)(2));
               3)   fraud (1128(b)(l));
               4)   obstruction of an investigation (1128(b)(2)); or
               5)   offenses related to controlled substances (1128(b)(3)).

          b.   Entities that have a direct or indirect substantial contractual
               relationship with an individual or entity listed in subsection
               "a" above-- a substantial contractual relationship is defined as
               any contractual relationship which provides for one or more of
               the following:

               1)   the administration, management, or provision of medical
                    services;
               2)   the establishment of policies pertaining to the
                    administration, management or provision of medical services;
                    or
               3)   the provision of operational support for the administration,
                    management, or provision of medical services.

          c.   Entities which employ, contract with, or contract through any
               individual or entity that is excluded from Medicaid participation
               under Section 1128 or Section 1128A of the Act, for the provision
               of health care, utilization review, medical social work or
               administration services.

D.   DISCLOSURE OF OWNERSHIP AND CONTROL INFORMATION

     The CONTRACTOR agrees to meet the requirements of 42 CFR 455, Subpart B
     related to disclosure by the CONTRACTOR of ownership and control
     information.

E.   SAFEGUARDING CONFIDENTIAL INFORMATION ON ENROLLEES

     The CONTRACTOR agrees that information about Enrollees is confidential
     information and agrees to safeguard all confidential information and
     conform to the requirements set forth in 42CFR, Part 431, Subpart F as well
     as all other applicable Federal and State confidentiality requirements. The
     CONTRACTOR must be in compliance with the privacy regulations issued under
     the Health Insurance Portability and Accountability Act (HIPAA) of 1996
     when they go into effect.

F.   DISCLOSURE OF PROVIDER INCENTIVE PLANS

     The CONTRACTOR must submit to the DEPARTMENT information on its physician
     incentive plans as listed in 42 CFR 417.479(h)(l) and summarized in this
     Article VII, Section F, Subsections 1 through 5, by May 1 of each year. The
     CONTRACTOR must provide to the

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                                                                    Attachment B
                                                          Effective July 1, 2002

     DEPARTMENT the enrollee/disenrollee survey results when beneficiary surveys
     are required as specified in 42 CFR 417.479(g) and summarized in this
     Article VII, Section F, Subsection 7, by October 1 or three months after
     the end of the Contract year. The CONTRACTOR must submit to the DEPARTMENT
     information on capitation payments paid to primary care physicians as
     specified in 42 CFR 417.479(h)(l)(vi).

     Per 42 CFR 417.479(a), no specific payment may be made directly or
     indirectly under a physician incentive plan to a physician or physician
     group as an inducement to reduce or limit Medically Necessary services
     furnished to an Enrollee.

     The CONTRACTOR may operate a physician incentive plan only if the stop-loss
     protection, Enrollee survey, and disclosure requirements are met. The
     CONTRACTOR must disclose to the DEPARTMENT the following information on
     provider incentive plans in sufficient detail to determine whether the
     incentive plan complies with the regulatory requirements. The disclosure
     must contain:

     1.   Whether services not furnished by the physician or physician group are
          covered by the incentive plan. If only the services furnished by the
          physician or physician group are covered by the incentive plan,
          disclosure of other aspects of the plan need not be made.

     2.   The type of incentive arrangement (i.e., withhold, bonus, capitation).

     3.   If the incentive plan involves a withhold or bonus, the percent of the
          withhold or bonus.

     4.   Proof that the physician or physician group has adequate stop-loss
          protection, including the amount and type of stop-loss protection.

     5.   The panel size and, if patients are pooled; the method used.

     6.   To the extent provided for in the Department of Health and Human
          Services, Centers for Medicare and Medicaid Services' (CMS)
          implementation guidelines, capitation payments paid to primary care
          physicians for the most recent year broken down by percent for primary
          care services, referral services to specialists, and hospital and
          other types of provider services (i.e., nursing home and home health
          agency) for capitated physicians or physician groups.

     7.   In the case of those prepaid plans that are required to conduct
          beneficiary surveys, the survey results. (The CONTRACTOR must conduct
          a customer satisfaction of both Enrollees and disenrollees if any
          physicians or physicians groups contracting with the CONTRACTOR are
          placed at substantial financial risk for referral services. The survey
          must include either all current Enrollees and those who have
          disenrolled in the past twelve months, or a sample of these same
          Enrollees and disenrollees. Recognizing that different questions are
          asked of the disenrollees than those asked of Enrollees, the same
          survey cannot be used for both populations.)
          The CONTRACTOR must disclose this information to the DEPARTMENT (1)
          prior to approval of its Contract or agreement and (2) upon the
          Contract or agreements anniversary or renewal effective date. The
          CONTRACTOR must provide the capitation data required (see 6 above) for
          the previous Contract year to the DEPARTMENT three months after the
          end of the Contract year. The CONTRACTOR will provide to the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          Enrollee upon request whether the CONTRACTOR uses a physician
          incentive plan that affects the use of referral services, the type of
          incentive arrangement, whether stop-loss protection is provided, and
          the survey results of any enrollee/disenrollee surveys conducted.

G.   DEBARRED OR SUSPENDED INDIVIDUALS

     Under Section 1921(d)(l) of the Social Security Act, the CONTRACTOR may not
     knowingly have a director, officer, partner, or person with beneficial
     ownership of more than 5% of the CONTRACTOR's equity who has been debarred
     or suspended by any federal agency. The CONTRACTOR may not have an
     employment, consulting, or any other agreement with a debarred or suspended
     person for the provision of items or services that are significant and
     material to meeting the provisions under this Contract.

     The CONTRACTOR must certify to the DEPARTMENT that the requirements under
     Section 1921(d)(l) of the Social Security Act are met prior to the
     effective date of this Contract and at any time there is a change from the
     last such certification.

H.   CMS CONSENT REQUIRED

     If the Department of Health and Human Services, Centers for Medicare and
     Medicaid (CMS) directs the DEPARTMENT to terminate this Contract, the
     DEPARTMENT will not be permitted to renew this Contract without CMS
     consent.

                             ARTICLE VIII - PAYMENTS

A.   NON-RISK CONTRACT

     This Contract is a non-risk contract as described in 42 CFR 447.362.
     Aggregate payments made to the CONTRACTOR may not exceed what the
     DEPARTMENT would have paid, on a fee-for-service basis, for the services
     actually furnished to recipients. The DEPARTMENT will reimburse the
     CONTRACTOR based on their paid claims plus 9% of paid claims for
     administration.

B.   PAYMENT METHODOLOGY

     The payment methodology is described in Attachment F of this Contract.

C.   CONTRACT MAXIMUM

     In no event will the aggregate amount of payments to the CONTRACTOR exceed
     the Contract maximum amount. If payments to the CONTRACTOR approach or
     exceed the Contract amount before the renewal date of the Contract, the
     DEPARTMENT shall execute a Contract amendment to increase the Contract
     amount within 30 calendar days of the date the Contract amount is exceeded.

D.   MEDICARE

     1.   PAYMENT OF MEDICARE PART B PREMIUMS

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                                                                    Attachment B
                                                          Effective July 1, 2002

          The DEPARTMENT will pay the Medicare Part B premium for each Enrollee
          who is on Medicare. The Enrollee will assign to the CONTRACTOR his or
          her Medicare reimbursement for benefits received under Medicare. The
          Eligibility Transmission includes and identifies those Enrollees who
          are covered under Medicare.

     2.   PAYMENT OF MEDICARE DEDUCTIBLE AND COINSURANCE

          The DEPARTMENT's financial obligation under this Contract for
          Enrollees who are covered by both Medicare and the MCO is limited to
          the Medicare Part B premium and the CONTRACTOR premium. The CONTRACTOR
          is responsible for payment of the Medicare deductible and coinsurance
          up to the CONTRACTOR's allowed amount for Enrollees when a service is
          paid for by Medicare whether or not the service is covered under this
          Contract. The CONTRACTOR is responsible for payment whether or not the
          Medicare covered service is rendered by a network provider or has been
          authorized by the CONTRACTOR. If a Medicare covered service is
          rendered by an out-of-network Medicare provider or a non-Medicare
          participating provider, the CONTRACTOR is responsible to pay the lower
          of the coinsurance/deductible and the CONTRACTOR's allowed amount.
          Attachment E, Table 2, will be used to identify the total cost to the
          CONTRACTOR of providing care for Enrollees who are also covered by
          Medicare.

     3.   MUST NOT BALANCE BILL ENROLLEES

          The CONTRACTOR or its providers will not Balance Bill the Enrollee and
          will consider reimbursement from Medicare and from the CONTRACTOR as
          payment in full.

D.   THIRD PARTY LIABILITY (COORDINATION OF BENEFITS)

     The DEPARTMENT will provide the CONTRACTOR a monthly listing of Enrollees
     covered under the Buy-out Program, including the premium amount paid by the
     DEPARTMENT.

     1.   TPL COLLECTIONS

          The CONTRACTOR will be responsible to coordinate benefits and collect
          third party liability (TPL). The CONTRACTOR will keep TPL collections.
          The DEPARTMENT will set rates net of expected TPL collections
          excluding the lump sum rate set for deliveries. The rate set for
          deliveries is the maximum amount the DEPARTMENT will pay the
          CONTRACTOR for each delivery. The CONTRACTOR must attempt to collect
          TPL before the DEPARTMENT will finalize payment for the lump sum
          delivery. The DHCF audit staff will monitor collections to ensure the
          CONTRACTOR is making a good faith effort to pursue TPL. The DEPARTMENT
          will properly account for TPL in its rate structure.

     2.   DUPLICATION OF BENEFITS

          This provision applies when, under another health insurance plan such
          as a prepaid plan, insurance contract, mutual benefit association or
          employer's self-funded group health and welfare program, etc., an
          Enrollee is entitled to any benefits that would totally or partially
          duplicate the benefits that the CONTRACTOR is obligated to provide
          under this Contract. Duplication exists when (I) the CONTRACTOR has a
          duty to provide,

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                                                                    Attachment B
                                                          Effective July 1, 2002

          arrange for or pay for the cost of Covered Services, and (2) another
          health insurance plan, pursuant to its own terms, has a duty to
          provide, arrange for or pay for the same type of Covered Services
          regardless of whether the duty of the CONTRACTOR is to provide the
          Covered Services and the duty of the other health insurance plan is
          only to pay for the Covered Services. Under State and Federal laws and
          regulations, Medicaid funds are the last dollar source and all other
          health insurance plans as referred to above are primarily responsible
          for the costs of providing Covered Services.

     3.   RECONCILIATION OF OTHER TPL

          In order to assist the CONTRACTOR in billing and collecting from other
          health insurance plans the DEPARTMENT will include on the Eligibility
          Transmission other health insurance plans of each Enrollee when it is
          known. The CONTRACTOR will review the Eligibility Transmission and
          will report to the Office of Recovery Services or the DEPARTMENT any
          TPL discrepancies identified within 30 working days of receipt of the
          Eligibility Transmission. The CONTRACTOR's report will include a
          listing of Enrollees that the CONTRACTOR has independently identified
          as being covered by another health insurance plan.

     4.   WHEN TPL IS DENIED

          On a monthly basis, the CONTRACTOR will report to the Office of
          Recovery Services (ORS) claims that have been billed to other health
          care plans but have been denied which will include the following
          information:

          a.   patient name and Medicaid identification number
          b.   ICD-9-CM code;
          c.   procedure codes; and
          d.   insurance company.

     5.   NOTIFICATION OF PERSONAL INJURY CASES

          The CONTRACTOR will be responsible to notify ORS of all personal
          injury cases, as defined by ORS and agreed to by the CONTRACTOR, no
          later than 30 days after the CONTRACTOR has received a "clean" claim.
          A clean claim is a claim that is ready to adjudicate. The following
          data elements will be provided by the CONTRACTOR to ORS:

          a.   patient name and Medicaid identification number
          b.   date of accident;
          c.   specific type of injury by ICD-9-CM code;
          d.   procedure codes; and
          e.   insurance company, if known.

     6.   ORS TO PURSUE COLLECTIONS

          ORS will pursue collection on all claims described in Attachment B,
          Article VIII (Payments), Section D, Subsections 4 and 5 of this
          Contract. The DEPARTMENT will retain, for administrative costs, one
          third of the collections received for the period during

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                                                                    Attachment B
                                                          Effective July 1, 2002

          which medical services were provided by the CONTRACTOR, and remit the
          balance to the CONTRACTOR.

     7.   INSURANCE BUY-OUT PROGRAM

          The Insurance Buy-out Program is an optional program in which the
          DEPARTMENT purchases group health insurance for a recipient who is
          eligible for Medicaid when it is determined cost-effective for the
          Medicaid program to do so. The insurance buy-out process will be
          coordinated by the DEPARTMENT in cooperation with the Office of
          Recovery Services, and Medicaid eligibility workers. The CONTRACTOR
          will file claims against group MCOs first before claiming services
          against the CONTRACTOR or other MCOs.

     8.   CONTRACTOR MUST PAY PROVIDER ADMINISTRATIVE FEE FOR IMMUNIZATIONS

          When an Enrollee has third party coverage for immunizations, the
          CONTRACTOR will pay the provider the administrative fee for providing
          the immunization and not require the provider to bill the third party
          as a cost avoidance method. The CONTRACTOR may choose to pursue the
          third party amount for the administrative fee after payment has been
          made to the provider.

E.   THIRD PARTY RESPONSIBILITY (INCLUDING WORKER's COMPENSATION)

     1.   CONTRACTOR TO BILL USUAL AND CUSTOMARY CHARGES

          When a third party has an obligation to pay for Covered Services
          provided by the CONTRACTOR to an Enrollee pursuant to this Contract,
          the CONTRACTOR will bill the third party for the usual and customary
          charges for Covered Services provided and costs incurred. Should any
          sum be recovered by the Enrollee or otherwise, from or on behalf of
          the person responsible for payment for the service, the CONTRACTOR
          will be paid out of such recovery for the charges for service provided
          and costs incurred by the CONTRACTOR.

     2.   THIRD PARTY's OBLIGATION TO PAY FOR COVERED SERVICES

          Examples of situations where a third party has an obligation to pay
          for Covered Services provided by the CONTRACTOR are when (a) the
          Enrollee is injured by a person due to the negligent or intentional
          acts (or omissions) of the person; or (b) the Enrollee is eligible to
          receive payment through Worker's Compensation Insurance. If the
          Enrollee does not diligently seek such recovery, the CONTRACTOR may
          institute such rights that it may have.

     3.   FIRST DOLLAR COVERAGE FOR ACCIDENTS

          In addition, both parties agree that the following will apply
          regarding first dollar coverage for accidents: if the injured party
          has additional insurance, primary coverage may be given to the motor
          insurance effective at the time of the accident. Once the motor
          vehicle policy is exhausted, the CONTRACTOR will be the secondary
          payer and pay for all of the Enrollee's Covered Services. If medical
          insurance does not exist, the

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                                                                    Attachment B
                                                          Effective July 1, 2002

          CONTRACTOR will be the primary payer for all Covered Services.

     4.   NOTIFICATION OF STOP-LOSS

          The CONTRACTOR will provide ORS with quarterly updates of costs
          incurred by the CONTRACTOR when such costs exceed Stop Loss
          (reinsurance) provisions as defined in the Contract between the
          reinsurer and the CONTRACTOR.

F.   CHANGES IN COVERED SERVICES

     If Covered Services are amended under the provisions of Attachment B,
     Article IV (Benefits), Section C, Subsection 3 of this Contract, rates may
     be renegotiated.

                    ARTICLE IX - RECORDS, REPORTS AND AUDITS

A.   FEDERALLY REQUIRED REPORTS

     1.   CHEC/EPSDT REPORTS

          The CONTRACTOR agrees to act as a continuing care provider for the
          CHEC/EPSDT program in compliance with OBRA '89 and Social Security Act
          Sections 1902 (a)(43), 1905(a)(4)(B)and 1905 (r).

          a.   CHEC/EPSDT SCREENINGS

               Annually, the CONTRACTOR will submit to the DEPARTMENT
               information on CHEC/EPSDT screenings to meet the Federal EPSDT
               reporting requirements (Form HCFA-416). The data will be in a
               mutually agreed upon format. The CHEC/EPSDT information is due
               December 31 for the prior federal fiscal year's data (October 1
               through September 30).

          b.   IMMUNIZATION DATA

               The CONTRACTOR will submit immunization data as part of the
               CHEC/EPSDT reporting. Enrollee name, Medicaid ID, type of
               immunization identified by procedure code, and date of
               immunization will be reported in the same format as the
               CHEC/EPSDT data.

     2.   DISCLOSURE OF PHYSICIAN INCENTIVE PLANS

          The CONTRACTOR must submit to the DEPARTMENT information on its
          physician incentive plans as listed in 42 CFR 417.479(h)(l) [or
          Article VII - Other Requirements, F - Disclosure of Provider Incentive
          Plans, 1 through 5] by May 1 of each year. The CONTRACTOR must provide
          to the DEPARTMENT the enrollee/disenrollee survey results when
          beneficiary surveys are required as specified in 42 CFR 417.479(g) [or
          #7 under Article VII.F.] by October 1 or three months after the end of
          the Contract year. The CONTRACTOR must submit to the DEPARTMENT
          information on capitation payments paid to primary care physicians as
          specified in 42 CFR 417.479(h)(l)(vi).

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                                  Page 44 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

B.   PERIODIC REPORTS

     1.   ENROLLMENT, COST AND UTILIZATION REPORTS (ATTACHMENT E)

          Enrollment, cost and utilization reports will be submitted on
          diskettes in Excel or Lotus and in the format specified in Attachment
          E. A hard copy of the report must be submitted as well. The DEPARTMENT
          will send to the CONTRACTOR a template of the Attachment E format on a
          diskette. The CONTRACTOR may not customize or change the report
          format. The financial information for these reports will be reported
          as defined in HCFA Publication 75, and if applicable, HCFA 15-1. The
          CONTRACTOR will certify in writing the accuracy and completeness, to
          the best of its knowledge, of all costs and utilization data provided
          to the DEPARTMENT on Attachment E.

          Two Attachment E reports will be submitted covering dates of service
          for each Contract year.

          a.   Attachment E is due May 1 for the preceding six-month reporting
               period (July through December).

          b.   Attachment E is due November 1 for the preceding 12-month
               reporting period (July through June).

          If necessary, the CONTRACTOR may request, in writing, an extension of
          the due date up to 30 days beyond the required due date. The
          DEPARTMENT will approve or deny the extension request writing within
          seven calendar days of receiving the request.

     2.   INTERPRETIVE SERVICES

          Annually, on November 1, the CONTRACTOR will submit summary
          information about the use of interpretive services during the previous
          Contract year (July 1 through June 30). The information must include
          the following:

          a.   a list of all sources of interpreter services;
          b.   total expenditures for each language;
          c.   total expenditures for clinical versus administrative;
          d.   number of Enrollees who used interpretive services for each
               language;
          e.   number of services provided categorized by clinical versus
               administrative.

     3.   SEMI-ANNUAL REPORTS

          The following semi-annual reports are due May 1 for the preceding
          six-month reporting period ending December 31 (July through December)
          and are due November 1 for the preceding six month period ending June
          30 (January through June).

          a.   Organ Transplants: Report the total number of organ transplants
               by type of transplant.

          b.   Obstetrical Information: Report obstetrical information including

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                                  Page 45 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

               1)   total number of obstetrical deliveries by aid category
                    grouping;
               2)   total number of caesarean sections and total number of
                    vaginal deliveries;
               3)   total number low birth weight infants; and
               4)   total number of Enrollees requiring prenatal hospital
                    admission.

          c.   COMPLAINTS AND FORMAL GRIEVANCES

               Separate reports of complaints/grievances are required for adults
               and children; and for Traditional Medicaid Plan Enrollees and
               Non-Traditional Plan Enrollees. Each report must distinguish
               between those Enrollees with special health care needs and the
               general population of children. Report summary information on the
               number of complaints/grievances by type of complaint/grievance
               and indicate the number that have been resolved. Include an
               analysis of the type and number of complaints/grievances received
               by the CONTRACTOR.

          d.   ABERRANT PHYSICIAN BEHAVIOR

               Report summary information of corrective actions taken on
               physicians who have been identified by the CONTRACTOR as
               exhibiting aberrant physician behavior and the names of
               physicians who have been removed from the CONTRACTOR's network
               due to aberrant behavior. The summary shall include the reasons
               for the corrective action or removal.

     4.   ANNUAL QUALITY IMPROVEMENT PROGRAM DOCUMENTATION

          Annually, the CONTRACTOR will submit to the DEPARTMENT the following
          documents:

          a.   the CONTRACTOR's quality improvement program description;
          b.   the CONTRACTOR's quality improvement work plan;
          c.   the CONTRACTOR's quality improvement work plan evaluation for
               previous calendar year.

          These reports must be in the format developed by the DEPARTMENT and
          include signature(s) of approval by the CONTRACTOR's designated
          authorizing authority. Reports for each calendar year are due no later
          than March 31st of each year.

     5.   DOCUMENTS DUE PRIOR TO QUALITY MONITORING REVIEWS

          The following documents are due at least 60 days prior to the
          DEPARTMENT's quality assurance monitoring review, or earlier on
          request, unless the DEPARTMENT has already received documents that are
          in effect:

          a.   the CONTRACTOR's most current (may be in draft stage) written
               quality improvement program description;

          b.   the CONTRACTOR's most current (may be in draft stage) annual
               quality improvement work plan;

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                                  Page 46 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

          c.   the CONTRACTOR's most current (may be in draft stage) quality
               improvement work plan evaluation for the previous calendar year;

          d.   documentation of the CONTRACTOR's compliance to standards defined
               in the defined in the Utah MCO Quality Assurance Monitoring Plan
               (Attachment G).

          e.   all other information requested by the DEPARTMENT to facilitate
               the DEPARTMENT's review of the CONTRACTOR's compliance to
               standards defined in the Utah MCO Quality Assurance Monitoring
               Plan (Attachment G).

          The above documents must show evidence of a well defined, organized
          program designed to improve client care.

     6.   IMPACT OF CO-PAYMENTS

          The following semi-annual report is due May 1 for the preceding
          six-month reporting period ending April 30 (November of previous year
          through April of current year) and November 1 for the preceding
          six-month period ending October 31 (May through October of the current
          year):

          Report shall document all instances when Enrollees have contacted the
          CONTRACTOR with a complaint about being denied services because they
          did not pay their Medicaid co-payment or co-insurance. For each
          instance, report the Enrollee's name, Medicaid ID, provider, and the
          service the Enrollee was scheduled to receive.

     7.   HEDIS

          Audited Health Plan Employer Data and Information Set (HEDIS)
          performance measures will cover services rendered to Enrollees and
          will be reported as set forth in State rule by the Office of Health
          Data Analysis. For example, calendar year 1997 HEDIS measures will be
          reported in 1998.

     8.   ENCOUNTER DATA

          Encounter data, as defined in the DEPARTMENT's "Encounter Records
          Technical Manual," is due (including all replacements) six months
          after the end of the quarter being reported. Encounter data will be
          submitted in accordance with the instructions detailed in the
          Encounter Records Technical Manual for dates of service beginning July
          1, 1996. The CONTRACTOR must receive certification from an
          independent, credible vendor that their electronic submissions of
          encounter data are compliant with the Health Insurance Portability and
          Accountability Act (HIPAA) requirements. At a minimum, the CONTRACTOR
          must be HIPAA-compliant in the first four levels of HIPAA compliance:
          Level 1 - Integrity Testing, Level 2 - Requirement Testing, Level 3 -
          Balancing, and Level 4 - Situation Testing.

     9.   AUDIT OF ABORTIONS, STERILIZATIONS AND HYSTERECTOMIES

          The CONTRACTOR must conduct an annual audit of abortion, hysterectomy
          and sterilization procedures performed by the CONTRACTOR's providers.
          The purpose of

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                                  Page 47 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

          the audit is to monitor compliance with federal and state requirements
          for the reimbursement of these procedures under Medicaid. The
          CONTRACTOR must audit all abortions and a sample of hysterectomy and
          sterilization procedures as defined by the DEPARTMENT.

          On November 1 of each year, the CONTRACTOR will submit to the
          DEPARTMENT the following information on the results of the abortion,
          sterilization and hysterectomy audit for the previous calendar year.

          For the sterilization and hysterectomy audit, submit documentation of
          the methodology used to pull the sample of sterilization and
          hysterectomies and include the sampling proportions.

          In an Excel file, submit the following information for all abortions,
          the sample of sterilizations, and the sample of hysterectomies:

          .    client name
          .    Medicaid ID number
          .    procedure code
          .    date of service
          .    history/physical (yes/no)
          .    operative report (yes/no)
          .    pathology report (yes/no)
          .    consent form (yes/no)
          .    medical necessity criteria - hysterectomies only

          When information is submitted electronically, the CONTRACTOR must use
          a secured electronic transmission process.

          The DEPARTMENT will evaluate the results of the CONTRACTOR's audit and
          identify the cases that will require medical record submission.
          Medical record submission will be required for all abortions and a
          random sample of hysterectomy and sterilization cases. The DEPARTMENT
          will notify the CONTRACTOR in writing of the cases that will require
          medical record submission and the time line for the medical record
          submissions.

     10.  DEVELOPMENT OF NEW REPORTS

          Any new reports/data requirements mandated by the DEPARTMENT will be
          mutually developed by the DEPARTMENT and the CONTRACTOR.

C.   RECORD SYSTEM REQUIREMENTS

     In accordance with Section 4752 of OBRA '90 (amended section 1903 (m)(2)(A)
     of the Social Security Act), the CONTRACTOR agrees to maintain sufficient
     patient encounter data to identify the physician who delivers Covered
     Services to Enrollees. The CONTRACTOR agrees to provide this encounter
     data, upon request of the DEPARTMENT, within 30 days of the request.

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                                  Page 48 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

D.   MEDICAL RECORDS

     The CONTRACTOR agrees that medical records are considered confidential
     information and agrees to follow Federal and State confidentiality
     requirements.

     The CONTRACTOR will require that its providers maintain a medical record
     keeping system through which all pertinent information relating to the
     medical management of the Enrollee is maintained, organized, and is readily
     available to appropriate professionals. Notwithstanding any other provision
     of this Contract to the contrary, medical records covering Enrollees will
     remain the property of the provider, and the provider will respect every
     Enrollee's privacy by restricting the use and disclosure of information in
     such records to purposes directly connected with the Enrollee's health care
     and administration of this Contract. The CONTRACTOR will use and disclose
     information pertaining to individual Enrollees and prospective Enrollees
     only for purposes directly connected with the administration of the
     Medicaid Program and this Contract.

E.   AUDITS

     1.   RIGHT OF DEPARTMENT AND CMS TO AUDIT

          The DEPARTMENT and the Department of Health and Human Services,
          Centers for Medicare and Medicaid Services may audit and inspect any
          financial records of the CONTRACTOR or its subcontractors relating (I)
          to the ability of the CONTRACTOR to bear the risk of potential
          financial losses, or (II) to evaluate services performed or
          determinations of amounts payable under the Contract.

     2.   INFORMATION TO DETERMINE ALLOWABLE COSTS

          The CONTRACTOR will make available to the DEPARTMENT all reasonable
          and related financial, statistical, clinical or other information
          needed for the determination of allowable costs to the Medicaid
          program for "related party/home office" transactions as defined in
          HCFA 15-1. These records are to be made available in Utah or the
          CONTRACTOR will pay the increased cost (incremental travel, per diem,
          etc.) of auditing at the out-of-state location. The cost to the
          CONTRACTOR will include round-trip travel and two days per
          diem/lodging. Additional travel costs of the site audit will be shared
          equally by the CONTRACTOR and the DEPARTMENT.

     3.   MANAGEMENT AND UTILIZATION AUDITS

          The MCO will allow the DEPARTMENT and the Department of Health and
          Human Services, Centers for Medicare and Medicaid Services, to perform
          audits for identification and collection of management data, including
          Enrollee satisfaction data, quality of care data, fraud-related data,
          abuse-related data, patient outcome data, and cost and utilization
          data, which will include patient profiles, exception reports, etc. The
          CONTRACTOR will provide all data required by the DEPARTMENT or the
          independent quality review examiners in performance of these audits.
          Prior to beginning any audit, the DEPARTMENT will give the CONTRACTOR
          reasonable notice of audit, and the DEPARTMENT will be responsible for
          costs of its auditors or representatives.

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                                                                    Attachment B
                                                          Effective July 1, 2002

F.   INDEPENDENT QUALITY REVIEW

     1.   IN GENERAL

          Pursuant to Section 1932(c)(2)(A) of the Social Security Act the
          DEPARTMENT may provide for an annual external independent review
          conducted by a qualified independent entity of the quality outcomes
          and timeliness of and access to Covered Services. The CONTRACTOR will
          support the annual external independent review.

          The DEPARTMENT will choose an agency to perform an annual independent
          quality review pursuant to federal law and will pay for such review.
          The CONTRACTOR will maintain all clinical and administrative records
          for use by the quality review contractor. The CONTRACTOR agrees to
          support quality assurance reviews, focused studies and other projects
          performed for the DEPARTMENT by the external quality review
          organization (EQRO). The purpose of the reviews and studies are to
          comply with federal requirements for an annual independent audit of
          the quality outcomes and timeliness of, and access to, Covered
          Services. The external independent reviews are conducted by the EQRO,
          with the advice, assistance, and cooperation of a planning team
          composed of representatives from the CONTRACTOR, the EQRO and the
          DEPARTMENT with final approval by the DEPARTMENT.

     2.   SPECIFIC REQUIREMENTS

          a.   LIAISON FOR ROUTINE COMMUNICATION

               The CONTRACTOR will designate an individual to serve as liaison
               with the EQRO for routine communication with the EQRO.

          b.   REPRESENTATIVE TO ASSIST WITH PROJECTS

               The CONTRACTOR will designate a minimum of two representatives
               (unless one individual can service both functions) to serve on
               the planning team for each EQRO project. Representatives will
               include a quality improvement representative and a data
               representative. The planning team is a joint collaborative forum
               between DEPARTMENT staff, the EQRO and the CONTRACTOR. The role
               of the planning team is to participate in the process and
               completion of EQRO projects.

          c.   COPIES AND ON-SITE ACCESS

               The CONTRACTOR will be responsible for obtaining copies of
               Enrollee information and facilitating on-site access to Enrollee
               information as needed by the EQRO. Such information will be used
               to plan and conduct projects and to investigate complaints and
               grievances. Any associated copying costs are the responsibility
               of the CONTRACTOR. Enrollee information includes medical records,
               administrative data such as, but not limited to, enrollment
               information and claims, nurses' notes, medical logs, etc. of the
               CONTRACTOR or its providers.

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                                  Page 50 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

          d.   FORMAT OF ENROLLEE FILES

               The CONTRACTOR will provide Enrollee information in a mutually
               agreed upon format compatible for the EQRO's use, and in a timely
               fashion to allow the EQRO to select cases for its review.

          e.   TIME-FRAME FOR PROVIDING DATA

               The CONTRACTOR will provide data requests to the EQRO within 15
               working days of the written request from the EQRO and will
               provide medical records within 30 working days of the written
               request from the EQRO. Requests for extensions of these time
               frames will be reviewed and approved or disapproved by the
               DEPARTMENT on a case-by-case basis.

          f.   WORK SPACE FOR ON-SITE REVIEWS

               The CONTRACTOR will assure that the EQRO staff and consultants
               have adequate work space, access to a telephone and copy machines
               at the time of review. The review will be performed during
               agreed-upon hours.

          g.   STAFF ASSISTANCE DURING ON-SITE VISITS

               The CONTRACTOR will assign appropriate person(s) to assist the
               EQRO personnel conduct the reviews during on-site visits and to
               participate in an informal discussion of screening observations
               at the end of each on-site visit, if necessary.

          h.   CONFIDENTIALITY

               For information received from the EQRO, the CONTRACTOR will
               comply with the Department of Health and Human Services
               regulations relating to confidentiality of data and information
               (42 CFR Part 476.107 and 476.108).

                              ARTICLE X - SANCTIONS

     The DEPARTMENT may impose intermediate sanctions on the CONTRACTOR if the
     CONTRACTOR defaults in any manner in the performance of any obligation
     under this Contract including but not limited to the following situations:

     (1)  the CONTRACTOR fails to substantially provide Medically Necessary
          Covered Services to Enrollees;

     (2)  the CONTRACTOR imposes premiums or charges Enrollees in excess of the
          premiums or charges permitted under this Contract;

     (3)  the CONTRACTOR acts to discriminate among Enrollees on the basis of
          their health status or requirements for health care services,
          including expulsion or refusal to re-enroll an individual, except as
          permitted by Title XIX, or engaging in any practice that would

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                                                                    Attachment B
                                                          Effective July 1, 2002

          reasonably be expected to have the effect of denying or discouraging
          enrollment with the MCO by potential Enrollees whose medical condition
          or history indicates a need for substantial future medical services;

     (4)  the CONTRACTOR misrepresents or falsifies information furnished to the
          Department of Health and Human Services, Centers for Medicare and
          Medicaid Services, the DEPARTMENT, an Enrollee, potential Enrollee or
          health care provider;

     (5)  the CONTRACTOR fails to comply with the physician incentive
          requirements under Section 1903(m)(2)(A)(x) of the Social Security
          Act.

     (6)  the CONTRACTOR distributed directly or through any agent or
          independent contractor marketing materials that contain false or
          misleading information.

     The DEPARTMENT must follow the 1997 Balance Budget Act guidelines on the
     types of intermediate sanctions the DEPARTMENT may impose, including civil
     monetary penalties, the appointment of temporary management, and suspension
     of payment.

                    ARTICLE XI - TERMINATION OF THE CONTRACT

A.   AUTOMATIC TERMINATION

     This Contract will automatically terminate June 30, 2004.

B.   OPTIONAL YEAR-END TERMINATION

     At the end of each Contract year, either party may terminate the Contract
     without cause for subsequent years by giving the other party written notice
     of termination at least 90 days prior to the end of the Contract year (July
     1 through June 30).

C.   TERMINATION FOR FAILURE TO AGREE UPON RATES

     At least 60 days prior to the end of each Contract year, the parties will
     meet and negotiate in good faith the rates (Attachment F) applicable to the
     upcoming year. If the parties cannot agree upon future rates by the end of
     the Contract year, then either party may terminate the Contract for
     subsequent years by giving the other party written notice of termination
     and the termination will become effective 90 days after receipt of the
     written notice of termination.

D.   EFFECT OF TERMINATION

     1.   COVERAGE

          Inasmuch as the CONTRACTOR is paid on a monthly basis, the CONTRACTOR
          will continue providing the Covered Services required by this Contract
          until midnight of the last day of the calendar month in which the
          termination becomes effective. If an Enrollee is a patient in an
          inpatient hospital setting during the month in which termination
          becomes effective, the CONTRACTOR is responsible for the entire
          hospital

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                                  Page 52 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

          stay including physician charges until discharge or thirty days
          following termination, whichever occurs first.

     2.   ENROLLEE NOT LIABLE FOR DEBTS OF CONTRACTOR OR ITS SUBCONTRACTORS

          If the CONTRACTOR or one of its subcontractors becomes insolvent or
          bankrupt, the Enrollees will not be liable for the debts of the
          CONTRACTOR or its subcontractor. The CONTRACTOR will include this term
          in all of its subcontracts.

     3.   INFORMATION FOR CLAIMS PAYMENT

          The CONTRACTOR will promptly supply to the DEPARTMENT all information
          necessary for the reimbursement of any Medicaid claims not paid by the
          CONTRACTOR.

     4.   CHANGES IN ENROLLMENT PROCESS

          The CONTRACTOR will be advised of anticipated changes in policies and
          procedures as they relate to the enrollment process and their comments
          will be solicited. The CONTRACTOR agrees to be bound by such changes
          in policies and procedures unless they are not agreeable to the
          CONTRACTOR, in which case the CONTRACTOR may terminate the Contract in
          accordance with the Contract termination provisions.

     5.   HEARING PRIOR TO TERMINATION

          Regarding the General Provisions, Article XVII (Default, Termination,
          & Payment Adjustment), item 3, if the CONTRACTOR fails to meet the
          requirements of the Contract, the DEPARTMENT must give the CONTRACTOR
          a hearing prior to termination. Enrollees must be informed of the
          hearing and will be allowed to disenroll from the MCO without cause.

E.   ASSIGNMENT

     Assignment of any or all rights or obligations under this Contract without
     the prior written consent of the DEPARTMENT is prohibited. Sale of all or
     any part of the rights or obligations under this Contract will be deemed an
     assignment. Consent may be withheld in the DEPARTMENT's sole and absolute
     discretion.

                           ARTICLE XII - MISCELLANEOUS

A.   INTEGRATION

     This Contract contains the entire agreement between the parties with
     respect to the subject matter of this Contract. There are no
     representations, warranties, understandings, or agreements other than those
     expressly set forth herein. Previous contracts between the parties hereto
     and conduct between the parties which precedes the implementation of this
     Contract will not be used as a guide to the interpretation or enforcement
     of this Contract or any provision hereof.

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                                  Page 53 of 54



                                                                    Attachment B
                                                          Effective July 1, 2002

B.   ENROLLEES MAY NOT ENFORCE CONTRACT

     Although this Contract relates to the provision of benefits for Enrollees
     and others, no Enrollee is entitled to enforce any provision of this
     Contract against the CONTRACTOR nor will any provision of this Contract be
     constructed to constitute a promise by the CONTRACTOR to any Enrollee or
     potential Enrollee.

C.   INTERPRETATION OF LAWS AND REGULATIONS

     The DEPARTMENT will be responsible for the interpretation of all federal
     and State laws and regulations governing or in any way affecting this
     Contract. When interpretations are required, the CONTRACTOR will submit
     written requests to the DEPARTMENT. The DEPARTMENT will retain full
     authority and responsibility for the administration of the Medicaid program
     in accordance with the requirements of Federal and State law.

D.   ADOPTION OF RULES

     Adoption of rules by the DEPARTMENT, subsequent to this amendment, and
     which govern the Medicaid program, will be automatically incorporated into
     this Contract upon receipt by the CONTRACTOR of written notice thereof.

                   ARTICLE XIII - EFFECT OF GENERAL PROVISIONS

If there is a conflict between these Special Provisions (Attachment B) or the
General Provisions (Attachment A), then these Special Provisions will control.

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                                  Page 54 of 54



                                TABLE OF CONTENTS

                                  ATTACHMENT C
                                COVERED SERVICES
                           LIMITATIONS AND EXCLUSIONS
                    CO-PAYMENT AND CO-INSURANCE REQUIREMENTS

A.      In General...........................................................  1

B.      Hospital Services....................................................  1

C.      Physician Services...................................................  2

D.      General Preventive Services..........................................  3

E.      Vision Care..........................................................  3

F.      Lab and Radiology....................................................  3

G.      Physical and Occupational Therapy....................................  4

H.      Speech and Hearing Services..........................................  4

I.      Podiatry Services....................................................  5

J.      End Stage Renal Disease - Dialysis...................................  5

K.      Home Health Services.................................................  5

L.      Hospice Services.....................................................  5

M.      Private Duty Nursing.................................................  6

N.      Medical Supplies and Medical Equipment...............................  6

O.      Abortions and Sterilizations.........................................  6

P.      Treatment for Substance Abuse and Dependency.........................  6

Q.      Organ Transplants....................................................  6

R.      Other Outside Medical Services.......................................  7

S.      Long Term Care.......................................................  7

T.      Transportation Services..............................................  7

U.      Services to CHEC Enrollees...........................................  8

                                        i



                                TABLE OF CONTENTS

V.      Family Planning Services.............................................  8

W.      High Risk Prenatal Services..........................................  9

X.      Services for Children with Special Needs   .......................... 12

Y.      Medical and Surgical Services of a Dentist  ......................... 14

Z.      Diabetes Education   ................................................ 15

AA.     HIV Prevention....................................................... 15

Summary of Co-Payment and Co-Insurance Requirements.......................... 16

                                       ii



                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

                         ATTACHMENT C - COVERED SERVICES
                            LIMITATIONS & EXCLUSIONS
                     CO-PAYMENT & CO-INSURANCE REQUIREMENTS

Covered Services are the same under both the Traditional and Non-Traditional
Medicaid Plans unless otherwise indicated. Co-payments and co-insurances are
listed if required. Pregnant women and children under age 18 are exempt from all
co-payment and co-insurance requirements. Services related to family planning
are excluded from all co-payment and co-insurance requirements. Medicaid
Provider Manuals provide detailed information regarding covered services and are
available to the CONTRACTOR upon request.

A.   IN GENERAL

     The CONTRACTOR will provide the following benefits to Enrollees in
     accordance with Medicaid benefits as defined in the Utah State Plan subject
     to the exception or limitations as noted below. The DEPARTMENT reserves the
     right to interpret what is in the State plan. Medicaid services can only be
     limited through utilization criteria based on Medical Necessity. The
     CONTRACTOR will provide at least the following benefits to Enrollees.

     The CONTRACTOR is responsible to provide or arrange for all Medically
     Necessary Covered Services on an emergency basis 24 hours each day, seven
     days a week. The CONTRACTOR is responsible for payment for all covered
     Emergency Services furnished by providers that do not have arrangements
     with the CONTRACTOR.

B.   HOSPITAL SERVICES

     1.   INPATIENT HOSPITAL

          Services furnished in a licensed, certified hospital.

          Non-Traditional Medicaid Plan excludes the following revenue
          codes:
          430 - 439 (Occupational Therapy)
          380 - 382, and 391 (Whole Blood)
          390 and 399 (Autologous or self blood storage for future use)
          811 - 813 (Organ Donor charges)

          CO-INSURANCE
          Traditional Medicaid: $[*] for non-emergency admissions.
          Limited to $[*] per Enrollee per calender year.
          Non-Traditional Medicaid: $[*] for each non-emergency admission per
          Enrollee. Counts toward total maximum co-payment and co-insurance of
          $[*] per Enrollee per calendar year.

                                  Page 1 of 16



                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     2.   OUTPATIENT HOSPITAL

          Services provided to Enrollees at a licensed, certified hospital who
          are not admitted to the hospital.

          CO-PAYMENT
          Traditional Medicaid: $[*] co-payment per visit. Limited to one
          co-payment per date of service per provider. The facility fees
          associated with services provided in an outpatient hospital or
          free-standing ambulatory surgical centers are subject to $[*]
          co-payment per date of service per provider. Annual calendar year
          maximum for any combination of physician, podiatry, outpatient
          hospital, and surgical centers is $[*] per Enrollee.
          Non-Traditional Medicaid: $[*] co-payment per visit. Limited to one
          co-payment per date of service per provider. The facility fees
          associated with services provided in an outpatient hospital or a free
          standing ambulatory surgical centers are subject to $[*] co-payment
          per date of service per provider. Counts toward total maximum
          co-payment and co-insurance of $[*] per Enrollee per calendar year.

     3.   EMERGENCY DEPARTMENT SERVICES

          Emergency Services provided to Enrollees in designated hospital
          emergency departments.

          CO-PAYMENT
          Traditional Medicaid: $[*] co-payment for non-emergency use of the
          emergency room.
          Non-Traditional Medicaid: $[*] co-payment for non-emergency use of the
          emergency room. Counts toward total maximum co-payment and
          co-insurance of $[*] per Enrollee per calendar year.

C.   PHYSICIAN SERVICES

     Services provided directly by licensed physicians or osteopaths, or by
     other licensed professionals such as physician assistants, nurse
     practitioners, or nurse midwives under the physician's or osteopath's
     supervision.

     Non-Traditional Medicaid Excludes office visits in conjunction with allergy
     injections (CPT codes 95115 through 95134 and 95144 through 95199).

     CO-PAYMENT
     Traditional Medicaid: $[*] co-payment per visit. Limited to one co-payment
     per date of service per provider. Annual calendar year maximum is $[*] per
     Enrollee for any combination of physician, podiatry, outpatient hospital,
     freestanding emergency centers,

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                                                  Attachment C - Covered Service
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     and surgical centers. Co-payment required for preventive services and
     immunizations.
     Non-Traditional Medicaid: $[*] co-payment per visit. Limited to one
     co-payment per date of service per provider. No co-payment for preventive
     services and immunizations. Counts toward total maximum co-payment and
     co-insurance of $[*] per Enrollee per calendar year.

D.   GENERAL PREVENTIVE SERVICES

     The CONTRACTOR must develop or adopt practice guidelines consistent with
     current standards of care, as recommended by professional groups such as
     the American Academy of Pediatric and the U.S. Task Force on Preventive
     Care.

     A minimum of three screening programs for prevention or early intervention
     (e.g. Pap Smear, diabetes, hypertension).

E.   VISION CARE

     Services provided by licensed ophthalmologists or licensed optometrists,
     and opticians within their scope of practice. Eyeglasses will be provided
     to eligible recipients based on medical necessity. Services include, but
     are not limited to, the following:

     1.   Eye refractions, examinations
     2.   Laboratory work
     3.   Lenses
     4.   Eyeglass Frames
     5.   Repair of Frames
     6.   Repair or Replacement of Lenses
     7.   Contact Lenses (when Medically Necessary)

     Non-Traditional Medicaid Plan is limited to the following service and
     limitation: Eye refraction/examination is limited to one eye examination
     every 12 months. Annual coverage limited to $[*]. All amounts over $[*]
     paid by Enrollee. No coverage for eyeglasses.

F.   LAB AND RADIOLOGY SERVICES

     Professional and technical laboratory and X-ray services furnished by
     licensed and certified providers. All laboratory testing sites, including
     physician office labs, providing services under this Contract will have
     either a Clinical Laboratory Improvement Amendments (CLIA) certificate of
     Waiver or a certificate of registration along with a CLIA identification
     number.

     Those laboratories with certificates of waiver will provide only the eight
     types of tests permitted under the terms of their waiver. Laboratories with
     certificates of registration

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     may perform a full range of laboratory tests.

G.   PHYSICAL AND OCCUPATIONAL THERAPY

     1.   PHYSICAL THERAPY

          Treatment and services provided by a licensed physical therapist.
          Treatment and services must be authorized by a physician and include
          services prescribed by a physician or other licensed practitioner of
          the healing arts within the scope of his or her practice under State
          law and provided to an Enrollee by or under the direction of a
          qualified physical therapist. Necessary supplies and equipment will be
          reviewed for medical necessity and follow the criteria of the R414.12
          rule.

     2.   OCCUPATIONAL THERAPY

          Treatment of services provided by a licensed occupational therapist.
          Treatment and services must be authorized by a physician and include
          services prescribed by a physician or other licensed practitioner of
          the healing arts within the scope of his or her practice under State
          law and provided to an Enrollee by or under the direction of a
          qualified occupational therapist. Necessary supplies and equipment
          will be reviewed for medical necessity and follow the criteria of the
          R414.12 rule.

          Non-Traditional Medicaid Plan is limited by the number of services:
          Visits to a licensed physical therapist, licensed occupational
          therapist and chiropractor are limited to a combination of 16 visits
          per calendar year. Chiropractic services are covered under
          fee-for-service and are not the responsibility of the CONTRACTOR.

          CO-PAYMENT
          Non-Traditional Medicaid: $[*] co-payment per visit. Limited to one
          co-payment per date of service per provider. Counts toward total
          maximum co-payment and co-insurance of $[*] per Enrollee per calendar
          year.

H.   SPEECH AND HEARING SERVICES

     Services and appliances, including hearing aids and hearing aid batteries,
     provided by a licensed medical professional to test and treat speech
     defects and hearing loss.

     Traditional Medicaid Plan: Coverage is limited to children up to age 21 and
     pregnant women.

     Non-Traditional Medicaid Plan: Not covered.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

I.   PODIATRY SERVICES

     Services provided by a licensed podiatrist.

     Traditional Medicaid Plan: Full coverage is limited to children up to age
     21 and pregnant women. Effective October 1, 2002, limited podiatry benefits
     are covered for adults.

     Non-Traditional Medicaid Plan: Effective October 1, 2002, limited podiatry
     benefits are covered.

     CO-PAYMENT
     Traditional Medicaid: $[*] co-payment per visit. Limited to one co-payment
     per date of service per provider. Annual calendar year maximum is $[*] per
     Enrollee for any combination of physician, podiatry, outpatient hospital,
     freestanding emergency centers, and surgical centers. Co-payment required
     for preventive services and immunizations.
     Non-Traditional Medicaid: $[*] co-payment per visit. Limited to one
     co-payment per date of service per provider. Counts toward total maximum
     co-payment and co-insurance of $[*] per Enrollee per calendar year.

J.   END STAGE RENAL DISEASE - DIALYSIS

     Treatment of end stage renal dialysis for kidney failure. Dialysis is to be
     rendered by a Medicare-certified Dialysis facility.

K.   HOME HEALTH SERVICES

     Home health services are defined as intermittent nursing care provided by
     certified nursing professionals (registered nurses, licensed practical
     nurses, and home health aides) in the client's home when the client is
     homebound or semi-homebound. Home health care must be rendered by a
     Medicare-certified Home Health Agency that has a surety bond.

     Personal care services as defined in the DEPARTMENT's Medicaid Personal
     Care Provider Manual are included in this Contract. Personal care services
     may be provided by a State licensed home health agency.

L.   HOSPICE SERVICES

     Services delivered to terminally ill patients (six months life expectancy)
     who elect palliative versus aggressive care. Hospice care must be rendered
     by a Medicare-certified hospice.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

M.   PRIVATE DUTY NURSING

     Services provided by licensed nurses for ventilator-dependent children and
     technology-dependent adults in their home in lieu of hospitalization if
     Medically Necessary, feasible, and safe to be provided in the patient's
     home. Requests for continuous care will be evaluated on a case by case
     basis and must be approved by the CONTRACTOR.

     Non-Traditional Medicaid Plan: Private Duty Nursing is not a covered
     service.

N.   MEDICAL SUPPLIES AND MEDICAL EQUIPMENT

     This Covered Service includes any necessary supplies and equipment used to
     assist the Enrollee's medical recovery, including both durable and
     non-durable medical supplies and equipment, and prosthetic devices. The
     objective of the medical supplies program is to provide supplies for
     maximum reduction of physical disability and restore the Enrollee to his or
     her best functional level. Medical supplies may include any necessary
     supplies and equipment recommended by a physical or occupational therapist,
     but should be ordered by a physician. Durable medical equipment (DME)
     includes, but is not limited to, prosthetic devices and specialized
     wheelchairs. Durable medical equipment and supplies must be provided by a
     DME supplier that has a surety bond. Necessary supplies and equipment will
     be reviewed for medical necessity and follow the criteria of the R414.12 of
     the Utah Administrative Code, with the exception of criteria concerning
     long term care since long term care services are not covered under the
     Contract.

     Non-Traditional Medicaid Plan excludes blood pressure monitors, and
     replacement of lost, damaged, or stolen durable medical equipment or
     prosthesis.

O.   ABORTIONS AND STERILIZATIONS

     These services are provided to the extent permitted by Federal and State
     law and must meet the documentation requirement of 42 CFR 441, Subparts E
     and F. These requirements must be met regardless of whether Medicaid is
     primary or secondary payer.

P.   TREATMENT FOR SUBSTANCE ABUSE AND DEPENDENCY

     Treatment will cover medical detoxification for alcohol or substance abuse
     conditions. Medical services including hospital services will be provided
     for the medical non-psychiatric aspects of the conditions of alcohol/drug
     abuse.

Q.   ORGAN TRANSPLANTS

     The following transplantations are covered for all Enrollees: Kidney,
     liver, cornea, bone marrow, stem cell, heart, intestine, lung, pancreas,
     small bowel, combination heart/lung, combination intestine/liver,
     combination kidney/pancreas, combination liver/kidney,

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     multi visceral, and combination liver/small bowel unless amended under the
     provisions of Attachment B, Article IV (Benefits), Section C, Subsection 2
     of this Contract.

     Non-Traditional Medicaid Plan is limited to kidney, liver, cornea, bone
     marrow, stem cell, heart, and lung transplantations.

R.   OTHER OUTSIDE MEDICAL SERVICES

     The CONTRACTOR, at its discretion and without compromising quality of care,
     may choose to provide services in Freestanding Emergency Centers, Surgical
     Centers and Birthing Centers.

     CO-PAYMENT
     Traditional Medicaid: $[*] co-payment per visit. Limited to one co-payment
     per date of service per provider. Annual calendar year maximum is $[*] per
     Enrollee for any combination of physician, podiatry, outpatient hospital,
     freestanding emergency centers, and surgical centers. (Co-payment does not
     apply to birthing centers.)
     Non-Traditional Medicaid: $[*] co-payment per visit. Limited to one
     co-payment per date of service per provider. Counts toward total maximum
     co-payment and co-insurance of $[*] per Enrollee per calendar year.

S.   LONG TERM CARE

     The CONTRACTOR may provide long term care for Enrollees in skilled nursing
     facilities requiring such care as a continuum of a medical plan when the
     plan includes a prognosis of recovery and discharge within thirty (30) days
     or less. When the prognosis of an Enrollee indicates that long term care
     (over 30 days) will be required, the CONTRACTOR will notify the DEPARTMENT
     and the skilled nursing facility of the prognosis determination and will
     initiate disenrollment to be effective on the first day of the month
     following the prognosis determination. Skilled nursing care is to be
     rendered in a skilled nursing facility which meets federal regulations of
     participation.

T.   TRANSPORTATION SERVICES

     Ambulance (ground and air) service for medical emergencies. The CONTRACTOR
     is also responsible to pay for authorized emergency transportation for an
     illness or accident episode which, upon subsequent medical evaluation at
     the hospital, is determined to be psychiatric-related. The CONTRACTOR will
     submit its emergency transportation policy to the DEPARTMENT for review.
     The CONTRACTOR is not responsible for transporting an Enrollee from an
     acute care facility to another acute care facility for a psychiatric
     admission. The CONTRACTOR's scope of coverage for emergency transportation
     services is limited to the same scope of coverage as defined in the
     transportation Medicaid provider manual.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     Effective September 1, 2002 the CONTRACTOR is not responsible for ambulance
     (ground and air) services.

U.   SERVICES TO CHEC ENROLLEES

     1.   CHEC SERVICES

          The CONTRACTOR will provide to CHEC Enrollees preventive screening
          services and other necessary medical care, diagnostic services,
          treatment, and other measures necessary to correct or ameliorate
          defects and physical and mental illnesses and conditions discovered by
          the screening services, whether or not such services are covered under
          the State Medicaid Plan. The CONTRACTOR is not responsible for home
          and community-based services available through Utah's Home and
          Community-Based waiver programs.

          The CONTRACTOR will provide the full early and periodic screening,
          diagnosis, and treatment services to all eligible children and young
          adults up to age 21 in accordance with the periodicity schedule as
          described in the Utah CHEC Provider Manual. All children between six
          months and 72 months must be screened for blood lead levels.

          Non-Traditional Medicaid: CHEC services are not covered. Enrollees who
          are 19 or 20 years of age receive the adult scope of services.

     2.   CHEC POLICIES AND PROCEDURES

          The CONTRACTOR agrees to have written policies and procedures for
          conducting tracking, follow-up, and outreach to ensure compliance with
          the CHEC periodicity schedules. These policies and procedures will
          emphasize outreach and compliance monitoring for children and young
          adults, taking into account the multi-lingual, multi-cultural nature
          as well as other unique characteristics of the CHEC Enrollees.

V.   FAMILY PLANNING SERVICES

     This service includes disseminating information, counseling, and treatments
     relating to family planning services. All services must be provided by or
     authorized by a physician, certified nurse midwife, or nurse practitioner.
     All services must be provided in concert with Utah law.

     Birth control services include information and instructions related to the
     following:

     1.   Birth control pills;
     2.   Norplant;

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     3.   Depo Provera;
     4.   IUDs;
     5.   Barrier methods including diaphragms, male and female condoms, and
          cervical caps;
     6.   Vasectomy or tubal ligations; and
     7.   Office calls, examinations or counseling related to contraceptive
          devices.

     Non-Traditional Medicaid: Norplant is not a covered service.

W.   HIGH-RISK PRENATAL SERVICES

     1.   IN GENERAL - ENSURE SERVICE ARE APPROPRIATE AND COORDINATED

          The CONTRACTOR must ensure that high risk pregnant Enrollees receive
          an appropriate level of quality perinatal care that is coordinated,
          comprehensive and continuous either by direct service or referral to
          an appropriate provider or facility. In the determination of the
          provider and facility to which a high risk prenatal Enrollee will be
          referred, care must be taken to ensure that the provider and facility
          both have the appropriate training, expertise and capability to
          deliver the care needed by the Enrollee and her fetus/infant. Although
          many complications in perinatal health cannot be anticipated, most can
          be identified early in pregnancy. Ideally, preconceptional counseling
          and planned pregnancy are the best ways to assure successful pregnancy
          outcome, but this is often not possible. Provision of routine
          preconceptional counseling must be made available to those women who
          have conditions identified as impacting pregnancy outcome, i.e.,
          diabetes mellitus, medications which may result in fetal anomalies or
          poor pregnancy outcome, or previous severe anomalous fetus/infant,
          among others.

     2.   RISK ASSESSMENT

          a.   CRITERIA

               Enrollees who are pregnant should be risk assessed for medical
               and psychosocial conditions which may contribute to a poor birth
               outcome at their first prenatal visit, preferably in the first
               trimester. The patient who is determined not to be at high risk
               should be evaluated for change in risk status throughout her
               pregnancy. There are a number of complex systems to determine how
               to assess the risk of pregnancies. The DEPARTMENT has developed a
               risk assessment tool available through the Division of Community
               and Family Health Services which is available upon request.

          b.   RECOMMENDED PRENATAL SCREENING

               The DEPARTMENT recommends prenatal screening of every woman for

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                                                  Attachment C - Covered Service
                                                                          Molina
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               hepatitis B surface antigen (HBsAg) to identify all those at high
               risk for transmitting the virus to their newborns. When a woman
               is found to be HBsAg-positive, the CONTRACTOR will provide HBIG
               and HB vaccine at birth. Initial treatments should be given
               during the first 12 hours of life.

          c.   CLASSIFICATION

               Upon identification of pregnancy or the development of a risk
               factor, each patient should be assigned a classification as
               outlined below.
               1)   Group I
                    Group I patients have no significant risk factors. They may
                    receive obstetrical care by an obstetrician/gynecologist
                    (OB/GYN), family practitioner or certified nurse midwife.

               2)   Group II
                    Group II patients have the following risk factors, and
                    require consultation (consultation may be either by
                    telephone or in person, as appropriate) with an OB/GYN:

                    i.     pregnancy beyond 42 weeks
                    ii.    preterm labor in the current pregnancy less than 34
                           weeks
                    iii.   fetal malpresentation at 37 weeks gestation and
                           beyond*
                    iv.    oxytocin or antepartum prostaglandin use is
                           contemplated*
                    v.     arrest of dilatation in labor, or arrest of descent
                           in labor*
                    vi.    bleeding in labor, beyond bloody show*
                    vii.   abnormal fetal heart rate pattern potentially
                           requiring specific intervention*
                    viii.  chorioamnionitis*
                    ix.    preeclampsia
                    x.     VBAC*

                    *Criteria do not apply if family physician has cesarean
                    privileges.

               3)   Group III
                    Group III patients have the following risk factors, and
                    require consultation by a Maternal Fetal Medicine (MFM)
                    specialist (board certified perinatologist)

                    i.     intrauterine growth restriction prior to 37 weeks
                    ii.    patient at increased risk for fetal anomaly
                           (including teratogen exposure)
                    iii.   patient has known fetal anomaly
                    iv.    preterm delivery (<36 weeks) in a prior pregnancy
                    v.     abnormal serum screening
                    vi.    previous child with congenital anomaly
                    vii.   antibody sensitization

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                                                  Attachment C - Covered Service
                                                                          Molina
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                    viii.  anemia, excluding iron deficiency
                    ix.    significant concurrent medical illness
                    x.     spontaneous premature rupture of the membranes, not
                           in labor (<34 weeks)
                    xi.    history of thromboembolic disease
                    xii.   thromboembolic disease in current pregnancy
                    xiii.  habitual pregnancy loss (3 or more consecutive
                           losses)
                    xiv.   two or more previous stillbirths or neonatal deaths

               4)   Group IV

                    Group IV patients have the following risk factors, and
                    require total obstetric care by an OB/GYN, or co-management
                    with an OB/GYN or MFM

                    i.     any significant medical complication, including
                           patients with insulin dependent diabetes millitus,
                           chronic hypertension requiring medication, maternal
                           neoplastic disease
                    ii.    twins
                    iii.   known or suspected cervical incompetence
                    iv.    placenta previa beyond 28 week gestation
                    v.     severe preeclampsia

               5)   Group V
                    Group V patients have the following risk factors, and
                    require total obstetric care by a MFM (exceptions may be
                    made by a regional MFM specialist, on a case-by-case basis,
                    after MFM consultation)

                    i.     triplets and above
                    ii.    patient has an organ transplant (except cornea)
                    iii.   diabetes mellitus with severe renal impairment
                    iv.    cardiac disease, not functional class I, including
                           all pulmonary hypertension
                    v.     twin-twin transfusion syndrome
                    vi.    patient requires fetal surgical procedure

     3.   PRENATAL INITIATIVE PROGRAM

          Prenatal services provided directly or through agreements with
          appropriate providers includes those services covered under Medicaid's
          Prenatal Initiative Program which includes the following enhanced
          services for pregnant women:

          a.   perinatal care coordination
          b.   prenatal and postnatal home visits

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

          c.   group prenatal and postnatal education
          d.   nutritional assessment and counseling
          e.   prenatal and postnatal psychosocial counseling

          Psychosocial counseling is a service designed to benefit the pregnant
          client by helping her cope with the stress that may accompany her
          pregnancy. Enabling her to manage this stress improves the likelihood
          that she will have a healthy pregnancy. This counseling is intended to
          be short term and directly related to the pregnancy. However, pregnant
          women who are also suffering from a serious emotional or mental
          illness should be referred to an appropriate mental health care
          provider.

X.   SERVICES FOR CHILDREN WITH SPECIAL NEEDS

     1.   IN GENERAL

          In addition to primary care, children with chronic illnesses and
          disabilities need specialized care provided by trained experienced
          professionals. Since early diagnosis and intervention will prevent
          costly complications later on, the specialized care must be provided
          in a timely manner. The specialized care must comprehensively address
          all areas of need to be most effective and must be coordinated with
          primary care and other services to be most efficient. The children's
          families must be involved in the planning and delivery of the care for
          it to be acceptable and successful.

     2.   SERVICES REQUIRING TIMELY ACCESS

          All children with special health care needs must have timely access to
          the following services:

          a.   Comprehensive evaluation for the condition.

          b.   Pediatric subspecialty consultation and care appropriate to the
               condition.

          c.   Rehabilitative services provided by professionals with pediatric
               training in areas such as physical therapy, occupational therapy
               and speech therapy.

          d.   Durable medical equipment appropriate for the condition.

          e.   Care coordination for linkage to early intervention, special
               education and family support services and for tracking progress.

          In addition, children with the conditions marked by * below must have
          timely access to coordinated multispecialty clinics, when Medically
          Necessary, for their disorder.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

     3.   DEFINITION OF CHILDREN WITH SPECIAL HEALTH CARE NEEDS

          The definition of children with special health needs includes, but is
          not limited to, the following conditions:

          a.   Nervous System Defects such as
               Spina Bifida*
               Sacral Agenesis*
               Hydrocephalus

          b.   Craniofacial Defects such as
               Cleft Lip and Palate*
               Treacher - Collins Syndrome

          c.   Complex Skeletal Defects such as
               Arthrogryposis*
               Osteogenesis Imperfecta*
               Phocomelia*

          d.   Inborn Metabolic Disorders such as
               Phenylketonuria*
               Galactosemia*

          e.   Neuromotor Disabilities such as
               Cerebral palsy*
               Muscular Dystrophy*
               Complex Seizure Disorders

          f.   Congenital Heart Defects

          g.   Genetic Disorders such as
               Chromosome Disorders
               Genetic Disorders

          h.   Chronic Illnesses such as
               Cystic Fibrosis
               Hemophilia
               Rheumatoid Arthritis
               Bronchopulmonary Dysplasia
               Cancer
               Diabetes
               Nephritis
               Immune Disorders

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                                                  Attachment C - Covered Service
                                                                          Molina
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          i.   Developmental Disabilities with multiple or global delays in
               development such as Down Syndrome or other conditions associated
               with mental retardation.

          The CONTRACTOR agrees to cover all Medically Necessary services for
          children with special health care needs such as the ones listed above.
          The CONTRACTOR further agrees to cooperate with the DEPARTMENT's
          quality assurance monitoring for this population by providing
          requested information.

Y.   MEDICAL AND SURGICAL SERVICES OF A DENTIST

     1.   WHO MAY PROVIDE SERVICES

          Under Utah law, medical and surgical services of a dentist may be
          provided by either a physician or a doctor of dental medicine or
          dental surgery.

     2.   UNIVERSE OF COVERED SERVICES

          Medical and surgical services that under Utah law may be provided by a
          physician or a doctor of dental medicine or dental surgery, are
          covered under the Contract.

     3.   SERVICES SPECIFICALLY COVERED

          The CONTRACTOR is responsible for palliative care and pain relief for
          severe mouth or tooth pain in an emergency room. If the emergency room
          physician determines that it is not an emergency and the client
          requires services at a lesser level, the provider should refer the
          client to a dentist for treatment. If the dental-related problem is
          serious enough for the client to be admitted to the hospital, the
          CONTRACTOR is responsible for coverage of the inpatient hospital stay.
          The CONTRACTOR is responsible for authorized/approved medical services
          provided by oral surgeons consistent with injury, accident, or disease
          (excluding dental decay and periodontal disease) including, but not
          limited to, removal of tumors in the mouth, setting and wiring a
          fractured jaw. Also covered are injuries to sound natural teeth and
          associated bone and tissue resulting from accidents including services
          by dentists performed in facilities other than the emergency room or
          hospital.

     4.   DENTAL SERVICES NOT COVERED

          The CONTRACTOR is not responsible for routine dental services such as
          fillings, extractions, treatment of abscess or infection,
          orthodontics, and pain relief when provided by a dentist in the office
          or in an outpatient setting such as a surgical center or scheduled
          same day surgery in a hospital including the surgical facilities
          charges.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

Z.   DIABETES EDUCATION

     The CONTRACTOR shall provide diabetes self-management education from a Utah
     certified or American Diabetes Association recognized program when an
     Enrollee:

     1.   has recently been diagnosed with diabetes, or

     2.   is determined by the health care professional to have experienced a
          significant change in symptoms, progression of the disease or health
          condition that warrants changes in the Enrollee's self-management
          plan, or

     3.   is determined by the health care professional to require re-education
          or refresher training.

AA.  HIV PREVENTION

     The CONTRACTOR shall have in place the following:

     1.   GENERAL PROGRAM

          The CONTRACTOR must have educational methods for promoting HIV
          prevention to Enrollees. HIV prevention information, both primary
          (targeted to uninfected Enrollees), as well as secondary (targeted to
          those Enrollees with HIV) should must be culturally and linguistically
          appropriate. All Enrollees should be informed of the availability of
          both in-plan HIV counseling and testing services, as well as those
          available from Utah State-operated programs.

     2.   FOCUSED PROGRAM FOR WOMEN

          Special attention should be paid identifying HIV+ women and engaging
          them in routine care in order to promote treatment including, but not
          limited to, antiretroviral therapy during pregnancy.

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                                                  Attachment C - Covered Service
                                                                          Molina
                                                                    July 1, 2002

                            SUMMARY OF CO-PAYMENT AND
                            CO-INSURANCE REQUIREMENTS

Pregnant women and children under age 18 are exempt from all co-payment and
co-insurance requirements. Services related to family planning are excluded from
all co-payment and co-insurance requirements.

A.   TRADITIONAL MEDICAID PLAN
     -------------------------

1.   Inpatient hospital: Each Enrollee must pay a $[*] co-insurance for
     non-emergency inpatient hospital admissions. The maximum co-payment per
     Enrollee per calendar year is $[*] for non-emergency inpatient hospital
     admissions.

2.   Emergency Department: Each enrollee must pay a $[*] co-payment for non-
     emergency use of the emergency room.

3.   Physician, osteopath, podiatrist, outpatient hospital, freestanding
     emergency centers, and surgical centers: Each Enrollee must pay a $[*]
     co-payment per provider per day. The maximum co-payment per Enrollee per
     calendar year is $[*] for any combination of the services provided by the
     above providers.

4.   Prescription Drugs: Each Enrollee must pay a co-payment of $[*] per
     prescription. The maximum co-payment is $[*] per Enrollee per month.*

There is no overall out-of-pocket maximum for the above services.

B.   NON-TRADITIONAL MEDICAID PLAN
     -----------------------------

1.   Inpatient hospital: Each Enrollee must pay a $[*] co-insurance for each
     non-emergency inpatient hospital admissions.

2.   Emergency Department: Each enrollee must pay a $[*] co-payment for non-
     emergency use of the emergency room.

3.   Physician, osteopath, podiatrist, physical therapist, occupational
     therapist, chiropractor*, freestanding emergency centers, surgical centers:
     Each Enrollee must pay a $[*] co-payment per provider per day.

4.   Prescription Drugs: Each Enrollee must pay a co-payment of $[*] per
     prescription.*

The out-of-pocket maximum for each Enrollee is $[*] for any combination of the
above co-payments and co-insurance.

* Pharmacy services and chiropractic services are not the responsibility of the
  CONTRACTOR.

                                                        hmo/molina am6 (9/05/02)

                                  Page 16 of 16




PROVIDER NAME:                                                                                                     ATTACHMENT E
              ---------------------------------------------------                                               TABLE 1 PAGE 1 OF 15
SERVICE REPORTING PERIOD:  BEGINNING            ENDING                                                          MEDICAID ENROLLMENT
                                     ----------        ----------
PAYMENT DATES:             BEGINNING            ENDING
                                     ----------        ----------
Effective Date: July 1, 2002


                                      TRADITIONAL MEDICAID RATE CELLS                          NON-TRADITIONAL MEDICAID RATE CELLS
               -----------------------------------------------------------------------------  --------------------------------------
 1       2      3     4      5     6     7      8       9       10        11      12     13    14     15     16       17       18
- ---- --------- ----  ----  ------ ---- -----  ------  -----  --------  -------- ------- ----  ----  ------  -----  -------- --------
                                                                                                                   RESTRIC-
                                                      MED                       RESTRIC-      TANF  TANF    MED    TION     MEDICAID
               AGE   TANF  TANF        DIS-   DIS-    NEEDY  NON TANF  BREAST/  TION          MALE  FEMALE  NEEDY  PROGRAM  TOTAL
LINE           0-12  MALE  FEMALE      ABLED  ABLED   CHILD  PREGNANT  CERVICAL PROGRAM       19 &  19 &    19 &   19 &     (SUM OF
NO   MONTH     Mos.  1-18  1-18   AGED MALE   FEMALE  1-18   FEMALE    CANCER   0-18    AIDS  OVER  OVER    OVER   OVER     COLS)
- ---- --------- ----  ----  ------ ---- -----  ------  -----  --------  -------- ------- ----  ----  ------  -----  -------- --------
                                                                         
 1   JULY                                                                                                                          0
 2   AUGUST                                                                                                                        0
 3   SEPTEMBER                                                                                                                     0
 4   OCTOBER                                                                                                                       0
 5   NOVEMBER                                                                                                                      0
 6   DECEMBER                                                                                                                      0
 7   JANUARY                                                                                                                       0
 8   FEBRUARY                                                                                                                      0
 9   MARCH                                                                                                                         0
10   APRIL                                                                                                                         0
11   MAY                                                                                                                           0
12   JUNE                                                                                                                          0
13   TOTAL        0     0       0    0     0       0      0         0         0       0    0     0       0      0         0        0






PROVIDER NAME:                                                        ATTACHMENT E                                   ATTACHMENT E
              -------------------------------------------------    TABLE 2 PAGE 1 OF 2                                  TABLE 2
SERVICE REPORTING PERIOD: BEGINNING            ENDING               REVENUES AND COST                                Page 2 of 15
                                    ---------        ----------
PAYMENT DATES:            BEGINNING            ENDING
                                    ---------        ----------

                                                 MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)
                                ---------------------------------------------------------------------------------
                                                                                                          NON-TRADITIONAL
                                                 TRADITIONAL MEDICAID RATE CELLS                        MEDICAID RATE CELLS
                                ----------------------------------------------------------------------- -------------------
 1            2             3    4    5    6     7     8     9     10     11      12      13     14   15   16   17     18     19
- ---- ------------------- ----- ---- ---- ------ ---- ----- ------ ----- ------ -------- ------- ---- ---- ---- ----- ------ --------
                         TOTAL
                         UTAH
                         OPERA-
                         TIONS                                                                                       RESTRIC-
                         (INCLUD-                                       NON                               TANF       TION   MEDICAID
                         ING                                      MED   TANF            RESTRIC-     TANF FE-  MED   PRO-   TOTAL
                         ALL   AGE  TANF TANF        DIS-  DIS-   NEEDY PREG-  BREAST/  TION         MALE MALE NEEDY GRAM   (SUM OF
LINE                     MEDI- 0-12 MALE FEMALE      ABLED ABLED  CHILD NANT   CERVICAL PROGRAM      19 & 19 & 19 &  19 &   COLS 4
NO   DESCRIPTION         CAID) MOS. 1-18 1-18   AGED MALE  FEMALE 1-18  FEMALE CANCER   0-18    AIDS OVER OVER OVER  OVER   THRU 16
- ---- ------------------- ----- ---- ---- ------ ---- ----- ------ ----- ------ -------- ------- ---- ---- ---- ----- ------ --------
                                                                      
         REVENUES                                           ROUND TO THE NEAREST DOLLAR

  1  PREMIUMS                                                                                                                     $0
  2  DELIVERY FEES
      (CHILD BIRTHS)                                                                                                              $0
  3  REINSURANCE                                                                                                                  $0
  4  STOP LOSS                                                                                                                    $0
  5  TFL COLLECTIONS -
      MEDICARE                                                                                                                    $0
  6  TFL COLLECTIONS -
      OTHER                                                                                                                       $0
  7  OTHER (SPECIFY)                                                                                                              $0
  8  OTHER (SPECIFY)                                                                                                              $0
  9  TOTAL REVENUES         $0   $0   $0     $0   $0    $0     $0    $0     $0       $0      $0   $0   $0   $0    $0     $0       $0

       MEDICAL COSTS                                        ROUND TO THE NEAREST DOLLAR

 10  INPATIENT HOSPITAL
      SERVICES                                                                                                                    $0
 11  OUTPATIENT HOSPI-
      TAL SERVICES                                                                                                                $0
 12  EMERGENCY DEPARTMENT
      SERVICES                                                                                                                    $0
 13  PRIMARY CARE
      PHYSICIAN SERVICES                                                                                                          $0
 14  SPECIALTY CARE
      PHYSICIAN SERVICES                                                                                                          $0
 15  ADULT SCREENING
      SERVICES                                                                                                                    $0
 16  VISION CARE - OPTO-
      METRIC SERVICES                                                                                                             $0
 17  VISION CARE -
      OPTICAL SERVICES                                                                                                            $0
 18  LABORATORY (PATH-
      OLOGY) SERVICES                                                                                                             $0
 19  RADIOLOGY SERVICES                                                                                                           $0
 20  PHYSICAL AND
      OCCUPATIONAL
      THERAPY                                                                                                                     $0
 21  SPEECH AND HEARING
      SERVICES                                                                                                                    $0
 22  PODIATRY SERVICES                                                                                                            $0
 23  END STAGE RENAL DISEASE
      (ESRD) SERVICES -
      DIALYSIS                                                                                                                    $0
 24  HOME HEALTH
      SERVICES                                                                                                                    $0
 25  HOSPICE SERVICES                                                                                                             $0
 26  PRIVATE DUTY NURSING                                                                                                         $0
 27  MEDICAL SUPPLIES AND
      MEDICAL EQUIPMENT                                                                                                           $0
 28  ABORTIONS                                                                                                                    $0
 29  STERILIZATIONS                                                                                                               $0
 30  DETOXIFICATION                                                                                                               $0
 31  ORGAN TRANSPLANTS                                                                                                            $0
 32  OTHER OUTSIDE
      MEDICAL SERVICES                                                                                                            $0
 33  LONG TERM CARE                                                                                                               $0
 34  TRANSPORTATION
      SERVICES                                                                                                                    $0
 35  ACCRUED COSTS                                                                                                                $0
 36  OTHER (SPECIFY)                                                                                                              $0
 37  OTHER (SPECIFY)                                                                                                              $0
 38  TOTAL MEDICAL COST     $0   $0   $0     $0   $0    $0     $0    $0     $0       $0      $0   $0   $0   $0    $0     $0       $0





PROVIDER NAME:                                               ATTACHMENT 3                                               ATTACHMENT E

SERVICE REPORTING PERIOD:                                 TABLE 3 PAGE 2 OF 2                                                TABLE 2

PAYMENT DATES:                                             REVENUES AND COST                                            Page 3 of 15



                                                                  MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)
                                           -----------------------------------------------------------------------------------------
                                                                         TRADITIONAL MEDICAID RATE CELLS
                                           -----------------------------------------------------------------------------------------
 1               2                 3           4      5     6     7      8        9        10        11       12        13       14
- ---- ----------------------- ------------- --------- ---- ------ ---- -------- -------- --------- -------- -------- ----------- ----
                              TOTAL UTAH
                              OPERATIONS             TANF  TANF                         MED NEEDY NON TANF  BREAST/ RESTRICTION
LINE                          (INCLUDING     AGE     MALE FEMALE      DISABLED DISABLED   CHILD   PREGNANT CERVICAL   PROGRAM
 NO         DESCRIPTION      ALL MEDICAID) 0-12 Mos. 1-18  1-18  AGED   MALE    FEMALE    1-18     FEMALE   CANCER     0-18     AIDS
- ---- ----------------------- ------------- --------- ---- ------ ---- -------- -------- --------- -------- -------- ----------- ----
                                                                                         
      ADMINISTRATIVE COSTS                                       ROUND TO THE NEAREST DOLLAR

 39  ADMINISTRATION -
     ADVERTISING
 40  HOME OFFICE INDIRECT
     COST ALLOCATIONS
 41  UTILIZATION
 42  ADMINISTRATION - OTHER
 43  TOTAL ADMINISTRATIVE
     COSTS                         $0         $0      $0    $0    $0     $0       $0        $0       $0       $0         $0      $0
 44  TOTAL COSTS [MED &
     ADMIN]                        $0         $0      $0    $0    $0     $0       $0        $0       $0       $0         $0      $0
 45  NET INCOME [GAIN OR
     (LOSS)]                       $0         $0      $0    $0    $0     $0       $0        $0       $0       $0         $0      $0
 46  ENROLLEE MONTHS                           0       0     0     0      0        0         0        0        0          0       0
 47  MEDICAL COST @ ENROLLEE
     MO
 48  ADMIN COST @
     ENROLLEE MO
 49  TOTAL COST @ ENROLLEE
     MO

           OTHER DATA

 50  TPL SAVINGS -
     COST AVOIDANCE**
 51  DUPLICATE PREMIUMS***
 52  NUMBER OF
     DELIVERIES****
 53  FAMILY PLANNING
     SERVICES
 54  REINSURANCE PREMIUMS
     RECEIVED
 55  REINSURANCE PREMIUMS
     PAID
 56  ADMINISTRATIVE REVENUE
     RETAINED BY THE
     CONTRACTOR


                              MEDICAID (CAPITATED
                               ONLY, NO FEE FOR
                                    SERVICE)
                              --------------------
                                         NON-TRADITIONAL MEDICAID RATE CELLS
                              ----------------------------------------------------------
 1               2               15         16         17          18            19
- ---- -----------------------  ---------  ---------  ---------  -----------  ------------
                                                                               MEDICAID
                                TANF       TANF        MED     RESTRICTION     TOTAL
LINE                            MALE      FEMALE      NEEDY      PROGRAM    (SUM OF COLS
 NO         DESCRIPTION       19 & OVER  19 & OVER  19 & OVER   19 & OVER    4 THRU 16)
- ---- -----------------------  ---------  ---------  ---------  -----------  ------------
                                                          
      ADMINISTRATIVE COSTS                   ROUND TO THE NEAREST DOLLAR

 39  ADMINISTRATION -
     ADVERTISING                                                                 $0
 40  HOME OFFICE INDIRECT
     COST ALLOCATIONS                                                            $0
 41  UTILIZATION                                                                 $0
 42  ADMINISTRATION - OTHER                                                      $0
 43  TOTAL ADMINISTRATIVE
     COSTS                       $0          $0         $0          $0           $0
 44  TOTAL COSTS [MED &
     ADMIN]                      $0          $0         $0          $0           $0
 45  NET INCOME [GAIN OR
     (LOSS)]                     $0          $0         $0          $0           $0
 46  ENROLLEE MONTHS              0           0          0           0            0
 47  MEDICAL COST @ ENROLLEE
     MO                                                                          $0
 48  ADMIN COST @
     ENROLLEE MO                                                                 $0
 49  TOTAL COST @ ENROLLEE
     MO                                                                          $0

           OTHER DATA

 50  TPL SAVINGS -
     COST AVOIDANCE**                                                            $0
 51  DUPLICATE PREMIUMS***                                                       $0
 52  NUMBER OF
     DELIVERIES****                                                              $0
 53  FAMILY PLANNING
     SERVICES                                                                    $0
 54  REINSURANCE PREMIUMS
     RECEIVED                                                                    $0
 55  REINSURANCE PREMIUMS
     PAID                                                                        $0
 56  ADMINISTRATIVE REVENUE
     RETAINED BY THE
     CONTRACTOR                                                                  $0


  **  COST OF SERVICES PROVIDED TO HMO CLIENTS, NOT PAID FOR BY HMO, E.G.
      "AVOIDED", BECAUSE OTHER INSURANCE PAID FOR IT.
 ***  CASH AMOUNT RETURNED TO MEDICAID BY HMO BECAUSE HMO CLIENT WAS COVERED IN
      THE SAME HMO BY ANOTHER CARRIER.
****  NUMBER OF CHILDREN DELIVERED. THIS NUMBER TIMES RATES SHOULD EQUAL
      DELIVERY REVENUE.

     In this Medicaid portion, include only costs for Medicaid clients under the
capitation agreement - exclude revenue, costs & TPL categories per this form
that do not apply to your organization or contract.



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 4 of 15

            MEDICAL SERVICES REVENUE AND COST DEFINITIONS FOR TABLE 2

REVENUES (Report all revenues received or receivable at the end-of-period date
on the form)

1.     Premiums
       --------

       Report premium payments received or receivable from the DEPARTMENT.

2.     Delivery Fees
       -------------

       Report the delivery fee received or receivable from the DEPARTMENT.

3.     Reinsurance
       -----------

       Report the reinsurance payments received or receivable from a reinsurance
       carrier other than the DEPARTMENT.

4.     Stop Loss
       ---------

       Report stop loss payments received or receivable from the DEPARTMENT.

5.     TPL Collections - Medicare
       --------------------------

       Report all third party collections received from Medicare.

6.     TPL Collections - Other
       -----------------------

       Report all third party collections received other than Medicare
       collections. (Report TPL savings because of cost avoidance as a memo
       amount on line 48).

7.     Other (specify)
       -----

8.     Other (specify)
       -----

       For lines seven and eight: Report all other revenue not included in lines
       one through six. (There may not be any amount to report; however, this
       line can be used to report revenue from total Utah operations that do not
       fit lines one through six.)

9.     TOTAL REVENUES

       Total lines one through eight.

NOTE: Duplicate premiums are not considered a cost or revenue as they are
collected by the CONTRACTOR and paid to the DEPARTMENT. Therefore, the payment
to the DEPARTMENT would reduce or offset the revenue recorded when the duplicate
premium was received. However, line 49 has been established for reporting
duplicate premiums as a memo amount.

                                                               hmo-attach E 7/02



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 5 of 15

MEDICAL COSTS: Report all costs accrued as of the ending date on the form. In
the first data column (column 3), report all costs for Utah operations per the
general ledger. In the 15 Medicaid data columns (columns 4 through 18), report
only costs for Medicaid Enrollees.

10.    Inpatient Hospital Services
       ---------------------------

       Costs incurred in providing inpatient hospital services to Enrollees
       confined to a hospital.

11.    Outpatient Hospital Services
       ----------------------------

       Costs incurred in providing outpatient hospital services to Enrollees,
       not including services provided in the emergency department.

12.    Emergency Department Services
       -----------------------------

       Costs incurred in providing outpatient hospital emergency room services
       to Enrollees.

13.    Primary Care Physician Services (Including EPSDT Services, Prenatal Care,
       -------------------------------------------------------------------------
       and Family Planning Services)
       -----------------------------

       All costs incurred for Enrollees as a result of providing primary care
       physician, osteopath, physician assistant, nurse practitioner, and nurse
       midwife services, including payroll expenses, any capitation and/or
       contract payments, fee-for-service payments, fringe benefits, travel and
       office supplies.

14.    Specialty Care Physician Services (Including EPSDT Services, Prenatal
       ---------------------------------------------------------------------
       Care, and Family Planning Services)
       -----------------------------------

       All costs incurred as a result of providing specialty care physician,
       osteopath, physician assistant, nurse practitioner, and nurse midwife
       services to Enrollees, including payroll expenses, any capitation and/or
       contract payments, fee-for-service payments, fringe benefits, travel and
       office supplies.

15.    Adult Screening Services
       ------------------------

       Expenses associated with providing screening services to Enrollees.

16.    Vision Care - Optometric Services
       ---------------------------------

       Included are payroll costs, any capitation and/or contract payments, and
       fee-for-service payments for services and procedures performed by an
       optometrist and other non-payroll expenses directly related to providing
       optometric services for Enrollees.

17.    Vision Care - Optical Services
       ------------------------------

       Included are payroll costs, any capitation and/or contract payments and
       fee-for-service payments for services and procedures performed by an
       optician and other supportive staff, cost of eyeglass frames and lenses
       and other non-payroll expenses directly related to providing optical
       services for Enrollees.

18.    Laboratory (Pathology) Services
       -------------------------------

       Costs incurred as a result of providing pathological tests or services to
       Enrollees including payroll

                                                               hmo-attach E 7/02



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 6 of 15

       expenses, any capitation and/or contract payments, fee-for-service
       payments and other expenses directly related to in-house laboratory
       services. Excluded are costs associated with a hospital visit.

19.    Radiology Services
       ------------------

       Cost incurred in providing x-ray services to Enrollees, including x-ray
       payroll expenses, any capitation and/or contract payments,
       fee-for-service payments, and occupancy overhead costs. Excluded are
       costs associated with a hospital visit.

20.    Physical and Occupational Therapy
       ---------------------------------

       Included are payroll costs, any capitation and/or contract payments,
       fee-for-service costs, and other non-payroll expenditures directly
       related to providing physical and occupational therapy services.

21.    Speech and Hearing Services
       ---------------------------

       Payroll costs, any capitation and/or contract payments, fee-for-service
       payments, and non-payroll costs directly related to providing speech and
       hearing services for Enrollees.

22.    Podiatry Services
       -----------------

       Salary expenses or outside claims, capitation and/or contract payments,
       fee-for-service payments, and non-payroll costs directly related to
       providing services rendered by a podiatrist to Enrollees.

23.    End Stage Renal Disease (ESRD) Services - Dialysis
       --------------------------------------------------

       Costs incurred in providing renal dialysis (ESRD) services to Enrollees.

24.    Home Health Services
       --------------------

       Included are payroll costs, any capitation and/or contract payments,
       fee-for-service payments, and other non-payroll expenses directly related
       to providing home health services for Enrollees.

25.    Hospice Services
       ----------------

       Expenses related to hospice care for Enrollees including home care,
       general inpatient care for Enrollees suffering terminal illness and
       inpatient respite care for caregivers of Enrollees suffering terminal
       illness.

26.    Private Duty Nursing
       --------------------

       Expenses associated with private duty nursing for Enrollees.

27.    Medical Supplies and Medical Equipment
       --------------------------------------

       This cost center contains fee-for-service cost for outside acquisition of
       medical requisites, special appliances as prescribed by the CONTRACTOR to
       Enrollees.

                                                               hmo-attach E 7/02



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 7 of 15

28.    Abortions
       ---------

       Medical and hospital costs incurred in providing abortions for Enrollees.

29.    Sterilizations
       --------------

       Medical and hospital costs incurred in providing sterilizations for
       Enrollees.

30.    Detoxification
       --------------

       Medical and hospital costs incurred in providing treatment for substance
       abuse and dependency (detoxification) for Enrollees.

31.    Organ Transplants
       -----------------

       Medical and hospital costs incurred in providing transplants for
       Enrollees.

32.    Other Outside Medical Services
       ------------------------------

       The costs for specialized testing and outpatient surgical centers for
       Enrollees ordered by the CONTRACTOR.

33.    Long Term Care
       --------------

       Costs incurred in providing long-term care for Enrollees required under
       Attachment C.

34.    Transportation Services
       -----------------------

       Costs incurred in providing ambulance (ground and air) services for
       Enrollees.

35.    Accrued Costs
       -------------

       Costs Incurred for services rendered to Enrollees but not yet billed.

36/37  Other
       -----

       Report costs not otherwise reported.

38.    TOTAL MEDICAL COSTS

       Total lines 10 through 37.

ADMINISTRATIVE COSTS

Report payroll costs, any capitation and/or contract payments, non-payroll costs
and occupancy overhead costs for accounting services, claims processing
services, health plan services, data processing services, purchasing, personnel,
Medicaid marketing and regional administration.

Report the administration cost under four categories - advertising, home office
indirect cost allocation, utilization and all other administrative costs. If
there are no advertising costs or indirect home office cost allocations, report
a zero amount in the applicable lines.

                                                               hmo-attach E 7/02



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 8 of 15

39.    Administration - Advertising
       ----------------------------

40.    Home Office Indirect Cost Allocations
       -------------------------------------

41.    Utilization
       -----------

       Payroll cost and any capitation and/or contract payments for utilization
       staff and other non-payroll costs directly associated with controlling
       and monitoring outside physician referral and hospital admission and
       discharges of Enrollees.

42.    Administration - Other
       ----------------------

43.    TOTAL ADMINISTRATIVE COSTS

       Total lines 39 through 42.

44.    TOTAL COSTS (MEDICAL AND ADMINISTRATIVE)

       Total lines 38 and 43.

45.    NET INCOME (GAIN OR LOSS)

       Line 9 minus line 44.

46.    ENROLLEE MONTHS

       Total Enrollee months for period of time being reported.

47.    MEDICAL COSTS PER ENROLLEE MONTH

       Line 38 divided by line 46.

48.    ADMINISTRATIVE COSTS PER ENROLLEE MONTH

       Line 43 divided by line 46.

49.    TOTAL COSTS PER ENROLLEE MONTH

       Line 44 divided by line 46.

OTHER DATA

50.    TPL Savings - Cost Avoidance
       ----------------------------

51.    Duplicate Premiums
       ------------------

       Include all premiums received for Enrollees from all sources other than
       Medicaid.

52.    Number of Deliveries
       --------------------

       Total number of Enrollee deliveries when the delivery occurred at 24
       weeks or later.

                                                               hmo-attach E 7/02



                                                                    Attachment E
                                                          Effective July 1, 2002
                                                                    Page 9 of 15

53.    Family Planning Services
       ------------------------

       Include costs associated with family planning services as defined in
       Attachment C (Covered Services, Section V, Family Planning Services).

54.    Reinsurance Premiums Received
       -----------------------------

       Include the reinsurance premiums received or receivable that are not
       counted as revenue.

55.    Reinsurance Premiums Paid
       -------------------------

       Include reinsurance premiums paid to a reinsurance carrier other than the
       DEPARTMENT.

56.    Administrative Revenue Retained by the CONTRACTOR
       -------------------------------------------------

       Include the administrative revenue retained by the CONTRACTOR from the
       reinsurance premiums received or receivable.

                                                               hmo-attach E 7/02





PROVIDER NAME:                                                           ATTACHMENT E                            ATTACHMENT E
                            --------------------------------------
SERVICE REPORTING PERIOD:   BEGINNING            ENDING               TABLE 3 PAGE 1 OF 1                             TABLE 3
                                      ----------        ----------
PAYMENT DATES:              BEGINNING            ENDING                   UTILIZATION                           Page 10 of 15
                                      ----------        ----------
EFFECTIVE DATE: JULY 1, 2002

                                                         MEDICAID (CAPITATED ONLY, NO FEE FOR SERVICE)
                                           ------------------------------------------------------------------------
                                                                         TRADITIONAL MEDICAID RATE CELLS
                                           -----------------------------------------------------------------------------------------
 1                     2                       3      4     5     6      7        8         9        10       11         12      13
- ---- ------------------------------------- --------- ---- ------ ---- -------- -------- --------- -------- -------- ----------- ----
                    SERVICE
                  DESCRIPTION                        TANF  TANF                         MED NEEDY NON TANF  BREAST/ RESTRICTION
LINE     (REFER TO THE UNIT OF SERVICE        AGE    MALE FEMALE      DISABLED DISABLED   CHILD   PREGNANT CERVICAL   PROGRAM
 NO     DEFINITIONS IN THE INSTRUCTIONS)   0-12 Mos. 1-18  1-18  AGED   MALE    FEMALE    1-18     FEMALE   CANCER      0-18    AIDS
- ---- ------------------------------------- --------- ---- ------ ---- -------- -------- --------- -------- -------- ----------- ----
                                                                                            
  1  HOSPITAL SERVICES - GENERAL DAYS
  2  HOSPITAL SERVICES - DISCHARGES
  3  HOSPITAL SERVICES - OUTPATIENT VISITS
  4  EMERGENCY DEPARTMENT VISITS
  5  PRIMARY CARE PHYSICIAN SERVICES
  6  SPECIALTY CARE PHYSICIAN SERVICES
  7  ADULT SCREENING SERVICES
  8  VISION CARE - OPTOMETRIC SERVICES
  9  VISION CARE - OPTICAL SERVICES
 10  LABORATORY (PATHOLOGY) PROCEDURES
 11  RADIOLOGY PROCEDURES
 12  PHYSICAL AND OCCUPATIONAL THERAPY
     SERVICES
 13  SPEECH AND HEARING SERVICES
 14  PODIATRY SERVICES
 15  RENAL DISEASE (ESRD) SERVICES -
     DIALYSIS
 16  HOME HEALTH SERVICES
 17  HOSPICE DAYS
 18  PRIVATE DUTY NURSING SERVICES
 19  MEDICAL SUPPLIES AND MEDICAL
     EQUIPMENT
 20  ABORTIONS PROCEDURES
 21  STERILIZATION PROCEDURES
 22  DETOXIFICATION DAYS
 23  ORGAN TRANSPLANTS
 24  OTHER OUTSIDE MEDICAL SERVICES
 25  LONG TERM CARE FACILITY DAYS
 26  TRANSPORTATION TRIPS
 27  OTHER (SPECIFY)


                                                NON-TRADITIONAL MEDICAID RATE CELLS
                                            --------------------------------------------
 1                     2                       14         15         16          17            18
- ---- -------------------------------------  ---------  ---------  ---------  -----------  -------------
                    SERVICE                                                                  MEDICAID
                  DESCRIPTION                 TANF       TANF        MED     RESTRICTION      TOTAL
LINE     (REFER TO THE UNIT OF SERVICE        MALE      FEMALE      NEEDY      PROGRAM    (SUM OF COLS)
 NO     DEFINITIONS IN THE INSTRUCTIONS)    19 & OVER  19 & OVER  19 & OVER   19 & OVER     3 THRU 15
- ---- -------------------------------------  ---------  ---------  ---------  -----------  -------------
                                                                        
  1  HOSPITAL SERVICES - GENERAL DAYS
  2  HOSPITAL SERVICES - DISCHARGES
  3  HOSPITAL SERVICES - OUTPATIENT VISITS
  4  EMERGENCY DEPARTMENT VISITS
  5  PRIMARY CARE PHYSICIAN SERVICES
  6  SPECIALTY CARE PHYSICIAN SERVICES
  7  ADULT SCREENING SERVICES
  8  VISION CARE - OPTOMETRIC SERVICES
  9  VISION CARE - OPTICAL SERVICES
 10  LABORATORY (PATHOLOGY) PROCEDURES
 11  RADIOLOGY PROCEDURES
 12  PHYSICAL AND OCCUPATIONAL THERAPY
     SERVICES
 13  SPEECH AND HEARING SERVICES
 14  PODIATRY SERVICES
 15  RENAL DISEASE (ESRD) SERVICES -
     DIALYSIS
 16  HOME HEALTH SERVICES
 17  HOSPICE DAYS
 18  PRIVATE DUTY NURSING SERVICES
 19  MEDICAL SUPPLIES AND MEDICAL
     EQUIPMENT
 20  ABORTIONS PROCEDURES
 21  STERILIZATION PROCEDURES
 22  DETOXIFICATION DAYS
 23  ORGAN TRANSPLANTS
 24  OTHER OUTSIDE MEDICAL SERVICES
 25  LONG TERM CARE FACILITY DAYS
 26  TRANSPORTATION TRIPS
 27  OTHER (SPECIFY)


                                  ATTACHMENT E
                                     TABLE 3
                                  Page 10 of 15



                                                                    Attachment E
                                                                   Page 11 of 15

              MEDICAL SERVICES UTILIZATION DEFINITIONS FOR TABLE 3

MEDICAL SERVICES

1.     Hospital Services - General Days
       --------------------------------

       Record total number of inpatient hospital days associated with inpatient
       medical care.

2.     Hospital Services - Discharges
       ------------------------------

       Record total number of inpatient hospital discharges.

3.     Hospital Services - Outpatient Visits
       -------------------------------------

       Record total number of outpatient visits.

4.     Emergency Department Visits
       ---------------------------

       Record total number of emergency room visits

5.     Primary Care Physician Services
       -------------------------------

       Number of services and procedures defined by CPT-4 codes provided by
       primary care physicians or licensed physician extenders or assistants
       under direct supervision of a physician inclusive of all services except
       radiology, laboratory and injections/immunizations which should be
       reported in their appropriate section. The reporting of data under this
       category includes both outpatient and inpatient services.

6.     Specialty Care Physician Services
       ---------------------------------

       Number of services and procedures defined by CPT-4 codes provided by
       specialty care physicians or licensed physician extenders or assistants
       under direct supervision of a physician inclusive of all services except
       radiology, laboratory and injections/immunizations which should be
       reported in their appropriate section. The reporting of data under this
       category includes both outpatient and inpatient services.

7.     Adult Screening Services
       ------------------------

       Number of adult screenings performed.

8.     Vision Care - Optometric Services
       ---------------------------------

       Number of optometric services and procedures performed by an optometrist.

9.     Vision Care - Optical Services
       ------------------------------

       Number of eye glasses and contact lenses dispensed.



                                                                    Attachment E
                                                                   Page 12 of 15

10.    Laboratory (Pathology) Procedures
       ---------------------------------

       Number of procedures defined by CPT-4 Codes under the Pathology and
       Laboratory section. Excluded are services performed in conjunction with a
       hospital outpatient or emergency department visit.

11.    Radiology Procedures
       --------------------

       Number of procedures defined by CPT-4 Codes under the Radiology section.
       Excluded are services performed in conjunction with a hospital outpatient
       or emergency department visit.

12.    Physical and Occupational Therapy Services
       ------------------------------------------

       Physical therapy refers to physical and occupational therapy services and
       procedures performed by a physician or physical therapist.

13.    Speech and Hearing Services
       ---------------------------

       Number of services and procedures.

14.    Podiatry Services
       -----------------

       Number of services and procedures.

15.    End Stage Renal Disease (ESRD) Services - Dialysis
       --------------------------------------------------

       Number of ESRD procedures provided upon referral.

16.    Home Health Services
       --------------------

       Number of home health visits, such as skilled nursing, home health aide,
       and personal care aide visits.

17.    Hospice Days
       ------------

       Number of days hospice care is provided, including respite care.

18.    Private Duty Nursing Services
       -----------------------------

       Hours of skilled care delivered.

19.    Medical Supplies and Medical Equipment
       --------------------------------------

       Durable medical equipment such as wheelchairs, hearing aids, etc., and
       nondurable supplies such as oxygen etc.

20.    Abortion Procedures
       -------------------

       Number of procedures performed.



                                                                    Attachment E
                                                                   Page 13 of 15

21.    Sterilization Procedures
       ------------------------

       Number of procedures performed.

22.    Detoxification Days
       -------------------

       Days of inpatient detoxification.

23.    Organ Transplants
       -----------------

       Number of transplants.

24.    Other Outside Medical Services
       ------------------------------

       Specialized testing and outpatient surgical services ordered by IHC.

25.    Long Term Care Facility Days
       ----------------------------

       Total days associated with long-term care.

26.    Transportation Trips
       --------------------

       Number of ambulance trips.

27.    Other (specify)
       ---------------



                                  ATTACHMENT E
                               TABLE 4 PAGE 1 OF 1
                        MEDICAID MALPRACTICE INFORMATION

PROVIDER NAME:                 _________________________________________________

SERVICE REPORTING PERIOD:      BEGINNING ________    ENDING __________

ORGANIZATIONS NAMED IN THE MALPRACTICE CLAIM:
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

MEDICAL PROFESSIONALS SPECIFIED:
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

LOCATIONS WHERE CLAIMS ORIGINATED:
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

MEDICAID CLIENT IDENTIFICATION:
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

DATES OF SERVICE:
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

AWARDS TO MEDICAID CLIENTS - AMOUNTS & DATES PAID
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

HMO'S DIRECT COSTS (IF ANY)
        CLAIM NUMBER 1  ________________________________________________________
        CLAIM NUMBER 2  ________________________________________________________
        CLAIM NUMBER 3  ________________________________________________________

ATTACH A SUMMARY OF FACTS FOR EACH CASE, DESCRIBING THE CLAIM, THE CAUSES,
CIRCUMSTANCES, ETC.

                                  ATTACHMENT E
                                     TABLE 4
                                  Page 14 of 15



                                                                    Attachment E
                                                                   Page 15 of 15

The information reported on this form should come from known malpractice cases
of the MCO providers. This may only be applicable if the MCO was named as a
participant in the malpractice suit. However, if suits against MCO providers are
known, provide us with information on the Medicaid client(s) involved and any
large settlements paid when the information is available.



                                                                  Attachment F-4
                                                                          Molina
                                                                    July 1, 2002

                                   AFC/MOLINA

                      ATTACHMENT F-4 - PAYMENT METHODOLOGY

The DEPARTMENT agrees to provide a no-loss guarantee to MHU by underwriting any
financial losses sustained by MHU for a period of twelve months, beginning July
1, 2002. No later than April 1, 2003, MHU will submit to the DEPARTMENT all paid
claims from July 1 through December 31, 2002. The parties will conduct a
financial review of MHU's paid claims history from July 1 through December 31,
2002 to determine if the Contract should revert to a risk-based contract
effective July 1, 2003.

A.   PAYMENT METHODOLOGY

     1.   EFFECTIVE JULY 1, 2002 THROUGH DECEMBER 31, 2002

          The DEPARTMENT shall make interim payments for the months of July 2002
          through December 2002 based on the premium methodology in effect on
          June 30, 2002. MHU must submit to the DEPARTMENT a summary of paid
          claims on a monthly basis with no more than two months delay after the
          month being reported. No later then April 1, 2003, MHU will submit to
          the DEPARTMENT all paid claims from July 1 through December 31, 2002.
          The payment made to MHU by the DEPARTMENT will be retrospectively
          adjusted to reflect MHU's actual claim expenditures under this
          Contract plus 9% of actual claim expenditures to cover administrative
          costs.

     2.   EFFECTIVE JANUARY 1, 2003 THROUGH JUNE 30, 2003

          The DEPARTMENT will reimburse MHU within 60 days of the month in which
          MHU paid claims for services rendered under this Contract and will be
          based on a summary of paid claims data received from MHU. In addition,
          9% of actual claim expenditures will be added to the payment for
          administrative services and patient management expenses incurred by
          MHU. MHU must submit to the DEPARTMENT the summary of paid claims
          within 30 days of the month in which MHU paid the claims.

     3.   RETROSPECTIVE ADJUSTMENT FOR COSTS INCURRED FROM JULY 1, 2002 THROUGH
          JUNE 30, 2003

          Profit sharing occurs if MHU's costs plus 9% administration fee are
          less than MHU's revenues under this Contract. Revenues are defined as
          the amount the DEPARTMENT would have paid had this Contract remained a
          risk contract as

                                                        hmo-molina am6 (9/09/02)

                                   Page 1 of 4



                                                                  Attachment F-4
                                                                          Molina
                                                                    July 1, 2002

          described in 42 CFR 447.361. MHU may retain the savings as follows: if
          the difference between MHU's costs plus administration and total
          revenues is 5% or less of total revenues, MHU may retain the entire
          amount. The portion of savings greater than the 5% shall be shared
          50/50 with the DEPARTMENT.

          On or before October 1, 2002, MHU will provide to the DEPARTMENT their
          payment schedule in effect from July 1 through September 30, 2002. Any
          changes made to MHU's payment schedule must maintain cost neutrality
          to the DEPARTMENT and are subject to approval by the DEPARTMENT. A
          final settlement between the parties shall be reconciled within six
          months of the end of the Contract year.

B.   PHARMACY MANAGEMENT INCENTIVE

     The DEPARTMENT will establish a target for pharmacy costs for the Contract
     year. The target will be the historical average cost per member per month
     (PMPM) for Medicaid client enrolled in MCOs in the previous Contract year.
     The average cost will be determined for each rate cell. An overall weighted
     average PMPM pharmacy cost will be established based on MHU's monthly
     enrollment during the Contract year. The 2002 Contract year's history will
     be adjusted by the inflation indices published by the US Department of
     Labor. If actual pharmacy costs for MHU's enrollees are below the target
     for the Contract year, the savings will be shared [*] with the DEPARTMENT
     and MHU.

C.   CHEC SCREENING INCENTIVE CLAUSE

     1.   CHEC SCREENING GOAL

          The CONTRACTOR will ensure that Medicaid children have access to
          appropriate well-child visits. The CONTRACTOR will follow the Utah
          EPSDT (CHEC) guidelines for the periodicity schedule for well-child
          protocol. The federal agency, Centers for Medicare and Medicaid
          Services (CMS), mandates that all states have 80% of all children
          screened. The DEPARTMENT and the CONTRACTOR will work toward that
          goal.

     2.   CALCULATION OF CHEC INCENTIVE PAYMENT

          The DEPARTMENT will calculate the CONTRACTOR's annual participation
          rate based on information supplied by the CONTRACTOR under the CMS-416
          EPSDT (CHEC) reporting requirements. Based on the CMS-416 data, the
          CONTRACTOR's well-child participation rate was 97% for Federal Fiscal
          Year (FFY) 2001 (October 1, 2000 through September 30, 2001). The
          incentive

                                                    hmo-afc/molina am6 (9/09/02)

                                   Page 2 of 4



                                                                  Attachment F-4
                                                                          Molina
                                                                    July 1, 2002

          payment for the Contract year ending June 30, 2003 will be based on
          the CONTRACTOR's FFY 2002 (October 1, 2001 through September 30, 2002)
          CMS-416 participation rate. The DEPARTMENT will pay the CONTRACTOR
          $[*] if a rate of 90% or higher is maintained during FFY2002. The
          participation rate will be calculated no later than April 15, 2003;
          the CONTRACTOR will be notified of the incentive payment, if
          applicable, no later than April 30, 2003.

     3.   CONTRACTOR's USE OF INCENTIVE PAYMENT

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the EPSDT (CHEC)
          participation rate.

D.   IMMUNIZATION INCENTIVE CLAUSE

     The CONTRACTOR will ensure that Enrollees have access to recommended
     immunizations. The CONTRACTOR will follow the Advisory Committee on
     Immunization Practices' recommendations for immunizations for children.

     1.   IMMUNIZATIONS FOR TWO-YEAR-OLDS

          Utah has achieved a statewide immunization level of 77.4% for
          two-year-olds. The CONTRACTOR's 2000 HEDIS rate was 46.4% for the
          Combination 1 immunization measure for two-year olds. Based on the
          CONTRACTOR's 2001 HEDIS measure for the Combination 1 immunization
          measure, the DEPARTMENT will pay the CONTRACTOR $[*] for each full
          percentage point above 46.4% up to 96.4%.

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the HEDIS rate.

     2.   IMMUNIZATIONS FOR ADOLESCENTS

          The DEPARTMENT realizes it is important that adolescents are
          vaccinated according to schedule as recommended by the Advisory
          Committee on Immunization Practices and other professional groups. The
          CONTRACTOR's 2000 HEDIS rate was 6.8% for the Combination 1
          immunization measure for adolescents. Based on the CONTRACTOR's 2001
          HEDIS measure for adolescent immunizations, the DEPARTMENT will pay
          the CONTRACTOR $[*] for each full percentage point above 6.8% up to
          56.8%.

                                                    hmo-afc/molina am6 (9/09/02)

                                   Page 3 of 4



                                                                  Attachment F-4
                                                                          Molina
                                                                    July 1, 2002

          The CONTRACTOR agrees to use this incentive payment to reward the
          CONTRACTOR's employees responsible for improving the HEDIS rate.

     3.   IMMUNIZATIONS FOR ADULTS

          The HEDIS immunization measure for adults is not reported for Medicaid
          clients age 65 and older. The DEPARTMENT intends to expand this
          incentive clause to include improved immunization rates for influenza
          and pneumonia vaccines among Enrollees age 65 and older. The
          DEPARTMENT will work with contractors to collect this data during this
          Contract year (July 1, 2002 - June 30, 2003).

                                                    hmo-afc/molina am6 (9/09/02)

                                   Page 4 of 4

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY "[*]".
CONFIDENTIAL INFORMATION OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.

                                                                    EXHIBIT 10.5

                           MEMORANDUM OF UNDERSTANDING

     This MEMORANDUM OF UNDERSTANDING is made by and between the Utah Department
of Health (DEPARTMENT) and Molina Healthcare of Utah, Inc. (MHU), effective July
1, 2002.

                                    RECITALS

A.   MHU currently provides services to Medicaid beneficiaries through its
     Medicaid HMO Contract with the DEPARTMENT.

B.   The DEPARTMENT desires to increase the number of Medicaid beneficiaries
     that receive services through MHU's Medicaid HMO Contract.

C.   Following the Utah Legislature's reduction of MHU's rate increase, the
     DEPARTMENT desires to ensure MHU's financial viability in its role as a
     Medicaid Managed Care Contractor.

D.   The DEPARTMENT requires additional time to draft a formal amendment to the
     MHU Medicaid HMO Contract, the parties agree to use their best efforts to
     develop and execute a formal amendment by August 30, 2002.

     NOW THEREFORE, the parties enter into this Memorandum of Understanding to
set forth their intent and understanding until a formal amendment is developed
and executed. Terms not otherwise defined herein shall have the meaning ascribed
to them in the MHU Medicaid HMO Contract.

I.   MEDICAID HMO

     1.   MHU will continue to provide necessary covered HMO benefits to those
          Medicaid beneficiaries enrolled under its Medicaid HMO Contract.
     2.   The DEPARTMENT agrees to provide a no-loss guarantee to MHU by
          underwriting any financial losses sustained by MHU for period of
          twelve (12) months, beginning July 1, 2002. The parties will conduct a
          financial review, following the first nine (9) months, to determine
          whether the no-loss guarantee needs to remain in effect beyond the
          twelve-(12) month period.
     3.   MHU's Administrative Costs shall not exceed  [*] , of Total Medical
          Costs associated with its Medicaid HMO Contract.
     4.   If MHU's costs are less than the Total Revenues received from the
          DEPARTMENT for its Medicaid HMO Contract, including but not limited to
          Premiums, MHU may retain up to 5% of its profits. Any additional
          profits above 5%, will be shared with the DEPARTMENT on a 50-50 basis.
     5.   Pharmacy Management Incentive. The State will establish a "target" for
          pharmacy costs for FY 2003. The target will be the historical average
          cost per member per month for clients enrolled in HMOs for FY 2002.
          The average cost will be

                                        1



          determined for each rate cell. An overall weight average PMPM pharmacy
          cost will be established based on MHU's enrollment for FY 2003. The
          pharmacy history will be adjusted for the estimate shift for pharmacy
          supplies for diabetes. FY 2002 history will be inflated forward by
          inflation indices published by the US Department of Labor. If actual
          pharmacy costs are below the target for the year, the savings will be
          shared 50 - 50.
     6.   Retroactive Reimbursement. The State will retroactively reimburse
          actual Medical Costs incurred by Molina for FY 2003 within 60 days of
          the date of service, nine percent (9%) of Medical Costs incurred will
          be added to the payment to cover patient management and administrative
          services. The State will make payment each month based on a summary of
          paid claims data. An interim payment will be made for the month of
          July 2002 based on estimated claims expense. After 120 days, the
          interim payment may be returned at the request of State based on the
          objective of establishing a 60-day delay between the date of service
          and the date of payment. A Final Settlement between the parties of
          Total Revenues shall be reconciled within six months of the completion
          of this agreement.

II.  MEDICAID PPO

     1.   Once enrollment under the HMO contract reaches 40,000 any additional
          Medicaid beneficiaries enrolled in the MHU Medicaid HMO Contract will
          be designated as Medicaid PPO members, governed by the provisions of
          this section II. If HMO membership falls below 40,000, any new
          Medicaid enrollees assigned to MHU will be enrolled as HMO enrollees.
          Once the 40,000 membership level is reached, new Medicaid enrollees
          assigned to MHU will be enrolled as PPO enrollees.
     2.   MHU will arrange for the provision of healthcare services, through its
          HMO contract, for those Medicaid beneficiaries enrolled on a Medicaid
          PPO basis. The healthcare services will be the same as the Covered
          Services set forth in MHU's Medicaid HMO Contract.
     3.   MHU will provide all Administrative Services to its Medicaid PPO
          enrollees as currently provided under its Medicaid HMO product line,
          including but not limited to:
               .Utilization and case management
               .Claims processing
               .Member orientations, education and customer services
               .Provider network development and maintenance.
     4.   MHU does not assume any financial risk associated with healthcare
          services provided to its Medicaid PPO enrollees.
     5.   The DEPARTMENT shall reimburse MHU, all Medical Costs provided to
          those beneficiaries enrolled in MHU's Medicaid PPO product.
     6.   The DEPARTMENT will compensate MHU an amount equal to $ [*] per PPO
          member per month for Administrative Services.

                                        2



     7.   Pharmacy Management Incentive. The State will establish a "target" for
          pharmacy costs for FY 2003. The target will be the historical average
          cost per member per month for clients enrolled in HMOs for FY 2002.
          The average cost will be determined for each rate cell. An overall
          weight average PMPM pharmacy cost will be established based on MHU's
          enrollment for FY 2003. The pharmacy history will be adjusted for the
          estimate shift for pharmacy supplies for diabetes. FY 2002 history
          will be inflated forward by inflation indices published by the US
          Department of Labor. If actual pharmacy costs are below the target for
          the year, the savings will be shared 50 - 50.


IN WITNESS WHEREOF, the parties sign this Memorandum of Understanding.

/s/                                      /s/
- ---------------------------              ---------------------------------------
Rod Betit                                G. Kirk Olsen
Executive Director                       CEO
Utah Department of Health                Molina Healthcare of Utah
30 July 2002                             30 July 2002

                                        3

                                                                    EXHIBIT 10.6




                                                     
                                                        DSHS Contract Number:
                       CLIENT SERVICE CONTRACT          0312-16028
                                                        Resulting From Solicitation Number:

[LOGO OF DEPARTMENT OF SOCIAL AND HEALTH SERVICES]

This Contract is between the State of Washington        Program Contract Number:
Department of Social and Health Services (DSHS)
and the Contractor identified below.                    Contractor Contract Number:

CONTRACTOR NAME                                 CONTRACTOR doing business as (DBA)

Molina Healthcare of Washington, Inc.

CONTRACTOR ADDRESS                              WASHINGTON UNIFORM BUSINESS    DSHS INDEX NUMBER
                                                IDENTIFIER (UBI)

21540 30th Dr. SE, Suite 400                    600-546-648                    24261
PO Box 1469
Bothell, WA 98041

CONTRACTOR CONTACT        CONTRACTOR TELEPHONE        CONTRACTOR FAX         CONTRACTOR E-MAIL ADDRESS

Peggy Wanta               (425) 424-1146 Ext:         (425) 424-1182         peggyw@molinahealthcare.com

DSHS ADMINISTRATION       DSHS DIVISION                    DSHS CONTRACT CODE

Medical Assistance        Program Support                  7000XC
Administration

DSHS CONTACT NAME AND TITLE          DSHS CONTACT ADDRESS

Michael Paulson                      P O Box 45530
MAA Program Manager
                                     Olympia, WA 98504-5630

DSHS CONTACT TELEPHONE            DSHS CONTACT FAX                 DSHS CONTACT E-MAIL ADDRESS

(360) 725-1641 Ext                (360) 753-7315                   paulsmj@dshs.wa.gov

IS THE CONTRACTOR A SUBRECIPIENT FOR PURPOSES OF THIS CONTRACT?  CFDA NUMBER(S)

No

CONTRACT START DATE               CONTRACT END DATE                CONTRACT MAXIMUM AMOUNT

01/01/2003                        12/31/2003                       $0.00

EXHIBITS, When the box below is marked with an X, the following Exhibits are
attached and are incorporated into this Contract by reference:
[X] Exhibits (specify): A through E

[ILLEGIBLE]

CONTRACTOR SIGNATURE              PRINTED NAME AND TITLE                DATE SIGNED
/s/                               Ann Koontz, President & CEO           12-10-02

DSHS SIGNATURE                    PRINTED NAME AND TITLE                DATE SIGNED
/s/                               Charles H. Pugh, Supervisor           16-Dec-02
                                  Contracts Coordination Unit
                                  Medical Assistance Administration


DSHS Central Contract Services
Client Service Contract #6012XF (12-13-00)

                                                                   Page 1



                    DEPARTMENT OF SOCIAL AND HEALTH SERVICES

                        MEDICAL ASSISTANCE ADMINISTRATION

                                  2003 CONTRACT

                                       FOR

                                 HEALTHY OPTIONS

                                       AND

                             STATE CHILDREN'S HEALTH
                                 INSURANCE PLAN

              APPROVED AS TO FORM BY THE ATTORNEY GENERAL'S OFFICE



                                TABLE OF CONTENTS




                                                                                                             
1.   DEFINITIONS................................................................................................ 1

   1.1    ANCILLARY SERVICES.................................................................................... 1
   1.2    CHILDREN WITH SPECIAL HEALTH CARE NEEDS............................................................... 1
   1.3    COMPARABLE COVERAGE................................................................................... 1
   1.4    COVERED SERVICES...................................................................................... 1
   1.5    DUAL COVERAGE......................................................................................... 1
   1.6    EPSDT................................................................................................. 1
   1.7    ELIGIBLE CLIENTS...................................................................................... 1
   1.8    EMERGENCY MEDICAL CONDITION........................................................................... 1
   1.9    ENROLLEE.............................................................................................. 2
   1.10     MANAGED CARE........................................................................................ 2
   1.11     MEDICALLY NECESSARY SERVICES........................................................................ 2
   1.12     PARTICIPATING PROVIDER.............................................................................. 2
   1.13     PEER-REVIEWED MEDICAL LITERATURE.................................................................... 2
   1.14     PHYSICIAN GROUP..................................................................................... 2
   1.15     PHYSICIAN INCENTIVE PLAN............................................................................ 2
   1.16     PRIMARY CARE PROVIDER (PCP)......................................................................... 3
   1.17     RISK................................................................................................ 3
   1.18     SERVICE AREA........................................................................................ 3
   1.19     SCHIP............................................................................................... 3
   1.20     SUBCONTRACT......................................................................................... 3

2.   ENROLLMENT................................................................................................. 3

   2.1    SERVICE AREA.......................................................................................... 3
   2.2    ELIGIBLE CLIENT GROUPS................................................................................ 4
   2.3    CLIENT NOTIFICATION................................................................................... 4
   2.4    EXEMPTION FROM ENROLLMENT............................................................................. 5
   2.5    ENROLLMENT PERIOD..................................................................................... 5
   2.6    ENROLLMENT PROCESS.................................................................................... 5
   2.7    EFFECTIVE DATE OF ENROLLMENT.......................................................................... 5
   2.8    ENROLLMENT LISTING AND REQUIREMENTS FOR CONTRACTOR'S RESPONSE......................................... 6
   2.9    TERMINATION OF ENROLLMENT............................................................................. 6

3.   PAYMENT................................................................................................... 10

   3.1    RATES/PREMIUMS....................................................................................... 10
   3.2    DELIVERY CASE RATE PAYMENT........................................................................... 11
   3.3    RENEGOTIATION OF RATES............................................................................... 11
   3.4    REINSURANCE/RISK PROTECTION.......................................................................... 11
   3.5    RECOUPMENTS.......................................................................................... 11
   3.6    ENROLLEE HOSPITALIZED AT ENROLLMENT.................................................................. 12
   3.7    ENROLLEE HOSPITALIZED AT DISENROLLMENT............................................................... 12
   3.8    THIRD-PARTY LIABILITY (TPL).......................................................................... 13
   3.9    SUBROGATION RIGHTS OF THIRD-PARTY LIABILITY.......................................................... 13

4.   ACCESS AND CAPACITY....................................................................................... 14

   4.1    NETWORK CAPACITY..................................................................................... 14
   4.2    ACCESSIBILITY OF SERVICES............................................................................ 14
   4.3    24/7 AVAILABILITY.................................................................................... 14
   4.4    APPOINTMENT STANDARDS................................................................................ 15
   4.5    PROVIDER NETWORK-DISTANCE STANDARDS.................................................................. 15
   4.6    ACCESS TO SPECIALTY CARE............................................................................. 16
   4.7    EQUAL ACCESS FOR ENROLLEES WITH COMMUNICATION BARRIERS............................................... 16







                                                                                                             
   4.8    AMERICANS WITH DISABILITIES ACT...................................................................... 18
   4.9    CAPACITY LIMITS AND ORDER OF ACCEPTANCE.............................................................. 18
   4.10     ASSIGNMENT OF ENROLLEES............................................................................ 18
   4.11     PROVIDER NETWORK CHANGES........................................................................... 19
   4.12     WOMEN'S HEALTH CARE SERVICES....................................................................... 20
   4.13     MATERNITY NEWBORN LENGTH OF STAY................................................................... 20

5.   QUALITY OF CARE........................................................................................... 20

   5.1    QUALITY IMPROVEMENT PROGRAM.......................................................................... 20
   5.2    ACCREDITATION........................................................................................ 20
   5.3    NOTICE REQUIREMENTS FOR DENIED, DISCONTINUED, OR MODIFIED SERVICE.................................... 20
   5.4    ENROLLEE COMPLAINTS AND APPEALS, INCLUDING INDEPENDENT REVIEW........................................ 21
   5.5    FAIR HEARING......................................................................................... 21
   5.6    EPSDT/IMMUNIZATIONS.................................................................................. 23
   5.7    PROVIDER EDUCATION................................................................................... 23
   5.8    CLAIMS PAYMENT STANDARDS............................................................................. 23
   5.9    QUALITY IMPROVEMENT STUDIES.......................................................................... 24
   5.10     HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT................................................ 24
   5.11     PRACTICE GUIDELINES................................................................................ 25
   5.12     ADVANCE DIRECTIVES................................................................................. 25

6.   REPORTING REQUIREMENTS.................................................................................... 25

   6.1    CERTIFICATION REQUIREMENTS........................................................................... 25
   6.2    HEDIS(R) MEASURES.................................................................................... 26
   6.3    ENCOUNTER DATA....................................................................................... 27
   6.4    INTEGRATED PROVIDER NETWORK DATABASE (IPND).......................................................... 27
   6.5    MONTHLY ADJUSTMENT REPORT FOR FQHC/RHC ENROLLEES..................................................... 28
   6.6    ENROLLEE MORTALITY................................................................................... 28
   6.7    CAHPS................................................................................................ 28
   6.8    DENIALS, COMPLAINT AND APPEALS....................................................................... 29
   6.9    DRUG FORMULARY REVIEW AND APPROVAL................................................................... 30
   6.10     FRAUD AND ABUSE.................................................................................... 30
   6.11     FIVE PERCENT EQUITY................................................................................ 31

7.   GENERAL TERMS AND CONDITIONS.............................................................................. 31

   7.1    COMPLETE AGREEMENT................................................................................... 31
   7.2    MODIFICATION......................................................................................... 31
   7.3    WAIVER............................................................................................... 31
   7.4    LIMITATION OF AUTHORITY.............................................................................. 31
   7.5    NOTICES.............................................................................................. 31
   7.6    FORCE MAJEURE........................................................................................ 32
   7.7    SANCTIONS............................................................................................ 32
   7.8    ASSIGNMENT OF THIS AGREEMENT......................................................................... 33
   7.9    HEADINGS NOT CONTROLLING............................................................................. 33
   7.10     ORDER OF PRECEDENCE................................................................................ 33
   7.11     PROPRIETARY RIGHTS................................................................................. 34
   7.12     COVENANT AGAINST CONTINGENT FEES................................................................... 34
   7.13     ENROLLEES' RIGHT TO OBTAIN A CONVERSION AGREEMENT.................................................. 34
   7.14     RECORDS MAINTENANCE AND RETENTION.................................................................. 34
   7.15     ACCESS TO FACILITIES AND RECORDS................................................................... 35
   7.16     SOLVENCY........................................................................................... 35
   7.17     COMPLIANCE WITH ALL APPLICABLE LAWS AND REGULATIONS................................................ 36
   7.18     NONDISCRIMINATION.................................................................................. 37
   7.19     REVIEW OF CLIENT INFORMATION....................................................................... 37
   7.20     CONTRACTOR NOT EMPLOYEES OF DSHS................................................................... 37







                                                                                                             
   7.21     DSHS NOT GUARANTOR................................................................................. 37
   7.22     MUTUAL INDEMNIFICATION AND HOLD HARMLESS........................................................... 37
   7.23     DISPUTES........................................................................................... 37
   7.24     GOVERNING LAW AND VENUE............................................................................ 38
   7.25     SEVERABILITY....................................................................................... 38
   7.26     EXCLUDED PERSONS................................................................................... 38
   7.27     FRAUD AND ABUSE REQUIREMENTS....................................................................... 39

8.   SUBCONTRACTS.............................................................................................. 40

   8.1    CONTRACTOR REMAINS LEGALLY RESPONSIBLE............................................................... 40
   8.2    SOLVENCY REQUIREMENTS FOR SUBCONTRACTORS............................................................. 40
   8.3    REQUIRED PROVISIONS.................................................................................. 40
   8.4    HEALTH CARE PROVIDER SUBCONTRACTS.................................................................... 41
   8.5    HEALTH CARE PROVIDER SUBCONTRACTS DELEGATING ADMINISTRATIVE FUNCTIONS................................ 42
   8.6    EXCLUDED PROVIDERS................................................................................... 42
   8.7    HOME HEALTH PROVIDERS................................................................................ 43
   8.8    PHYSICIAN INCENTIVE PLANS............................................................................ 43
   8.9    PAYMENT TO FQHCs/RHCs................................................................................ 46

9.   TERM AND TERMINATION...................................................................................... 46

   9.1    TERM................................................................................................. 46
   9.2    TERMINATION FOR CONVENIENCE.......................................................................... 46
   9.3    TERMINATION BY THE CONTRACTOR FOR DEFAULT............................................................ 47
   9.4    TERMINATION BY DSHS FOR DEFAULT...................................................................... 47
   9.5    MANDATORY TERMINATION................................................................................ 48
   9.6    TERMINATION FOR REDUCTION IN FUNDING................................................................. 48
   9.7    INFORMATION ON OUTSTANDING CLAIMS AT TERMINATION..................................................... 48
   9.8    CONTINUED RESPONSIBILITIES........................................................................... 49
   9.9    ENROLLEE NOTICE OF TERMINATION....................................................................... 49

10.  SERVICE DELIVERY.......................................................................................... 49

   10.1     SCOPE OF SERVICES.................................................................................. 49
   10.2     MEDICAL NECESSITY DETERMINATION.................................................................... 50
   10.3     ENROLLEE CHOICE OF PCP............................................................................. 51
   10.4     COORDINATION OF CARE............................................................................... 52
   10.5     SECOND OPINIONS.................................................................................... 52
   10.6     ENROLLEE SELF-DETERMINATION........................................................................ 53
   10.7     COMPLIANCE WITH FEDERAL REGULATIONS FOR STERILIZATIONS AND HYSTERECTOMIES.......................... 53
   10.8     PROGRAM INFORMATION................................................................................ 53
   10.9     CONFIDENTIALITY OF ENROLLEE INFORMATION............................................................ 53
   10.10    MARKETING.......................................................................................... 54
   10.11    INFORMATION REQUIREMENTS FOR ENROLLEES AND POTENTIAL ENROLLEES..................................... 54
   10.12    PHYSICIAN INCENTIVE PLAN INFORMATION............................................................... 56
   10.13    FAIR HEARING INFORMATION........................................................................... 56
   10.14    PROHIBITION ON ENROLLEE CHARGES FOR COVERED SERVICES............................................... 56
   10.15    PROHIBITION ON PROVIDER/ENROLLEE DISCUSSION LIMITATIONS............................................ 56
   10.16    PROVIDER LICENSE NONDISCRIMINATION................................................................. 56
   10.17    EXPERIMENTAL AND INVESTIGATIONAL SERVICES.......................................................... 56

11.  SCHEDULE OF BENEFITS...................................................................................... 58

   11.1     COVERED SERVICES................................................................................... 58
   11.2     EXCLUSIONS......................................................................................... 64

NCQA STANDARDS 2003............................................................................................  2

CONDUCT OF THE APPEAL PROGRAM AS FOLLOWS:...................................................................... 10







                                                                                                             
   MEDICAL RECORDS............................................................................................. 21

EXHIBIT A            QUALITY IMPROVEMENT PROGRAM 2003 STANDARDS
EXHIBIT B            WAC 388-538 MANAGED CARE
EXHIBIT C-1          2003 HEALTHY OPTIONS/SCHIP ENCOUNTER DATA SPECIFICATIONS
EXHIBIT C-2 (a)      2003 IPND REPORTING REQUIREMENTS
EXHIBIT C-2 (b)      IPND ESCALATION PROCEDURE
EXHIBIT D            PREMIUMS, SERVICE AREAS, AND CAPACITY
EXHIBIT E            WAC 388-542 CHILDREN'S HEALTH INSURANCE PLAN




                                                        2003 HO & SCHIP Contract

1.      DEFINITIONS

        The following definitions shall apply to this agreement:

        1.1.    ANCILLARY SERVICES means health services ordered by a provider
                including but not limited to, laboratory services, radiology
                services, and physical therapy.

        1.2.    CHILDREN WITH SPECIAL HEALTH CARE NEEDS means children
                identified by DSHS to the Contractor as meeting federal
                guidelines for such children. For the term of this agreement,
                DSHS will limit such identification to children served under the
                provisions of Title V of the Social Security Act.

        1.3.    COMPARABLE COVERAGE means an enrollee has other insurance which
                DSHS has determined provides a full scope of health care
                benefits.

        1.4.    COVERED SERVICES means medically necessary services, as set
                forth in Section 11, Schedule of Benefits, covered under the
                terms of this agreement.

        1.5.    DUAL COVERAGE means an enrollee is privately enrolled on any
                basis with the Contractor and simultaneously enrolled with the
                Contractor under Healthy Options/SCHIP.

        1.6.    EPSDT (Early, Periodic Screening, Diagnosis and Treatment) means
                a package of services in a preventive (well child) exam covered
                by Medicaid as defined in the Social Security Act (SSA) Section
                1905(r). Services covered by Medicaid include a complete health
                history and developmental assessment, an unclothed physical
                exam, immunizations, laboratory tests, health education and
                anticipatory guidance, and screenings for: vision, dental,
                substance abuse, mental health and hearing, as well as any
                medically necessary services found to be necessary during the
                EPSDT exam. EPSDT services covered by the Contractor are
                described in Section 11, Schedule of Benefits.

        1.7.    ELIGIBLE CLIENTS means DSHS clients certified eligible by the
                DSHS, living in the service area, and eligible to enroll for
                health care services under the terms of this agreement, as
                described in Section 2.2.

        1.8.    EMERGENCY MEDICAL CONDITION means a medical condition
                manifesting itself by acute symptoms of sufficient severity
                (including severe pain) such that a prudent layperson, who
                possesses an average knowledge of health and medicine, could
                reasonably expect the absence of immediate medical attention to
                result in: (a) placing the health of the individual (or, with
                respect to a pregnant woman, the health of the woman or her
                unborn child) in

                                        1



                                                        2003 HO & SCHIP Contract

                serious jeopardy; (b) serious impairment to bodily functions; or
                (c) serious dysfunction of any bodily organ or part (42 USC
                1396u-2(b)(2)(c)).

        1.9.    ENROLLEE means an individual eligible for any medical program
                who is enrolled in Healthy Options/SCHIP managed care through a
                health care plan having an agreement with DSHS.

        1.10.   MANAGED CARE means a prepaid, comprehensive system of medical
                and health care delivery, including preventive, primary,
                specialty and ancillary health services.

        1.11.   MEDICALLY NECESSARY SERVICES means services which are reasonably
                calculated to prevent, diagnose, correct, cure, alleviate, or
                prevent the worsening of conditions that endanger life, cause
                suffering or pain, result in illness or infirmity, threaten 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 requesting the service.
                For the purpose of this agreement, course of treatment may
                include mere observation or, where appropriate, no treatment at
                all. Medically necessary services shall include, but not be
                limited to, diagnostic, therapeutic, and preventive services
                that are generally and customarily provided in the service area
                (WAC 388-500-0005.)

        1.12.   PARTICIPATING PROVIDER means a person, practitioner as defined
                in the Quality Improvement Program 2003 Standards, Exhibit A, or
                entity with a written agreement with the Contractor to provide
                services to enrollees under the terms of this agreement.

        1.13.   PEER-REVIEWED MEDICAL LITERATURE means medical literature
                published in professional journals that submit articles for
                review by experts who are not part of the editorial staff. It
                does not include publications or supplements to publications
                primarily intended as marketing material for pharmaceutical,
                medical supplies, medical devices, health service providers, or
                insurance carriers.

        1.14.   PHYSICIAN GROUP means a partnership, association, corporation,
                individual practice association, or other group that distributes
                income from the practice among its members. An individual
                practice association is a physician group only if it is composed
                of individual physicians and has no subcontracts with physician
                groups (42 CFR 434.70).

        1.15.   PHYSICIAN INCENTIVE PLAN means any compensation arrangement
                between the Contractor and a physician or physician group that
                may directly or indirectly have the effect of reducing or
                limiting services to enrollees under the terms of this agreement
                (42 CFR 434.70).

                                        2



                                                        2003 HO & SCHIP Contract

        1.16.   PRIMARY CARE PROVIDER (PCP) means a participating provider who
                has the responsibility for supervising, coordinating, and
                providing primary health care to enrollees, initiating referrals
                for specialist care, and maintaining the continuity of enrollee
                care. PCPs include, but are not limited to Pediatricians, Family
                Practitioners, General Practitioners, Internists, Physician
                Assistants (under the supervision of a physician), or Advanced
                Registered Nurse Practitioners (ARNP), as designated by the
                Contractor.

        1.17.   RISK means the possibility that a loss may be incurred because
                the cost of providing services may exceed the payments made for
                services (42 CFR 434.2). When applied to subcontractors, loss
                includes the loss of potential payments made as part of a
                physician incentive plan, as defined in Section 1.15.

        1.18.   SERVICE AREA means the geographic area covered by this agreement
                as described in Section 2.1.

        1.19.   SCHIP: State Children's Health Insurance Program.

        1.20.   SUBCONTRACT means a written agreement between the Contractor and
                a subcontractor, or between a subcontractor and another
                subcontractor, to perform all or a portion of the duties and
                obligations the Contractor is obligated to perform pursuant to
                this agreement.

2.      ENROLLMENT

        2.1.    SERVICE AREAS:

             2.1.1.    The Contractor's service areas are described in Exhibit
                       D, Premiums, Service Areas, and Capacity.

             2.1.2.    Clients in the eligibility groups described in Section
                       2.2 are eligible to enroll with the Contractor if they
                       reside in the Contractor's service areas.

             2.1.3.    Service Area Changes:

               2.1.3.1.       With the written approval of DSHS, the Contractor
                              may expand into additional service areas at any
                              time by giving written notice to DSHS, along with
                              evidence, as DSHS may require, to demonstrate the
                              Contractor's ability to support the expansion.
                              DSHS may withhold approval of a requested
                              expansion, if, in DSHS' sole judgment, the
                              requested expansion is not in the best interest of
                              DSHS.

                                        3



                                                        2003 HO & SCHIP Contract

               2.1.3.2.       The Contractor may decrease service areas by
                              giving DSHS ninety (90) days written notice. The
                              decrease shall not be effective until the first
                              day of the month which falls after the ninety (90)
                              days has elapsed.

               2.1.3.3.       The Contractor shall notify enrollees affected by
                              any service area decrease sixty (60) calendar days
                              prior to the effective date. Notices must have
                              prior approval of DSHS. If the Contractor fails to
                              notify affected enrollees of a service area
                              decrease sixty (60) calendar days prior to the
                              effective date, the decrease shall not be
                              effective until the first day of the month which
                              falls sixty (60) calendar days from the date the
                              Contractor notifies enrollees.

             2.1.4.    If the U.S. Postal Service alters the zip code numbers or
                       zip code boundaries within the Contractor's service
                       areas, DSHS shall alter the service area zip code numbers
                       or the boundaries of the service areas with input from
                       the affected contractors.

             2.1.5.    DSHS shall determine, in its sole judgment, which zip
                       codes fall within each service area. No zip code will be
                       split between service areas.

             2.1.6.    DSHS will determine whether an enrollee resides within a
                       service area.

        2.2.    ELIGIBLE CLIENT GROUPS: DSHS shall determine eligibility for
                enrollment under this agreement. Clients in the following
                eligibility groups at the time of enrollment are eligible for
                enrollment under this agreement, and must enroll in Healthy
                Options/SCHIP unless the enrollee has dual coverage as defined
                in Section 1.5, has comparable coverage as defined in Section
                1.3, or is exempted pursuant to Section 2.4.

             2.2.1.    Clients receiving Medicaid under Social Security Act
                       (SSA) provisions for coverage of families receiving
                       Temporary Assistance for Needy Families and clients who
                       are not eligible for cash assistance who remain eligible
                       for Medicaid.

             2.2.2.    Children, from birth through eighteen years of age,
                       eligible for Medicaid under expanded pediatric coverage
                       provisions of the Social Security Act ("H" Children).

             2.2.3.    Pregnant Women, eligible for Medicaid under expanded
                       maternity coverage provisions of the Social Security Act
                       ("S" women).

             2.2.4.    Children eligible for SCHIP.

        2.3.    CLIENT NOTIFICATION: DSHS shall notify eligible clients of their
                rights and responsibilities as Healthy Options/SCHIP enrollees
                at the time of initial

                                        4



                                                        2003 HO & SCHIP Contract

                eligibility determination and eligibility review. The Contractor
                shall provide enrollees with additional information as described
                in this agreement, including the Quality Improvement Program
                2003 Standards, Exhibit A.

        2.4.    EXEMPTION FROM ENROLLMENT: A client may request exemption from
                enrollment. Each request for exemption will be reviewed by DSHS
                pursuant to WAC 388-538, Exhibit B or WAC 388-542, Exhibit E.
                When the client is already enrolled with the Contractor and
                wishes to be exempted, the exemption request will be treated as
                a disenrollment request consistent with the provisions of
                Section 2.9.

        2.5.    ENROLLMENT PERIOD: Subject to the provisions of Section 2.7,
                enrollment is continuously open. Enrollees shall have the right
                to change enrollment prospectively, from one Healthy
                Options/SCHIP plan to another without cause, each month (42 CFR
                434.27).

        2.6.    ENROLLMENT PROCESS: To enroll with the Contractor, the client,
                his/her representative or his/her responsible parent or guardian
                must complete and submit a DSHS enrollment form to DSHS, or call
                the DSHS, Medical Assistance Administration's (MAA) toll-free
                enrollment number. If the client does not exercise his/her right
                to choose a Healthy Options/SCHIP plan, DSHS will assign the
                client, and all eligible family members, to a Healthy
                Options/SCHIP plan in accord with section 4.10 of this
                agreement.

                DSHS will make every effort to enroll all family members with
                the same Healthy Options/SCHIP plan. If a family member is
                covered by the Basic Health Plan, DSHS will make every effort to
                enroll the remainder of the family with the same managed care
                plan if the plan contracts with DSHS to provide Healthy
                Options/SCHIP. If the plan does not contract with DSHS, the
                remaining family members will be enrolled with a single, but
                different Healthy Options/SCHIP plan of the client's choice, or
                the client will be assigned as described above if they do not
                choose.

        2.7.    EFFECTIVE DATE OF ENROLLMENT:

             2.7.1.    Except for newborns, enrollment with the Contractor shall
                       be effective on the later of the following dates:

               2.7.1.1.       If the enrollment is processed on or before the
                              DSHS cut-off date for enrollment, enrollment shall
                              be effective the first day of the month following
                              the month in which the enrollment is processed; or

               2.7.1.2.       If the enrollment is processed after the DSHS
                              cut-off date for enrollment, enrollment shall be
                              effective the first day of the second month
                              following the month in which the enrollment is
                              processed.

                                        5



                                                        2003 HO & SCHIP Contract

             2.7.2.    Newborns whose mothers are enrollees shall be deemed
                       enrollees and enrolled beginning from the newborn's date
                       of birth or the mother's date of enrollment, whichever is
                       later. If the mother is disenrolled before the newborn
                       receives a separate client identifier from DSHS, the
                       newborn's coverage shall end when the mother's coverage
                       ends, except as provided in Section 3.7.

             2.7.3.    Adopted children shall be covered consistent with the
                       provisions of Title 48 RCW.

             2.7.4.    No retroactive coverage is provided under this agreement,
                       except as described in this section.

        2.8.    ENROLLMENT LISTING AND REQUIREMENTS FOR CONTRACTOR'S RESPONSE:

             2.8.1.    Before the end of each month DSHS will provide the
                       Contractor with a list of enrollees whose enrollment is
                       terminated the end of that month, and a list of the
                       Contractor's enrollees for the following month.

             2.8.2.    The Contractor shall have ten (10) calendar days from the
                       receipt of the enrollment listing to notify DSHS in
                       writing of the refusal of an application for enrollment
                       or any discrepancy regarding DSHS' proposed enrollment
                       effective date. Written notice shall include the reason
                       for refusal and must be agreed to by DSHS. The effective
                       date of enrollment specified by DSHS shall be considered
                       accepted by the Contractor and shall be binding if the
                       notice is not timely or DSHS does not agree with the
                       reasons stated in the notice. Subject to DSHS approval,
                       the Contractor may refuse to accept an enrollee for the
                       following reasons:

               2.8.2.1.       DSHS has enrolled the enrollee with the Contractor
                              in a service area the Contractor is not contracted
                              for.

               2.8.2.2.       The enrollee is not eligible for enrollment under
                              the terms of this agreement.

        2.9.    TERMINATION OF ENROLLMENT:

             2.9.1.    VOLUNTARY TERMINATION: Enrollees may request termination
                       of enrollment by submitting a written request to
                       terminate enrollment to DSHS or by calling the Medical
                       Assistance Customer Service Center (MACSC) toll-free
                       enrollment number. Requests for termination of enrollment
                       may be made to enroll with another Healthy Options plan,
                       or to disenroll from Healthy Options as provided in WAC
                       388-538, Exhibit B or WAC 388-542, Exhibit E. Except as
                       provided in WAC 388-538, Exhibit B or WAC 388-542,
                       Exhibit E, enrollees whose enrollment is terminated will
                       be prospectively disenrolled. DSHS shall notify the
                       Contractor of enrollee

                                        6



                                                        2003 HO & SCHIP Contract

                       terminations pursuant to Section 2.8. The Contractor may
                       not request voluntary disenrollment on behalf of an
                       enrollee.

             2.9.2.    INVOLUNTARY TERMINATION INITIATED BY DSHS FOR
                       INELIGIBILITY: The enrollment of any enrollee under this
                       agreement shall be terminated if the enrollee becomes
                       ineligible for enrollment due to a change in eligibility
                       status.

               2.9.2.1.       When an enrollee's enrollment is terminated for
                              ineligibility, the termination shall be effective:

                 2.9.2.1.1.     The first day of the month following the month
                                in which the termination is processed by DSHS if
                                the termination is processed on or before the
                                DSHS cut-off date for enrollment or the
                                Contractor is informed by DSHS of the
                                termination prior to the first day of the month
                                following the month in which the termination is
                                processed by DSHS.

                 2.9.2.1.2.     Effective the first day of the second month
                                following the month in which the termination is
                                processed if the termination is processed after
                                the DSHS cut-off date for enrollment and the
                                Contractor is not informed by DSHS of the
                                termination prior to the first day of the month
                                following the month in which the termination is
                                processed by DSHS.

               2.9.2.2.       Enrollees Eligible for Social Security Income
                              (SSI):

                 2.9.2.2.1.     Enrollees determined by the Social Security
                                Administration (SSA) to be eligible for SSI in
                                calendar year 2003 shall be ineligible for
                                services under the terms of this agreement when
                                DSHS receives the SSI eligibility information
                                from the Social Security Administration through
                                the electronic State Data Exchange (SDX). Such
                                enrollees will be disenrolled prospectively as
                                described in Section 2.9.2.1. DSHS shall not
                                recoup any premiums for enrollees determined SSI
                                eligible effective in 2003 and the Contractor
                                shall be responsible for providing services
                                under the terms of this agreement until the
                                effective date of disenrollment.

                 2.9.2.2.2.     Enrollees determined by the SSA to be eligible
                                for SSI prior to calendar year 2003 shall be
                                ineligible for services under the terms of this
                                agreement when DSHS receives the SSI eligibility
                                information from the Social Security
                                Administration through the electronic State Data
                                Exchange (SDX). Such enrollees will be
                                disenrolled prospectively as described in

                                        7



                                                        2003 HO & SCHIP Contract

                                Section 2.9.2.1. DSHS shall recoup premiums paid
                                prior to calendar year 2003 in accord with
                                Section 3.5.5.

                 2.9.2.2.3.     If the Contractor believes an enrollee has been
                                determined by SSA to be eligible for SSI, the
                                Contractor shall present documentation of such
                                eligibility to DSHS, DSHS will attempt to verify
                                the eligibility and, if the enrollee is SSI
                                eligible, DSHS will act upon SSI eligibility in
                                accord with this section.

             2.9.3.    INVOLUNTARY TERMINATION INITIATED BY DSHS FOR COMPARABLE
                       COVERAGE OR DUAL COVERAGE:

               2.9.3.1.       The Contractor shall notify DSHS as set forth
                              below when an enrollee has health care insurance
                              coverage with the Contractor or any other carrier:

                 2.9.3.1.1.     Within fifteen (15) working days when an
                                enrollee is verified as having dual coverage, as
                                defined in Section 1.5.

                 2.9.3.1.2.     Within sixty (60) calendar days of when the
                                Contractor becomes aware that an enrollee has
                                any health care insurance coverage with any
                                other insurance carrier. The Contractor is not
                                responsible for the determination of comparable
                                coverage, as defined in Section 1.3.

               2.9.3.2.       DSHS will involuntarily terminate the enrollment
                              of any enrollee with dual coverage or comparable
                              coverage as follows:

                 2.9.3.2.1.     When the enrollee has dual coverage which has
                                been verified by DSHS, DSHS shall terminate
                                enrollment retroactively to the beginning of the
                                month of dual coverage and recoup premiums as
                                describe in Section 3.5.

                 2.9.3.2.2.     When the enrollee has comparable coverage which
                                has been verified by DSHS, DSHS shall terminate
                                enrollment effective the first day of the second
                                month following the month in which the
                                termination is processed if the termination is
                                processed on or before the DSHS cut-off date for
                                enrollment or, effective the first day of the
                                third month following the month in which the
                                termination is processed if the termination is
                                processed after the DSHS cut-off date for
                                enrollment.

                                        8



                                                        2003 HO & SCHIP Contract

             2.9.4.    INVOLUNTARY TERMINATION INITIATED BY THE CONTRACTOR: To
                       request involuntary termination of an enrollee, the
                       Contractor must send written notice to DSHS as described
                       in Section 7.5. DSHS shall approve or disapprove the
                       request for termination within thirty (30) working days
                       of receipt of such notice. For the termination to be
                       effective, DSHS must approve the termination request,
                       notify the Contractor, and disenroll the enrollee. The
                       Contractor shall continue to provide services to the
                       enrollee until s/he is disenrolled. DSHS will not
                       disenroll an enrollee solely due to a request based on an
                       adverse change in the enrollee's health status or the
                       cost of meeting the enrollee's health care needs (WAC
                       388-538-130, Exhibit B). DSHS shall involuntarily
                       terminate the enrollee when the Contractor has
                       substantiated in writing:

               2.9.4.1.       The enrollee's behavior is inconsistent with the
                              Contractor's rules and regulations, such as
                              intentional misconduct.

               2.9.4.2.       The Contractor has provided a clinically
                              appropriate evaluation to determine whether there
                              is a treatable condition contributing to the
                              enrollee's behavior and such evaluation either
                              finds no treatable condition to be contributing,
                              or, after evaluation and treatment, the enrollee's
                              behavior continues to prevent the provider from
                              safely or prudently providing medical care to the
                              enrollee.

               2.9.4.3.       The enrollee received written notice from the
                              Contractor of its intent to request the enrollee's
                              disenrollment, unless the requirement for
                              notification has been waived by DSHS because the
                              enrollee's conduct presents the threat of imminent
                              harm to others. The Contractor's notice to the
                              enrollee must include the following:

                 2.9.4.3.1.     The enrollee's right to use the Contractor's
                                appeal process to review the request to end the
                                enrollee's enrollment.

                 2.9.4.3.2.     The enrollee's right to use the DSHS fair
                                hearing process.

             2.9.5.    An enrollee whose enrollment is terminated for any
                       reason, other than incarceration, at any time during the
                       month is entitled to receive covered services, as
                       described in Section 10.1, at the Contractor's expense,
                       through the end of that month.

                       In no event will an enrollee be entitled to receive
                       services and benefits under this agreement after the
                       last day of the month in which his or her enrollment is
                       terminated, except as provided in Section 3.7.

                                        9



                                                        2003 HO & SCHIP Contract

3.      PAYMENT

        3.1.    RATES/PREMIUMS: Subject to the provisions of Section 7.7,
                Intermediate Sanctions, DSHS shall pay a monthly premium for
                each enrollee in full consideration of the work to be performed
                by the Contractor under this agreement. DSHS shall pay the
                Contractor, on or before the tenth (10th) working day of the
                month based on the DSHS list of enrollees whose enrollment is
                ongoing or effective on the first day of said calendar month.
                Such payment will be denied for new enrollees when, and for so
                long as, payment for those enrollees is denied by the Centers
                for Medicare and Medicaid Services (CMS) under 42 CFR 434.67(e)
                (42 CFR 434.22).

                The Contractor shall reconcile the payment listing with
                remittance advice information and submit a claim to DSHS for any
                amount due the Contractor within three hundred sixty five (365)
                calendar days of the month of service. When DSHS' records
                confirm the Contractor's claim, DSHS shall remit payment within
                thirty (30) calendar days of the receipt of the claim.

             3.1.1.    The statewide Base Rate is $129.88.

             3.1.2.    The Geographical Adjustment Factors and First Quarter
                       Risk Adjustment Factors are in Exhibit D, Premiums,
                       Service Areas, and Capacity.

             3.1.3.    The Age/Sex Adjustment Factors are as follows:

                                                Males        Females
                                                -----        -------
                     Under age 1                2.778         2.778
                     Ages 1-2                   0.899         0.899
                     Ages 3-14                  0.468         0.468
                     Ages 15-18                 0.531         1.872
                     Ages 19-34                 0.847         2.314
                     Ages 35-64                 1.639         2.057
                     Age 65 and over            4.247         4.247

             3.1.4.    The monthly premium payment will be calculated as
                       follows:

                       Premium Payment = Base Rate X Age/Sex Factor X Risk
                       Adjustment Factor X Geographical Adjustment Factor

             3.1.5.    The Risk Adjustment Factor will be recalculated for
                       premiums paid for May 2003 based on enrollment with the
                       Contractor on March 1, 2003 using encounter data reported
                       for the 12 months ending June 30, 2002. The recalculated
                       Risk Adjustment Factor shall be used by DSHS to calculate
                       premiums for May through December of 2003. DSHS shall

                                       10



                                                        2003 HO & SCHIP Contract

                       update Exhibit D, Premiums, Service Areas, and Capacity
                       to add the third quarter Risk Adjustment Factor.

             3.1.6.    DSHS shall automatically generate newborn premiums
                       whenever possible. For newborns whose premiums DSHS is
                       not able to automatically generate the Contractor shall
                       submit a supplemental premium payment request to DSHS
                       within 365 days of the month of service. The Contractor
                       shall be responsible for reviewing monthly listings
                       provided by DSHS of the newborn premiums DSHS cannot
                       generate automatically, as well as remittance advice
                       statements, to determine whether a supplemental premium
                       request needs to be submitted. DSHS shall pay
                       supplemental premiums through the end of the month in
                       which the sixtieth (60th) day of life occurs.

             3.1.7.    DSHS shall make a full monthly payment to the Contractor
                       for the month in which an enrollee's enrollment is
                       terminated except as otherwise provided herein.

             3.1.8.    The Contractor shall be responsible for covered medical
                       services provided to the enrollee in any month for which
                       DSHS paid the Contractor for the enrollee's care under
                       the terms of this agreement.

        3.2.    DELIVERY CASE RATE PAYMENT: A one-time payment of $4,300.00
                shall be made to the Contractor for labor and delivery expenses
                for enrollees enrolled with the Contractor during the month of
                delivery. Delivery includes both live and still births, but does
                not include miscarriage, induced abortion, or other fetal demise
                not requiring labor and delivery to terminate the pregnancy. The
                Contractor shall submit a supplemental premium request for
                payment to DSHS after the enrollee delivers.

        3.3.    RENEGOTIATION OF RATES: The base rate set forth in Section 3.1
                shall be subject to renegotiation during the agreement period
                only if DSHS, in its sole judgment, determines that it is
                necessary due to a change in federal or state law or other
                material changes, beyond the Contractor's control, which would
                justify such a renegotiation.

        3.4.    REINSURANCE/RISK PROTECTION: The Contractor may obtain
                reinsurance for coverage of enrollees only to the extent that it
                obtains such reinsurance for other groups enrolled by the
                Contractor, provided that the Contractor remains ultimately
                liable to DSHS for the services rendered.

        3.5.    RECOUPMENTS: Unless mutually agreed to by the parties, DSHS
                shall only recoup premium payments for enrollees who are:

             3.5.1.    Dually-covered with the Contractor.

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                                                        2003 HO & SCHIP Contract

             3.5.2.    Deceased prior to the month of enrollment. Premium
                       payments shall be recouped effective the first day of the
                       month following the enrollee's date of death.

             3.5.3.    Retroactively disenrolled as a result of the enrollee's
                       placement in foster care.

             3.5.4.    Retroactively disenrolled consistent with the provisions
                       of Section 2.9.1.

             3.5.5.    Determined to have been eligible for SSI prior to
                       calendar year 2003 in accord with Section 2.9.2.2.2. DSHS
                       shall recoup calendar year 2002 premiums paid in and
                       subsequent to the month of SSI eligibility. DSHS shall
                       only recoup premiums paid in 2002.

             3.5.6.    Found ineligible for enrollment with the Contractor and
                       DSHS so notifies the Contractor before the first day of
                       the month for which the premium is paid.

             3.5.7.    The Contractor may recoup payments made to providers for
                       services provided to enrollees during the period for
                       which DSHS recoups premiums for those enrollees. If the
                       Contractor recoups said payments, providers may submit
                       appropriate claims for payment to DSHS through its FFS
                       program.

        3.6.    ENROLLEE HOSPITALIZED AT ENROLLMENT: If an enrollee is in an
                acute care hospital at the time of enrollment and was not
                enrolled in Healthy Options/SCHIP on the day s/he was admitted
                to the hospital, DSHS shall be responsible for payment of all
                inpatient facility and professional services provided from the
                date of admission until the date the enrollee is no longer
                confined to an acute care hospital. If the enrollee was enrolled
                in Healthy Options/SCHIP on the day s/he was admitted to the
                hospital, then the plan the enrollee was enrolled with on the
                date of admission shall be responsible for payment until the
                date the enrollee is no longer confined to an acute care
                hospital. For newborns born while their mother is hospitalized,
                the party responsible for the payment for the mother's
                hospitalization shall be responsible for payment of all
                inpatient facility and professional services provided to the
                newborn from the date of admission until the date the newborn is
                no longer confined to an acute care hospital. If DSHS is
                responsible for payment of all inpatient facility and
                professional services provided to a mother and newborn, DSHS
                shall not pay the Contractor a Delivery Case Rate under the
                provisions of Section 3.2.

        3.7.    ENROLLEE HOSPITALIZED AT DISENROLLMENT: If an enrollee is in an
                acute care hospital at the time of disenrollment and the
                enrollee was enrolled with the Contractor on the date of
                admission, the Contractor shall be responsible for payment of
                all covered inpatient facility and professional services from
                the

                                       12



                                                        2003 HO & SCHIP Contract

                date of admission to the date the enrollee is no longer confined
                to an acute care hospital.

        3.8.    THIRD-PARTY LIABILITY (TPL): Until such time as DSHS shall
                terminate the enrollment of an enrollee who has comparable
                coverage as described in Section 2.9.3., the services and
                benefits available under this agreement shall be secondary to
                any other medical coverage. The Contractor shall:

             3.8.1.    Not refuse or reduce services provided under this
                       agreement solely due to the existence of similar benefits
                       provided under any other health care contracts (RCW
                       48.21.200), except in accordance with applicable
                       coordination of benefits rules in WAC 284-51.

             3.8.2.    Attempt to recover any third-party resources available to
                       enrollees (42 CFR 433 Subpart D) and shall make all
                       records pertaining to TPL collections for enrollees
                       available for audit and review.

             3.8.3.    Pay claims for prenatal care and preventive pediatric
                       care and then seek reimbursement from third parties (42
                       CFR 433.139(b)(3)).

             3.8.4.    Pay claims for covered services when probable third party
                       liability has not been established or the third party
                       benefits are not available to pay a claim at the time it
                       is filed (42 CFR 433.139(c)).

             3.8.5.    Communicate the requirements of this section to
                       subcontractors that provide services under the terms of
                       this agreement, and assure compliance with them.

        3.9.    SUBROGATION RIGHTS OF THIRD-PARTY LIABILITY: Injured person
                means an enrollee covered by this agreement who sustains bodily
                injury. Contractor's medical expense means the expense incurred
                by the Contractor for the care or treatment of the injury
                sustained computed in accordance with the Contractor's
                fee-for-service schedule.

                If an enrollee requires medical services from the Contractor as
                a result of an alleged act or omission by a third-party giving
                rise to a claim of legal liability against the third-party, the
                Contractor shall have the right to obtain recovery of its cost
                of providing benefits to the injured person from the
                third-party. DSHS specifically assigns to the Contractor the
                DSHS' rights to such third party payments for medical care
                provided to an enrollee on behalf of DSHS, which the enrollee
                assigned to DSHS as provided in WAC 388-505-0540.

                DSHS also assigns to the Contractor its statutory lien under RCW
                43.20B.060. The Contractor shall be subrogated to the DSHS'
                rights and remedies under RCW 74.09.180 and RCW 43.20B.040
                through RCW

                                       13



                                                        2003 HO & SCHIP Contract

                43.20B.070 with respect to medical benefits provided to
                enrollees on behalf of DSHS under RCW 74.09.

                The Contractor may obtain a signed agreement from the enrollee
                in which the enrollee agrees to fully cooperate in effecting
                collection from persons causing the injury. The agreement may
                provide that if an injured party settles a claim without
                protecting the Contractor's interest, the injured party shall be
                liable to the Contractor for the full cost of medical services
                provided by the Contractor. The Contractor shall notify DSHS of
                the name, address, and other identifying information of any
                enrollee and the enrollee's attorney who settles a claim without
                protecting the Contractor's interest in contravention of RCW
                43.20B.050.

4.      ACCESS AND CAPACITY

        4.1.    NETWORK CAPACITY:

             4.1.1.    The Contractor agrees to maintain the support services
                       and a provider network sufficient to serve the enrollee
                       capacity stated in Exhibit D, Premiums, Service Areas,
                       and Capacity, consistent with the requirements of this
                       agreement. The Contractor agrees to provide the medical
                       services required by this agreement through
                       non-participating providers if its network of
                       participating providers is insufficient to meet the
                       medical needs of enrollees in a manner consistent with
                       this agreement.

             4.1.2.    With the written approval of DSHS, the Contractor may
                       increase capacity at any time by giving written notice to
                       DSHS, along with evidence, as DSHS may require,
                       demonstrating the Contractor's ability to support the
                       capacity increase. DSHS may withhold approval of a
                       requested capacity increase, if, in DSHS' sole judgment,
                       the requested increase is not in the best interest of
                       DSHS. The Contractor may decrease capacity by giving DSHS
                       ninety (90) days written notice. The decrease shall not
                       be effective until the first day of the month which falls
                       after the ninety (90) days has elapsed. Exhibit D,
                       Premiums, Service Areas, and Capacity will be updated by
                       DSHS for increases and decreases in capacity.

        4.2.    ACCESSIBILITY OF SERVICES: The Contractor shall make services
                accessible consistent with the provisions in the Quality
                Improvement Program 2003 Standards, Exhibit A. The Contractor
                shall make covered services as accessible to enrollees under
                this agreement as under its other state, federal, or private
                contracts.

        4.3.    24/7 AVAILABILITY: The Contractor shall have the following
                services available on a 24-hour-a-day, seven-day-a-week basis by
                telephone. These services

                                       14



                                                        2003 HO & SCHIP Contract

                may be provided directly by the Contractor or may be delegated
                to subcontractors.

             4.3.1.    Medical advice for enrollees from licensed health care
                       professionals concerning the emergent, urgent or routine
                       nature of medical condition.

             4.3.2.    Authorization of emergency services and out-of-area
                       urgent care.

        4.4.    APPOINTMENT STANDARDS: The Contractor shall comply with
                appointment standards that are no longer than the following:

             4.4.1.    Non-symptomatic (i.e. preventive care) office visits
                       shall be available from the enrollee's PCP or an
                       alternative practitioner within thirty (30) calendar
                       days. A non-symptomatic office visit may include, but is
                       not limited to, well/preventive care such as physical
                       examinations, annual gynecological examinations, or
                       children and adult immunizations.

             4.4.2.    Non-urgent, symptomatic (i.e., routine care) office visit
                       shall be available from the enrollee's PCP or an
                       alternative practitioner within seven (7) calendar days.
                       A non-urgent, symptomatic office visit is associated with
                       the presentation of medical signs not requiring immediate
                       attention.

             4.4.3.    Urgent, symptomatic office visits shall be available
                       within 24 hours. An urgent, symptomatic visit is
                       associated with the presentation of medical signs that
                       require immediate attention, but are not life
                       threatening.

             4.4.4.    Emergency medical care shall be available 24 hours per
                       day, seven days per week.

        4.5.    PROVIDER NETWORK - DISTANCE STANDARDS: The Contractor network of
                providers shall meet the distance standards below in every
                service area. The designation of a zip code in a service area as
                rural or urban is in Exhibit D, Premiums, Service Areas, and
                Capacity. DSHS may, at its sole discretion, grant exceptions to
                the distance standards. DSHS' approval of an exception must be
                in writing. The Contractor shall request an exception in writing
                and shall provide evidence as DSHS may require to support the
                request. If the closest qualified provider is beyond the
                distance standard applicable to the zip code, the distance
                standard defaults to the distance to that provider. The closest
                qualified provider may be a provider not participating with the
                Contractor.

             4.5.1.    PCP

                                       15



                                                        2003 HO & SCHIP Contract

             Urban: 2 within 10 miles for 90% of Healthy Options enrollees in
             the Contractor's service area

             Rural: 1 within 25 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             4.5.2.    Obstetrics

             Urban: 2 within 10 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             Rural: 1 within 25 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             4.5.3.    Pediatrician

             Urban: 2 within 10 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             Rural: 1 within 25 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             4.5.4.    Hospital

             Urban/Rural: 1 within 25 miles for 90% of Healthy Options
             enrollees in the contractor's service area

             4.5.5.    Pharmacy

             Urban: 1 within 10 miles for 90% of Healthy Options enrollees in
             the contractor's service area

             Rural: 1 within 25 miles for 90% of Healthy Options enrollees in
             the contractor's service area

        4.6.    ACCESS TO SPECIALTY CARE: The Contractor shall provide all
                medically necessary specialty care for enrollees in a service
                area. If an enrollee needs specialty care from a specialist who
                is not available within the Contractor's provider network, the
                Contractor shall provide the necessary services with a qualified
                specialist outside the Contractor's provider network.

        4.7.    EQUAL ACCESS FOR ENROLLEES WITH COMMUNICATION BARRIERS: The
                Contractor shall assure equal access for all enrollees when oral
                or written language creates a barrier to such access for
                Enrollees with Communication Barriers

                                       16



                                                        2003 HO & SCHIP Contract

             4.7.1.    ORAL INFORMATION:

               4.7.1.1.       The Contractor shall assure that interpreter
                              services are provided for enrollees with a primary
                              language other than English for all interactions
                              between the enrollee and the Contractor or any of
                              its providers including, but not limited to, all
                              appointments with any provider for any covered
                              service, emergency services, and all steps
                              necessary to file complaints and appeals.

               4.7.1.2.       The Contractor is responsible for payment for
                              interpreter services for plan administrative
                              matters including, but not limited to handling
                              enrollee complaints and appeals.

               4.7.1.3.       DSHS is responsible for payment for interpreter
                              services provided by interpreter agencies
                              contracted with the state for outpatient medical
                              visits and DSHS fair hearings.

               4.7.1.4.       Hospitals are responsible for payment for
                              interpreter services during inpatient stays.

               4.7.1.5.       Public entities are responsible for payment for
                              interpreter services provided at their facilities
                              or affiliated sites.

               4.7.1.6.       Interpreter services include the provision of
                              interpreters for enrollees who are deaf or hearing
                              impaired.

             4.7.2.    WRITTEN INFORMATION:

               4.7.2.1.       The Contractor shall provide all generally
                              available and client specific written materials in
                              a form which may be understood by each individual
                              enrollee. The Contractor may meet this requirement
                              by doing one of the following:

                 4.7.2.1.1.     Translating the material into the enrollee's
                                primary reading language.

                 4.7.2.1.2.     Providing the material on tape in the enrollee's
                                primary language.

                 4.7.2.1.3.     Having an interpreter read the material to the
                                enrollee in the enrollee's primary language.

                 4.7.2.1.4.     Providing the material in another alternative
                                medium or format acceptable to the enrollee. The
                                Contractor must document the enrollee's
                                acceptance of the alternative.

                                       17



                                                        2003 HO & SCHIP Contract

                 4.7.2.1.5.     Providing the material in English, if the
                                Contractor documents the enrollee's preference
                                for receiving material in English.

               4.7.2.2.       The Contractor shall ensure that all written
                              information provided to enrollees is
                              comprehensible to its intended audience, designed
                              to provide the greatest degree of understanding,
                              and is written at the sixth grade reading level.
                              Generally available, written materials shall be
                              consumer tested.

        4.8.    AMERICANS WITH DISABILITIES ACT: The Contractor shall make
                reasonable accommodation for enrollees with disabilities, in
                accord with the Americans with Disabilities Act, for all covered
                services and shall assure physical and communication barriers
                shall not inhibit enrollees with disabilities from obtaining
                covered services.

        4.9.    CAPACITY LIMITS AND ORDER OF ACCEPTANCE: The Contractor shall
                provide care to enrollees up to the capacity limits in Exhibit
                D, Premiums, Service Areas, and Capacity. The Contractor shall
                accept enrollees up to the total capacity limit in each service
                area, and enrollees will be accepted in the order in which they
                apply. DSHS shall enroll all eligible clients with the
                contractor of their choice if the contractor has not reached the
                capacity limit unless DSHS determines, in its sole judgment,
                that it is in DSHS' best interest to withhold or limit
                enrollment with the Contractor. The Contractor shall accept
                clients who are assigned by DSHS in accordance with this
                agreement, WAC 388-538, Exhibit B, and WAC 388-542, Exhibit E,
                except as specifically provided in Section 2.8.

                No eligible client shall be refused enrollment or re-enrollment,
                have his/her enrollment terminated, or be discriminated against
                in any way because of his/her health status, the existence of a
                pre-existing physical or mental condition, including pregnancy
                and/or hospitalization, or the expectation of the need for
                frequent or high cost care.

        4.10.   ASSIGNMENT OF ENROLLEES:

             4.10.1.   Enrollees who do not select a plan in a service area
                       identified by DSHS as having mandatory enrollment into
                       managed care shall be assigned to a plan in the following
                       manner:

               4.10.1.1       DSHS shall determine the total capacity of all
                              contractors receiving assignments in each service
                              area.

               4.10.1.2.      The Contractor's capacity in each service area, as
                              stated in Exhibit D, Premiums, Service Areas, and
                              Capacity, modified by increases and decreases in
                              capacity made in accord with this agreement,

                                       18



                                                        2003 HO & SCHIP Contract

                              shall be divided by the total capacity of all
                              contractors receiving assignment in each service
                              area.

               4.10.1.3.      The result of the calculation in 4.10.1.2. will be
                              multiplied by the total of the households to be
                              assigned.

               4.10.1.4.      DSHS shall assign the number of households
                              determined in 4.10.1.3. to the Contractor.

             4.10.2.   DSHS shall not make any assignments of enrollees to the
                       Contractor in a service area if the Contractor's
                       enrollment, when DSHS calculates assignments, is ninety
                       percent (90%) or more of its capacity in that service
                       area.

             4.10.3.   The Contractor may choose not to receive assignments or
                       limit assignments in any service area by so notifying
                       DSHS in writing at least seventy-five (75) days before
                       the first of the month it is requesting not to receive
                       assignment of enrollees.

             4.10.4.   DSHS reserves the right to make no assignments, or to
                       withhold or limit assignments to the Contractor, when, in
                       its sole judgment, it is in the best interest of DSHS.

             4.10.5.   If either the Contractor or DSHS limits assignments as
                       described herein, the Contractor's capacity, only for the
                       purposes of the calculation in 4.10.1.2., shall be that
                       limit.

             4.10.6.   Assigned enrollees are notified by DSHS of their
                       assignment and may choose a different managed care
                       organization prior to the effective date of their
                       assignment.

        4.11.   PROVIDER NETWORK CHANGES:

             4.11.1.   The Contractor shall give DSHS a minimum of ninety (90)
                       calendar days prior written notice, in accordance with
                       Section 7.5, Notices, of the loss of a material provider.
                       A material provider is one whose loss would impair the
                       Contractor's ability to provide continuity of and access
                       to care for the Contractor's current enrollees and/or the
                       number of enrollees the Contractor has agreed to serve in
                       a service area.

             4.11.2.   The Contractor shall notify enrollees affected by any
                       provider termination sixty (60) calendar days prior to
                       the effective date. Notices must have prior approval of
                       DSHS. If the Contractor fails to notify affected
                       enrollees of a provider termination sixty (60) calendar
                       days prior to the effective date, the Contractor shall
                       allow affected enrollees to continue to receive services
                       from the terminating provider, at the

                                       19



                                                        2003 HO & SCHIP Contract

                       enrollees' option, and administer benefits for the lessor
                       of a period ending the last day of the month in which
                       sixty (60) calendar days elapses from the date the
                       Contractor notifies enrollees or the enrollee's effective
                       date of enrollment with another plan.

        4.12.   WOMEN'S HEALTH CARE SERVICES: In the provision of women's health
                care services, the Contractor shall comply with the provisions
                of WAC 284-43-250, as modified.

        4.13.   MATERNITY NEWBORN LENGTH OF STAY: The Contractor shall ensure
                that hospital delivery maternity care is provided in accordance
                with RCW 48.43.115.

5.      QUALITY OF CARE

        5.1.    QUALITY IMPROVEMENT PROGRAM: The Contractor shall maintain a
                quality improvement program that meets the requirements of the
                Quality Improvement Program 2003 Standards, Exhibit A. The
                Contractor shall, during the annual TEAMonitor visit or upon
                request by DSHS, provide evidence of how data and information
                provided by DSHS, including external quality review findings,
                agency audits and contract monitoring activities, enrollee
                complaint and CAHPS(R) results, are used to identify and correct
                problems and to improve care and services to enrollees.

        5.2.    ACCREDITATION: If the Contractor has had an accreditation visit
                by NCQA or other accrediting body, the Contractor shall make the
                complete accreditation survey report from the accreditation
                organization available to DSHS upon request. The Contractor
                shall allow a state representative to accompany any
                accreditation review team during the site visit in an official
                observer status. The state representative shall be allowed to
                share information with DSHS and Health Care Authority staff as
                needed to reduce duplicated work for both the Contractor and the
                state.

        5.3.    REQUIREMENTS FOR DENIED, DISCONTINUED, OR MODIFIED SERVICE:

             5.3.1.    If the Contractor denies, discontinues, or modifies a
                       service, the Contractor shall comply with the notice
                       requirements in the Quality Improvement Program 2003
                       Standards, Exhibit A, and any other pertinent provisions
                       of this agreement, in providing notice to enrollees and
                       providers.

             5.3.2.    If the notice does not meet the timeliness standards in
                       the Quality Improvement Program 2003 Standards, Exhibit
                       A, and any other pertinent provisions of this agreement,
                       the Contractor shall cover the service.

                                       20



                                                        2003 HO & SCHIP Contract

             5.3.3.    If the Contractor denies, discontinues or modifies a
                       medically necessary covered service because the
                       enrollee's whereabouts are unknown, the Contractor shall
                       reinstate the service when the enrollee's whereabouts
                       become known.

             5.3.4.    If the enrollee receives the service before receiving the
                       notice, the Contractor shall cover the service.

             5.3.5.    If an enrollee files an appeal, including independent
                       review, or DSHS fair hearing on a service that is being
                       discontinued or modified, the Contractor shall continue
                       to provide the discontinued or modified service until a
                       final decision is made.

             5.3.6.    The Contractor may seek reimbursement of the amount it
                       actually paid to continue to provide discontinued or
                       modified services, while such services are the subject of
                       an appeal, including independent review, or DSHS fair
                       hearing, if the final decision determines that the
                       services are non-covered services and if the affected
                       enrollee is fully informed in writing, in advance of
                       receiving the continued services, that they will be
                       required to pay for continued services determined to be
                       non-covered.

             5.3.7.    Sections 5.3.1., 5.3.2., 5.3.3., 5.3.4., 5.3.5., and
                       5.3.6. only apply to denial, discontinuance, or
                       modification of services of participating providers,
                       services from a provider to whom the Contractor or a
                       participating provider has made a referral, services
                       previously authorized by the Contractor, and emergency
                       medical services as described in the Schedule of Benefits
                       Section 11.1.6.

        5.4.    ENROLLEE COMPLAINTS AND APPEALS, INCLUDING INDEPENDENT REVIEW:
                The Contractor shall maintain a process that meets the
                requirements in the Quality Improvement Program Standards and
                other pertinent provisions of this agreement for responding to
                enrollee complaints and appeals. DSHS shall approve, in writing,
                all policies and procedures regarding complaints and appeals.
                All procedures for responding to appeals shall include the
                participation of individuals with authority to require
                corrective action (42 CFR 434.32 (c)).

                The Contractor shall also comply with the provisions of WAC
                284-43-630 regarding independent review of adverse
                determinations by an independent review organization.

        5.5.    FAIR HEARING:

             5.5.1.    Enrollees may request a DSHS fair hearing, pursuant to
                       WAC 388-02, without first availing themselves of the
                       Contractor's complaint and appeal

                                       21



                                                        2003 HO & SCHIP Contract

                       process, if the subject matter is one for which the
                       enrollee has a fair hearing right under RCW 34.05, and
                       WAC 388-02 or WAC 388-538.

             5.5.2.    If the enrollee requests a DSHS fair hearing without
                       first exhausting the remedies available to the enrollee
                       through the Contractor's complaint and appeal process,
                       including independent review, and DSHS issues a fair
                       hearing determination, the fair hearing shall exhaust the
                       enrollee's rights to administrative review of the subject
                       of the fair hearing, except as provided in section 5.5.6.

             5.5.3.    If the enrollee requests a fair hearing, the Contractor
                       shall provide to DSHS, at DSHS' written request,
                       Contractor-held documentation related to the
                       complaint/appeal, if any, including but not limited to,
                       any transcript(s), records, or written decision(s) from
                       participating providers or delegated entities. The
                       Contractor shall have the opportunity to present its
                       position at the fair hearing. The Contractor's medical
                       director or designee shall review all cases where a fair
                       hearing is requested and any related appeals, when
                       medical necessity is an issue.

             5.5.4.    When an enrollee requests a fair hearing with DSHS, DSHS
                       shall review the request, as follows:

               5.5.4.1.       A program manager will investigate and determine
                              the facts of the complaint/appeal. The program
                              manager may hold a pre-hearing conference with the
                              enrollee to clarify the issue(s). Other parties
                              may be contacted as appropriate to resolve the
                              complaint/appeal. Other staff of DSHS may be
                              involved as necessary. The DSHS, MAA Medical
                              Director shall review any issue(s) involving
                              denied medical services.

               5.5.4.2.       Based on the review of facts, the program manager
                              will respond to the complaint/appeal. The response
                              may include, but not be limited to, clarification
                              of program policy to parties who have not acted in
                              accord with the policy.

               5.5.4.3.       If the matter is not resolved at a pre-hearing
                              conference, the program manager will prepare a
                              written report of the results of the review for
                              the administrative law judge. The report and all
                              supporting documentation will be sent to the
                              enrollee, the enrollee's representative, if any,
                              and the Contractor.

             5.5.5.    DSHS shall notify the Contractor of fair hearing
                       determinations. The Contractor shall be bound by the fair
                       hearing determination, whether or not the fair hearing
                       determination upholds the Contractor's decision.
                       Implementation of such fair hearing decision shall not be
                       the basis for disenrollment of the enrollee by the
                       Contractor.

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                                                        2003 HO & SCHIP Contract

                       If the fair hearing decision is not within the purview
                       of this agreement, then DSHS shall be responsible for
                       the implementation of the fair hearing decision.

             5.5.6.    An enrollee who is aggrieved by the final decision in the
                       DSHS' fair hearing proceeding may appeal the decision in
                       accordance with WAC 388-02-0560--388-02-0590. Notice of
                       this right will be included in the written determination
                       from the administrative law judge.

        5.6.    EPSDT/CHILDHOOD IMMUNIZATION:

             5.6.1.    The Contractor shall meet all requirements under the DSHS
                       EPSDT program policy and billing instructions manual.

             5.6.2.    If any of the Contractor's Health Plan Employer Data and
                       Information Set (HEDIS(R)) Infant Well Child Visit, Child
                       Well Child Visit, Adolescent Well Child Visit, or
                       Childhood Immunization reported rates fall below 60%, the
                       Contractor shall include an appropriate quality
                       improvement project designed to improve the rates in the
                       Contractor's Quality Improvement work plan and shall
                       implement appropriate intervention.

             5.6.3.    Active Participation in a DSHS sponsored well child
                       quality improvement program or an appropriate alternative
                       program approved by DSHS, MAA Quality Management fulfills
                       the requirement under Section 5.6.2. Alternative programs
                       must document: a description and scope of the program
                       with identified problem(s), goals and objectives; a
                       workplan with specific QI activities, timeframes and
                       person(s) responsible for each; sound measurement
                       methodology; barrier and root cause analysis; an
                       evaluation of outcomes; and re-measurement and strong
                       interventions designed to improve outcomes.

        5.7.    PROVIDER EDUCATION: The Contractor shall maintain a system for
                keeping participating practitioners and providers informed
                about:

             5.7.1.    Covered services for enrollees served under this
                       agreement

             5.7.2.    Coordination of care requirements; and

             5.7.3.    DSHS policies as related to this agreement.

             5.7.4.    Interpretation of data from the quality improvement
                       program (42 CFR 434.34(d)).

        5.8.    CLAIMS PAYMENT STANDARDS: The Contractor shall meet the
                timeliness of payment standards specified for Medicaid
                fee-for-service in Section

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                                                        2003 HO & SCHIP Contract

                1902(a)(37)(A) of the Social Security Act and specified for
                health carriers in WAC 284-43-321. To be compliant with both
                payment standards the Contractor shall pay or deny, and shall
                require subcontractors to pay or deny, 95% of clean claims
                within thirty (30) calendar days of receipt, 95% of all claims
                within sixty (60) of receipt and 99% of all claims within ninety
                (90) calendar days of receipt. The Contractor and its providers
                may agree to a different payment requirement in writing on an
                individual claim.

        5.9.    QUALITY IMPROVEMENT STUDIES: The Contractor shall conduct three
                quality improvement studies.

             5.9.1.    Two studies shall be based upon the following questions
                       from the 2002 CAHPS(R) survey:

               5.9.1.1.       In the last 6 months, how often were office staff
                              at your child's doctor's office or clinic as
                              helpful as you thought they should be?

               5.9.1.2.       In the last 6 months, when your child needed care
                              right away for an illness or an injury, how often
                              did your child get care as soon as you wanted?

               5.9.1.3.       The requirement for either of the two studies
                              shall be waived by DSHS if the Contractor's
                              unadjusted percentages for the response rate of
                              "Always" are above the 2001 National Committee's
                              Benchmarking Database (NCBD) data. Sixty-one
                              percent is the benchmark for the question in
                              Section 5.9.1,1. and sixty-seven percent is the
                              benchmark for the question in Section 5.9.1.2.
                              DSHS will notify the Contractor in writing if the
                              requirement is waived.

             5.9.2.    The Contractor shall participate in a third statewide
                       quality improvement study designated by DSHS. The study
                       shall be designed to maximize resources and reduce cost
                       to contractors.

        5.10.   HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA): The
                Contractor shall comply with the applicable provisions of the
                Health Insurance Portability and Accountability Act (HIPAA) of
                1996, codified at 42 USC 1320(d) et.seq. and 45 CFR parts 160,
                162, and 164. HIPAA requires the Contractor to conduct
                electronic financial and administrative transactions using a
                mandatory format and content. The Contractor must have the
                capacity to conduct all transactions required by HIPAA,
                including but not limited to the ability to accept the following
                transactions from the Medical Assistance Administration:

             5.10.1.   The ASC X12 834 - Benefit Enrollment and Maintenance
                       Version 4010.

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                                                        2003 HO & SCHIP Contract

             5.10.2.   The ASC X12 820 - Payroll Deducted and Other Group
                       Premium Payment for Insurance Products, Version 4010
                       Premium Payment transaction.

        5.11.   PRACTICE GUIDELINES: The Contractor shall adopt of practice
                guidelines that meet the following requirements (42 CFR 438.6):

             5.11.1.   Are based on valid and reliable clinical evidence or a
                       consensus of health care professionals in the particular
                       field.

             5.11.2.   Consider the needs of enrollees.

             5.11.3.   Are adopted in consultation with contracting health care
                       professionals.

             5.11.4.   Are reviewed and updated periodically as appropriate.

             5.11.5.   Are disseminated to all affected providers and, upon
                       request, to DSHS, enrollees and potential enrollees.

             5.11.6.   Are the basis for and are consistent with decisions for
                       utilization management, enrollee education, coverage of
                       services, and other areas to which the guidelines apply.

        5.12.   ADVANCE DIRECTIVES: The Contractor shall maintain written
                policies and procedures for advance directives with meet the
                requirements of WAC 388-501-0125 and 42 CFR 438.6. The
                Contractor's Advance directive policies and procedure shall be
                disseminated to all affected providers and, upon request, to
                DSHS, enrollees and potential enrollees.

6.      REPORTING REQUIREMENTS:

        6.1.    CERTIFICATION REQUIREMENTS: Any information and/or data required
                by this agreement and submitted to DSHS after March 31, 2003
                must be certified by the Contractor as follows (42 CFR 438.600
                through 42 CFR 438.606):

             6.1.1.    Source of certification: The information and/or data must
                       be certified by one of the following:

               6.1.1.1.       The Contractor's Chief Executive Officer

               6.1.1.2.       The Contractor's Chief Financial Officer

               6.1.1.3.       An individual who has delegated authority to sign
                              for, and who reports directly to, the Contractor's
                              Chief Executive Officer or Chief Financial Officer

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                                                        2003 HO & SCHIP Contract

             6.1.2.    Content of certification: The Contractor's certification
                       shall attest, based on best knowledge, information, and
                       belief, to the accuracy, completeness and truthfulness of
                       the information and/or data.

             6.1.3.    Timing of certification: The Contractor shall submit the
                       certification concurrently with the certified information
                       and/or data.

        6.2.    HEDIS(R) MEASURES: The Contractor shall report to DSHS (for both
                Healthy Options and SCHIP enrollees), the following HEDIS(R)
                measures in accord with the published HEDIS(R) 2003 Technical
                Specifications and official corrections published by NCQA,
                unless directed otherwise in writing by DSHS.

             6.2.1.    No later than June 30, 2003, the following HEDIS(R)
                       measures shall be submitted electronically to DSHS using
                       the NCQA data submission tool (DST):

               6.2.1.1.       Childhood Immunization Status

               6.2.1.2.       Prenatal and Postpartum Care

               6.2.1.3.       Well Child Visits in the First 15 Months of Life

               6.2.1.4.       Well Child Visits in the Third, Fourth, Fifth and
                              Sixth Years of Life

               6.2.1.5.       Adolescent Well Child Visits

               6.2.1.6.       Use of Appropriate Medications for People with
                              Asthma

               6.2.1.7.       Antidepressant Medication Management

               6.2.1.8.       Inpatient Utilization-General Hospital/Acute Care

               6.2.1.9.       Ambulatory Care

               6.2.1.10.      Birth and Average Length of Stay, Newborns

             6.2.2.    All measures shall be audited, at Contractor expense, by
                       an NCQA licensed organization in accord with the HEDIS
                       2003 COMPLIANCE AUDIT (TM) standards, policies and
                       procedures. The signed and certified audit report shall
                       be submitted to DSHS no later than July 31, 2003.

               6.2.2.1.       If the Contractor has current NCQA accreditation,
                              including Medicaid, a full audit, as defined by
                              NCQA, is allowed.

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                                                        2003 HO & SCHIP Contract

               6.2.2.2.       If the Contractor does not have current NCQA
                              accreditation, including Medicaid, a partial
                              audit, as defined by NCQA, must be conducted.

             6.2.3.    If the Contractor has current NCQA accreditation,
                       including Medicaid, the Contractor may rotate HEDIS(R)
                       measures in accord with the most current requirements for
                       the HEDIS(R) rotation strategy published by NCQA. If the
                       Contractor does not have current NCQA accreditation,
                       including Medicaid, the Contractor may not rotate
                       measures, unless directed otherwise in writing by DSHS.

        6.3.    ENCOUNTER DATA:

             6.2.1.    The Contractor shall comply with the Encounter Data
                       Submission Requirements, Exhibit C-1.

             6.2.2.    DSHS may change the Encounter Data Submission
                       Requirements, Exhibit C-1, with one hundred and fifty
                       (150) calendar days written notice to the Contractor. The
                       Contractor shall, upon receipt of such notice from DSHS,
                       provide notice of changes to subcontractors.

             6.2.3.    The Contractor shall correct rejected encounter data and
                       resubmit within the timelines specified in the Encounter
                       Data Submission Requirements, Exhibit C-1.

             6.2.4.    The Contractor shall correct errors indicated in each
                       DSHS encounter data error report in succeeding
                       submissions in accord with the Encounter Data Submission
                       Requirements, Exhibit C-1.

             6.2.5.    The Contractor may request that DSHS waive reporting
                       requirements. Such request shall be in writing and shall
                       be approved at the sole discretion of DSHS. DSHS also
                       reserves the right to waive data reporting requirements
                       under exceptional circumstances. Any waiver shall be in
                       writing.

        6.4.    INTEGRATED PROVIDER NETWORK DATABASE (IPND):

             6.4.1.    The Contractor shall provide monthly provider network
                       reports to the designated data management contact in
                       accord with the Provider Network Reporting Requirements,
                       Exhibit C-2 (a).

             6.4.2.    DSHS will identify records that do not comply with the
                       Provider Network Reporting Requirements in a monthly
                       report to the Contractor. DSHS will identify records as
                       being rejected or containing errors. Rejected records
                       will not appear in the Integrated Provider Network
                       Database (IPND) for that month.

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                                                        2003 HO & SCHIP Contract

             6.4.3.    The Contractor shall review records identified on the
                       reject and error reports, and make corrections for
                       subsequent monthly submissions.

             6.4.4.    Failure to comply with the data submission schedule shall
                       result in the implementation of the IPND Escalation
                       Procedure, Exhibit C-2 (b).

        6.5.    MONTHLY ADJUSTMENT REPORT FOR FQHC/RHC ENROLLEES: The Contractor
                shall provide DSHS with a monthly report for enrollees enrolled
                with federally-qualified health centers (FQHC) and rural health
                clinics (RHC), in the format described in the DSHS Healthy
                Options Licensed Health Carrier Billing Instructions, published
                by DSHS.

        6.6.    ENROLLEE MORTALITY: The Contractor shall maintain a record of
                known enrollee deaths, including the enrollee's name, date of
                birth, age at death, location of death, and cause(s) of death.
                This information shall be available to DSHS upon request. The
                Contractor shall assist DSHS in efforts to evaluate and improve
                the availability and utility of selected mortality information
                for quality improvement purposes.

        6.7.    CAHPS(R): The contractor is required to conduct a CAHPS(R)
                survey of adult Medicaid members enrolled in Healthy Options.
                The Contractor shall:

             6.7.1.    Ensure the survey sample frame consists of all
                       non-Medicare and non-commercial adult plan members (not
                       just subscribers) 18 years and older, as of December 31
                       of the measurement year, with Washington State addresses.

             6.7.2.    Contract with an NCQA certified vendor qualified to
                       administer the CAHPS(R) survey and conduct the survey
                       according to NCQA protocol.

             6.7.3.    Contract with an NCQA-licensed organization to conduct a
                       HEDIS(R) Compliance Audit for CAHPS(R) and submit the
                       complete audit report to DSHS.

             6.7.4.    Use the most recent HEDIS(R) version of the Medicaid
                       adult questionnaire (currently 2.0H) or as instructed by
                       DSHS for 2003 CAHPS(R) surveys, and include the following
                       questions in the survey instrument:

             6.7.5.    Adult supplemental "Behavioral Health" MH1&MH2

               6.7.5.1.       Adult supplemental "Chronic Conditions" CC2, CC6,
                              CC7, CC11, CC12

               6.7.5.2.       Adult supplemental "Pregnancy Care" P1-P4

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                                                        2003 HO & SCHIP Contract

               6.7.5.3.       Adult supplemental "Prescription Medicine" PM1 &
                              PM2

               6.7.5.4.       Family Centered Care - decisions

             6.4.1.    Conduct the mixed methodology (mail and phone surveys) in
                       2003.

             6.7.6.    Submit a copy of the Washington State adult Medicaid
                       response data set according to NCQA/CAHPS(R) standards to
                       DSHS' External Quality Review vendor by June 30, 2003.

             6.7.7.    DSHS' External Quality Review vendor will forward Health
                       plan data to the National CAHPS(R) Benchmarking Database
                       (NCBD) based on the 2003 NCBD guidelines. Contractors
                       will be responsible for filling out specific NCBD data
                       submission forms as determined by DSHS.

        6.8.    DENIALS, COMPLAINTS AND APPEALS:

        The Contractor shall maintain a record of all denials, complaints and
        appeals, including denials, complaints and appeals handled by a
        delegated entity and independent review of adverse decisions by an
        independent review organization. The Contractor shall provide a report
        of complete denials, complaints and appeals to DSHS quarterly within
        sixty (60) calendar days of the end of the quarter. Delegated denials,
        complaints and appeals are to be integrated into the Contractor's
        report. DSHS and Contractor agree to collaborate in the development of a
        report format. The report medium shall be specified by DSHS. Reporting
        of denials shall include all denials of services to enrollees. The
        records shall be sorted using the sort keys identified and shall
        include, at a minimum:

             6.8.1.    Name of Program: HO, HO-CSHCN, CHIP, CHIP-CSHCN, BH+,
                       or BH+-CSHCN (Primary Sort Key)

             6.8.2.    Name of the delegated entity, if any

             6.8.3.    Enrollee Identifier (three separate fields):

               6.8.3.1.       Patient Identification Code (PIC) (preferred) or

               6.8.3.2.       Enrollee Name and Enrollee Birthday: If PIC not
                              reported

             6.8.4.    Name of Practitioner

             6.8.5.    Type of Practitioner (Optional)

             6.8.6.    Type (Secondary Sort Key):

               6.8.6.1.       Denial

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                                                        2003 HO & SCHIP Contract

               6.8.6.2.       Complaint

               6.8.6.3.       Appeal - First Level

               6.8.6.4.       Appeal - Second Level

               6.8.6.5.       IRO

             6.8.7.    Expedited: Yes or No

             6.8.8.    Complaint, Appeal or IRO Issue

             6.8.9.    Category of Service Denied

             6.8.10.   Reason Service Denied

             6.8.11.   Resolution of Complaint, Appeal or IRO

             6.8.12.   Denial Date

             6.8.13.   Receipt Date of Complaint, Appeal or IRO

             6.8.14.   Date of Resolution of Complaint, Appeal, or IRO

             6.8.15.   Date written notification of Denial or Complaint, Appeal
                       or IRO outcome sent to enrollee and practitioner

        6.9.    DRUG FORMULARY REVIEW AND APPROVAL: The Contractor shall submit
                its drug formulary, for use with enrollees covered under the
                terms of this agreement, to DSHS for review and approval by
                January 31, 2003.

        6.10.   FRAUD AND ABUSE: The Contractor shall report in writing all
                verified cases of fraud and abuse, including fraud and abuse by
                the Contractor's employees and subcontractors, within seven (7)
                calendar days to DSHS according to Section 7.5, Notices. The
                report shall include the following information:

             6.10.1.   Subject(s) of complaint by name and either
                       provider/subcontractor type or employee position.

             6.10.2.   Source of complaint by name and provider/subcontractor
                       type or employee position, if applicable.

             6.10.3.   Nature of complaint.

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                                                        2003 HO & SCHIP Contract

             6.10.4.   Estimate of the amount of funds involved.

             6.10.5.   Legal and administrative disposition of case.

        6.11.   FIVE PERCENT EQUITY: The Contractor shall provide the DSHS, MAA,
                Division of Program Support, Contract Manager assigned to the
                Contractor a list of persons with a beneficial ownership of more
                than 5% of the Contractor's equity no later than February 28,
                2003.

7.      GENERAL TERMS AND CONDITIONS

        7.1.    COMPLETE AGREEMENT: This agreement incorporates Exhibits to this
                agreement and the DSHS billing instructions applicable to the
                Contractor. All terms and conditions of this agreement are
                stated in this agreement and its incorporations. No other
                agreements, oral or written, are binding.

        7.2.    MODIFICATION: This agreement may only be modified by mutual
                consent of the parties. All modifications shall be set forth in
                contract amendments issued by DSHS.

        7.3.    WAIVER: The failure of either party to enforce any provision of
                this agreement shall not constitute a waiver of that or any
                other provision, and shall not be construed to be a modification
                of the terms and conditions of the agreement unless incorporated
                into the agreement with an amendment.

        7.4.    LIMITATION OF AUTHORITY: No alteration, modification, or waiver
                of any clause or condition of the agreement is binding unless
                made in writing and signed by a DSHS Contracting Officer in the
                Office of Legal Affairs, Central Contract Services.

        7.5.    NOTICES: Whenever one party is required to give notice to the
                other under this agreement, it shall be deemed given if mailed
                by United States Postal Service, registered or certified mail,
                return receipt requested, postage prepaid and addressed as
                follows:

                In the case of notice to the Contractor:

                  _________________________________________________
                  _________________________________________________
                  _________________________________________________
                  _________________________________________________

                In the case of notice to DSHS:

                MaryAnne Lindeblad, Director (or her successor)
                Division of Program Support
                Medical Assistance Administration
                Department of Social and Health Services
                P.O. Box 45530

                                       31



                                                        2003 HO & SCHIP Contract

                Olympia, WA 98504-5530

                Said notice shall become effective on the date delivered as
                evidenced by the return receipt or the date returned to the
                sender for non-delivery other than for insufficient postage.
                Either party may at any time change its address for notification
                purposes by mailing as aforesaid a notice stating the change and
                setting forth the new address, which shall be effective on the
                tenth day following the effective date of such notice unless a
                later date is specified.

        7.6.    FORCE MAJEURE: If the Contractor is prevented from performing
                any of its obligations hereunder in whole or in part as a result
                of a major epidemic, act of God, war, civil disturbance, court
                order, or any other cause beyond its control, such
                nonperformance shall not be a ground for termination for
                default. Immediately upon the occurrence of any such event, the
                Contractor shall commence to use its best efforts to provide,
                directly or indirectly, alternate and, to the extent
                practicable, comparable performance. Nothing in this clause
                shall be construed to prevent DSHS from terminating this
                agreement for reasons other than for default during the period
                of events set forth above, or for default, if such default
                occurred prior to such event.

        7.7.    SANCTIONS:

             7.7.1.    When the Contractor fails to meet its obligations under
                       the terms of this agreement, DSHS may impose sanctions by
                       withholding up to five percent of payments to the
                       Contractor rather than terminating the agreement.

                       DSHS shall notify the Contractor in writing of the
                       precise nature of the default and provide a reasonable
                       deadline for curing the default before imposing
                       sanctions. The Contractor may request a dispute
                       resolution, as described in Section 7.23, Disputes, if
                       the Contractor disagrees with DSHS' position. DSHS may
                       withhold payment from the end the cure period until the
                       default is cured or any resulting dispute is resolved in
                       the Contractor's favor.

             7.7.2.    DSHS, CMS or the Office of the Inspector General (OIG)
                       may impose intermediate sanctions, in accord with 42 CFR
                       438.700, 42 CFR 438.702 and 42 CFR 438.704, against the
                       Contractor for:

               7.7.2.1.       Failing to provide medically necessary services
                              that the Contractor is required to provide, under
                              law or under this agreement, to an enrollee
                              covered under this agreement.

               7.7.2.2.       Imposing on enrollees premiums or charges that are
                              in excess of the premiums or charges permitted
                              under law or under this agreement.

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                                                        2003 HO & SCHIP Contract

               7.7.2.3.       Acting to discriminate among enrollees on the
                              basis of their health status or need for health
                              care services. This includes termination of
                              enrollment or refusal to reenroll a recipient,
                              except as permitted under law or under this
                              agreement, or any practice that would reasonably
                              be expected to discourage enrollment by recipients
                              whose medical condition or history indicates
                              probable need for substantial future medical
                              services.

               7.7.2.4.       Misrepresenting or falsifying information that it
                              furnishes to CMS or to the State.

               7.7.2.5.       Misrepresenting or falsifying information that it
                              furnishes to an enrollee, potential enrollee, or
                              health care provider.

               7.7.2.6.       Failing to comply with the requirements for
                              physician incentive plans.

               7.7.2.7.       Distributing directly, or indirectly through any
                              agent or independent contractor, marketing
                              materials that have not been approved by the State
                              or that contain false or materially misleading
                              information.

               7.7.2.8.       Violating any of the other requirements of
                              sections 1903(m) or 1932 of the Social Security
                              Act, and any implementing regulations.

        7.8.    ASSIGNMENT OF THIS AGREEMENT: This agreement, including the
                rights, benefits, and duties herein, shall be binding on the
                parties and their successors and assignees but shall not be
                assignable by either party without the express written consent
                of the other. Nor shall any claim, pertinent to this agreement,
                against one of the parties be assignable without the express
                written consent of the other.

        7.9.    HEADINGS NOT CONTROLLING: The headings and the index used herein
                are for reference and convenience only, and shall not enter into
                the interpretation thereof, or describe the scope or intent of
                any provisions or sections of this agreement.

        7.10.   ORDER OF PRECEDENCE: In the interpretation of this agreement and
                incorporated documents, the various terms and conditions shall
                be construed as much as possible to be complementary. In the
                event that such interpretation is not possible the following
                order of precedence shall apply:

             7.10.1.   Federal statutes and regulations concerning the operation
                       of Health Maintenance Organizations and the provisions of
                       Title XIX of the federal Social Security Act.

                                       33



                                                        2003 HO & SCHIP Contract

             7.10.2.   State of Washington statutes and regulations concerning
                       the operation of the DSHS' Medical Assistance Program,
                       including but not limited to WAC 388-538, Exhibit B.

             7.10.3.   State of Washington statutes and regulations concerning
                       the operation of Health Maintenance Organizations and
                       Health Care Service Contractors.

             7.10.4.   The terms and conditions of this agreement.

        7.11.   PROPRIETARY RIGHTS: DSHS recognizes that nothing in this
                agreement shall give DSHS rights to the systems developed or
                acquired by the Contractor during the performance of this
                agreement. The Contractor recognizes that nothing in this
                agreement shall give the Contractor rights to the systems
                developed or acquired by DSHS during the performance of this
                agreement.

        7.12.   COVENANT AGAINST CONTINGENT FEES: The Contractor promises that
                no person or agency has been employed or retained on a
                contingent fee for the purpose of seeking or obtaining this
                agreement. This does not apply to legitimate employees or an
                established commercial or selling agency maintained by the
                Contractor for the purpose of securing business. In the event of
                breach of this clause by the Contractor DSHS may at its
                discretion: a) annul the agreement without any liability; or b)
                deduct from the agreement price or consideration or otherwise
                recover the full amount of any such contingent fee.

        7.13.   ENROLLEES' RIGHT TO OBTAIN A CONVERSION AGREEMENT: The
                Contractor shall offer a conversion agreement to all enrollees
                whose enrollment is terminated due to loss of eligibility for
                Medical Assistance in accord with RCW 48.46.450.

        7.14.   RECORDS MAINTENANCE AND RETENTION:

             7.14.1.   MAINTENANCE: The Contractor and its subcontractors shall
                       maintain financial, medical and other records pertinent
                       to this agreement. All financial records shall follow
                       generally accepted accounting principles. Medical records
                       and supporting management systems shall include all
                       pertinent information related to the medical management
                       of each enrollee. Other records shall be maintained as
                       necessary to clearly reflect all actions taken by the
                       Contractor related to this agreement.

             7.14.2.   RETENTION: All records and reports relating to this
                       agreement shall be retained by the Contractor and its
                       subcontractors for a minimum of six (6) years after final
                       payment is made under this agreement or, in the event
                       that this agreement is renewed, six (6) years after the
                       renewal date. However, when an audit, litigation, or
                       other action involving

                                       34



                                                        2003 HO & SCHIP Contract

                       records is initiated prior to the end of said period,
                       records shall be maintained for a minimum of six (6)
                       years following resolution of such action.

        7.15.   ACCESS TO FACILITIES AND RECORDS: The Contractor and its
                subcontractors shall cooperate with medical and financial audits
                performed by duly authorized representatives of DSHS, the State
                of Washington Auditor's Office, DHHS, and federal auditors from
                the United States government General Accounting Office and the
                Office of Management and Budget. With reasonable notice,
                generally thirty (30) calendar days, the Contractor and its
                subcontractors shall provide access to its facilities and the
                financial and medical records pertinent to this agreement to
                monitor and evaluate performance under this agreement,
                including, but not limited to, the quality, cost, use and
                timeliness of services (42 CFR 434.52), and assessment of the
                Contractor's capacity to bear the potential financial losses (42
                CFR 434.58). The Contractor and its subcontractors shall provide
                immediate access to facilities and records pertinent to this
                agreement for Medicaid fraud investigators.

        7.16.   SOLVENCY:

             7.16.1.   The Contractor shall have a Certificate of Registration
                       as either a Health Maintenance Organization or a Health
                       Care Service Contractor from the Office of the Insurance
                       Commissioner (OIC). The Contractor shall comply with the
                       solvency provisions of RCW 48.44 or RCW 48.46, as
                       amended.

             7.16.2.   The Contractor shall submit to DSHS copies of any
                       regulatory annual statement and any quarterly or monthly
                       financial reports filed with OIC and all related
                       documents and correspondence, at the same time the
                       Contractor sends them to OIC. The Contractor shall notify
                       DSHS immediately upon being notified by OIC that they are
                       to report financial information quarterly or monthly and
                       provide DSHS with the same information provided to OIC in
                       response to any OIC request. The Contractor shall deliver
                       all required information and notices to DSHS at the
                       address listed in 7.5 Notices. The Contractor agrees that
                       DSHS may at anytime access any information related to the
                       Contractor's financial condition, or compliance with OIC
                       requirements, from OIC and consult with OIC concerning
                       such information.

             7.16.3.   The Contractor shall provide DSHS with the Contractor's
                       audited financial statements as soon as they become
                       available to the Contractor. Financial statements shall
                       be delivered to the address list in 7.5 Notices.

             7.16.4.   If the Contractor becomes insolvent during the term of
                       this agreement:

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                                                        2003 HO & SCHIP Contract

               7.16.4.1.      The State of Washington and enrollees shall not be
                              in any manner liable for the debts and obligations
                              of the Contractor.

               7.16.4.2.      In accordance with Section 10.15 Prohibition on
                              Enrollee Charges for Covered Services, under no
                              circumstances shall the Contractor, or any
                              providers used to deliver services covered under
                              the terms of this agreement, charge enrollees for
                              covered services.

               7.16.4.3.      The Contractor shall, in accordance with RCW
                              48.44.055, provide for the continuity of care for
                              enrollees.

        7.17.   COMPLIANCE WITH ALL APPLICABLE LAWS AND REGULATIONS: In the
                provision of services under this agreement, the Contractor and
                its subcontractors shall comply with all applicable federal and
                state statutes and regulations, and all amendments thereto, that
                are in effect when the agreement is signed or that come into
                effect during the term of the agreement. This includes, but is
                not limited to:

             7.17.1.   Title XIX and Title XXI of the Social Security Act.

             7.17.2.   All applicable OIC statutes and regulations.

             7.17.3.   All local, state, and federal professional and facility
                       licensing and accreditation requirements/standards that
                       apply to services performed under the terms of this
                       agreement, including but not limited to:

               7.17.3.1.      All applicable standards, orders, or requirements
                              issued under Section 306 of the Clean Air Act (42
                              US 1857(h)), Section 508 of the Clean Water Act
                              (33 US 1368), Executive Order 11738, and
                              Environmental Protection Agency (EPA) regulations
                              (40 CFR Part 15), which prohibit the use of
                              facilities included on the EPA List of Violating
                              Facilities. Any violations shall be reported to
                              DSHS, DHHS, and the EPA.

               7.17.3.2.      Any applicable mandatory standards and policies
                              relating to energy efficiency which are contained
                              in the State Energy Conservation Plan, issued in
                              compliance with the federal Energy Policy and
                              Conservation Act.

               7.17.3.3.      Those specified for laboratory services in the
                              Clinical Laboratory Improvement Amendments (CLIA).

               7.17.3.4.      Those specified in Title 18 for professional
                              licensing.

             7.17.4.   Liability insurance requirements.

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                                                        2003 HO & SCHIP Contract

             7.17.5.   Reporting of abuse as required by RCW 26.44.030.

             7.17.6.   Industrial insurance coverage as required by Title 51
                       RCW.

             7.17.7.   Any other requirements associated with the receipt of
                       federal funds.

        7.18.   NONDISCRIMINATION: The Contractor shall comply with all federal
                and state nondiscrimination laws and regulations.

        7.19.   REVIEW OF CLIENT INFORMATION: DSHS agrees to provide the
                Contractor with written client information, which DSHS intends
                to distribute to all or a class of clients.

        7.20.   CONTRACTOR NOT EMPLOYEES OF DSHS: The Contractor acknowledges
                and certifies that its directors, officers, partners, employees,
                and agents are not officers, employees, or agents of DSHS or the
                state of Washington. The Contractor shall not hold itself out as
                or claim to be an officer, employee, or agent of DSHS or the
                state of Washington by reason of this agreement. The Contractor
                shall not claim any rights, privileges, or benefits that would
                accrue to a civil service employee under RCW 41.06.

        7.21.   DSHS NOT GUARANTOR: The Contractor acknowledges and certifies
                that neither DSHS nor the State of Washington are guarantors of
                any obligations or debts of the Contractor.

        7.22.   MUTUAL INDEMNIFICATION AND HOLD HARMLESS: The parties shall be
                responsible for and shall indemnify and hold each other harmless
                from all claims and/or damages to persons and/or property
                resulting from its negligent acts and omissions. The Contractor
                shall indemnify and hold harmless DSHS from any claims by
                non-participating providers related to the provision to
                enrollees of covered services under this agreement.

        7.23.   DISPUTES: When a dispute arises over an issue concerning the
                terms of the agreement, the parties agree to the following
                process to address the dispute:

             7.23.1.   The Contractor and DSHS shall attempt to resolve the
                       dispute through informal means between the Contractor and
                       the DSHS, MAA, Division of Program Support, Contract
                       Manager assigned to the Contractor.

             7.23.2.   If the Contractor is not satisfied with the outcome of
                       the resolution with the Contract Manager, the Contractor
                       may submit the disputed issue, in writing, for review,
                       within ten (10) working days of the outcome, to:

                                MaryAnne Lindeblad, Director (or her successor)
                                Division of Program Support

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                                                        2003 HO & SCHIP Contract

                                Medical Assistance Administration
                                Department of Social and Health Services
                                P.O. Box 45530
                                Olympia, WA 98504-5530

                       The Director may request additional information from the
                       Contract Manager and/or the Contractor. The Director
                       shall issue a written review decision to the Contractor
                       within thirty (30) calendar days of receipt of all
                       information relevant to the issue. The review decision
                       will be provided to the Contractor according to Section
                       7.5.

             7.23.3.   When the Contractor disagrees with the review decision of
                       the Director, the Contractor may request independent
                       mediation of the dispute. The request for mediation must
                       be submitted to the Director, in writing, within ten (10)
                       working days of the Contractor's receipt of the
                       Director's review decision. The Contractor and DSHS shall
                       mutually agree on the selection of the independent
                       mediator and shall bear all costs associated with
                       mediation equally. The results of mediation shall not be
                       binding on either party.

                Both parties agree to make their best efforts to resolve
                disputes arising from this agreement and agree that the dispute
                resolution process described herein shall precede any court
                action. This dispute resolution process is the sole
                administrative remedy available under this agreement.

        7.24.   GOVERNING LAW AND VENUE: The laws of the State of Washington
                shall govern this agreement. In the event of a lawsuit involving
                this agreement, venue shall be proper only in Thurston County,
                Washington. By execution of this agreement, the Contractor
                acknowledges the jurisdiction of the courts of the State of
                Washington regarding this matter.

        7.25.   SEVERABILITY: If any provision of this agreement, including any
                provision of any document incorporated by reference, shall be
                held invalid, that invalidity shall not affect the other
                provisions of the agreement. To that end, the provisions of this
                agreement are declared to be severable.

        7.26.   EXCLUDED PERSONS:

             7.26.1.   The Contractor may not knowingly have a director,
                       officer, partner, or person with a beneficial ownership
                       of more than 5% of the Contractor's equity, or have an
                       employee, consultant or contractor who is significant or
                       material to the provision of services under this
                       agreement, who has been, or is affiliated with someone
                       who has been, debarred, suspended, or otherwise excluded
                       by any federal agency (SSA 1932(d)(1)). A list of
                       excluded parties is available on the following Internet
                       website: www.arnet.gov/epls.
                                ------------------

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                                                        2003 HO & SCHIP Contract

             7.26.2.   By entering into this agreement, the Contractor certifies
                       that it does not knowingly have anyone who is an excluded
                       person, or is affiliated with an excluded person, as a
                       director, officer, partner, employee, contractor, or
                       person with a beneficial ownership of more than 5% of its
                       equity. The Contractor is required to notify DSHS when
                       circumstances change that affect such certification.

             7.26.3.   The Contractor is not required to consult the excluded
                       parties list, but may instead rely on certifications from
                       directors, officers, partners, employees, contractors, or
                       persons with beneficial ownership of more than 5% of the
                       Contractor's equity, that they are not debarred or
                       excluded from a federal program.

        7.27.   FRAUD AND ABUSE REQUIREMENTS - POLICIES AND PROCEDURES:

             7.27.1.   The Contractor shall have policies and procedures to
                       prevent and detect fraud and abuse activities related to
                       Healthy Options/SCHIP. These include, but are not limited
                       to: claims, prior authorization, utilization management
                       and quality review, enrollee complaint and grievance
                       resolution, provider credentialing and contracting, and
                       provider and staff education to prevent fraud and abuse,
                       and corrective action plans to remedy situations where
                       fraud and abuse have been detected.

             7.27.2.   If the Contractor is also a Medicare contractor, and if
                       CMS has promulgated fraud and abuse standards for federal
                       health care program managed care contractors, the
                       Contractor's policies and procedures established which
                       meet CMS standards shall be deemed sufficient to meet
                       DSHS requirements for fraud and abuse prevention and
                       monitoring.

             7.27.3.   The Contractor shall submit a written copy of its fraud
                       and abuse policies and procedures for approval to DSHS
                       according to Section 7.5, Notices. Policies and
                       procedures shall be due by March 31, 2003. DSHS shall
                       respond with approval or denial with required
                       modifications within thirty (30) calendar days of
                       receipt. The Contractor shall have thirty (30) calendar
                       days to resubmit the policies and procedures. If the
                       Contractor's fraud and abuse policies and procedures have
                       been approved by DSHS and are unchanged from the approved
                       policies and procedures, the Contractor shall only be
                       required to submit a written certification that the
                       policies and procedures are unchanged.

             7.27.4.   The Contractor may request a copy of the guidelines that
                       DSHS will use in evaluating the Contractor's fraud and
                       abuse policies and procedures, and may request technical
                       assistance in preparing the

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                                                        2003 HO & SCHIP Contract

                       policies and procedures, by contacting the DSHS, MAA,
                       Division of Program Support Contract Manager assigned to
                       the Contractor.

8.      SUBCONTRACTS

        8.1.    CONTRACTOR REMAINS LEGALLY RESPONSIBLE: Subcontracts, as defined
                in Section 1.20, may be used by the Contractor for the provision
                of any service under this agreement. However, no subcontract
                shall terminate the Contractor's legal responsibility to DSHS
                for any work performed under this agreement (42 CFR 434.6 (c)).

        8.2.    SOLVENCY REQUIREMENTS FOR SUBCONTRACTORS: For any subcontractor
                at financial risk, as described in Section 8.8.3. Substantial
                Financial Risk, or 1.17. Risk, the Contractor shall establish,
                enforce and monitor solvency requirements that provide assurance
                of the subcontractor's ability to meet its obligations.

        8.3.    REQUIRED PROVISIONS: Subcontracts must be in writing, consistent
                with the provisions of 42 CFR 434.6. All subcontracts must
                contain the following provisions:

             8.3.1.    Identification of the parties of the subcontract and
                       their legal basis for operation in the state of
                       Washington.

             8.3.2.    Procedures and specific criteria for terminating the
                       subcontract.

             8.3.3.    Identification of the services to be performed by the
                       subcontractor and which of those services may be
                       subcontracted by the subcontractor.

             8.3.4.    Reimbursement rates and procedures for services provided
                       under the subcontract.

             8.3.5.    Release to the Contractor of any information necessary to
                       perform any of its obligations under this agreement.

             8.3.6.    Reasonable access to facilities and financial and medical
                       records for duly authorized representatives of DSHS or
                       DHHS for audit purposes, and immediate access for
                       Medicaid fraud investigators.

             8.3.7.    The requirement to completely and accurately report
                       encounter data to the Contractor. Contractor shall ensure
                       that all subcontractors required to report encounter data
                       have the capacity to comply with the Encounter Data
                       Submission Requirements, Exhibit C-1.

             8.3.8.    The requirement to comply with the Contractor's DSHS
                       approved fraud and abuse policies and procedures.

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                                                        2003 HO & SCHIP Contract

             8.3.9.    No assignment of the subcontract shall take effect
                       without the DSHS' written agreement.

             8.3.10.   The subcontractor must comply with the applicable state
                       and federal rules and regulations as set forth in this
                       agreement.

        8.4.    HEALTH CARE PROVIDER SUBCONTRACTS, including those for
                facilities, must also contain the following provisions:

             8.4.1.    A quality improvement system tailored to the nature and
                       type of services subcontracted, which affords quality
                       control for the health care provided, including but not
                       limited to the accessibility of medically necessary
                       health care, and which provides for a free exchange of
                       information with the Contractor to assist the Contractor
                       in complying with Section 5.1.

             8.4.2.    A means to keep records necessary to adequately document
                       services provided to enrollees.

             8.4.3.    Information about enrollees, including their medical
                       records, shall be kept confidential in a manner
                       consistent with state and federal laws and regulations.

             8.4.4.    The subcontractor accepts payment from the Contractor as
                       payment in full and shall not request payment from DSHS
                       or any enrollee for covered services performed under the
                       subcontract.

             8.4.5.    The subcontractor agrees to hold harmless DSHS and its
                       employees, and all enrollees served under the terms of
                       this agreement in the event of non-payment by the
                       Contractor. The subcontractor further agrees to indemnify
                       and hold harmless DSHS and its employees against all
                       injuries, deaths, losses, damages, claims, suits,
                       liabilities, judgments, costs and expenses which may in
                       any manner accrue against DSHS or its employees through
                       the intentional misconduct, negligence, or omission of
                       the subcontractor, its agents, officers, employees or
                       contractors.

             8.4.6.    If the subcontract includes physician services,
                       provisions for compliance with the PCP requirements
                       stated in this agreement.

             8.4.7.    A ninety (90) day termination notice provision.

             8.4.8.    A specific termination provision for termination with
                       short notice when a provider is excluded from
                       participation in the Medicaid program.

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                                                        2003 HO & SCHIP Contract

        8.5.    HEALTH CARE PROVIDER SUBCONTRACTS DELEGATING ADMINISTRATIVE
                FUNCTIONS: Subcontracts that delegate administrative functions
                under the terms of this agreement must include the following
                additional provisions:

             8.5.1.    For those subcontractors at financial risk, that the
                       subcontractor must maintain the Contractor's solvency
                       requirements throughout the term of the agreement.

             8.5.2.    That the terms and conditions of this agreement, between
                       DSHS and the Contractor, apply to the subcontractor for
                       any contract responsibility the Contractor has delegated
                       in the subcontract.

             8.5.3.    Clear descriptions of any administrative functions
                       delegated by the Contractor in the subcontract, including
                       but not limited to utilization/medical management, claims
                       processing, enrollee complaints and appeals, and the
                       provision of data or information necessary to fulfill any
                       of the Contractor's obligations under this agreement.

             8.5.4.    How frequently and by what means the Contractor will
                       monitor compliance with solvency requirements and
                       requirements related to any administrative function
                       delegated in the subcontract.

             8.5.5.    Whether referrals for enrollees will be restricted to
                       providers affiliated with the group and, if so, a
                       description of those restrictions.

        8.6.    EXCLUDED PROVIDERS:

             8.6.1.    Pursuant to Section 1128 of the Social Security Act, the
                       Contractor may not subcontract with an individual
                       practitioner or provider, or an entity with an officer,
                       director, agent, or manager, or an individual who owns or
                       has a controlling interest in the entity, who has been:
                       convicted of crimes as specified in Section 1128 of the
                       Social Security Act, excluded from participation in the
                       Medicare and Medicaid program, assessed a civil penalty
                       under the provisions of Section 1128, has a contractual
                       relationship with an entity convicted of a crime
                       specified in Section 1128, or is a person described in
                       Section 7.26 of this agreement, Excluded Persons.

             8.6.2.    In addition, if DSHS terminates a subcontractor from
                       participation in the Medical Assistance program, the
                       Contractor shall exclude the subcontractor from
                       participation in Healthy Options/SCHIP. The Contractor
                       shall terminate subcontracts of excluded providers
                       immediately when the Contractor becomes aware of such
                       exclusion or when the Contractor receives notice from
                       DSHS, whichever is earlier.

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                                                        2003 HO & SCHIP Contract

        8.7.    HOME HEALTH PROVIDERS: If the pending Medicaid home health
                agency surety bond requirement (Section 4708(d) of the Balanced
                Budget Act of 1997) becomes effective before or during the term
                of this agreement, beginning on the effective date of the
                requirement the Contractor may not subcontract with a home
                health agency unless the state has obtained a surety bond from
                the home health agency in the amount required by federal law.
                The Department will provide a current list of bonded home health
                agencies upon request to the Contractor.

        8.8.    PHYSICIAN INCENTIVE PLANS: Physician incentive plans, as defined
                in Section 1.15, are subject to the conditions set forth in this
                Section in accord with federal regulations (42 CFR 434.70).

             8.8.1.    PROHIBITED PAYMENTS: The Contractor shall make no payment
                       to a physician or physician group, directly or
                       indirectly, under a physician incentive plan as an
                       inducement to reduce or limit medically necessary
                       services provided to an individual enrollee.

             8.8.2.    DISCLOSURE REQUIREMENTS: Risk sharing arrangements in
                       subcontracts with physicians or physician groups are
                       subject to review and approval by DSHS. The Contractor
                       shall provide the following information about its
                       physician incentive plan, and the physician incentive
                       plans of all its subcontractors in any tier, to the
                       Department annually upon request:

               8.8.2.1.       Whether the incentive plan includes referral
                              services.

               8.8.2.2.       If the incentive plan includes referral services:

                 8.8.2.2.1.     The type of incentive plan (e.g. withhold,
                                bonus, capitation)

                 8.8.2.2.2.     For incentive plans involving withholds or
                                bonuses, the percent that is withheld or paid as
                                a bonus

                 8.8.2.2.3.     Proof that stop-loss protection meets the
                                requirements of 6.8.4.1., including the amount
                                and type of stop-loss protection

                 8.8.2.2.4.     The panel size and, if commercial members and
                                enrollees are pooled, a description of the
                                groups pooled and the risk terms of each group.
                                Medicaid, Medicare, and commercial members in a
                                physician's or physician group's panel may be
                                pooled provided the terms of risk for the pooled
                                enrollees and commercial members are comparable,
                                and the incentive payments are not calculated
                                separately for pooled enrollees. Commercial
                                members include military and Basic Health Plan
                                members.

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                                                        2003 HO & SCHIP Contract

             8.8.3.    SUBSTANTIAL FINANCIAL RISK: A physician, or physician
                       group as defined in Section 1.14, is at substantial
                       financial risk when more than 25% of the total maximum
                       potential payments to the physician or physician group
                       depend on the use of referral services. When the panel
                       size is fewer than 25,000 members arrangements that cause
                       substantial financial risk include, but are not limited
                       to, the following:

               8.8.3.1.       Withholds greater than 25% of total potential
                              payments

               8.8.3.2.       Withholds less than 25% of total potential
                              payments but the physician or physician group is
                              potentially liable for more than 25% of total
                              potential payments.

               8.8.3.3.       Bonuses greater than 33% of total potential
                              payments, less the bonus.

               8.8.3.4.       Withholds plus bonuses if the withholds plus
                              bonuses equal more than 25% of total potential
                              payments.

               8.8.3.5.       Capitation arrangements if the difference between
                              the minimum and maximum possible payments is more
                              than 25% of the maximum possible payments, or the
                              minimum and maximum possible payments are not
                              clearly explained in the contract.

             8.8.4.    REQUIREMENTS IF A PHYSICIAN OR PHYSICIAN GROUP IS AT
                       SUBSTANTIAL FINANCIAL RISK: If the Contractor, or any
                       subcontractor (e.g. IPA, PHO), places a physician or
                       physician group at substantial financial risk, the
                       Contractor shall assure that all physicians and physician
                       groups have either aggregate or per member stop-loss
                       protection for services not directly provided by the
                       physician or physician group.

               8.8.4.1.       If aggregate stop-loss protection is provided, it
                              must cover 90% of the costs of referral services
                              that exceed 25% of maximum potential payments
                              under the subcontract.

               8.8.4.2.       If stop-loss protection is based on a per-member
                              limit, it must cover 90% of the cost of referral
                              services that exceed the limit as indicated below
                              based on panel size, and whether stop-loss is
                              provided separately for professional and
                              institutional services or is combined for the two.

                 8.8.4.2.1.     1,000 members or fewer, the threshold is $3,000
                                for professional services and $10,000 for
                                institutional services, or $6,000 for combined
                                services.

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                                                        2003 HO & SCHIP Contract

                 8.8.4.2.2.     1,001 - 5,000 members, the threshold is $10,000
                                for professional services and $40,000 for
                                institutional services, or $30,000 for combined
                                services.

                 8.8.4.2.3.     5,001 - 8,000 members, the threshold is $15,000
                                for professional services and $60,000 for
                                institutional services, or $40,000 for combined
                                services.

                 8.8.4.2.4.     8,001 - 10,000 members, the threshold is $20,000
                                for professional services and $100,000 for
                                institutional services, or $75,000 for combined
                                services.

                 8.8.4.2.5.     10,001 - 25,000, the threshold is $25,000 for
                                professional services and $200,000 for
                                institutional services, or $150,000 for
                                combined services.

                 8.8.4.2.6.     25,001 members or more, there is no risk
                                threshold.

               8.8.4.3.       For a physician or physician group at substantial
                              financial risk, the Contractor shall periodically
                              conduct surveys of enrollee satisfaction with the
                              physician or physician group. DSHS shall require
                              such surveys annually. DSHS may, at its sole
                              option, conduct enrollee satisfaction surveys
                              which satisfy this requirement and waive the
                              requirement for the Contractor to conduct such
                              surveys. DSHS shall notify the Contractor in
                              writing if the requirement is waived. If DSHS does
                              not waive the requirement, the Contractor shall
                              provide the survey results to DSHS annually upon
                              request. The surveys shall:

                 8.8.4.3.1.     Include current enrollees, and enrollees who
                                have disenrolled within 12 months of the survey
                                for reasons other than loss of Medicaid
                                eligibility or moving outside the Contractor's
                                service area.

                 8.8.4.3.2.     Be conducted according to commonly accepted
                                principles of survey design and statistical
                                analysis.

                 8.8.4.3.3.     Address enrollees satisfaction with the
                                physician or physician group's:

                   8.8.4.3.3.1.   Quality of services provided.

                   8.8.4.3.3.2.   Degree of access to services.

                                       45



                                                        2003 HO & SCHIP Contract

             8.8.5.    Sanctions and Penalties: DSHS or CMS may impose
                       intermediate sanctions, as described in Section 7.7 of
                       this agreement, for failure to comply with the rules in
                       this section.

        8.9.    Payment to FQHCs/RHCs: The Contractor shall not pay a federally
                qualified health center or a rural health clinic less than the
                Contractor would pay non-FQHC/RHC providers for the same
                services (42 USC 1396(m)(2)(A)(ix)).

9.      TERM AND TERMINATION

        9.1.    TERM: This agreement is effective from January 1, 2003 at 12:01
                a.m. Pacific Standard Time (PST) through 12:00 a.m. December 31,
                2003, PST. This agreement may be extended by mutual agreement of
                the parties.

        9.2.    TERMINATION FOR CONVENIENCE:

             9.2.1.    Either party may terminate, upon one-hundred twenty (120)
                       calendar days advance written notice, performance of work
                       under this agreement in whole or in part, whenever, for
                       any reason, either party shall determine that such
                       termination is in its best interest.

             9.2.2.    In the event DSHS terminates this agreement for
                       convenience, the Contractor shall have the right to
                       assert a claim for the Contractor's direct termination
                       costs. Such claim must be:

               9.2.2.1.       Delivered to DSHS as provided in section 7.5.,
                              Notices.

               9.2.2.2.       Asserted within ninety (90) calendar days of
                              termination for convenience, or, in the event the
                              termination was originally issued under the
                              provisions of Section 9.3, Termination by DSHS for
                              Default, ninety (90) calendar days from the date
                              the notice of termination was deemed to have been
                              issued under this section. The Contracts
                              Coordination Unit of MAA (CCU) may extend said
                              ninety (90) calendar days if the Contractor makes
                              a written request to the CCU and CCU deems the
                              grounds for the request to be reasonable. The CCU
                              will evaluate the claim for termination costs and
                              order DSHS to pay the claim or such amount, as
                              s/he deems valid, or deny the claim. The CCU shall
                              notify the Contractor of CCU's decision within
                              sixty (60) calendar days of receipt of the claim.

             9.2.3.    In the event the Contractor terminates this agreement for
                       convenience, DSHS shall have the right to assert a claim
                       for DSHS' direct termination costs. Such claim must be:

               9.2.3.1.       Delivered to the Contractor as provided in section
                              7.5., Notices.

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                                                        2003 HO & SCHIP Contract

               9.2.3.2.       Asserted within ninety (90) calendar days of the
                              date of termination for convenience. The CCU may
                              extend said ninety (90) calendar days if DSHS
                              makes a written request to the CCU and CCU deems
                              the grounds for the request to be reasonable. The
                              CCU will evaluate the claim for termination costs
                              and order the Contractor to pay the claim for such
                              amount, as CCU deems valid, or deny the claim.

             9.2.4.    In the event the Contractor or DSHS disagrees with the
                       CCU decision entered pursuant to this section, the
                       Contractor or DSHS shall have the right to a dispute
                       resolution as described in Section 7.23, Disputes.

             9.2.5.    In no event shall the claim for termination costs exceed
                       the average monthly amount paid to the Contractor for the
                       twelve (12) months immediately prior to termination.

             9.2.6.    In addition to DSHS' or Contractor's direct termination
                       costs, the Contractor or DSHS shall be liable for
                       administrative costs incurred by the other party in
                       procuring supplies or services similar to and/or
                       replacing those terminated.

             9.2.7.    The Contractor or DSHS shall not be liable for any
                       termination costs if it notifies the other party of its
                       intent not to renew this agreement at least one hundred
                       twenty (120) calendar days prior to the renewal date.

             9.2.8.    In the event this agreement is terminated for the
                       convenience of either party, the effective date of
                       termination must be the last day of the month in which
                       the one hundred twenty (120) day notification period is
                       satisfied, or the last day of such later month as may be
                       agreed upon by both parties.

        9.3.    TERMINATION BY THE CONTRACTOR FOR DEFAULT: The Contractor may
                terminate its performance under this agreement in whole or in
                part, whenever DSHS shall default in performance of this
                agreement and shall fail to cure such default within a period of
                one hundred twenty (120) calendar days (or such longer period as
                the Contractor may allow) after receipt from the Contractor of a
                written notice specifying the default. In the event it is
                determined that DSHS was not in default, DSHS may claim damages
                for wrongful termination. The procedure for determining damages
                shall be as stated in Section 9.2.

        9.4.    TERMINATION BY DSHS FOR DEFAULT:

             9.4.1.    DSHS may terminate performance of work under this
                       agreement, in whole or in part, whenever the Contractor
                       shall default in performance

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                                                        2003 HO & SCHIP Contract

                       of this agreement and shall fail to cure such default
                       within a period of one hundred twenty (120) calendar
                       days (or such longer period as the Contracting Officer
                       may allow) after receipt from the Contracting Officer of
                       a written notice specifying the default. Such
                       termination shall be referred to herein as "Termination
                       for Default."

             9.4.2.    If after notice of termination of this agreement for
                       default it is determined by DSHS or a court of law that
                       the Contractor was not in default or that the
                       Contractor's failure to perform or make progress in
                       performance was due to causes beyond the control and
                       without the error or negligence of the Contractor, or any
                       subcontractor, the Contractor may claim damages. The
                       procedure for determining damages shall be as stated in
                       Section 9.2.

             9.4.3.    In the event DSHS terminates this agreement as provided
                       in (a) above, DSHS may procure, upon such terms and in
                       such manner as the Contracting Officer may deem
                       appropriate, supplies or services similar to those
                       terminated, and if the Contractor is judged to be in
                       default by a court of law, DSHS' damages shall be
                       measured by any excess costs for such similar supplies or
                       services. In addition, DSHS' damages may also include
                       reasonable administrative costs incurred in procuring
                       such similar supplies or services.

        9.5.    MANDATORY TERMINATION: DSHS will terminate this agreement in the
                event that the Secretary of DHHS determines that the Contractor
                does not meet the requirements for participation in the Medicaid
                program pursuant to Title XIX of the Social Security Act and all
                amendments.

                In addition, DSHS is required under federal law to either impose
                temporary management or terminate this agreement if the
                Contractor is repeatedly found to not meet federal requirements
                for managed care Contractors, as specified in Section 1903(m) of
                the Social Security Act. Should this circumstance arise, DSHS
                will terminate this agreement consistent with Section 9.4,
                Termination by DSHS for Default.

        9.6.    TERMINATION FOR REDUCTION IN FUNDING: In the event funding from
                state, federal, or other sources is withdrawn, reduced or
                limited in any way after the effective date of this agreement
                and prior to the termination date, DSHS may terminate the
                agreement under the "Termination for Convenience" clause.

        9.7.    INFORMATION ON OUTSTANDING CLAIMS AT TERMINATION: In the event
                this agreement is terminated, the Contractor shall provide DSHS,
                within three hundred and sixty-five (365) calendar days, all
                available information reasonably necessary for the reimbursement
                of any outstanding claims for

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                                                        2003 HO & SCHIP Contract

                services to enrollees (42 CFR 434.6(a)(6)). Information and
                reimbursement of such claims is subject to the provisions of
                Section 3, Payment.

        9.8.    CONTINUED RESPONSIBILITIES: After the termination of this
                agreement, the Contractor remains obligated to:

             9.8.1.    Cover hospitalized enrollees until discharge consistent
                       with Section 3.7.

             9.8.2.    Submit reports required under Section 6.

             9.8.3.    Provide access to records as required in Section 7.15.

             9.8.4.    Provide the administrative services associated with
                       covered services (e.g. claims processing, enrollee
                       appeals) provided to enrollees under the terms of this
                       agreement.

        9.9.    ENROLLEE NOTICE OF TERMINATION: DSHS shall inform enrollees when
                notice is given by either party of its intent to terminate this
                agreement as provided herein

10.     SERVICE DELIVERY

        10.1.   SCOPE OF SERVICES: The Contractor shall cover enrollees for
                preventive care and diagnosis and treatment of illness and
                injury as set forth in Section 11, Schedule of Benefits. If a
                specific procedure or element of a covered service is covered by
                DSHS under its fee-for-service program as described in DSHS'
                billing instructions, the Contractor shall cover it subject to
                the specific exclusions and limitations in Section 11, Schedule
                of Benefits.

                Except as specifically provided in Section 10.17, this shall not
                be construed to prevent the Contractor from establishing
                utilization control measures as it deems necessary to assure
                that services are appropriately utilized, provided that
                utilization control measures do not deny medically necessary
                covered services to enrollees. The Contractor may limit coverage
                of services to participating providers except as specifically
                provided in Section 4, Access and Capacity, Section 11, Schedule
                of Benefits, for emergency services, and as necessary to provide
                medically necessary services as described in 10.1.2.2., Urgent
                Services.

             10.1.1.   IN SERVICE AREA: In the service area, as defined in
                       Section 2.1, the Contractor shall cover enrollees for all
                       medically necessary services included in the scope of
                       services covered by this agreement.

             10.1.2.   OUT OF SERVICE AREA:

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                                                        2003 HO & SCHIP Contract

               10.1.2.1.      EMERGENCY SERVICES: The Contractor shall cover
                              emergency services and, follow-up care which is
                              medically necessary before the enrollee's return
                              to the service area, for enrollees temporarily
                              outside of the service area, or who have moved to
                              another service area but are still enrolled with
                              the Contractor.

               10.1.2.2.      URGENT SERVICES: The Contractor shall cover urgent
                              care that is medically necessary before the
                              enrollee's return to the service area. Urgent care
                              is associated with the presentation of medical
                              signs that require immediate attention, but are
                              not life threatening. The Contractor shall also
                              cover follow-up care to urgent care when such care
                              is medically necessary and cannot reasonably wait
                              until the enrollee's return to the service area.
                              Such services shall be provided for enrollees
                              temporarily outside of the service area, or who
                              have moved to another service area, but are still
                              enrolled with the Contractor. The Contractor may
                              require pre-authorization for urgent services as
                              long as the wait times specified in Section 4.4,
                              Appointment Standards, are not exceeded.

               10.1.2.3.      COVERAGE LIMITATION: When an enrollee moves out of
                              a service area, or is temporarily staying with a
                              parent or relative outside the service area,
                              coverage shall be limited to ninety (90) calendar
                              days beginning with the first of the month
                              following the month in which the enrollee changes
                              residence.

               10.1.2.4.      REFERRED SERVICES: If the Contractor, or a
                              participating provider, refers an enrollee to a
                              provider out of the service area to receive a
                              covered service, the Contractor shall be
                              responsible for the referred service.

        10.2.   MEDICAL NECESSITY DETERMINATION: The Contractor shall determine
                which services are medically necessary, according to utilization
                management requirements included in the Quality Improvement
                Program 2003 Standards, Exhibit A and according to the
                definition of Medically Necessary Services in Section 1.11 of
                this agreement. The Contractor's determination of medical
                necessity in specific instances shall be final except as
                specifically provided in sections 5.4, Enrollee Complaints and
                Appeals and 5.5, Fair Hearings.

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                                                        2003 HO & SCHIP Contract

        10.3.   ENROLLEE CHOICE OF PCP: The Contractor shall allow, to the
                extent possible and appropriate, each new enrollee to choose a
                participating PCP. In the case of newborns, the parent shall
                choose the newborn's PCP. If the enrollee does not make a choice
                at the time of enrollment, the Contractor shall assign the
                enrollee to a PCP or clinic, within reasonable proximity to the
                enrollee's home, no later than fifteen (15) working days after
                coverage begins. The Contractor shall allow an enrollee to
                change PCP or clinic at anytime with the change becoming
                effective no later than the beginning of the month following the
                enrollees request for the change (WAC 388-538-060, Exhibit B and
                WAC 284-43-251 (1)).

                The Contractor shall allow children with special health care
                needs who utilize a specialist frequently to retain the
                specialist as a PCP, or alternatively, be allowed direct access
                to specialists for needed care.

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[START HERE]
                                                        2003 HO & SCHIP Contract

        10.4.   COORDINATION OF CARE: The Contractor shall ensure that health
                care services are coordinated for enrollees, in accordance with
                the provisions of the Quality Improvement Program 2003
                Standards, Exhibit A, and as follows:

             10.4.1.   The Contractor shall ensure that PCPs are responsible for
                       the provision, coordination, and supervision of health
                       care to meet the needs of each enrollee, including
                       initiation and coordination of referrals for medically
                       necessary specialty care. The PCPs shall also be
                       responsible for ongoing coordination with community
                       health and social programs, including but not limited to
                       First Steps Maternity Services and Maternity Case
                       Management, and mental health services provided by the
                       Regional Support Networks (RSN).

             10.4.2.   The Contractor shall ensure that PCPs develop
                       individualized care plans for children with special
                       health care needs, which ensure integration of clinical
                       and non-clinical disciplines and services in the overall
                       plan of care.

             10.4.3.   The Contractor shall provide or shall ensure
                       practitioners provide case management of enrollees with
                       chronic/high risk illnesses. These services include, but
                       are not limited to, coordination of services for
                       inpatient and outpatient care, and coordinated discharge
                       planning. The Contractor shall provide support services
                       to assist practitioners in providing such case management
                       if it is not provided directly by the Contractor. The
                       Contractor shall also provide or shall ensure PCPs
                       provide ongoing coordination of community-based services
                       required by enrollees, including but not limited to:
                       First Steps Maternity Services and Maternity Case
                       Management, Transportation, Regional Support Networks for
                       mental health services, developmental disability
                       services, local health departments, Title V services,
                       home and community services for older and physically
                       disabled individuals, alcohol and substance abuse
                       services, and services for children with special health
                       care needs. The Contractor shall provide support services
                       to assist PCPs in providing such coordination of it is
                       not provided directly by the Contractor.

        10.5.   SECOND OPINIONS: The Contractor shall allow enrollees a second
                opinion with any primary or specialty care physician who is
                participating with the Contractor when an enrollee wants
                additional information regarding treatment or believes the
                Contractor is not authorizing medically necessary care. At the
                Contractor's discretion, a clinically appropriate
                non-participating provider who is agreed upon by the Contractor
                and the enrollee may provide the second opinion.

                                       52



                                                        2003 HO & SCHIP Contract

                This Section shall not be construed to require the Contractor to
                cover unlimited second opinions, nor to require the Contractor
                to cover any services other than the professional services of
                the second opinion provider.

        10.6.   ENROLLEE SELF-DETERMINATION: The Contractor shall ensure that
                all providers: obtain informed consent prior to treatment from
                enrollees, or persons authorized to consent on behalf of an
                enrollee as described in RCW 7.70.065; comply with the
                provisions of the Natural Death Act (RCW 70.122) and state and
                federal Medicaid rules concerning advance directives (WAC
                388-501-0125 & 42 CFR 438.6); and, when appropriate, inform
                enrollees of their right to make anatomical gifts (RCW
                68.50.540).

        10.7.   COMPLIANCE WITH FEDERAL REGULATIONS FOR STERILIZATIONS AND
                HYSTERECTOMIES: The Contractor shall assure that all
                sterilizations and hysterectomies performed under this agreement
                are in compliance with 42 CFR 441 Subpart F, and that the DSHS
                Sterilization Consent Form (DSHS 13-364(x)) or its equivalent is
                used.

        10.8.   PROGRAM INFORMATION: At the Contractor's request, DSHS shall
                provide the Contractor with pertinent documents including
                statutes, regulations, and current versions of billing
                instructions and other written documents which describe DSHS
                policies and guidelines related to service coverage and
                reimbursement.

        10.9.   CONFIDENTIALITY OF ENROLLEE INFORMATION: The Contractor shall
                comply with all state and federal laws and regulations
                concerning the confidentiality of enrollee information.

             10.9.1.   The use or disclosure of any information concerning an
                       enrollee, including but not limited to medical records,
                       by the Contractor and its subcontractors for any purpose
                       not directly connected with the provision of services
                       under this agreement is prohibited, except by written
                       consent of the enrollee, his/her representative, or
                       his/her responsible parent or guardian, or as otherwise
                       provided by law.

             10.9.2.   The Contractor shall not require parental or guardian
                       consent for, nor inform parents or guardians of, the
                       following services provided to enrollees under age
                       eighteen (18): reproductive health (State v. Koome,
                                                           --------------
                       1975), sexually-transmitted diseases (RCW 70.24.110),
                       drug and alcohol treatment (RCW 70.96A.095), and mental
                       health (RCW 71.34.200), except as specifically provided
                       in law. The Contractor shall suppress these services on
                       any subscriber reports.

             10.9.3.   The Contractor and DSHS agree to share information
                       regarding enrollees in a manner which complies with
                       applicable state and federal

                                       53



                                                        2003 HO & SCHIP Contract

                       law protecting confidentiality of such information (42
                       CFR 431 Subpart F, RCW 5.60.060(4), RCW 70.02).

        10.10.  MARKETING: The Contractor, and any subcontractors through which
                the Contractor provides covered services, shall comply with the
                following requirements regarding marketing:

             10.10.1.  Marketing materials means materials distributed to or
                       aimed at Medicaid eligibles, without regard to medium, to
                       influence those individuals to enroll or reenroll in with
                       the Contractor or with the Contractor's subcontractors.
                       All mediums are included but may include brochures,
                       leaflets, newspaper ads, signs, billboards, radio ads,
                       television ads, presentation material for marketing
                       representatives, and websites.

             10.10.2.  All marketing materials must be reviewed by and have the
                       prior written approval of DSHS.

             10.10.3.  Marketing materials shall not contain misrepresentations,
                       or false, inaccurate or misleading information.

             10.10.4.  Marketing materials must be distributed in all services
                       areas the Contractor serves.

             10.10.5.  Marketing materials must be in compliance with Section
                       4.7. Marketing materials in English must give directions
                       in the Medicaid eligible population's primary languages
                       for obtaining understandable materials in accord with
                       contract section 4.7.2. DSHS may determine, in its sole
                       judgment, if materials which are primarily visual meet
                       the requirements of contract section 4.7.

             10.10.6.  The Contractor shall not offer anything of value as an
                       inducement to enrollment.

             10.10.7.  The Contractor shall not use the sale of other insurance
                       to attempt to influence enrollment.

             10.10.8.  The Contractor shall not directly or indirectly conduct
                       door-to-door, telephonic or other cold-call marketing of
                       enrollment.

        10.11.  INFORMATION REQUIREMENTS FOR ENROLLEES AND POTENTIAL ENROLLEES:
                The Contractor must provide sufficient, accurate oral and
                written information to potential enrollees to assist them in
                making an informed decision about enrollment (SSA 1932(d)(2)).
                The Contractor shall provide to potential enrollees upon request
                and to each enrollee, within fifteen (15) working days of
                enrollment, at any time upon request, and at least once a year,
                the

                                       54



                                                        2003 HO & SCHIP Contract

                information needed to understand benefit coverage and obtain
                care. All enrollee information shall have the prior written
                approval of DSHS.

             The Contractor's written information to enrollees and potential
             enrollees must include:

             10.11.1.  How to choose a PCP, including how to request a list of
                       PCPs that includes their identity, location,
                       qualifications and availability.

             10.11.2.  How obtain a list of specialists that includes their
                       identity, location, qualifications and availability.

             10.11.3.  How to obtain information regarding any limitations to
                       the availability of or referral to specialists to assist
                       the enrollee in selecting a PCP.

             10.11.4.  How to obtain information regarding Physician Incentive
                       Plans.

             10.11.5.  How to change a PCP.

             10.11.6.  Informed consent guidelines.

             10.11.7.  Information regarding conversion rights under RCW
                       48.46.450 or RCW 48.44.370.

             10.11.8.  How to request a disenrollment.

             10.11.9.  Information regarding advance directives.

             10.11.10. How to recommend changes in the Contractor's policies and
                       procedures.

             10.11.11. Health promotion, health education and preventive health
                       services available.

             10.11.12. How to obtain assistance from the Contractor in using the
                       complaint and appeal process, including independent
                       review (must assure enrollees that information will be
                       kept confidential except as needed to process the
                       complaint or appeal).

             10.11.13. The right to initiate a complaint or file an appeal,
                       including independent review, in accord with the
                       Contractor's DSHS approved policies and procedures
                       regarding complaints and appeals.

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                                                        2003 HO & SCHIP Contract

             10.11.14. The right to request a DSHS Fair Hearing with no
                       requirement to exhaust the Contractor's complaint and
                       appeal process, and how to do so.

             10.11.15. The enrollee's rights and responsibilities with respect
                       to receiving covered services.

             10.11.16. Information about covered benefits and how to contact
                       DSHS regarding services that may be covered by DSHS, but
                       are not covered benefits under this agreement.

        10.12.  PHYSICIAN INCENTIVE PLAN INFORMATION: The Contractor must
                provide information concerning physician incentive plans upon
                request to enrollees enrolled under the terms of this agreement
                (42 CFR 434.70(a)(4)).

        10.13.  FAIR HEARING INFORMATION: The Contractor shall provide
                information to enrollees about their right to file a Fair
                Hearing request and how to do so, pursuant to WAC 388-02, and
                their right to a second opinion, if services or a referral for
                services have been denied, discontinued or modified.

        10.14.  PROHIBITION ON ENROLLEE CHARGES FOR COVERED SERVICES: Under no
                circumstances shall the Contractor, or any providers used to
                deliver services covered under the terms of this agreement,
                charge enrollees for covered services (SSA 1932(b)(6), SSA
                1128B(d)(1)).

        10.15.  PROHIBITION ON PROVIDER/ENROLLEE DISCUSSION LIMITATIONS: The
                Contractor shall not prohibit any health care professional from
                fully discussing an enrollee's condition and all available
                treatment options, regardless of whether such treatment options
                are covered under the terms of this agreement (SSA 1932(b)(3)).

        10.16.  PROVIDER LICENSE NONDISCRIMINATION: The Contractor shall not
                discriminate, with respect to participation, reimbursement, or
                indemnification, against providers practicing within their
                licensed scope of practice solely on the basis of the type of
                license or certification they hold. This provision shall not be
                construed to prohibit the Contractor from otherwise limiting
                participation to meet its service and cost control needs, and
                standards for quality of care (SSA 1932(b)(7)).

        10.17.  EXPERIMENTAL AND INVESTIGATIONAL SERVICES:

             10.17.1.  If the Contractor excludes or limits benefits for any
                       services for one or more medical conditions or illnesses
                       because such services are deemed to be experimental or
                       investigational, the Contractor must develop and follow
                       policies and procedures for such exclusions and
                       limitations. The policies and procedures shall identify
                       the persons

                                       56



                                                        2003 HO & SCHIP Contract

                       responsible for such decisions. The policies and
                       procedures and any criteria for making decisions shall
                       be made available to DSHS upon request.

                       In making the determination, whether a service is
                       experimental and investigational and, therefore, not a
                       covered service, the Contractor shall consider the
                       following:

               10.17.1.1.     Evidence in peer-reviewed, medical literature, as
                              defined in Section 1.13, and pre-clinical and
                              clinical data reported to the National Institute
                              of Health and/or the National Cancer Institute,
                              concerning the probability of the service
                              maintaining or significantly improving the
                              enrollee's length or quality of life, or ability
                              to function, and whether the benefits of the
                              service or treatment are outweighed by the risks
                              of death or serious complications.

               10.17.1.2.     Whether evidence indicates the service or
                              treatment is likely to be as beneficial as
                              existing conventional treatment alternatives.

               10.17.1.3.     Any relevant, specific aspects of the condition.

               10.17.1.4.     Whether the service or treatment is generally used
                              for the condition in the state of Washington.

               10.17.1.5.     Whether the service or treatment is under
                              continuing scientific testing and research.

               10.17.1.6.     Whether the service or treatment shows a
                              demonstrable benefit for the condition.

               10.17.1.7.     Whether the service or treatment is safe and
                              efficacious.

               10.17.1.8.     Whether the service or treatment will result in
                              greater benefits for the condition than another
                              generally available service.

               10.17.1.9.     If approval is required by a regulating agency,
                              such as the Food and Drug Administration, whether
                              such approval has been given before the date of
                              service.

             10.17.2.  Criteria to determine whether a service is experimental
                       or investigational must be no more stringent for Healthy
                       Options enrollees than that applied to any other
                       enrollees. A service or treatment that is not
                       experimental for one enrollee with a particular medical
                       condition cannot be determined to be experimental for
                       another enrollee with the same medical condition and
                       similar health status.

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                                                        2003 HO & SCHIP Contract

             10.17.3.  A service or treatment may not be determined to be
                       experimental and investigational solely because it is
                       under clinical investigation when there is sufficient
                       evidence in peer-reviewed medical literature to draw
                       conclusions, and the evidence indicates the service or
                       treatment will probably be of significant benefit to
                       enrollees.

             10.17.4.  A determination made by the Contractor shall be subject
                       to appeal through the Contractor's appeal process,
                       including independent review, and through the DSHS fair
                       hearing process.

11.     SCHEDULE OF BENEFITS

        11.1.   COVERED SERVICES:

             11.1.1.   The Contractor shall cover the services described in this
                       Section when medically necessary. The amount and duration
                       of covered services that are medically necessary depends
                       on the enrollee's condition.

             11.1.2.   Except as specifically provided herein, the scope of
                       covered services shall be comparable to the DSHS Medicaid
                       fee-for-service program. For specific covered services,
                       this shall not be construed as requiring the Contractor
                       to cover the specific items covered by DSHS under its
                       fee-for-service program, but shall rather be construed to
                       require the Contractor to cover the same scope of
                       services.

             11.1.3.   Enrollees have the right to self-refer for certain
                       services to providers paid through separate arrangements
                       with the State of Washington. The Contractor is not
                       responsible for the coverage of the services provided
                       through such separate arrangements. The enrollees also
                       may choose to receive such services from the Contractor.
                       The Contractor shall assure that enrollees are informed,
                       whenever appropriate, of all options in such a way as not
                       to prejudice or direct the enrollee's choice of where to
                       receive the services. If the Contractor in any manner
                       deprives enrollees of their free choice to receive
                       services through the Contractor, the Contractor shall pay
                       the local health department, family planning facility, or
                       RSN for such services up to the limits described herein.
                       The services to which an enrollee may self-refer are:

               11.1.3.1.      Outpatient mental health services to community
                              mental health providers of the Regional Support
                              Network for Prepaid Health Plan.

               11.1.3.2.      Family planning services and sexually transmitted
                              disease screening and treatment services provided
                              at family planning facilities, such as Planned
                              Parenthood.

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                                                        2003 HO & SCHIP Contract

               11.1.3.3.      Immunizations, sexually-transmitted disease
                              screening and follow-up, immunodeficiency virus
                              (HIV) screening, tuberculosis screening and
                              follow-up, and family planning services through
                              the local health department.

               11.1.3.4.      Medical services provided to enrollees who have a
                              diagnosis of alcohol and/or chemical dependency
                              are covered when those services are otherwise
                              covered services.

             11.1.4.   INPATIENT SERVICES: Provided by acute care hospitals
                       (licensed under RCW 70.41), or nursing facilities
                       (licensed under RCW 18-51) when nursing facility services
                       are not covered by the Department's Aging and Adult
                       Services Administration and the Contractor determines
                       that nursing facility care is more appropriate than acute
                       hospital care. Inpatient physical rehabilitation services
                       are included.

             11.1.5.   OUTPATIENT HOSPITAL SERVICES: Provided by acute care
                       hospitals (licensed under RCW 70.41).

             11.1.6.   EMERGENCY SERVICES: In accord with the requirements of 42
                       CFR 438.114, all inpatient and outpatient services that
                       are provided by a provider who is qualified to furnish
                       Medicaid services, without regard to whether the provider
                       is a participating or non-participating provider, which
                       are necessary to evaluate and stabilize an emergency
                       medical condition as defined in Section 1.8.

                       Emergency services shall be provided without requiring
                       prior authorization.

                       What constitutes an emergency medical condition may not
                       be limited on the basis of lists of diagnoses or
                       symptoms (42 CFR 438.114(d)(i)).

                       Services provided when the PCP or other plan
                       representative has instructed the enrollee to seek
                       emergency services, regardless of whether the enrollee's
                       condition meets the prudent layperson standard.

                       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.

                       Any post-stabilization services, related to the
                       admitting diagnosis, up to the point of discharge, that
                       the Contractor has either:

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                                                        2003 HO & SCHIP Contract

               11.1.6.1.      Authorized

               11.1.6.2.      Failed to authorize because the Contractor did not
                              respond within thirty (30) minutes to a request
                              for authorization for post-stabilization services
                              (RCW 48.43.093(d))

               11.1.6.3.      Failed to authorize due to circumstances beyond
                              the emergency department's control

             11.1.7.   AMBULATORY SURGERY CENTER: Services provided at
                       ambulatory surgery centers.

             11.1.8.   PROVIDER SERVICES: Services provided in an inpatient or
                       outpatient (e.g., office, clinic, emergency room or home)
                       setting by licensed professionals including, but not
                       limited to, physicians, physician assistants, advanced
                       registered nurse practitioners, midwives, podiatrists,
                       audiologists, registered nurses, and certified
                       dietitians.

                       Provider Services include, but are not limited to:

               11.1.8.1.      Medical examinations, including wellness exams for
                              adults and EPSDT for children

               11.1.8.2.      Immunizations

               11.1.8.3.      Maternity care

               11.1.8.4.      Family planning services provided or referred by a
                              participating provider or practitioner

               11.1.8.5.      Performing and/or reading diagnostic tests

               11.1.8.6.      Private duty nursing

               11.1.8.7.      Surgical services

               11.1.8.8.      Surgery to correct defects from birth, illness, or
                              trauma, or for mastectomy reconstruction

               11.1.8.9.      Anesthesia

               11.1.8.10.     Administering pharmaceutical products

               11.1.8.11.     Fitting prosthetic and orthotic devices

               11.1.8.12.     Rehabilitation services

                                       60



                                                        2003 HO & SCHIP Contract

               11.1.8.13.     Enrollee health education

               11.1.8.14.     Nutritional counseling for specific conditions
                              such as diabetes, high blood pressure, and
                              anemia

               11.1.8.15.     Nutritional counseling when referred as a result
                              of an EPSDT exam

             11.1.9.   TISSUE AND ORGAN TRANSPLANTS: Heart, kidney, liver, bone
                       marrow, lung, heart-lung, pancreas, kidney-pancreas,
                       cornea, and peripheral blood stem cell.

             11.1.10.  LABORATORY, RADIOLOGY, AND OTHER MEDICAL IMAGING
                       SERVICES: Screening and diagnostic services and radiation
                       therapy.

             11.1.11.  VISION CARE: Eye examinations for visual acuity and
                       refraction once every twenty-four (24) months for adults
                       and once every twelve (12) months for children under age
                       twenty-one (21). These limitations do not apply to
                       additional services needed for medical conditions. The
                       Contractor may restrict non-emergent care to
                       participating providers. Enrollees may self-refer to
                       participating providers for these services.

             11.1.12.  OUTPATIENT MENTAL HEALTH:

               11.1.12.1.     Psychiatric and psychological testing, evaluation
                              and diagnosis:

                 11.1.12.1.1.   Once every twelve (12) months for adults
                                twenty-one (21) and over

                 11.1.12.1.2.   Unlimited for children under age twenty-one (21)
                                when identified in an EPSDT visit

               11.1.12.2.     Unlimited medication management:

                 11.1.12.2.1.   Provided by the PCP or by PCP referral

                 11.1.12.2.2.   Provided in conjunction with mental health
                                treatment covered by the Contractor

               11.1.12.3.     Twelve hours per calendar year for treatment

               11.1.12.4.     Transition to the RSN, as needed to assure
                              continuity of care, when the enrollee has
                              exhausted the benefit covered by the Contractor or
                              when enrollee request such transition

               11.1.12.5.     Referrals To and From the RSN:

                                       61



                                                        2003 HO & SCHIP Contract

                 11.1.12.5.1.   The Contractor shall cover mental health
                                services provided by the RSN, up to the limits
                                described herein, if the Contractor refers an
                                enrollee to the RSN for those services.

                 11.1.12.5.2.   The Contractor may, but is not required to,
                                accept referrals from the RSN for the mental
                                health services described herein.

               11.1.12.6.     The Contractor may subcontract with RSNs to
                              provide the outpatient mental health services that
                              are the responsibility of the Contractor. Such
                              agreements shall not be written or construed in a
                              manner that provides less than the services
                              otherwise described in this Section as the
                              Contractor's responsibility for outpatient mental
                              health services.

               11.1.12.7.     The DSHS Mental Health Division (MHD) and Medical
                              Assistance Administration (MAA) shall each appoint
                              a Mental Health Care Coordinator (MHCC). The MHCCs
                              shall be empowered to decide all Contractor and
                              RSN issues regarding outpatient mental health
                              coverage that cannot be otherwise resolved between
                              the Contractor and the RSN. The MHCCs will also
                              undertake training and technical assistance
                              activities that further coordination of care
                              between MAA, MHD, Healthy Options contractors and
                              RSNs. The Contractor shall cooperate with the
                              activities of the MHCCs.

             11.1.13.  OCCUPATIONAL THERAPY, SPEECH THERAPY, AND PHYSICAL
                       THERAPY: Services for the restoration or maintenance of a
                       function affected by an enrollee's illness, disability,
                       condition or injury, or for the amelioration of the
                       effects of a developmental disability.

             11.1.14.  PHARMACEUTICAL PRODUCTS: Prescription drug products
                       according to a Department approved formulary, which
                       includes both legend and over-the-counter (OTC)
                       products. The Contractor's formulary shall include all
                       therapeutic classes in DSHS' fee-for-service drug file
                       and a sufficient variety of drugs in each therapeutic
                       class to meet medically necessary health needs. The
                       Contractor shall provide participating pharmacies and
                       participating providers with its formulary and
                       information about how to request non-formulary drugs. The
                       Contractor shall approve or deny all requests for
                       non-formulary drugs by the business day following the day
                       of request.

                       Covered drug products shall include:

                                       62



                                                        2003 HO & SCHIP Contract

               11.1.14.1.     Oral, enteral and parenteral nutritional
                              supplements and supplies, including prescribed
                              infant formulas

               11.1.14.2.     All Food and Drug Administration (FDA) approved
                              contraceptive drugs, devices, and supplies;
                              including but not limited to Depo-Provera,
                              Norplant, and OTC products

               11.1.14.3.     Antigens and allergens

               11.1.14.4.     Therapeutic vitamins and iron prescribed for
                              prenatal and postnatal care.

             11.1.15.  HOME HEALTH SERVICES: Home health services through
                       state-licensed agencies.

             11.1.16.  DURABLE MEDICAL EQUIPMENT (DME) AND SUPPLIES: Including,
                       but not limited to: DME; surgical appliances; orthopedic
                       appliances and braces; prosthetic and orthotic devices;
                       breast pumps; incontinence supplies for enrollees over
                       three (3) years or age; and medical supplies.
                       Incontinence supplies shall not include non-disposable
                       diapers unless the enrollee agrees.

             11.1.17.  OXYGEN AND RESPIRATORY SERVICES: Oxygen, and respiratory
                       therapy equipment and supplies.

             11.1.18.  HOSPICE SERVICES: When the enrollee elects hospice care.

             11.1.19.  BLOOD, BLOOD COMPONENTS AND HUMAN BLOOD PRODUCTS:
                       Administration of whole blood and blood components as
                       well as human blood products. In areas where there is a
                       charge for blood and/or blood products the Contractor
                       shall cover the cost of the blood or blood products.

             11.1.20.  TREATMENT FOR RENAL FAILURE: Hemodialysis, or other
                       appropriate procedures to treat renal failure, including
                       equipment needed in the course of treatment.

             11.1.21.  AMBULANCE TRANSPORTATION: The Contractor shall cover
                       ground and air ambulance transportation for emergency
                       medical conditions, as defined in Section 1.8 of this
                       agreement, including, but not limited to, Basic and
                       Advanced Life Support Services, and other required
                       transportation costs, such as tolls and fares. In
                       addition, the Contractor shall cover ambulance services
                       under two circumstances for non-emergencies:

                                       63



                                                        2003 HO & SCHIP Contract

               11.1.21.1.     When it is necessary to transport an enrollee
                              between facilities to receive a covered services;
                              and,

               11.1.21.2.     When it is necessary to transport an enrollee, who
                              must be carried on a stretcher, or who may require
                              medical attention en route (RCW 18.73.180) to
                              receive a covered service.

             11.1.22.  CHIROPRACTIC SERVICES: For children when they are
                       referred during an EPSDT exam.

             11.1.23.  NEURODEVELOPMENTAL SERVICES: When provided by a facility
                       that is not a DSHS recognized neurodevelopmental center.

             11.1.24.  SMOKING CESSATION SERVICES: For pregnant women through
                       sixty (60) days post pregnancy.

11.2.   EXCLUSIONS:

        The following services and supplies are excluded from coverage under
        this agreement. This shall not be construed to prevent the Contractor
        from covering any of these services when the Contractor determines it is
        medically necessary. Unless otherwise required by this agreement,
        ancillary services resulting from excluded services are also excluded.

             11.2.1.   SERVICES COVERED BY DSHS FEE-FOR-SERVICE OR THROUGH
                       SELECTIVE CONTRACTS:

               11.2.1.1.      School Medical Services for Special Students as
                              described in the DSHS billing instructions for
                              School Medical Services.

               11.2.1.2.      Eyeglass Frames, Lenses, and Fabrication Services
                              covered under DSHS' selective contract for these
                              services, and associated fitting and dispensing
                              services.

               11.2.1.3.      Voluntary Termination of Pregnancy, including
                              complications.

               11.2.1.4.      Transportation Services other than Ambulance:
                              Taxi, cabulance, voluntary transportation, and
                              public transportation.

               11.2.1.5.      Dental Care, Prostheses and Oral Surgery,
                              including physical exams required prior to
                              hospital admissions for oral surgery.

               11.2.1.6.      Hearing Aid Devices, including fitting, follow-up
                              care and repair.

               11.2.1.7.      First Steps Maternity Case Management and
                              Maternity Support Services.

                                       64



                                                        2003 HO & SCHIP Contract

               11.2.1.8.      Sterilizations for enrollees under age 21, or
                              those that do not meet other federal requirements.

               11.2.1.9.      Health care services provided by a
                              neurodevelopmental center recognized by DSHS.

               11.2.1.10.     Certain services provided by a health department
                              or family planning clinic when a client
                              self-refers for care.

               11.2.1.11.     Inpatient psychiatric professional services.

               11.2.1.12.     Pharmaceutical products prescribed by any provider
                              related to services provided under a separate
                              agreement with DSHS or related to services not
                              covered by the Contractor.

               11.2.1.13.     Laboratory services required for medication
                              management of drugs prescribed by community mental
                              health providers whose services are purchased by
                              the Mental Health Division.

               11.2.1.14.     Protease Inhibitors

               11.2.1.15.     Services ordered as a result of an EPSDT exam that
                              are not otherwise covered services.

               11.2.1.16.     Gastroplasty

               11.2.1.17.     Prenatal Diagnosis Genetic Counseling provided to
                              enrollees to allow enrollees and their PCPs to
                              make informed decisions regarding current genetic
                              practices and testing. Genetic services beyond
                              Prenatal Diagnosis Genetic Counseling are covered
                              as maternity care when medically necessary, see
                              Section 11.1.8.3.

               11.2.1.18.     Gender dysphoria surgery and related procedures,
                              treatment, prosthetics, or supplies when approved
                              by DSHS in accord with WAC 388-531.

             11.2.2.   SERVICES COVERED BY OTHER DIVISIONS IN THE DEPARTMENT OF
                       SOCIAL AND HEALTH SERVICES:

               11.2.2.1.      Substance abuse treatment services covered through
                              the Division of Alcohol and Substance Abuse
                              (DASA), including inpatient detoxification
                              services for alcohol (3-day) and drugs (5-day)
                              with no complicating medical conditions.

               11.2.2.2.      Nursing facility and community based services
                              (e.g. COPES and Personal Care Services) covered
                              through the Aging and Adult Services
                              Administration.

                                       65



                                                        2003 HO & SCHIP Contract

               11.2.2.3.      Mental health services separately purchased for
                              all Medicaid clients by the Mental Health
                              Division, including 24-hour crisis intervention,
                              outpatient mental health treatment services, and
                              inpatient psychiatric services. This shall not be
                              construed to prevent the Contractor from
                              purchasing covered outpatient mental health
                              services from community mental health providers.

               11.2.2.4.      Health care services covered through the Division
                              of Developmental Disabilities for
                              institutionalized clients.

             11.2.3.   SERVICE COVERED BY OTHER STATE AGENCIES:

                       Infant formula for oral feeding provided by the Women,
                       Infants and Children (WIC) program in the Department of
                       Health. Medically necessary nutritional supplements for
                       infants are covered under the pharmacy benefit.

             11.2.4.   SERVICES NOT COVERED BY EITHER DSHS OR THE CONTRACTOR:

               11.2.4.1.      Medical examinations for Social Security
                              Disability.

               11.2.4.2.      Services for which plastic surgery or other
                              services are indicated primarily for cosmetic
                              reasons.

               11.2.4.3.      Physical examinations required for obtaining
                              continuing employment, insurance or governmental
                              licensing.

               11.2.4.4.      Experimental and Investigational Treatment or
                              Services, determined in accord with Section 10.18,
                              Experimental and Investigational Services, and
                              services associated with experimental or
                              investigational treatment or services.

               11.2.4.5.      Reversal of voluntary surgically induced
                              sterilization.

               11.2.4.6.      Personal Comfort Items, including but not limited
                              to guest trays, television and telephone charges.

               11.2.4.7.      Biofeedback Therapy.

               11.2.4.8.      Diagnosis and treatment of infertility, impotence,
                              and sexual dysfunction.

               11.2.4.9.      Orthoptic (eye training) care for eye conditions.

                                       66



                                                        2003 HO & SCHIP Contract

               11.2.4.10.     Tissue or organ transplants that are not
                              specifically listed as covered.

               11.2.4.11.     Immunizations required for international travel
                              purposes only.

               11.2.4.12.     Court-ordered services.

               11.2.4.13.     Any service provided to an incarcerated enrollee,
                              beginning when a law enforcement officer takes the
                              enrollee into legal custody.

               11.2.4.14.     Any service, product, or supply paid for by DSHS
                              under its fee-for-service program only on an
                              exception to policy basis. The Contractor may also
                              make exceptions and pay for services it is not
                              required to cover under this agreement.

               11.2.4.15.     Any other service, product, or supply not covered
                              by DSHS under its fee-for-service program.

                                       67



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

                                   EXHIBIT A-1
                          QUALITY IMPROVEMENT STANDARDS
                                 2003 STANDARDS
                                      NCQA

The Contractor shall comply with the Quality Improvement Program 2003 Standards.
The standards are adopted primarily from NCQA's Standards for the Accreditation
of Managed Care Organizations. DSHS is implementing as the Quality Improvement
Program 2003 Standards, standards which are substantially the same as the
Quality Improvement Program Standards in the 2002 HO/SCHIP Contract. DSHS
reserves the right to revise the Quality Improvement Program 2003 Standards to
ensure that no standard is in conflict with the Washington State Patient Bill of
Rights (PBOR), Health Insurance Portability and Accountability Act (HIPAA), or
any other applicable state or federal statute or regulation. In the event of
conflict between the Quality Improvement Program 2003 Standards and the
standards in PBOR, HIPAA, or state or federal statute or regulation, the
standard which, in the sole judgment of DSHS, is most favorable to enrollees
shall have precedence.

DSHS agrees that any Contractor that meets or exceeds a 90% TEAMonitor score on
a specific quality standard (Quality Management and Improvement, Utilization
Management, Credentialing and Recredentialing, Members' Rights and
Responsibilities, Preventive Health Services and Medical Records) over two
consecutive audit years to be in compliance with that specific standard for the
next audit year. If DSHS has evidence that subsequent performance has been
deficient, the CONTRACTOR shall be subject to audit on all standards. In
determining whether a Contractor's performance has been deficient with respect
to the Quality Improvement Standards, DSHS will consider NCQA Reports, enrollee
complaints, appeals and denials, and any other substantial data or information.

The above process shall not apply to areas specifically required for annual
review by The Federal Medicaid Act (Social Security Act, 42. US. C. Sec. 1396 et
seq.), applicable federal regulations, The Healthy Options Waiver 1115b,
Guidelines for Addressing Fraud and Abuse in Medicaid Managed Care, The Balanced
Budget Act of 1997 and any published, applicable BBA regulations; applicable
RCWs and applicable WACs.

The following NCQA definitions apply to terms used in this document:

COMPLAINT: A term commonly used to describe an oral or written expression of
dissatisfaction by a member.

APPEAL: A formal request by a practitioner or covered person for reconsideration
of a decision such as a utilization review recommendation, a benefit payment, an
administrative action, quality of care or service issue, with the goal of
finding a mutually acceptable solution.

PRACTITIONER: Any individual who is qualified to practice a profession.
Practitioners are usually required to be licensed as defined by law.

PROVIDER: An institution or organization that provides services for your
organization's members. Examples of providers include hospitals and home health
agencies.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QUALITY MANAGEMENT AND IMPROVEMENT

QI 1        PROGRAM STRUCTURE

            The managed care organization's (MCO) quality improvement (QI)
            structures and processes are clearly defined, and responsibility is
            assigned to appropriate individuals.

QI 1.1      A written description of the QI program outlines the program
            structure and content.

QI 1.1.2    The description of the program includes a section that addresses
            improving patient safety.

QI 1.2      The QI program is accountable to the governing body.

QI 1.3      The program description is evaluated annually and updated as
            necessary.

QI 1.4      A designated physician has substantial involvement in the
            implementation of the QI program.

QI 1.5      A committee oversees and is involved in QI activities.

QI 1.6      The program description specifies the role, structure, and function,
            including frequency of meetings of the QI committee and other
            relevant committees.

QI 1.7      The annual QI work plan, or schedule of activities, includes the
            following:

QI 1.7.1          objectives, scope, and planned projects or activities that
                  address the quality and safety of clinical care and the
                  quality of service for the year;

QI 1.7.2          planned monitoring of previously identified issues, including
                  tracking of issues over time and

QI 1.7.3          planned evaluation of the QI program as described in QI 12.1.

QI 1.8      The QI program resources (e.g. personnel, analytic capabilities,
            data resources) are adequate to meet its needs.

QI 2        PROGRAM OPERATIONS

            The managed care organization's quality improvement program is fully
            operational.

QI 2.1      The QI committee recommends policy decisions, reviews and evaluates
            the results of QI activities, institutes needed actions, and ensures
            follow-up, as appropriate.

QI 2.2      There are contemporaneous minutes (i.e. created at the time the
            activity is conducted), dated and signed, that reflect all QI
            committee decisions and actions.

QI 2.3      The MCO's practitioners participate actively in the QI program.

QI 2.4      Upon request, the MCO makes available to its members and
            practitioners information about its QI program, including a
            description of the QI program and a report on the MCO's progress in
            meeting its goals.

QI 3        HEALTH SERVICES CONTRACTING

            Contracts with individual practitioners and organizational
            providers, including those making UM decisions, specify that
            contractors cooperate with the managed care organization's QI
            program.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QI 3.1      Contracts with practitioners specifically require that:

QI 3.1.1          the practitioners cooperate with QI activities;

QI 3.1.2          the MCO has access to the practitioners' medical records to
                  the extent permitted by state and federal law and

QI 3.1.3          the MCO allows open practitioner-patient communication
                  regarding appropriate treatment alternatives and without
                  penalizing practitioners for discussing medically necessary or
                  appropriate care for the patient.

QI 3.2      Contracts with providers specifically require that:

QI 3.2.1          the providers cooperate with QI activities and

QI 3.2.2          the MCO has access to the provider's medical records to the
                  extent permitted by state and federal law.

QI 4        AVAILABILITY OF PRACTITIONERS

            The MCO ensures that its network is sufficient in numbers and types
            of practitioners.

QI 4.1      In creating and maintaining its delivery system of practitioners,
            the MCO takes into consideration assessed special and cultural needs
            and preferences.

QI 4.2      The MCO implements mechanisms designed to ensure the availability of
            PCPs.

QI 4.2.1          The MCO defines the practitioners who serve as PCPs within its
                  delivery system.

QI 4.2.2          The MCO establishes standards for number and geographic
                  distribution of PCPs.

QI 4.2.3          The MCO collects and analyzes data to measure its performance
                  against the standards established in QI 4.2.2.

QI 4.2.4          The MCO identifies opportunities for improvement and decides
                  which opportunities to pursue.

QI 4.2.5          The MCO implements interventions to improve its performance.

QI 4.2.6          The MCO measures the effectiveness of the interventions.

QI 4.3      The MCO implements mechanisms designed to ensure the availability of
            specialty care practitioners.

QI 4.3.1          The MCO establishes standards for number and geographic
                  distribution of specialty practitioners.

QI 4.3.2          The MCO collects and analyzes data to measure its performance
                  against the standards established in QI 4.3.1.

QI 4.3.3          The MCO identifies opportunities for improvement and decides
                  which opportunities to pursue.

QI 4.3.4          The MCO implements interventions to improve its performance.

QI 4.3.5          The MCO measures the effectiveness of the interventions.

QI 5        ACCESSIBILITY OF SERVICES

            The MCO establishes mechanisms to assure the accessibility of
            primary care services, behavioral health services and member
            services.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        3



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QI 5.1      The MCO establishes standards for access to medical care:

QI 5.1.1          preventive care appointments;

QI 5.1.2          routine primary care appointments;

QI 5.1.3          urgent care appointments;

QI 5.1.4          emergency care; and

QI 5.1.5          after-hours care.

QI 5.2      The MCO establishes standards for key elements of telephone customer
            service.

QI 5.4      The MCO collects and analyzes data to measure its performance
            against the standards.

QI 5.5      The MCO identifies opportunities for improvement and decides which
            opportunities to pursue.

QI 5.6      The MCO implements interventions to improve its performance.

QI 5.7      The MCO measures the effectiveness of the interventions.

QI 6        MEMBER SATISFACTION

            The MCO implements mechanisms to assure member satisfaction.

QI 6.1      The MCO assesses member satisfaction by:

QI 6.1.1          evaluating member complaints and appeals and

QI 6.1.2          evaluating requests to change practitioners and/or sites.

QI 6.2      The MCO uses appropriate methods to collect data for the activities
            listed in QI 6.1:

QI 6.2.1          The appropriate population identified.

QI 6.2.2          If sampling used, appropriate samples are drawn from the
                  affected population.

QI 6.2.3          Valid and reliable data are collected.

QI 6.3      The MCO analyzes data from at least the activities listed in QI 6.1
            and the CAHPS(R) 2.0H survey.

QI 6.4      The MCO identifies opportunities for improvement and decides which
            opportunities to pursue.

QI 6.5      The MCO implements interventions to improve its performance.

QI 6.6      The MCO measures the effectiveness of the interventions.

QI 6.7      The MCO informs practitioners and providers of results of member
            satisfaction activities.

QI 7        HEALTH MANAGEMENT SYSTEMS

            The MCO actively works to improve the health status of its members
            with chronic conditions.

QI 7.1      The MCO identifies members with chronic conditions and offers
            appropriate services and programs to assist in managing their
            conditions.

QI 7.2      The MCO informs and educates practitioners about using the health
            management programs for the members assigned to them.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        4



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QI 8        CLINICAL PRACTICE GUIDELINES

            The MCO is accountable for adopting and disseminating practice
            guidelines for the provision of acute, chronic and behavioral health
            services that are relevant to its enrolled membership.

QI 8.1      The clinical practice guidelines are based on reasonable medical
            evidence.

QI 8.2      The MCO involves its practitioners in the adoption of clinical
            practice guidelines.

QI 8.3      The MCO has developed a mechanism for reviewing the guidelines at
            least every two years and updating them as appropriate.

QI 8.4      The MCO distributes the guidelines to its practitioners.

QI 8.5      Annually, the MCO measures performance against at least three
            guidelines, one of which relates to behavioral health.

QI 8.6      Decision making in utilization management, member education,
            interpretation of covered benefits and other areas to which the
            clinical guidelines are applicable is consistent with the
            guidelines.

QI 9        CONTINUITY AND COORDINATION OF CARE

            The MCO monitors the continuity and coordination of care that
            members receive.

QI 9.1      The MCO monitors the continuity and coordination of care that
            members receive across practices and provider sites, including at
            minimum PCP sites with 50 or more members.

QI 9.2      The MCO monitors the continuity and coordination of general medical
            care with behavioral health care. To this end, the MCO collaborates
            with its behavioral health specialists to:

QI 9.2.1          Exchange information in an effective, timely and confidential
                  manner, including patient-approved communications between
                  medical practitioners and behavioral health practitioners and
                  providers.

QI 9.3      The MCO collects and analyzes data to evaluate continuity and
            coordination of care.

QI 9.3.1          The MCO analyzes data to identify opportunities for
                  improvement.

QI 9.4      The MCO implements interventions to improve continuity and
            coordination of care.

QI 9.4.1          The MCO implements interventions when it identifies an
                  opportunity for improvement.

QI 9.5      To ensure the continuity and coordination of care, the MCO notifies
            members affected by the termination of a practitioner or practice
            site and assists them in selecting a new practitioner or site.

QI 10       CLINICAL MEASUREMENT ACTIVITIES

            The MCO uses data collection, measurement and analysis to track
            clinical issues that are relevant to its population.

QI 10.1     At a minimum, the MCO adopts or establishes quantitative measures to
            assess performance and to identify and prioritize areas for
            improvement for three clinical issues, including at least one
            behavioral health issue.

QI 10.1.1         The measures used to assess performance are objective and
                  quantifiable.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        5



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QI 10.1.2         The measures are based on current scientific knowledge and
                  clinical experience.

QI 10.1.3         Each measure has an established goal and/or benchmark.

QI 10.2     The MCO uses appropriate methods to collect data for each assessment
            measure.

QI 10.2.1         The affected population is identified.

QI 10.2.2         If sampling used, appropriate samples are drawn from the
                  affected population.

QI 10.2.3         Valid and reliable data collected.

QI 10.3     The MCO analyzes data collected for each assessment measure.

QI 10.3.1         There is a quantitative analysis of the assessment data.

QI 10.3.2         Appropriate personnel, including practitioners, evaluate the
                  analyzed data to identify barriers to improvement that are
                  related to clinical practice and/or administrative aspects of
                  the delivery system.

QI 11       INTERVENTION AND FOLLOW UP FOR CLINICAL ISSUES

            The MCO takes action to improve quality by addressing the
            opportunities for improving performance identified in QI 10. The MCO
            also assesses the effectiveness of these interventions through
            systematic follow-up.

QI 11.1     The MCO follows up the opportunities for improvement identified
            through assessment and evaluation activities.

QI 11.1.1         The MCO identifies opportunities for improvement and decides
                  which opportunities to pursue.

QI 11.1.2         The MCO implements interventions to improve practitioner and
                  system performance, as appropriate.

QI 11.1.3         The MCO measures whether the interventions have been
                  effective.

QI 12       EFFECTIVENESS OF THE QI PROGRAM

            The MCO evaluates the overall effectiveness of its QI program in
            addressing the quality and safety of clinical care and demonstrates
            improvements in the quality of clinical care and quality of service
            to its members.

QI 12.1     There is an annual written evaluation of the QI program. This
            evaluation includes:

QI 12.1.1         a description of completed and ongoing QI activities that
                  address the quality and safety of clinical care and the
                  quality of service;

QI 12.1.2         trending of measures to assess performance in the quality and
                  safety of clinical care and the quality of service;

QI 12.1.2         an analysis of whether there have been demonstrated
                  improvements in the quality of clinical care and the quality
                  of service to members and

QI 12.1.3         an evaluation of the overall effectiveness of the QI program,
                  including progress toward influencing safe clinical practices
                  throughout the network.

QI 12.2     There is evidence that QI activities have contributed to meaningful
            improvement in the quality of clinical care and quality of service
            provided to members.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        6



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

QI 13       DELEGATION OF QI ACTIVITY

            If the MCO delegates any QI activities, there is evidence of
            oversight of the delegated activity.

QI 13.1     A mutually agreed upon document describes:

QI 13.1.1         the responsibilities of the MCO and the delegated entity;

QI 13.1.2         the delegated activities;

QI 13.1.3         the frequency of reporting to the MCO;

QI 13.1.4         the process by which the MCO evaluates the delegated entity's
                  performance and

QI 13.1.5         the remedies, including revocation of the delegation,
                  available to the MCO if the delegated entity does not fulfill
                  its obligations.

QI 13.2     There is evidence that the MCO:

QI 13.2.1         evaluates the delegated entity's capacity to perform delegated
                  activities prior to delegation;

QI 13.2.2         approves the delegated entity's QI work plan and QI program
                  description annually;

QI 13.2.3         evaluates regular reports as specified in QI 13.1.3 and

QI 13.2.4         evaluates annually whether the delegated entity's activities
                  are being conducted in accordance with the MCO's expectations
                  and NCQA standards.

UTILIZATION MANAGEMENT

UM1         UTILIZATION MANAGEMENT STRUCTURE

            The MCO utilization management (UM) structures and processes are
            clearly defined and responsibility is assigned to appropriate
            individuals.

UM 1.1      A written description of the UM program outlines the program
            structure and accountability.

UM 1.2      A designated senior physician has substantial involvement in the UM
            program implementation.

UM 1.3      The description includes the scope of the program and the processes
            and information sources used to make determinations of benefit
            coverage and medical necessity.

UM 1.4      The UM program is evaluated and approved annually by senior
            management or the QI committee. It is updated as necessary.

UM 2        CLINICAL CRITERIA FOR UM DECISIONS

            To make utilization decisions, the MCO uses written criteria based
            on sound clinical evidence and specifies procedures for applying
            those criteria in an appropriate manner.

UM 2.1      The criteria for determining medical necessity are clearly
            documented and include procedures for applying criteria based on the
            needs of individual patients and characteristics of the local
            delivery system.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        7



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

UM 2.2      The MCO involves appropriate, actively practicing practitioners in
            its development or adoption of criteria and in the development and
            review of procedures for applying the criteria.

UM 2.3      The MCO reviews the criteria at specified intervals and updates them
            as necessary.

UM 2.4      The MCO states in writing how practitioners can obtain the UM
            criteria and makes the criteria available to its practitioners upon
            request.

UM 2.5      At least annually, the MCO evaluates the consistency with which the
            health care professionals involved in utilization review apply the
            criteria in decision making.

UM 3        APPROPRIATE PROFESSIONALS

            Qualified licensed health professionals assess the clinical
            information used to support UM decisions.

UM 3.1      Appropriately licensed health professionals supervise all the review
            decisions.

UM 3.2      An appropriate practitioner reviews any denial of care.

UM 3.2.1          A licensed physician reviews any denial based on medical
                  necessity.

UM 3.3      The MCO has written procedures for using board-certified physicians
            from appropriate specialty areas to assist in making determinations
            of medical necessity.

UM 4        TIMELINESS OF UM DECISIONS/1/

            The MCO makes utilization decisions in a timely manner to
            accommodate the clinical urgency of the situation.

UM 4.1      The MCO follows the NCQA's standards for the timeliness of UM
            decision making.

UM 4.1.1          For pre-certification of non-urgent care, the MCO makes
                  decisions within two working days of obtaining all the
                  necessary information.

UM 4.1.2          For pre-certification of non-urgent care, the MCO notifies
                  practitioners of the decisions within one working day of
                  making the decision.

UM 4.1.3          For pre-certifications of non-urgent care that result in
                  denial, the MCO gives members and practitioners written or
                  electronic confirmation of the decisions within two working
                  days of making the decision.

UM 4.1.4          For pre-certifications of urgent care, the MCO makes decisions
                  and notifies practitioners of the decisions within one
                  calendar day. If the decision is a denial, the MCO must also
                  notify members within one calendar day.

UM 4.1.5          For pre-certification of urgent care that results in denial,
                  the MCO notifies both members and practitioners how to
                  initiate an expedited appeal at the time they are notified of
                  the denial.

UM 4.1.6          For pre-certification of urgent care that results in denial,
                  the MCO gives members and practitioners written or

- ----------
/1/ See Exhibit A-2 for language to ensure compliance with Patient Bill of
Rights (PBOR) Legislation.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        8



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

                  electronic confirmation of the decision within two working
                  days of making the decision.

UM 4.1.7          For concurrent review of services, the MCO makes decisions
                  for:

UM 4.1.7.2  See Exhibit A-2, PBOR 4.1.7.2

UM 4.1.8          For concurrent review, the MCO notifies practitioners of
                  decisions within one working day of making the decision.

UM 4.1.9          For concurrent review decisions that result in a denial, the
                  MCO gives members and practitioners written or electronic
                  confirmation within one working day of the original
                  notification.

UM 4.1.10         For concurrent review decisions that result in a denial, the
                  MCO notifies both members and practitioners how to initiate an
                  expedited appeal at the time they are notified of the denial.

UM 4.1.11         For retrospective review, the MCO makes the decision within 30
                  working days of obtaining all the necessary information.

UM 4.1.12   See Exhibit A-2, PBOR 4.1.12

UM 5        MEDICAL INFORMATION

            When making a determination of coverage based on medical necessity,
            the MCO obtains relevant clinical information and consults with the
            treating physician.

UM 5.1      A written description identifies the information that is collected
            to support UM decision making.

UM 5.2      There is documentation that relevant clinical information is
            gathered consistently to support UM decision making

UM 6        DENIAL NOTICES

            The MCO clearly documents and communicates the reasons for each
            denial.

UM 6.1      The MCO makes available to practitioners a physician reviewer to
            discuss by telephone determinations based on medical necessity.

UM 6.2      The MCO sends written notification to members and practitioners, as
            appropriate, of the reason for each denial, including the specific
            utilization review criteria or benefit provisions used in the
            determination.

UM 6.3      The MCO includes information about the appeal process in all denial
            notifications.

UM 7        POLICIES FOR APPEALS/2/

            The MCO has written policies and procedures for the thorough,
            appropriate, and timely resolution of member appeals.

UM 7.1      Procedures for registering and responding to oral and written
            first-level appeals include the following elements:

UM 7.1.1          notification to the member of the appeal process within five
                  working days of receiving a request for a first-

- ----------
/2/ See Exhibit A-2 for language to ensure compliance with PBOR regulations.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                        9



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

                  level appeal;

UM 7.1.2          documentation of the substance of the appeal and the actions
                  taken;

UM 7.1.3          full investigation of the substance of appeal, including any
                  aspects of clinical care involved;

UM 7.1.4          resolution of appeal, including:

UM 7.1.4.1              The MCO appoints a person of people to review the
                        first-level appeal who were not involved in initial
                        determination.

UM 7.1.4.2  See Exhibit A-2, PBOR 7.1.4.2

UM 7.1.5    See Exhibit A-2, PBOR 7.1.5

UM 7.1.6          The MCO establishes procedures for registering and responding
                  to expedited first-level appeals.

UM 7.1.6.1              An expedited appeal may be initiated by the member or by
                        the practitioner acting on behalf of the member.

UM 7.1.6.2  See Exhibit A-2, PBOR 7.1.6.2

UM 7.3      A procedure for allowing practitioner or member representative to
            act on behalf of the member at any level of appeal.

PBOR 1      See Exhibit A-2, PBOR 1

UM 7.4      See Exhibit A-2, PBOR 7.4

UM 7.5      A procedure for providing independent, external review of final
            determinations including:

UM 7.5.1    See Exhibit A-2, PBOR 7.5.1

UM 7.5.1.1              the member is appealing an adverse determination that is
                        based on medical necessity, as defined NCQA; by

UM 7.5.1.2  See Exhibit A-2, PBOR 7.5.1.2

UM 7.5.1.3              the member has not withdrawn the appeal request, agreed
                        to another dispute resolution proceeding or submitted to
                        an external dispute resolution proceeding required by
                        law.

UM 7.5.2          Notification to members about the independent appeals program
                  as follows:

UM 7.5.2.1              general communications to members announce the
                        availability of the right to independent review.

UM 7.5.2.2              Letters informing members and practitioners of the
                        upholding of a denial by this standard include notice of
                        independent appeal rights and processes, contact
                        information for the IRO and a statement that the member
                        does not bear any costs of the IRO.

UM 7.5.2.3              Letters inform members of the time and procedure for
                        claim payment or approval of service in the event the
                        IRO overturns the managed care organization's decision

UM 7.5.3          CONDUCT OF THE APPEAL PROGRAM AS FOLLOWS:

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       10



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

UM 7.5.3.2              With the exception of exercising its rights as party to
                        the appeal, the MCO must not attempt to interfere with
                        the IRO's proceeding or appeal decision

UM 7.5.3.3              The member is not required to bear costs of the IRO,
                        including any filing fees.

UM 7.5.3.4              The member or his or her legal guardian may designate in
                        writing a representative to act on his or her behalf.

UM 7.5.3.5              The MCO implements the IRO decision within the time
                        frame specified by the IRO.

UM 7.5.3.6              The MCO obtains from the IRO, or maintains, data on each
                        appeal case, including description so fthe denied
                        item(s), reasons for denial, IRO decisions and reasons
                        for decisions. The MCO uses this information in
                        evaluating its medical necessity decision-making
                        process.

UM 8        APPROPRIATE HANDLING OF APPEALS

UM 8.1      See Exhibit A-2, PBOR 8.1

UM 8.2      independent, external appeals.

CS 1        POLICIES FOR COMPLAINTS see Exhibit A-2 CS 1 through 2.1

UM 9        EVALUATION OF NEW TECHNOLOGY

            The MCO evaluates the inclusion of new technologies and the new
            application of existing technologies in the benefit package. This
            includes medical and behavioral procedures, pharmaceuticals and
            devices.

UM 9.1      The MCO has a written description of the process used to determine
            whether new technologies and new uses of existing technologies are
            included in the benefit package.

UM 9.2      The MCO implements this process to assess new technologies and new
            applications of existing technologies.

UM 11       EMERGENCY SERVICES

            The MCO provides, arranges for or otherwise facilitates all needed
            emergency services, including appropriate coverage of costs.

UM 11.1     The MCO covers emergency services necessary to screen and stabilize
            members without precertification in cases where a prudent layperson,
            acting reasonably, would have believed an emergency medical
            condition existed.

UM 11.2     The MCO covers emergency services if an authorized representative
            acting for the MCO has authorized the provision of emergency
            services.

UM 12       PROCEDURES FOR PHARMACEUTICAL MANAGEMENT

            The MCO ensures that its procedures for pharmaceutical management,
            if any, promotes clinically appropriate use of pharmaceuticals.

UM 12.1     The MCO's pharmaceutical management procedures are based upon sound
            clinical evidence, and the organization specifies how to apply the
            procedures in an appropriate manner based on the needs of individual
            patients.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       11



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

UM 12.2     Where the MCO restricts pharmacy benefits to a closed formulary, it
            has a process to consider medical necessity exceptions for members
            to obtain coverage of a pharmaceutical not on the formulary.

UM 13       ENSURING APPROPRIATE UTILIZATION

            The MCO facilitates the delivery of appropriate care and monitors
            the impact of its UM program to detect and correct under- and over
            utilization of services.

UM 13.1     The MCO monitors relevant utilization data for each product line and
            behavioral health services by product line to detect potential
            under- and over-utilization.

UM 13.2     The MCO routinely analyzes all data collected to detect under- and
            over-utilization.

UM 13.3     The MCO implements appropriate interventions whenever it identifies
            under- and overutilization.

UM 13.4     The MCO measures whether the interventions have been effective and
            implement strategies to achieve appropriate utilization.

UM 13.5     The MCO distributes to all its practitioners, providers, members and
            employees a statement describing its policy on financial incentives
            and requires practitioners, providers and staff who make
            utilization-related decisions and those who supervise them to sign a
            document acknowledging that they have received the statement. This
            statement affirms that:

UM 13.5.1         UM decision-making is based only on appropriateness of care
                  and service and existence of coverage.

UM 13.5.2         The MCO does not specifically reward practitioners or other
                  individuals conducting utilization review for issuing denials
                  of coverage or service care.

UM 13.5.3         Financial incentives for UM decision makers do not encourage
                  decisions that result in underutilization.

UM 15       DELEGATION OF UM

            If the MCO delegates any UM activities, there is evidence of
            oversight of the delegated activity.

UM 15.1     A mutually agreed upon document describes:

UM 15.1.1         the responsibilities of the MCO and the delegated entity;

UM 15.1.2         the delegated activities;

UM 15.1.3         the frequency of reporting to the MCO;

UM 15.1.4         the process by which the MCO evaluates delegated entity's
                  performance and

UM 15.1.5         the remedies, including revocation of the delegation,
                  available to the MCO if the delegated entity does not fulfill
                  its obligations.

UM 15.2     There is evidence that the MCO:

UM 15.2.1         evaluates the delegated entity's capacity to perform the
                  delegated activities prior to delegation;

UM 15.2.2         approves the delegated entity's UM program annually;

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       12



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

UM 15.2.3         evaluates regular reports as specified in UM 15.1.3 and

UM 15.2.4         evaluates annually whether the delegated entity's activities
                  are being conducted in accordance with the MCO's expectations
                  & NCQA standards.

CREDENTIALING AND RECREDENTIALING

CR 1        CREDENTIALING POLICIES

            The MCO documents the mechanism for the credentialing and
            recredentialing of licensed independent practitioners with whom it
            contracts or employs and who fall within its scope of authority and
            action. At a minimum, the policies and procedures define:

CR 1.1      the scope of practitioners covered;

CR 1.2      the criteria and the primary source verification of information used
            to meet these criteria;

CR 1.3      the process used to make decisions;

CR 1.4      the process to delegate credentialing or recredentialing;

CR 1.5      the right of practitioners to review the information submitted in
            support of their credentialing applications;

CR 1.6      the process for notification to a practitioner of any information
            obtained during the MCO's credentialing process that varies
            substantially from the information provided to the MCO by the
            practitioner;

CR 1.7      the practitioner's right to correct erroneous information;

CR 1.8      the medical director's or other designated physician's direct
            responsibility and participation in the credentialing program and

CR 1.9      the process used to ensure the confidentiality of all information
            obtained in the credentialing process, except as otherwise provided
            by law.

CR 2        CREDENTIALING COMMITTEE

            The MCO designates a credentialing committee that makes
            recommendations regarding credentialing decisions using a peer
            review process.

CR 3        INITIAL PRIMARY SOURCE VERIFICATION

            At the time of credentialing, the MCO verifies at least the
            following information from primary sources (unless otherwise
            indicated):

CR 3.1      a current valid license to practice;

CR 3.2      a valid DEA or CDS certificate as applicable;

CR 3.3      education and training of practitioners;

CR 3.4      board certification if the practitioner states that he/she is board
            certified on the application;

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       13



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

CR 3.5      work history;

CR 3.6      history of professional liability claims that resulted in
            settlements or judgments paid by or on behalf of the practitioner.

CR 4        APPLICATION AND ATTESTATION

            The applicant completes an application for membership. The
            application includes a current and signed attestation by the
            applicant regarding:

CR 4.1      reasons for any inability to perform the essential functions of the
            position, with or without accommodation;

CR 4.2      lack of present illegal drug use;

CR 4.3      history of loss of license and felony convictions;

CR 4.4      history of loss or limitation of privileges or disciplinary
            activity;

CR 4.5      current malpractice insurance coverage and

CR 4.6      the correctness and completeness of the application.

CR 5        INITIAL SANCTION INFORMATION

            There is documentation that before making a credentialing decision,
            the MCO has received the following information and includes this
            information in the credentialing files.

CR 5.1      The MCO has received information from the National Practitioner Data
            Bank (NPDB) and includes it in the credentialing files.

CR 5.2      The MCO has received information about sanctions or limitations on
            licensure as applicable and includes it in the credentialing files.

CR 5.3      The MCO has reviewed for previous sanction activity by Medicare and
            Medicaid and includes it in the credentialing files.

CR 6        INITAL CREDENTIALING SITE VISITS

            The MCO has a process for ensuring that the offices of all PCPs,
            obstetricians/gynecologists and high volume behavioral health care
            practitioners meet the MCO's office site standards

CR 7        RECREDENTIALING PRIMARY SOURCE VERIFICATION

            The MCO formally recredentials its practitioners at least every
            three years. During the recredentialing process it verifies at least
            the following information from primary sources (unless otherwise
            indicated):

CR 7.1      a valid state license to practice;

CR 7.2      a valid DEA or CDS certificate, as applicable;

CR 7.3      board certification, if the practitioner states that he/she is board
            certified;

CR 7.4      history of professional liability claims that resulted in
            settlements or judgments paid by or on behalf of the

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       14



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

            practitioner;

CR 7.5      a current, signed attestation by the applicant regarding:

CR 7.5.1          reasons for any inability to perform the essential functions
                  of the position, with or without accommodation;

CR 7.5.2          lack of present illegal drug use;

CR 7.5.3          history of loss or limitation of privileges or disciplinary
                  activity;

CR 7.5.4          current malpractice insurance coverage and

CR 7.5.5          the correctness and completeness of the application.

CR 8        RECREDENTIALING SANCTION INFORMATION

            There is documentation that, before making a recredentialing
            decision, the MCO has received the following information on the
            practitioner and includes this information in the recredentialing
            files.

CR 8.1      The MCO has received information from the National Practitioner Data
            Bank and includes it in the recredentialing files.

CR 8.2      The MCO has received information about sanctions or limitations on
            licensure, as applicable, and includes it in the recredentialing
            files:

CR 8.3      The MCO has reviewed for previous sanction activity by Medicare and
            Medicaid and records this in the recredentialing files.

CR 9        PERFORMANCE MONITORING

            The MCO incorporates information from quality improvement activities
            in its recredentialing decision-making process for PCPs and
            high-volume behavioral health care practitioners.

CR 9.1      member complaints

CR 9.2      information from QI activities.

CR 10       ONGOING MONITORING OF SANCTIONS AND COMPLAINTS

            The MCO has implemented policies and procedures for the ongoing
            monitoring of practitioner sanctions and complaints between
            recredentialing cycles. The MCO has taken appropriate action against
            practitioners when it identifies occurrences of poor quality.

CR 10.1     The MCO has a written policy and procedure that addresses the
            ongoing monitoring and use of the following types of information:

CR 10.1.1         Medicare and Medicaid sanctions;

CR 10.1.2         sanctions and limitations on licensure and

CR 10.1.3         complaints

CR 10.2     The MCO implements the policy and procedure by regularly obtaining
            and reviewing documentation on sanctions

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       15



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

            and complaints.

CR 10.3     The MCO implements appropriate interventions when it identifies
            occurrences of poor quality.

CR 11       NOTIFICATION TO AUTHORITIES AND PRACTITIONER APPEAL RIGHT

            When a MCO has taken actions against a practitioner for quality
            reasons, the organization offers a formal appeal process and reports
            the action to the appropriate authorities.

CR 11.1     The MCO has procedures for, and documentation of implementation, as
            appropriate, reporting of serious quality deficiencies that could
            result in a practitioner's suspension or termination to the
            appropriate authorities.

CR 11.2     The MCO has an appeal process for instances in which the MCO chooses
            to alter the condition of the practitioner's participation based on
            issues of quality of care and/or service. The MCO informs
            practitioners of the appeal process.

CR 12       ASSESSMENT OF ORGANIZATIONAL PROVIDERS

            The MCO has written policies and procedures for the initial and
            ongoing assessment of organizational providers with which it intends
            to contract.

CR 12.1     The MCO includes at least the following medical providers:

CR 12.1.1         hospitals, home health agencies, skilled nursing facilities,
                  nursing homes and free standing surgical centers;

CR 12.2     The MCO confirms that the provider is in good standing with the
            state and federal regulatory bodies and

CR 12.3     The MCO confirms that the provider has been reviewed and approved by
            an accrediting body, or

CR 12.4     If the provider has not been approved by an accrediting body, the
            MCO develops and implements standards of participation.

CR 12.5     At least every three years, the MCO confirms that the provider
            continues to be in good standing with state and federal regulatory
            bodies and, if applicable, is reviewed and approved by and
            accrediting body.

CR 13       DELEGATION OF CREDENTIALING

            If the MCO delegates any credentialing and recredentialing
            activities, there is documentation of oversight of the delegated
            activity.

CR 13.1     A mutually agreed upon document describes:

CR 13.1.1         the responsibilities of the MCO and the delegated entity;

CR 13.1.2         the delegated activities;

CR 13.1.3         the process by which the MCO evaluates delegated entity's
                  performance and

CR 13.1.4         the remedies, including revocation of the delegation,
                  available to the MCO if the delegated entity does not fulfill
                  its obligations.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       16



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

CR 13.2     The MCO retains the right, based on quality issues, to approve new
            practitioners, providers and sites and to terminate or suspend
            individual practitioner or providers.

CR 13.3     There is documentation that the MCO:

CR 13.3.1         evaluates the delegated entity's capacity to perform the
                  delegated activities prior to delegation and

CR 13.3.2         evaluates annually whether the delegated entity's activities
                  are being conducted in accordance with the MCO's expectations
                  and NCQA standards.

MEMBERS' RIGHTS AND RESPONSIBILITIES

RR 1        STATEMENT OF MEMBERS RIGHTS AND RESPONSIBILITIES

            The MCO has a written policy that states the organization's
            commitment to treating members in a manner that respects their
            rights as well as its expectations of members' responsibilities.
            This policy addresses the following rights and responsibilities:

RR 1.1      Members have a right to receive information about the MCO, its
            services, its practitioners and providers and members' rights and
            responsibilities.

RR 1.2      Members have a right to be treated with respect and recognition of
            their dignity and right to privacy.

RR 1.3      Members have a right to participate with practitioners in decision
            making regarding their health care.

RR 1.4      Members have a right to a candid discussion of appropriate or
            medically necessary treatment options for their conditions,
            regardless of cost or benefit coverage.

RR 1.5      Members have a right to voice complaints or appeals about MCO or the
            care provided.

RR 1.6      Members have a responsibility to provide, to the extent possible,
            information that the MCO and its practitioners and providers need in
            order to care for them.

RR 1.7      Members have a responsibility to follow the plans and instructions
            for care that they have agreed on with their practitioners.

RR 2        DISTRIBUTION OF RIGHTS STATEMENTS TO MEMBERS AND PRACTITIONERS

            The MCO distributes the policy on members' rights and
            responsibilities to members and participating practitioners.

RR 3        POLICIES FOR COMPLAINTS AND APPEALS

            The MCO has written policies and procedures for the thorough,
            appropriate and timely resolution of member complaints and appeals.

RR 3.1      Procedures for registering and responding to oral and written
            complaints include the following elements:

RR 3.1.1          documentation of the substance of the complaint and the
                  actions taken;

RR 3.1.2          full investigation of the substance of the complaint,
                  including any aspects of clinical care involved;

RR 3.1.3          notification to the member of the disposition of the complaint
                  and the right to appeal, as appropriate, and

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       17



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

RR 3.1.4          standards for timeliness in responding to complaints that
                  accommodate the clinical urgency of the situation.

RR 4        SUBSCRIBER INFORMATION

            The MCO provides each subscriber with information needed to
            understand benefit coverage and obtain care.

RR 4.1      The MCO provides written information about benefits and charges
            applicable to the subscriber. This information addresses the
            following elements:

RR 4.1.1          the benefits and services included in, and excluded from,
                  coverage;

RR 4.1.1.1              this information states whether the MCO has
                        pharmaceutical management procedures. It also describes
                        how to obtain the procedures, the extent to which access
                        to specific pharmaceuticals is restricted, and the
                        process for requesting an exception to receive coverage
                        for non-formulary pharmaceuticals if the MCO has a
                        closed formulary.

RR 4.1.2          co-payments and other charges for which the member is
                  responsible;

RR 4.1.3          any restrictions on benefits that apply to services obtained
                  outside the MCO's system or outside the MCO's service area and

RR 4.2      The MCO provides written information that instructs members about
            how to obtain primary and specialty care. This includes the
            following:

RR 4.2.1          how to obtain information about practitioners who participate
                  in the MCO;

RR 4.2.2          how to obtain primary care services, including points of
                  access;

RR 4.2.3          how to obtain specialty care, behavioral health services and
                  hospital services;

RR 4.2.4          how to obtain care after normal office hours;

RR 4.2.5          how too obtain emergency care, including the MCO's policy on
                  when to directly access emergency care or use 911 services and

RR 4.2.6          how to obtain care and coverage when out of the MCO's service
                  area.

RR 4.3      The MCO provides written information about:

RR 4.3.1          how to voice a complaint;

RR 4.3.2          how to appeal a decision that adversely affects the member's
                  coverage, benefits or relationship to the organization and

RR 4.4      The MCO provides translation services within its member services
            telephone function based on the linguistic needs of its members

RR 5        PRIVACY AND CONFIDENTIALLY

            The MCO protects the confidentiality of member information and
            records.

RR 5.1      The MCO adopts and implements written confidentiality policies and
            procedures to ensure the confidentiality of

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       18



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

            member information used for any purpose including policies for
            members who lack ability to give consent.

RR 5.2      The MCO contracts with practitioners and providers explicitly state
            expectations about the confidentiality of member information and
            records.

RR 5.3      The MCO ensures that data shared with employers, whether fully
            insured or self-insured, are not implicitly or explicitly member
            identifiable, unless specific consent is provided by members.

RR 6        MARKETING INFORMATION

            The MCO ensures that communications with prospective members
            correctly and thoroughly represent the benefits and operating
            procedures of the organization.

RR 6.1      Materials for prospective members contain a summary statement of how
            UM procedures work.

RR 6.2      All materials and presentations accurately describe:

RR 6.2.1          the covered benefits, non-covered services, availability of
                  practitioners and providers and potential restrictions
                  incorporated in the MCO's operating procedures and

RR 6.2.2          the existence of pharmaceutical management procedures. The MCO
                  informs members, upon request, how to obtain the procedures,
                  the extent to which restricted pharmaceuticals are a covered
                  benefit and the exceptions policy for receiving coverage for
                  non-formulary pharmaceuticals if the MCO has a closed
                  formulary.

RR 7        DELEGATION OF MEMBERS' RIGHTS AND RESPONSIBILITIES

            If the MCO delegates any member services activities, there is
            evidence of oversight of the delegated activities.

RR 7.1      A mutually agreed upon document describes:

RR 7.1.1          the responsibilities of the MCO and the delegated entity;

RR 7.1.2          the delegated activities;

RR 7.1.3          the frequency of reporting to the MCO;

RR 7.1.4          the process by which the MCO evaluates the delegated entity's
                  performance and

RR 7.1.5          the remedies, including revocation of the delegation,
                  available to the MCO if the delegated entity does not fulfill
                  its obligations.

RR 7.2      There is evidence that the MCO:

RR 7.2.1          evaluates the delegated entity's capacity to perform the
                  delegated activities prior to delegation;

RR 7.2.2          evaluates regular reports as specified in RR 7.1.3 and

RR 7.2.3          evaluates annually whether the delegated entity's activities
                  are being conducted in accordance with the MCO's expectations
                  and NCQA standards.

PREVENTIVE HEALTH SERVICES

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission

                                       19



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

PH 1        ADOPTION OF PREVENTIVE HEALTH GUIDELINES

            The MCO has preventive health guidelines for prevention and early
            detection of illness and disease.

PH 1.1      The MCO has guidelines for the following categories:
            Prenatal and perinatal care;
            Preventive care for infants up to 24 months;
            Preventive care for children and adolescents, 2-19 years;
            Preventive care for adults, 20-64 years;
            Preventive care for the elderly, 65 years and older.

PH 1.2      Each guideline describes the prevention or early detection
            interventions and the recommended frequency and conditions under
            which the interventions are required. The MCO documents the
            scientific basis or authority that it based the preventive health
            guidelines.

PH 1.3      Practitioners from the MCO who have appropriate knowledge have been
            involved in adoption of the preventive health guidelines.

PH 1.4      These preventive health guidelines or its predecessors have been
            available for use for at least two years.

PH 1.5      For those preventive health guidelines that have been in place for
            at least two years, there is evidence of review and update at least
            once every two years, where appropriate.

PH 2        DISTRIBUTION OF GUIDELINES TO PRACTITIONERS

            The MCO distributes the preventive health guidelines and any updates
            to its practitioners.

PH 3        HEALTH PROMOTION WITH MEMBERS

            The MCO regularly encourages its members to use preventive health
            services.

PH 3.1      The MCO distributes preventive health guidelines to members
            annually.

PH 3.2      The MCO informs and encourages members to use the health promotion,
            health education and preventive health services available.

PH 3.3      The MCO identifies specific members who, according to demographic
            and other identifiable health factors, may be at risk for specific
            health problems and urges these members to use appropriate health
            promotion and prevention services.

PH 4        DELEGATION OF PREVENTIVE HEALTH

            If the MCO delegates any preventive health activities, there is
            evidence of oversight of the delegated activities.

PH 4.1      A mutually agreed upon document describes:

PH 4.1.1          the responsibilities of the MCO and the delegated entity;

PH 4.1.2          the delegated activities;

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       20



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-1

NCQA STANDARDS 2003

PH 4.1.3          the frequency of reporting to the MCO;

PH 4.1.4          the process by which the MCO evaluates the delegated entity's
                  performance and

PH 4.1.5          the remedies, including revocation of the delegation,
                  available to the MCO if the delegated entity does not fulfill
                  its obligations.

PH 4.2      There is evidence that the MCO:

PH 4.2.1          evaluates the delegated entity's capacity to perform the
                  delegated activities prior to delegation;

PH 4.2.2          approves the delegated entity's preventive health work plan
                  annually;

PH 4.2.3          evaluates regular reports as specified in PH 4.1.3 and

PH 4.2.4          evaluates annually whether the delegated entity's activities
                  are being conducted in accordance with the MCO's expectations
                  and NCQA standards.

                                 MEDICAL RECORDS

MR 1        MEDICAL RECORDS DOCUMENTATION STANDARDS

            The MCO requires medical records to be maintained in a manner that
            is current, detailed and organized and permits effective and
            confidential patient care and quality review.

MR 1.1      The MCO has medical record confidentiality policies and procedures.

MR 1.2      The MCO has medical record documentation standards, and these
            standards and goals are distributed to practice sites.

MR 1.3      The MCO establishes and requires its practitioners to have an
            organized medical record keeping system and standards for the
            availability of medical records appropriate to the practice site.

MR 1.4      The MCO has process to assess and improve, as needed, the quality of
            medical record keeping.

MR 2        COMPLIANCE WITH NCQA RECORDS STANDARDS

            Documentation of items on the NCQA medical record review summary
            sheet demonstrates that medical records are in conformity with good
            professional medical practice and appropriate health management.

- --------------------------------------------------------------------------------
These Standards are Copyright 2001 (July 1, 2001 - June 30, 2003) by the
National Committee for Quality Assurance (NCQA) and protected by international
and national copyright law. This material may not be copied, reproduced,
distributed, modified, published, adapted, edited or translated, without express
written permission of or license from NCQA. All Rights Reserved. Used with
permission.

                                       21



                                   EXHIBIT A-2
                   QUALITY IMPROVEMENT PROGRAM 2003 STANDARDS
                  PATIENT BILL OF RIGHTS (PBOR) AND COMPLAINTS

                        TIMELINESS OF UM DECISIONS

WAC 284-43-10(5)(b)     ongoing ambulatory care based on the severity or
Replaces UM 4.1.7.2     complexity of the patient's condition or on necessary
                        treatment and discharge planning activity, but no more
                        than 1 0 working days of obtaining all the necessary
                        information/1/.

WAC 284-43-410(5)(d)    For retrospective review, the MCO notifies practitioners
Replaces UM 4.1.12      and members of denials in writing within two working
                        days of making the decision./2/

                        POLICIES FOR APPEALS

WAC 284-43-620(1)       If the MCO cannot make a decision within 14 days of
Replaces UM 7.1.4.2     receipt of the appeal, the carrier notifies the covered
                        person that an extension is necessary to complete the
                        appeal; however, the extension cannot delay the decision
                        beyond thirty days of the request for appeal, without
                        the informed, written consent of the covered person./3/

RCW 48.43.530(g)        written notification to the member of disposition of the
Replaces UM 7.1.5       appeal and of the potential right to appeal to a
                        certified independent review organization (IRO)./4/

WAC 284-43-620(2)       The MCO makes the expedited appeal decision and notifies
Replaces UM 7.1.6.2     the member and practitioner(s) as expeditiously as the
                        medical condition requires, but no later than three days
                        after the request is made.
                        If the treating provider determines that delay could
                        jeopardize the covered person's health or ability to
                        regain maximum function, the MCO shall presume the need
                        for expeditious determination in any independent
                        review./5/

WAC 284-43-620(4)       At least one of the people appointed to review an appeal
Replaces UM 7.4         involving clinical issues is an actively practicing
                        practitioner in the same or a similar specialty who
                        typically treats the medical condition, performs the
                        procedure or provides the treatment. The individual did
                        not participate in any of the MCO's prior decisions on
                        the case.

WAC 284-43-630(1)       eligibility criteria stating that the MCO offers members
Replaces UM 7.5.1       the right to a certified IRO whenever:/6/

WAC 284-43-630(1)       the MCO has completed one/7/ level of internal review
Replaces UM 7.5. 1.2    and its decision is unfavorable to the member, or has
                        elected to bypass/8/ internal review and proceed to the
                        independent review or has exceeded its time limit for
                        internal reviews, without good cause and without
                        reaching a decision and

WAC 284-43-630(2)       A procedure for providing appropriate records or
                        information to a certified IRO within 3 business days
                        including:/9/

WAC 284-3-630(2)(a)     any medical records of the covered person relevant to
                        the review;

- ----------
/1/ PBOR states that the frequency of the reviews for the extension of initial
    determinations must be based upon the severity or complexity of the
    patient's condition or on necessary treatment and discharge planning
    activity. See PBOR WAC 284-43-410 Utilization Review--Generally 5(b).
/2/ PBOR distinguishes different timelines for only concurrent review decisions
    i.e., "Notification of the determination shall be provided to the attending
    physician or ordering provider or facility and the covered person within two
    days of the determination and shall be provided within one day of concurrent
    review determination...." See PBOR WAC 284-43-410 Utilization
    Review--Generally 5(d).
/3/ See PBOR WAC 284-43-620(1) Procedures for review and appeal of adverse
    determinations for description of timelines. Timelines must conform with
    PBOR regulations unless NCQA standards more restrictive.
/4/ Deleted standards related to second level appeal; second level appeal is to
    an Independent Review Organization (IRO).
/5/ See PBOR WAC 284-43-620(2) Procedures for review and appeal of adverse
    determinations for description of expedited review. Also note the treating
    health care provider determines if delay could jeopardize health or ability
    to regain function.
/6/ Modified to comply with PBOR language, i.e., 'certified' independent review
    organization.
/7/ Modified from two levels of appeal to one level of appeal.
/8/ Removed reference to 'one or both levels'.
/9/ See PBOR WAC 284-43-630 (2) (a), (b), (c), (d), (e), (f) and (5) Independent
    review of adverse determinations.

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit A-2

WAC 284-43-630(2)(b)    any documents used by the MCO in making the
                        determination to be reviewed by the certified IRO;

WAC 284-3-630(2)(C)     any documentation and written information submitted to
                        the carrier in support of the appeal;

WAC 284-43-630(2)(d)    a list of each physician or health care provider who has
                        provided care to the covered person and who may have
                        medical records relevant to the appeal. Health
                        information or other confidential or proprietary
                        information in the custody of a carrier may be provided
                        to an IRO, subject to the privacy provision of Title 284
                        WAC;

WAC 284-43-630(2)(e)    the attending or ordering provider's recommendations;

WAC 284-43-630(2)(f)    the terms and conditions of coverage under the relevant
                        health plan. The MCO shall also make available to the
                        covered person and to any provider acting on behalf of
                        the covered person all materials provided to an IRO
                        reviewing the MCO's determination.

                        APPROPRIATE HANDLING OF APPEALS/10/

WAC 284-43-620          The MCO adjudicates member's appeals in a thorough,
Replaces UM 8           appropriate and timely manner. The MCO meets all the
                        requirements of standard UM 7, Patient Bill of Rights
                        Legislation and its own standards for handling:

Replaces UM 8.1         first level appeals

- ----------
/10/ Modified to reflect Patient Bill of Rights Legislation and exclusion of
     second level appeals.

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

                                    EXHIBIT B
                                   WAC 388-538
                                  MANAGED CARE

WAC 388-538-050
DEFINITIONS. The following definitions and abbreviations and those found in
chapter 388-500-0005 WAC, Medical definitions, apply to this chapter.
"ANCILLARY HEALTH SERVICES" means health services ordered by a provider,
including but not limited to, laboratory services, radiology services, and
physical therapy.
"APPEAL" means a formal request by a provider or covered enrollee for
reconsideration of a decision such as a utilization review recommendation, a
benefit payment, an administrative action, or a quality of care or service
issue, with the goal of finding a mutually acceptable solution.
"ASSIGN" or "ASSIGNMENT" means that MAA selects a managed care organization
(MCO) or primary care case management (PCCM) provider to serve a client who
lives in a mandatory enrollment area and who has failed to select an MCO or PCCM
provider.
"BASIC HEALTH (BH)" means the health care program authorized by title 70.47 RCW
and administered by the health care authority (HCA). MAA considers basic health
to be third-party coverage, however, this does not include basic health plus
(BH.+).
"CHILDREN'S HEALTH INSURANCE PROGRAM (CHIP)" means the health insurance program
authorized by Title XXI of the Social Security Act and administered by the
department of social and health services (DSHS). This program also is referred
to as the state children's health insurance program (SCHIP).
"CHILDREN WITH SPECIAL HEALTH CARE NEEDS" means children identified by the
department of social and health services (DSHS) as having special health care
needs. This includes:
(1) Children designated as having special health care needs by the department of
health (DOH) and served under the Title V program;
(2) Children who meet disability criteria of Title 16 of the Social Security Act
(SSA); and
(3) Children who are in foster care or who are served under subsidized adoption.
"CLIENT" means an individual eligible for any medical program who is not
enrolled with a managed care organization (MCO) or primary care case management
(PCCM) provider. In this chapter, client refers to a person before the person is
enrolled in managed care, while enrollee refers to an individual eligible for
any medical program who is enrolled in managed care.
"COMPLAINT" means an oral or written expression of dissatisfaction by an
enrollee.
"EMERGENCY MEDICAL CONDITION" means a condition meeting the definition in
42 U.S.C. 1396u-2(b)(2)(C).
"EMERGENCY SERVICES" means services as defined in 42 U.S.C. 1396u-2 (b)(2)(B).
"END ENROLLMENT" means an enrollee is currently enrolled in managed care, either
with a managed care organization (MCO) or with a primary care case management
(PCCM) provider, and requests to discontinue enrollment and return to the
fee-for-service delivery system for one of the reasons outlined in WAC
388-538-130. This is also

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

referred to as "disenrollment."
"ENROLLEE" means an individual eligible for any medical program who is enrolled
in managed care through a managed care organization (MCO) or primary care case
management (PCCM) provider that has a contract with the state.
"ENROLLEES WITH CHRONIC CONDITIONS" means persons having chronic and disabling
conditions, including persons with special health care needs that meet all of
the following conditions:
(1) Have a biologic, psychologic, or cognitive basis;
(2) Have lasted or are virtually certain to last for at least one year; and
(3) Produce one or more of the following conditions stemming from a disease:
(a) Significant limitation in areas of physical, cognitive, or emotional
function;
(b) Dependency on medical or assistive devices to minimize limitation of
function or activities; or
(c) In addition, for children, any of the following:
(i) Significant limitation in social growth or developmental function;
(ii) Need for psychologic, educational, medical, or related services over and
above the usual for the child's age; or
(iii) Special ongoing treatments, such as medications, special diet,
interventions, or accommodations at home or school.
"EXEMPTION" means a client, not currently enrolled in managed care, makes a pre-
enrollment request to remain in the fee-for-service delivery system for one of
the reasons outlined in WAC 388-538-080.
"HEALTH CARE SERVICE" or "SERVICE" means a service or item provided for the
prevention, cure, or treatment of an illness, injury, disease, or condition.
"HEALTHY OPTIONS CONTRACT OR HO CONTRACT" means the agreement between the
department of social and health services (DSHS) and a managed care organization
(MCO) to provide prepaid contracted services to enrollees.
"HEALTHY OPTIONS PROGRAM OR HO PROGRAM" means the medical assistance
administration's (MAA) prepaid managed care health program for Medicaid-eligible
clients and CHIP clients.
"MANAGED CARE" means a comprehensive system of medical and health care delivery
including preventive, primary, specialty, and ancillary health services. These
services are provided either through a managed care organization (MCO) or
primary care case management (PCCM) provider.
"MANAGED CARE ORGANIZATION" or "MCO" means a health maintenance organization or
health care service contractor that contracts with the department of social and
health services (DSHS) under a comprehensive risk contract to provide prepaid
health care services to eligible medical assistance administration (MAA) clients
under MAA's managed care programs.
"NONPARTICIPATING PROVIDER" means a person or entity that does not have a
written agreement with a managed care organization (MCO) but that provides
MCO-contracted health care services to managed care enrollees with the
authorization of the MCO. The MCO is solely responsible for payment for
MCO-contracted health care services that are authorized by the MCO and provided
by nonparticipating providers.

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

"PARTICIPATING PROVIDER" means a person or entity with a written agreement with
a managed care organization (MCO) to provide health care services to managed
care enrollees. A participating provider must look solely to the MCO for payment
for such services.
"PRIMARY CARE CASE MANAGEMENT (PCCM)" means the health care management
activities of a provider that contracts with the department to provide primary
health care services and to arrange and coordinate other preventive, specialty,
and ancillary health services.
"PRIMARY CARE PROVIDER (PCP)" means a person licensed or certified under Title
18 RCW including, but not limited to, a physician, an advanced registered nurse
practitioner (ARNP), or a physician assistant who supervises, coordinates, and
provides health services to a client or an enrollee, initiates referrals for
specialist and ancillary care, and maintains the client's or enrollee's
continuity of care.
"PRIOR AUTHORIZATION (PA)" means a process by which enrollees or providers must
request and receive MAA approval for certain medical services, equipment, drugs,
and supplies, based on medical necessity, before the services are provided to
clients, as a precondition for provider reimbursement. Expedited prior
authorization and limitation extension are forms of prior authorization. See WAC
388-501-0165.
"TIMELY" - in relation to the provision of services, means an enrollee has the
right to receive medically necessary health care without unreasonable delay.

WAC 388-538-060
MANAGED CARE AND CHOICE.
(1) A client is required to enroll in managed care when that client meets all of
the following conditions:
(a) Is eligible for one of the medical programs for which clients must enroll in
managed care;
(b) Resides in an area, determined by the medical assistance administration
(MAA), where clients must enroll in managed care;
(c) Is not exempt from managed care enrollment as determined by MAA, consistent
with WAC 388-538-080, and any related fair hearing has been held and decided;
and
(d) Has not had managed care enrollment ended by MAA, consistent with WAC 388-
538-130.
(2) American Indian/Alaska Native (AI/AN) clients who meet the provisions of 25
U.S.C. 1603 (c)-(d) for federally-recognized tribal members and their
descendants may choose one of the following:
(a) Enrollment with a managed care organization (MCO) available in their area;
(b) Enrollment with an Indian or tribal primary care case management (PCCM)
provider available in their area; or
(c) MAA's fee-for-service system.
(3) A client may enroll with an MCO or PCCM provider by calling MAA's toll-free
enrollment line or by sending a completed enrollment form to MAA.
(a) Except as provided in subsection (2) of this section for clients who are
AI/AN and in subsection (5) of this section for cross-county enrollment, a
client required to enroll in managed care must enroll with an MCO or PCCM
provider available in the area where the client lives.

                                        3



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(b) All family members must either enroll with the same MCO or enroll with PCCM
providers.
(c) Enrollees may request an MCO or PCCM provider change at any time.
(d) When a client requests enrollment with an MCO or PCCM provider, MAA enrolls
a client effective the earliest possible date given the requirements of MAA's
enrollment system. MAA does not enroll clients retrospectively.
(4) MAA assigns a client who does not choose an MCO or PCCM provider as follows:
(a) If the client has family members enrolled with an MCO, the client is
enrolled with that MCO;
(b) If the client does not have family members enrolled with an MCO, and the
client was enrolled in the last six months with an MCO or PCCM provider, the
client is re-enrolled with the same MCO or PCCM provider;
(c) If a client does not choose an MCO or a PCCM provider, but indicates a
preference for a provider to serve as the client's primary case provider (PCP),
MAA attempts to contact the client to complete the required choice. If MAA is
not able to contact the client in a timely manner, MAA documents the attempted
contacts and, using the best information available, assigns the client as
follows. If the client's preferred PCP is:
(i) Available with one MCO, MAA assigns the client in the MCO where the client's
PCP provider is available. The MCO is responsible for PCP choice and assignment;
(ii) Available only as a PCCM provider, MAA assigns the client to the preferred
provider as the client's PCCM provider;
(iii) Available with multiple MCOs or through an MCO and as a PCCM provider, MAA
assigns the client to an MCO as described in (d) of this subsection;
(iv) Not available through any MCO or as a PCCM provider, MAA assigns the client
to an MCO or PCCM provider as described in (d) of this subsection.
(d) If the client cannot be assigned according to (a), (b), or (c) of this
subsection, MAA assigns the client as follows:
(i) If an AI/AN client does not choose an MCO or PCCM provider, MAA assigns the
client to a tribal PCCM provider if that client lives in a zip code served by a
tribal PCCM provider. If there is no tribal PCCM provider in the client's area,
the client continues to be served by MAA's fee-for-service system. A client
assigned under this subsection may request to end enrollment at any time.
(ii) If a non-AI/AN client does not choose an MCO or PCCM provider, MAA assigns
the client to an MCO or PCCM provider available in the area where the client
lives. The MCO is responsible for PCP choice and assignment. An MCO must meet
the healthy options (HO) contract's access standards unless the MCO has been
granted an exemption by MAA. The HO contract standards are as follows:
(A) There must be two PCPs within ten miles for ninety percent of HO enrollees
in urban areas and one PCP within twenty-five miles for ninety percent of HO
enrollees in rural areas;
(B) There must be two obstetrical providers within ten miles for ninety percent
of HO enrollees in urban areas and one obstetrical provider within twenty-five
miles for ninety percent of HO enrollees in rural areas;
(C) There must be one hospital within twenty-five miles for ninety percent of HO
enrollees in the contractor's service area;

                                        4



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(D) There must be one pharmacy within ten miles for ninety percent of HO
enrolles in urban areas and one pharmacy within twenty-five miles for ninety
percent of HO enrollees in rural areas.
(iii) MAA sends a written notice to each household of one or more clients who
are assigned to an MCO or PCCM provider. The notice includes the name of the MCO
or PCCM provider to which each client has been assigned, the effective date of
enrollment, the date by which the client must respond in order to change MAA's
assignment, and either the toll-free telephone number of:
(A) The MCO for enrollees assigned to an MCO; or
(B) MAA for enrollees assigned to a PCCM provider.
(iv) An assigned client has at least thirty calendar days to contact MAA to
change the MCO or PCCM provider assignment before enrollment is effective.
(5) A client may enroll with a plan in an adjacent county when the client lives
in an area, designated by MAA, where residents historically have traveled a
relatively short distance across county lines to the nearest available
practitioner.
(6) An MCO enrollee's selection of the enrollee's PCP or the enrollee's
assignment to a PCP occurs as follows:
(a) MCO enrollees may choose:
(i) A PCP or clinic that is in the enrollee's MCO and accepting new enrollees;
or
(ii) Different PCPs or clinics participating with the same MCO for different
family members.
(b) The MCO assigns a PCP or clinic that meets the access standards set forth in
subsection (4)(d)(ii) of this section if the enrollee does not choose a PCP or
clinic;
(c) MCO enrollees may change PCPs or clinics in an MCO at least once a year for
any reason, and at any time for good cause; or
(d) In accordance with this subsection, MCO enrollees may file an appeal with
the MCO and/or a fair hearing request with the department of social and health
services (DSHS) and may change plans if the MCO denies an enrollee's request to
change PCPs or clinics.

WAC 388-538-065
MEDICAID-ELIGIBLE BASIC HEALTH (BH) ENROLLEES.
(1) Certain children and pregnant women who have applied for, or are enrolled
in, managed care through basic health (BH) (chapter 70.47 RCW) are eligible for
Medicaid under pediatric and maternity expansion provisions of the Social
Security Act. The medical assistance administration (MAA) determines Medicaid
eligibility for children and pregnant women who enroll through BH.
(2) The administrative rules and regulations that apply to managed care
enrollees also apply to Medicaid-eligible clients enrolled through BH, except as
follows:
(a) The process for enrolling in managed care described in WAC 388-538-060(3)
does not apply since enrollment is through the health care authority, the state
agency that administers BH;
(b) American Indian/Alaska Native (AI/AN) clients cannot choose fee-for-service
or PCCM as described in WAC 388-538-060(2). They must enroll in a BH-contracted
MCO.

                                        5



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(c) If a Medicaid eligible client applying for BH does not choose an MCO within
ninety days, the client is transferred from BH to the department of social and
health services (DSHS) for assignment to managed care.

WAC 388-538-067
MANAGED CARE PROVIDED THROUGH MANAGED CARE ORGANIZATIONS (MCOs).
(1) Managed care organizations (MCOs) may contract with the department of social
and health services (DSHS) to provide prepaid health care services to eligible
medical assistance administration (MAA) clients under the healthy options (HO)
managed care program. The MCOs must meet the qualifications in this section to
be eligible to contract with DSHS. The MCO must:
(a) Have a certificate of registration from the office of the insurance
commissioner (OIC) as either a health maintenance organization (HMO) or a health
care services contractor (HCSC).
(b) Accept the terms and conditions of DSHS' HO contract;
(c) Be able to meet the network and quality standards established by DSHS; and
(d) Accept the prepaid rates published by DSHS.
(2) DSHS reserves the right not to contract with any otherwise qualified MCO.

WAC 388-538-068
MANAGED CARE PROVIDED THROUGH PRIMARY CARE CASE MANAGEMENT (PCCM).
(1) A provider may contract with DSHS as a primary care case management (PCCM)
provider to provide health care services to eligible medical assistance
administration (MAA) clients under MAA's managed care program. The PCCM provider
or the individual providers in a PCCM group or clinic must:
(a) Have a core provider agreement with DSHS;
(b) Hold a current license to practice as a physician, certified nurse midwife,
or advanced registered nurse practitioner in the state of Washington;
(c) Accept the terms and conditions of DSHS' PCCM contract;
(d) Be able to meet the quality standards established by DSHS; and
(e) Accept PCCM rates published by DSHS.
(2) DSHS reserves the right not to contract for PCCM with an otherwise qualified
provider.

WAC 388-538-070
MANAGED CARE PAYMENT.
(1) The medical assistance administration (MAA) pays Managed care organizations
(MCOs) monthly capitated premiums that:
(a) Have been determined using generally accepted actuarial methods based on
analyses of historical healthy options (HO) contractual rates and MCO experience
in providing health care for the populations eligible for HO; and
(b) Are paid based on legislative allocations for the HO program.
(2) MAA pays primary care case management (PCCM) providers a monthly case
management fee according to contracted terms and conditions.
(3) MAA does not pay providers on a fee-for-service basis for services that are
the MCO's responsibility under the HO contract, even if the MCO has not paid for
the

                                        6



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

service for any reason. The MCO is solely responsible for payment of
MCO-contracted health care services:
(a) Provided by an MCO-contracted provider; or
(b) That are authorized by the MCO and provided by nonparticipating providers.
(4) MAA pays an additional monthly amount, known as an enhancement rate, to
federally qualified health care centers (FQHC) and rural health clinics (RHC)
for each client enrolled with MCOs through the FQHC or RHC. MCOs may contract
with FQHCs and RHCs to provide services under HO. FQHCs and RHCs receive an
enhancement rate from MAA on a per member, per month basis in addition to the
negotiated payments they receive from the MCOs for services provided to MCO
enrollees.
(a) MAA pays the enhancement rate only for the categories of service provided by
the FQHC or RHC under the HO contact. MAA surveys each FQHC or RHC in order to
identify the categories of services provided by the FQHC or RHC.
(b) MAA bases the enhancement rate on both of the following:
(i) The upper payment limit (UPL) for the county in which the FQHC or RHC is
located; and
(ii) An enhancement percentage.
(c) MAA determines the UPL for each category of service based on MAA's
historical fee-for-service (FFS) experience, adjusted for inflation and
utilization changes.
(d) MAA determines the enhancement percentage for HO enrollees as follows: (i)
For FQHCs, the enhancement percentage is equal to the FQHC finalized audit
period ratio. The "finalized audit period" is the latest reporting period for
which the FQHC has a completed audit approved by, and settled with, MAA.
(A) For a clinic with one finalized audit period, the ratio is equal to: (FQHC
total costs) - FFS reimbursements .+ HO reimbursements)/(FFS .+ HO
reimbursements).
(B) For a clinic with two finalized audit periods, the ratio is equal to the
percentage change in the medical services encounter rate from one finalized
audit period to the next. A "medical services encounter" is a face-to-face
encounter between a physician or mid-level practitioner and a client to provide
services for prevention, diagnosis, and/or treatment of illness or injury. A
"medical services encounter rate" is the individualized rate MAA pays each FQHC
to provide such services to clients, or the rate set by Medicare for each RHC
for such services.
(C) For FQHCs without a finalized audit, the enhancement percentage is the
statewide weighted average of all the FQHCs' finalized audit period ratios.
Weighting is based on the number of enrollees served by each FQHC.
(ii) For RHCs, MAA applies the same enhancement percentage statewide.
(A) On a given month, MAA determines the number of HO enrollees enrolled with
each RHC that is located in the same county as an FQHC. This number is expressed
as a percentage of the total number of RHC enrollees located in counties that
have both FQHCs and RHCs.
(B) For each county that has both an FQHC and an RHC, MAA multiplies the FQHC
enhancement percentage, as determined under subsection (4)(d)(i) of this
section, by the percentage obtained in section (4)(d)(ii)(A) of this section.
(C) The sum of all these products is the weighted statewide RHC enhancement
percentage.

                                        7



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(iii) The HO enhancement percentage for FQHCs and RHCs is updated once a year.
(e) For each category of service provided by the FQHC or RHC, MAA multiplies the
UPL, as determined under subsection (4)(c) of this section, by the FQHC's or
RHC's enhancement percentage. The sum of all these products is the enhancement
rate for the individual FQHC or RHC.
(f) To calculate the enhancement rate for FQHCs and RHCs that provide maternity
and newborn delivery services, MAA applies each FQHC's or RHC's enhancement
percentage to the delivery case rate (DCR), which is a one-time rate paid by MAA
to the HO plan for each pregnant enrollee who gives birth.

WAC 388-538-080
MANAGED CARE EXEMPTIONS.
(1) The medical assistance administration (MAA) exempts a client from mandatory
enrollment in managed care if MAA becomes aware of the following conditions. The
client:
(a) Is receiving foster care placement services from the division of children
and family services (DCFS); or
(b) Has Medicare, basic health (BH), CHAMPUS/TRICARE, or other accessible third-
party health care coverage that would require exemption from enrollment with:
(i) A managed care organization (MCO) in accordance with MAA's healthy options
(HO) contract requirements for MCO enrollment; or
(ii) A primary care case management provider (PCCM) in accordance with MAA's
PCCM contract requirements for PCCM enrollment.
(2) Only a client or a client's representative (RCW 7.70.065) may request an
exemption from managed care enrollment for reasons other than those stated in
subsection (1) of this section. If a client asks for an exemption prior to the
enrollment effective date, the client is not enrolled until MAA approves or
denies the request and any related fair hearing is held and decided.
(3) MAA grants a client's request for an exemption from mandatory enrollment in
managed care if any of the following apply:
(a) The client has a documented and verifiable medical need to continue a
client/provider relationship due to an established course of care with a
physician, physician assistant or advanced registered nurse practitioner. MAA
accepts the established provider's signed statement that the client has:
(i) A medical need that requires a continuation of the established care
relationship; and
(ii) The client's established provider is not available through any managed care
organization (MCO) or as a primary care case management (PCCM) provider.
(b) Prior to enrollment, the client scheduled a surgery with a provider not
available to the client through managed care and the surgery is scheduled within
the first thirty days of enrollment; or
(c) The client is American Indian/Alaska Native (AI/AN) as specified in WAC
388-538- 060(2) and requests exemption; or
(d) The client has been identified by MAA as having special needs that meet
MAA's definition of children with special health care needs and requests
exemption; or
(e) The client is pregnant and wishes to continue her established course of
prenatal care with an obstetrical provider who is not available to her through
managed care; or

                                        8



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(f) On a case-by-case basis, the client presents evidence that managed care does
not provide medically necessary care that is reasonably available and accessible
as offered to the client. MAA considers that medically necessary care is not
reasonably available and accessible when any of the following apply:
(i) The client is homeless or is expected to live in temporary housing for less
than one hundred twenty days from the date the client requests the exemption;
(ii) The client speaks limited English or is hearing impaired and the client can
communicate with a provider who communicates in the client's language or in
American Sign Language and is not available through managed care;
(iii) The client shows that travel to a managed care PCP is unreasonable when
compared to travel to a non-managed care primary care provider (PCP). This is
shown when any of the following transportation situations apply to the client:
(A) It is over twenty-five miles one-way to the nearest managed care PCP who is
accepting enrollees, and the client's PCP is closer and not in an available
plan;
(B) The travel time is over forty-five minutes one-way to the nearest managed
care PCP who is accepting enrollees, and the travel time to the client's PCP,
who is not available in an MCO or as a PCCM provider, is less;
(C) Other transportation difficulties make it unreasonable to get primary
medical services under HO; or
(iv) Other evidence is presented that an exemption is appropriate based on the
client's circumstances, as evaluated by MAA.
(4) MAA exempts the client for the time period the circumstances or conditions
that led to the exemption are expected to exist. If the request is approved for
a limited time, the client is notified in writing or by telephone of the time
limitation, the process for renewing the exemption, and the client's fair
hearing rights.
(5) The client is not enrolled as provided in subsection (2) of this section and
receives timely notice by telephone or in writing when MAA approves or denies
the client's exemption request. If initial denial notice was by telephone, then
MAA gives the reasons for the denial in writing before requiring the client to
enroll in managed care. The written notice to the client contains all of the
following:
(a) The action MAA intends to take, including enrollment information;
(b) The reason(s) for the intended action;
(c) The specific rule or regulation supporting the action;
(d) The client's right to request a fair hearing, including the circumstances
under which the fee-for-service status continues, if a hearing is requested; and
(e) A translation into the client's primary language when the client has limited
English proficiency.

WAC 388-538-095
SCOPE OF CARE FOR MANAGED CARE ENROLLEES.
(1) Managed care enrollees are eligible for the scope of medical care as
described in WAC 388-529-0100 for categorically needy clients.
(a) A client is entitled to timely access to medically necessary services as
defined in WAC 388-500-0005.

                                        9



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(b) The managed care organization (MCO) covers the services included in the
healthy options (HO) contract for MCO enrollees. In addition, MCOs may, at their
discretion, cover services not required under the HO contract.
(c) The medical assistance administration (MAA) covers the categorically needy
services not included in the HO contract for MCO enrollees.
(d) MAA covers services on a fee-for-service basis for enrollees with a primary
care case management (PCCM) provider. Except for emergencies, the PCCM provider
must either provide the covered services needed by the enrollee or refer the
enrollee to other providers who are contracted with MAA for covered services.
The PCCM provider is responsible for instructing the enrollee regarding how to
obtain the services that are referred by the PCCM provider. The services that
require PCCM provider referral are described in the PCCM contract. MAA informs
enrollees about the enrollee's program coverage, limitations to covered
services, and how to obtain covered services.
(e) MCO enrollees may obtain certain services from either a MCO provider or from
a medical assistance provider with a DSHS core provider agreement without
needing to obtain a referral from the PCP or MCO. These services are described
in the HO contract, and are communicated to enrollees by MAA and MCOs as
described in (f) of this subsection.
(f) MAA sends each client written information about covered services when the
client is required to enroll in managed care, and any time there is a change in
covered services. This information describes covered services, which services
are covered by MAA, and which services are covered by MCOs. In addition, MAA
requires MCOs to provide new enrollees with written information about covered
services.
(2) For services covered by MAA through PCCM contracts for managed care:
(a) MAA medically necessary covers services included in the categorically needy
scope of care and rendered by providers with a current department of social and
health services (DSHS) core provider agreement to provide the requested service;
(b) MAA may require the PCCM provider to obtain authorization from MAA for
coverage of nonemergency services;
(c) The PCCM provider determines which services are medically necessary;
(d) An enrollee may request a fair hearing for review of PCCM provider or MAA
coverage decisions; and
(e) Services referred by the PCCM provider require an authorization number in
order to receive payment from MAA.
(3) For services covered by MAA through contracts with MCOs:
(a) MAA requires the MCO to subcontract with a sufficient providers to deliver
the scope of contracted services in a timely manner. Except for emergency
services, MCOs provide covered services to enrollees through their participating
providers;
(b) MAA requires MCOs to provide new enrollees with written information about
how enrollees may obtain covered services;
(c) For nonemergency services, MCOs may require the enrollee to obtain a
referral from the primary care provider (PCP), or the provider to obtain
authorization from the MCO, according to the requirements of the HO contract;
(d) MCOs and their providers determine which services are medically necessary
given the enrollee's condition, according to the requirements included in the HO
contract;

                                       10



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(e) An enrollee may appeal an MCO coverage decisions using the MCO's appeal
process, as described in WAC 388-538-0110. An enrollee may also request a
hearing for review of an MCO coverage decision as described in chapter 388-02
WAC;
(f) A managed care enrollee does not need a PCP referral to receive women's
health care services, as described in RCW 48.42.100 from any women's health care
provider participating with the MCO. Any covered services ordered and/or
prescribed by the women's health care provider must meet the MCO's service
authorization requirements for the specific service.
(4) Unless the MCO chooses to cover these services, or an appeal or a fair
hearing decision reverses an MCO or MAA denial, the following services are not
covered:
(a) For all managed care enrollees:
(i) Services that are not medically necessary;
(ii) Services not included in the categorically needy scope of services; and
(iii) Services, other than a screening exam as described in WAC 388-538-100(3),
received in a hospital emergency department for nonemergency medical conditions.
(b) For MCO enrollees:
(i) Services received from a participating specialist that require prior
authorization from the MCO, but were not authorized by the MCO; and
(ii) Services received from a nonparticipating provider that require prior
authorization from the MCO that were not authorized by the MCO. All nonemergency
services covered under the HO contract and received from nonparticipating
providers require prior authorization from the MCO.
(c) For PCCM enrollees, services that require a referral from the PCCM provider
as described in the PCCM contract, but were not referred by the PCCM provider.
(5) A provider may bill an enrollee for noncovered services as described in
subsection (4) of this section, if the enrollee and provider sign an agreement.
The provider must give the original agreement to the enrollee and file a copy in
the enrollee's record.
(a) The agreement must state all of the following:
(i) The specific service to be provided;
(ii) That the service is not covered by either MAA or the MCO;
(iii) An explanation of why the service is not covered by the MCO or MAA, such
as:
(A) The service is not medically necessary; or
(B) The service is covered only when provided by a participating provider,
(iv) The enrollee chooses to receive and pay for the service; and
(v) Why the enrollee is choosing to pay for the service, such as:
(A) The enrollee understands that the service is available at no cost from a
provider participating with the MCO, but the enrollee chooses to pay for the
service from a provider not participating with the MCO;
(B) The MCO has not authorized emergency department services for nonemergency
medical conditions and the enrollee chooses to pay for the emergency
department's services rather than wait to receive services at no cost in a
participating provider's office; or
(C) The MCO or PCCM has determined that the service is not medically necessary
and the enrollee chooses to pay for the service.
(b) For limited English proficient enrollees, the agreement must be translated
or interpreted into the enrollee's primary language to be valid and enforceable.

                                       11



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(c) The agreement is void and unenforceable, and the enrollee is under no
obligation to pay the provider, if the service is covered by MAA or the MCO as
described in subsection (1) of this section, even if the provider is not paid
for the covered service because the provider did not satisfy the payor's billing
requirements.

WAC 388-538-100
MANAGED CARE EMERGENCY SERVICES.
(1) A managed care enrollee may obtain emergency services, for emergency medical
conditions in any hospital emergency department. These definitions differ from
the emergency services definition that applies to services covered under the
medical assistance administration's (MAA's) fee-for-service system.
(a) The managed care organization (MCO) covers emergency services for MCO
enrollees.
(b) MAA covers emergency services for primary care case management (PCCM)
enrollees.
(2) Emergency services for emergency medical conditions do not require prior
authorization by the MCO, primary care provider (PCP), PCCM provider, or MAA.
(3) Emergency services received by an MCO enrollee for nonemergency medical
conditions must be authorized by the plan for enrollee's MCO.
(4) An enrollee who requests emergency services is entitled to receive an exam
to determine if the enrollee has an emergency medical condition.

WAC 388-538-110
MANAGED CARE COMPLAINTS, APPEALS, AND FAIR HEARINGS.
(1) A managed care enrollee has the right to voice a complaint or submit an
appeal of an MAA, MCO, PCCM, PCP or provider decision, action, or inaction. An
enrollee may do this through the following process:
(a) For managed care organization (MCO) enrolles, the MCO's complaint and appeal
processes, and through the department's fair hearing process; or
(b) For primary care case management (PCCM) enrollees, the complaint and appeal
processes of the medical assistance administration (MAA), and through the
department's fair hearing process (chapter 388-02 WAC).
(2) To ensure the rights of MCO enrollees are protected, MAA approves each MCO's
complaint and appeal policies and procedures annually or whenever the plan makes
a change to the process.
(3) MAA requires MCOs to inform MCO enrollees in writing within fifteen days of
enrollment about their rights and how to use the MCO's complaint and appeal
processes. MAA requires MCOs to obtain MAA approval of all written information
sent to enrollees.
(4) MAA provides PCCM enrollees with information equivalent to that described in
subsection (3) of this section.
(5) MCO enrollees may request assistance from the MCO when using the MCO's
complaint and appeals processes. PCCM enrollees may request assistance from MAA
when using MAA's complaint and appeal process.

                                       12



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(6) An MCO enrollee who submits a complaint under this section is entitled to a
written or verbal response from the MCO or from MAA within the timeline in the
MAA-approved complaint process.
(7) When an enrollee is not satisfied with how the complaint is resolved by the
MCO or by MAA, or if the complaint is not resolved in a timely fashion, the
enrollee may submit an appeal to the MCO or to MAA. An enrollee may also appeal
an MAA, MCO, primary care provider (PCP), or provider decision, or
reconsideration of any action or inaction. An enrollee who appeals an MAA, MCO,
PCP, or provider decision is entitled to all of the following:
(a) A review of the decision being appealed. The review must be conducted by an
MCO or MAA representative who was not involved in the decision under appeal;
(b) Continuation of the service already being received and which is under
appeal, until a final decision is made;
(c) A written decision from MAA or the MCO, within the timeline(s) in the appeal
process standards, in the enrollee's primary language. The decision does not
need to be translated if an enrollee with limited English proficiency prefers
correspondence in English, and the deciding authority documents the enrollee's
preference. The notice must clearly explain all of the following:
(i) The decision and any action MAA or the MCO intends to take;
(ii) The reason for the decision;
(iii) The specific information that supports MAA's or the MCO's decision; and
(iv) Any further appeal or fair hearing rights available to the enrollee,
including the enrollee's right to continue receiving the service under appeal
until a final decision is made.
(d) An expedited decision when it is necessary to meet an existing or
anticipated acute or urgent medical need.
(8) An enrollee may file a fair hearing request without also filing an appeal
with MAA or the MCO or exhausting MAA's or the MCO's appeal process.
(9) The MCO's medical director or designee reviews all fair hearings requests,
and any related appeals, when the issues involve an MCO's determination of
medical necessity.
(10) MAA's medical director or the medical director's designee reviews all fair
hearings requests, and any related appeals, when the PCCM enrollee's issues
involve an MAA determination of medical necessity.

WAC 388-538-120
ENROLLEE REQUEST FOR A SECOND MEDICAL OPINION.
(1) A managed care enrollee has the right to a timely referral for a second
opinion upon request when:
(a) The enrollee needs more information about treatment recommended by the
provider or managed care organization (MCO); or
(b) The enrollee believes the MCO is not authorizing medically necessary care.
(2) A managed care enrollee has a right to a second opinion from a primary or
specialty care physician who is participating with the MCO. At the MCO's
discretion, a clinically appropriate nonparticipating provider who is agreed
upon by the MCO and the enrollee may provide the second opinion.

                                       13



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(3) Primary care case management (PCCM) provider enrollees have a right to a
timely referral for a second opinion by another provider who has a core provider
agreement with medical assistance administration (MAA).

WAC 388-538-130
ENDING ENROLLMENT IN MANAGED CARE.
(1) MAA ends an enrollee's enrollment in a managed care organization (MCO) or
with a primary care case management (PCCM) provider when the enrollee meets any
of the following conditions. The enrollee:
(a) Is no longer eligible for a medical program subject to enrollment; or
(b) Is receiving foster care placement services from the division of children
and family services; or
(c) Is or becomes eligible for Medicare, basic health (BH), CHAMPUS/TRICARE, or
any other accessible third party health care coverage that would require
involuntary disenrollment from:
(i) An MCO in accordance with MAA's healthy options (HO) contract for MCO
enrollees; or
(ii) A PCCM provider in accordance with MAA's PCCM contract for PCCM enrollees.
(2) An enrollee or the enrollee's representative as defined in RCW 7.70.065 may
request MAA to end enrollment as described in subsections (3) through (10) of
this section. A managed care organization (MCO) may request MAA to end
enrollment for an enrollee as described in subsection (11) of this section. Only
MAA has authority to remove an enrollee from managed care. Pending MAA's final
decision, the enrollee remains enrolled unless staying in managed care would
adversely affect the enrollee's health status.
(3) MAA grants an enrollee's request to have the enrollee's enrollment ended
under the following conditions:
(a) Is American Indian or Alaska Native (AI/AN) and requests disenrollment; or
(b) Is identified by DSHS as a child who meets the definition of "children with
special health care needs" and requests disenrollment.
(4) MAA grants an enrollee's requests to be removed from managed care when the
client is pregnant or when there is a verified medical need to continue an
established course of care. These end enrollments are limited to the following
situations: The enrollee:
(a) Has a documented medical need to continue a client/provider relationship due
to an established course of care with a physician, physician assistant, or
advanced registered nurse practitioner. The standards for documenting a medical
need are those in WAC 388-538-080(3)(a). The established course of care must
begin:
(i) While the enrollee was enrolled with managed care but the PCP is no longer
available to the enrollee under managed care; or
(ii) Prior to enrollment in managed care and the PCP is not available under any
MCO or as a PCCM provider.
(b) Is pregnant and requests to continue her course of prenatal care that was
established with an obstetrical provider:
(i) While she was enrolled with the MCO but that provider is no longer available
to her in managed care; or

                                       14



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(ii) Prior to enrollment with the current MCO but that provider is not available
to her under managed care.
(c) Is scheduled for a surgery with a provider not available to the enrollee in
the enrollee's current MCO and the surgery is scheduled to be performed within
the first thirty days of enrollment.
(5) Except as provided in subsection (4) of this section, MAA does not permit an
enrollee to obtain an end enrollment by establishing a course of care with a
provider who is not participating with the enrollee's MCO.
(6) MAA ends enrollment on a case-by-case basis when the enrollee presents
evidence that the managed care program does not provide medically necessary care
that is reasonable available and accessible as offered to the enrollee. MAA
considers enrollee requests under this subsection with the same criteria as
listed in WAC 388-538-080(3)(f).
(7) MAA ends enrollment temporarily if an enrollee asks to be taken out of the
current MCO in order to stay with the enrollee's established provider, but is
willing to enroll in the established provider's MCO for the next enrollment
month. MAA reviews the enrollee request according to the criteria in subsections
(4) and (6) of this section. MAA's decision under this subsection include all of
the following:
(a) The decision is given verbally and in writing;
(b) Verbal and written notices include the reason for the decision and
information on hearings so the enrollee may appeal the decision;
(c) If the request to end enrollment is approved, it may be effective back to
the beginning of the month the request is made; and
(d) If the request to end enrollment is denied, and the enrollee requests a
hearing; the enrollee remains in the MCO or with the PCCM until the hearing
decision is made as provided in subsection (2) of this section.
(8) MAA ends enrollment for the period of time the circumstances or conditions
that led to ending the enrollment are expected to exist. If the request to end
enrollment is approved for a limited time, the client is notified in writing or
by telephone of the time limitation, the process for renewing the disenrollment,
and their fair hearing rights.
(9) MAA does not approve an enrollee's request to end enrollment solely to pay
for services received but not authorized by the MCO.
(10) The enrollee remains in managed care as provided in subsection (1) of this
section and receives timely notice by telephone or in writing when MAA approves
or denies the enrollee's request to end enrollment. Except as provided in
subsection (7) of this section, MAA gives the reasons for a denial in writing.
The written denial notice to the enrollee contains all of the following:
(a) The action MAA intends to take;
(b) The reason(s) for the intended action;
(c) The specific rule or regulation supporting the action;
(d) The enrollee's right to request a fair hearing; and
(e) A translation into the enrollee's primary language when the enrollee has
limited English proficiency.
(11) MAA may end an enrollee's enrollment in a MCO or with a PCCM provider when
the enrollee's MCO or PCCM provider substantiates in writing, to MAA's
satisfaction, that:

                                       15



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(a) The enrollee's behavior is inconsistent with the MCO or PCCM provider rules
and regulations, such as intentional misconduct; and
(b) After the MCO or PCCM provider has provided:
(i) Clinically appropriate evaluation(s) to determine whether there is a
treatable problem contributing to the enrollee's behavior; and
(ii) If so, has provided clinically appropriate referral(s) and treatment(s),
but the enrollee's behavior continues to prevent the provider from safely or
prudently providing medical care to the enrollee; and
(c) The enrollee received written notice from the MCO or PCCM provider of the
MCO or PCCM provider intent to request the enrollee's removal, unless MAA has
waived the requirement for the MCO or PCCM provider notice because the
enrollee's conduct presents the threat of imminent harm to others. The MCO or
PCCM provider notice to the enrollee must include both of the following:
(i) The enrollee's right to use the appeal process as described in WAC
388-538-110 to review the MCO or PCCM provider request to end the enrollee's
enrollment; and
(ii) The enrollee's right to use the department fair hearing process.
(12) MAA makes a decision to remove an enrollee from enrollment in managed care
within thirty days of receiving the MCO or PCCM provider request to do so.
Before making a decision, MAA attempts to contact the enrollee and learn the
enrollee's perspective. If MAA approves the MCO or PCCM provider request to
remove the enrollee, MAA sends a notice at least ten days in advance of the
effective date that enrollment will end. The notice includes the reason for
MAA's approval to end enrollment and information about the enrollee's fair
hearing rights.
(13) MAA does not approve a request to remove an enrollee from managed care when
the request is solely due to an adverse change in the enrollee's health or the
cost of meeting the enrollee's needs.

WAC 388-538-140
QUALITY OF CARE.
(1) In order to assure that managed care enrollees receive appropriate access to
quality health care and services, the medical assistance administration (MAA)
does all of the following:
(a) Requires managed care organizations (MCOs) to have a fully operational
quality assurance system that meets a comprehensive set of quality improvement
program (QIP) standards.
(b) Monitors MCO performance through on-site visits and other audits, and
requires corrective action for deficiencies that are found.
(c) Requires MCOs to report annually on standardized clinical performance
measures that are specified in the contract with MAA, and requires corrective
action for substandard performance.
(d) Contracts with a professional review organization to conduct independent
external review studies of selected health care and service delivery.
(e) Conducts enrollee satisfaction surveys.

                                       16



                                                        2003 HO & SCHIP Contract
                                                        Exhibit B

(f) Annually publishes individual MCO performance information and primary care
case management (PCCM) program performance information including certain
clinical measures and enrollee satisfaction surveys and makes reports of site
monitoring visits available upon request.
(2) MAA requires MCOs and PCCM providers to have a method to assure
consideration of the unique needs of enrollees with chronic conditions. The
method includes:
(a) Early identification;
(b) Timely access to health care; and
(c) Coordination of health service delivery and community linkages.

                                       17



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

                                   EXHIBIT C-1
                          2003 HEALTHY OPTIONS & SCHIP
                         ENCOUNTER DATA SPECIFICATIONS

                                     PREFACE

Healthy Options & SCHIP encounter data is used for many purposes. Among these
are federal reporting to the Medicaid Statistical Information System (MSIS); HO
& SCHIP rate setting and risk adjustment; Medical Assistance Administration's
(MAA) hospital rate setting; the HO & SCHIP quality improvement program, and
research. To ensure the efficient and timely collection of quality encounter
data for these purposes 2003 encounter data specifications are as follows:

                            GENERAL FILE REQUIREMENTS

     1)   The Contractor shall submit encounter data in accordance with the 2003
          HO & SCHIP Encounter Data Specifications. These specifications apply
          to adjudicated and capitated encounter records. Adjudicated encounter
          records include those that the Contractor paid as well as those for
          which the Contractor denied payment.

     2)   The Contractor shall submit all encounter records no later than 450
          calendar days following the date of service for the encounters
          reported.

     3)   The Contractor shall submit all finalized, not previously submitted
          encounter records that the Contractor processed during the reporting
          quarter by the specified encounter data submission date which is 90
          calendar days after the end of the reporting quarter.

     4)   The Contractor shall submit a "roll up" of any adjustments made to an
          encounter record into a single encounter record for initial
          submission.

     5)   MAA may reject files exceeding 2% overall error rate.

     6)   The Contractor shall correct rejected encounter records and include
          these with a complete resubmission of all records pertinent to the
          reporting quarter. Resubmissions are due no later than 90 calendar
          days after receiving them back from DSHS. After this date encounter
          records are still required to be submitted but shall be considered
          late.

     7)   The Contractor must assign the services and codes to the associated
          encounter type specified in the associated MAA 'fee-for-service'
          Billing Instructions (e.g. for Physician Related Services, that is
          current on the date of service). Examples of the encounter type
          associated with some commonly used procedures are given in the
          Encounter Type Table. Contractors may use 'J' (medical practitioner)
          and 'L' (EPSDT) designations on different records of the same
          encounter when both types of services were provided.

     8)   Excluding inpatient hospital (R) encounter type, "Date of Service" in
          these specifications

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

          means the day the enrollee received the service. For inpatient
          hospital (R) encounters, "Date of Service" means the date of
          discharge. Except for inpatient hospital services, the Contractor must
          report services provided on different dates as separate encounters.
          This includes professional medical services provided in a hospital
          setting.

     9)   The Contractor may submit encounters by contract type (HO/SCHIP and
          Basic Health Plus) in a single file. The Plan ID (Field 6) assigned to
          a record must reflect the contract under which the member is enrolled
          on the date of service.

     10)  The Contractor must use the Contractor's Plan ID (Field 6) in
          encounter records when enrollees receive care through an FQHC or RHC.

     11)  Procedure code modifiers are required for outpatient hospital (M)
          services (reported on the federal HCFA/CMS UB-92 form) as well as for
          medical professional (J), EPSDT (L), and (P) encounters (reported on
          HCFA/CMS 1500 form).

     12)  EPSDT Referral Indicator (Field 24) is a required field. The
          associated error flag will be tracked separately by EDU. Related
          errors will be excluded from the total count and percentage of records
          otherwise with errors. Blank-fill Field 24 if the EPSDT indicator
          cannot be obtained. The contractor is required to report the encounter
          even though the blank fill will result in an error during the MAA edit
          process.

     13)  Contractors submitting alternative identifiers (Field 38 and 39) shall
          submit, with each quarterly submission, a separate file list that
          enables MAA to link the alternative identifier with the identity of
          the provider.

     14)  Contractors must meet new, additional, or revised requirements of the
          federal Health Insurance Portability and Accountability Act (HIPAA)
          that may take affect during the contract period.

     15)  MAA reserves the right to:

       a)   Modify any encounter data reporting requirement following 120
            calendar days notice to the Contractor;

       b)   Request data substantiating reported encounter records following at
            least 30 calendar days notice to the Contractor; and

       c)   Waive encounter data requirements under exceptional circumstances
            with written approval from MAA.

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

                                    SCHEDULE

The HO/SCHIP 2003 encounter data requirements are effective with data collected
on or after January 1, 2003.

REPORTING QUARTER: The quarter in which the encounter records were processed by
the Contractor for initial submission. The submission is due no later than 90
calendar days after the last day of the reporting quarter.

- ------------------------------------------------------------------------------
     REPORTING
      QUARTER                REPORTING QUARTER               SUBMISSION DATE
- ------------------------------------------------------------------------------
       Q3-02         July 1 through September 30, 2002       January 2, 2003
- ------------------------------------------------------------------------------
       Q4-02        October 1 through December 31, 2002        April 1, 2003
- ------------------------------------------------------------------------------
       Q1-03          January 1 through March 31, 2003         July 1, 2003
- ------------------------------------------------------------------------------
       Q2-03           April 1 through June 30, 2003         October 1, 2003
- ------------------------------------------------------------------------------
       Q3-03         July 1 through September 30, 2003       January 2, 2004
- ------------------------------------------------------------------------------
       Q4-03        October 1 through December 31, 2003       April 1, 2004
- ------------------------------------------------------------------------------

                         SUBMISSION MEDIA SPECIFICATIONS

1)   When submitting compact disk or computer diskette, submit fixed width text
     files. Do not include internal labels. For compact disk, computer diskette,
     and tape include:

     Data Set Name format: MCED.Pppppppp.YyyQTRq

     MCED      A literal value abbreviation for "Managed Care Encounter Data"
     P         A literal prefix
     ppppppp   The Contractor's Medicaid Provider Number
     Y         A literal prefix
     yy        The last two digits of the calendar year reported
     QTR       A literal value
     q         The calendar quarter reported (see Schedule of Submissions)

2)   For submissions on magnetic tape:

     Write encounter data file to an IBM OS standard labeled tape (8 1/2 or 10
     1/2 inches) in EBCDIC:

        RECFM=FB
        BLKSIZE=30000
        LRECL=500
        DENSITY=1600BPI or 6250 BPI

                                        3



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

                                   TEST FILES

1)   Contractors may submit a compact disk, computer diskette, or tape
     containing test data (2000-3000 records) to identify and resolve errors and
     problems with field definitions.

2)   Records representing all encounter types covered by the contract should be
     included.

3)   Identify the file as a "test" at the time of submission.

                   EXTERNAL LABEL AND SHIPPING/MAILING ADDRESS

1)   Submit initial encounter records in a file separate from file(s) containing
     adjusted, corrected and/or voided encounter records.

2)   Attach an external label for each file contained on the tape, compact disk,
     and computer diskette including at least the following information:

o  Plan name
o  File name: Specify content: 1) "initial submission" or; 2) "complete
   resubmission (i.e. encounters pertaining to previous submissions)
o  Logical record length
o  Year and quarter reported
o  Program(s) i.e., Healthy Options, BHP Plus, or both
o  Specify whether the compact disk, computer diskette, or tape contains records
   for some encounter types (for example, pharmacy only) or all encounter types
o  Block size (needed only for submissions on tape)
o  Number of records per file

3)   Send to:
       Encounter Data Coordinator
       Information Services Division
       DSHS Medical Assistance Administration
       617 8th Avenue SE, Bldg. 1, 4th Fl.
       P.O. Box 45511
       Olympia, WA 98504-5511

Direct questions and comments to the Encounter Data Coordinator at (360)
725-1288.

                                  ERROR REPORT

The Encounter Data Unit will provide a report evaluating timely reported
encounter data submissions. In addition, error flags will be placed in each
record during MAA's edit of the record to assist the Contractor in the
identification of problem areas.

Contractors must prevent reoccurrence of the same type of errors in subsequent
submissions. If the same type of errors reoccur, DSHS may return the incorrect
encounter submission.

NOTE: To permit error flags to be written to an encounter data tape, the Tape
Label EXPIRATION DATE must either be eliminated or set at a date at least six
months after the date of submission.

                                        4



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

                          GENERIC FIELD SPECIFICATIONS

1)   NUMERIC FIELDS

     o    RIGHT justify (data)

     o    ZERO fill (from left)

     o    EIGHT fill when:
            o  Not applicable to the encounter type. Examples: (1) Eight-fill
               the hospital discharge date for all encounter types, excluding
               inpatient hospital (R). (2) Eight-fill the revenue code (Field
               21) for outpatient hospital encounters when a procedure code is
               reported in Field 16 not IP.

                                      -OR-

            o  Applicable but not required and for which there is no data.
               Example: When a Contractor is unable to obtain a Medicaid Billing
               Provider Number of a pharmacy, it may eight-fill Field 7 and
               report a NAPB Identifier or Federal Tax Identifier as the
               alternate Billing Provider Identification in Field 38.

     o    NINE fill when valid entries are required but unknown. Nine-filling is
          required, but unknown numeric data will result in an error. Nine-fill
          only when the required information cannot be supplied within reporting
          deadlines.

     o    DATE FORMAT - MMDDYY (DSHS edits provide for identifying century)

     o    DECIMAL POINTS - DSHS edits assume decimal points except for Fields
          16, 17, 19 and 20. For these four fields, the decimal points are to be
          inserted as required by the appropriate coding systems.

2)   CHARACTER FIELDS

     o    LEFT justify (data)

     o    BLANK fill (from right) when
            o  valid entries are required but unknown. Blank-filling required
               but unknown character fields will result in an error. Blank-fill
               only when there is a need to meet time requirements for reporting
               encounter events. Example: An EPSDT Referral Indicator is
               unknown. Blank-fill Field 24. The Contractor is required to
               report the encounter even though the Blank-fill will result in an
               error during the MAA edit process.

     o    HYPHEN ('-') fill when
            o  not applicable, OR
            o  applicable but not required and for which there is no data.
               Example: A hospital reports an inpatient stay and there are only
               2 diagnosis codes. Hyphen-fill diagnoses 3 through

                                        5



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

               9 since there are no diagnoses to report.

                                VALIDATION EDITS

DSHS will perform edits on all submitted encounter data files. If an invalid
result is found, it may be treated as an 'error' and included in the count of
records with errors or it may be the result of an 'association check' and
reported as 'information only'.

ERRORS: The edits that will identify the following conditions as errors pertain
to the required fields:

1.   Missing (required) values
2.   Non-numeric data in numeric fields
3.   Negative values in numeric fields
4.   Invalid dates
5.   Invalid values for:

   -------------------------------------------------------------------------
                         FIELD NAME                           FIELD NUMBER
   -------------------------------------------------------------------------
   Encounter Type                                                    1
   -------------------------------------------------------------------------
   Line Item Number                                                  3
   -------------------------------------------------------------------------
   Recipient ID/PIC                                                  4
   -------------------------------------------------------------------------
   Billing and Performing/Attending or Prescribing Provider    7,8,38 & 39
   ID
   (Billing ID may be a Medicaid #, Tax ID, or for
   pharmacies NABP#;

   Performing/Attending or Prescribing ID may be a
   Medicaid #, State License #, or DEA #)
   -------------------------------------------------------------------------
   DRG                                                               9
   -------------------------------------------------------------------------
   Place of Service                                                 15
   -------------------------------------------------------------------------
   Procedure Code                                                16 & 17
   -------------------------------------------------------------------------
   Procedure Code Modifier                                          18
   -------------------------------------------------------------------------
   Diagnosis Code                                                19 & 20
   -------------------------------------------------------------------------
   Revenue Codes                                                    21
   -------------------------------------------------------------------------
   National Drug Code                                               22
   -------------------------------------------------------------------------
   EPSDT Referral Code                                              24
   Tracked separately and not included in count and
   percentage of records otherwise with errors.
   -------------------------------------------------------------------------
   Plan Record ID                                                   25
   -------------------------------------------------------------------------
   Prescription Number                                              27
   -------------------------------------------------------------------------
   Claim Status                                                     28
   -------------------------------------------------------------------------
   Line Status                                                      29
   -------------------------------------------------------------------------
   Patient Control Number                                           41
   -------------------------------------------------------------------------
   Prescription Days Supply                                         88
   -------------------------------------------------------------------------
   Alternate Bill-Provider ID Type                                  90
   -------------------------------------------------------------------------
   Alternate Perf-Attend-Presc ID Type                              91
   -------------------------------------------------------------------------

                                        6



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

6.   EPSDT encounters with incorrect procedure codes or age greater than 20.

7.   Records for the same encounter containing different encounter type
     designations, except J and L Encounter Type designations that may occur on
     different records for the exact same encounter.

8.   Other conditions occurring due to improperly following encounter data
     specifications may also be evaluated.

ASSOCIATION CHECKS: Edits of the association between two fields will check for
invalid recipient age or sex for diagnosis or procedure, and recipient
eligibility and provider Medicaid number active status for the dates of service.
Counts of inconsistent associations will be indicated by the prefix' * ' on the
hard copy of error summary reports and will not be included in the counts of
errors.

                                        7



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

                  PHYSICAL RECORD LAYOUT AND FIELD REQUIREMENTS

- --------------------------------------------------------------------------------
                          KEY FOR ENCOUNTER TYPE CODES
- --------------------------------------------------------------------------------
   R   Required field - Required for processing. DSHS will return records with
       missing, invalid, or uncorrectable values. Contractors must correct
       returned records and submit within 90 calendar days.
- --------------------------------------------------------------------------------
   *   Applicable field - Information entered into these fields(30-33)is used to
       identify valid Patient Identification Codes (PIC) when a plan either does
       not submit a PIC or the submitted PIC is invalid.
- --------------------------------------------------------------------------------
   O   Optional field -Contractors are encouraged to submit optional information
- --------------------------------------------------------------------------------
   E   Field at the encounter level
- --------------------------------------------------------------------------------
   L   Field at the line item level
- --------------------------------------------------------------------------------
   X   Cobol Picture for character or alphanumeric field
- --------------------------------------------------------------------------------
   9   Cobol Picture for numeric field
- --------------------------------------------------------------------------------
  V99  Implied decimal point followed by 2 digits
- --------------------------------------------------------------------------------



- ------------------------------------------------------------------------------------------------------------------------------------
      #      FIELD NAME                                LEVEL           ENCOUNTER TYPE                   PHYSICAL RECORD LAYOUT
                                                              ----------------------------------------------------------------------
                                                                J,L,       R        M       D       COBOL        OCCURS      START
                                                                 P                                 PICTURE                  POSITION
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
      1      Encounter Type Indicator                  E          R        R        R       R       X(1)            1           1
- ------------------------------------------------------------------------------------------------------------------------------------
      2      Encounter ID                              E          R        R        R       R       9(9)            1           2
- ------------------------------------------------------------------------------------------------------------------------------------
      3      Line Item Number                          L          R        R        R       R       9(2)            1          11
- ------------------------------------------------------------------------------------------------------------------------------------
      4      PIC                                       E          R        R        R       R       X(14)           1          13
- ------------------------------------------------------------------------------------------------------------------------------------
      5      Date of Birth                             E          R        R        R       R       9(6)            1          27
- ------------------------------------------------------------------------------------------------------------------------------------
      6      Plan ID                                   E          R        R        R       R       9(7)            1          33
- ------------------------------------------------------------------------------------------------------------------------------------
      7      Billing Provider Medicaid                 E          R        R        R       R       9(7)            1          40
             Number                                           ----------------------------------
                                                              Required only if the provider has
                                                              a Medicaid provider ID
- ------------------------------------------------------------------------------------------------------------------------------------
      8      Performing/Attending                      E          R        R        R       R       9(7)            1          47
             or Prescribing Provider                          ----------------------------------
             Medicaid Number                                  Required only if the provider
                                                              has a Medicaid provider ID
- ------------------------------------------------------------------------------------------------------------------------------------
      9      DRG                                       E                   R                        9(3)            1          54
- ------------------------------------------------------------------------------------------------------------------------------------
     10      Hospital Admission Date                   E                   R                        9(6)            1          57
- ------------------------------------------------------------------------------------------------------------------------------------
     11      Patient Destination on Discharge          E                   R                        X(2)            1          63
- ------------------------------------------------------------------------------------------------------------------------------------
     12      Line Billed Charges                       L                   R        R             9(7)V99           1          65
- ------------------------------------------------------------------------------------------------------------------------------------
     13      Date of Service                           L          R        R        R       R       9(6)            1          74
- ------------------------------------------------------------------------------------------------------------------------------------
     14      Hospital Discharge Date                   E                   R                        9(6)            1          80
- ------------------------------------------------------------------------------------------------------------------------------------


                                        8



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
      #      FIELD NAME                                LEVEL           ENCOUNTER TYPE                   PHYSICAL RECORD LAYOUT
                                                              ----------------------------------------------------------------------
                                                                J,L,       R        M       D       COBOL        OCCURS      START
                                                                 P                                 PICTURE                  POSITION
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
      15     Place of Service                          E          R                 R               X(1)            1          86
- ------------------------------------------------------------------------------------------------------------------------------------
      16     Primary Procedure: Report                 E                   R                        X(5)            1          87
      IP     ICD.9.CM procedures.
- ------------------------------------------------------------------------------------------------------------------------------------
      16     Primary Procedure:                        L          R                 R               X(5)            1          87
    Not IP   Applicable to 'M' encounters:
             If there is no Revenue Code in
             Field #21, then a CPT,
             HCPCS, or ICD.9.CM code is
             required. If there is a valid
             Revenue Code and no
             procedures to report,
             then hyphen-fill this field.
- ------------------------------------------------------------------------------------------------------------------------------------
      17     Other ICD.9.CM Procedure                  E                   R        R               X(5)            5          92
             Codes ('M' or 'R' encounters).
- ------------------------------------------------------------------------------------------------------------------------------------
      18     Procedure Code Modifier                   L          R                 R               X(2)            1         117
- ------------------------------------------------------------------------------------------------------------------------------------
      19     Principal Diagnosis Code                  L          R        R        R               X(7)            1         119
- ------------------------------------------------------------------------------------------------------------------------------------
      20     Other Diagnosis Codes                     E                   R        R               X(7)            8         126
- ------------------------------------------------------------------------------------------------------------------------------------
      21     Revenue Code                              L                   R        R               9(4)            1         182
             Applicable to 'M' encounters:
             If Field #16 has CPT, HCPCS,
             or ICD.9.CM procedure code -
             8-fill if no Revenue Code.
- ------------------------------------------------------------------------------------------------------------------------------------
      22     National Drug Code (NDC)                  L                                    R       X(11)           1         186
- ------------------------------------------------------------------------------------------------------------------------------------
      23     Units of Service                          L          R        R        R       R       9(7)            1         197
- ------------------------------------------------------------------------------------------------------------------------------------
      24     EPSDT Referral Indicator                  E          R                                 X(2)            1         204
                                                                 (L)
- ------------------------------------------------------------------------------------------------------------------------------------
      25     Plan Record ID (EPRI)                     E          O        O        O       O       X(20)           1         206
- ------------------------------------------------------------------------------------------------------------------------------------
      26     Newborn Birth Weight                      E                   R        R               9(4)            1         226
- ------------------------------------------------------------------------------------------------------------------------------------
      27     Prescription Number                       L                                    R       X(7)            1         230
- ------------------------------------------------------------------------------------------------------------------------------------
      28     Claim Status                              E          R        R        R       R       X(1)            1         237
- ------------------------------------------------------------------------------------------------------------------------------------
      29     Line Status                               L          R        R        R       R       X(1)            1         238
- ------------------------------------------------------------------------------------------------------------------------------------
      30     Patient's First Name                      E          *        *        *       *       X(17)           1         239
- ------------------------------------------------------------------------------------------------------------------------------------
      31     Patient's Middle Initial                  E          *        *        *       *       X(1)            1         256
- ------------------------------------------------------------------------------------------------------------------------------------
      32     Patient's Last Name                       E          *        *        *       *       X(20)           1         257
- ------------------------------------------------------------------------------------------------------------------------------------
      33     Patient's SSN                             E          *        *        *       *       X(9)            1         277
- ------------------------------------------------------------------------------------------------------------------------------------
      34     Subscriber's First Name                   E          O        O        O       O       X18)            1         286
- ------------------------------------------------------------------------------------------------------------------------------------
      35     Subscriber's Last Name                    E          O        O        O       O       X(20)           1         304
- ------------------------------------------------------------------------------------------------------------------------------------
      36     Subscriber's SSN                          E          O        O        O       O       X(9)            1         324
- ------------------------------------------------------------------------------------------------------------------------------------
      37     Subscriber's Birth Date                   E          O        O        O       O       9(6)            1         333
- ------------------------------------------------------------------------------------------------------------------------------------
      38     Alternate Billing Provider ID:            E         R/O      R/O      R/O     R/O      X(10)           1         339
             Tax or NABP Identifier.
- ------------------------------------------------------------------------------------------------------------------------------------


                                        9




                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
      #      FIELD NAME                                LEVEL           ENCOUNTER TYPE                   PHYSICAL RECORD LAYOUT
                                                              ----------------------------------------------------------------------
                                                                J,L,       R        M       D       COBOL        OCCURS      START
                                                                 P                                 PICTURE                  POSITION
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
                                                              Required only if the provider has
                                                              no Medicaid provider number.
- ------------------------------------------------------------------------------------------------------------------------------------
      39     Alternate Performing /                    E         R/O      R/O      R/O     R/O      X(10)           1         349
             Attending or Prescribing                         ----------------------------------
             Provider ID: State License                       Required only if the
             Number or DEA Identifier                         provider has no Medicaid
                                                              provider number.
- ------------------------------------------------------------------------------------------------------------------------------------
      40     ED Processor Tax ID                       E          O        O        O       O       X(10)           1         359
- ------------------------------------------------------------------------------------------------------------------------------------
      41     Hospital Patient Control                  E                   R        O               X(20)           1         369
             Number (PCN)
- ------------------------------------------------------------------------------------------------------------------------------------
      42     FILLER                                                                                 X(47)           1         389
- ------------------------------------------------------------------------------------------------------------------------------------
ERROR FLAG FORMAT (DSHS COMPLETES)
- ------------------------------------------------------------------------------------------------------------------------------------
      43     Error Flag 1 Enc, Type                                                                 X(1)            1         436
- ------------------------------------------------------------------------------------------------------------------------------------
      44     Error Flag 2 Enc. ID                                                                   X(1)            1         437
- ------------------------------------------------------------------------------------------------------------------------------------
      45     Error Flag 3 Line Item                                                                 X(1)            1         438
- ------------------------------------------------------------------------------------------------------------------------------------
      46     Error Flag 4 PIC                                                                       X(1)            1         439
- ------------------------------------------------------------------------------------------------------------------------------------
      47     Error Flag 5 Date of Birth                                                             X(1)            1         440
- ------------------------------------------------------------------------------------------------------------------------------------
      48     Error Flag 6 Plan #                                                                    X(1)            1         441
- ------------------------------------------------------------------------------------------------------------------------------------
      49     Err. Flg 7 Bill. Prov. Medicaid #                                                      X(1)            1         442
- ------------------------------------------------------------------------------------------------------------------------------------
      50     Err. Flg 8 Perf. Prov Medicaid #                                                       X(1)            1         443
- ------------------------------------------------------------------------------------------------------------------------------------
      51     Error Flag 9 DRG                                                                       X(1)            1         444
- ------------------------------------------------------------------------------------------------------------------------------------
      52     Err. Flag 10 Hosp. Admit Date                                                          X(1)            1         445
- ------------------------------------------------------------------------------------------------------------------------------------
      53     Err. Flg 11 Disch. Destination                                                         X(1)            1         446
- ------------------------------------------------------------------------------------------------------------------------------------
      54     Err. Flg 12 Line Billed Charge                                                         X(1)            1         447
- ------------------------------------------------------------------------------------------------------------------------------------
      55     Error Flag 13 Date of Service                                                          X(1)            1         448
- ------------------------------------------------------------------------------------------------------------------------------------
      56     Err. Flg 14 Hosp. Disch. Date                                                          X(1)            1         449
- ------------------------------------------------------------------------------------------------------------------------------------
      57     Error Flag 15 Place of Service                                                         X(1)            1         450
- ------------------------------------------------------------------------------------------------------------------------------------
      58     Error Flag 16 Principal Proc.                                                          X(1)            1         451
- ------------------------------------------------------------------------------------------------------------------------------------
      59     Error Flag 17-1 to 17-5: Other                                                         X(1)            5         452
             ICD.9.CM Procedures
- ------------------------------------------------------------------------------------------------------------------------------------
      60     Error Flag 18 Proc. Modifier                                                           X(1)            1         457
- ------------------------------------------------------------------------------------------------------------------------------------
      61     Error Flag 19 Principal Diag.                                                          X(1)            1         458
- ------------------------------------------------------------------------------------------------------------------------------------
      62     Error Flag 20-1 to 20-8                                                                X(1)            8         459
             Other Diagnoses
- ------------------------------------------------------------------------------------------------------------------------------------
      63     Error Flag 21 Revenue Code                                                             X(1)            1         467
- ------------------------------------------------------------------------------------------------------------------------------------
      64     Err. Flg 22 National Drug Code                                                         X(1)            1         468
- ------------------------------------------------------------------------------------------------------------------------------------
      65     Error Flag 23 Units of Service                                                         X(1)            1         469
- ------------------------------------------------------------------------------------------------------------------------------------
      66     Err. Flg 24 EPSDT Refer. Ind.                                                          X(1)            1         470
- ------------------------------------------------------------------------------------------------------------------------------------
      67     Filler hyphen-filled: Had been                                                         X(1)            1         471
             Err. Flg 25 Enc. Plan Rec. ID
- ------------------------------------------------------------------------------------------------------------------------------------
      68     Err. Flg 26 Newborn Birth Wt.                                                          X(1)            1         472
- ------------------------------------------------------------------------------------------------------------------------------------


                                       10



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
      #      FIELD NAME                                LEVEL           ENCOUNTER TYPE                   PHYSICAL RECORD LAYOUT
                                                              ----------------------------------------------------------------------
                                                                J,L,       R        M       D       COBOL        OCCURS      START
                                                                 P                                 PICTURE                  POSITION
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
      69     Error Flag 27 Prescription No.                                                         X(1)           1          473
- ------------------------------------------------------------------------------------------------------------------------------------
      70     Error Flag 28 Claim Status                                                             X(1)           1          474
- ------------------------------------------------------------------------------------------------------------------------------------
      71     Error Flag 29 Line Status                                                              X(1)           1          475
- ------------------------------------------------------------------------------------------------------------------------------------
      72     Err. Flg 30                                                                            X(1)           1          476
- ------------------------------------------------------------------------------------------------------------------------------------
      73     Err. Flg 31                                                                            X(1)           1          477
- ------------------------------------------------------------------------------------------------------------------------------------
      74     Err. Flg 32                                                                            X(1)           1          478
- ------------------------------------------------------------------------------------------------------------------------------------
      75     Error Flag 33                                                                          X(1)           1          479
- ------------------------------------------------------------------------------------------------------------------------------------
      76     Error Flag 38 Bill.Prov. Alt. ID                                                       X(1)           1          480
- ------------------------------------------------------------------------------------------------------------------------------------
      77     Error Flag 39 Perf.Prov. Alt. #                                                        X(1)           1          481
- ------------------------------------------------------------------------------------------------------------------------------------
      78     Error Flag 40                                                                          X(1)           1          482
- ------------------------------------------------------------------------------------------------------------------------------------
      79     Association Flag 41 Patient not                                                        X(1)           1          483
             eligible on date of service
- ------------------------------------------------------------------------------------------------------------------------------------
      80     Assn. Flg 42 Perf.Prov Medi. #                                                         X(1)           1          484
             is not active on date of service
- ------------------------------------------------------------------------------------------------------------------------------------
      81     Assn. Flg. 43 Invalid age for                                                          X(1)           1          485
             diagnosis
- ------------------------------------------------------------------------------------------------------------------------------------
      82     Assn Flg 44 Invalid sex x diag.                                                        X(1)           1          486
- ------------------------------------------------------------------------------------------------------------------------------------
      83     Assn Flg 45 Invalid age x proc.                                                        X(1)           1          487
- ------------------------------------------------------------------------------------------------------------------------------------
      84     Assn Flg 46 Invalid sex x proc.                                                        X(1)           1          488
- ------------------------------------------------------------------------------------------------------------------------------------
      85     Assn. Fl. 47 Invalid place x                                                           X(1)           1          489
             procedure
- ------------------------------------------------------------------------------------------------------------------------------------
      86     PIC Change Flag                                                                        X(1)           1          490
- ------------------------------------------------------------------------------------------------------------------------------------
      87     PCN Error Flag                                                                         X(1)           1          491
- ------------------------------------------------------------------------------------------------------------------------------------
      88     Prescription Days Supply                  L                                  R         9(3)           1          492
- ------------------------------------------------------------------------------------------------------------------------------------
      89     Err.Flg.Prescrip. Days Supply                                                          X(1)           1          495
- ------------------------------------------------------------------------------------------------------------------------------------
      90     Alternate Bill-Provider ID Type           E         O        O        O      O         X(1)           1          496
- ------------------------------------------------------------------------------------------------------------------------------------
      91     Alternate Perf-Attend-Presc               L         O        O        O      O         X(1)           1          497
             Provider ID Type
- ------------------------------------------------------------------------------------------------------------------------------------
      92     Err. Flg Alt-Bill Prov ID Type                                                         X(1)                      498
- ------------------------------------------------------------------------------------------------------------------------------------
      93     Err. Flg Alt-Perf-Attend-Presc                                                         X(1)           1          499
             ID Type
- ------------------------------------------------------------------------------------------------------------------------------------
      94     FILLER                                                                                 X(1)           1          500
- ------------------------------------------------------------------------------------------------------------------------------------


                      GENERAL DEFINITIONS AND DATA SOURCES

      ENCOUNTER:
      ----------
      o    One occurrence (e.g. an office visit); or
      o    A period of examination or treatment (e.g. inpatient hospital stay or
           long term care facility) by a medical practitioner or medical
           facility.

                                       11



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

REPORT:
   1) Any SERVICE or PROCEDURE listed in the following:

      o  AMA Physicians' Current Procedural Terminology (CPT). Use the edition
         concurrent with reporting period.
      o  Standard Edition International Classification of Diseases (ICD.9.CM)
      o  State-specific Codes.
      o  Health Care Financing Administration Comprehensive Procedure Coding
         System (HCPCS).
      o  Dental ADA Procedure Codes.

         NOTE: All carrier and provider-specific ("in-house") codes must be
         converted to a corresponding code from one of the above listed sources.

   2) Any VALID Provider Identifiers are allowed in the following list:

      o  Medicaid Provider Numbers with active status (as per the monthly
         provider list);
      o  Federal Tax Identification numbers used by the billing provider for
         reporting to the U.S. Internal Revenue Service;
      o  State License numbers assigned by the Washington State Department of
         Health assigns to providers certified, registered or licensed in
         accordance with Title 18 RCW or Chapter 70.127 RCW;
      o  DEA Identifier numbers assigned by the U.S. Drug Enforcement
         Administration;
      o  NABP (National Association of Boards of Pharmacy) ID numbers. The NABP
         has been purchased by the National Council for Prescription Drug
         Programs (NCPDP) that now assigns this number. Refer to the NCPDP
         website for further information www.ncpdp.org/provider.asp.

                                       12



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   1      ENCOUNTER TYPE CODE Contractors are required to assign the services
          and codes to the associated encounter type specified on the attached
          Encounter Type Table. Enter a single character code to designate the
          type of encounter. Where EPSDT services are involved, encounters can
          have line item records with encounter type 'L' for EPSDT services and
          encounter type 'J' for non-EPSDT medical services.
               D - Drugs/Medications
               J - Medical Practitioner
               L - EPSDT
               M - Outpatient
               P - Medical Supplies/Equipment, Vision, Hearing, & Transportation
               R - Inpatient Hospital
- --------------------------------------------------------------------------------
   2      ENCOUNTER IDENTIFICATION NUMBER
          A number assigned to each encounter and attached to each record in
          that encounter for the purpose of grouping records belonging to a
          single encounter. Number encounters sequentially in an encounter data
          file.
- --------------------------------------------------------------------------------
   3      LINE ITEM NUMBER A number (e.g. 01, 02, 03 etc.) assigned sequentially
          to each instance/item separately reported in a single encounter.
- --------------------------------------------------------------------------------
   4      PIC = PERSONAL IDENTIFICATION CODE
          Identifier assigned to each recipient approved for Medicaid. DSHS
          provides a list of Medicaid recipients enrolled with the plan to the
          Contractor on a monthly basis. The list includes each recipient's PIC.
          The PIC is to be reported in Field 4 in DATA format:
               o    First 5 characters of last name (Blank-fill unused
                    positions);
               o    Initial character of first name;
               o    Initial character of middle name (If no middle initial, a
                    hyphen is shown);
               o    Date of birth in YYMMDD format;
               o    A tiebreaker code (assigned by DSHS at time of enrollment).

          For NEWBORNS use mother's PIC only until newborn has own PIC and it is
          no more than 90 days after date of birth or:
               o    The family moves out of state;
               o    The newborn is adopted, placed in foster care or dies before
                    getting a PIC; or
               o    The mother leaves the Contractor within 30 calendar days of
                    the birth and the newborn never appears on the payment or
                    enrollment listing for the Contractor.
- --------------------------------------------------------------------------------
   5      DATE OF BIRTH
          Patient birth date formatted: MMDDYY. Use newborns birth date when
          using mother's PIC.
- --------------------------------------------------------------------------------
   6      PLAN ID
          The Medicaid Provider Number assigned to the carrier designating the
          contract under which the member is enrolled (e.g. Healthy Options,
          Basic Health Plan Plus).
- --------------------------------------------------------------------------------

                                       13



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   7      BILLING PROVIDER ID - The Medicaid Provider Number assigned to the:
          o    CLINIC or PROVIDER PRACTICE of the encounter's
               performing/attending provider.
          o    CONTRACTOR, when it is the sole performing/attending provider's
               employer.
          o    FACILITY reporting inpatient and outpatient services. (Encounter
               Types R and M).
          o    PHARMACY for the reporting of Drug encounters (Encounter Type D).
          o    HOME HEALTH/HOSPICE AGENCY when independently operated (Encounter
               type M).
- --------------------------------------------------------------------------------
   8      PERFORMING/ATTENDING OR PRESCRIBING PROVIDER ID A Medicaid Provider
          number assigned to:
          o    The provider who renders the service for Medical Practitioner
               (Encounter Type J), EPSDT (Encounter Type L), Inpatient Hospital
               (Encounter Type R) and Outpatient Hospital (Encounter Type M ).

          o    For prescribed services, prescriptions, and supplies use the
               Medicaid Provider Number of the 'prescribing' practitioner who
               writes the prescription. This applies to writers of orders for
               drug prescriptions (Pharmacy Encounter Type D), Medical Supplies
               or equipment (Encounter Type P), or Laboratory, Radiology, and
               other diagnostic services (within Encounter Type J).

          For Inpatient claims this field should identify the Attending Provider
          as described in instructions for UB-92 FL-82.
- --------------------------------------------------------------------------------
   9      DRG CODE INPATIENT HOSPITAL (ENCOUNTER TYPE R) ONLY
          Diagnosis Related Group (DRG) Codes developed using All Patient DRG
          (AP-DRG) Grouper Version 14.1 from 3M/HIS. If this number is not
          available from the hospital reporting the encounter, the carrier will
          have to determine the appropriate DRG.
- --------------------------------------------------------------------------------
   10     HOSPITAL ADMISSION DATE
          Format: MMDDYY Source: UB-92: FL-17, "Admission Date"
- --------------------------------------------------------------------------------
   11     PATIENT DESTINATION ON DISCHARGE Applies only to Inpatient Hospital
          (Encounter Type 'R'). Location to where a patient was discharged.
          Code   Destination at discharge
            01  Home discharge
            02  Discharge/Transfer General Hospital
            03  Discharge/Transfer SNF
            04  Discharge/Transfer ICF
            05  Discharge/Transfer INST
            06  Discharge/Transfer Home
            07  Left against medical advice
            08  Home discharge with IV Therapy
            20  Death

          Source: UB-92: FL-22, "Patient Status"
- --------------------------------------------------------------------------------

                                       14



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   12     LINE BILLED CHARGES Applies to hospital (M and R) encounters only.
          Enter the line-billed charges for each Revenue Code reported on an
          inpatient hospital encounter and the line-billed charges for each
          Revenue Code and CPT or HCPCS Code reported on an outpatient hospital
          encounter. Source: UB-92: FL-47, Line charges associated with the
          service codes reported in the rows of the "Total Charges" column.
- --------------------------------------------------------------------------------
   13     DATE OF SERVICE
          Format: MMDDYY Source: Hospital Inpatient upon discharge (Encounter
          Type R) & Outpatient (Encounter Type M) - Source: UB 92: FL-6,
          "Through" date; Pharmacy (Encounter Type D) -Source: Form 525-106:
          FL-9, "Fill Date"; Medical Practitioner, EPSDT, & Medical Equip, etc.
          (Encounter types J, L, & P) - Source: HCFA 1500 FL-24.
- --------------------------------------------------------------------------------
   14     HOSPITAL DISCHARGE DATE
          Format: MMDDYY Source: UB 92: FL-6, "Through."
- --------------------------------------------------------------------------------
   15     PLACE OF SERVICE CODES
          Note: These codes are different from Medicare Place-of-Service codes.
               Code   Place of Service
               ----   --------------------------------------
                1        Hospital, Inpatient
                2        Hospital, Outpatient
                3        Office or ambulatory surgery center
                4        Client's residence
                5        Emergency room
                6        Congregate care facility
                8     Skilled nursing facility
                9     Other
- --------------------------------------------------------------------------------
   16     PRIMARY PROCEDURE CODE Includes Primary ICD.9.CM Procedure Code if
          applicable:
          o    Medical Practitioner (Encounter Type J), EPSDT (Encounter Type L)
               and Medical Supplies (Encounter Type P) CPT, HCPCS procedure
               codes. Source: HCFA-1500: FL-24D, "CPT/HCPCS".
          o    Dental ADA Procedure Codes. Source: Form 525-108: FL-15G,
               "Procedure Number"
          o    Hospital, Inpatient (Encounter Type R) ICD.9.CM Procedure Codes.
               Source: UB-92: FL-80, "Principal Procedure Code"
          o    Hospital, Outpatient (Encounter Type M) CPT or HCPCS Procedure
               Codes and/or ICD.9.CM Procedure Codes. Source: UB-92: FL-44,
               "HCPCS/Rates" FL-80, "Principal Procedure Code". (Hyphen-fill
               FL-16 if reporting a Revenue Code and there is no CPT or HCPCS
               code to report.
          o    If Revenue Code F21 is reported on an Outpatient Hospital
               encounter record (Encounter Type M) DO NOT report a CPT or HCPCS
               or ICD.9.CM procedure in FL 16 for the same record. (8-fill FL 21
               if reporting a procedure code and not reporting Revenue Code.)
- --------------------------------------------------------------------------------
   17     OTHER ICD.9.CM PROCEDURE CODES (up to 5) Hospital, Inpatient
          (Encounter Type R) and Outpatient (Encounter Type M) Source: UB-92:
          FL-81A-E, "Other Procedure Codes". These should be repeated on each
          line of an inpatient encounter.
- --------------------------------------------------------------------------------
   18     PROCEDURE CODE MODIFIER Applicable to all encounters, excluding
          Inpatient Hospital.
- --------------------------------------------------------------------------------

                                       15



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
          Medical Practitioner (Encounter Type J), EPSDT (Encounter Type L),
          Outpatient Hospital (Encounter Type M) when using CPT or HCPCS
          procedure codes, and Medical Supplies (Encounter Type P). Source:
          HCFA-1500: FL-24D, "Modifier".
          Dental Source: Form 525-108: FL-15H, "Mod".
- --------------------------------------------------------------------------------
   19     PRINCIPAL DIAGNOSIS CODE
          o    Only ICD.9.CM diagnosis codes are allowed.
          o    Coding must be explicit using the maximum number of digits
               appropriate AND including the decimal point where applicable.

          Medical Practitioner (Encounter Type J), EPSDT (Encounter Type L) and
          Medical Supplies (Encounter Type P) Source: HCFA-1500: FL-24E,
          "Diagnosis Code";
          Dental: Source: 525-108: FL-5, "Dental Diagnosis Code";
          Hospital, Inpatient (Encounter Type R) and Outpatient (Encounter Type
          M) Source: UB- 92: FL-67, "Principal Diagnosis Code".
- --------------------------------------------------------------------------------
   20     OTHER DIAGNOSIS CODES (up to 8) Applicable to hospital encounters only
          Hospital, Inpatient (Encounter Type R) and Outpatient (Encounter Type
          M) Source: UB- 92: FL-68-75, "Other Diagnosis Codes". Hyphen-fill
          unused diagnosis fields (See example-Generic Field Specifications).
- --------------------------------------------------------------------------------
   21     REVENUE CODE Applicable to hospital encounters only.
          For Outpatient: Either a Revenue Code or a Procedure Code is required
          for each line item, but NOT BOTH. For Hospital Inpatient, Revenue Code
          is required. Hospital Inpatient (Encounter Type R) and Outpatient
          (Encounter Type M) Source: UB-92: FL-42. (8-fill when using a
          Procedure Code in FL 16.)
- --------------------------------------------------------------------------------
   22     NATIONAL DRUG CODE (NDC) Applicable to Pharmacy (Encounter Type D)
          only Enter eleven-digit NDC number without hyphens/spaces. Source:
          Form 525-106: Field "National Drug Code". Include NDCs for
          over-the-counter medications. Use the Food and Drug Administration's
          (FDA's) website to verify federally covered Medicaid NDCs:
          http://www.fda.gov/cder/.
- --------------------------------------------------------------------------------

                                       16



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   23     UNITS OF SERVICE
          o    A quantitative measure of services provided.
          o    Hospital Inpatient (Encounter Type R) Revenue Codes 100 - 210
               Accommodations: number of days. Source: UB-92: FL-46, "Units of
               Service"
          o    Hospital Outpatient (M type) Revenue Code 45X Emergency Room:
               number of visits. Source: UB-92: FL-46, "Units of Service"
          o    Pharmacy (Encounter Type D) Source: Form 525-106: Field "Quantity
               - Filled"
          o    Medical Practitioner (J type), EPSDT (L type) and Medical
               Supplies (Encounter Type P). Source: HCFA-1500: FL-24G, "Days or
               Units"
          o    Dental - Source: Form 525-108: FL-15F, "Units"
- --------------------------------------------------------------------------------
   24     EPSDT REFERRAL INDICATOR [EPSDT = Early and Periodic Screening
          Diagnosis and Treatment] Applicable to EPSDT encounters only
          (Encounter Type L or Type J when an encounter involves both L and J
          types of services). A two-digit code that indicates that a patient was
          or was not referred for treatment as the result of the EPSDT visit:
               YR - yes, referred
               NR - no, not referred

          If a plan cannot obtain the referral indicator, then leave this field
          blank. Although this will result in an error during the MAA edit, the
          plan is required to report the encounter. Errors due to blank fills
          will be tracked separately.
          Source: HCFA-1500: FL-24D: "Modifier".
- --------------------------------------------------------------------------------
   25     PLAN RECORD ID CODE (EPRI) - A plan-assigned code that uniquely
          identifies the encounter in the submitted encounter data and in the
          plan's internal database. The EPRI is Optional for the Year 2003.
- --------------------------------------------------------------------------------
   26     NEWBORN BIRTH WEIGHT Hospital encounters for newborns must include the
          Birth Weight in grams. Hospital, Inpatient (R type) and Outpatient (M
          type) Source: UB-92: is given in the "Value Amount column of FL-39-41
          a-d where the Value Code ="80" (in grams).
- --------------------------------------------------------------------------------
   27     PRESCRIPTION NUMBER Applicable to Pharmacy (D type) encounters only. A
          seven-character code assigned in sequence to regular prescriptions
          filled by the pharmacy. Contractors may use the original prescription
          number for refills or assign a new number. Source: Form 525-106: Field
          "Prescription Number".
- --------------------------------------------------------------------------------
   28     CLAIM STATUS Indicates whether all services of the submitted encounter
          were denied or one or more services were paid/accepted.
               N = Paid or Accepted (e.g. for services provided on a capitation
                   basis). If an inpatient claim is paid on a DRG basis, then
                   use Claim Status N.
               P = Denied (Includes only finalized claims where disposition is a
                   denial).
- --------------------------------------------------------------------------------

                                       17



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   29     LINE STATUS Indicates whether or not payment for an individual service
          was denied or paid/accepted. For inpatient encounters that are paid or
          denied based on DRG code, code all lines of the encounter as "N" =
          paid/accepted, unless claim was denied ("P" = Denied).
               N = Paid/Accepted (e.g. for services provided on a capitation
                   basis).
               P = Denied
- --------------------------------------------------------------------------------
 30-33    PATIENT FIRST NAME, MIDDLE INITIAL, LAST NAME and SSN. If there is no
          middle initial or it is unknown, insert a "-" in Field 31.
- --------------------------------------------------------------------------------
 34-37    SUBSCRIBER FIRST NAME, LAST NAME, SSN and BIRTH DATE (optional). The
          Subscriber is the head of household in which the patient resides
          and/or a guardian (for patients who are dependents). Patient and
          Subscriber can be the same. Information may be used for PIC match.
- --------------------------------------------------------------------------------
   38     ALTERNATE BILLING PROVIDER ID is required if the billing provider does
          not have a valid Medicaid Provider Number. Medicaid Provider Numbers
          may be used in combination with any of the following Alternate Billing
          provider Identifiers: Federal Tax Identifier, or NABP Identifier.
- --------------------------------------------------------------------------------
   39     ALTERNATE PERFORMING/ATTENDING OR PRESCRIBING PROVIDER ID is required
          if the performing/attending or prescribing provider does not have a
          valid Medicaid Provider Number. Medicaid Provider Numbers may be used
          in combination with any of the following Alternate
          Performing/Attending or Prescribing provider Identifiers: State
          License Number, or DEA Identifier.

          When service is given out-of-state, report the license number issued
          by the associated state. See Field #8 for determining when to report
          the performing/attending or prescribing provider.
- --------------------------------------------------------------------------------
   40     ENCOUNTER DATA PROCESSOR TAX ID Optional field to assist Contractor in
          tracking encounter records to their processors.
- --------------------------------------------------------------------------------
   41     HOSPTIAL PATIENT CONTROL NUMBER (PCN) Applicable to hospital claims
          (Encounter Type R - required and M - optional). Patient's unique
          alphanumeric number assigned by the provider to facilitate retrieval
          of individual case record. CHARS reporting requires that hospitals
          make the PCN unique. An encounter record PCN must match the PCN
          reported in the associated claims reported to CHARS. For services
          given out-of-state, the PCN number assigned by the hospital should be
          reported.

          For hospitals that use patient-based PCNs on their UB92 claims,
          Contractors should replicate the numbering scheme used by those
          hospitals to make their PCN unique and transaction based for their
          CHARS submissions. For example, if a hospital makes a patient-based
          PCN unique by adding the admit date, the Contractor can do the same
          for that encounter record.

          Source: UB92 Manual Form Locator 3 and the CHARS Procedure Manual for
          Submitting Discharge Data, UB92 Data Elements, page 11.
- --------------------------------------------------------------------------------
   42     FILLER
- --------------------------------------------------------------------------------

                                       18



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
 43-78    ERROR FLAGS - Position #'s 436-482 Codes:
          '1' = field value did not pass edits
          ' ' (blank) = field value did pass edits
          '-' = no edit required

          Codes unique to specific error flag fields:
               Error Flag Field 21 - Revenue Codes:
          o    Code '-' = no edit required.
          o    Code '1' = required revenue code is not valid or is blank.
          o    Code ' ' (blank) = required revenue code is valid.
          o    Code 'M' = required revenue code is modified.
          o    Code 'C' = modified value is valid.
               Error Flag Field 12 - Lined Billed Charges:
          o    Code 'Z' - field 12 = zeros
          o    Code 'U - field 12 = all 9's (i.e. 9999999.99)
          o    Code 'I' - field 12 = all 8's (i.e. 8888888.88)
          o    Code 'N' - field 12 = 099999999 (i.e. 0999999.99)
          o    Code 'E' - field 12 = 088888888 (i.e. 0888888.88)
          o    Code 'G' - field 12 = any other non-numeric or low values
- --------------------------------------------------------------------------------
          The following edits are used to validate data in the specified fields
          (Position #s 483-489)
- --------------------------------------------------------------------------------
   79     ASSOCIATION FLAG 41 Recipient not eligible for date of service
- --------------------------------------------------------------------------------
   80     ASSOCIATION FLAG 42 Performing provider not active for date of service
- --------------------------------------------------------------------------------
   81     ASSOCIATION FLAG 43 Invalid recipient age for diagnosis
- --------------------------------------------------------------------------------
   82     ASSOCIATION FLAG 44 Invalid recipient sex for diagnosis
- --------------------------------------------------------------------------------
   83     ASSOCIATION FLAG 45 Invalid recipient age for procedure
- --------------------------------------------------------------------------------
   84     ASSOCIATION FLAG 46 Invalid recipient sex for procedure
- --------------------------------------------------------------------------------
   85     ASSOCIATION FLAG 47 Invalid place of service for procedure
- --------------------------------------------------------------------------------
   86     PIC-CHANGE-FLAG [PIC = Patient Identification Code] Completed by DSHS.
          When the PIC submitted in Field 4 is invalid and a valid PIC is found
          by DSHS by any of the following:
               o    Name (Fields 31, 32 & 33) and Date of Birth (Field 5);
               o    Name and Social Security Number (Field 34); or
               o    Social Security Number and Date of Birth;

               The matched PIC will replace the invalid PIC in Field 4 for use
               in all subsequent processing of the encounter record. One of the
               following codes will appear in Field 86:
               o    C = PIC corrected;
               o    V = original (submitted) PIC is valid;
               o    I = invalid PIC submitted and no valid PIC identified
                        through match process.
- --------------------------------------------------------------------------------
   87     PCN ERROR FLAG (For explanation codes see for Field ID numbers 43-78
          above.)
- --------------------------------------------------------------------------------
   88     PRESCRIPTION DAYS SUPPLY: Number of days prescription is to cover.
          Source: Pharmacy Form 525-106: Field "Est. Days' Supply".
- --------------------------------------------------------------------------------
   89     ERROR FLAG PRESCRIPTION DAYS SUPPLY: Same codes as for fields 43-78.
- --------------------------------------------------------------------------------

                                       19



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-1

- --------------------------------------------------------------------------------
FIELD ID                   GENERAL FIELD DESCRIPTION
- --------------------------------------------------------------------------------
   90     ALTERNATE BILLING PROVIDER ID: required if no valid Medicaid Provider
          Number is reported - Hyphen-fill if no Alternate Identifier is
          reported and a Medicaid Provider Number is reported:

          o    United States Federal Tax Identifier. Leave Field 90 blank if
               alternate Tax Identifier is reported. No error will be generated.

          o    N = National Association of Boards of Pharmacy Identifier,
               recently purchased by the National Council for Prescription Drug
               Programs (NCPDP) and also known as the NCPDP Identifier.
- --------------------------------------------------------------------------------
   91     ALTERNATE PERFORMING/ATTENDING OR PRESCRIBING PROVIDER ID: REQUIRED IF
          NO VALID MEDICAID ID IS REPORTED
          Hyphen-fill if no Alternate Identifier is reported and a Medicaid
          Provider Number is reported:

               o    Washington State Professional License Number. If the service
                    is given out-of-state then the performing/attending or
                    prescribing license number refers to the license number
                    issued by the state in which the provider is licensed. Leave
                    Field 91 blank if an alternate State License Identifier is
                    reported. No error will be generated.

               o    D = U.S. Drug Enforcement Agency issued DEA Identifier.
- --------------------------------------------------------------------------------
   92     ERROR FLAG ALT-BILLING PROVIDER ID (FIELD 90)
- --------------------------------------------------------------------------------
   93     ERROR FLAG ALTERNATE PERF/ATTEND OR PRESCR. PROVIDER (FIELD 91)
- --------------------------------------------------------------------------------

                                       20



                                                   2003 Healthy Options Contract
                                                   Exhibit C-1

                              ENCOUNTER TYPE TABLE

Contractors are required to assign at least the services and codes specified
below to the associated encounter types. Consult the 2003 HO/SCHIP contract for
the Schedule of Benefits and the MAA Billing Instructions for further
information on code and service encounter type designations (MAA Billing
Instructions take precedence over the listing below).



- ------------------------------------------------------------------------------------------------------------------------------------
                                            TYPES OF SERVICES                         TYPICAL CPT-4 AND HCPCS CODES
E-TYPE        DESCRIPTION OF         FOR A COMPLETE LISTING SEE 2003    SEE MAA BILLING INSTRUCTIONS FOR COMPLETE LISTING OF CODES
 CODE         ENCOUNTER TYPE          CONTRACT SCHEDULE OF BENEFITS                  ASSOCIATED WITH COVERED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
                                                               
  D       DRUGS & MEDICATIONS       Includes only drugs and                                        N/A
          Prescriptions ordered     medications dispensed by a
          by the                    pharmacy. Does not include
          performing/attending      those provided during a J, M, or
          or prescribing            R encounter.
          physician. Includes
          dispensing fee.
- ------------------------------------------------------------------------------------------------------------------------------------
  J       Medical Practitioner      Surgery, including pre-and post-    10040-36410, 36420-55899, 56300-58301, 58340-58960,
          Services Professional     surgical encounters with the        58999, 59525, 60000-69020, 69100-69979, 69990, 92980-
          charges only or the       surgeon and assistant surgeon.      92998, 93501-93536, 93561-93572, A6020-A6406, G0051-
          combined professional     Includes oral surgery services      G0053
          and technical charges
          for the following         Anesthesia                          00100-01999, 99100-99142 or 10040-36410, 36420-55899,
          medical services                                              56300-58301, 58340-58960, 58999, 59525, 60000-69020,
          provided in inpatient,    * MAA FFS: 00100-01999 are          69100-69979, 69990, 92980-92998, 93501-93536, 93561-
          outpatient, and office    billed with surgery procedure +     93572 with anesthesia modifier
          settings.                 modifier

                                    Maternity                           59400-59430, 59610-59614, 59899, 59510-59515, 59618-
                                                                        59622, 59899, 59000-59350, 59812-59871 (excluding
                                                                        59840, 59841, 59850 through 59852 and 59855 through
                                                                        59857)
- ------------------------------------------------------------------------------------------------------------------------------------


                                       23



                                                   2003 Healthy Options Contract
                                                   Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
                                            TYPES OF SERVICES                          TYPICAL CPT-4 AND HCPCS CODES
E-TYPE        DESCRIPTION OF         FOR A COMPLETE LISTING SEE 2003     SEE MAA BILLING INSTRUCTIONS FOR COMPLETE LISTING OF CODES
 CODE         ENCOUNTER TYPE          CONTRACT SCHEDULE OF BENEFITS                   ASSOCIATED WITH COVERED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
                                                               
  J       MEDICAL PRACTITIONER      Visits, consults and urgent care    99175-99195, 99221-99239, 99356-99357, 99431, 99433-99440;
          SERVICES (continued)                                          99201-99215, 99241-99275, 99201-99215, 99321-99355,
                                                                        99361-99380, 99385 (for persons age 21-39), 99386-99387,
          "J" and "L" encounter                                         99395 (for persons age 21-39), 99499
          types may occur on        Critical care                       99291-99316, 99217-99220, 99281-99288
          different records for
          the same encounter.
                                    Physical Medicine &                 97001-97799, 98925-98929; H5300, Q0082, Q0086,
                                    Rehabilitation                      Q0103-Q0110

                                    Cardiovascular                      92950-92979, 93000-93350, 93539-93556, 93600-93799;
                                                                        G0004-G0007, G0015-G0016, M0300-M0302

                                    Immunizations                       90471-90472, 90476-90749; G0008-G0010, J1670

                                    Mental Health                       90816-90829

                                    Newborn care                        99431-99436,99440

                                    Vision & Hearing/                   92002-92015, 92310, 92314 92506-92510, 92551-92599;
                                    Speech Exams                        V5008-V5010, V5362-V5364

                                    Physical Exams                      99386, 99387, 99396, 99397, 99401-99429

                                    Pathology                           80049-89399; G0058-G0060, P2028-P9615, Q0068, Q0091,
                                                                        Q0111-Q0115

                                    Radiology                           70010-79999; A4647-A4649, A9500-A9600, G0030-G0050, Q0035,
                                                                        Q0092, R0070-R0076

                                    Therapeutic injections              90281-90399, 90780-90799, J0120-J1650, J1690-J7310, Q0081,
                                                                        Q9920-Q9940

                                    Allergy testing & Immunotherapy     95004-95078, 95115-95199
- ------------------------------------------------------------------------------------------------------------------------------------


                                       24



                                                   2003 Healthy Options Contract
                                                   Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
                                           TYPES OF SERVICES                          TYPICAL CPT-4 AND HCPCS CODES
E-TYPE        DESCRIPTION OF        FOR A COMPLETE LISTING SEE 2003      SEE MAA BILLING INSTRUCTIONS FOR COMPLETE LISTING OF CODES
 CODE         ENCOUNTER TYPE         CONTRACT SCHEDULE OF BENEFITS                   ASSOCIATED WITH COVERED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
                                                               
  J       MEDICAL PRACTITIONER      Miscellaneous medical services      36415, 90901, 90911, 90918-90999, A4650-A4927, 91000-91299,
          SERVICES (continued)      such as Venipuncture,               92018-92287 92311-92313 92315-92317 92330, 92335
                                    Biofeedback, Dialysis,              92352-92358 92371 92393-92499, 92502-92504 92511-92526,
                                    Gastroenterology, Ophthalmology,    92531-92548, 93875-93990, 94010-94799, 95805-95999,
                                    Otorhinolaryngology, Vestibular     95805-95999, 96400-96549, J8530-J9999, 96900-96999,
                                    Function Tests, Non-Invasive        99000-99070 99199, 99360, G0001-G0002 G0025-G0027
                                    Vascular Diagnostic Studies,        G0062-G0063 Q0083-Q0085 M0075-M0076 M0010 M0101
                                    Pulmonology, Neurology, Central
                                    Nervous System Tests,
                                    Chemotherapy, Dermatology, or
                                    Podiatry.
- ------------------------------------------------------------------------------------------------------------------------------------
  L       EPSDT                     Well Baby/Well Child Exams          99381-99384, 99385 (for ages 18-20), 99391-99394, and 99395
          All covered services                                          (for ages 18-20)
          for children age 0 - 20
          "J" and "L" encounter     Immunizations                       90471-90472, 90476-90749; G0008-G0010, J1670
          types may occur on
          different records for     Interperiodic well child visit      0203M, 0252M
          the same encounter.
                                    Chiropractic: Visits,               98940-98943, A2000
                                    manipulations and radiology
                                    services provided in the
                                    chiropractor's office.
- ------------------------------------------------------------------------------------------------------------------------------------
  M       OUTPATIENT facility charges for the technical         Emergency & Urgent Care; Maternity: delivery, non-delivery
          components and services performed by full-time        (miscarriages, therapeutic abortions, ultrasound, amniocentesis),
          staff of a hospital outpatient, freestanding          & well newborn care; Outpatient Surgery including oral surgery,
          facility, ambulatory surgical center, FQHC or RHC,    Anesthesia, Radiology & Pathology; Pharmacy and Blood;
          kidney dialysis center, mobile radiology unit, or     Cardiovascular tests such as EKG and stress tests; Physical therapy,
          birthing center for the following types of medical    occupational therapy, and speech therapy; Home health; Hospice;
          services.  Does not include professional charges      Chemotherapy; Diagnostic services
          that are billed separately
- ------------------------------------------------------------------------------------------------------------------------------------


                                       25



                                                   2003 Healthy Options Contract
                                                   Exhibit C-1



- ------------------------------------------------------------------------------------------------------------------------------------
                                           TYPES OF SERVICES                          TYPICAL CPT-4 AND HCPCS CODES
E-TYPE        DESCRIPTION OF        FOR A COMPLETE LISTING SEE 2003      SEE MAA BILLING INSTRUCTIONS FOR COMPLETE LISTING OF CODES
 CODE         ENCOUNTER TYPE         CONTRACT SCHEDULE OF BENEFITS                   ASSOCIATED WITH COVERED SERVICE
- ------------------------------------------------------------------------------------------------------------------------------------
                                                               
  P       MEDICAL SUPPLIES,         Braces (orthotics), canes,          A4206-A4646, A5051-A5149, A5500-A5507,
          APPLIANCES, EQUIPMENT,    crutches, glucoscan, glucometer,    B4034-B9999, E0100-E1830, K0001-K0116,
          VISION, HEARING AIDS,     intermittent positive pressure      K0137-K0439, K0452, L0100-L4398, V2600-
          AND TRANSPORTATION:       machines, rib belt for treatment    V2615, V5336 K0440-K0451, L5000-L8690,
          Includes only those       of an accident or illness,          V2623-V2632; 92325-92326, 92340-92342, 92370,
          dispensed by a medical    walker, wheel chairs, etc;          92390-92392; V2020-V2599, V2700-V2799;
          supplier. Does not        artificial parts that replace a     A0021-A0999, A6020-A6406
          include those provided    missing body part or improve a
          during a J, M, or R       body function (i.e., artificial
          encounter.                limb, heart valve, medically
                                    necessary reconstruction);
                                    glasses or contacts; and
                                    ambulance.
- ------------------------------------------------------------------------------------------------------------------------------------
  R       INPATIENT HOSPITAL: Inpatient room and board and ancillary    Medical & Surgical Confinement
          services in short-term community hospitals. Ancillary         Surgery, Emergency & Urgent Care; Skilled Nursing
          services include use of surgical and intensive care           Facility; Maternity: delivery, complications of
          facilities, inpatient nursing care, pathology and             pregnancy, non-delivery (includes miscarriages
          radiology procedures, drugs and supplies. Facility charges    & therapeutic abortion), & well newborn care;
          for technical components and services performed by            Surgery, Anesthesia, Radiology & Pathology;
          full-time staff of a hospital on an inpatient basis. Does     Pharmacy and Blood; Chemotherapy; Diagnostic
          not include professional charges unless performed by full-    services
          time staff of the facility and not billed separately.
- ------------------------------------------------------------------------------------------------------------------------------------


                                 26



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-2 (a)

                                 EXHIBIT C-2(a)
                        2003 IPND REPORTING REQUIREMENTS
                 BASIC HEALTH PLAN (BHP), HEALTHY OPTIONS (HO),
                     PUBLIC EMPLOYEES BENEFIT BOARD (PEBB),
                AND CHILDREN'S HEALTH INSURANCE PROGRAM (SCHIP)

 Note: Validate the field type and maximum size, values bolded, and whether the
               field is required or not, for each Provider Type.



- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             PROVIDER TYPES
                                                                                                             (SEE FOOTNOTES)   EDIT
                                                                                                             ----------------
                  FIELD NAME       FIELD TYPE  SIZE                    DEFINITION                            PRAC  HOSP  PHA
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
  Carrier        Program Type         Numeric     1  The program supported by the Practitioner,               X     X     X     TR
   Area                                              hospital or pharmacy at this location. HO = 1,
                                                     BHP = 2, PEBB = 4, CHIP= 8. A separate record
                                                     must be submitted for each program type.
- ------------------------------------------------------------------------------------------------------------------------------------
               InternalProviderID      Text      15  The internal identification number by which the          A     A     A     ERR
                                                     Carrier refers to the Health Care Provider. Required
                                                     for PEBB PCPs, using ProviderClinic code (used for
                                                     enrollment purposes).
- ------------------------------------------------------------------------------------------------------------------------------------
                Credential Date        Date      10  The date the Carrier last credentialed the               A                 ERR
                                                     Practitioner. Must be in correct format: MM/DD/YYYY,
                                                     a valid date, and not a date in the future.
- ------------------------------------------------------------------------------------------------------------------------------------
                   Obstetric          Yes/No      1  Does the Practitioner offer Obstetric services,          X
                                                     including birthing?
- ------------------------------------------------------------------------------------------------------------------------------------
                      PSB              Text       1  A single upper-case character indicating: P =            X                 TR
                                                     Primary Care Provider, S = Specialist, B = Both.
- ------------------------------------------------------------------------------------------------------------------------------------
               AcceptNewPatients      Yes/No      1  Does the Practitioner currently accept new               X
                                                     enrollees?
- ------------------------------------------------------------------------------------------------------------------------------------
                     Limits            Text      50  The practice limitations the Practitioner places         *X
                                                     on his/her services (e.g., age 0-19, 2 days a
                                                     week). *Required only if the carrier is aware of
                                                     practice limitations.
- ------------------------------------------------------------------------------------------------------------------------------------
                AfterHoursPhone        Text      23  Telephone number of the business (not a specific         X      A    A     ERR
                                                     Practitioner) for after normal business hours.
                                                     Format: (nnn) nnn-nnnn ext. nnnnn. (Telephone
                                                     extensions are optional)
- ------------------------------------------------------------------------------------------------------------------------------------
                SpecialtyPrimary       Text      50  The full name or approved abbreviation of the            X                 TR
                                                     specialty offered by the Practitioner under the
                                                     current contract. (see tblSpecialtyType for
                                                     approved specialties and their abbreviations)
- ------------------------------------------------------------------------------------------------------------------------------------
               SpecialtySecondary      Text      50  The full name or approved abbreviation of the            A
                                                     specialty offered by the Practitioner under the
                                                     current contract. Can be multiple if active. (see
                                                     tblSpecialtyType for approved specialties and their
                                                     abbreviations)
- ------------------------------------------------------------------------------------------------------------------------------------


X     =   Required Field
*X    =   Required only if carrier is aware of this information
A     =   Required if applicable
Blank =   Optional

TR    =   Total Reject (don't work record)
ERR   =   Error (blank the field in error but still work the record)

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-2 (a)

 Note: Validate the field type and maximum size, values bolded, and whether the
                field is required or not, for each Provider Type.



- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             PROVIDER TYPES
                                                                                                             (SEE FOOTNOTES)   EDIT
                                                                                                             ----------------
                  FIELD NAME       FIELD TYPE  SIZE                    DEFINITION                            PRACT HOSP  PHAR
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
                    Start              Date     10   The effective date the Practitioner, Hospital or
                                                     Pharmacy entered/will enter into a contract with the     X     X     X     TR
                                                     carrier to administer health care for each place of
                                                     business for each program: HO, BHP or PEBB. Must be
                                                     in correct format: MM/DD/YYYY and a valid date.
- ------------------------------------------------------------------------------------------------------------------------------------
                     End               Date     10   The date the Practitioner, Hospital or Pharmacy          *X    *X    *X    TR
                                                     ended/will end their contract to administer health
                                                     care for each place of business for each program:
                                                     HO, BHP or PEBB. If there is not a known contract
                                                     end date, field can be left blank. Must be in
                                                     correct format: MM/DD/YYYY and a valid date
- ------------------------------------------------------------------------------------------------------------------------------------
                 RestrictedMSO         Text     35   If the provider is a member of a group that delivers     *X
                                                     services through a sub-capitated (risk-based)
                                                     arrangement and does not permit enrollees to use
                                                     providers outside of that group for routine primary
                                                     and referral care, list the name of that provider
                                                     group. *If the provider is not a member of such a
                                                     group, leave blank.
- ------------------------------------------------------------------------------------------------------------------------------------
                   Language            Text     30   Language(s), other than English, in which the            *X
                                                     Practitioner is fluent. This does not include all
                                                     languages that may be available at the Health Care
                                                     Provider's place of business. (see tblLanguage for
                                                     approved abbreviations).
- ------------------------------------------------------------------------------------------------------------------------------------
                   Capacity           Numeric    4   The maximum number of clients the Primary Care
                                                     Provider can manage under the current contract for
                                                     each program, listed separately. (Applies to provider
                                                     Type 1 records only)
- ------------------------------------------------------------------------------------------------------------------------------------
 Provider          LastName            Text     25   The last name, family name or surname of the             X                 TR
   Area                                              Practitioner and any suffix that applies
                                                     (i.e. Sr., Jr., etc.)
- ------------------------------------------------------------------------------------------------------------------------------------
                   FirstName           Text     15   The first or given name of the Practitioner.             X                 TR
- ------------------------------------------------------------------------------------------------------------------------------------
                  MiddleName           Text     15   The middle name(s) or initial(s) of the Practitioner.    A
- ------------------------------------------------------------------------------------------------------------------------------------
                  ProfDegree           Text     10   The professional title of the Practitioner. This         X                 TR
                                                     title may refer to a graduate title received from a
                                                     college or university, or may refer to the title on
                                                     the professional license (e.g. MD, DO, ARNP, PA, LM,
                                                     CNM). Can be multiple if active.
- ------------------------------------------------------------------------------------------------------------------------------------
                     DOB               Date     10   The date of birth of the Practitioner, for internal      X                 ERR
                                                     data management purposes, not public distribution.
                                                     Must be in correct format: MM/DD/YYYY, a valid date,
                                                     not be a date in the future, and be a minimum age of
                                                     16 years old.
- ------------------------------------------------------------------------------------------------------------------------------------
                    Gender             Text      1   The gender of the Practitioner (M or F).                 A                 ERR
- ------------------------------------------------------------------------------------------------------------------------------------
               PractitionersNPI        Text     10   The Practitioner's National Provider Identification      A
                                                     number. As the NPI numbers are assigned, the carrier
                                                     must report the identification number. Not currently
                                                     required.
- ------------------------------------------------------------------------------------------------------------------------------------


X     =   Required Field
*X    =   Required only if carrier is aware of this information
A     =   Required if applicable
Blank =   Optional

TR    =   Total Reject (don't work record)
ERR   =   Error (blank the field in error but still work the record)

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-2 (a)

 Note: Validate the field type and maximum size, values bolded, and whether the
             field is required or not, for each Provider Type.



- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             PROVIDER TYPES
                                                                                                             (SEE FOOTNOTES)   EDIT
                                                                                                             ----------------
                  FIELD NAME        FIELD TYPE  SIZE                    DEFINITION                           PRACT HOSP  PHAR
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       
                LicensePrimary         Text     10   State-issued professional license number. Submitted      X                 TR
                                                     in complete format and match the following patterns.
                                                     For WAshington = [A-Z][A-Z]######## (ie MD12345678)
                                                     For ORegon MD's: [A-Z][A-Z]#### (ieMD1234)
                                                     For Oregon RN's: ####### (ie 1234567)
                                                     For IDaho MD's: M-#### (ie M-1234)
                                                     For IDaho PA's: PA-### (ie RPA-123)
                                                     For IDaho RN's: ##### (ie N-12345)
- ------------------------------------------------------------------------------------------------------------------------------------
             LicensingStatePrimary     Text      2   The two-character upper case Postal Service              X                 TR
                                                     abbreviation TR of the state issuing the
                                                     professional license.
- ------------------------------------------------------------------------------------------------------------------------------------
               LicenseSecondary        Text     10   State-issued professional license number. Submitted      A                 ERR
                                                     in complete format and match the following patterns.
                                                     For Washington = [A-Z][A-Z]######## (ie MD12345678)
                                                     For Oregon MD's: [A-Z][A-Z]#### (ieMD1234)
                                                     For Oregon RN's: ####### (ie 1234567)
                                                     For IDaho MD's: M-#### (ie M-1234)
                                                     For IDaho PA's: PA-### (ie RPA-123)
                                                     For IDaho RN's: N-##### (ie N-12345)
- ------------------------------------------------------------------------------------------------------------------------------------
            LicensingStateSecondary    Text      2   The two-character upper case Postal Service              A                 ERR
                                                     abbreviation of the state issuing the
                                                     professional license.
- ------------------------------------------------------------------------------------------------------------------------------------
Business         ProviderType          Numeric   1   Defines the type of provider services offered by         X     X     X     TR
 Area                                                the business:  1 = Practitioner, 2 = Hospital,
                                                     3 = Pharmacy.
- ------------------------------------------------------------------------------------------------------------------------------------
                 BusinessName          Text     65   Name of Clinic, Office, Hospital or Pharmacy, as the     X     X     X     TR
                                                     public knows it. If a practitioner is located at
                                                     more than one place of business, a separate record
                                                     must be submitted for each address. The Business
                                                     Name may be the Practitioner's name.
- ------------------------------------------------------------------------------------------------------------------------------------
                StreetAddress1         Text     36   The address of the physical location of the Clinic,      X     X     X     TR
                                                     Office, Hospital or Pharmacy. May not contain Post
                                                     Office Box numbers or separate billing address. If a
                                                     practitioner is located at more than one place of
                                                     business, a separate record must be submitted for
                                                     each address. No suite #s permitted, Use USPS Listing
- ------------------------------------------------------------------------------------------------------------------------------------
                StreetAddress2         Text     36   Overflow address line only if required. Not a            A     A     A
                                                     different address location. No suite #s permitted.
- ------------------------------------------------------------------------------------------------------------------------------------
                     City              Text     25   The full name of the city in which the business is       X     X     X     TR
                                                     physically located.
- ------------------------------------------------------------------------------------------------------------------------------------
                     State             Text      2   The two-character upper-case Postal Service              X     X     X     TR
                                                     abbreviation of the state in which the Clinic,
                                                     Office, Hospital or Pharmacy is physically located.
- ------------------------------------------------------------------------------------------------------------------------------------
                      ZIP              Text     10   The postal ZIP code in which the Clinic, Office,         X     X     X     TR
                                                     Hospital or Pharmacy is located.
- ------------------------------------------------------------------------------------------------------------------------------------


X     =   Required Field
*X    =   Required only if carrier is aware of this information
A     =   Required if applicable
Blank =   Optional

TR    =   Total Reject (don't work record)
ERR   =   Error (blank the field in error but still work the record)

                                        3



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-2 (a)

 Note: Validate the field type and maximum size, values bolded, and whether the
                field is required or not, for each Provider Type.



- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             PROVIDER TYPES
                                                                                                             (SEE FOOTNOTES)    EDIT
                                                                                                             ----------------
                    FIELD NAME   FIELD TYPE  SIZE                 DEFINITION                                 PRACT HOSP  PHAR
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          
                      County        Text      15     The name of the County in which the Clinic, Office,      X     X     X     TR
                                                     Hospital or Pharmacy is physically located. Spelled
                                                     out in full.
- ------------------------------------------------------------------------------------------------------------------------------------
                    Day Phone       Text      23     The telephone number of the business (not a specific     X     X     X     TR
                                                     Practitioner.) available during normal business
                                                     hours to make an appointment. Format: (nnn)
                                                     nnn-nnnn ext. nnnnn. (Telephone extensions are
                                                     optional)
- ------------------------------------------------------------------------------------------------------------------------------------
                   BusinessNPI      Text      10     The National Provider Identification number              A     A     A
                                                     given to the Clinic, Office, Hospital or Pharmacy.
                                                     As the NPI numbers are assigned, the carrier must
                                                     report the identification number. Not currently
                                                     required.
- ------------------------------------------------------------------------------------------------------------------------------------
                       NAPB         Text      10     The Pharmacy Board identification number, to use as                  X     ERR
                                                     a unique identifier for pharmacies.
- ------------------------------------------------------------------------------------------------------------------------------------
                     Comments       Text     255     Comments to IPND Coordinator regarding record.
- ------------------------------------------------------------------------------------------------------------------------------------
                     Website        Text       1     Is this record available to publish on the IPND Web
                                                     Provider Directory Values of Y or N Defaults to Y
- ------------------------------------------------------------------------------------------------------------------------------------
                  Billing Address   Text       1     Is this record a billing address only? Values of Y
                                                     or N Defaults to N
- ------------------------------------------------------------------------------------------------------------------------------------


X     =   Required Field
*X    =   Required only if carrier is aware of this information
A     =   Required if applicable
Blank =   Optional

TR    =   Total Reject (don't work record)
ERR   =   Error (blank the field in error but still work the record)

                                        4



                                                        2003 HO & SCHIP Contract
                                                        Exhibit C-2 (b)

                                 EXHIBIT C-2 (b)
                            IPND ESCALATION PROCEDURE

The State of Washington has a contract with GeoAccess for provider network data
management for Basic Health (BH), Healthy Options (HO), Children's Health
Insurance Program (CHIP), and Public Employees Benefits Board (PEBB) programs.
The following are guidelines in the event a carrier does not submit their
monthly provider network report by the designated due date, for loading in the
Integrated Provider Network Database (IPND). Late submissions are equal to
non-submission for the month. Late submissions may be used as the next month's
submission if another submission is not received before the deadline.

- --------------------------------------------------------------------------------
Late or No Submission                     ESCALATION PROCEDURES
- --------------------------------------------------------------------------------
     First Month              o   GeoAccess will follow up with the carrier
                                  contact.

                              o   GeoAccess will notify the IPND Coordinator.

                              o   The IPND Coordinator will contact the
                                  carrier(s) via telephone and follow up in
                                  writing to determine and resolve reasons for
                                  late or non-submittal. IPND Coordinator will
                                  work with the plan to ensure timely future
                                  submission and update routines.

                              o   If no new submission is received by the due
                                  date the prior month's data will be re-entered
                                  in IPND.
- --------------------------------------------------------------------------------
    Second Month              o   GeoAccess will follow up with the carrier
                                  contact.

                              o   GeoAccess will notify the IPND Coordinator.

                              o   The plan will receive a "warning letter" from
                                  MAA/HCA.

                              o   Prior month's data will be re-entered in IPND.
- --------------------------------------------------------------------------------
     Third Month              o   No data for the carrier(s) will be displayed
                                  in the database until the next monthly
                                  submission is received.

                              o   Notification of the removal of carrier data
                                  will be sent to the HCA/MAA User Interface
                                  customers.

                              o   HCA/MAA will send written notice to the
                                  carrier(s) to inform them of their omission
                                  from the database and steps necessary to
                                  update IPND for their plan.
- --------------------------------------------------------------------------------

                                        1



                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                             Exhibit D-1, Capacity
                                Contractor: MHC
                           Effective: January 1, 2003


- ----------------------------------------------------------
    REGION           SERVICE AREA                CAPACITY
- ----------------------------------------------------------
                                           
      1        Island                               5,000
- ----------------------------------------------------------
      1        San Juan                               150
- ----------------------------------------------------------
      1        Skagit                               9,000
- ----------------------------------------------------------
      1        Whatcom                              7,000
- ----------------------------------------------------------
      2        Snohomish                              500
- ----------------------------------------------------------
      3        King                                61,000
- ----------------------------------------------------------
      3        Pierce                              55,000
- ----------------------------------------------------------
      4        Clallam                              4,000
- ----------------------------------------------------------
      4        Jefferson*                               0*
- ----------------------------------------------------------
      4        Kitsap                               9,000
- ----------------------------------------------------------
      5        Grays Harbor                         7,000
- ----------------------------------------------------------
      5        Lewis                                8,400
- ----------------------------------------------------------
      5        Mason                                  800
- ----------------------------------------------------------
      5        Pacific                              1,000
- ----------------------------------------------------------
      5        Thurston                             4,000
- ----------------------------------------------------------
      6        Clark*                                   0*
- ----------------------------------------------------------
      6        Cowlitz                              6,400
- ----------------------------------------------------------
      6        Skamania*                                0*
- ----------------------------------------------------------
      6        Wahkiakum*                               0*
- ----------------------------------------------------------
      7        Adams                                1,250
- ----------------------------------------------------------
      7        Chelan                              10,000
- ----------------------------------------------------------
      7        Douglas                              4,000
- ----------------------------------------------------------
      7        Grant                                9,900
- ----------------------------------------------------------
      7        Okanogan                             7,450
- ----------------------------------------------------------
      8        Kittitas*                                0*
- ----------------------------------------------------------
      8        Klickitat*                               0*
- ----------------------------------------------------------
      8        Yakima                               4,000
- ----------------------------------------------------------
      9        Ferry*                                   0*
- ----------------------------------------------------------
      9        Lincoln                              1,000
- ----------------------------------------------------------
      9        Pend Orielle                         1,600
- ----------------------------------------------------------
      9        Stevens*                                 0*
- ----------------------------------------------------------
      10       Spokane                             30,000
- ----------------------------------------------------------
      11       Asotin*                                  0*
- ----------------------------------------------------------
      11       Garfield                               120
- ----------------------------------------------------------
      11       Whitman                              2,300
- ----------------------------------------------------------
      12       Benton                               9,000
- ----------------------------------------------------------
      12       Columbia                               450
- ----------------------------------------------------------
      12       Franklin                             8,500
- ----------------------------------------------------------
      12       Walla Walla                          6,000
- ----------------------------------------------------------


*NOTE: Shaded areas are those not currently served.




                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-2, Adjustment Factors
                                Contractor: MHC
                           Effective: January 1, 2003


- -----------------------------------------------------------------------------------------------------
   REGION           SERVICE AREA              GEO ADJ FACTOR                  HO RISK ADJ FACTOR
- -----------------------------------------------------------------------------------------------------
                                                                          1st Qtr      2nd - 4th Qtr
- -----------------------------------------------------------------------------------------------------
                                                                         
      1       Island                            1.005                      0.974
- ----------------------------------------------------------------------------------------------------
      1       Skagit                            1.005                      0.974
- ----------------------------------------------------------------------------------------------------
      1       San Juan                          1.005                      0.974
- ----------------------------------------------------------------------------------------------------
      1       Whatcom                           1.005                      0.974
- ----------------------------------------------------------------------------------------------------
      2       Snohomish                         1.053                      0.977
- ----------------------------------------------------------------------------------------------------
      3       King                              0.998                      0.994
- ----------------------------------------------------------------------------------------------------
      3       Pierce                            0.998                      0.994
- ----------------------------------------------------------------------------------------------------
      4       Clallam                           1.011                      0.949
- ----------------------------------------------------------------------------------------------------
      4       Jefferson*                        1.011*                     0.949*
- ----------------------------------------------------------------------------------------------------
      4       Kitsap                            1.011                      0.949
- ----------------------------------------------------------------------------------------------------
      5       Grays Harbor                      1.028                      1.002
- ----------------------------------------------------------------------------------------------------
      5       Lewis                             1.028                      1.002
- ----------------------------------------------------------------------------------------------------
      5       Mason                             1.028                      1.002
- ----------------------------------------------------------------------------------------------------
      5       Pacific*                          1.028*                     1.002*
- ----------------------------------------------------------------------------------------------------
      5       Thurston                          1.028                      1.002
- ----------------------------------------------------------------------------------------------------
      6       Clark*                            0.955*                     1.046*
- ----------------------------------------------------------------------------------------------------
      6       Cowlitz                           0.955                      1.046
- ----------------------------------------------------------------------------------------------------
      6       Skamania*                         0.955*                     1.046*
- ----------------------------------------------------------------------------------------------------
      6       Wahkiakum*                        0.955*                     1.046*
- ----------------------------------------------------------------------------------------------------
      7       Adams                             1.011                      1.014
- ----------------------------------------------------------------------------------------------------
      7       Chelan                            1.011                      1.014
- ----------------------------------------------------------------------------------------------------
      7       Douglas                           1.011                      1.014
- ----------------------------------------------------------------------------------------------------
      7       Grant                             1.011                      1.014
- ----------------------------------------------------------------------------------------------------
      7       Okanogan                          1.011                      1.014
- ----------------------------------------------------------------------------------------------------
      8       Kittitas*                         0.981*                     1.003*
- ----------------------------------------------------------------------------------------------------
      8       Klickitat*                        0.981*                     1.003*
- ----------------------------------------------------------------------------------------------------
      8       Yakima                            0.981                      1.003
- ----------------------------------------------------------------------------------------------------
      9       Ferry*                            1.044*                     1.009*
- ----------------------------------------------------------------------------------------------------
      9       Lincoln                           1.044                      1.009
- ----------------------------------------------------------------------------------------------------
      9       Pend Orielle                      1.044                      1.009
- ----------------------------------------------------------------------------------------------------
      9       Stevens*                          1.044*                     1.009*
- ----------------------------------------------------------------------------------------------------
     10       Spokane                           1.018                      0.998
- ----------------------------------------------------------------------------------------------------
     11       Asotin*                           1.021*                     0.981*
- ----------------------------------------------------------------------------------------------------
     11       Garfield                          1.021                      0.981
- ----------------------------------------------------------------------------------------------------
     11       Whitman                           1.021                      0.981
- ----------------------------------------------------------------------------------------------------
     12       Benton                            0.991                      1.004
- ----------------------------------------------------------------------------------------------------
     12       Columbia                          0.991                      1.004
- ----------------------------------------------------------------------------------------------------
     12       Franklin                          0.991                      1.004
- ----------------------------------------------------------------------------------------------------
     12       Walla Walla                       0.991                      1.004
- ----------------------------------------------------------------------------------------------------


*Note: Shaded areas are those not currently served.


                                                          2003 Ho Schip Contract
                                                                       Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-3 Service Area Detail
                                Contractor: Mhc
                           Effective January 1, 2002


- --------------------------------------------------------------------------------------------------------------------------------
   Adams                            Benton                   Chelan                     Clallam                  Clark
================================================================================================================================
================================================================================================================================
   CITY           ZIP          CITY       ZIP          CITY           ZIP         CITY          ZIP      CITY            ZIP
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                              
Benge (50)       99105    Benton City     99320     Ardenvoir         98811      Beaver         98305    Amboy*          98601*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cunningham       99327    Kennewick (U)   99336     Cashmere          98815      Carlsborg      98324    Battle Ground*  98604*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Hatton           99332    Kennewick       99337     Chelan            98816      Clallam Bay    98326    Bush Prairie*   98606*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Lind             99341    Kennewick       99338     Chelan Falls      98817      Forks          98331    Camas*          98607*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Othello          99344    Paterson        99345     Dryden            98821      Joyce          98343    Heison*         98622*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Washtucna (50)   99371    Plymouth (50)   99346     Entiat            98822      La Push        98350    La Center*      98629*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Ritzville        99169    Prosser         99350     Leavenworth       98826      Neah Bay (50)  98357    Ridgefield*     98642*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                          Richland        99352     Malaga            98828      Port Angeles   98362    Vancouver*      98660*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                          West Richland   99353     Manson            98831      Port Angeles   98363    Vancouver (U)*  98661*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                    Monitor           98836      Sekiu (50)     98381    Vancouver*      98662*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                    Peshastin         98847      Sequim         98382    Vancouver (U)*  98663*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                    Stehekin (CP 65)  98852                              Vancouver (U)*  98664*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                    Wenatchee         98801                              Vancouver*      98665*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                    Wenatchee         98807                              Vancouver*      98666*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98667*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98668*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98682*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98683*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver (U)*  98684*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98685*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98686*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Vancouver*      98687*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Yacolt*         98675*
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Washougal*       98671*
- --------------------------------------------------------------------------------------------------------------------------------






- ----------------------------------------------
      Columbia                 Cowlitz
==============================================
==============================================
  CITY      ZIP           CITY         ZIP
- ----------------------------------------------
- ----------------------------------------------
                              
Dayton      99328     Ariel (50)       98603
- ----------------------------------------------
- ----------------------------------------------
Starbuck    99359     Carrolls         98609
- ----------------------------------------------
- ----------------------------------------------
                      Castle Rock      98611
- ----------------------------------------------
- ----------------------------------------------
                      Cougar (50)      98616
- ----------------------------------------------
- ----------------------------------------------
                      Kalama           98625
- ----------------------------------------------
- ----------------------------------------------
                      Kelso            98626
- ----------------------------------------------
- ----------------------------------------------
                      Longview         98632
- ----------------------------------------------
- ----------------------------------------------
                      Ryderwood        98581
- ----------------------------------------------
- ----------------------------------------------
                      Silverlake       98645
- ----------------------------------------------
- ----------------------------------------------
                      Toutle           98649
- ----------------------------------------------
- ----------------------------------------------
                      Woodland         98674
- ----------------------------------------------
- ----------------------------------------------





                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                                    Exhibit D
                      Premiums, Service Areas and Capacity
                        Exhibit D-3, Service Area Detail
                                Contractor: MHC
                           Effective: January 1, 2003



- ---------------------------------------------------------------------------------------------
      Douglas                      Ferry                    Franklin       Garfield
=============================================================================================
        CITY           ZIP         CITY         ZIP       CITY      ZIP      CITY       ZIP
- ---------------------------------------------------------------------------------------------
                                                                  
Bridgeport            98813   Boyd*            99107*  Connell     99326  Pomeroy      99347
- ---------------------------------------------------------------------------------------------
East Wenatchee        98802   Curlew (50)*     99118*  Eltopia     99330
- ---------------------------------------------------------------------------------------------
Mansfield             98830   Danville (50)*   99121*  Kahlotus    99335
- ---------------------------------------------------------------------------------------------
Orondo                98843   Inchelium (50)*  99138*  Mesa        99343
- ---------------------------------------------------------------------------------------------
Palisades             98845   Keller*          99140*  Pasco       99301
- ---------------------------------------------------------------------------------------------
Rock Island           98850   Laurier (50)*    99146*  Pasco       99302
- ---------------------------------------------------------------------------------------------
Waterville            98858   Malo*            99150*
- ---------------------------------------------------------------------------------------------
                              Orient*          99160*
- ---------------------------------------------------------------------------------------------
                              Republic*        99166*
- ---------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------
      Grant                     Grays Harbor           Island                 Jefferson
=====================================================================================================
       CITY         ZIP         CITY          ZIP       CITY        ZIP          CITY          ZIP
- -----------------------------------------------------------------------------------------------------
                                                                         
 Beverly           99321  Aberdeen*          98520* Clinton        98236  Brinnon*            98320*
- -----------------------------------------------------------------------------------------------------
 Coulee City       99115  Amanda Park*       98526* Coupeville     98239  Chimacum*           98325*
- -----------------------------------------------------------------------------------------------------
 Electric City     99123  Copalis Bch.*      98535* Freeland       98249  Port Hadlock*       98339*
- -----------------------------------------------------------------------------------------------------
 Ephrata           98823  Copalis Cros*      98536* Greenbank      98253  Nordland*           98358*
- -----------------------------------------------------------------------------------------------------
 George            98824  Cosmopolis*        98537* Langley        98260  Port Ludlow*        98365*
- -----------------------------------------------------------------------------------------------------
 Grand Coulee      99133  Elma*              98541* Oak Harbor     98277  Port Townsend*      98368*
- -----------------------------------------------------------------------------------------------------
 Hartline          99135  Grayland*          98547* Oak Harbor     98278  Quilcene*           98376*
- -----------------------------------------------------------------------------------------------------
 Marlin            98832  Hoquiam*           98550*
- -----------------------------------------------------------------------------------------------------
 Mattawa (50)      99349  Humptuliips*       98552*
- -----------------------------------------------------------------------------------------------------
 Moses Lake        98837  Malone*            98559*
- -----------------------------------------------------------------------------------------------------
 Quincy            98848  McCleary*          98557*
- -----------------------------------------------------------------------------------------------------
 Royal City        99357  Moclips*           98562*
- -----------------------------------------------------------------------------------------------------
 Soap Lake         98851  Montesano*         98563*
- -----------------------------------------------------------------------------------------------------
 Stratford         98853  Neilton*           98566*
- -----------------------------------------------------------------------------------------------------
 Warden            98857  Oakville*          98568*
- -----------------------------------------------------------------------------------------------------
 Wilson Creek      98860  Ocean Shores*      98569*
- -----------------------------------------------------------------------------------------------------
                          Pacific Bch.*      98571*
- -----------------------------------------------------------------------------------------------------
                          Quinault*          98575*
- -----------------------------------------------------------------------------------------------------
                          Satsop*            98583*
- -----------------------------------------------------------------------------------------------------
                          Taholah*           98587*
- -----------------------------------------------------------------------------------------------------
                          Westport*          98595*
- -----------------------------------------------------------------------------------------------------


NOTES:

* Shaded areas are those not currently served.
Zip codes with a (U) after the city name are urban.
Zip codes with a number (##) after the city name have that number of miles as
the global distance standard.



                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-3, Service Area Detail
                                Contractor: MHC
                           Effective: January 1, 2003


- --------------------------------------------------------------------------------------------------------------
                                                  King
==============================================================================================================
        CITY           ZIP         CITY         ZIP       CITY        ZIP             CITY              ZIP
- --------------------------------------------------------------------------------------------------------------
                                                                                 
Auburn                98001   Kent             98042  Seattle (U)    98111  Seattle                    98166
- --------------------------------------------------------------------------------------------------------------
Auburn (U)            98002   Kent             98064  Seattle (U)    98112  Seattle                    98168
- --------------------------------------------------------------------------------------------------------------
Auburn                98071   Kirkland (U)     98033  Seattle (U)    98114  Seattle (U)                98170
- --------------------------------------------------------------------------------------------------------------
Auburn                98092   Kirkland (U)     98034  Seattle (U)    98115  Seattle (U)                98171
- --------------------------------------------------------------------------------------------------------------
Baring (50)           98224   Kirkland         98083  Seattle (U)    98116  Seattle (U)                98174
- --------------------------------------------------------------------------------------------------------------
Bellevue              98004   Maple Valley     98038  Seattle (U)    98117  Seattle (U)                98177
- --------------------------------------------------------------------------------------------------------------
Bellevue (U)          98005   Medina           98039  Seattle (U)    98118  Seattle (U)                98178
- --------------------------------------------------------------------------------------------------------------
Bellevue              98006   Mercer Is. (U)   98040  Seattle (U)    98119  Seattle (U)                98181
- --------------------------------------------------------------------------------------------------------------
Bellevue (U)          98007   North Bend       98045  Seattle (U)    98121  Seattle (U)                98184
- --------------------------------------------------------------------------------------------------------------
Bellevue (U)          98008   Pacific (U)      98047  Seattle (U)    98122  Seattle (U)                98185
- --------------------------------------------------------------------------------------------------------------
Bellevue              98009   Preston          98050  Seattle (U)    98124  Seattle                    98188
- --------------------------------------------------------------------------------------------------------------
Bellevue              98015   Ravensdale       98051  Seattle (U)    98125  Seattle (U)                98190
- --------------------------------------------------------------------------------------------------------------
Black Diamond         98010   Redmond          98052  Seattle (U)    98126  Seattle (U)                98191
- --------------------------------------------------------------------------------------------------------------
Bothell (U)           98011   Redmond          98053  Seattle (U)    98129  Seattle (U)                98195
- --------------------------------------------------------------------------------------------------------------
Bothell               98041   Redmond          98073  Seattle (U)    98131  Seattle                    98198
- --------------------------------------------------------------------------------------------------------------
Burton                98013   Redmond          98074  Seattle (U)    98132  Seattle (U)                98199
- --------------------------------------------------------------------------------------------------------------
Carnation             98014   Redondo          98054  Seattle (U)    98133  Skykomish (50)             98288
- --------------------------------------------------------------------------------------------------------------
Duvall                98019   Renton           98055  Seattle (U)    98134  Snoqualmie                 98065
- --------------------------------------------------------------------------------------------------------------
Enumclaw (50)         98022   Renton (U)       98056  Seattle (U)    98136  Vashon                     98070
- --------------------------------------------------------------------------------------------------------------
Fall City             98024   Renton           98057  Seattle (U)    98138  Woodinville                98072
- --------------------------------------------------------------------------------------------------------------
Federal Way (U)       98003   Renton           98058  Seattle (U)    98144  Bothell (U)                98012
- --------------------------------------------------------------------------------------------------------------
Federal Way (U)       98023   Renton           98059  Seattle (U)    98145  Bothell (U)                98021
- --------------------------------------------------------------------------------------------------------------
Federal Way           98063   Seahurst         98062  Seattle (U)    98146  Bothell (U)                98082
- --------------------------------------------------------------------------------------------------------------
Federal Way           98093   Seattle (U)      98101  Seattle        98148  Snoqualmie Pass (50)       98068
- --------------------------------------------------------------------------------------------------------------
Hobart                98025   Seattle (U)      98102  Seattle (U)    98151
- --------------------------------------------------------------------------------------------------------------
Issaquah              98027   Seattle (U)      98103  Seattle (U)    98154
- --------------------------------------------------------------------------------------------------------------
Issaquah              98029   Seattle (U)      98104  Seattle (U)    98155
- --------------------------------------------------------------------------------------------------------------
Kent                  98030   Seattle (U)      98105  SeaTac (U)     98158
- --------------------------------------------------------------------------------------------------------------
Issaquah              98075   Seattle (U)      98106  Seattle (U)    98160
- --------------------------------------------------------------------------------------------------------------
Kenmore               98028   Seattle (U)      98107  Seattle (U)    98161
- --------------------------------------------------------------------------------------------------------------
Kent (U)              98031   Seattle (U)      98108  Seattle (U)    98164
- --------------------------------------------------------------------------------------------------------------
Kent                  98032   Seattle (U)      98109
- --------------------------------------------------------------------------------------------------------------
Kent                  98035
- --------------------------------------------------------------------------------------------------------------


Shaded areas are those not currently served.
Zip codes with a (U) after the city name are urban.
Zip codes with a number (##) after the city name have that number of miles as
the global distance standard.



                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-3, Service Area Detail
                                Contractor: MHC
                           Effective: January 1, 2003



- -----------------------------------------------------------------------------------------------------
      Kitsap                 Kittitas                Klickitat                   Lewis
=====================================================================================================
       CITY          ZIP       CITY        ZIP         CITY          ZIP          CITY          ZIP
- -----------------------------------------------------------------------------------------------------
                                                                          
Bainbridge Is.      98110  CleElum*       98922* Appleton*          98602* Adna                98522
- -----------------------------------------------------------------------------------------------------
Bremerton (U)       98310  Easton*        98925* Bickleton (50)*    99322* Centralia           98531
- -----------------------------------------------------------------------------------------------------
Bremerton           98311  Ellensburg*    98926* Bingen*            98605* Chehalis            98532
- -----------------------------------------------------------------------------------------------------
Bremerton           98312  Kittitas*      98934* Centerville*       98613* Cinnabar            98533
- -----------------------------------------------------------------------------------------------------
Bremerton (U)       98314  Ronald*        98940* Dallesport*        98617* Curtis              98538
- -----------------------------------------------------------------------------------------------------
Bremerton           98337  Roslyn*        98941* Glenwood (50)*     98619* Doty                98539
- -----------------------------------------------------------------------------------------------------
Bremerton           98322  S. CleElum*    98943* Goldendale*        98620* Ethel               98542
- -----------------------------------------------------------------------------------------------------
Hansville           98340  Thorp*         98946* Husum*             98623* Galvin              98544
- -----------------------------------------------------------------------------------------------------
Indianola           98342  Vantage*       98950* Klickitat*         98628* Glennoma            98336
- -----------------------------------------------------------------------------------------------------
Keyport             98345                        Lyle*              98635* Mineral             98355
- -----------------------------------------------------------------------------------------------------
Kingston            98346                        Roosevelt (50)*    99356* Morton              98356
- -----------------------------------------------------------------------------------------------------
Manchester          98353                        Trout Lake*        98650* Mossyrock           98564
- -----------------------------------------------------------------------------------------------------
Ollala              98359                        Wahkiacus*         98670* Napavine            98565
- -----------------------------------------------------------------------------------------------------
Port Gamble         98364                        White Salmon*      98672* Onalaska            98570
- -----------------------------------------------------------------------------------------------------
Port Orchard        98366                        Wishram*           98673* Packwood (50)       98361
- -----------------------------------------------------------------------------------------------------
Port Orchard        98367                                                  Pe Ell              98572
- -----------------------------------------------------------------------------------------------------
Poulsbo             98370                                                  Randle (50)         98377
- -----------------------------------------------------------------------------------------------------
Retsil              98378                                                  Salkum              98582
- -----------------------------------------------------------------------------------------------------
Rollingbay          98061                                                  Silver Creek        98585
- -----------------------------------------------------------------------------------------------------
Seabeck             98380                                                  Toledo              98591
- -----------------------------------------------------------------------------------------------------
Silverdale          98315                                                  Vader               98593
- -----------------------------------------------------------------------------------------------------
Silverdale          98383                                                  Winlock             98596
- -----------------------------------------------------------------------------------------------------
SouthColby          98384
- -----------------------------------------------------------------------------------------------------
Southworth          98386
- -----------------------------------------------------------------------------------------------------
Suquamish           98392
- -----------------------------------------------------------------------------------------------------
Tracyton            98393
- -----------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------
     Lincoln                Mason                  Okanogan
=========================================================================
      CITY         ZIP       CITY       ZIP          CITY          ZIP
- -------------------------------------------------------------------------
                                                   
 Almira           99103  Allyn         98524  Brewster            98812
- -------------------------------------------------------------------------
 Creston          99117  Belfair       98528  Carlton             98814
- -------------------------------------------------------------------------
 Davenport        99122  Grapeview     98546  Conconully          98819
- -------------------------------------------------------------------------
 Edwall           99008  Hoodsport     98548  Coulee Dam          99116
- -------------------------------------------------------------------------
 Harrington       99134  Lilliwaup     98555  Elmer City          99124
- -------------------------------------------------------------------------
 Odessa           99144  Matlock       98560  Loomis              98827
- -------------------------------------------------------------------------
 Lincoln          99147  Shelton       98584  Malott              98829
- -------------------------------------------------------------------------
 Mohler           99154  Tahuya        98588  Mazama (50)         98833
- -------------------------------------------------------------------------
 Odessa           99159  Union         98592  Methow              98834
- -------------------------------------------------------------------------
 Reardan          99029                       Nespelem            99155
- -------------------------------------------------------------------------
 Sprague (50)     99032                       Okanogan            98840
- -------------------------------------------------------------------------
 Wilbur           99185                       Omak                98841
- -------------------------------------------------------------------------
                                              Oroville            98844
- -------------------------------------------------------------------------
                                              Pateros             98846
- -------------------------------------------------------------------------
                                              Riverside           98849
- -------------------------------------------------------------------------
                                              Tonasket            98855
- -------------------------------------------------------------------------
                                              Twisp (50)          98856
- -------------------------------------------------------------------------
                                              Wauconda (50)       98859
- -------------------------------------------------------------------------
                                              Winthrop (50)       98862
- -------------------------------------------------------------------------


NOTES:

*  Shaded areas are those not currently served.
Zip codes with a (U) after the city name are urban.
Zip codes with a number (##) after the city name have that number of miles as
the global distance standard.




2003 HO SCHIP Contract
Exhibit D
Premiums, Service Areas and Capacity
Exhibit D-3, Service Area Detail
Contractor: MHC
Effective: January 1, 2003



- -------------------------------------------------------------------------------------------------------
    Pacific                  Pend Oreille                                      Pierce
=======================================================================================================
      CITY         ZIP           CITY            ZIP         CITY         ZIP        CITY         ZIP
- -------------------------------------------------------------------------------------------------------
                                                                            
Bay Center        98527  Cusick (50)            99119  Anderson Is.      98303  South Prairie    98385
- -------------------------------------------------------------------------------------------------------
Chinook           98614  Ione (50)              99139  Ashford (50)      98304  Spanaway         98387
- -------------------------------------------------------------------------------------------------------
Illwaco           98624  Metaline (50)          99152  Buckley           98321  Steilacoom       98388
- -------------------------------------------------------------------------------------------------------
Lebam             98554  Metaline Falls (50)    99153  Camp Murray       98430  Sumner           98352
- -------------------------------------------------------------------------------------------------------
Long Beach        98631  Newport                99156  Carbonado         98323  Sumner           98390
- -------------------------------------------------------------------------------------------------------
Menlo             98561  Usk                    99180  Dupont            98327  Tacoma (U)       98401
- -------------------------------------------------------------------------------------------------------
Nahcotta          98637                                Eatonville        98328  Tacoma (U)       98402
- -------------------------------------------------------------------------------------------------------
Naselle           98638                                Elbe              98330  Tacoma (U)       98403
- -------------------------------------------------------------------------------------------------------
Ocean Park        98640                                Fox Island        98333  Tacoma (U)       98404
- -------------------------------------------------------------------------------------------------------
Oysterville       98641                                Gig Harbor        98329  Tacoma (U)       98405
- -------------------------------------------------------------------------------------------------------
Raymond           98577                                Gig Harbor        98332  Tacoma (U)       98406
- -------------------------------------------------------------------------------------------------------
Seaview           98644                                Gig Harbor        98335  Tacoma (U)       98407
- -------------------------------------------------------------------------------------------------------
South Bend        98586                                Graham            98338  Tacoma (U)       98408
- -------------------------------------------------------------------------------------------------------
Tokeland          98590                                Kapowsin          98344  Tacoma (U)       98409
- -------------------------------------------------------------------------------------------------------
                                                       La Grande         98348  Tacoma (U)       98411
- -------------------------------------------------------------------------------------------------------
                                                       Lake Bay          98349  Tacoma (U)       98412
- -------------------------------------------------------------------------------------------------------
                                                       Lakewood          98439  Tacoma (U)       98413
- -------------------------------------------------------------------------------------------------------
                                                       Lakewood          98492  Tacoma (U)       98415
- -------------------------------------------------------------------------------------------------------
                                                       Lakewood          98497  Tacoma (U)       98416
- -------------------------------------------------------------------------------------------------------
                                                       Lakewood          98498  Tacoma (U)       98418
- -------------------------------------------------------------------------------------------------------
                                                       Lakewood          98499  Tacoma           98421
- -------------------------------------------------------------------------------------------------------
                                                       Longbranch        98351  Tacoma           98422
- -------------------------------------------------------------------------------------------------------
                                                       Longmire          98397  Tacoma           98424
- -------------------------------------------------------------------------------------------------------
                                                       McChord AFB       98438  Tacoma           98431
- -------------------------------------------------------------------------------------------------------
                                                       McKenna           98558  Tacoma           98433
- -------------------------------------------------------------------------------------------------------
                                                       Milton            98354  Tacoma           98442
- -------------------------------------------------------------------------------------------------------
                                                       Orting            98360  Tacoma           98443
- -------------------------------------------------------------------------------------------------------
                                                       Puyallup          98371  Tacoma (U)       98444
- -------------------------------------------------------------------------------------------------------
                                                       Puyallup          98372  Tacoma (U)       98445
- -------------------------------------------------------------------------------------------------------
                                                       Puyallup (U)      98373  Tacoma           98446
- -------------------------------------------------------------------------------------------------------
                                                       Puyallup          98374  Tacoma (U)       98447
- -------------------------------------------------------------------------------------------------------
                                                       Puyallup           98375 Tacoma (U)       98450
- -------------------------------------------------------------------------------------------------------
                                                       Roy               98580
- -------------------------------------------------------------------------------------------------------


- ----------------------------------------------------------
                 Pierce                   San Juan
==========================================================
          CITY             ZIP         CITY         ZIP
- ----------------------------------------------------------
                                          
 Tacoma (U)               98455  Deer Harbor       98243
- ----------------------------------------------------------
 Tacoma (U)               98460  Eastsound         98245
- ----------------------------------------------------------
 University Place (U)     98464  Friday Harbor     98250
- ----------------------------------------------------------
 Tacoma (U)               98465  Lopez Is.         98261
- ----------------------------------------------------------
 Tacoma (U)               98466  Olga              98279
- ----------------------------------------------------------
 Tacoma                   98471  Orcas             98280
- ----------------------------------------------------------
 Tacoma                   98477  Shaw Is.          98286
- ----------------------------------------------------------
 Tacoma                   98481  Waldron           98297
- ----------------------------------------------------------
 Tacoma                   98493  Blakley Island    98222
- ----------------------------------------------------------
 University Place         98467
- ----------------------------------------------------------
 Vaughn                   98394
- ----------------------------------------------------------
 Wauna                    98395
- ----------------------------------------------------------
 Wilkeson                 98396
- ----------------------------------------------------------
 Paradise Inn             98398
- ----------------------------------------------------------


NOTES:

* Shaded areas are those not currently served.
Zip codes with a (U) after the city name are urban.
Zip codes with a number (##) after the city name have that number of miles as
the global distance standard.



                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-3, Service Area Detail
                                Contractor: MHC
                           Effective: January 1, 2003



- ------------------------------------------------------------------------------------------------------------------------------------
        Skagit                      Skamania*                  Snohomish                                Spokane
====================================================================================================================================
====================================================================================================================================
         CITY         ZIP         CITY*        ZIP*            CITY           ZIP          CITY           ZIP        CITY      ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   

Anacortes            98221   Carson*          98610* Arlington*              98223*  Airway Hts.         99001  Spokane       99210
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Bow                  98232   N. Bonneville*   98639* Darrington (50)*        98241*  Chattaroy           99003  Spokane       99211
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Bow                  98246   Stevenson*       98648* Edmonds (U)             98020   Cheney              99004  Spokane       99212
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Burlington           98233   Underwood*       98651* Edmonds (U)             98026   Colbert             99005  Spokane       99213
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Clear Lake           98235                           Everett*                98201*  Deer Park           99006  Spokane       99214
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Concrete (50)        98237                           Everett*                98203*  Elk                 99009  Spokane       99215
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Conway               98238                           Everett*                98204*  Fairchild AFB       99011  Spokane       99216
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Hamilton             98255                           Everett*                98205*  Fairfield           99012  Spokane       99217
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
La Conner            98257                           Everett*                98206*  Four Lakes          99014  Spokane (U)   99218
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Lyman                98263                           Everett*                98207*  Freeman             99015  Spokane       99219
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Marble Mount (50)    98267                           Everett*                98208*  Greenacres          99016  Spokane       99220
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mt. Vernon           98273                           Gold Bar*               98251*  Latah               99018  Spokane       99223
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Mt. Vernon           98274                           Granite Falls*          98252*  Liberty Lake        99019  Spokane       99224
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Rockport (50)        98283                           Index*                  98256*  Marshall            99020  Spokane       99228
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Sedro Wooley         98284                           Lake Stevens*           98258*  Mead                99021  Spokane       99251
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Lynnwood (U)*           98036*  Medical Lake        99022  Spokane       99252
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Lynnwood (U)*           98037*  Mica                99023  Spokane       99256
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Lynnwood (U)*           98046*  Newman Lake         99025  Spokane       99258
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Marysville*             98270*  Nine Miles Falls    99026  Spokane       99260
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Marysville*             98271*  Otis Orchards       99027  Spokane       99299
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Monroe*                 98272* Rockford            99030  Valleyford    99036
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Mountlake Terrace (U)*  98043* Spangle             99031  Veradale      99037
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Mukilteo*               98275* Spokane (U)         99201  Waverly       99039
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     N. Lakewood*            98259* Spokane (U)         99202
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Silvana*                98287* Spokane (U)         99203
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Snohomish*              98290* Spokane (U)         99204
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Snohomish*              98291* Spokane (U)         99205
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Snohomish*              98296* Spokane             99206
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Stanwood*               98282* Spokane (U)         99207
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Stanwood*               98292* Spokane             99208
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Startup*                98293* Spokane             99209
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
                                                     Sultan*                 98294*
- ------------------------------------------------------------------------------------------------------------------------------------


 NOTES:
*Shaded areas are those not currently served.
 Zip codes with a (U) after the city name are urban.
 Zip codes with a number (##) after the city name have that number of miles as
 the global distance standard.



                                                          2003 HO SCHIP Contract
                                                          Exhibit D

                      Premiums, Service Areas and Capacity
                        Exhibit D-3, Service Area Detail
                                Contractor: MHC
                           Effective: January 1, 2003


- -------------------------------------------------------------------------------------------------------------------------------
      Stevens                   Thurston                    Wahkiakum          Walla Walla                 Whatcom
===============================================================================================================================
       CITY           ZIP         CITY         ZIP        CITY        ZIP          CITY         ZIP         CITY          ZIP
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                             
Addy*                99101*  Bucoda           98530  Cathlamet*      98612*  Burbank           99323  Acme               98220
- -------------------------------------------------------------------------------------------------------------------------------
Chewelah*            99109*  East Olympia     98540  Grays River*    98621*  College Place     99324  Bellingham (U)     98225
- -------------------------------------------------------------------------------------------------------------------------------
Clayton*             99110*  Lacey            98503  Rosburg*        98643*  Dixie             99329  Bellingham         98226
- -------------------------------------------------------------------------------------------------------------------------------
Colville*            99114*  Lacey            98509  Skamokawa*      98647*  Prescott (50)     99348  Bellingham         98227
- -------------------------------------------------------------------------------------------------------------------------------
Evans*               99126*  Littlerock       98556                          Touchet           99360  Bellingham         98228
- -------------------------------------------------------------------------------------------------------------------------------
Ford*                99013*  Olympia          98501                          Walla Walla       99362  Bellingham         98229
- -------------------------------------------------------------------------------------------------------------------------------
Fruitland*           99129*  Olympia          98502                          Wallula           99363  Blaine             98230
- -------------------------------------------------------------------------------------------------------------------------------
Gifford*             99131*  Olympia          98504                          Waitsburg         99361  Blaine             98231
- -------------------------------------------------------------------------------------------------------------------------------
Hunters (50)*        99137*  Olympia          98505                                                   Custer             98240
- -------------------------------------------------------------------------------------------------------------------------------
Kettle Falls (50)*   99141*  Olympia          98506                                                   Deming             98244
- -------------------------------------------------------------------------------------------------------------------------------
Loon Lake*           99148*  Olympia          98507                                                   Everson            98247
- -------------------------------------------------------------------------------------------------------------------------------
Marcus*              99151*  Olympia          98508                                                   Ferndale           98248
- -------------------------------------------------------------------------------------------------------------------------------
Northport (50)*      99157*  Olympia          98512                                                   Lummi Is.          98262
- -------------------------------------------------------------------------------------------------------------------------------
Rice*                99167*  Olympia          98513                                                   Lynden             98264
- -------------------------------------------------------------------------------------------------------------------------------
Springdale*          99173*  Olympia          98516                                                   Maple Falls        98266
- -------------------------------------------------------------------------------------------------------------------------------
Tumtum*              99034*  Olympia          98599                                                   Nooksack           98276
- -------------------------------------------------------------------------------------------------------------------------------
Valley*              99181*  Rainier          98576                                                   Pt. Roberts        98281
- -------------------------------------------------------------------------------------------------------------------------------
Wellpinit*           99040*  Rochester        98579                                                   Sumas              98295
- -------------------------------------------------------------------------------------------------------------------------------
                             Tenino           98589
- -------------------------------------------------------------------------------------------------------------------------------
                             Tumwater         98511
- -------------------------------------------------------------------------------------------------------------------------------
                             Yelm             98597
- -------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

- ---------------------------------------------------------
    Whitman                         Yakima
=========================================================
     CITY        ZIP                 CITY          ZIP
- ---------------------------------------------------------
                                        
 Albion         99102          Brownstown*        98920*
- ---------------------------------------------------------
 Belmont        99104          Buena              98921
- ---------------------------------------------------------
 Colfax         99111          Cowiche*           98923*
- ---------------------------------------------------------
 Colton         99113          Goose Prairie*     98929*
- ---------------------------------------------------------
 Endicott       99125          Grandview          98930
- ---------------------------------------------------------
 Farmington     99128          Granger            98932
- ---------------------------------------------------------
 Garfield       99130          Harrah*            98933*
- ---------------------------------------------------------
 Hay            99136          Mabton             98935
- ---------------------------------------------------------
 Hooper         99333          Moxee*             98936*
- ---------------------------------------------------------
 LaCross        99143          Naches (50)*       98937*
- ---------------------------------------------------------
 Lamont         99017          Outlook            98938
- ---------------------------------------------------------
 Malden         99149          Parker*            98939*
- ---------------------------------------------------------
 Oakesdale      99158          Selah              98942
- ---------------------------------------------------------
 Palouse        99161          Sunnyside          98944
- ---------------------------------------------------------
 Pullman        99163          Tieton*            98947*
- ---------------------------------------------------------
 Pullman        99164          Toppenish          98948
- ---------------------------------------------------------
 Pullman        99165          Wapato*            98951*
- ---------------------------------------------------------
 Rosalia        99170          White Swan*        98952*
- ---------------------------------------------------------
 St John        99127          Yakima             98901
- ---------------------------------------------------------
 St. John       99171          Yakima (U)         98902
- ---------------------------------------------------------
 Steptoe        99174          Yakima             98903
- ---------------------------------------------------------
 Tekoa          99033          Yakima*            98904*
- ---------------------------------------------------------
 Thornton       99176          Yakima*            98907*
- ---------------------------------------------------------
 Uniontown      99179          Yakima*            98908*
- ---------------------------------------------------------
                               Yakima*            98909*
- ---------------------------------------------------------
                               Zillah             98953
- ---------------------------------------------------------


NOTES:
* Shaded areas are those not currently served.
Zip codes with a (U) after the city name are urban.
Zip codes with a number (##) after the city name have that number of miles as
the global distance standard.




                                                        2003 HO & SCHIP Contract
                                                        Exhibit E

                                    EXHIBIT E
                               CHAPTER 388-542 WAC
                     CHILDREN'S HEALTH INSURANCE PLAN (CHIP)

WAC 388-542-0050 DEFINITIONS FOR CHILDREN'S HEALTH INSURANCE PROGRAM (CHIP)
TERMS. The following definitions and abbreviations, those found in WAC
388-538-050 and in 388-500-0005 Medical definitions, apply to this chapter.
"CHILDREN'S HEALTH INSURANCE PROGRAM (CHIP)" means the health insurance program
authorized by Title XXI of the Social Security Act and administered by the
department of social and health services (DSHS). This program also is referred
to as the state children's health insurance program (SCHIP).
"CLIENT PREMIUM" means a monthly payment a client makes to the department of
social and health services (DSHS) for CHIP coverage.
"CREDITABLE COVERAGE" means most types of public and private health coverage,
except Indian health services, that provides access to physicians, hospitals,
laboratory services, and radiology services. This term applies to the coverage
whether or not the coverage is equivalent to that offered under CHIP.
"Creditable coverage" is described in 42 U.S.C. Sec. 1397jj.
"EMPLOYER-SPONSORED DEPENDENT COVERAGE" means creditable health coverage for
dependents offered by a family member's employer or union, for which the
employer or union may contribute in whole or part towards the premium.
Extensions of such coverage (e.g., COBRA extensions) also qualify as
employer-sponsored dependent coverage as long as there remains a contribution
toward the premiums by the employer or union.
"FINANCE DIVISION" means the division of the department of social and health
services that sends out billing statements, monitors accounts, and collects the
CHIP client premiums.

WAC 388-542-0100 CHIP SCOPE OF CARE. (1) Children's health insurance program
(CHIP) clients are eligible for the same scope of medical care as Medicaid
categorically needy clients as described in WAC 388-529-0100.
(2) The medical assistance administration (MAA) requires CHIP clients, except
for clients who are American Indian or Alaska Native (AI/AN), to enroll in
managed care according to WAC 388-538-060(1)(b) through (5)(d). AI/AN clients
may choose to receive services under MAA's fee-for-service system.
(3) For eligible CHIP clients who are not enrolled in managed care:
(a) MAA determines which services are medically necessary;
(b) Clients must obtain covered services from providers who have core provider
agreements with MAA; and
(c) As a condition of coverage, MAA may require the service provider to obtain
authorization from MAA for coverage of nonemergency services.
(4) A CHIP client enrolled in managed care may submit a complaint or appeal as
described in WAC 388-538-110.
(5) Any CHIP client may request a fair hearing as described in chapter 388-02
WAC for

                                        1



                                                        2003 HO & SCHIP Contract
                                                        Exhibit E

review of MAA coverage decisions. Clients may elect to participate in a
pre-hearing review as described in WAC 388-526-2610.

WAC 388-542-0125 ACCESS TO CARE. (1) If a children's health insurance program
(CHIP) client is subject to mandatory enrollment in a managed care organization
(MCO) or with a primary care case management (PCCM) provider, the medical
assistance administration (MAA) provides fee-for-service coverage between the
time a client becomes eligible for CHIP services and the time the client is
enrolled in managed care.
(2) Not all CHIP clients are required to enroll in an MCO or with a PCCM
provider. The same enrollment criteria are applied to CHIP clients as to
categorically needy Medicaid clients under WAC 388-538-060.
(3) If a CHIP client is not already enrolled in managed care, the client may
request an exemption to mandatory enrollment under the process described in WAC
388-538-080. MAA provides fee-for-service coverage while a client's request for
exemption from mandatory enrollment in an MCO or with a PCCM provider is being
considered and until a final decision is made.
(4) If a CHIP client is already enrolled in an MCO or with a PCCM provider and
requests to end the enrollment, the client remains enrolled in the client's MCO
or with the PCCM provider pending MAA's final decision. The process for ending
enrollment is described in WAC 388-538-130.
(5) If a CHIP client has no MCO or PCCM provider available or is permitted to
choose the fee-for-service system under this chapter, the rules that apply to
service coverage and payment for the children's health program apply to CHIP
coverage (chapters 388-550 through 388-556 WAC).

WAC 388-542-0150 CLIENT ELIGIBILITY REQUIREMENTS FOR CHIP. (1) To be eligible
for the children's health insurance program (CHIP) a client must meet all of the
following. The client must:
(a) Not have other creditable coverage (see WAC 388-542-0220(1)); and
(b) Meet the CHIP program requirements and conditions in WAC 388-505-0210(3).
(2) There are no resource standards for a CHIP client. See WAC 388-478-0075(3).
(3) CHIP eligibility certification periods are described in WAC 388-416-0015.
(4) CHIP eligibility is affected by changes in a client's circumstances. See WAC
388-418-0025(2) and (6).
(5) Ongoing eligibility for CHIP requires the payment of CHIP premiums as
described in WAC 388-542-0250. MAA enrolls an otherwise eligible client into the
CHIP program in advance of any client premium payment.

WAC 388-542-0200 CHIP ENROLLMENT. (1) If the area in which a CHIP client lives
has more than one service delivery option available to the client, the client
must make a choice concerning how to receive health care services. The choice
and enrollment process for CHIP clients is the same as that for categorically
needy Medicaid clients described in WAC 388-538-060.
(2) The medical assistance administration (MAA) enrolls CHIP clients in MAA's
managed care program (with a managed care organization (MCO) or with a primary
care case management (PCCM) provider) prospectively only.

                                        2



                                                        2003 HO & SCHIP Contract
                                                        Exhibit E

(3) CHIP clients are enrolled in managed care as provided for categorically
needy Medicaid clients in WAC 388-538-060.
(4) A client who is required to enroll in managed care may request a change in
the client's MCO or PCCM provider on the same bases as in WAC 388-538-060.

WAC 388-542-0220 ENDING CHIP CLIENT ELIGIBILITY. (1) If the medical assistance
administration (MAA) finds out after eligibility determination that a CHIP
client has creditable coverage at the time of application, MAA ends the client's
eligibility for CHIP effective at the close of the last day of the current
month.
(2) MAA ends a client's eligibility for CHIP when the client owes four
consecutive months of premiums, based on the due dates listed on the billing
from the finance division for the client premium(s).
(3) When MAA ends a client's eligibility according to subsection (2) of this
section, a client must meet both of the following conditions to become eligible
for CHIP again:
(a) Pay all unforgiven past due premiums (see WAC 388-542-0250(5); and
(b) Serve a waiting period of four consecutive months. The waiting period begins
the day after termination of CHIP coverage for nonpayment of premiums as
described in this section. The waiting period ends once four full consecutive
months of CHIP noncoverage has elapsed. The client does not have CHIP coverage
during the waiting period.

WAC 388-542-0250 CHIP CLIENT COSTS. (1) The finance division charges ten dollars
per covered child, per month, for the CHIP client premium. The family maximum
for CHIP premiums is thirty dollars per month.
(2) The finance division sends bills for client premiums at the beginning of
each month of coverage. Client premiums begin the first of the month in which
the bill was sent, not the date that the client became eligible for services.
(3) MAA limits a client's out-of-pocket expenses for covered services the client
obtains under the CHIP program rules, to the payment of premiums described in
subsection (1) if this section.
(4) MAA exempts American Indian/Alaska Native (AI/AN) clients from paying client
premiums for coverage under the CHIP program.
(5) MAA forgives client premiums that are more than twelve months overdue.

WAC 388-542-0275 REIMBURSEMENT. (1) For contractors serving CHIP clients
enrolled in managed care, MAA reimburses contracted managed care organizations
(MCOs), primary care case management (PCCM) providers and providers of approved
or ancillary care in the same way as described in chapter 388-538 WAC.
(2) For providers of services serving CHIP clients under MAA's fee-for-service
system and without the involvement of MCOs or PCCMs, MAA reimburses according to
the regulations that apply to categorically needy Medicaid clients under
chapters 388-500 through 388-556 WAC.

WAC 388-542-0300 WAITING PERIOD FOR CHIP COVERAGE FOLLOWING EMPLOYER COVERAGE.
(1) The medical assistance administration (MAA) requires applicants to serve a
full four-consecutive-month waiting period for CHIP coverage if the client or

                                        3



                                                        2003 HO & SCHIP Contract
                                                        Exhibit E

family:
(a) Chooses to end employer sponsored dependent coverage. The waiting period
begins the day after the employment-based coverage ends, and ends on the last
day of the fourth full month of noncoverage; or
(b) Fails to exercise an optional coverage extension (e.g., COBRA) that meets
the following conditions. The waiting period begins on the day there is a
documented refusal of the coverage extension when the extended coverage is:
(i) Subsidized in part or in whole by the employer or union;
(ii) Available and accessible to the applicant or family; and
(iii) At a monthly cost to the family meeting the limitation of subsection
(2)(b)(iv).
(2) MAA does not require a waiting period prior to CHIP coverage when:
(a) The client or family member has a medical condition that, without treatment,
would be life-threatening or cause serious disability or loss of function; or
(b) The loss of employer sponsored dependent coverage is due to any of the
following((;)):
(i) Loss of employment with no post-employment subsidized coverage as described
in subsection (1)(b);
(ii) Death of the employee;
(iii) The employer discontinues employer-sponsored dependent coverage;
(iv) The family's total out-of-pocket maximum for employer-sponsored dependent
coverage is fifty dollars per month or more;
(v) The plan terminates employer-sponsored dependent coverage for the client
because the client reached the maximum lifetime coverage amount;
(vi) Coverage under a COBRA extension period expired;
(vii) Employer-sponsored dependent coverage is not reasonably available (e.g.,
client would have to travel to another city or state to access care); or
(viii) Domestic violence caused the loss of coverage for the victim.

WAC 388-542-0500 MANAGED CARE RULES THAT APPLY TO CHIP. (1) In addition to the
other rules that are incorporated by reference elsewhere in this chapter, the
medical assistance administration (MAA) applies the following rules from chapter
388-538 WAC to the CHIP program:
(a) WAC 388-538-060, Managed care and choice, with the exception of subsection
(1)(a);
(b) WAC 388-538-070, Managed care payment;
(c) WAC 388-538-080, Managed care exemptions;
(d) WAC 388-538-095, Scope of care for managed care enrollees;
(e) WAC 388-538-100, Managed care emergency services;
(f) WAC 388-538-110. Managed care complaints, appeals and fair hearings;
(g) WAC 388-538-120, Enrollee requests for a second medical opinion;
(h) WAC 388-538-130, Ending enrollment in healthy options; and
(i) WAC 388-538-140, Quality of care.

                                        4

                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of January 2, 2002,
between Joseph M. Molina, MD ("Executive") and Molina Healthcare, Inc. (the
"Company").

                                    RECITALS

     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated May 1,1997 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

          The parties agree as follows:

1. DUTIES

     (a) The Company does hereby hire, engage, and employ Executive as Chief
Executive Officer of the Company, and Executive does hereby accept and agree to
such hiring, engagement, and employment. During the Period of Employment (as
defined in Section 2), Executive shall serve the Company in such position in
conformity with the provisions of this Agreement, directives of the Board of
Directors and the corporate policies of the Company as they presently exist, and
as such policies may be amended, modified, changed, or adopted during the Period
of Employment. Executive shall have duties and authority consistent with
Executive's position as Chief Executive Officer and shall report to the Board of
Directors of the Company (the "Reporting Relationship").

     (b) Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive's duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

     (c) Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.

JMM Employment Agreement  2002



2. PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a period commencing on January 1, 2002 (the "Effective Date") and
ending with the close of business on December 31,2004. Notwithstanding the
preceding sentence, commencing with January 1, 2005 and on each January 1st
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days' prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the "Non-Extension Notice"); or (ii) Executive is not less than sixty-five (65)
years of age as of the next scheduled Extension Date. The term "Period of
Employment" shall include any extension that becomes applicable pursuant to the
preceding sentence.

3. COMPENSATION

     (a) BASE SALARY. Executive's Base Salary shall be at a rate of not less
than $500,000 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The Board of Directors
shall review at least annually Executive's Base Salary for possible increase in
accordance with the Company's customary review practices for its senior
executives and may, in his sole discretion, periodically adjust Executive's Base
Salary to reflect individual performance. In the event of an increase,
Executive's Base Salary for the year in which the increase occurs shall be
adjusted on a pro rata basis to reflect the increase.

     (b) BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus") as described in
the Addendum.

4. BENEFITS

     (a) HEALTH AND WELFARE. During the Period of Employment, Executive shall be
entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company's medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits provided from time to time, subject to any legally
required restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, Company shall provide life insurance for Executive,
with Executive to designate the beneficiary thereunder, in an amount equal to
Executive's Base Salary as in effect on the date of this Agreement and as in
effect on the first business day of each calendar year thereafter.

     (b) PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive 10.77 hours of paid time off per "pay period" of the
Company (the "PTO"), subject to the Company's policies concerning accrual of PTO
and provided that for any three hundred sixty five (365) day period within the
Period of Employment Executive shall earn no less than a total of thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

                                        2
JMM Employment Agreement  2002



     (c) TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under section 1 of this Agreement in
accordance with the Company's expense reimbursement policies.

     (d) RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs.

     (e) EQUITY GRANTS.

         (i) Existing Options. Executive holds on the Effective Date options for
     zero shares of common stock of the Company (the "Existing Options"). The
     Existing Options are subject to the terms and conditions of the Employment
     Agreement and shall hereafter continue to be subject to and controlled by
     the terms and conditions of the Employment Agreement.

         (ii) Initial Options. Executive shall, on the Effective Date, be
     granted stock options for sixty five hundred (6500) shares of the common
     stock of the Company (the "Initial Options") pursuant to an option
     agreement The exercise price of the Initial Options will be $ 180 per
     share. The Initial Options are subject to the terms and conditions of the
     "Molina Healthcare, Inc. Amended and Restated Stock Incentive Plan" (the
     "Restated Option Plan").

         (iii) Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of a stock option plan of the Company as then in effect (as of
     the date of any grant, an "Effective Option Plan"). The terms and
     conditions of such Future Options are intended to be such that Executive
     shall receive a compensation package commensurate with executives
     performing the same functions as Executives for businesses similar to the
     Company.

     (f) OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.

                                        3
JMM Employment Agreement   2002



The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as "Executive Benefits."

5.   DEATH OR DISABILITY

     (a)  PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms "Permanently
Disabled" and "Permanent Disability" shall mean Executive's inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.

     (b)  TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive's employment shall automatically cease and terminate as of the
date of Executive's death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the "Disability Date"), as the
case may be. In the event of the termination of the Period of Employment and
Executive's employment hereunder due to Executive's death or Permanent
Disability, Executive or his estate shall be entitled to receive:

          (i)  Within five (5) business days, a lump sum cash payment equal to
     the sum of (x) any accrued but unpaid Base Salary and PTO as of the
     Termination Date hereunder and (y) any unpaid annual incentive compensation
     in respect of the most recently completed fiscal year preceding the
     Termination Date (the "Unpaid Annual Bonus"); and

          (ii) Within thirty (30) days, such employee benefits described in
     Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which
     Executive may be entitled as of the Termination Date under the employee
     benefit plans and arrangements of the Company ((i) and (ii) collectively,
     the "Accrued Obligations").

6.   TERMINATION BY THE COMPANY

     (a)  TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive's employment hereunder
by providing to Executive written notice of such termination ("Notice of
Termination for Cause"). The term "Cause" shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:

          (i) has engaged in unlawful acts involving moral turpitude or gross
     negligence with respect to the Company;

          (ii) has consistently and willfully failed to perform his duties or
     has intentionally breached any material provision of any agreement with the
     Company or an affiliated entity; provided, however, that such failure or
     breach shall not constitute Cause unless it is (A) not reasonably curable
     or (B) if reasonably curable, is not cured by the Executive within thirty
     (30) days notice from the Company;

                                        4
JMM Employment Agreement 2002



     If the Executive's employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive's employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued Obligations shall be paid on
the Termination Date except those benefits described in Sections 4(a) and 4(c)
through (f) inclusive, which shall be paid within thirty (30) days of the
Termination Date.

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

     (b)  TERMINATION WITHOUT CAUSE. The Company may, without cause or reason,
terminate at any time the Period of Employment and Executive's employment
hereunder by providing Executive written notice of such termination ("Notice of
Termination Without Cause"). A Non-Extension Notice by the Company shall be
considered a termination without Cause. If Executive's employment is terminated
without Cause, the termination shall take effect on the Termination Date. In the
event of the termination of Executive's employment hereunder due to a
termination by the Company without Cause (other than due to Executive's death or
Permanent Disability):

          (i)  Executive shall be entitled to receive: (1) an amount equal to
     100% of the sum of (x) Executive's Base Salary then in effect as of the
     Termination Date and (y) the Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (3) the
     Accrued Obligations; (4) the entirety of Executive's contributions and the
     Company's contributions to Executive's 401(k) plan account as if Executive
     were fully vested as of the Termination Date, and (5) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

          (ii) Executive shall be entitled to one hundred percent vesting of all
     of the options (including, without limitation, Existing Options, Initial
     Options, and Future Options) to purchase common stock of the Company
     ("Common Stock") held by Executive as of the Termination Date (the
     "Options") and/or right to the difference in cash between the fair market
     value and the exercise price of each vested but unexercised option.

                                        5
JMM Employment Agreement 2002



          (iii) Company shall, upon the written request of Executive (the
     "Executive Put Option") be required to repurchase all shares of Common
     Stock acquired by Executive pursuant to the exercise of stock options
     granted to and/or held by Executive as of the Termination Date (the
     "Executive Shares"). Executive may not exercise the Executive Put Option
     with respect to Executive Shares within the six-month period following the
     date Executive acquired such Executive Shares, and the Executive Put Option
     may not be exercised at any time after the Company becomes publicly traded.
     The repurchase price for each Executive Share shall be equal to the fair
     market value of a share of Common Stock ("Fair Market Value"), which Fair
     Market Value:

               (A) shall be determined as of the date of the exercise of
          Executive Put Option by an independent appraiser chosen by the Company
          and Executive as follows: the Company shall identify three appraisers
          independent of the Company, and Executive shall select one from the
          three identified; and

               (B) shall be determined without any minority, illiquidity or
          other discount.

          (iv) Amounts payable under this Section 6(b) shall be payable as
     follows:

               (A) amounts payable under clause (i) shall be, or shall commence
          to be, paid within 30 days following the Termination Date either in a
          single lump sum or in regular installments as a continuation of
          Executive's salary according to the Company's customary payroll
          practices, as determined by the Executive in his sole discretion;
          provided however that any amounts representing accrued but unpaid
          Executive Base Salary, PTO an Unpaid Annual Bonus shall be paid on the
          Termination Date.

               (B) amounts payable under clause (iii) that are attributable to
          the exercise of Existing Options and/or Initial Options shall be paid
          by the Company in accordance with the terms and conditions of the
          Option Plan. Amounts payable under clause (iii) that are attributable
          to the exercise of Future Options shall be paid by the Company in
          three annual lump sum installments as follows: (1) within 30 days
          after the Termination Date, one-third of the payout; (2) on the first
          anniversary of the Termination Date, one-third of the payout, with
          interest on the previously unpaid portion of the payout accrued from
          the Termination Date at the applicable federal rate; and (3) on the
          second anniversary of the Termination Date, the remaining one-third of
          the payout, with interest on such previously unpaid portion of the
          payout accrued from the first anniversary of the Termination Date at
          the applicable federal rate.

     Executive shall have no duty to mitigate damages and none of the payments
provided in this Section 6(b) shall be reduced by any amounts earned or received
by Executive from a third party at any time.

                                        6
JMM Employment Agreement 2002



7.   TERMINATION BY EMPLOYEE

     (a)  TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive's employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause and the provisions of
Section 6(a) shall apply, provided, however, that notwithstanding the foregoing,
if Executive terminates the Period of Employment without Good Reason, Executive
shall be allowed to exercise the Executive Put Option with respect to Executive
Shares received pursuant to the exercise of Existing Options, subject to the
terms and conditions generally applicable with respect to the Executive Put
Option.

     (b)  TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for "Good Reason." "Good Reason"
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive's prior written consent thereto:

          (i)   a material and adverse change in Executive's position, duties,
     responsibilities, Reporting Relationship or status with the Company,

          (ii)  a change in Executive's office location to a point more than
     fifty (50) miles from Executive's current office,

          (iii) the taking of any action by the Company to: (A) eliminate
     benefit plans applicable to Executive without providing substitutes which
     provide a substantially similar aggregate value of benefits, (B) materially
     reduce Executive's benefits thereunder or (C) substantially diminish the
     aggregate value to Executive of incentive awards or other fringe benefits,
     provided, however, that it shall not constitute Good Reason for the Company
     to, as part of an overall cost-reduction program, take any action described
     in (A) - (C) so long as such action is taken with respect to all senior
     executives and Executive is not disproportionately affected thereby,

          (iv)  any reduction in the Base Salary, provided, however, that it
     shall not constitute Good Reason for the Company to, as part of an overall
     cost-reduction program, reduce Executive's Base Salary so long as the base
     salaries of all other senior executives are simultaneously reduced by not
     less than the same percentage, or

          (v)   any breach of this Agreement by the Company or any successor
     thereto, including without limitation any failure by the Company to obtain
     the consent of any Successor Entity (as defined below) to the provisions
     contained in Section 9; provided, however, that none of the events
     described in clause (v) of this Section 7(b) shall constitute Good Reason
     unless Executive shall have notified the Company in writing describing the
     events which constitute Good Reason and then only if the Company shall have
     failed to cure such event within thirty (30) days after the Company's
     receipt of such written notice.

                                        7
JMM Employment Agreement 2002



Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

8.   TERMINATION DATE

     The term "Termination Date" shall mean (i) if Executive's employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 ("Notices")) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive's employment is terminated by reason of Death
or Disability, the Disability Date.

9.   CHANGE IN CONTROL

     (a)  Notwithstanding anything to the contrary in this Agreement, if a
Change in Control Event (as defined below) of the Company occurs during the term
of this Agreement, and if within two years following such Change in Control
Event either (1) the Company terminates Executive's employment without Cause or
(2) Executive terminates his employment for Good Reason:

          (i)   the Company shall pay to Executive an amount equal to the
     sum of (w) two times the Severance Payment, (x) the Pro Rata Bonus, (y) the
     Accrued Obligations and (z) the entirety of Executive's contributions and
     the Company's contributions to Executive's 401(k) plan account as if
     Executive were fully vested as of the Termination Date, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

          (ii)  the Company shall continue to provide the Selected Benefits
     until the earlier of (x) Executive's receipt of benefits substantially
     similar in scope and nature from another employer or (y) three years after
     the Termination Date.

          (iii) and, regardless of whether any of the Options have been assumed
     by any Successor Entity, the provisions of clauses (ii) and (iii) of
     Section 6(b) will apply.

          (iv)  upon a change in control all unassumed and unvested options
     shall vest immediately.

                                        8
JMM Employment Agreement 2002



     (b)  A "Change in Control Event" shall mean any of the following:

          (i)   Approval by the Board and by shareholders of the Company (or, if
no shareholder approval is required, by the Board alone) of the dissolution or
liquidation of the Company, other than in the context of a transaction that does
not constitute a Change in Control Event under clause (ii) below;

          (ii)  Consummation of a merger, consolidation, or other
reorganization, with or into, or the sale of all or substantially all of the
Company's business and/or assets as an entirety to, one or more entities that
are not Subsidiaries or other affiliates of the Company (a "Business
Combination"), unless (1) as a result of the Business Combination, more than
fifty percent (50%) of the outstanding voting power generally in the election of
directors of the surviving or resulting entity or a parent thereof (the
"Successor Entity") immediately after the reorganization is, or will be, owned,
directly or indirectly, by holders of the Company's voting securities
immediately before the Business Combination; and (2) no "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), excluding the
Successor Entity or an Excluded Person, beneficially owns, directly or
indirectly, more than fifty percent (50%) of the outstanding shares or the
combined voting power of the outstanding voting securities of the Successor
Entity, after giving effect to the Business Combination, except to the extent
that such ownership existed prior to the Business Combination; or

          (iii) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than an Excluded Person: (a) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities entitled to
then vote generally in the election of directors (the "Voting Power") of the
Company (a "Majority Holder"), other than as a result of (1) an acquisition
directly from the Company, (2) an acquisition by the Company, or (3) an
acquisition by an entity pursuant to a transaction which is expressly excluded
under clause (ii) above (an "Excluded Transaction"); or (b) provided that the
beneficial owner of a majority of the Voting Power as of the Effective Date is
no longer a Majority Holder, becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than thirty percent (30%) of the Voting Power, other
than as a result of an Excluded Transaction.

          (iv)  For the purposes of this Section 9(c):

               (A)  "Exchange Act" shall mean the Securities Exchange Act of
          1934, as amended from time to time.

               (B)  "Excluded Person" shall mean (a) any person described in and
          satisfying the conditions of Rule 13d-l(b)(l) under the Exchange Act,
          (b) the Company, (c) an employee benefit plan (or related trust)
          sponsored or maintained by the Company or the Successor Entity, or (d)
          any person who is the beneficial owner (as defined in Rule 13d-3 under
          the Exchange Act) of more than [25%] of the Common Stock on the
          Effective Date (or an affiliate, successor, heir, descendant, or
          related party of or to such person).

                                        9
JMM Employment Agreement 2002



               (C)  "Subsidiary" shall mean any corporation or other entity a
          majority of whose outstanding voting stock or voting power is
          beneficially owned, directly or indirectly, by the Company.

     (c)  Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.

10.  CONFIDENTIALITY

     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive's breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.

11.  NON-SOLICITATION AND NON-DISPARAGEMENT

     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the
Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.

                                       10
JMM Employment Agreement 2002



12.  RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive's termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company.

13.  SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13 of
this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

     (b)  GROSS-UP.

          (i)   Gross-Up Payment. If, notwithstanding clause (a) above, it is
determined (pursuant to Section 13(b)(ii)) or finally determined (as defined in
Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by the
Company or a direct or indirect subsidiary or affiliate of the Company, to or
for the benefit of Executive or Executive's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 13(b)) (each a
"Payment" and collectively the "Payments") is subject to the excise tax imposed
by Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, "Section 4999"), or
any interest, penalty or addition to tax is incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest, penalty,
and addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within ten (10) days after such determination or final determination, as
the case may be, the Company shall pay to Executive (or to the applicable taxing
authority on Executive's behalf) an additional cash payment (hereinafter
referred to as the "Gross-Up Payment") equal to an amount such that after
payment by Executive of all taxes, interest, penalties, additions to tax and
costs imposed or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is intended to
put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.

                                       11
JMM Employment Agreement 2002



     (ii)      Determination of Gross-Up.

               (A)  Except as provided in Section 13(b)(iii), the determination
     that a Payment is subject to an Excise Tax shall be made in writing by the
     principal certified public accounting firm then retained by the Company to
     audit its annual financial statements (the "Accounting Firm"). Such
     determination shall include the amount of the Gross-Up Payment and detailed
     computations thereof, including any assumptions used in such computations.
     Any determination by the Accounting Firm will be binding on the Company and
     Executive.

               (B)  For purposes of determining the amount of the Gross-Up
     Payment, Executive shall be deemed to pay Federal income taxes at the
     highest marginal rate of Federal income taxation in the calendar year in
     which the Gross-Up Payment is to be made. Such highest marginal rate shall
     take into account the loss of itemized deductions by Executive and shall
     also include Executive's share of the hospital insurance portion of FICA
     and state and local income taxes at the highest marginal rate of taxation
     in the state and locality of Executive's residence on the date of his or
     her Qualifying Termination Event, net of the maximum reduction in Federal
     income taxes that could be obtained from the deduction of such state and
     local taxes.

     (iii)     Notification.

               (A) Executive shall notify the Company in writing of any claim
          by the Internal Revenue Service (or any successor thereof) or any
          state or local taxing authority (individually or collectively, the
          "Taxing Authority") that, if successful, would require the payment by
          the Company of a Gross-Up Payment. Such notification shall be given as
          soon as practicable but no later than thirty (30) days after Executive
          receives written notice of such claim and shall apprise the Company of
          the nature of such claim and the date on which such claim is requested
          to be paid; provided, however, that failure by Executive to give such
          notice within such thirty (30) day period shall not result in a waiver
          or forfeiture of any of Executive's rights under this Section 13(b)
          except to the extent of actual damages suffered by the Company as a
          result of such failure. Executive shall not pay such claim prior to
          the expiration of the fifteen (15) day period following the date on
          which Executive gives such notice to the Company (or such shorter
          period ending on the date that any payment of taxes, interest,
          penalties or additions to tax with respect to such claim is due). If
          the Company notifies Executive in writing prior to the expiration of
          such fifteen (15) day period (regardless of whether such claim was
          earlier paid as contemplated by the preceding parenthetical) that it
          desires to contest such claim, Executive shall:

                    (1)  give the Company any information reasonably
                    requested by the Company relating to such claim;

                                       12
JMM Employment Agreement 2002



                    (2)  take such action in connection with contesting such
                    claim as the Company shall reasonably request in writing
                    from time to time, including, without limitation, accepting
                    legal representation with respect to such claim by an
                    attorney selected by the Company;

                    (3)  cooperate with the Company in good faith in order
                    effectively to contest such claim; and

                    (4)  permit the Company to participate in any proceedings
                    relating to such claim;

          provided, however, that the Company shall bear and pay directly all
          attorneys fees, costs and expenses (including additional interest,
          penalties and additions to tax) incurred in connection with such
          contest and shall indemnify and hold Executive harmless, on an
          after-tax basis, for all taxes (including, without limitation, income
          and excise taxes), interest, penalties and additions to tax imposed in
          relation to such claim and in relation to the payment of such costs
          and expenses or indemnification.

               (B)  Without limitation on the foregoing provisions of this
          Section 13(b)(iii), and to the extent its actions do not unreasonably
          interfere with or prejudice Executive's disputes with the Taxing
          Authority as to other issues, the Company shall control all
          proceedings taken in connection with such contest and, in its or their
          reasonable discretion, may pursue or forego any and all administrative
          appeals, proceedings, hearings and conferences with the Taxing
          Authority in respect of such claim and may, at its or in their sole
          option, either direct Executive to pay the tax, interest or penalties
          claimed and sue for a refund or contest the claim in any permissible
          manner, and Executive agrees to prosecute such contest to a
          determination before any administrative tribunal, in a court of
          initial jurisdiction and in one or more appellate courts, as the
          Company shall determine; provided, however, that if the Company
          directs Executive to pay such claim and sue for a refund, the Company
          shall advance an amount equal to such payment to Executive, on an
          interest-free basis, and shall indemnify and hold Executive harmless,
          on an after-tax basis, from all taxes (including, without limitation,
          income and excise taxes), interest, penalties and additions to tax
          imposed with respect to such advance or with respect to any imputed
          income with respect to such advance, as any such amounts are incurred;
          and, further, provided, that any extension of the statute of
          limitations relating to payment of taxes, interest, penalties or
          additions to tax for the taxable year of Executive with respect to
          which such contested amount is claimed to be due is limited solely to
          such contested amount; and, provided, further, that any settlement of
          any claim shall be reasonably acceptable to Executive, and the
          Company's control of the contest shall be limited to issues with
          respect to which a Gross-Up Payment would be payable hereunder, and
          Executive shall be entitled to settle or contest, as the case may be,
          any other issue.

                                       13
JMM Employment Agreement 2002



               (C)  If, after receipt by Executive of an amount advanced by the
          Company pursuant to Section 13(b)(iii)(A), Executive receives any
          refund with respect to such claim, Executive shall (subject to the
          Company's complying with the requirements of this Section 13(b))
          promptly pay to the Company an amount equal to such refund (together
          with any interest paid or credited thereof after taxes applicable
          thereto), net of any taxes (including, without limitation, any income
          or excise taxes), interest, penalties or additions to tax and any
          other costs incurred by Executive in connection with such advance,
          after giving effect to such repayment. If, after the receipt by
          Executive of an amount advanced by the Company pursuant to Section
          13(b)(iii)(A), it is finally determined that Executive is not entitled
          to any refund with respect to such claim, then such advance shall be
          forgiven and shall not be required to be repaid and the amount of such
          advance shall be treated as a Gross-Up Payment and shall offset, to
          the extent thereof, the amount of any Gross-Up Payment otherwise
          required to be paid.

               (D)  For purposes of this Section 13(b), whether the Excise Tax
          is applicable to a Payment shall be deemed to be "finally determined"
          upon the earliest of: (1) the expiration of the fifteen (15) day
          period referred to in Section 13(b)(iii)(A) if the Company or
          Executive's Company has not notified Executive that it intends to
          contest the underlying claim, (2) the expiration of any period
          following which no right of appeal exists, (3) the date upon which a
          closing agreement or similar agreement with respect to the claim is
          executed by Executive and the Taxing Authority (which agreement may be
          executed only in compliance with this section), or (4) the receipt by
          Executive of notice from the Company that it no longer seeks to pursue
          a contest (which shall be deemed received if the Company does not,
          within fifteen (15) days following receipt of a written inquiry from
          Executive, affirmatively indicate in writing to Executive that the
          Company intends to continue to pursue such contest).

It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an "Underpayment"). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an "Overpayment"). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm's determination that an Overpayment was made and (y) the amount
to be repaid.

                                       14
JMM Employment Agreement 2002



14.  CONTRACT REIMBURSEMENT

     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not exceed two thousand five hundred dollars
($2,500). This Section 14 shall not be deemed to limit any of Executive's rights
under Section 23 ("Attorneys' Fees").

15.  ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

16.  GOVERNING LAW

     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.

17.  ENTIRE AGREEMENT

     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof. Any prior
negotiations, correspondence, agreements, proposals, or understandings relating
to the subject matter hereof shall be deemed to be merged into this Agreement
and to the extent inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements, whether express
or implied, or oral or written, with respect to the subject matter hereof,
except as set forth herein.

18.  MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

19.  WAIVER

     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

                                       15
JMM Employment Agreement 2002



20.  NUMBER AND GENDER

     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

21.  SECTION HEADINGS

     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.

22.  ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure Code Sections 1280 et seq. as the exclusive remedy
of such dispute; provided, however, that provisional injunctive relief may, but
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding on the parties hereto and
may be enforced by any court of competent jurisdiction. The parties acknowledge
and agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive's employment.

23.  ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

24.  SEVERABILITY

     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

                                       16
JMM Employment Agreement 2002



25.  NOTICES

     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

     (a)  if to the Company:

          Molina Healthcare, Inc.
          Attention:
          One Golden Shore Drive
          Long Beach, California 90802

     (b)  if to Executive:

          Joseph M. Molina, MD
          829 Stratford Avenue
          South Pasadena, CA 91030

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed, or when transmitted via facsimile with confirmation of
receipt.

26.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

27.  WITHHOLDING TAXES

     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

                                       17
JMM Employment Agreement 2002



     IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.

                                                      "COMPANY"
                                                      Molina Healthcare, Inc.

                                                      By: /s/ Janet Riedman
                                                          ---------------------

                                                      "EXECUTIVE"
                                                      Joseph M. Molina, MD

                                                      /s/
                                                      -------------------------
                                                      Joseph M. Molina, MD

                                       18
JMM Employment Agreement 2002



                     ADDENDUM JOSEPH M MOLINA, MD AGREEMENT

                                    RECITALS

     Section 3 of the Agreement sets forth certain aspects of Executive's
compensation. The Company and Executive desire to specify additional terms and
conditions of Executive's compensation in this Addendum ("Addendum"), provided
that this Addendum, and each of the terms and conditions set forth herein, shall
be considered to be fully integrated into and a part of Section 3 of the
Agreement.

                                    AGREEMENT

     The parties agree as follows:
1.   Executive's Annual Bonus shall be equal to the lesser of:

     A.   the product of (1 %) and (the EBITDA of the Company and its
     subsidiaries as determined on a consolidated basis by the Company's regular
     annual audit for such year) ("EBITDA"); or

     B.   $500,000

provided that in no event shall such Annual Bonus be less than $0.

2.   Executive's Annual Bonus shall be paid in quarterly estimates, as follows:

     A.   Within a reasonable time after the Company's financial results for the
     first quarter of its fiscal year become available, Executive shall receive
     an amount equal to eighty percent (80%) of the lesser of: (i) the product
     of (1 %) and (EBITDA for such quarter) and (ii) $125,000 (the "First
     Quarter Payment"), provided that in no event shall such First Quarter
     Payment be less than $0.

     B.   Within a reasonable time after the Company's financial results for the
     second quarter of its fiscal year become available, Executive shall receive
     an amount equal to eighty percent (80%) of the lesser of: (i) the
     difference between (a) the product of (1 %) and (EBITDA for the first two
     quarters) and (b) the First Quarter Payment, and (ii) $125,000 (the "Second
     Quarter Payment"), provided that in no event shall such Second Quarter
     Payment be less than $0.

     C.   Within a reasonable time after the Company's financial results for the
     third quarter of its fiscal year become available, Executive shall receive
     an amount equal to the lesser of: (i) the difference between (a) the
     product of (1 %) and (EBITDA for the first three quarters) and (b) the sum
     of the First Quarter Payment and the Second Quarter Payment (the "Q2 Sum"),
     and (ii) the difference between $500,000 and the Q2 Sum (the "Third Quarter
     Payment"), provided that in no event shall such Third Quarter Payment be
     less than $0.

                                        1



     D.   Prior to the end of the Company's fiscal year, Executive shall receive
     an amount equal to the lesser of: (i) the difference between (a) the
     product of (1 %) and (projected EBITDA, as estimated in good faith on a
     date reasonably close to the date of the Fourth Quarter Payment (as defined
     below) by the Compensation Committee of the Company's Board of Directors,
     for the Company's fiscal year) and (b) the sum of the First Quarter
     Payment, the Second Quarter Payment, and the Third Quarter Payment (the "Q3
     Sum"); and (ii) the difference between $500,000 and the Q3 Sum (the "Fourth
     Quarter Payment" and, together with the First Quarter Payment, the Second
     Quarter Payment, and the Third Quarter Payment, the "Estimation Payments"),
     provided that in no event shall such Fourth Quarter Payment be less than
     $0.

     E.   The difference between the Annual Bonus and the sum of the Estimation
     Payments shall be paid by the Company to Executive, or repaid by Executive
     to the Company, as the case may be, in cash within thirty (30) days of the
     date on which Executive receives notice (as provided in Section 25 of the
     Agreement) of the amount of the Annual Bonus.

 Executed and agreed to:

 "COMPANY"
 Molina Healthcare, Inc.

By: /s/ Janet Riedman
    -------------------------
    Name:
    Title: Chairman of Compensation

"EXECUTIVE"
Joseph M. Molina, MD

/s/
- ------------------------
Joseph M. Molina, MD

                                        2

                                                                    EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of January 1,2002,
between John C. Molina ("Executive") and Molina Healthcare, Inc. (the
"Company").

                                    RECITALS

     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated May 1, 1997 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

     The parties agree as follows:

1.   DUTIES

     (a)  The Company does hereby hire, engage, and employ Executive as
Executive Vice President of the Company, and Executive does hereby accept and
agree to such hiring, engagement, and employment. During the Period of
Employment (as defined in Section 2), Executive shall serve the Company in such
position in conformity with the provisions of this Agreement, directives of the
Chief Executive Officer and the corporate policies of the Company as they
presently exist, and as such policies may be amended, modified, changed, or
adopted during the Period of Employment. Executive shall have duties and
authority consistent with Executive's position as Executive Vice President and
shall report to the Chief Executive Officer of the Company (the "Reporting
Relationship").

     (b)  Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive's duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

     (c)  Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.

John Molina Employment Agreement-2002



2.   PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a period commencing on January 1, 2002 (the "Effective Date") and
ending with the close of business on December 31, 2003. Notwithstanding the
preceding sentence, commencing with January 1, 2003 and on each January 1st
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days' prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the "Non-Extension Notice"); or (ii) Executive is not less than sixty-five (65)
years of age as of the next scheduled Extension Date. The term "Period of
Employment" shall include any extension that becomes applicable pursuant to the
preceding sentence.

3.   COMPENSATION

     (a)  BASE SALARY. Executive's Base Salary shall be at a rate of not less
than $400,000 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The Compensation Committee
shall review at least annually Executive's Base Salary for possible increase in
accordance with the Company's customary review practices for its senior
executives and may, in his sole discretion, periodically adjust Executive's Base
Salary to reflect individual performance. In the event of an increase,
Executive's Base Salary for the year in which the increase occurs shall be
adjusted on a pro rata basis to reflect the increase.

     (b)  BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus"), with a target
Annual Bonus (the "Target Bonus") of fifty percent (50%) of his Base Salary, to
be awarded at the discretion of the Compensation Committee based on the
achievement of certain mutually agreed upon objectives. Executive shall be
entitled to participate in all bonus or incentive plans applicable to the senior
executives of the Company, including without limitation any Effective Option
Plan (as defined in Section 4(e)). CEO may in his sole discretion, also award to
Executive such extraordinary bonus(es) as CEO deems appropriate.

4.   BENEFITS

     (a)  HEALTH AND WELFARE. During the Period of Employment, Executive shall
be entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company's medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits provided from time to time, subject to any legally
required restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, Company shall provide life insurance for Executive,
with Executive to designate the beneficiary thereunder, in an amount equal to
Executive's base salary as in effect on the date of this Agreement and as in
effect on the first business day of each calendar year thereafter.

                                        2
John Molina Employment Agreement 2002



     (b)  PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive10.77 hours of paid time off per "pay period" of the
Company (the "PTO"), subject to the Company's policies concerning accrual of PTO
and provided that for any three hundred sixty five (365) day period within the
Period of Employment Executive shall earn no less than a total of thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

     (c)  TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under section 1 of this Agreement in
accordance with the Company's expense reimbursement policies.

     (d)  RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs

     (e)  EQUITY GRANTS.

          (i)   Existing Options. Executive holds on the Effective Date options
     for zero 0 shares of common stock of the Company (the "Existing Options")
     pursuant to an agreement entitled N/A, dated N/A. The Existing Options are
     subject to the terms and conditions of the Omnibus Stock and Incentive Plan
     (the "Option Plan"), and shall hereafter continue to be subject to and
     controlled by the terms and conditions of the Option Plan.

          (ii)  Initial Options. Executive shall, on the Effective Date, be
     granted stock options for zero (0) shares of the common stock of the
     Company (the "Initial Options") pursuant to an option agreement. The
     exercise price of the Initial Options will be $180 per share. The Initial
     Options are subject to the terms and conditions of the "Molina Healthcare,
     Inc. Amended and Restated Stock Incentive Plan" (the "Restated Option
     Plan").

          (iii) Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of a stock option plan of the Company as then in effect (as of
     the date of any grant, an "Effective Option Plan"). The terms and
     conditions of such Future Options are intended to be such that Executive
     shall receive a compensation package commensurate with executives
     performing the same functions as Executives for businesses similar to the
     Company.

     (f)  OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.

                                        3
John Molina Employment Agreement 2002



The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as "Executive Benefits."

5.   DEATH OR DISABILITY

     (a)  PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms "Permanently
Disabled" and "Permanent Disability" shall mean Executive's inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.

     (b)  TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive's employment shall automatically cease and terminate as of the
date of Executive's death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the "Disability Date"), as the
case may be. In the event of the termination of the Period of Employment and
Executive's employment hereunder due to Executive's death or Permanent
Disability, Executive or his estate shall be entitled to receive:

          (i)  Within five (5) business days, a lump sum cash payment equal to
     the sum of (x) any accrued but unpaid Base Salary and PTO as of the
     Termination Date hereunder and (y) any unpaid annual incentive compensation
     in respect of the most recently completed fiscal year preceding the
     Termination Date (the "Unpaid Annual Bonus"); and

          (ii) Within thirty (30) days, such employee benefits described in
     Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which
     Executive may be entitled as of the Termination Date under the employee
     benefit plans and arrangements of the Company ((i) and (ii) collectively,
     the "Accrued Obligations").

6.   TERMINATION BY THE COMPANY

     (a)  TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive's employment hereunder
by providing to Executive written notice of such termination ("Notice of
Termination for Cause"). The term "Cause" shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:

          (i)  has engaged in unlawful acts involving moral turpitude or gross
     negligence with respect to the Company;

          (ii) has consistently and willfully failed to perform his duties or
     has intentionally breached any material provision of any agreement with the
     Company or an affiliated entity; provided, however, that such failure or
     breach shall not constitute Cause unless it is (A) not reasonably curable
     or (B) if reasonably curable, is not cured by the Executive within thirty
     (30) days notice from the Company;

                                        4
John Molina Employment Agreement 2002



     If the Executive's employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive's employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued Obligations shall be paid on
the Termination Date except those benefits described in Sections 4(a) and 4(c)
through (f) inclusive, which shall be paid within thirty (30) days of the
Termination Date.

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

          (b) TERMINATION WITHOUT CAUSE. The Company may, without cause or
     reason, terminate at any time the Period of Employment and Executive's
     employment hereunder by providing Executive written notice of such
     termination ("Notice of Termination Without Cause"). A Non-Extension Notice
     by the Company shall be considered a termination without Cause. If
     Executive's employment is terminated without Cause, the termination shall
     take effect on the Termination Date. In the event of the termination of
     Executive's employment hereunder due to a termination by the Company
     without Cause (other than due to Executive's death or Permanent
     Disability):

               (i)  Executive shall be entitled to receive: (1) an amount equal
     to 100% of the sum of (x) Executive's Base Salary then in effect as of the
     Termination Date and (y) the Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (3) the
     Accrued Obligations; (4) the entirety of Executive's contributions and the
     Company's contributions to Executive's 401(k) plan account as if Executive
     were fully vested as of the Termination Date, and (5) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

               (ii) Executive shall be entitled to one hundred percent vesting
     of all of the options (including, without limitation, Existing Options,
     Initial Options, and Future Options) to purchase common stock of the
     Company ("Common Stock") held by Executive as of the Termination Date (the
     "Options").

     Executive shall have no duty to mitigate damages and none of the payments
provided in this Section 6(b) shall be reduced by any amounts earned or received
by Executive from a third party at any time.

                                        5
John Molina Employment Agreement 2002



7.   TERMINATION BY EMPLOYEE

     (a)  TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive's employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause and the provisions of
Section 6(a) shall apply, provided, however, that notwithstanding the foregoing,
if Executive terminates the Period of Employment without Good Reason, Executive
shall be allowed to exercise the Executive Put Option with respect to Executive
Shares received pursuant to the exercise of Existing Options, subject to the
terms and conditions generally applicable with respect to the Executive Put
Option.

     (b)  TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for "Good Reason." "Good Reason"
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive's prior written consent thereto:

          (i)   a material and adverse change in Executive's position, duties,
     responsibilities, Reporting Relationship or status with the Company,

          (ii)  a change in Executive's office location to a point more than
     fifty (50) miles from Executive's current office,

          (iii) the taking of any action by the Company to: (A) eliminate
     benefit plans applicable to Executive without providing substitutes which
     provide a substantially similar aggregate value of benefits, (B) materially
     reduce Executive's benefits thereunder or (C) substantially diminish the
     aggregate value to Executive of incentive awards or other fringe benefits,
     provided, however, that it shall not constitute Good Reason for the Company
     to, as part of an overall cost-reduction program, take any action described
     in (A) - (C) so long as such action is taken with respect to all senior
     executives and Executive is not disproportionately affected thereby,

          (iv)  any reduction in the Base Salary, provided, however, that it
     shall not constitute Good Reason for the Company to, as part of an overall
     cost-reduction program, reduce Executive's Base Salary so long as the base
     salaries of all other senior executives are simultaneously reduced by not
     less than the same percentage, or

          (v)   any breach of this Agreement by the Company or any successor
     thereto, including without limitation any failure by the Company to obtain
     the consent of any Successor Entity (as defined below) to the provisions
     contained in Section 9; provided, however, that none of the events
     described in clause (v) of this Section 7(b) shall constitute Good Reason
     unless Executive shall have notified the Company in writing describing the
     events which constitute Good Reason and then only if the Company shall have
     failed to cure such event within thirty (30) days after the Company's
     receipt of such written notice.

                                        6
John Molina Employment Agreement 2002



Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

8.   TERMINATION DATE

     The term "Termination Date" shall mean (i) if Executive's employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 ("Notices")) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive's employment is terminated by reason of Death
or Disability, the Disability Date.

9.   CHANGE IN CONTROL

     (a)  Notwithstanding anything to the contrary in this Agreement, if a
Change in Control Event (as defined below) of the Company occurs during the term
of this Agreement, and if within two years following such Change in Control
Event either (1) the Company terminates Executive's employment without Cause or
(2) Executive terminates his employment for Good Reason:

          (i)   the Company shall pay to Executive an amount equal to the sum of
     (w) two times the Severance Payment, (x) the Pro Rata Bonus, (y) the
     Accrued Obligations and (z) the entirety of Executive's contributions and
     the Company's contributions to Executive's 401(k) plan account as if
     Executive were fully vested as of the Termination Date, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

          (ii) the Company shall continue to provide the Selected Benefits until
     the earlier of (x) Executive's receipt of benefits substantially similar in
     scope and nature from another employer or (y) three years after the
     Termination Date.

          (iii) and, regardless of whether any of the Options have been assumed
     by any Successor Entity, the provisions of clauses (ii) and (iii) of
     Section 6(b) will apply.

                                        7
John Molina Employment Agreement 2002



     (b)  A "Change in Control Event" shall mean any of the following:

          (i) Approval by the Board and by shareholders of the Company (or, if
no shareholder approval is required, by the Board alone) of the dissolution or
liquidation of the Company, other than in the context of a transaction that does
not constitute a Change in Control Event under clause (ii) below;

          (ii) Consummation of a merger, consolidation, or other reorganization,
with or into, or the sale of all or substantially all of the Company's business
and/or assets as an entirety to, one or more entities that are not Subsidiaries
or other affiliates of the Company (a "Business Combination"), unless (1) as a
result of the Business Combination, more than fifty percent (50%) of the
outstanding voting power generally in the election of directors of the surviving
or resulting entity or a parent thereof (the "Successor Entity") immediately
after the reorganization is, or will be, owned, directly or indirectly, by
holders of the Company's voting securities immediately before the Business
Combination; and (2) no "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), excluding the Successor Entity or an Excluded
Person, beneficially owns, directly or indirectly, more than fifty percent (50%)
of the outstanding shares or the combined voting power of the outstanding voting
securities of the Successor Entity, after giving effect to the Business
Combination, except to the extent that such ownership existed prior to the
Business Combination; or

          (iii) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than an Excluded Person: (a) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities entitled to
then vote generally in the election of directors (the "Voting Power") of the
Company (a "Majority Holder"), other than as a result of (1) an acquisition
directly from the Company, (2) an acquisition by the Company, or (3) an
acquisition by an entity pursuant to a transaction which is expressly excluded
under clause (ii) above (an "Excluded Transaction"); or (b) provided that the
beneficial owner of a majority of the Voting Power as of the Effective Date is
no longer a Majority Holder, becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than thirty percent (30%) of the Voting Power, other
than as a result of an Excluded Transaction.

          (iv)  For the purposes of this Section 9(c):

               (A)  "Exchange Act" shall mean the Securities Exchange Act of
          1934, as amended from time to time.

               (B)  "Excluded Person" shall mean (a) any person described in and
          satisfying the conditions of Rule 13d-1(b)(1) under the Exchange Act,
          (b) the Company, (c) an employee benefit plan (or related trust)
          sponsored or maintained by the Company or the Successor Entity, or (d)
          any person who is the beneficial owner (as defined in Rule 13d-3 under
          the Exchange Act) of more than [25%] of the Common Stock on the
          Effective Date (or an affiliate, successor, heir, descendant, or
          related party of or to such person).

                                        8
John Molina Employment Agreement 2002



               (C)  "Subsidiary" shall mean any corporation or other entity a
          majority of whose outstanding voting stock or voting power is
          beneficially owned, directly or indirectly, by the Company.

     (c)  Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.

10.  CONFIDENTIALITY

     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive's breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.

11.  NON-SOLICITATION AND NON-DISPARAGEMENT

     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the
Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.

                                        9
John Molina Employment Agreement 2002



12.  RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive's termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company.

13.  SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13
of this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

     (b)  GROSS-UP.

          (i)   Gross-Up Payment. If, notwithstanding clause (a) above, it is
determined (pursuant to Section 13(b)(ii)) or finally determined (as defined in
Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by the
Company or a direct or indirect subsidiary or affiliate of the Company, to or
for the benefit of Executive or Executive's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 13(b)) (each a
"Payment" and collectively the "Payments") is subject to the excise tax imposed
by Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, "Section 4999"), or
any interest, penalty or addition to tax is incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest, penalty,
and addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within ten (10) days after such determination or final determination, as
the case may be, the Company shall pay to Executive (or to the applicable taxing
authority on Executive's behalf) an additional cash payment (hereinafter
referred to as the "Gross-Up Payment") equal to an amount such that after
payment by Executive of all taxes, interest, penalties, additions to tax and
costs imposed or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is intended to
put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.

          (ii)  Determination of Gross-Up.

               (A)  Except as provided in Section 13(b)(iii), the determination
          that a Payment is subject to an Excise Tax shall be made in writing by
          the principal certified public accounting firm then retained by the
          Company to audit its annual financial statements (the "Accounting
          Firm"). Such determination shall include

                                       10
John Molina Employment Agreement 2002



          the amount of the Gross-Up Payment and detailed computations thereof,
          including any assumptions used in such computations. Any determination
          by the Accounting Firm will be binding on the Company and Executive.

               (B)  For purposes of determining the amount of the Gross-Up
          Payment, Executive shall be deemed to pay Federal income taxes at the
          highest marginal rate of Federal income taxation in the calendar year
          in which the Gross-Up Payment is to be made. Such highest marginal
          rate shall take into account the loss of itemized deductions by
          Executive and shall also include Executive's share of the hospital
          insurance portion of FICA and state and local income taxes at the
          highest marginal rate of taxation in the state and locality of
          Executive's residence on the date of his or her Qualifying Termination
          Event, net of the maximum reduction in Federal income taxes that could
          be obtained from the deduction of such state and local taxes.

          (iii) Notification.

               (A)  Executive shall notify the Company in writing of any claim
          by the Internal Revenue Service (or any successor thereof) or any
          state or local taxing authority (individually or collectively, the
          "Taxing Authority") that, if successful, would require the payment by
          the Company of a Gross-Up Payment. Such notification shall be given as
          soon as practicable but no later than thirty (30) days after Executive
          receives written notice of such claim and shall apprise the Company of
          the nature of such claim and the date on which such claim is requested
          to be paid; provided, however, that failure by Executive to give such
          notice within such thirty (30) day period shall not result in a waiver
          or forfeiture of any of Executive's rights under this Section 13(b)
          except to the extent of actual damages suffered by the Company as a
          result of such failure. Executive shall not pay such claim prior to
          the expiration of the fifteen (15) day period following the date on
          which Executive gives such notice to the Company (or such shorter
          period ending on the date that any payment of taxes, interest,
          penalties or additions to tax with respect to such claim is due). If
          the Company notifies Executive in writing prior to the expiration of
          such fifteen (15) day period (regardless of whether such claim was
          earlier paid as contemplated by the preceding parenthetical) that it
          desires to contest such claim, Executive shall:

                    (1)  give the Company any information reasonably requested
                    by the Company relating to such claim;

                    (2)  take such action in connection with contesting such
                    claim as the Company shall reasonably request in writing
                    from time to time, including, without limitation, accepting
                    legal representation with respect to such claim by an
                    attorney selected by the Company;

                    (3)  cooperate with the Company in good faith in order
                    effectively to contest such claim; and

                                       11
John Molina Employment Agreement 2002



                    (4)  permit the Company to participate in any proceedings
                    relating to such claim;

          provided, however, that the Company shall bear and pay directly all
          attorneys fees, costs and expenses (including additional interest,
          penalties and additions to tax) incurred in connection with such
          contest and shall indemnify and hold Executive harmless, on an
          after-tax basis, for all taxes (including, without limitation, income
          and excise taxes), interest, penalties and additions to tax imposed in
          relation to such claim and in relation to the payment of such costs
          and expenses or indemnification.

               (B)  Without limitation on the foregoing provisions of this
          Section 13(b)(iii), and to the extent its actions do not unreasonably
          interfere with or prejudice Executive's disputes with the Taxing
          Authority as to other issues, the Company shall control all
          proceedings taken in connection with such contest and, in its or their
          reasonable discretion, may pursue or forego any and all administrative
          appeals, proceedings, hearings and conferences with the Taxing
          Authority in respect of such claim and may, at its or in their sole
          option, either direct Executive to pay the tax, interest or penalties
          claimed and sue for a refund or contest the claim in any permissible
          manner, and Executive agrees to prosecute such contest to a
          determination before any administrative tribunal, in a court of
          initial jurisdiction and in one or more appellate courts, as the
          Company shall determine; provided, however, that if the Company
          directs Executive to pay such claim and sue for a refund, the Company
          shall advance an amount equal to such payment to Executive, on an
          interest-free basis, and shall indemnify and hold Executive harmless,
          on an after-tax basis, from all taxes (including, without limitation,
          income and excise taxes), interest, penalties and additions to tax
          imposed with respect to such advance or with respect to any imputed
          income with respect to such advance, as any such amounts are incurred;
          and, further, provided, that any extension of the statute of
          limitations relating to payment of taxes, interest, penalties or
          additions to tax for the taxable year of Executive with respect to
          which such contested amount is claimed to be due is limited solely to
          such contested amount; and, provided, further, that any settlement of
          any claim shall be reasonably acceptable to Executive, and the
          Company's control of the contest shall be limited to issues with
          respect to which a Gross-Up Payment would be payable hereunder, and
          Executive shall be entitled to settle or contest, as the case may be,
          any other issue.

               (C)  If, after receipt by Executive of an amount advanced by the
          Company pursuant to Section 13(b)(iii)(A), Executive receives any
          refund with respect to such claim, Executive shall (subject to the
          Company's complying with the requirements of this Section 13(b))
          promptly pay to the Company an amount equal to such refund (together
          with any interest paid or credited thereof after taxes applicable
          thereto), net of any taxes (including, without limitation, any income
          or excise taxes), interest, penalties or additions to tax and any
          other costs incurred by Executive in connection with such advance,
          after giving effect to such repayment. If, after the receipt by
          Executive of an amount advanced by the Company

                                       12
John Molina Employment Agreement 2002



          pursuant to Section 13(b)(iii)(A), it is finally determined that
          Executive is not entitled to any refund with respect to such claim,
          then such advance shall be forgiven and shall not be required to be
          repaid and the amount of such advance shall be treated as a Gross-Up
          Payment and shall offset, to the extent thereof, the amount of any
          Gross-Up Payment otherwise required to be paid.

               (D)  For purposes of this Section 13(b), whether the Excise Tax
          is applicable to a Payment shall be deemed to be "finally determined"
          upon the earliest of: (1) the expiration of the fifteen (15) day
          period referred to in Section 13(b)(iii)(A) if the Company or
          Executive's Company has not notified Executive that it intends to
          contest the underlying claim, (2) the expiration of any period
          following which no right of appeal exists, (3) the date upon which a
          closing agreement or similar agreement with respect to the claim is
          executed by Executive and the Taxing Authority (which agreement may be
          executed only in compliance with this section), or (4) the receipt by
          Executive of notice from the Company that it no longer seeks to pursue
          a contest (which shall be deemed received if the Company does not,
          within fifteen (15) days following receipt of a written inquiry from
          Executive, affirmatively indicate in writing to Executive that the
          Company intends to continue to pursue such contest).

It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an "Underpayment"). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an "Overpayment"). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm's determination that an Overpayment was made and (y) the amount
to be repaid.

14.  CONTRACT REIMBURSEMENT

     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not exceed two thousand five hundred dollars
($2,500). This Section 14 shall not be deemed to limit any of Executive's rights
under Section 23 ("Attorneys' Fees").

                                       13
John Molina Employment Agreement 2002



15.  ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

16.  GOVERNING LAW

     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.

17.  ENTIRE AGREEMENT

     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof. Any prior
negotiations, correspondence, agreements, proposals, or understandings relating
to the subject matter hereof shall be deemed to be merged into this Agreement
and to the extent inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements, whether express
or implied, or oral or written, with respect to the subject matter hereof,
except as set forth herein.

18.  MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

19.  WAIVER

     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

20.  NUMBER AND GENDER

     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

                                       14
John Molina Employment Agreement 2002



21.  SECTION HEADINGS

     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.

22.  ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure Code Sections 1280 et seq. as the exclusive remedy
of such dispute; provided, however, that provisional injunctive relief may, but
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding on the parties hereto and
may be enforced by any court of competent jurisdiction. The parties acknowledge
and agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive's employment.

23.  ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

24.  SEVERABILITY

     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

                                       15
John Molina Employment Agreement 2002



25.  NOTICES

     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

     (a)  if to the Company:

          Molina Healthcare, Inc.
          Attention: J. Mario Molina, M.D., President and Chief Executive
          Officer
          One Golden Shore Drive
          Long Beach, California 90802

     (b)  if to Executive:

          John C. Molina
          2625 East Ocean
          Long Beach, CA 90803

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed, or when transmitted via facsimile with confirmation of
receipt.

26.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

27.  WITHHOLDING TAXES

     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.  IN WITNESS WHEREOF, the Company and Executive
have executed this Employment Agreement as of the date first above written.

                                      "COMPANY"
                                      Molina Healthcare, Inc.

                                      By: /s/
                                          ------------------------------
                                          J. Mario Molina, M.D.
                                          Chairman, President, and Chief
                                          Executive Officer

                                      "EXECUTIVE"
                                      John C. Molina
                                      /s/
                                      ------------------------
                                      John C. Molina

                                       16
John Molina Employment Agreement 2002

                                                                    EXHIBIT 10.9

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of December 1,
2001, between Mark L. Andrews ("Executive") and Molina Healthcare, Inc. (the
"Company").

                                    RECITALS

     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated December 2, 1997 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

     The parties agree as follows:

1.   DUTIES

     (a)  The Company does hereby hire, engage, and employ Executive as
Executive Vice President of the Company, and Executive does hereby accept and
agree to such hiring, engagement, and employment. During the Period of
Employment (as defined in Section 2), Executive shall serve the Company in such
position in conformity with the provisions of this Agreement, directives of the
Chief Executive Officer and the corporate policies of the Company as they
presently exist, and as such policies may be amended, modified, changed, or
adopted during the Period of Employment. Executive shall have duties and
authority consistent with Executive's position as Executive Vice President and
shall report to the Chief Executive Officer of the Company (the "Reporting
Relationship").

     (b)  Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive's duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

     (c)  Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.

Mark Andrews Employment Agreement-2001



2.   PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a period commencing on December 1, 2001 (the "Effective Date") and
ending with the close of business on December 1, 2004. Notwithstanding the
preceding sentence, commencing with December 1, 2004 and on each December 1st
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days' prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the "Non-Extension Notice"); or (ii) Executive is not less than sixty-five (65)
years of age as of the next scheduled Extension Date. The term "Period of
Employment" shall include any extension that becomes applicable pursuant to the
preceding sentence.

3.   COMPENSATION

     (a)  BASE SALARY. Executive's Base Salary shall be at a rate of not less
than $323,400 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The CEO shall review at
least annually Executive's Base Salary for possible increase in accordance with
the Company's customary review practices for its senior executives and may, in
his sole discretion, periodically adjust Executive's Base Salary to reflect
individual performance. In the event of an increase, Executive's Base Salary for
the year in which the increase occurs shall be adjusted on a pro rata basis to
reflect the increase.

     (b)  BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus"), with a target
Annual Bonus (the "Target Bonus") of forty percent (40%) of his Base Salary, to
be awarded at the sole discretion of the CEO based on the achievement of certain
mutually agreed upon objectives. Executive shall be entitled to participate in
all bonus or incentive plans applicable to the senior executives of the Company,
including without limitation any Effective Option Plan (as defined in Section
4(e)). CEO may in his sole discretion, also award to Executive such
extraordinary bonus(es) as CEO deems appropriate.

4.   BENEFITS

     (a)  HEALTH AND WELFARE. During the Period of Employment, Executive shall
be entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company's medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits provided from time to time, subject to any legally
required restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, Company shall provide life insurance for Executive,
with Executive to designate the beneficiary thereunder, in an amount equal to
Executive's base salary as in effect on the date of this Agreement and as in
effect on the first business day of each calendar year thereafter.

                                        2
Mark Andrews Employment Agreement2001



     (b)  PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive10.77 hours of paid time off per "pay period" of the
Company (the "PTO"), subject to the Company's policies concerning accrual of PTO
and provided that for any three hundred sixty five (365) day period within the
Period of Employment Executive shall earn no less than a total of thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

     (c)  TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under section 1 of this Agreement in
accordance with the Company's expense reimbursement policies.

     (d)  RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs.

     (e)  EQUITY GRANTS.

          (i)   Existing Options. Executive holds on the Effective Date options
     for five thousand (5,000) shares of common stock of the Company (the
     "Existing Options") pursuant to an agreement entitled Agreement Relating to
     Stock Options, dated December 13,1999, as amended. The Existing Options are
     subject to the terms and conditions of the Omnibus Stock and Incentive Plan
     (the "Option Plan"), and shall hereafter continue to be subject to and
     controlled by the terms and conditions of the Option Plan.

          (ii)  Initial Options. Executive shall, on the Effective Date, be
     granted stock options for one thousand eight hundred (1,800) shares of the
     common stock of the Company (the "Initial Options") pursuant to an option
     agreement. The exercise price of the Initial Options will be $180 per
     share. The Initial Options are subject to the terms and conditions of the
     Option Plan.

          (iii) Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of a stock option plan of the Company as then in effect (as of
     the date of any grant, an "Effective Option Plan"). The terms and
     conditions of such Future Options are intended to be such that Executive
     shall receive a compensation package commensurate with executives
     performing the same functions as Executives for businesses similar to the
     Company.

     (f)  OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.

                                        3
Mark Andrews Employment Agreement2001



The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as "Executive Benefits."

5.   DEATH OR DISABILITY

     (a)  PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms "Permanently
Disabled" and "Permanent Disability" shall mean Executive's inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.

     (b)  TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive's employment shall automatically cease and terminate as of the
date of Executive's death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the "Disability Date"), as the
case may be. In the event of the termination of the Period of Employment and
Executive's employment hereunder due to Executive's death or Permanent
Disability, Executive or his estate shall be entitled to receive:

          (i)  Within five (5) business days, a lump sum cash payment equal to
     the sum of (x) any accrued but unpaid Base Salary and PTO as of the
     Termination Date hereunder and (y) any unpaid annual incentive compensation
     in respect of the most recently completed fiscal year preceding the
     Termination Date (the "Unpaid Annual Bonus"); and

          (ii) Within thirty (30) days, such employee benefits described in
     Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which
     Executive may be entitled as of the Termination Date under the employee
     benefit plans and arrangements of the Company ((i) and (ii) collectively,
     the "Accrued Obligations").

6.   TERMINATION BY THE COMPANY

     (a)  TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive's employment hereunder
by providing to Executive written notice of such termination ("Notice of
Termination for Cause"). The term "Cause" shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:

          (i)  has engaged in unlawful acts involving moral turpitude or gross
     negligence with respect to the Company;

          (ii) has consistently and willfully failed to perform his duties or
     has intentionally breached any material provision of any agreement with the
     Company or an affiliated entity; provided, however, that such failure or
     breach shall not constitute Cause unless it is (A) not reasonably curable
     or (B) if reasonably curable, is not cured by the Executive within thirty
     (30) days notice from the Company;

                                        4
Mark Andrews Employment Agreement2001



     If the Executive's employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive's employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued Obligations shall be paid on
the Termination Date except those benefits described in Sections 4(a) and 4(c)
through (f) inclusive, which shall be paid within thirty (30) days of the
Termination Date.

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

     (b)  TERMINATION WITHOUT CAUSE. The Company may, without cause or reason,
terminate at any time the Period of Employment and Executive's employment
hereunder by providing Executive written notice of such termination ("Notice of
Termination Without Cause"). A Non-Extension Notice by the Company shall be
considered a termination without Cause. If Executive's employment is terminated
without Cause, the termination shall take effect on the Termination Date. In the
event of the termination of Executive's employment hereunder due to a
termination by the Company without Cause (other than due to Executive's death or
Permanent Disability):

          (i)   Executive shall be entitled to receive: (1) an amount equal to
     100% of the sum of (x) Executive's Base Salary then in effect as of the
     Termination Date and (y) the Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (3) the
     Accrued Obligations; (4) the entirety of Executive's contributions and the
     Company's contributions to Executive's 401(k) plan account as if Executive
     were fully vested as of the Termination Date, and (5) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

          (ii) Executive shall be entitled to one hundred percent vesting of all
     of the options (including, without limitation, Existing Options, Initial
     Options, and Future Options) to purchase common stock of the Company
     ("Common Stock") held by Executive as of the Termination Date (the
     "Options").

          (iii) Company shall, upon the written request of Executive (the
     "Executive Put Option") be required to repurchase all shares of Common
     Stock acquired by Executive pursuant to the exercise of stock options
     granted to and/or held by Executive as of the Termination Date (the
     "Executive Shares"). Executive may not exercise the Executive Put Option
     with respect to Executive Shares within the six-month period following the

                                        5
Mark Andrews Employment Agreement2001



     date Executive acquired such Executive Shares, and the Executive Put Option
     may not be exercised at any time after the Company becomes publicly traded.
     The repurchase price for each Executive Share shall be equal to the fair
     market value of a share of Common Stock ("Fair Market Value"), which Fair
     Market Value:

               (A)  shall be determined as of the date of the exercise of
          Executive Put Option by an independent appraiser chosen by the Company
          and Executive as follows: the Company shall identify three appraisers
          independent of the Company, and Executive shall select one from the
          three identified; and

               (B)  shall be determined without any minority, illiquidity or
          other discount.

          (iv) Amounts payable under this Section 6(b) shall be payable as
          follows:

               (A)  amounts payable under clause (i) shall be, or shall commence
          to be, paid within 30 days following the Termination Date either in a
          single lump sum or in regular installments as a continuation of
          Executive's salary according to the Company's customary payroll
          practices, as determined by the Executive in his sole discretion;
          provided however that any amounts representing accrued but unpaid
          Executive Base Salary, PTO an Unpaid Annual Bonus shall be paid on the
          Termination Date.

               (B)  amounts payable under clause (iii) that are attributable to
          the exercise of Existing Options and/or Initial Options shall be paid
          by the Company in accordance with the terms and conditions of the
          Option Plan. Amounts payable under clause (iii) that are attributable
          to the exercise of Future Options shall be paid by the Company in
          three annual lump sum installments as follows: (1) within 30 days
          after the Termination Date, one-third of the payout; (2) on the first
          anniversary of the Termination Date, one-third of the payout, with
          interest on the previously unpaid portion of the payout accrued from
          the Termination Date at the applicable federal rate; and (3) on the
          second anniversary of the Termination Date, the remaining one-third of
          the payout, with interest on such previously unpaid portion of the
          payout accrued from the first anniversary of the Termination Date at
          the applicable federal rate.

     Executive shall have no duty to mitigate damages and none of the payments
provided in this Section 6(b) shall be reduced by any amounts earned or received
by Executive from a third party at any time.

7.   TERMINATION BY EMPLOYEE

     (a)  TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive's employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause

                                        6
Mark Andrews Employment Agreement2001



and the provisions of Section 6(a) shall apply, provided, however, that
notwithstanding the foregoing, if Executive terminates the Period of Employment
without Good Reason, Executive shall be allowed to exercise the Executive Put
Option with respect to Executive Shares received pursuant to the exercise of
Existing Options, subject to the terms and conditions generally applicable with
respect to the Executive Put Option.

     (b)  TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for "Good Reason." "Good Reason"
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive's prior written consent thereto:

          (i)   a material and adverse change in Executive's position, duties,
     responsibilities, Reporting Relationship or status with the Company,

          (ii)  a change in Executive's office location to a point more than
     fifty (50) miles from Executive's current office,

          (iii) the taking of any action by the Company to: (A) eliminate
     benefit plans applicable to Executive without providing substitutes which
     provide a substantially similar aggregate value of benefits, (B) materially
     reduce Executive's benefits thereunder or (C) substantially diminish the
     aggregate value to Executive of incentive awards or other fringe benefits,
     provided, however, that it shall not constitute Good Reason for the Company
     to, as part of an overall cost-reduction program, take any action described
     in (A) - (C) so long as such action is taken with respect to all senior
     executives and Executive is not disproportionately affected thereby,

          (iv) any reduction in the Base Salary, provided, however, that it
     shall not constitute Good Reason for the Company to, as part of an overall
     cost-reduction program, reduce Executive's Base Salary so long as the base
     salaries of all other senior executives are simultaneously reduced by not
     less than the same percentage, or

          (v)  any breach of this Agreement by the Company or any successor
     thereto, including without limitation any failure by the Company to obtain
     the consent of any Successor Entity (as defined below) to the provisions
     contained in Section 9; provided, however, that none of the events
     described in clause (v) of this Section 7(b) shall constitute Good Reason
     unless Executive shall have notified the Company in writing describing the
     events which constitute Good Reason and then only if the Company shall have
     failed to cure such event within thirty (30) days after the Company's
     receipt of such written notice.

Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

                                        7
Mark Andrews Employment Agreement2001



8.   TERMINATION DATE

     The term 'Termination Date" shall mean (i) if Executive's employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 ("Notices")) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive's employment is terminated by reason of Death
or Disability, the Disability Date.

9.   CHANGE IN CONTROL

     (a)  Notwithstanding anything to the contrary in this Agreement, if a
Change in Control Event (as defined below) of the Company occurs during the term
of this Agreement, and if within two years following such Change in Control
Event either (1) the Company terminates Executive's employment without Cause or
(2) Executive terminates his employment for Good Reason:

          (i)   the Company shall pay to Executive an amount equal to the sum of
     (w) two times the Severance Payment, (x) the Pro Rata Bonus, (y) the
     Accrued Obligations and (z) the entirety of Executive's contributions and
     the Company's contributions to Executive's 401(k) plan account as if
     Executive were fully vested as of the Termination Date, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

          (ii) the Company shall continue to provide the Selected Benefits until
     the earlier of (x) Executive's receipt of benefits substantially similar in
     scope and nature from another employer or (y) three years after the
     Termination Date.

          (iii) and, regardless of whether any of the Options have been assumed
     by any Successor Entity, the provisions of clauses (ii) and (iii) of
     Section 6(b) will apply.

     (b)  A "Change in Control Event" shall mean any of the following:

          (i)  Approval by the Board and by shareholders of the Company (or, if
no shareholder approval is required, by the Board alone) of the dissolution or
liquidation of the Company, other than in the context of a transaction that does
not constitute a Change in Control Event under clause (ii) below;

          (ii) Consummation of a merger, consolidation, or other reorganization,
with or into, or the sale of all or substantially all of the Company's business
and/or assets as an entirety to, one or more entities that are not Subsidiaries
or other affiliates of the Company (a "Business Combination"), unless (1) as a
result of the Business Combination, more than fifty percent (50%) of the
outstanding voting power generally in the election of directors of the surviving
or resulting entity or a parent thereof (the "Successor Entity") immediately
after the reorganization

                                        8
Mark Andrews Employment Agreement2001



is, or will be, owned, directly or indirectly, by holders of the Company's
voting securities immediately before the Business Combination; and (2) no
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
excluding the Successor Entity or an Excluded Person, beneficially owns,
directly or indirectly, more than fifty percent (50%) of the outstanding shares
or the combined voting power of the outstanding voting securities of the
Successor Entity, after giving effect to the Business Combination, except to the
extent that such ownership existed prior to the Business Combination; or

          (iii) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) other than an Excluded Person: (a) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities entitled to
then vote generally in the election of directors (the "Voting Power") of the
Company (a "Majority Holder"), other than as a result of (1) an acquisition
directly from the Company, (2) an acquisition by the Company, or (3) an
acquisition by an entity pursuant to a transaction which is expressly excluded
under clause (ii) above (an "Excluded Transaction"); or (b) provided that the
beneficial owner of a majority of the Voting Power as of the Effective Date is
no longer a Majority Holder, becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than thirty percent (30%) of the Voting Power, other
than as a result of an Excluded Transaction.

          (iv) For the purposes of this Section 9(c):

               (A)  "Exchange Act" shall mean the Securities Exchange Act of
          1934, as amended from time to time.

               (B)  "Excluded Person" shall mean (a) any person described in and
          satisfying the conditions of Rule 13d-l(b)(l) under the Exchange Act,
          (b) the Company, (c) an employee benefit plan (or related trust)
          sponsored or maintained by the Company or the Successor Entity, or (d)
          any person who is the beneficial owner (as defined in Rule 13d-3 under
          the Exchange Act) of more than [25%] of the Common Stock on the
          Effective Date (or an affiliate, successor, heir, descendant, or
          related party of or to such person).

               (C)  "Subsidiary" shall mean any corporation or other entity a
          majority of whose outstanding voting stock or voting power is
          beneficially owned, directly or indirectly, by the Company.

     (c)  Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.

                                        9
Mark Andrews Employment Agreement2001



10.  CONFIDENTIALITY

     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive's breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.

11.  NON-SOLICITATION AND NON-DISPARAGEMENT

     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the
Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.

12.  RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive's termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company.

                                       10
Mark Andrews Employment Agreement2001



13.  SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13 of
this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

     (b)  GROSS-UP.

          (i)   Gross-Up Payment. If, notwithstanding clause (a) above, it is
determined (pursuant to Section 13(b)(ii)) or finally determined (as defined in
Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by the
Company or a direct or indirect subsidiary or affiliate of the Company, to or
for the benefit of Executive or Executive's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 13(b)) (each a
"Payment" and collectively the "Payments") is subject to the excise tax imposed
by Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, "Section 4999"), or
any interest, penalty or addition to tax is incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest, penalty,
and addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within ten (10) days after such determination or final determination, as
the case may be, the Company shall pay to Executive (or to the applicable taxing
authority on Executive's behalf) an additional cash payment (hereinafter
referred to as the "Gross-Up Payment") equal to an amount such that after
payment by Executive of all taxes, interest, penalties, additions to tax and
costs imposed or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is intended to
put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.

          (ii)  Determination of Gross-Up.

               (A)  Except as provided in Section 13(b)(iii), the determination
          that a Payment is subject to an Excise Tax shall be made in writing by
          the principal certified public accounting firm then retained by the
          Company to audit its annual financial statements (the "Accounting
          Firm"). Such determination shall include the amount of the Gross-Up
          Payment and detailed computations thereof, including any assumptions
          used in such computations. Any determination by the Accounting Firm
          will be binding on the Company and Executive.

               (B)  For purposes of determining the amount of the Gross-Up
          Payment, Executive shall be deemed to pay Federal income taxes at the
          highest marginal rate of Federal income taxation in the calendar year
          in which the Gross-Up Payment is to be made. Such highest marginal
          rate shall take into account the loss

                                       11
Mark Andrews Employment Agreement2001



          of itemized deductions by Executive and shall also include Executive's
          share of the hospital insurance portion of FICA and state and local
          income taxes at the highest marginal rate of taxation in the state and
          locality of Executive's residence on the date of his or her Qualifying
          Termination Event, net of the maximum reduction in Federal income
          taxes that could be obtained from the deduction of such state and
          local taxes.

          (iii) Notification.

               (A)  Executive shall notify the Company in writing of any claim
          by the Internal Revenue Service (or any successor thereof) or any
          state or local taxing authority (individually or collectively, the
          "Taxing Authority") that, if successful, would require the payment by
          the Company of a Gross-Up Payment. Such notification shall be given as
          soon as practicable but no later than thirty (30) days after Executive
          receives written notice of such claim and shall apprise the Company of
          the nature of such claim and the date on which such claim is requested
          to be paid; provided, however, that failure by Executive to give such
          notice within such thirty (30) day period shall not result in a waiver
          or forfeiture of any of Executive's rights under this Section 13(b)
          except to the extent of actual damages suffered by the Company as a
          result of such failure. Executive shall not pay such claim prior to
          the expiration of the fifteen (15) day period following the date on
          which Executive gives such notice to the Company (or such shorter
          period ending on the date that any payment of taxes, interest,
          penalties or additions to tax with respect to such claim is due). If
          the Company notifies Executive in writing prior to the expiration of
          such fifteen (15) day period (regardless of whether such claim was
          earlier paid as contemplated by the preceding parenthetical) that it
          desires to contest such claim, Executive shall:

                    (1)  give the Company any information reasonably requested
                    by the Company relating to such claim;

                    (2)  take such action in connection with contesting such
                    claim as the Company shall reasonably request in writing
                    from time to time, including, without limitation, accepting
                    legal representation with respect to such claim by an
                    attorney selected by the Company;

                    (3)  cooperate with the Company in good faith in order
                    effectively to contest such claim; and

                    (4)  permit the Company to participate in any proceedings
                    relating to such claim;

          provided, however, that the Company shall bear and pay directly all
          attorneys fees, costs and expenses (including additional interest,
          penalties and additions to tax) incurred in connection with such
          contest and shall indemnify and hold Executive harmless, on an
          after-tax basis, for all taxes (including, without

                                       12
Mark Andrews Employment Agreement2001



          limitation, income and excise taxes), interest, penalties and
          additions to tax imposed in relation to such claim and in relation to
          the payment of such costs and expenses or indemnification.

               (B)  Without limitation on the foregoing provisions of this
          Section 13(b)(iii), and to the extent its actions do not unreasonably
          interfere with or prejudice Executive's disputes with the Taxing
          Authority as to other issues, the Company shall control all
          proceedings taken in connection with such contest and, in its or their
          reasonable discretion, may pursue or forego any and all administrative
          appeals, proceedings, hearings and conferences with the Taxing
          Authority in respect of such claim and may, at its or in their sole
          option, either direct Executive to pay the tax, interest or penalties
          claimed and sue for a refund or contest the claim in any permissible
          manner, and Executive agrees to prosecute such contest to a
          determination before any administrative tribunal, in a court of
          initial jurisdiction and in one or more appellate courts, as the
          Company shall determine; provided, however, that if the Company
          directs Executive to pay such claim and sue for a refund, the Company
          shall advance an amount equal to such payment to Executive, on an
          interest-free basis, and shall indemnify and hold Executive harmless,
          on an after-tax basis, from all taxes (including, without limitation,
          income and excise taxes), interest, penalties and additions to tax
          imposed with respect to such advance or with respect to any imputed
          income with respect to such advance, as any such amounts are incurred;
          and, further, provided, that any extension of the statute of
          limitations relating to payment of taxes, interest, penalties or
          additions to tax for the taxable year of Executive with respect to
          which such contested amount is claimed to be due is limited solely to
          such contested amount; and, provided, further, that any settlement of
          any claim shall be reasonably acceptable to Executive, and the
          Company's control of the contest shall be limited to issues with
          respect to which a Gross-Up Payment would be payable hereunder, and
          Executive shall be entitled to settle or contest, as the case may be,
          any other issue.

               (C)  If, after receipt by Executive of an amount advanced by the
          Company pursuant to Section 13(b)(iii)(A), Executive receives any
          refund with respect to such claim, Executive shall (subject to the
          Company's complying with the requirements of this Section 13(b))
          promptly pay to the Company an amount equal to such refund (together
          with any interest paid or credited thereof after taxes applicable
          thereto), net of any taxes (including, without limitation, any income
          or excise taxes), interest, penalties or additions to tax and any
          other costs incurred by Executive in connection with such advance,
          after giving effect to such repayment. If, after the receipt by
          Executive of an amount advanced by the Company pursuant to Section
          13(b)(iii)(A), it is finally determined that Executive is not entitled
          to any refund with respect to such claim, then such advance shall be
          forgiven and shall not be required to be repaid and the amount of such
          advance shall be treated as a Gross-Up Payment and shall offset, to
          the extent thereof, the amount of any Gross-Up Payment otherwise
          required to be paid.

                                       13
Mark Andrews Employment Agreement2001



               (D)  For purposes of this Section 13(b), whether the Excise Tax
          is applicable to a Payment shall be deemed to be "finally determined"
          upon the earliest of: (1) the expiration of the fifteen (15) day
          period referred to in Section 13(b)(iii)(A) if the Company or
          Executive's Company has not notified Executive that it intends to
          contest the underlying claim, (2) the expiration of any period
          following which no right of appeal exists, (3) the date upon which a
          closing agreement or similar agreement with respect to the claim is
          executed by Executive and the Taxing Authority (which agreement may be
          executed only in compliance with this section), or (4) the receipt by
          Executive of notice from the Company that it no longer seeks to pursue
          a contest (which shall be deemed received if the Company does not,
          within fifteen (15) days following receipt of a written inquiry from
          Executive, affirmatively indicate in writing to Executive that the
          Company intends to continue to pursue such contest).

It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an "Underpayment"). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an "Overpayment"). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm's determination that an Overpayment was made and (y) the amount
to be repaid.

14.  CONTRACT REIMBURSEMENT

     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not exceed two thousand five hundred dollars
($2,500). This Section 14 shall not be deemed to limit any of Executive's rights
under Section 23 ("Attorneys' Fees").

15.  ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of

                                       14
Mark Andrews Employment Agreement2001



such successor and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.

16.  GOVERNING LAW

     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.

17.  ENTIRE AGREEMENT

     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof. Any prior
negotiations, correspondence, agreements, proposals, or understandings relating
to the subject matter hereof shall be deemed to be merged into this Agreement
and to the extent inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements, whether express
or implied, or oral or written, with respect to the subject matter hereof,
except as set forth herein.

18.  MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

19.  WAIVER

     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

20.  NUMBER AND GENDER

     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

21.  SECTION HEADINGS

     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.

                                       15
Mark Andrews Employment Agreement2001



22.  ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure, Code Sections 1280 et seq. as the exclusive
remedy of such dispute; provided, however, that provisional injunctive relief
may, but need not, be sought in a court of law while arbitration proceedings are
pending, and any provisional injunctive relief granted by such court shall
remain effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding on the parties hereto and
may be enforced by any court of competent jurisdiction. The parties acknowledge
and agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive's employment.

23.  ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

24.  SEVERABILITY

     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

25.  NOTICES

     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

     (a)  if to the Company:

          Molina Healthcare, Inc.
          Attention: J. Mario Molina, M.D., President and Chief Executive
          Officer
          One Golden Shore Drive
          Long Beach, California 90802

                                       16
Mark Andrews Employment Agreement2001



     (b)  if to Executive:

          Mark L. Andrews
          570 Morris Way
          Sacramento, CA 95864

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed, or when transmitted via facsimile with confirmation of
receipt.

26.  COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

27.  WITHHOLDING TAXES

     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

                                       17
Mark Andrews Employment Agreement2001



     IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.

                                                   "COMPANY"
                                                   Molina Healthcare, Inc.

                                                   By: /s/
                                                       -------------------------
                                                       J. Mario Molina, M.D.
                                                       Chairman, President, and
                                                       Chief Executive Officer

                                                   "EXECUTIVE"
                                                   Mark L. Andrews

                                                   /s/
                                                   -------------------
                                                   Mark L. Andrews

                                       18
Mark Andrews Employment Agreement2001

                                                                   EXHIBIT 10.10

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of December 31,
2001, between Dr. George Goldstein ("Executive") and Molina Healthcare, Inc.
(the "Company").

                                    RECITALS

     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated November 9, 1998 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

     The parties agree as follows:

1.  DUTIES

     (a)  The Company does hereby hire, engage, and employ Executive as
Executive Vice President of the Company, and Executive does hereby accept and
agree to such hiring, engagement, and employment. During the Period of
Employment (as defined in Section 2), Executive shall serve the Company in such
position in conformity with the provisions of this Agreement, directives of the
Chief Executive Officer and the corporate policies of the Company as they
presently exist, and as such policies may be amended, modified, changed, or
adopted during the Period of Employment. Executive shall have duties and
authority consistent with Executive's position as Executive Vice President and
shall report to the Chief Executive Officer of the Company (the "Reporting
Relationship").

     (b)  Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive's duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

     (c)  Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.





2.  PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a period commencing on December 1, 2001 (the "Effective Date") and
ending with the close of business on December 1, 2004. Notwithstanding the
preceding sentence, commencing with December 1, 2004 and on each December 1st
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days' prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the "Non-Extension Notice"); or (ii) Executive is not less than sixty-five (65)
years of age as of the next scheduled Extension Date. The term "Period of
Employment" shall include any extension that becomes applicable pursuant to the
preceding sentence.

3.  COMPENSATION

     (a)  BASE SALARY. Executive's Base Salary shall be at a rate of not less
than $358,400 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The CEO shall review at
least annually Executive's Base Salary for possible increase in accordance with
the Company's customary review practices for its senior executives and may, in
his sole discretion, periodically adjust Executive's Base Salary to reflect
individual performance. In the event of an increase, Executive's Base Salary for
the year in which the increase occurs shall be adjusted on a pro rata basis to
reflect the increase.

     (b)  BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus"), with a target
Annual Bonus (the "Target Bonus") of forty-five percent (45%) of his Base
Salary, to be awarded at the sole discretion of the CEO based on the achievement
of certain mutually agreed upon objectives. Executive shall be entitled to
participate in all bonus or incentive plans applicable to the senior executives
of the Company, including without limitation any Effective Option Plan (as
defined in Section 4(e)). CEO may in his sole discretion, also award to
Executive such extraordinary bonus(es) as CEO deems appropriate.

4.  BENEFITS

     (a)  HEALTH AND WELFARE. During the Period of Employment, Executive shall
be entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company's medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits (long-term care insurance) provided from time to
time, subject to any legally required restrictions specified in such plans and
programs. Without limiting the generality of the foregoing, Company shall
provide life insurance for Executive, with Executive to designate the
beneficiary thereunder, in an amount equal to Executive's base salary as in
effect on the date of this Agreement and as in effect on the first business day
of each calendar year thereafter.


                                        2



     (b)  PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive 10.77 hours of paid time off per "pay period" of the
Company (the "PTO"), subject to the Company's policies concerning accrual of PTO
and provided that for any three hundred sixty five (365) day period within the
Period of Employment Executive shall earn no less than a total of thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

     (c)  TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under section 1 of this Agreement in
accordance with the Company's expense reimbursement policies.

     (d)  RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs.

     (e)  EQUITY GRANTS.

          (i)   Initial Options. Executive shall, on the Effective Date, be
     granted stock options for 4,000 shares of the common stock of the Company
     (the "Initial Options") pursuant to the option agreement. The first 1,000
     shares vesting on December 31, 2001. The exercise price of the Initial
     Options will be $180 per share. The Initial Options are subject to the
     terms and conditions of the "Option Plan".

          (ii)  Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of the stock option plan of the Company. The terms and
     conditions of such Future Options are intended to be such that Executive
     shall receive a compensation package commensurate with executives
     performing the same functions as Executives for businesses similar to the
     Company.

     (f)  OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.

The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as "Executive Benefits."


                                        3



5.  DEATH OR DISABILITY

     (a)  PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms "Permanently
Disabled" and "Permanent Disability" shall mean Executive's inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.

     (b)  TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive's employment shall automatically cease and terminate as of the
date of Executive's death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the "Disability Date"), as the
case may be. In the event of the termination of the Period of Employment and
Executive's employment hereunder due to Executive's death or Permanent
Disability, Executive or his estate shall be entitled to receive:

          (i)   Within five (5) business days, a lump sum cash payment equal to
     the sum of (x) any accrued but unpaid Base Salary and PTO as of the
     Termination Date hereunder and (y) any unpaid annual incentive compensation
     in respect of the most recently completed fiscal year preceding the
     Termination Date (the "Unpaid Annual Bonus"); and

          (ii)  Within thirty (30) days, such employee benefits described in
     Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which
     Executive may be entitled as of the Termination Date under the employee
     benefit plans and arrangements of the Company ((i) and (ii) collectively,
     the "Accrued Obligations").

6.  TERMINATION BY THE COMPANY

     (a)  TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive's employment hereunder
by providing to Executive written notice of such termination ("Notice of
Termination for Cause"). The term "Cause" shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:

          (i)   has engaged in unlawful acts involving moral turpitude or gross
     negligence with respect to the Company;

          (ii)  has consistently and willfully failed to perform his duties or
     has intentionally breached any material provision of any agreement with the
     Company or an affiliated entity; provided, however, that such failure or
     breach shall not constitute Cause unless it is (A) not reasonably curable
     or (B) if reasonably curable, is not cured by the Executive within thirty
     (30) days notice from the Company;

     If the Executive's employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive's employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued


                                        4



Obligations shall be paid on the Termination Date except those benefits
described in Sections 4(a) and 4(c) through (f) inclusive, which shall be paid
within thirty (30) days of the Termination Date.

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

     (b)  TERMINATION WITHOUT CAUSE. The Company may, without cause or reason,
terminate at any time the Period of Employment and Executive's employment
hereunder by providing Executive written notice of such termination ("Notice of
Termination Without Cause"). A Non-Extension Notice by the Company shall be
considered a termination without Cause. If Executive's employment is terminated
without Cause, the termination shall take effect on the Termination Date. In the
event of the termination of Executive's employment hereunder due to a
termination by the Company without Cause (other than due to Executive's death or
Permanent Disability):

          (i)   Executive shall be entitled to receive: (1) an amount equal to
     100% of the sum of (x) Executive's Base Salary then in effect as of the
     Termination Date and (y) the Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (3) the
     Accrued Obligations; (4) the entirety of Executive's contributions and the
     Company's contributions to Executive's 401(k) plan account as if Executive
     were fully vested as of the Termination Date, and (5) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

          (ii)  Executive shall be entitled to one hundred percent vesting of
     all of the options (including, without limitation, Existing Options,
     Initial Options, and Future Options) to purchase common stock of the
     Company ("Common Stock") held by Executive as of the Termination Date (the
     "Options").

          (iii) Company shall, upon the written request of Executive (the
     "Executive Put Option") be required to repurchase all shares of Common
     Stock acquired by Executive pursuant to the exercise of stock options
     granted to and/or held by Executive as of the Termination Date (the
     "Executive Shares"). Executive may not exercise the Executive Put Option
     with respect to Executive Shares within the six-month period following the
     date Executive acquired such Executive Shares, and the Executive Put Option
     may not be exercised at any time after the Company becomes publicly traded.
     The repurchase price for each Executive Share shall be equal to the fair
     market value of a share of Common Stock ("Fair Market Value"), which Fair
     Market Value:


                                        5



                (A)  shall be determined as of the date of the exercise of
          Executive Put Option by an independent appraiser chosen by the Company
          and Executive as follows: the Company shall identify three appraisers
          independent of the Company, and Executive shall select one from the
          three identified; and

                (B)  shall be determined without any minority, illiquidity or
          other discount.

          (iv)  Amounts payable under this Section 6(b) shall be payable as
     follows:

                (A)  amounts payable under clause (i) shall be, or shall
          commence to be, paid within 30 days following the Termination Date
          either in a single lump sum or in regular installments as a
          continuation of Executive's salary according to the Company's
          customary payroll practices, as determined by the Executive in his
          sole discretion; provided however that any amounts representing
          accrued but unpaid Executive Base Salary, PTO an Unpaid Annual Bonus
          shall be paid on the Termination Date.

                (B)  Amounts payable under clause (iii) that are attributable to
          the exercise of Initial Options and/or Future Options shall be paid by
          the Company in three annual lump sum installments as follows: (1)
          within 30 days after the Termination Date, one-third of the payout;
          (2) on the first anniversary of the Termination Date, one-third of the
          payout, with interest on the previously unpaid portion of the payout
          accrued from the Termination Date at the applicable federal rate; and
          (3) on the second anniversary of the Termination Date, the remaining
          one-third of the payout, with interest on such previously unpaid
          portion of the payout accrued from the first anniversary of the
          Termination Date at the applicable federal rate.

     Executive shall have no duty to mitigate damages and none of the payments
provided in this Section 6(b) shall be reduced by any amounts earned or received
by Executive from a third party at any time.

7.  TERMINATION BY EMPLOYEE

     (a)  TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive's employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause and the provisions of
Section 6(a) shall apply, provided, however, that notwithstanding the foregoing,
if Executive terminates the Period of Employment without Good Reason, Executive
shall be allowed to exercise the Executive Put Option with respect to Executive
Shares received pursuant to the exercise of Existing Options, subject to the
terms and conditions generally applicable with respect to the Executive Put
Option.


                                        6



     (b)  TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for "Good Reason." "Good Reason"
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive's prior written consent thereto:

          (i)   a material and adverse change in Executive's position, duties,
     responsibilities, Reporting Relationship or status with the Company,

          (ii)  a change in Executive's office location to a point more than
     fifty (50) miles from Executive's current office,

          (iii) the taking of any action by the Company to: (A) eliminate
     benefit plans applicable to Executive without providing substitutes which
     provide a substantially similar aggregate value of benefits, (B) materially
     reduce Executive's benefits thereunder or (C) substantially diminish the
     aggregate value to Executive of incentive awards or other fringe benefits,
     provided, however, that it shall not constitute Good Reason for the Company
     to, as part of an overall cost-reduction program, take any action described
     in (A)-(C) so long as such action is taken with respect to all senior
     executives and Executive is not disproportionately affected thereby,

          (iv)  any reduction in the Base Salary, provided, however, that it
     shall not constitute Good Reason for the Company to, as part of an overall
     cost-reduction program, reduce Executive's Base Salary so long as the base
     salaries of all other senior executives are simultaneously reduced by not
     less than the same percentage, or

          (v)   any breach of this Agreement by the Company or any successor
     thereto, including without limitation any failure by the Company to obtain
     the consent of any Successor Entity (as defined below) to the provisions
     contained in Section 9; provided, however, that none of the events
     described in clause (v) of this Section 7(b) shall constitute Good Reason
     unless Executive shall have notified the Company in writing describing the
     events which constitute Good Reason and then only if the Company shall have
     failed to cure such event within thirty (30) days after the Company's
     receipt of such written notice.

Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

8.  TERMINATION DATE

     The term "Termination Date" shall mean (i) if Executive's employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 ("Notices")) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive's employment is terminated by the Company other than for

                                        7



Cause or Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive's employment is terminated by reason of Death
or Disability, the Disability Date.

9.  CHANGE IN CONTROL

     (a)  Notwithstanding anything to the contrary in this Agreement, if a
Change in Control Event (as defined below) of the Company occurs during the term
of this Agreement, and if within two years following such Change in Control
Event either (1) the Company terminates Executive's employment without Cause or
(2) Executive terminates his employment for Good Reason:

          (i)   the Company shall pay to Executive an amount equal to the sum of
     (w) two times the Severance Payment, (x) the Pro Rata Bonus, (y) the
     Accrued Obligations and (z) the entirety of Executive's contributions and
     the Company's contributions to Executive's 401(k) plan account as if
     Executive were fully vested as of the Termination Date, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

          (ii)  the Company shall continue to provide the Selected Benefits
     until the earlier of (x) Executive's receipt of benefits substantially
     similar in scope and nature from another employer or (y) three years after
     the Termination Date.

          (iii) and, regardless of whether any of the Options have been assumed
     by any Successor Entity, the provisions of clauses (ii) and (iii) of
     Section 6(b) will apply.

     (b)  A "Change in Control Event" shall mean any of the following:

          (i)   Approval by the Board and by shareholders of the Company (or, if
     no shareholder approval is required, by the Board alone) of the dissolution
     or liquidation of the Company, other than in the context of a transaction
     that does not constitute a Change in Control Event under clause (ii) below;

          (ii)  Consummation of a merger, consolidation, or other
     reorganization, with or into, or the sale of all or substantially all of
     the Company's business and/or assets as an entirety to, one or more
     entities that are not Subsidiaries or other affiliates of the Company (a
     "Business Combination"), unless (1) as a result of the Business
     Combination, more than fifty percent (50%) of the outstanding voting power
     generally in the election of directors of the surviving or resulting entity
     or a parent thereof (the "Successor Entity") immediately after the
     reorganization is, or will be, owned, directly or indirectly, by holders of
     the Company's voting securities immediately before the Business
     Combination; and (2) no "person" (as such term is used in Sections 13(d)
     and 14(d) of the Exchange Act), excluding the Successor Entity or an
     Excluded Person, beneficially owns, directly or indirectly, more than fifty
     percent (50%) of the outstanding shares or the combined voting power of the
     outstanding voting securities of the Successor Entity,

                                        8



     after giving effect to the Business Combination, except to the extent that
     such ownership existed prior to the Business Combination; or

          (iii) Any "person" (as such term is used in Sections 13(d) and 14(d)
     of the Exchange Act) other than an Excluded Person: (a) becomes the
     beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
     directly or indirectly, of securities of the Company representing more than
     fifty percent (50%) of the combined voting power of the Company's then
     outstanding securities entitled to then vote generally in the election of
     directors (the "Voting Power") of the Company (a "Majority Holder"), other
     than as a result of (1) an acquisition directly from the Company, (2) an
     acquisition by the Company, or (3) an acquisition by an entity pursuant to
     a transaction which is expressly excluded under clause (ii) above (an
     "Excluded Transaction"); or (b) provided that the beneficial owner of a
     majority of the Voting Power as of the Effective Date is no longer a
     Majority Holder, becomes the beneficial owner (as defined in Rule 13d-3
     under the Exchange Act), directly or indirectly, of securities of the
     Company representing more than thirty percent (30%) of the Voting Power,
     other than as a result of an Excluded Transaction.

          (iv)  For the purposes of this Section 9(c):

                (A)  "Exchange Act" shall mean the Securities Exchange Act of
          1934, as amended from time to time.

                (B)  "Excluded Person" shall mean (a) any person described in
          and satisfying the conditions of Rule 13d-1(b)(1) under the Exchange
          Act, (b) the Company, (c) an employee benefit plan (or related trust)
          sponsored or maintained by the Company or the Successor Entity, or (d)
          any person who is the beneficial owner (as defined in Rule 13d-3 under
          the Exchange Act) of more than [25%] of the Common Stock on the
          Effective Date (or an affiliate, successor, heir, descendant, or
          related party of or to such person).

                (C)  "Subsidiary" shall mean any corporation or other entity a
          majority of whose outstanding voting stock or voting power is
          beneficially owned, directly or indirectly, by the Company.

     (c)  Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.

10. CONFIDENTIALITY

     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating

                                        9



to customers, development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, financing methods, or plans of
the Company or of any subsidiary or affiliate of the Company; provided that the
foregoing shall not apply to information which is not unique to the Company or
which is generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries that do not contain confidential information of the type
described in the preceding sentence. Executive further agrees that he will not
retain or use for his account at any time any trade names, trademark or other
proprietary business designation used or owned in connection with the business
of the Company or its affiliates.

11. NON-SOLICITATION AND NON-DISPARAGEMENT

     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the
Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.

12. RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive's termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company.

13. SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13 of
this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

                                       10



     (b)  GROSS-UP.

          (i)   Gross-Up Payment. If, notwithstanding clause (a) above, it is
determined (pursuant to Section 13(b)(ii)) or finally determined (as defined in
Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by the
Company or a direct or indirect subsidiary or affiliate of the Company, to or
for the benefit of Executive or Executive's dependents, heirs or beneficiaries
(whether such payment, distribution, transfer, benefit or other event occurs
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 13(b)) (each a
"Payment" and collectively the "Payments") is subject to the excise tax imposed
by Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, "Section 4999"), or
any interest, penalty or addition to tax is incurred by Executive with respect
to such excise tax (such excise tax, together with any such interest, penalty,
and addition to tax, hereinafter collectively referred to as the "Excise Tax"),
then, within ten (10) days after such determination or final determination, as
the case may be, the Company shall pay to Executive (or to the applicable taxing
authority on Executive's behalf) an additional cash payment (hereinafter
referred to as the "Gross-Up Payment") equal to an amount such that after
payment by Executive of all taxes, interest, penalties, additions to tax and
costs imposed or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the Gross-Up
Payment), Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon such Payment or Payments. This provision is intended to
put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.

          (ii)  Determination of Gross-Up.

                (A)  Except as provided in Section 13(b)(iii), the determination
          that a Payment is subject to an Excise Tax shall be made in writing by
          the principal certified public accounting firm then retained by the
          Company to audit its annual financial statements (the "Accounting
          Firm"). Such determination shall include the amount of the Gross-Up
          Payment and detailed computations thereof, including any assumptions
          used in such computations. Any determination by the Accounting Firm
          will be binding on the Company and Executive.

                (B)  For purposes of determining the amount of the Gross-Up
          Payment, Executive shall be deemed to pay Federal income taxes at the
          highest marginal rate of Federal income taxation in the calendar year
          in which the Gross-Up Payment is to be made. Such highest marginal
          rate shall take into account the loss of itemized deductions by
          Executive and shall also include Executive's share of the hospital
          insurance portion of FICA and state and local income taxes at the
          highest marginal rate of taxation in the state and locality of
          Executive's residence on the date of his or her Qualifying Termination
          Event, net of the maximum reduction in Federal income taxes that could
          be obtained from the deduction of such state and local taxes.

                                       11



          (iii) Notification.

                (A)  Executive shall notify the Company in writing of any claim
          by the Internal Revenue Service (or any successor thereof) or any
          state or local taxing authority (individually or collectively, the
          "Taxing Authority") that, if successful, would require the payment by
          the Company of a Gross-Up Payment. Such notification shall be given as
          soon as practicable but no later than thirty (30) days after Executive
          receives written notice of such claim and shall apprise the Company of
          the nature of such claim and the date on which such claim is requested
          to be paid; provided, however, that failure by Executive to give such
          notice within such thirty (30) day period shall not result in a waiver
          or forfeiture of any of Executive's rights under this Section 13(b)
          except to the extent of actual damages suffered by the Company as a
          result of such failure. Executive shall not pay such claim prior to
          the expiration of the fifteen (15) day period following the date on
          which Executive gives such notice to the Company (or such shorter
          period ending on the date that any payment of taxes, interest,
          penalties or additions to tax with respect to such claim is due). If
          the Company notifies Executive in writing prior to the expiration of
          such fifteen (15) day period (regardless of whether such claim was
          earlier paid as contemplated by the preceding parenthetical) that it
          desires to contest such claim, Executive shall:

                     (1)   give the Company any information reasonably requested
                     by the Company relating to such claim;

                     (2)   take such action in connection with contesting such
                     claim as the Company shall reasonably request in writing
                     from time to time, including, without limitation, accepting
                     legal representation with respect to such claim by an
                     attorney selected by the Company;

                     (3)   cooperate with the Company in good faith in order
                     effectively to contest such claim; and

                     (4)   permit the Company to participate in any proceedings
                     relating to such claim;

          provided, however, that the Company shall bear and pay directly all
          attorneys fees, costs and expenses (including additional interest,
          penalties and additions to tax) incurred in connection with such
          contest and shall indemnify and hold Executive harmless, on an
          after-tax basis, for all taxes (including, without limitation, income
          and excise taxes), interest, penalties and additions to tax imposed in
          relation to such claim and in relation to the payment of such costs
          and expenses or indemnification.

                (B)  Without limitation on the foregoing provisions of this
          Section 13(b)(iii), and to the extent its actions do not unreasonably
          interfere with or prejudice Executive's disputes with the Taxing
          Authority as to other issues, the

                                       12



          Company shall control all proceedings taken in connection with such
          contest and, in its or their reasonable discretion, may pursue or
          forego any and all administrative appeals, proceedings, hearings and
          conferences with the Taxing Authority in respect of such claim and
          may, at its or in their sole option, either direct Executive to pay
          the tax, interest or penalties claimed and sue for a refund or contest
          the claim in any permissible manner, and Executive agrees to prosecute
          such contest to a determination before any administrative tribunal, in
          a court of initial jurisdiction and in one or more appellate courts,
          as the Company shall determine; provided, however, that if the Company
          directs Executive to pay such claim and sue for a refund, the Company
          shall advance an amount equal to such payment to Executive, on an
          interest-free basis, and shall indemnify and hold Executive harmless,
          on an after-tax basis, from all taxes (including, without limitation,
          income and excise taxes), interest, penalties and additions to tax
          imposed with respect to such advance or with respect to any imputed
          income with respect to such advance, as any such amounts are incurred;
          and, further, provided, that any extension of the statute of
          limitations relating to payment of taxes, interest, penalties or
          additions to tax for the taxable year of Executive with respect to
          which such contested amount is claimed to be due is limited solely to
          such contested amount; and, provided, further, that any settlement of
          any claim shall be reasonably acceptable to Executive, and the
          Company's control of the contest shall be limited to issues with
          respect to which a Gross-Up Payment would be payable hereunder, and
          Executive shall be entitled to settle or contest, as the case may be,
          any other issue.

                (C)  If, after receipt by Executive of an amount advanced by the
          Company pursuant to Section 13(b)(iii)(A), Executive receives any
          refund with respect to such claim, Executive shall (subject to the
          Company's complying with the requirements of this Section 13(b))
          promptly pay to the Company an amount equal to such refund (together
          with any interest paid or credited thereof after taxes applicable
          thereto), net of any taxes (including, without limitation, any income
          or excise taxes), interest, penalties or additions to tax and any
          other costs incurred by Executive in connection with such advance,
          after giving effect to such repayment. If, after the receipt by
          Executive of an amount advanced by the Company pursuant to Section
          13(b)(iii)(A), it is finally determined that Executive is not entitled
          to any refund with respect to such claim, then such advance shall be
          forgiven and shall not be required to be repaid and the amount of such
          advance shall be treated as a Gross-Up Payment and shall offset, to
          the extent thereof, the amount of any Gross-Up Payment otherwise
          required to be paid.

                (D)  For purposes of this Section 13(b), whether the Excise Tax
          is applicable to a Payment shall be deemed to be "finally determined"
          upon the earliest of: (1) the expiration of the fifteen (15) day
          period referred to in Section 13(b)(iii)(A) if the Company or
          Executive's Company has not notified Executive that it intends to
          contest the underlying claim, (2) the expiration of any period
          following which no right of appeal exists, (3) the date upon which a
          closing agreement or similar agreement with respect to the claim is
          executed by Executive and the Taxing Authority (which agreement may be
          executed only in compliance

                                       13



          with this section), or (4) the receipt by Executive of notice from the
          Company that it no longer seeks to pursue a contest (which shall be
          deemed received if the Company does not, within fifteen (15) days
          following receipt of a written inquiry from Executive, affirmatively
          indicate in writing to Executive that the Company intends to continue
          to pursue such contest).

It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an "Underpayment"). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an "Overpayment"). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm's determination that an Overpayment was made and (y) the amount
to be repaid.

14. CONTRACT REIMBURSEMENT

     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not exceed two thousand five hundred dollars
($2,500). This Section 14 shall not be deemed to limit any of Executive's rights
under Section 23 ("Attorneys' Fees").

15. ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

16. GOVERNING LAW

     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.


                                       14



17. ENTIRE AGREEMENT

     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof. Any prior
negotiations, correspondence, agreements, proposals, or understandings relating
to the subject matter hereof shall be deemed to be merged into this Agreement
and to the extent inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements, whether express
or implied, or oral or written, with respect to the subject matter hereof,
except as set forth herein.

18. MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

19. WAIVER

     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

20. NUMBER AND GENDER

     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

21. SECTION HEADINGS

     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.

22. ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure Code Sections 1280 et seq. as the exclusive remedy
of such dispute; provided, however, that provisional injunctive relief may, but
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding


                                       15



on the parties hereto and may be enforced by any court of competent
jurisdiction. The parties acknowledge and agree that they are hereby waiving any
rights to trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other in connection with any matter whatsoever
arising out of or in any way connected with this Agreement or Executive's
employment.

23. ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

24. SEVERABILITY

     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

25. NOTICES

     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

     (a)  if to the Company:

          Molina Healthcare, Inc.
          Attention: J. Mario Molina, M.D., President and Chief Executive
          Officer
          One Golden Shore Drive
          Long Beach, California 90802

     (b)  if to Executive:

          Dr. George Goldstein
          19588 Mayfield Circle
          Huntington Beach, CA 92648

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed, or when transmitted via facsimile with confirmation of
receipt.

                                       16



26. COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

27. WITHHOLDING TAXES

     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.


                                       17



     IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.

                           "COMPANY"
                           Molina Healthcare, Inc.

                           By:  /s/
                                -------------------------------------------
                                J. Mario Molina, M.D.
                                Chairman, President, and Chief Executive Officer

                           "EXECUTIVE"
                           Dr. George Goldstein

                           /s/
                           ------------------------------------------------
                           Dr. George Goldstein


                                       18

                                                                   EXHIBIT 10.11

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (this "Agreement") is made as of January 1, 2002,
between Mary Martha (Molina) Bernadett, MD, MBA ("Executive") and Molina
Healthcare, Inc. (the "Company").

                                    RECITALS

     The Company desires to establish its right to the services of Executive in
the capacities described below, on the terms and conditions hereinafter set
forth, and Executive is willing to accept such employment on such terms and
conditions. The parties hereto have previously entered into an Employment
Agreement dated May 1, 1997 (the "Existing Agreement"), and this Agreement
supercedes the Existing Agreement.

                                    AGREEMENT

     The parties agree as follows:

1.  DUTIES

     (a)  The Company does hereby hire, engage, and employ Executive as
Executive Vice President of the Company, and Executive does hereby accept and
agree to such hiring, engagement, and employment. During the Period of
Employment (as defined in Section 2), Executive shall serve the Company in such
position in conformity with the provisions of this Agreement, directives of the
Chief Executive Officer and the corporate policies of the Company as they
presently exist, and as such policies may be amended, modified, changed, or
adopted during the Period of Employment. Executive shall have duties and
authority consistent with Executive's position as Executive Vice President and
shall report to the Chief Executive Officer of the Company (the "Reporting
Relationship").

     (b)  Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company, vacations
and other leave authorized under this Agreement excepted. Notwithstanding the
foregoing, Executive shall be permitted to (i) engage in charitable and
community affairs and (ii) make direct investments of any character in any
non-competing business or businesses and to manage such investments (but not be
involved in the day-to-day operations of any such business); provided, in each
case, and in the aggregate, that such activities do not materially interfere
with the performance of Executive's duties hereunder, and further provided that
Executive may invest in a publicly traded competing business so long as such
investment does not equal or exceed one percent of the outstanding shares of
such publicly traded competing business.

     (c)  Executive hereby represents to the Company that the execution and
delivery of this Agreement by Executive and the Company and the performance by
Executive of Executive's duties hereunder shall not constitute a breach of, or
otherwise contravene, the terms of any employment or other agreement or policy
to which Executive is a party or otherwise bound.




2.  PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a period commencing on January 1, 2002 (the "Effective Date") and
ending with the close of business on December 31, 2002. Notwithstanding the
preceding sentence, commencing with January 1, 2003 and on each January 1st
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period so as to expire one
year from such Extension Date, unless: (i) the Company or Executive provides the
other party hereto ninety (90) days' prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the "Non-Extension Notice"); or (ii) Executive is not less than sixty-five (65)
years of age as of the next scheduled Extension Date. The term "Period of
Employment" shall include any extension that becomes applicable pursuant to the
preceding sentence.

3.  COMPENSATION

     (a)  BASE SALARY. Executive's Base Salary shall be at a rate of not less
than $300,000 annually ("Executive's Base Salary"), paid in accordance with
regular payroll practices, but not less than monthly. The CEO shall review at
least annually Executive's Base Salary for possible increase in accordance with
the Company's customary review practices for its senior executives and may, in
his sole discretion, periodically adjust Executive's Base Salary to reflect
individual performance. In the event of an increase, Executive's Base Salary for
the year in which the increase occurs shall be adjusted on a pro rata basis to
reflect the increase.

     (b)  BONUS. Executive shall be eligible to earn an annual discretionary
bonus for each fiscal year of the Company (an "Annual Bonus"), with a target
Annual Bonus (the "Target Bonus") of thirty-three percent (33%) of his Base
Salary, to be awarded at the sole discretion of the Compensation Committee based
on the achievement of certain mutually agreed upon objectives. Executive shall
be entitled to participate in all bonus or incentive plans applicable to the
senior executives of the Company, including without limitation any Effective
Option Plan (as defined in Section 4(e)). CEO may in his sole discretion, also
award to Executive such extraordinary bonus(es) as CEO deems appropriate.

4.  BENEFITS

     (a)  HEALTH AND WELFARE. During the Period of Employment, Executive shall
be entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs generally
available to other executives or employees of the Company (including, without
limitation, the Company's medical, dental, vision, life benefits, life
insurance, and long-term disability plans) as in effect from time to time and to
receive any special benefits provided from time to time, subject to any legally
required restrictions specified in such plans and programs. Without limiting the
generality of the foregoing, Company shall provide life insurance for Executive,
with Executive to designate the beneficiary thereunder, in an amount equal to
Executive's base salary as in effect on the date of this Agreement and as in
effect on the first business day of each calendar year thereafter.

                                        2



     (b)  PAID TIME OFF AND OTHER LEAVE. During the Period of Employment,
Executive shall receive 10.77 hours of paid time off per "pay period" of the
Company (the "PTO"), subject to the Company's policies concerning accrual of PTO
and provided that for any three hundred sixty five (365) day period within the
Period of Employment Executive shall earn no less than a total of thirty five
(35) days of PTO. Executive shall also be entitled to all other holiday and
leave pay generally available to other executives of the Company.

     (c)  TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment,
Company will reimburse Executive for all reasonable expenses incurred in
connection with performance of his duties under section 1 of this Agreement in
accordance with the Company's expense reimbursement policies.

     (d)  RETIREMENT. During the Period of Employment, Executive shall be
eligible to participate on the same terms and at the same level as other
executives, in all retirement, 401(k), deferred compensation, or other savings
plans generally available to other executives, or employees of the Company as in
effect from time to time, subject to any legally required restrictions specified
in such plans and programs.

     (e)  EQUITY GRANTS.

          (i)       Existing Options. Executive holds on the Effective Date
     options for zero shares of common stock of the Company (the "Existing
     Options") pursuant to an agreement entitled N/A, dated N/A. The Existing
     Options are subject to the terms and conditions of the Omnibus Stock and
     Incentive Plan (the "Option Plan"), and shall hereafter continue to be
     subject to and controlled by the terms and conditions of the Option Plan.

          (ii)      Initial Options. Executive shall, on the Effective Date, be
     granted stock options for zero (0) shares of the common stock of the
     Company (the "Initial Options") pursuant to an option agreement. The
     exercise price of the Initial Options will be $180 per share. The Initial
     Options are subject to the terms and conditions of the "Molina Healthcare,
     Inc. Amended and Restated Stock Incentive Plan" (the "Restated Option
     Plan").

          (iii)     Future Options. Executive shall be eligible, at the sole
     discretion of the Board, for additional annual stock option grants (the
     "Future Options") pursuant to one or more additional option agreements. Any
     Future Options will be granted under and subject to the terms and
     conditions of a stock option plan of the Company as then in effect (as of
     the date of any grant, an "Effective Option Plan"). The terms and
     conditions of such Future Options are intended to be such that Executive
     shall receive a compensation package commensurate with executives
     performing the same functions as Executives for businesses similar to the
     Company.

     (f)  OTHER BENEFITS. In addition to benefits specifically provided herein,
during the Period of Employment, Executive shall be entitled to participate, on
the same terms and at the same level as other executives, in all fringe benefit
plans and perquisites provided by Company to its executives.

                                        3



The employee benefits described in Sections 4(a) through (f) inclusive are
referred to as "Executive Benefits."

5.  DEATH OR DISABILITY

     (a)  PERMANENTLY DISABLED AND PERMANENT DISABILITY. The terms "Permanently
Disabled" and "Permanent Disability" shall mean Executive's inability, because
of physical or mental illness or injury, to perform the essential functions of
his customary duties pursuant to this Agreement, with or without reasonable
accommodation, and the continuation of such disabled condition for a period of
twelve (12) months.

     (b)  TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive's employment shall automatically cease and terminate as of the
date of Executive's death or the date of Permanent Disability as determined by
the Board (which date shall be referred to as the "Disability Date"), as the
case may be. In the event of the termination of the Period of Employment and
Executive's employment hereunder due to Executive's death or Permanent
Disability, Executive or his estate shall be entitled to receive:

          (i)       Within five (5) business days, a lump sum cash payment equal
     to the sum of (x) any accrued but unpaid Base Salary and PTO as of the
     Termination Date hereunder and (y) any unpaid annual incentive compensation
     in respect of the most recently completed fiscal year preceding the
     Termination Date (the "Unpaid Annual Bonus"); and

          (ii)      Within thirty (30) days, such employee benefits described in
     Sections 4(a) and 4(c) through 4(f) inclusive, if any, as to which
     Executive may be entitled as of the Termination Date under the employee
     benefit plans and arrangements of the Company ((i) and (ii) collectively,
     the "Accrued Obligations").

6.  TERMINATION BY THE COMPANY

     (a)  TERMINATION FOR CAUSE. The Company may terminate for Cause (as defined
below) at any time the Period of Employment and Executive's employment hereunder
by providing to Executive written notice of such termination ("Notice of
Termination for Cause"). The term "Cause" shall mean a termination of service
based upon a finding by the Company, acting in good faith and based on its
reasonable belief at the time, that Executive:

          (i)       has engaged in unlawful acts involving moral turpitude or
     gross negligence with respect to the Company;

          (ii)      has consistently and willfully failed to perform his duties
     or has intentionally breached any material provision of any agreement with
     the Company or an affiliated entity; provided, however, that such failure
     or breach shall not constitute Cause unless it is (A) not reasonably
     curable or (B) if reasonably curable, is not cured by the Executive within
     thirty (30) days notice from the Company;

                                        4



     If the Executive's employment is terminated for Cause, the termination
shall take effect on the Termination Date (as defined below). In the event of
termination of the Period of Employment and Executive's employment hereunder due
to a termination by the Company for Cause, Executive shall be entitled to
receive the Accrued Obligations. All of the Accrued Obligations shall be paid on
the Termination Date except those benefits described in Sections 4(a) and 4(c)
through (f) inclusive, which shall be paid within thirty (30) days of the
Termination Date.

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply as if the Company had provided Executive with Notice of
Termination Without Cause (as defined below) on the date the Company actually
provided Executive with Notice of Termination for Cause.

     (b)  TERMINATION WITHOUT CAUSE. The Company may, without cause or reason,
terminate at any time the Period of Employment and Executive's employment
hereunder by providing Executive written notice of such termination ("Notice of
Termination Without Cause"). A Non-Extension Notice by the Company shall be
considered a termination without Cause. If Executive's employment is terminated
without Cause, the termination shall take effect on the Termination Date. In the
event of the termination of Executive's employment hereunder due to a
termination by the Company without Cause (other than due to Executive's death or
Permanent Disability):

          (i)       Executive shall be entitled to receive: (1) an amount equal
     to 100% of the sum of (x) Executive's Base Salary then in effect as of the
     Termination Date and (y) the Target Bonus for the fiscal year in which
     Executive's employment is terminated (the "Severance Payment"); (2) a pro
     rata portion of the Target Bonus for the fiscal year in which Executive's
     employment is terminated, based on the number of entire months of such
     fiscal year that have elapsed through the date of Executive's termination
     of employment as a fraction of twelve (12) (the "Pro Rata Bonus"); (3) the
     Accrued Obligations; (4) the entirety of Executive's contributions and the
     Company's contributions to Executive's 401(k) plan account as if Executive
     were fully vested as of the Termination Date, and (5) all other benefits
     under the welfare benefit and retirement plans contemplated by Sections
     4(a) and 4(d) (the "Selected Benefits") until the earlier of (A)
     Executive's receipt of benefits substantially similar in scope and nature
     from another employer or (B) one year and one-half year after the
     Termination Date.

          (ii)      Executive shall be entitled to one hundred percent vesting
     of all of the options (including, without limitation, Existing Options,
     Initial Options, and Future Options) to purchase common stock of the
     Company ("Common Stock") held by Executive as of the Termination Date (the
     "Options").

          (iii)     Amounts payable under this Section 6(b) shall be payable as
     follows:

                    (A)  amounts payable under clause (i) shall be, or shall
          commence to be, paid within 30 days following the Termination Date
          either in a single lump sum or in regular installments as a
          continuation of Executive's salary according to

                                        5



          the Company's customary payroll practices, as determined by the
          Executive in his sole discretion; provided however that any amounts
          representing accrued but unpaid Executive Base Salary, PTO an Unpaid
          Annual Bonus shall be paid on the Termination Date.

     Executive shall have no duty to mitigate damages and none of the payments
provided in this Section 6(b) shall be reduced by any amounts earned or received
by Executive from a third party at any time.

7.  TERMINATION BY EMPLOYEE

     (a)  TERMINATION WITHOUT GOOD REASON. Executive shall have the right to
terminate the Period of Employment and Executive's employment hereunder at any
time without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. A Non-Extension Notice by Executive
shall be considered a termination without Good Reason. Any such termination by
Executive without Good Reason shall be treated for all purposes of this
Agreement as a termination by the Company for Cause and the provisions of
Section 6(a) shall apply, provided, however, that notwithstanding the foregoing,
if Executive terminates the Period of Employment without Good Reason, Executive
shall be allowed to exercise the Executive Put Option with respect to Executive
Shares received pursuant to the exercise of Existing Options, subject to the
terms and conditions generally applicable with respect to the Executive Put
Option.

     (b)  TERMINATION WITH GOOD REASON. Executive may terminate the Period of
Employment and resign from employment hereunder for "Good Reason." "Good Reason"
shall mean (with or without regard to whether a Change in Control Event has
occurred), without obtaining Executive's prior written consent thereto:

          (i)       a material and adverse change in Executive's position,
     duties, responsibilities, Reporting Relationship or status with the
     Company,

          (ii)      a change in Executive's office location to a point more than
     fifty (50) miles from Executive's current office,

          (iii)     the taking of any action by the Company to: (A) eliminate
     benefit plans applicable to Executive without providing substitutes which
     provide a substantially similar aggregate value of benefits, (B) materially
     reduce Executive's benefits thereunder or (C) substantially diminish the
     aggregate value to Executive of incentive awards or other fringe benefits,
     provided, however, that it shall not constitute Good Reason for the Company
     to, as part of an overall cost-reduction program, take any action described
     in (A) - (C) so long as such action is taken with respect to all senior
     executives and Executive is not disproportionately affected thereby,

          (iv)      any reduction in the Base Salary, provided, however, that it
     shall not constitute Good Reason for the Company to, as part of an overall
     cost-reduction program, reduce Executive's Base Salary so long as the base
     salaries of all other senior executives are simultaneously reduced by not
     less than the same percentage, or

                                        6



          (v)       any breach of this Agreement by the Company or any successor
     thereto, including without limitation any failure by the Company to obtain
     the consent of any Successor Entity (as defined below) to the provisions
     contained in Section 9; provided, however, that none of the events
     described in clause (v) of this Section 7(b) shall constitute Good Reason
     unless Executive shall have notified the Company in writing describing the
     events which constitute Good Reason and then only if the Company shall have
     failed to cure such event within thirty (30) days after the Company's
     receipt of such written notice.

Any such termination by Executive for Good Reason shall be treated for all
purposes of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

8.  TERMINATION DATE

     The term "Termination Date" shall mean (i) if Executive's employment is
terminated by the Company for Cause, or by Executive for Good Reason, the
effective date (pursuant to Section 25 ("Notices")) of written notice of such
termination to Executive or to the Company, as the case may be; (ii) if
Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies Executive of such
termination; or (iii) if Executive's employment is terminated by reason of Death
or Disability, the Disability Date.

9.  CHANGE IN CONTROL

     (a)  Notwithstanding anything to the contrary in this Agreement, if a
Change in Control Event (as defined below) of the Company occurs during the term
of this Agreement, and if within two years following such Change in Control
Event either (1) the Company terminates Executive's employment without Cause or
(2) Executive terminates his employment for Good Reason:

          (i)       the Company shall pay to Executive an amount equal to the
     sum of (w) two times the Severance Payment, (x) the Pro Rata Bonus, (y) the
     Accrued Obligations and (z) the entirety of Executive's contributions and
     the Company's contributions to Executive's 401(k) plan account as if
     Executive were fully vested as of the Termination Date, such amount to be,
     or to commence to be, paid on the Termination Date either in a single lump
     sum or in regular installments as a continuation of Executive's salary
     according to the Company's customary payroll practices, as determined by
     the Executive in his sole discretion at the time of termination. This
     payment shall be in lieu of the payment otherwise payable under clause (i)
     of Section 6(b).

                                        7



          (ii)      the Company shall continue to provide the Selected Benefits
     until the earlier of (x) Executive's receipt of benefits substantially
     similar in scope and nature from another employer or (y) three years after
     the Termination Date.

          (iii)     and, regardless of whether any of the Options have been
     assumed by any Successor Entity, the provisions of clauses (ii) and (iii)
     of Section 6(b) will apply.

     (b)  A "Change in Control Event" shall mean any of the following:

          (i)       Approval by the Board and by shareholders of the Company
     (or, if no shareholder approval is required, by the Board alone) of the
     dissolution or liquidation of the Company, other than in the context of a
     transaction that does not constitute a Change in Control Event under clause
     (ii) below;

          (ii)      Consummation of a merger, consolidation, or other
     reorganization, with or into, or the sale of all or substantially all of
     the Company's business and/or assets as an entirety to, one or more
     entities that are not Subsidiaries or other affiliates of the Company (a
     "Business Combination"), unless (1) as a result of the Business
     Combination, more than fifty percent (50%) of the outstanding voting power
     generally in the election of directors of the surviving or resulting entity
     or a parent thereof (the "Successor Entity") immediately after the
     reorganization is, or will be, owned, directly or indirectly, by holders of
     the Company's voting securities immediately before the Business
     Combination; and (2) no "person" (as such term is used in Sections 13(d)
     and 14(d) of the Exchange Act), excluding the Successor Entity or an
     Excluded Person, beneficially owns, directly or indirectly, more than fifty
     percent (50%) of the outstanding shares or the combined voting power of the
     outstanding voting securities of the Successor Entity, after giving effect
     to the Business Combination, except to the extent that such ownership
     existed prior to the Business Combination; or

          (iii)     Any "person" (as such term is used in Sections 13(d) and
     14(d) of the Exchange Act) other than an Excluded Person: (a) becomes the
     beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
     directly or indirectly, of securities of the Company representing more than
     fifty percent (50%) of the combined voting power of the Company's then
     outstanding securities entitled to then vote generally in the election of
     directors (the "Voting Power") of the Company (a "Majority Holder"), other
     than as result of (1) an acquisition directly from the Company, (2) an
     acquisition by the Company, or (3) an acquisition by an entity pursuant to
     a transaction which is expressly excluded under clause (ii) above (an
     "Excluded Transaction"); or (b) provided that the beneficial owner of a
     majority of the Voting Power as of the Effective Date is no longer a
     Majority Holder, becomes the beneficial owner (as defined in Rule 13d-3
     under the Exchange Act), directly or indirectly, of securities of the
     Company representing more than thirty percent (30%) of the Voting Power,
     other than as a result of an Excluded Transaction.

          (iv)      For the purposes of this Section 9(c):

                    (A)  "Exchange Act" shall mean the Securities Exchange Act
          of 1934, as amended from time to time.

                                        8



                    (B)  "Excluded Person" shall mean (a) any person described
          in and satisfying the conditions of Rule 13d-1(b)(1) under the
          Exchange Act, (b) the Company, (c) an employee benefit plan (or
          related trust) sponsored or maintained by the Company or the Successor
          Entity, or (d) any person who is the beneficial owner (as defined in
          Rule 13d-3 under the Exchange Act) of more than [25%] of the Common
          Stock on the Effective Date (or an affiliate, successor, heir,
          descendant, or related party of or to such person).

                    (C)  "Subsidiary" shall mean any corporation or other entity
          a majority of whose outstanding voting stock or voting power is
          beneficially owned, directly or indirectly, by the Company.

     (c)  Executive shall have no duty to mitigate damages and none of the
payments provided in this Section 9 shall be reduced by any amounts earned or
received by Executive from a third party at any time. Notwithstanding anything
to the contrary in this Section 9, if, in connection with a Change in Control
Event, Executive voluntarily enters a new written employment agreement with the
Company or the Successor Entity, Executive may no longer rely upon the
provisions of this Section 9.

10. CONFIDENTIALITY

     Executive will not at any time (whether during or after his employment with
the Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive's breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.

11. NON-SOLICITATION AND NON-DISPARAGEMENT

     During the Period of Employment and for a period of eighteen (18) months
thereafter, Executive will not, directly or indirectly: (a) solicit or attempt
to solicit any employee of the Company to terminate his or her relationship with
the Company in order to become an employee, consultant or independent contractor
to or for any other person or business entity; (b) solicit customers, suppliers
or clients of the Company to reduce or discontinue their business with the

                                        9



Company or to engage in business with any competing entity; (c) disparage the
Company, its business, or its reputation; or (d) otherwise disrupt or interfere
with business relationships (whether formed before or after the date of this
Agreement) between the Company or any of its affiliates and customers,
suppliers, partners, members or investors of the Company or its affiliates.

12. RELEASE REQUIRED FOR SEVERANCE PAYMENTS

     Notwithstanding anything to the contrary in this Agreement, as a condition
precedent to the receipt of any payment under Section 6, Section 7, or Section 9
of this Agreement pursuant to Executive's termination of employment with the
Company, Executive shall be required to execute a general waiver and release
agreement, in form drafted by and satisfactory to the Company, providing for the
complete waiver, release, and discharge of all known and unknown present and
future claims against the Company.

13. SECTION 280G

     (a)  SHAREHOLDER APPROVAL REQUIRED.

     Notwithstanding anything to the contrary in this Agreement, Section 13 of
this Agreement shall not become effective in any part unless and until it is
fully disclosed to and approved by a vote of the persons who own more than
seventy five percent (75%) of the voting power of all outstanding capital stock
of the Company.

     (b)  GROSS-UP.

          (i)       Gross-Up Payment. If, notwithstanding clause (a) above, it
is determined (pursuant to Section 13(b)(ii)) or finally determined (as defined
in Section 13(b)(iii)) that any payment, distribution, transfer, or benefit by
the Company or a direct or indirect subsidiary or affiliate of the Company, to
or for the benefit of Executive or Executive's dependents, heirs or
beneficiaries (whether such payment, distribution, transfer, benefit or other
event occurs pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
13(b)) (each a "Payment" and collectively the "Payments") is subject to the
excise tax imposed by Section 4999 of the Code, and any successor provision or
any comparable provision of state or local income tax law (collectively,
"Section 4999"), or any interest, penalty or addition to tax is incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest, penalty, and addition to tax, hereinafter collectively referred
to as the "Excise Tax"), then, within ten (10) days after such determination or
final determination, as the case may be, the Company shall pay to Executive (or
to the applicable taxing authority on Executive's behalf) an additional cash
payment (hereinafter referred to as the "Gross-Up Payment") equal to an amount
such that after payment by Executive of all taxes, interest, penalties,
additions to tax and costs imposed or incurred with respect to the Gross-Up
Payment (including, without limitation, any income and excise taxes imposed upon
the Gross-Up Payment), Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon such Payment or Payments. This provision is
intended to put Executive in the same position as Executive would have been had
no Excise Tax been imposed upon or incurred as a result of any Payment.

                                       10



          (ii)      Determination of Gross-Up.

                    (A)  Except as provided in Section 13(b)(iii), the
          determination that a Payment is subject to an Excise Tax shall be made
          in writing by the principal certified public accounting firm then
          retained by the Company to audit its annual financial statements (the
          "Accounting Firm"). Such determination shall include the amount of the
          Gross-Up Payment and detailed computations thereof, including any
          assumptions used in such computations. Any determination by the
          Accounting Firm will be binding on the Company and Executive.

                    (B)  For purposes of determining the amount of the Gross-Up
          Payment, Executive shall be deemed to pay Federal income taxes at the
          highest marginal rate of Federal income taxation in the calendar year
          in which the Gross-Up Payment is to be made. Such highest marginal
          rate shall take into account the loss of itemized deductions by
          Executive and shall also include Executive's share of the hospital
          insurance portion of FICA and state and local income taxes at the
          highest marginal rate of taxation in the state and locality of
          Executive's residence on the date of his or her Qualifying Termination
          Event, net of the maximum reduction in Federal income taxes that could
          be obtained from the deduction of such state and local taxes.

          (iii)     Notification.

                    (A)  Executive shall notify the Company in writing of any
          claim by the Internal Revenue Service (or any successor thereof) or
          any state or local taxing authority (individually or collectively, the
          "Taxing Authority") that, if successful, would require the payment by
          the Company of a Gross-Up Payment. Such notification shall be given as
          soon as practicable but no later than thirty (30) days after Executive
          receives written notice of such claim and shall apprise the Company of
          the nature of such claim and the date on which such claim is requested
          to be paid; provided, however, that failure by Executive to give such
          notice within such thirty (30) day period shall not result in a waiver
          or forfeiture of any of Executive's rights under this Section 13(b)
          except to the extent of actual damages suffered by the Company as a
          result of such failure. Executive shall not pay such claim prior to
          the expiration of the fifteen (15) day period following the date on
          which Executive gives such notice to the Company (or such shorter
          period ending on the date that any payment of taxes, interest,
          penalties or additions to tax with respect to such claim is due). If
          the Company notifies Executive in writing prior to the expiration of
          such fifteen (15) day period (regardless of whether such claim was
          earlier paid as contemplated by the preceding parenthetical) that it
          desires to contest such claim, Executive shall:

                         (1)  give the Company any information reasonably
                         requested by the Company relating to such claim;

                         (2)  take such action in connection with contesting
                         such claim as the Company shall reasonably request in
                         writing from time to

                                       11



                         time, including, without limitation, accepting legal
                         representation with respect to such claim by an
                         attorney selected by the Company;

                         (3)  cooperate with the Company in good faith in order
                         effectively to contest such claim; and

                         (4)  permit the Company to participate in any
                         proceedings relating to such claim;

          provided, however, that the Company shall bear and pay directly all
          attorneys fees, costs and expenses (including additional interest,
          penalties and additions to tax) incurred in connection with such
          contest and shall indemnify and hold Executive harmless, on an
          after-tax basis, for all taxes (including, without limitation, income
          and excise taxes), interest, penalties and additions to tax imposed in
          relation to such claim and in relation to the payment of such costs
          and expenses or indemnification.

                    (B)  Without limitation on the foregoing provisions of this
          Section 13(b)(iii), and to the extent its actions do not unreasonably
          interfere with or prejudice Executive's disputes with the Taxing
          Authority as to other issues, the Company shall control all
          proceedings taken in connection with such contest and, in its or their
          reasonable discretion, may pursue or forego any and all
          administrative appeals, proceedings, hearings and conferences with the
          Taxing Authority in respect of such claim and may, at its or in their
          sole option, either direct Executive to pay the tax, interest or
          penalties claimed and sue for a refund or contest the claim in any
          permissible manner, and Executive agrees to prosecute such contest to
          a determination before any administrative tribunal, in a court of
          initial jurisdiction and in one or more appellate courts, as the
          Company shall determine; provided, however, that if the Company
          directs Executive to pay such claim and sue for a refund, the Company
          shall advance an amount equal to such payment to Executive, on an
          interest-free basis, and shall indemnify and hold Executive harmless,
          on an after-tax basis, from all taxes (including, without limitation,
          income and excise taxes), interest, penalties and additions to tax
          imposed with respect to such advance or with respect to any imputed
          income with respect to such advance, as any such amounts are incurred;
          and, further, provided, that any extension of the statute of
          limitations relating to payment of taxes, interest, penalties or
          additions to tax for the taxable year of Executive with respect to
          which such contested amount is claimed to be due is limited solely to
          such contested amount; and, provided, further, that any settlement of
          any claim shall be reasonably acceptable to Executive, and the
          Company's control of the contest shall be limited to issues with
          respect to which a Gross-Up Payment would be payable hereunder, and
          Executive shall be entitled to settle or contest, as the case may be,
          any other issue.

                    (C)  If, after receipt by Executive of an amount advanced by
          the Company pursuant to Section 13(b)(iii)(A), Executive receives any
          refund with

                                       12



          respect to such claim, Executive shall (subject to the Company's
          complying with the requirements of this Section 13(b)) promptly pay to
          the Company an amount equal to such refund (together with any interest
          paid or credited thereof after taxes applicable thereto), net of any
          taxes (including, without limitation, any income or excise taxes),
          interest, penalties or additions to tax and any other costs incurred
          by Executive in connection with such advance, after giving effect to
          such repayment. If, after the receipt by Executive of an amount
          advanced by the Company pursuant to Section 13(b)(iii)(A), it is
          finally determined that Executive is not entitled to any refund with
          respect to such claim, then such advance shall be forgiven and shall
          not be required to be repaid and the amount of such advance shall be
          treated as a Gross-Up Payment and shall offset, to the extent thereof,
          the amount of any Gross-Up Payment otherwise required to be paid.

                    (D)  For purposes of this Section 13(b), whether the Excise
          Tax is applicable to a Payment shall be deemed to be "finally
          determined" upon the earliest of: (1) the expiration of the fifteen
          (15) day period referred to in Section 13(b)(iii)(A) if the Company or
          Executive's Company has not notified Executive that it intends to
          contest the underlying claim, (2) the expiration of any period
          following which no right of appeal exists, (3) the date upon which a
          closing agreement or similar agreement with respect to the claim is
          executed by Executive and the Taxing Authority (which agreement may be
          executed only in compliance with this section), or (4) the receipt by
          Executive of notice from the Company that it no longer seeks to pursue
          a contest (which shall be deemed received if the Company does not,
          within fifteen (15) days following receipt of a written inquiry from
          Executive, affirmatively indicate in writing to Executive that the
          Company intends to continue to pursue such contest).

It is possible that no Gross-Up Payment will initially be made but that a
Gross-Up Payment should have been made, or that a Gross-Up Payment will
initially be made in an amount that is less than what should have been made
(either of such events is referred to as an "Underpayment"). It is also possible
that a Gross-Up Payment will initially be made in an amount that is greater than
what should have been made (an "Overpayment"). The determination of any
Underpayment or Overpayment shall be made by the Accounting Firm in accordance
with Section 13(b)(ii). In the event of an Underpayment, the amount of any such
Underpayment shall be paid to Executive as an additional Gross-Up Payment. In
the event of an Overpayment, any such Overpayment shall be treated for all
purposes as a loan to Executive with interest at the applicable Federal rate
provided for in Section 1274(d) of the Code. In such case, the amount of the
loan shall be subject to reduction to the extent necessary to put Executive in
the same after-tax position as if such Overpayment were never made. The amount
of any such reduction to the loan shall be determined by the Accounting Firm in
accordance with the principles set forth in Section 13(b)(ii). Executive shall
repay the amount of the loan (after reduction, if any) to the Company as soon as
administratively practicable after the Company notifies Executive of (x) the
Accounting Firm's determination that an Overpayment was made and (y) the amount
to be repaid.

                                       13



14. CONTRACT REIMBURSEMENT

     The Company shall reimburse Executive on a fully grossed-up, after-tax
basis or directly pay for all reasonable legal fees and costs attributed to the
development, reviews and modifications of this Agreement and associated legal
services. Such fees and costs shall not exceed two thousand five hundred dollars
($2,500). This Section 14 shall not be deemed to limit any of Executive's rights
under Section 23 ("Attorneys' Fees").

15. ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

16. GOVERNING LAW

     This Agreement and the legal relations hereby created between the parties
hereto shall be governed by and construed under and in accordance with the
internal laws of the State of California, without regard to conflicts of laws
principles thereof.

17. ENTIRE AGREEMENT

     This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. This Agreement supersedes all prior
agreements of the parties hereto on the subject matter hereof. Any prior
negotiations, correspondence, agreements, proposals, or understandings relating
to the subject matter hereof shall be deemed to be merged into this Agreement
and to the extent inconsistent herewith, such negotiations, correspondence,
agreements, proposals, or understandings shall be deemed to be of no force or
effect. There are no representations, warranties, or agreements, whether
express or implied, or oral or written, with respect to the subject matter
hereof, except as set forth herein.

18. MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

19. WAIVER

     Failure to insist upon strict compliance with any of the terms, covenants,
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

                                       14



20. NUMBER AND GENDER

     Where the context requires, the singular shall include the plural, the
plural shall include the singular, and any gender shall include all other
genders.

21. SECTION HEADINGS

     The section headings in this Agreement are for the purpose of convenience
only and shall not limit or otherwise affect any of the terms hereof.

22. ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Los Angeles County, California, before a sole
arbitrator who is either (a) a member of the National Academy of Arbitrators
located in the State of California or (b) a retired California Superior Court or
Appellate Court judge, and shall be conducted in accordance with the provisions
of California Civil Procedure Code Sections 1280 et seq. as the exclusive remedy
of such dispute; provided, however, that provisional injunctive relief may, but
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any award or relief granted by
the Arbitrator hereunder shall be final and binding on the parties hereto and
may be enforced by any court of competent jurisdiction. The parties acknowledge
and agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive's employment.

23. ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

24. SEVERABILITY

     In the event that a court of competent jurisdiction determines that any
portion of this Agreement is in violation of any statute or public policy, then
only the portions of this Agreement which violate such statute or public policy
shall be stricken, and all portions of this Agreement which do not violate any
statute or public policy shall continue in full force and effect. Furthermore,
any court order striking any portion of this Agreement shall modify the stricken
terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

                                       15



25. NOTICES

     All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

     (a) if to the Company:

         Molina Healthcare, Inc.
         Attention: J. Mario Molina, M.D., President and Chief Executive Officer
         One Golden Shore Drive
         Long Beach, California 90802

     (b) if to Executive:

         Mary Martha (Molina) Bernadett, MD, MBA
         701 Pepper Tree Lane
         Long Beach, CA 90815

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed, or when transmitted via facsimile with confirmation of
receipt.

26. COUNTERPARTS

     This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

27. WITHHOLDING TAXES

     The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

                                       16



     IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.


                           "COMPANY"
                           Molina Healthcare, Inc.


                           By:  /s/
                                ----------------------------------
                                J. Mario Molina, M.D.
                                Chairman, President, and Chief Executive Officer

                           "EXECUTIVE"
                           Mary Martha (Molina) Bernadett, MD, MBA


                           /s/
                           ---------------------------------------
                           Mary Martha (Molina) Bernadett, MD, MBA


                                       17

                                                                   EXHIBIT 10.12

                        OMNIBUS STOCK AND INCENTIVE PLAN

                             MOLINA HEALTHCARE, INC.



                               TABLE OF CONTENTS
Item                                                                    Page
- ----                                                                    ----

SECTION 1.    Establishment.                                              1
SECTION 2.    Purpose of Plan.                                            1
SECTION 3.    Types of Awards Under Plan.                                 1
SECTION 4.    Eligibility.                                                1
SECTION 5.    Number of Shares Covered By Options
              and Restricted Stock Grants; No Preemptive
              Rights; Right of First Refusal.                             1
SECTION 6.    Administration.                                             2
SECTION 7.    Terms of Stock Options.                                     5
SECTION 8.    Stock Appreciation Rights and Phantom Stock.               10
SECTION 9.    Performance Shares and Units.                              13
SECTION 10.   Restricted Stock, Restricted Stock Units, and
              Unrestricted Stock Grants.                                 15
SECTION 11.   Adjustment of Number of Shares.                            18
SECTION 12.   Change of Control.                                         19
SECTION 13.   Beneficiary Designation.                                   19
SECTION 14.   Tax Withholding.                                           20
SECTION 15.   Indemnification.                                           21
SECTION 16.   Gender and Number.                                         21
SECTION 17.   Controlling Law.                                           21
SECTION 18.   No Stockholder Rights.                                     21
SECTION 19.   Amendments.                                                21
SECTION 20.   Termination or Suspension.                                 22

                                       i



                        OMNIBUS STOCK AND INCENTIVE PLAN
                             MOLINA HEALTHCARE, INC.

     SECTION 1. Establishment. There is hereby established the Omnibus Stock and
Incentive Plan (the "Plan"), pursuant to which key employees of Molina
Healthcare, Inc., a California corporation ("MHI") and its wholly owned
subsidiaries, may be permitted to participate in the increases in value of MHI
and its wholly owned subsidiaries (collectively, the "Employers").

     SECTION 2. Purpose of Plan. Under this Plan, MHI may grant any one or more
type of incentive awards to professional and managerial employees who measurably
impact the performance of the Employers.

     SECTION 3. Types of Awards Under Plan. MHI may grant under this Plan
Qualified and Non-Qualified Stock Options (as described in Section 7)
("Options"), Stock Appreciation Rights (as described in Section 8) ("SARs"),
Performance Units (as described in Section 9)("Performance Units"), Performance
Shares (as described in Section 9)("Performance Shares"), Restricted Stock
("Restricted Stock"), Restricted Stock Units ("Restricted Stock Units") and
grants of stock not subject to restrictions ("Unrestricted Stock Grants") (as
described in Section 10). Options, SARs, Performance Units, Performance Shares,
Restricted Stock Units, Unrestricted Stock Grants and Restricted Stock are
collectively referred to herein as "Awards".

     SECTION 4. Eligibility. The Committee may grant Awards to any employees
(including officers) of the Employers. Any employee to whom the Committee has
granted an Award ("Participant") shall be bound by the terms of this Plan and
the Stock Option Agreement, Stock Appreciation Right Agreement, Performance
Agreement and/or Restricted Stock Agreement (collectively, the "Award
Agreement") applicable to him.

     SECTION 5. Number of Shares Covered By Options and Restricted Stock Grants;
No Preemptive Rights; Right of First Refusal. The total number of shares that
may be awarded under this Plan shall be that number of shares that is equal to
six point eight percent (6.8%) of the issued and outstanding shares of common
stock as of the first day of each calendar year for which the Plan is in effect
("Common Stock") (or the number and kind of shares of common stock of MHI or
other securities of MHI which, in accordance with Section 11 of the Plan, shall
be substituted for such shares of Common Stock or to which

                                       1



said shares shall be adjusted; hereinafter, all references to Common Stock
includes references to said shares to which said shares are adjusted). The
issuance of Common Stock pursuant to the provisions of this Plan for Awards
shall be free from any preemptive or preferential right of subscription or
purchase on the part of any stockholder, If any outstanding Option or grant of
Restricted Stock granted under this Plan expires or is terminated for any
reason, the shares of Common Stock subject to the unexercised portion of such
Option or grant of Restricted Stock will again be available for Options and
grants of Restricted Stock issued under this Plan.

     Each certificate for Common Stock of MHI issued under the Plan shall be
endorsed with the following legend:

          "This certificate shall not be transferred except in accordance with
          the provisions of a Right of First Refusal as set forth in Section 5
          of Molina Healthcare, Inc.'s Omnibus Stock and Incentive Plan, a copy
          of which is on file in the office of Molina Healthcare, Inc., and the
          provisions of said Right of First Refusal shall be binding upon this
          certificate and each holder hereof."

     A Participant desiring to sell Common Stock of MHI issued pursuant to this
Plan shall give notice in writing of his desire to MHI. MHI thereupon shall have
the option to purchase Common Stock in exchange for the Fair Market Value as
determined under Section 7. Such option shall be exercised by written notice to
the Participant within thirty (30) days after receipt of his notice of desire to
sell stock that MHI agrees to purchase said Common Stock. Payment for such
Common Stock shall be made within one year of MHI's written notification of its
exercise of its right to purchase the common stock, with interest of eight
percent (8%) per annum, simple interest, accruing from the date of notice of
exercise of MHI's right to repurchase. Payment shall be made, at Molina
Healthcare's discretion, in either a) a lump sum, or b) multiple approximately
equal installments.

     SECTION 6. Administration.

          (a)  This Plan shall be administered by the committee (the
               "Committee") referred to in paragraph (b) of this Section.
               Subject to the express provisions of this Plan, the Committee
               shall have complete authority, in its discretion,

               (i)  to interpret this Plan, to prescribe, amend and rescind
                    rules and regulations relating to the Plan;

                                       2



               (ii) to determine the terms and provisions of Awards granted
                    hereunder and to make such determinations as to the
                    Participants to receive Awards, the form, amount and timing
                    of such Awards, the terms and provisions of such Awards, and
                    the Agreements evidencing the same, which need not be
                    uniform and which the Committee may make selectively among
                    Participants who receive, or who are to receive, Awards
                    under the Plan, whether or not the Participants are
                    similarly situated;

               (iii) to determine to whom the Options shall be granted, the
                    times and the prices at which Options are granted, the
                    Option periods, the number of shares of Common Stock to be
                    subject to each Option, whether each Option shall be an
                    Incentive Stock Option or a Non-Incentive Stock Option, and
                    to determine the terms and provisions of each Option (which
                    need not be identical);

               (iv) to determine to whom SARS shall be granted, the times and
                    duration of each SAR, the number of shares of Common Stock
                    to which each SAR relates, whether an SAR is granted with
                    respect to Options or alone, without reference to any
                    related stock option, and to determine the terms and
                    provisions of each SAR (which need not be identical);

               (v)  to determine to whom Performance Shares and Performance
                    Units shall be granted, the applicable Performance Period
                    (as that term is defined in Section 9), and the number of
                    shares of Common Stock represented by Performance Shares and
                    Performance Units ("Performance Awards"), to maintain
                    Performance Accounts (as defined in Section 9), and to
                    determine the terms and provisions of Performance Awards
                    (which need not be identical);

               (vi) to determine to whom Restricted Stock, Unrestricted Stock
                    and Restricted Stock Units shall be granted, the Restriction
                    Period (as that term is defined in Section 10), the number
                    of shares of Restricted Stock, the terms and provisions
                    (which

                                       3



                    need not be identical) of awards of Restricted Stock and
                    Restricted Stock Units and whether the Participant has met
                    the goals on or before the close of the Restriction Period;

               (vii) to impose such limitations with respect to Options and
                    Restricted Stock, including without limitation, any relating
                    to the application of federal or state securities laws, as
                    the Committee may deem necessary or desirable;

               (viii) to determine the dates of employment of any employee of
                    the Employers, and the reasons for termination of any
                    Participant;

               (ix) to determine whether any leave of absence constitutes a
                    termination of employment for purposes of this Plan and the
                    impact, if any, of such leave of absence on awards
                    theretofore made under this Plan;

               (x)  to determine when a person's change of status with respect
                    to the Employers constitutes a termination of such person's
                    employment for purposes of this Plan;

               (xi) to make such determinations as it deems equitable with
                    respect to the impact, if any, of leaves of absence from the
                    Employers upon Awards hereunder;

               (xii) to grant dividend equivalents upon Awards (other than
                    Restricted Stock, for which Participants are entitled to
                    receive dividends and other distributions paid with respect
                    to Common Shares so held), provided that any such dividend
                    equivalents shall be subject to the terms and conditions
                    imposed by the Committee; and

               (xiii) to make all other determinations necessary or advisable
                    for, the administration of the Plan.

          In making determinations under this Section 6, the Committee may take
          into account the nature of the services rendered by the respective
          employees, their present and potential contributions to the success of
          the

                                       4



          Employers and such other factors as the Committee, in its discretion,
          deems relevant. The Committee's determination on all of the matters
          referred to in this Section 6 shall be conclusive,

          (b)  The Committee shall consist of from two (2) to five (5)
               individuals who may, but need not, be members of the Board of
               Directors of MHI; provided, however, all of the functions of the
               Committee may be performed, and the powers and authority of the
               Committee exercised, by the Board of Directors of MHI, in which
               event the term "Committee" in this Plan, or in any agreement
               entered into under this Plan with respect to an Award, shall mean
               the Board of Directors of MHI. The Committee shall be appointed
               by the Board, which may at any time and from time to time, remove
               any member of the Committee, with or without cause, appoint
               additional members to the Committee and fill vacancies, however
               caused, in the Committee. A majority of members of the Committee
               shall constitute a quorum. All determinations of the Committee
               shall be made by a majority of its members. Any decision or
               determination of the Committee reduced to writing and signed by
               all of the members of the Committee shall be fully effective as
               if it had been made at a meeting duly called and held.

          (c)  Nothing contained in this Plan shall be deemed to give any
               individual any right to be granted an Award except to the extent
               and upon such terms and conditions as may be determined by the
               Committee.

          (d)  The Committee may at its election provide in any Agreement
               relating to an Award under this Plan that an Employer will loan
               to the holder thereof an amount not greater than the excess of
               (i) the purchase price of the shares of Common Stock or other
               securities issuable upon exercise over (ii) the par value of such
               shares of Common Stock or other securities. Any such loan will be
               on the terms and conditions the Committee deems appropriate.

     SECTION 7. Terms of Stock Options. Each Option granted under this Plan
shall be evidenced by a written agreement (the "Stock Option Agreement") which
shall be executed by MHI and by the Participant, and shall be subject to the
following terms and conditions:

                                       5



          (a)  The price at which shares of Common Stock covered by each Option
               may be purchased pursuant thereto shall be determined in each
               case on the date of grant by the Committee, but shall be an
               amount not less than the par value of the shares and, for Options
               that are intended to qualify as Incentive Stock Options pursuant
               to Code Section 422, not less than the Fair Market Value of the
               shares of Common Stock at the time the Option is granted. For
               purposes of this Section, the Fair Market Value of shares of
               Common Stock on any day shall be:

               (i)  in the event the Common Stock is not publicly traded, the
                    fair market value as of the regularly performed valuation
                    (or special valuation date as specified by the Committee
                    ("Valuation Date") as determined in good faith in an outside
                    appraisal by an accounting firm or certified valuation
                    specialist selected by MHI in its discretion; or

               (ii) in the event the Common Stock is publicly traded, the last
                    sale price of a share of Common Stock as reported by the
                    principal quotation service on which the Common Stock is
                    listed, or, if the last sale prices are not reported with
                    respect to the Common Stock, the mean of the high bid and
                    low asked price of a share of Common Stock as reported by
                    such principal quotation service, or, if there is no such
                    report by such quotation service, for such day, such fair
                    market value shall be the average of (A) the last sale price
                    (or, if last sale prices are not reported with respect to
                    the Common Stock, the mean of the high bid and low asked
                    prices) on the day next preceding such day for which there
                    was a report, and (B) the last sale price (or if last sale
                    prices are not reported with respect to the Common Stock,
                    the mean of the high bid and low asked prices) on the day
                    next succeeding such day for which there was a report, or as
                    otherwise determined by the Committee in its discretion
                    pursuant to any reasonable method contemplated by Section
                    422 of the Code and any Treasury regulations issued pursuant
                    to that Section.

          (b)  The option price of the shares to be purchased pursuant to each
               Option shall be paid in full in cash or, in the discretion of the

                                       6



               Committee, by delivery (i.e. surrender) of shares of Common Stock
               of MHI which have been owned by the Participant for at least six
               months prior to the exercise of the Option (provided that such
               shares are not the subject of any pledge or security interest).
               Shares of Common Stock so delivered will be valued on the day of
               delivery for the purpose of determining the extent to which the
               option price has been paid thereby, in the same manner as
               provided for in the determination of Fair Market Value as set
               forth in paragraph (a) of this Section, or as otherwise
               determined by the Committee in its discretion pursuant to any
               reasonable method contemplated by Section 422 of the Code and any
               Treasury regulations issued pursuant to that Section.

          (c)  Each Stock Option Agreement shall provide that such Option may be
               exercised by the Participant, in such parts and at such times, as
               may be specified in such Stock Option Agreement, within a period
               ending not later than ten years after the date on which the
               Option is granted (the "Option Period"); provided, however, that
               the Option Period shall end on the earlier of the date specified
               in such Stock Option Agreement or the date established below:

               (i)  Options may be exercised only

                    (A)  During the continuance of the Participant's employment;
                         or

                    (B)  If the Participant terminates employment other than by
                         retirement under (D) below or for Cause, during the
                         period ending ninety (90) days after the date of
                         termination of such employment to the extent that the
                         right to exercise such Options had accrued on or before
                         the date of termination.

                    (C)  In the case of a grant of an Option to an officer or
                         director (as those terms are used in Rule 16a-1
                         promulgated under the Securities Exchange Act of 1934
                         or any similar rule which may subsequently be in effect
                         (an "Officer")) the Committee may determine (i) no such
                         Option may be exercised during the first six (6)

                                       7



                         months of its term, or (ii) if such Option is
                         exercisable during the first six (6) months of its
                         term, no Common Stock acquired on such exercise shall
                         be transferable until the date which is six (6) months
                         following of the date of grant of the Option. Each
                         Option which is intended to qualify as an Incentive
                         Stock Option pursuant to Section 422 of the Code and
                         each Option which is intended to qualify as another
                         type of incentive stock option which may subsequently
                         be authorized by law, shall comply with the applicable
                         provisions of the Code pertaining to such options.

                    (D)  If the Participant terminates employment and the
                         Committee determines that the termination occurs
                         because of the Participant's retirement or disability,
                         the Participant may exercise the Option if such
                         exercise occurs before the first to occur of
                         anniversary of (i) the Participant's retirement or
                         disability, or (ii) the expiration of the Option
                         Period.

                    (E)  If the Participant dies within the Option Period, the
                         Options may be exercised, to the extent specified in
                         the Stock Option Agreement and as herein provided, by
                         the person or persons entitled to do so under the
                         Participant's will, or, if the Participant fails to
                         make testamentary disposition of said Options, or dies
                         intestate, by the Participant's legal representative or
                         representatives, but only if such exercise occurs
                         before the first to occur of (i) the expiration of the
                         Option Period; or (ii) the first anniversary of the
                         Participant's death.

                    (F)  A termination shall be for Cause by reason of any of
                         the following: (i) the Participant's conviction of, or
                         plea of nolo contendere to, any felony or to any crime
                         or offense causing harm to any Employer or an employee
                         (whether or not for personal gain) or involving acts of
                         moral turpitude, (ii) the Participant's repeated
                         intoxication by alcohol or drugs during the

                                     8



                         performance of his duties, (iii) malfeasance in the
                         conduct of the Participant's duties involving misuse or
                         diversion of any Employer's or an employee's funds,
                         embezzlement or willful and material misrepresentations
                         or concealments on any written reports submitted to any
                         Employer, (iv) repeated material failure by the
                         Participant to perform the duties of his employment;
                         (v) material failure by the Participant to follow or
                         comply with the reasonable and lawful written
                         directives of any Employer or the Participant's
                         immediate supervisor; or (vi) a material breach by the
                         Participant of any written agreement between the
                         Participant and any Employer, including without
                         limitation any breach of any written non competition
                         covenant or written covenant by the Participant with
                         respect to the non-disclosure of confidential
                         information.

          (d)  In the discretion of the Committee, a single Stock Option
               Agreement may include both Incentive Stock Options and
               Non-Incentive Stock Options, or separate Stock Option Agreements
               may be set forth for Incentive Stock Options and Non-Incentive
               Stock Options.

          (e)  Each Option granted under this Plan shall be non-transferable,
               and its terms shall state that it is non-transferable and shall,
               during the lifetime of the Participant be exercisable only by the
               Participant; notwithstanding the foregoing, Options shall be
               transferable by the laws of descent and distribution. However, a
               Participant may hold a Non-Incentive Stock Option in a trust,
               provided that the Committee may require that the optionee submit
               an opinion of his legal counsel, satisfactory to the Committee,
               that such holding has no adverse tax or securities law
               consequences for the Employers.

          (f)  Notwithstanding the foregoing, if any Incentive Stock Option is
               granted to any person at a time when such person owns, within the
               meaning of Section 424(d) of the Code, more than ten percent (10
               %) of the total combined voting power of all classes of stock of
               the employer corporation (or a parent or subsidiary of such

                                     9



               corporation within the meaning of Section 424 of the Code), the
               price at which each share of Common Stock covered by such Option
               may be purchased pursuant to such Option shall not be less than
               one hundred ten percent (110%) of Fair Market Value (determined
               as set forth in paragraph (a) of this Section 7) of the shares of
               Common Stock at the time the Option is granted, and such Option
               must be exercised within the period specified in the Stock Option
               Agreement, but in no event later than the tenth anniversary of
               the date on which the Option was granted.

          (g)  Stock Option Agreements under this Plan may contain such other
               terms, provisions and conditions not inconsistent herewith as
               shall be determined by the Committee, in its discretion,
               including, without limitation, provisions (i) relating to the
               vesting and termination of Options; (ii) requiring the giving of
               satisfactory assurances by the Participant that the shares are
               purchased for investment and not with a view to resale in
               connection with a distribution of such shares, and will not be
               transferred in violation of applicable securities laws; (iii)
               restricting the transferability of such shares during a specified
               period; and (iv) requiring the resale of such shares to MHI, at a
               price as specified in the Stock Option Agreement, if the
               Participant's employment by the Employers terminates prior to a
               time specified in the Stock Option Agreement.

          (h)  All Grants of Qualifying Stock Options hereunder made prior to
               the date on what shareholders approve that portion of this Plan
               granting Incentive Stock Options shall be contingent upon
               subsequent approval of the shareholders of the portion of this
               Plan, granting Incentive Stock Options.

          (i)  This Section 7 of the Plan shall terminate on, and no additional
               Awards shall be granted after, ten years from the first to occur
               of the date on which the Plan is adopted, or ten years from the
               date on which the shareholders approved the Plan.

     SECTION 8. Stock Appreciation Rights and Phantom Stock. An SAR is a right
to receive, without payment (except for applicable withholding taxes) to the
Employers, a number of shares of Common Stock, cash or a combination thereof,
the amount of which is

                                    10



determined under paragraph (d) of this Section 8. An SAR may be granted (i) with
respect to any Option granted under this Plan, either concurrently with the
grant of such Option, or at such later time as determined by the Committee (as
to all or any portion of the shares of Common Stock subject to the Option), or
(ii) alone, without reference to any related Stock Option. Each SAR granted by
the Committee under this Plan shall be subject to the terms and conditions of
this Section. SARs awarded under the Plan shall be evidenced by either a Stock
Option Agreement or a separate signed Stock Appreciation Right Agreement between
the Company and the Participant to whom the SAR is granted. Phantom Stock means
an Award with a value equivalent to shares of Common Stock. Each share of
Phantom Stock shall represent the right of a Participant to receive an amount
equal to the Fair Market Value of a share of Common Stock, determined in the
manner established by the Committee at the time of the Award. Each Award of
Phantom Stock shall be evidenced by a signed written agreement containing such
terms and conditions as the Committee may from time to time determine (the
"Phantom Stock Agreement").

          (a)  Each SAR or share of Phantom Stock granted to any Participant
               shall relate to the number of shares of Common Stock as shall be
               determined by the Committee, subject to adjustment as provided in
               Section 11. In the case of an SAR granted with respect to a Stock
               Option, the number of shares of Common Stock to which the SAR
               relates shall be reduced in the same proportion that the holder
               of such Option exercises with respect to such related Stock
               Option, and the number of shares subject to an Option shall be
               reduced in the same proportion that the holder of the SAR
               exercises with respect to the related Option.

          (b)  The term of each SAR shall be determined by the Committee. Unless
               otherwise provided by such Committee, each SAR shall become
               exercisable at such time or times and to such extent and upon
               such conditions as the Stock Option to which it relates (if any)
               is exercisable. In the case of a grant of an SAR to an Officer,
               either (i) no such SAR may be exercised during the first six (6)
               months of its term, or (ii) no such SAR may be exercised during
               the first six (6) months of its term unless the Committee
               determines to issue Common Stock alone on such exercise and such
               Common Stock shall not be transferable until the date which is
               six (6) months following the date of grant of the SAR. Except as
               provided in the preceding sentence, the Committee may, in its
               discretion, accelerate the exercisability of any SAR.

                                    11



          (c)  An SAR may be exercised, in whole or in part, by giving written
               notice to the Committee, specifying the number of SARs which the
               holder wishes to exercise. Upon receipt of such written notice,
               the Committee shall direct the Company to deliver to the
               exercising holder within ninety (90) days after receipt of the
               notice a certificate for the shares of Common Stock or cash or
               both, as determined by the Committee, to which the holder is
               entitled. No SAR granted to an Officer may be exercised in whole
               or in part except during the period described in paragraph (b)
               hereof,

          (d)  Subject to the right of the Committee to deliver cash in lieu of
               shares of Common Stock, the number of shares of Common Stock
               which shall be issuable upon the exercise of an SAR shall be
               determined by dividing:

               (i)  the number of shares of Common Stock as to which the SAR is
                    exercised multiplied by the amount of appreciation in such
                    shares (for this purpose, the "appreciation" shall be the
                    amount by which the Fair Market Value of the shares of
                    Common Stock subject to the SAR on the exercise date exceeds
                    (A) in the case of an SAR related to an Option, the purchase
                    price of the Common Shares under the Option or (B) in the
                    case of an SAR granted alone, without reference to a related
                    Option, an amount which shall be determined by the Committee
                    at the time of the grant, subject to adjustment under
                    Section 11; by

               (ii) the Fair Market Value of a share of Common Stock on the
                    exercise date,

               In lieu of issuing shares of Common Stock upon the exercise of an
               SAR, the Committee may elect to pay the holder of an SAR cash
               equal to the Fair Market Value on the exercise date of any or all
               of the shares which would otherwise be issuable. No fractional
               shares of Common Stock shall be issued upon the exercise of an
               SAR; instead, the holder of the SAR shall be entitled to receive
               a cash adjustment equal to the same fraction of the Fair Market
               Value of a share of Common Stock on the exercise date or to
               purchase the

                                       12



               portion necessary to make a whole share at its Fair Market Value
               on the date of exercise.

          (e)  Awards of Phantom Stock shall not entitle the Participant or
               Beneficiary to any dividend or voting rights or any other rights
               of a shareholder with respect to such Phantom Stock. However, the
               Committee may, in its discretion, provide the Participant with
               dividend equivalents (payable on a current or deferred basis). At
               any time subsequent to full vesting of Phantom Stock, the
               Participant may tender his Phantom Stock to the Committee, and
               MHI shall pay the Participant an amount equal to the then Fair
               Market Value of the equivalent number of shares of Common Stock;
               provided, however, that upon such tender, the Participant may
               receive no further Phantom Stock under this Plan for twelve (12)
               months following the date of such payment.

     SECTION 9. Performance Shares and Units.

          (a)  The Committee may award to any Participant Performance Shares
               and/or Performance Units ("Performance Awards"). Each Performance
               Share shall represent one share of Common Stock. Each Performance
               Unit shall represent the right of a Participant to receive an
               amount equal to the value to be determined in the manner
               established by the Committee at the time of the Award, which
               value may, without limitation, be equal to the Fair Market Value
               of one share of Common Stock. Each Performance Award under the
               Plan shall be evidenced by a signed written agreement containing
               such terms and conditions as the Committee may from time to time
               determine (the "Performance Agreement").

          (b)  At the time of the Performance Award, the Committee shall
               establish an account (the "Performance Account") for each
               Participant to whom a Performance Award has been granted.
               Performance Units and Performance Shares awarded to a Participant
               shall be credited to the Participant's Performance Account,

          (c)  The performance period for each Performance Award shall be of
               such duration as the Committee shall establish at the time of the

                                       13



               award (the "Performance Period") There may be more than one
               Performance Award in existence for a Participant at any time, and
               more than one Performance Period applicable to a Participant, and
               the duration of Performance Periods may differ.

          At the time of each Performance Award, the Committee may, in its
          complete discretion, establish performance target(s) to be achieved
          within the Performance Period(s). The performance target(s) shall be
          determined by the Committee using such measures of performance of the
          Employers over the Performance Period as the Committee shall select.
          During any Period, the Committee may adjust the performance targets
          for such Period as it deems equitable in recognition of unusual or
          non-recurring events affecting the Company, changes in applicable tax
          laws or accounting principles or such other factors as the Committee
          may determine. If the Committee determines that the Participant has
          failed to meet the performance target(s), the Participant will not
          receive payment of the Performance Award.

          Performance Awards will be earned as determined by the Committee in
          respect of a Performance Period in relation to the degree of
          attainment of performance target(s),

          (d)  Performance Awards shall be earned to the extent that their terms
               and conditions are met. Notwithstanding the foregoing,
               Performance Awards and any other amounts credited to the
               Participant's Performance Account shall be payable to the
               Participant only in accordance with the Performance Agreement.
               The Committee shall make all payment determinations during the
               four (4) month period beginning on the first day following the
               close of the Performance Period. Payment for Performance Awards
               may be made in a lump sum or in installments, in cash, Common
               Stock or in a combination thereof as the Committee may determine.

          (e)  In the event that a Participant's employment by the Employers
               terminates before the end of a Performance Period with the
               consent of the Committee, or upon a Participant's death,
               retirement or disability before the end of a Performance Period,
               the Committee, taking into consideration the performance of such
               Participant and the performance of the Employers over such
               portion of the

                                       14



               Performance Period, may authorize the payment to such Participant
               (or his legal representative or designated beneficiary) of all or
               a portion of the amount which would have been paid to him had he
               continued his employment until the end of the Performance Period.
               In the event a Participant ceases his employment for any other
               reason, any unpaid amounts for any outstanding Performance
               Periods, shall be forfeited.

     SECTION 10. Restricted Stock, Restricted Stock Units, and Unrestricted
Stock Grants.

          (a)  At the time of the Award under (b) or (c) below, there shall be
               established for each Participant a restriction period (the
               "Restriction Period") which shall lapse (i) upon the completion
               of a period of time ("Time Goal") as shall be determined by the
               Committee, or (ii) upon the achievement of stock price goals
               within certain time periods ("Price/Time Goal") as shall be
               determined by the Committee provided that, in the case of an
               award to an Officer, such Time Goal or Price/Time Goal shall last
               at least until the date which is six (6) months after the date of
               the Award.

          (b)  The Committee may award to any Participant any shares of Common
               Stock, subject to this Section 10 and such other terms and
               conditions as the Committee may prescribe (such shares being
               herein called "Restricted Stock"), or subject to no restriction
               ("Unrestricted Stock Grants"). Each certificate for Restricted
               Stock shall be registered in the name of the Participant and
               deposited by him, together with a stock power endorsed in blank,
               with the Committee. Shares of Restricted Stock awarded under this
               Plan shall be evidenced by a signed written agreement containing
               such terms and conditions as the Committee may from time to time
               determine in its discretion (the "Restricted Stock Agreement"),
               Shares of Restricted Stock may not be sold, assigned,
               transferred, pledged or otherwise encumbered, except as
               hereinafter provided, during the Restriction Period. Except for
               such restrictions on transfer, the Participant as owner of such
               shares of Restricted Stock shall have all the rights of a holder
               of such Common Stock. However, a Participant may hold Restricted
               Stock in a trust, provided that the Committee may require that
               the Participant submit an opinion of his legal counsel,
               satisfactory to the Committee, that

                                    15



               such holding has no adverse tax or securities law consequences
               for MHI.

               With respect to shares of Restricted Stock which are issued
               subject to a Time Goal, the Committee shall redeliver to the
               Participant (or the Participant's legal representative or
               designated beneficiary) the certificates deposited pursuant to
               paragraph (a) of this Section 10 at the expiration of the
               Restriction Period. With respect to shares of Restricted Stock
               which are issued subject to a Price/Time Goal, the Committee
               shall redeliver to the Participant (or the Participant's legal
               representative or designated beneficiary) the certificates
               deposited pursuant to paragraph (b) of this Section 10 at the
               expiration of the Restriction Period. With respect to shares of
               Restricted Stock which are issued subject to a Price/Time Goal or
               Time Goal which fail to meet the goal before the end of the
               Restriction Period, all such shares shall be forfeited and the
               Committee shall have the right to complete a blank stock power in
               order to return such shares to MHI.

          (c)  The Committee may award to a Participant a right to receive
               Common Stock or cash equivalent to the Fair Market Value of the
               Common Stock, in the Committee's discretion, at the end of the
               Restriction Period ("Restricted Stock Units") subject to
               achievement of a Time Goal or Price/Time Goal established by the
               Committee. At the end of the Restriction Period, with respect to
               Restricted Stock Units which are subject to a Time Goal, the
               Committee shall deliver notice to the Participant (or the
               Participant's legal representative or designated beneficiary) as
               to whether the Participant has achieved the Time Goal. With
               respect to Restricted Stock Units which are awarded subject to a
               Price/Time Goal, the Committee shall deliver notice to the
               Participant (or the Participant's legal representative or
               designated beneficiary) at the end of the Restriction Period as
               to whether the Participant has achieved the Price/Time Goal. 1f
               the Committee determines that a Participant has not achieved the
               Time Goal or Price/Time Goal, the Participant shall have no
               further rights with respect to the Restricted Stock or Restricted
               Stock Units.

                                    16



          (d)  In the event a Participant ceases his employment with the
               Employers with the consent of the Committee or upon the
               Participant's death, retirement or disability before the end of
               the Restriction Period and the Participant has received an Award
               subject to a Time Goal, the restrictions imposed under this
               Section shall lapse with respect to the number of those shares
               subject to a Time Goal as shall be determined by the Committee,
               but in no event less than a number equal to the product of (i) a
               fraction, the numerator of which is the number of completed
               months elapsed after the date of Award of the Restricted Stock
               subject to a Time Goal to the Participant to the date of
               termination and the denominator of which is the number of months
               in the Restriction Agreement, multiplied by (ii) the number of
               shares of Restricted Stock or Restricted Stock Units awarded to
               the Participant subject to the Time Goal.

               In the event a Participant ceases his employment the Employers
               with the consent of the Committee or upon the Participant's
               death, retirement or disability before the end of the Restriction
               Period and the Participant has received an Award subject to a
               Price/Time Goal, the restrictions imposed under this Section
               shall lapse upon the achievement of the Price/Time Goal within
               two (2) years of the Participant's termination of employment with
               respect to such number of shares or units subject to a Price/Time
               Goal as shall be determined by the Committee. In no event shall
               the number of shares or units be less than a number equal to the
               product of (i) a fraction, the numerator of which is the number
               of completed months elapsed after the date of award of the
               Restricted Stock or Restricted Stock Units subject to a
               Price/Time Goal to the Participant to the date of termination and
               the denominator of which is the number of months elapsed after
               the date award of the Restricted Stock or Restricted Stock Units
               subject to a Price/Time Goal to the Participant to the date of
               achievement of the Price/Time Goal, multiplied by (ii) the number
               of shares of Restricted Stock or Restricted Stock Units subject
               to the Price/Time Goal.

               In the event a Participant ceases his employment with the
               Employers for any other reason, all shares of Restricted Stock
               theretofore awarded to that Participant which are still subject
               to

                                    17



               restrictions shall be forfeited and the Committee shall have the
               right to complete the blank stock power.

     SECTION 11. Adjustment of Number of Shares. In the event of a stock
dividend or stock split is declared upon the stock, the number of shares of
Common Stock then subject to an Award and the number of shares reserved for
issuance pursuant to this Plan but not yet covered by an Option shall be
adjusted by adding to each of such shares the number of shares which would have
been distributable thereon if such shares had been outstanding on the date fixed
for determining the stockholders entitled to receive such stock dividend or
split. In the event that the outstanding shares of Common Stock shall be changed
into or exchanged for a different number or kind of shares of stock or other
securities of MHI or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of Common Stock
reserved for issuance pursuant to the Plan but not yet covered by an Option, the
number and kind of other stock or other securities into which each outstanding
share of Common Stock shall be so changed or for which each such share shall be
exchanged; provided, however, that in the event such change or exchange results
from a merger or consolidation, and in the judgment of the Board of Directors of
MHI such substitution cannot be effected or would be inappropriate, or if MHI
shall sell all or substantially all of its assets, MHI shall use reasonable
efforts to effect some other adjustment of each such outstanding Option which
the Board of Directors of MHI, in its sole discretion, shall deem equitable. In
the event that there shall be any change, other than as described above in this
Section, in the number or kind of the outstanding shares of Common Stock or of
any stock or other securities into which such shares of Common Stock shall have
been changed or for which they shall have been exchanged then, if the Board of
Directors of MHI shall determine that such change equitably requires an
adjustment in the number or kind of shares theretofore reserved for issuance
under the Plan but not yet covered by an Option, and of the shares then subject
to an Option or Options, such adjustment shall be made by the Board and shall be
effective and binding for all purposes of this Plan and of each Stock Option
Agreement. Notwithstanding the foregoing, if any adjustment in the number of
shares which may be issued and sold pursuant to options is required by the Code
or regulations promulgated thereunder to be approved by the stockholders in
order to enable the Company to issue Incentive Stock Options pursuant to this
Plan, then no such adjustment shall be made without the approval of the
stockholders. In the case of any such substitution or adjustment as provided for
in this Section, the option price in each Stock Option Agreement for each share
covered thereby prior to such substitution or adjustment will be the total
option price for all shares of stock or other securities which shall have been
substituted for each share or to which such share shall have been adjusted
pursuant to this Section. No adjustment or substitution provided for in this

                                       18



Section shall require the Company, in any Stock Option Agreement, to sell a
fractional share, and the total substitution or adjustment with respect to each
Stock Option Agreement shall be limited accordingly. Notwithstanding the
foregoing, in the case of Incentive Stock Options, if the effect of the
adjustments or substitution is to cause the Option to fail to continue to
qualify as an Incentive Stock Option or to cause a modification, extension or
renewal of such Option within the meaning of Section 424 of the Code, the Board
of Directors of the Company shall use reasonable efforts to effect such other
adjustment of each then outstanding Option as the Board, in its sole discretion,
deems equitable.

     SECTION 12. Change of Control. In the event of a "Change of Control" or
"Initial Public Offering" (as both defined herein), all Awards hereunder shall
vest immediately. As used herein, a "Change of Control" shall mean and be deemed
to have occurred if any person (other than the individuals or entities listed on
Attachment A, which may be modified by the Committee from time to time) is or
becomes the beneficial owner of 20 percent or more of MHI's Common Stock or a
change in the composition of MHI's Board of Directors such that within any
period of two consecutive years, persons who at the beginning of such period and
whose election, or nomination for election by the shareholders of MHI was
approved by a vote of at least two-thirds of the persons who were either
directors at the beginning of such period or whose subsequent election or
nomination was previously approved in accordance with this clause, cease to
constitute at least a majority of the Board of Directors, or if MHI's Board of
Directors reaches agreement to merge or consolidate with another entity and MHI
is not the surviving corporation, or if all, or substantially all of the assets
of MHI are sold, or if MHI shall dissolve or liquidate. An "Initial Public
Offering" shall be deemed to occur if MHI offers shares to the public pursuant
to a registration filed under Form S-1 or Form S-B2 (or any replacement forms)
under the Securities Act of 1933.

     SECTION 13. Beneficiary Designation. Each Participant under the Plan may
name, from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each
designation will be effective only with the written consent of the Participant's
spouse and will revoke all prior designations by that Participant, shall be in
the form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Committee during his lifetime. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to his estate.

                                       19



     SECTION 14. Tax Withholding.

          (a)  The Employers shall have the power to withhold, or require a
               Participant to remit to MHI, an amount sufficient to satisfy any
               withholding or other tax due from MHI with respect to any amount
               payable and/or shares issuable under the Plan, and MHI may defer
               such payment or issuance unless indemnified to its satisfaction.

          (b)  Subject to the consent of the Committee, due to (i) the exercise
               of a Non-Incentive Stock Option, (ii) the lapse of restrictions
               on a Restricted Stock Award, or (iii) the issuance of any other
               stock award under the Plan, a Participant may make an irrevocable
               election (an "Election") to (A) have shares of Common Stock
               otherwise issuable under (i) withheld, or (B) tender back to MHI
               shares of Common Stock received pursuant to (i), (ii), or (iii),
               or (C) deliver back to the Company pursuant to (i), (ii), or
               (iii) previously acquired shares of Common Stock of MHI having a
               Fair Market Value sufficient to satisfy all or part of the
               Participant's estimated tax obligations associated with the
               transaction. Such Election must be made by a Participant prior to
               the date on which the relevant tax obligation arises (the "Tax
               Date"). The Committee may disapprove of any Election, may suspend
               or terminate the right to make Elections, or may provide with
               respect to any Award under this Plan that the right to make
               Elections shall not apply to such Awards.

          (c)  If a Participant is an Officer, then an Election is subject to
               the following additional restrictions:

               (i)  No election shall be effective for a Tax Date which occurs
                    within six months of the grant of the award.

               (ii) The Election must be made and must be effective during a
                    period beginning on the third business day following the
                    date of release for publication of MHI's quarterly or annual
                    summary statements of earnings and ending on the twelfth
                    business day following such date.

                                       20



     SECTION 15. Indemnification. Each person who is or shall have been a member
of the Committee shall be indemnified and held harmless by MHI against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with MHI's approval, or paid
by him in satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give MHI an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
MHI's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or
any power that MHI may have to indemnify them or hold them harmless.

     SECTION 16. Gender and Number. Except where otherwise indicated by the
context, words in the masculine gender when used in the Plan will include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.

     SECTION 17. Controlling Law. This document shall be construed under the
laws of the State of California.

     SECTION 18. No Stockholder Rights. No Participant hereunder shall have any
rights of a stockholder of MHI by reason of being granted an Award under this
Plan, except as specifically provided with respect to Restricted Stock.

     SECTION 19. Amendments. This Plan may be amended from time to time by
written resolution of the Board of Directors of MHI; provided, however, that no
amendment which shall (i) change the total number of shares which may be issued
and sold pursuant to Options granted under this Plan, (ii) change the
designation of the class of employees eligible to receive Incentive Stock
Options or the class of individuals eligible to receive Non-Incentive Stock
Options, (iii) decrease the minimum Option price set forth in paragraph (a) of
Section 7 of this Plan, (iv) extend the period during which an Option may be
granted or exercised beyond the maximum period specified in this Plan, or (v)
withdraw the authority to administer this Plan from the Committee, shall be
effective without the approval of the stockholders. Notwithstanding the
foregoing, the Board may amend the Plan to incorporate or conform to
requirements imposed by and amendments made to the Code or regulations
promulgated thereunder which the Board deems to be necessary or desirable to
preserve (a) incentive stock option status for outstanding Incentive Stock
Options and to preserve the ability to issue Incentive Stock Options pursuant to
this Plan,

                                    21



(b) the deductibility by MHI of amounts taxed to Plan Participants as ordinary
compensation income, and (c) the status of any Award as exempt from registration
requirements under any securities law for which the Award was intended to be
exempt.

     SECTION 20. Termination or Suspension. The Board of Directors of MHI may
terminate the Plan or any portion thereof at any time by written resolution. No
suspension or termination shall impair the rights of Participants under
outstanding Awards without the consent of the Participants affected thereby.

                                    22



                                  Attachment A

Joseph Marion Molina, M.D.

John Conrad Molina

Mary R. Molina

Martha Bernadett, M.D.

Josephine Battiste

Janet Walt

Molina Marital Trust

Mary R. Molina Living Trust

Molina Family Ltd. Partnership

Molina Siblings Trust

                                    23



                             SECRETARY'S CERTIFICATE

     I, Mark L. Andrews, in my capacity as Secretary of Molina Healthcare, Inc.,
hereby confirm that the attached Omnibus Stock and Incentive Plan has been
amended pursuant to shareholder action taken on December 18, 2000.

     IN WITNESS WHEREOF, I have hereunto subscribed my name this 2nd day of
October, 2001.


                                                             /s/
                                                             -------------------
                                                             Mark L. Andrews
                                                             Corporate Secretary

                                                                   EXHIBIT 10.13

                             MOLINA HEALTHCARE, INC.

                           2002 EQUITY INCENTIVE PLAN



SECTION 1. GENERAL PURPOSE OF THE PLAN & DEFINITIONS

     The name of the plan is the Molina Healthcare, Inc. 2002 Equity Incentive
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, directors, employees and Consultants of Molina Healthcare, Inc., a
California corporation (the "Company"), and its Subsidiaries (each as defined
below), upon whose judgment, initiative and efforts the Company largely depends
for the successful conduct of its business, to acquire a proprietary interest in
the Company. It is anticipated that providing such persons with a direct stake
in the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with and further the interests
of the Company.

     The following terms shall be defined as set forth below:

     "Acquired Company" has the meaning specified in Section 10(c).

     "Act" means the Securities Act of 1933, as amended.

     "Assumption" has the meaning specified in Section 10(b).

     "Award" or "Awards" shall include Incentive Stock Options, Non-Qualified
Stock Options, Restricted Stock Awards, Stock Bonus Awards or any combination of
the foregoing.

     "Board" means the Board of Directors of the Company or its successor
entity.

     "Code" means the Internal Revenue Code of 1986, as amended, and related
rules, regulations and interpretations.

     "Committee" has the meaning specified in Section 2(a).

     "Company" has the meaning specified in the first para graph of Section 1.

     "Consultant" means a person engaged to provide consulting or advisory
services (other than as an employee or director) to the Company or any
Subsidiary; provided that, the identity of such person, the nature of such
services or the entity to which such services are provided would not preclude
the Company from offering or selling securities to such person pursuant to the
Plan in reliance on a Form S-8 Registration Statement under the Act.

     "Covered Employee" means an employee described in Section 162(m)(3) of the
Code.

     "Disability" has the meaning specified in Section 22(e)(3) of the Code.






     "Effective Date" has the meaning specified in Section 14.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Fair Market Value" of a share of Stock for a given date means (i) the last
reported closing price for a share of Stock on the NYSE; or (ii) in the absence
of reported sales on the NYSE on a given date, the closing price of the NYSE on
the last date on which a sale occurred prior to such date; or (iii) if the stock
is no longer publicly traded on the NYSE, the Committee in good faith shall
determine Fair Market Value; provided that, if the date for which the Fair
Market Value is determined is the first day when trading prices for the Stock
are reported on the NYSE, the Fair Market Value shall be the public offering
price set forth on the cover page for the final prospectus relating to the
Company's Initial Public Offering.

     "Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422(b) of the Code.

     "Initial Public Offering" means the consummation of the first fully
underwritten, firm commitment, public offering pursuant to an effective
registration statement under the Act, other than on Forms S-4 or S-8 or their
then equivalents, covering the offer and sale by the Company of its equity
securities or such other event as a result of or following which the Stock shall
be publicly held.

     "NYSE" means the New York Stock Exchange.

     "Non-Qualified Stock Option" means any Stock Option that is not designated
as an Incentive Stock Option or which does not qualify as an Incentive Stock
Option.

     "Option" or "Stock Option" means any right to purchase shares of Stock
granted pursuant to Section 5.

     "Option Agreement" means a written agreement between the Company and a
grantee setting forth the terms, conditions and restrictions of the Option
granted to the grantee and any shares of Stock acquired upon the exercise
thereof. An Option Agreement may consist of a "Notice of Grant of Stock Option"
and a form of "Stock Option Agreement" incorporated therein by reference or such
other form or forms as the Committee may approve from time to time.

     "Option Shares" means the shares of Stock which are issuable upon exercise
of a Stock Option.

     "Outside Director" means an individual who meets the requirements to
qualify as an "outside director" as defined under Treas. Reg. Sect.
1.162-27(e)(3) (or its successor).

     "Plan" has the meaning specified in the first paragraph of Section 1.

     "Prior Plan" has the meaning specified in Section 3(b).


                                       2



     "Reincorporation Merger" means the merger contemplated by that certain
Agreement of Merger by and between the Company and Molina Healthcare, Inc., a
Delaware corporation, as amended.

     "Restricted Stock" has the meaning specified in Section 6(a).

     "Restricted Stock Agreement" means a written agreement between the Company
and a grantee setting forth the terms, conditions and restrictions of a
Restricted Stock Award granted to the grantee and any shares of Restricted Stock
issued to the grantee pursuant thereto.

     "Restricted Stock Award" means any Award of Restricted Stock hereunder.

     "Service Relationship" means the grantee's employment or service with the
Company or any Subsidiary, whether in the capacity of an employee, director or
Consultant. Unless otherwise determined by the Committee, a grantee's Service
Relationship shall not be deemed to have terminated merely because of a change
in the capacity in which the grantee renders service to the Company or its
Subsidiary, or a transfer between locations of the Company or any Subsidiary or
a transfer between the Company and any Subsidiary; provided that, there is no
interruption or other termination of the Service Relationship. Subject to the
foregoing and Section 9 below, the Company, in its sole discretion, shall
determine whether the grantee's Service Relationship has terminated and the
effective date of such termination.

     "Stock" means the common stock, par value $0.001 per share, of the Company,
subject to adjustment pursuant to Section 3.

     "Stock Bonus Award" has the meaning specified in Section 7.

     "Stock Option" means an Award on an option to purchase shares of Stock
under Section 5.

     "Subsidiary" means any corporation (other than the Company) in any unbroken
chain of corporations beginning with the Company if each of the corporations
(other than the last corporation in the unbroken chain) owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

     "Transaction" means any of the following:

     (a) Approval by the Board and by the shareholders of the Company (or, if no
shareholder approval is required, by the Board alone) of the dissolution or
liquidation of the Company, other than in the context of a transaction that does
not constitute a Transaction under paragraph (b) below,

     (b) Consummation of a merger, consolidation, or other reorganization, with
or into, or the sale of all or substantially all of the Company's business
and/or assets as an entirety to, one or more entities that are not subsidiaries
or affiliates of the Company (a "Business Combination"), unless (1) as a result
of the Business Combination, more than fifty percent of the outstanding voting
power generally in the election of directors of the surviving or resulting
entity


                                       3



or a parent thereof (the "Successor Entity") immediately after the
reorganization is, or will be, owned, directly or indirectly, by holder of the
Company's voting securities immediately before the Business Combination; and (2)
no "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act), excluding the Successor Entity or an Excluded Person, beneficially owns,
directly or indirectly, more than fifty percent of the outstanding shares or the
combined voting power of the outstanding voting securities of the Successor
Entity, after giving effect to the Business Combination, except to the extent
that such ownership existed before the Business Combination.

     (c) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) other than an Excluded Person becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than fifty percent of the combined
voting power of the Company's then outstanding securities entitled to then vote
generally in the election of directors of the Company, other than as a result of
(1) an acquisition directly from the Company, (2) an acquisition by the Company
or (3) an acquisition by an entity pursuant to a transaction that is expressly
excluded under paragraph (b) above.

     For purposes of defining whether an event qualifies as a "Transaction,"
"Excluded Person" shall mean (1) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Exchange Act, (2) the Company, (3) an
employee benefit plan (or related trust) sponsored or maintained by the Company
or the Successor Entity or (4) any person who is the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than twenty-five percent
of the Stock on January 1, 2002 (or an affiliate, successor, heir, descendant,
or related party of or to such person).

     "10% Owner Optionee" means an individual who owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company, or of its Parent or any Subsidiary.

SECTION 2. ADMINISTRATION OF PLAN

     (a) Administration of Plan. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), or at the discretion of the Board, a
committee of the Board consisting of not less than two directors (the
"Committee"); provided that, if each member of the Committee is not a
"Non-Employee Director" within the meaning of Rule 16b-3(a)(3) of the Exchange
Act, then any Awards granted to individuals subject to the reporting
requirements of Section 16 of the Exchange Act shall be approved by the Board.
Notwithstanding the foregoing, after the end of the reliance period (as defined
in Treasury Regulation 1.162-27(f)) following the Company's Initial Public
Offering, Awards granted to Covered Employees which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m) of the Code shall be approved by a Committee
composed solely of two or more Outside Directors. All references herein to the
Committee shall be deemed to refer to the entity then responsible for
administration of the Plan at the relevant time (i.e., either the Board or a
committee of the Board, as applicable).


                                       4



     (b) Powers of Committee. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:

          (i) to select the persons to whom Awards may from time to time be
     granted;

          (ii) to determine the time or times of grant and the type of Award to
     be granted which may include Incentive Stock Options, Non-Qualified Stock
     Options, Restricted Stock Awards, Stock Bonus Awards or any combination of
     the foregoing, granted to any one or more grantees;

          (iii) to determine the number of shares of Stock to be covered by any
     Award;

          (iv) to approve the form of written instruments evidencing the Awards;

          (v) to determine and modify from time to time the terms and conditions
     of any Award, including restrictions, not inconsistent with the terms of
     the Plan, which terms and conditions may differ among individual Awards and
     grantees;

          (vi) to accelerate at any time the exercisability or vesting of all or
     any portion of any Award and/or to include provisions in Awards providing
     for such acceleration;

          (vii) to impose any limitations on Awards granted under the Plan,
     including limitations on transfers, repurchase provisions and the like and
     to exercise repurchase rights or obligations;

          (viii) to extend at any time the period in which Stock Options may be
     exercised; and

          (ix) at any time to adopt, alter and repeal such rules, guidelines and
     practices for administration of the Plan and for its own acts and
     proceedings as it shall deem necessary and advisable; to interpret the
     terms and provisions of the Plan and any Award (including related written
     instruments); to make all determinations it deems necessary and advisable
     for the administration of the Plan; to decide all disputes arising in
     connection with the Plan; and to otherwise supervise the administration of
     the Plan.

     All decisions and interpretations of the Committee relating to the Plan and
any Awards granted hereunder shall be binding on all persons, including the
Company, the Company's stockholders, grantees and beneficiaries.

     (c) Delegation of Authority to Grant Awards. The Committee, in its
discretion and in accordance with applicable state law, may delegate to the
Chief Executive Officer of the Company all or part of the Committee's authority
and duties with respect to the granting of Awards at Fair Market Value to
individuals who are not subject to the reporting requirements of Section 16 of
the Exchange Act or Covered Employees. The Committee may revoke or amend the
terms of a delegation at any time but such action shall not invalidate any prior
actions of the Committee's delegate or delegates that were consistent with the
terms of the Plan.


                                       5



SECTION 3. STOCK ISSUABLE UNDER THE PLAN

     (a) Initial Stock Reserve. The maximum aggregate number of shares of Stock
reserved and available for issuance under the Plan shall be 40,000 shares of
Stock, subject to adjustment as provided in Section 10(a). For purposes of this
limitation, the shares of Stock underlying any Awards which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) without the issuance of Stock
shall be added back to the shares of Stock available for grant and issuance in
connection with future Awards under this Plan. The sum of Restricted Stock
Awards and Stock Bonus Awards issued under this Plan shall not exceed 15,000
shares, subject to adjustment under Section 10(a).

     (b) Coordination with Prior Plan

     Any authorized shares not issued or subject to outstanding grants under the
Omnibus Stock and Incentive Plan for Molina Healthcare, Inc. (the "Prior Plan")
on the Effective Date and any shares that are issuable upon exercise of options
granted under the Prior Plan that expire or become unexercisable for any reason
without having been exercised in full, will no longer be available for grant and
issuance under the Prior Plan but will be available for grant and issuance under
this Plan. In addition, any shares issued under the Prior Plan that are
repurchased or forfeited will be available for grant and issuance under this
Plan.

     (c) Annual Increase to Stock Reserve

     On the first business day of each fiscal year of the Company on or after
the Effective Date but prior to termination of the Plan, the aggregate number of
shares of Stock reserved and available for grant and issuance under this Plan
will be increased automatically by a number of shares of Stock equal to the
lesser of (i) 10,000 shares of Stock, subject to adjustment under Section 10(a)
below, and (ii) the number of shares of Stock equal to two percent (2%) of the
issued and outstanding Common Shares (calculated on a fully-diluted (including
all Stock issuable under the Plan) and as-converted basis) determined as of the
date of the applicable increase, unless the Board determines prior to the
commencement of any fiscal year that such increase shall not occur for such
fiscal year.

     (d) Shares Available for Issuance. The shares of Stock available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury. At all times, the
Company shall reserve and keep available a sufficient number of shares of stock
as shall be required to satisfy the requirements of all outstanding stock
options granted under the Plan and all other outstanding but unvested Awards.

SECTION 4. ELIGIBILITY

     Awards may be granted to employees, directors and Consultants of the
Company or any Subsidiary (including prospective employees, directors and
Consultants to whom Awards are granted in connection with written offers of
employment or other service with the Company or any subsidiary) as are selected
from time to time by the Committee in its sole discretion on and after the
Company's Initial Public Offering. The Board shall consider such factors as it
deems


                                       6



pertinent in selecting who shall receive Awards and in determining the type and
amount of their benefits under this Plan. A person may be granted more than one
Award under this Plan. The maximum number of Common Shares subject to a benefit
that may be granted in the aggregate under the Plan during any calendar year to
any person shall be limited to 15,000 shares (subject to adjustment pursuant to
Section 10(a) below). To the extent required by Section 162(m) of the Code,
Awards subject to the foregoing limit that are cancelled or repriced during any
year continue to be counted against this limit.

SECTION 5. STOCK OPTIONS

     The Company may grant Stock Options under the Plan to any eligible person
pursuant to an Option Agreement that shall be in such form as the Committee may
from time to time approve. Option Agreements need not be identical.

     Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary; provided that, an Incentive Stock
Option may be granted to a prospective employee upon the condition that such
person becomes an employee and such grant shall be deemed granted effective on
the date that such person commences service with the Company or any Subsidiary,
with an exercise price determined as of such date in accordance with Section
5(a)(i) below. Non-Qualified Stock Options may be granted to officers,
directors, employees and Consultants of the Company or any Subsidiary. To the
extent that any Option does not qualify as an Incentive Stock Option, it shall
be deemed a Non-Qualified Stock Option.

     No Incentive Stock Option shall be granted under the Plan on or after the
tenth anniversary of the Board's adoption of the
Plan.

     (a) Terms of Stock Options. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:

          (i) Exercise Price. The exercise price per share for the Stock covered
     by a Stock Option shall be determined by the Committee at the time of grant
     but shall not be less than one hundred percent (100%) of the Fair Market
     Value on the grant date in the case of an Incentive Stock Option. If an
     Incentive Stock Option is granted to a 10% Owner Optionee, the exercise
     price per share for the Stock covered by such Incentive Stock Option shall
     not be less than one hundred ten percent (110%) of the Fair Market Value on
     the grant date. Notwithstanding the foregoing, an Incentive Stock Option
     may be granted with an exercise price lower than the minimum exercise price
     per share set forth above if the Incentive Stock Option is granted pursuant
     to a substitution for an option of an Acquired Company in a manner
     qualifying under Section 424(a) of the Code.

          (ii) Option Term. The term of each Stock Option shall be fixed by the
     Committee, but no Stock Option shall be exercisable more than ten (10)
     years after the date the Stock Option is granted. If an Incentive Stock
     Option is granted to a 10% Owner Optionee, such Incentive Stock Option
     shall not be exercisable more than five (5) years after the grant date.


                                       7




          (iii) Exercisability; Rights of a Stockholder. Stock Options shall
     become exercisable at such time or times, whether or not in installments,
     as shall be determined by the Committee and set forth in the Option
     Agreement evidencing such Option. A grantee shall have no rights of a
     stockholder of the Company with respect to any shares covered by the Option
     until the date of the issuance of the shares of Stock for which the Option
     has been exercised (as evidenced by an appropriate entry on the books of
     the Company or of a duly authorized transfer agent of the Company). No
     adjustment shall be made for dividends, distributions or other rights for
     which the record date is prior to the date such shares are issued, except
     as provided in Section 10(a) hereof.

          (iv) Method of Exercise. Stock Options may be exercised, in whole or
     in part, by giving written notice of exercise to the Company, specifying
     the number of shares of Stock to be purchased. Payment of the aggregate
     exercise price may be made by one or more of the following methods to the
     extent provided in the Option Agreement:

               (A) in cash, by certified or bank check, or other instrument
          acceptable to the Committee in U.S. funds payable to the order of the
          Company in an amount equal to the aggregate exercise price of such
          Option Shares;

               (B) if permitted by the Committee in its sole and absolute
          discretion, (x) through the delivery (or attestation to ownership) of
          shares of Stock with an aggregate Fair Market Value (as of the date
          such shares are delivered or attested to) equal to the aggregate
          Exercise Price and that have been purchased by the grantee on the open
          market or that have been held by the grantee for at least six (6)
          months and are not subject to restrictions under any plan of the
          Company, or (y) by the grantee delivering to the Company a properly
          executed exercise notice together with irrevocable instructions to a
          broker to promptly deliver to the Company cash or a check payable and
          acceptable to the Company in an amount equal to the aggregate exercise
          price; provided that, in the event the grantee chooses such payment
          procedure, the grantee and the broker shall comply with such
          procedures and enter into such agreements of indemnity and other
          agreements as the Committee shall prescribe as a condition of such
          payment procedure; or

               (C) a combination of the payment methods set forth in clauses (A)
          and (B) above.

     Payment instruments will be received subject to collection. No certificates
for Option Shares so purchased will be issued to the grantee until the Company
has completed all steps required by law to be taken in connection with the
issuance and sale of such shares, including, without limitation, obtaining from
grantee payment or provision for all withholding taxes due as a result of the
exercise of the Stock Option. The issuance of the Option Shares to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the grantee (or a purchaser acting in his or her stead in accordance with the
provisions of the Stock Option) by the Company of the full exercise price for
such Option Shares and the fulfillment of any other requirements contained in
the Option Agreement or applicable provisions of law. If the grantee chooses to
pay the exercise price by delivery of previously owned shares of Stock by the
attestation method set forth in clause (B)(x) above, the shares of Stock issued
to the grantee upon the exercise of the Stock Option shall be net of the number
of the shares of Stock delivered.

                                       8



     (b) Annual Limit on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the shares of Stock with respect to which Incentive Stock Options are
exercisable for the first time by a grantee during any calendar year (under all
option plans of the Company and its Subsidiaries) exceeds $100,000, such
Incentive Stock Options shall constitute Non-Qualified Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. If pursuant to the above, an
Incentive Stock Option is treated as an Incentive Stock Option in part and a
Non-Qualified Stock Option in part, the grantee may designate which portion of
the Stock Option the grantee is exercising. In the absence of such designation,
the grantee shall be deemed to have exercised the Incentive Stock Option portion
of the Stock Option first.

     (c) Non-transferability of Options. No Stock Option shall be transferable
by the grantee other than by will or by the laws of descent and distribution and
all Stock Options shall be exercisable, during the grantee's lifetime, only by
the grantee or by the grantee's legal representative or guardian in the event of
the grantee's incapacity. Notwithstanding the foregoing, the Committee, in its
sole discretion, may provide in the Option Agreement regarding a given
Non-Qualified Stock Option that the grantee may transfer, without consideration
for the transfer, such Stock Option to members of his or her immediate family,
to trusts for the benefit of such family members, to partnerships in which such
family members are the only partners or to limited liability companies in which
such family members are the only members; provided that, each transferee agrees
in writing with the Company to be bound by all of the terms and conditions of
the Plan and the applicable Option Agreement.

SECTION 6. RESTRICTED STOCK AWARDS

     (a) Nature of Restricted Stock Awards. The Company may grant or sell, at
par value or such greater purchase price as determined by the Committee, in its
sole discretion, shares of Stock subject to such restrictions and conditions as
the Committee may determine at the time of grant ("Restricted Stock"), which
purchase price shall be payable in cash or, if permitted by the Committee at the
time of grant of such Award, by promissory note (which may be recourse or
partially recourse to the grantee), in a form approved by the Committee;
provided that, at least so much of the purchase price as represents the par
value of the Stock shall be paid other than with a promissory note if required
by state law. Conditions may be based on the continuation of a Service
Relationship, achievement of pre-established performance goals and objectives or
such other terms as may be determined by the Committee in its sole discretion.
The grant of a Restricted Stock Award is contingent on the grantee executing a
Restricted Stock Agreement. The terms and conditions of each such Restricted
Stock Agreement shall be determined by the Committee and such terms and
conditions may differ among individual Awards and grantees.

     (b) Rights as a Stockholder. Upon execution of the Restricted Stock
Agreement and payment of any applicable purchase price, a grantee shall have the
rights of a stockholder of the Company with respect to the voting of the
Restricted Stock, subject to such conditions contained in the Restricted Stock
Agreement. Unless the Committee shall otherwise determine, certificates
evidencing the Restricted Stock shall remain in the possession of the Company
until such

                                       9



Restricted Stock is vested as provided in Section 6(d) below and the grantee
shall be required, as a condition of the grant, to deliver to the Company a
stock power endorsed in blank.

     (c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock Agreement. Shares of Stock issued pursuant to
a Restricted Stock Award may be subject additional conditions and restrictions
as determined by the Committee and set forth in the applicable Restricted Stock
Agreement, including but not limited to, compliance with post-employment
obligations to the Company.

     (d) Vesting of Restricted Stock. The Committee at the time of grant shall
specify the date or dates and/or performance goals, objectives and other
conditions on which Restricted Stock shall become vested, subject to such
further rights of the Company or its assigns as may be specified in the
Restricted Stock Agreement.

     (e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock
Agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.

SECTION 7. STOCK BONUS AWARDS

     The Committee may, in its sole discretion, grant or sell, at par value or
such greater purchase price determined by the Committee, in exchange for any
valid consideration, including past services rendered, a Stock Bonus Award to
any grantee, pursuant to which such grantee may receive shares of Stock under
the Plan free of any vesting restrictions ("Stock Bonus Award"). Notwithstanding
the foregoing, Stock received pursuant to a Stock Bonus Award may be subject to
other conditions and restrictions as determined by the Committee, including but
not limited to compliance with post-employment obligations to the Company, at
the time of grant and the Committee may place legends referencing any such
restrictions on the certificate representing such Stock.

SECTION 8. TAX WITHHOLDING

     (a) Payment by Grantee. Each grantee shall pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state or local taxes of any kind required by law to be withheld with respect to
such income no later than the date as of which the value of an Award or any
Stock or other amounts received thereunder first becomes includable in the gross
income of the grantee for tax purposes. The Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the grantee.

     (b) Payment in Stock. Subject to approval by the Committee, an individual
may elect to have the minimum required tax withholding obligation (as determined
under applicable federal, state or local law) satisfied with respect to an
Award, in whole or in part, by: (i) authorizing the Company to withhold from
shares of Stock to be issued pursuant to any Award a number of shares with an
aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy such obligation, or (ii) transferring to the Company shares of
Stock

                                       10



owned by the grantee with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy such obligation.

SECTION 9. LEAVE OF ABSENCE

     (a) Exercisability. An approved leave of absence for military service,
sickness or any other purpose approved by the Company shall not be deemed a
termination of a grantee's Service Relationship for purposes of determining when
a grantee's outstanding Stock Options will expire pursuant to the Plan and the
applicable Option Agreement; provided that, if any such leave exceeds ninety
(90) days, on the ninety-first (91st) day of such leave the grantee's Service
Relationship shall be deemed to have terminated unless the grantee's right to
return to service is guaranteed by either statute or contract.

     (b) Vesting. An approved leave of absence for maternity or, in the
Company's sole discretion, a medical reason, shall be treated as service for
purposes of determining vesting under a grantee's outstanding Award agreements;
provided that, if any such leave exceeds twelve (12) weeks then, beginning on
the first (1st) day of the thirteenth (13th) week, such leave shall not be
treated as service for purposes of vesting (i.e., the vesting schedule shall be
tolled for the period of the leave of absence beyond twelve (12) weeks).
Notwithstanding anything stated in this Section 9(b), unless otherwise
designated by the Company or required by law, any other leave of absence shall
not be treated as service for purposes of vesting.

SECTION 10. CORPORATE TRANSACTIONS

     (a) Changes in Stock. If, as a result of (i) any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock without
consideration, (ii) the outstanding shares of Stock being increased or decreased
or being exchanged for a different number or kind of shares or other securities
of the Company, (iii) additional shares or new or different shares or other
securities of the Company or other non-cash assets being distributed with
respect to such shares of Stock or other securities, or (iv) a merger,
consolidation or sale of all or substantially all of the assets of the Company,
outstanding shares of Stock are converted into or exchanged for a different
number or kind of shares or other securities of the Company or any successor
entity (or a parent or subsidiary thereof) (including the Reincorporation
Merger), the Committee shall make an appropriate or proportionate adjustment in:
(v) the maximum number of shares reserved for issuance under the Plan, including
annual increases under Section 3(c) and limits on Restricted Stock Awards and
Stock Bonus Awards under Section 3(a), (x) the number and kind of shares or
other securities subject to any then outstanding Awards under the Plan, (y)
maximum number of shares of Stock that may be issued to a person under Section
4, and (z) the exercise price for each share subject to any then outstanding
Stock Option under the Plan, without changing the aggregate exercise price
(i.e., the exercise price multiplied by the number of shares subject to the
Stock Option); provided that such exercise price may not be less than the par
value of the Stock after any such adjustment The adjustment by the Committee
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Committee in
its discretion may either make a cash payment in lieu of fractional shares or
round any resulting fractional share down to the nearest whole number.

                                       11



Notwithstanding the foregoing, the required adjustment under this
Section 10(a) in connection with the effectiveness of the Reincorporation
Merger, shall be consistent with the adjustment made to all then outstanding
shares of the Common Stock of the Company.

     (b) Mergers and Other Transactions. Upon the effectiveness of a
Transaction, unless provision is made in connection with the Transaction for the
assumption of a grantee's outstanding Award granted hereunder, or the
substitution of such Award with a new Award of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise and/or repurchase prices, as provided in
Section 10(a) above (the "Assumption"), such Award shall terminate and, if such
Award is a Stock Option, the grantee shall be permitted to exercise such Stock
Option to the extent that it is then vested and exercisable (after giving effect
to the acceleration of vesting provided for in connection with the Transaction,
if any) for a period of at least ten (10) days prior to the date of such
termination; provided that, the exercise of the portion of such Stock Option
that becomes vested and exercisable in connection with the Transaction, if any,
shall be subject to and conditioned upon the effectiveness of the Transaction.
In addition, if no Awards are assumed or substituted for in an Assumption, this
Plan shall terminate upon the effectiveness of such Transaction. In the
Committee's sole and absolute discretion, Award agreements may contain
additional terms and conditions, not inconsistent with the foregoing, that will
apply in the event a Transaction occurs.

     (c) Awards. The Committee may grant Awards under the Plan in substitution
for stock and stock based awards held by employees, directors or consultants of
another company (an "Acquired Company") in connection with a merger or
consolidation of such Acquired Company with the Company (or any Subsidiary) or
the acquisition by the Company (or any Subsidiary) of property or stock of the
Acquired Company. The Committee may direct that the substitute Awards be granted
on such terms and conditions as the Committee considers appropriate in the
circumstances. Any substitute Awards granted under the Plan shall not count
against the share limitation set forth in Section 3(a) above.

     (d) Dissolution or Liquidation. Upon the effectiveness of a dissolution or
liquidation of the Company, any outstanding Stock Options issued under the Plan
shall be terminated if not exercised prior to such event.

SECTION 11. AMENDMENTS AND TERMINATION

     The Board may, at any time, amend or discontinue the Plan, but no such
action shall adversely affect rights under any outstanding Award without the
holder's consent unless required: (i) to ensure that a Stock Option is treated
as an Incentive Stock Option, or (ii) to comply with applicable law. Except as
herein provided, no such action of the Board, unless taken with the approval of
the stockholders of the Company, may: (a) increase the maximum number of shares
of Stock for which Awards granted under this Plan may be issued including annual
increases under Section 3(c) and limits on Restricted Stock Awards and Stock
Bonus Awards under Section 3(a) (except by operation of Section 10(a)); (b) the
maximum number of shares of Stock that may be issued to a person under Section
4; (c) alter the class of employees eligible to receive Incentive Stock Options
under the Plan; or (d) amend the Plan in any other

                                       12



manner which the Board, in its discretion, determines would require the approval
of the stockholders under any applicable law, rule or regulation to become
effective even though such stockholder approval is not expressly required by
this Plan. No termination or amendment of the Plan shall affect any outstanding
Award unless expressly provided thereby or hereunder or as determined by the
Board. Nothing in this Section 11 shall limit the Board's or Committee's
authority to take any action permitted pursuant to Section 10(b). The Plan shall
continue in effect until the earlier of: (i) the tenth anniversary of the
Board's adoption of the Plan, or (ii) the date on which all of the shares of
Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the Option
Agreements and Restricted Stock Agreements covering such shares have lapsed.

SECTION 12. STATUS OF PLAN

     With respect to the portion of any Award that has not been exercised and
any payments in cash, Stock or other consideration payable under any Award which
is not received by a grantee, a grantee shall have no rights greater than those
of a general creditor of the Company unless the Committee shall otherwise
expressly determine in connection with any such Award.

SECTION 13. GENERAL PROVISIONS

     (a) No Distribution; Compliance with Legal Requirements. The grant of
Awards and the issuance of shares of Stock pursuant thereto shall be subject to
compliance with all applicable requirements of federal, state and local law with
respect to such securities. Options may not be exercised if the issuance of
shares of Stock upon exercise would constitute a violation of any applicable
federal or state securities laws or other laws or regulations or the
requirements of any stock exchange or market system upon which the Stock may
then be listed. In addition, no Option may be exercised unless: (a) a
registration statement under the Act shall at the time of exercise of the Option
be in effect with respect to the shares of Stock issuable upon exercise of the
Option, or (b) the shares of Stock issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Act. The inability of the Company to obtain
from any regulatory body having jurisdiction the authority, if any, deemed by
Company's legal counsel to be necessary for the lawful issuance and sale of any
shares hereunder shall relieve the Company of any liability in respect of the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained. As a condition to the exercise of any Option, the
Company may require the grantee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.

     (b) Delivery of Stock Certificates. Stock certificates issued under this
Plan shall be deemed delivered for all purposes when delivered in person or when
the Company or a stock transfer agent of the Company shall have mailed such
certificates by U.S. mail, addressed to the grantee, at the grantee's last known
address on file with the Company. All Stock certificates delivered under the
Plan are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal, state, local or
foreign laws, rules and regulations and the rules of the NYSE or any national
securities exchange or

                                       13



automated quotation system on which the Stock is listed, quoted or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock. In addition to the terms and conditions provided
herein, the Committee may require that a grantee make such reasonable covenants,
agreements and representations as the Committee, in its discretion, deems
advisable in order to comply with any such laws, rules and regulations.

     (c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Committee from adopting other or
additional compensation arrangements and such arrangements as may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any grantee any right to
continued employment or service with the Company or any Subsidiary or interfere
in any way with the right of the Company or any Subsidiary to terminate the
grantee's employment or service at any time.

     (d) Compensation, Severance and Other Benefits. Awards granted under the
Plan shall not be considered part of any grantee's ordinary salary for purposes
of pension benefits, severance, redundancy, resignation or any other purpose. If
a grantee's Service Relationship is terminated for any reason, the grantee shall
not be entitled to damages for breach of contract, dismissal or compensation for
loss of office and shall not be entitled to any other sum, shares or other
benefits to compensate for the loss or diminution in value of any actual or
prospective rights, benefits or expectations under or in relation to the Plan.

     (e) Trading Policy Restrictions. Stock received pursuant to this Plan or
upon exercise of an Award under the Plan shall be subject to any insider trading
policy-related restrictions, terms and conditions as may be established by the
Committee or in accordance with policies set by the Committee from time to time.

     (f) Conflict with Agreement, Notice. In the event of a conflict between the
terms and provisions of this Plan and the terms and provisions of any agreement
to issue an Award, the terms and provisions of this Plan shall govern.

SECTION 14. EFFECTIVE DATE

     This Plan shall be effective on the date (the "Effective Date") immediately
prior to the effectiveness of the Reincorporation Merger. All references to the
number of type of shares under the Plan, including but not limited to (x) the
maximum number of shares reserved for issuance under the Plan, including annual
increases under Section 3(c) and limits on Restricted Stock Awards and Stock
Bonus Awards under Section 3(a), and the maximum number of shares of Stock that
may be issued to a person under Section 4, shall be adjusted to take into
account changes in capital structure due to the Reincorporation Merger as
provided under Section 10(a). Notwithstanding the effectiveness of the
Reincorporation Merger, the Committee may only grant Awards on or after the
Company's Initial Public Offering.




                                       14



SECTION 15. GOVERNING LAW; CONSENT TO JURISDICTION

     This Plan and all Awards and actions taken thereunder shall be governed by
the laws of the State of California applied without regard to the conflict of
laws principles thereof. Any action, suit or proceeding to enforce the terms and
provisions of this Plan or to resolve any dispute or controversy arising under
or in any way relating to this Plan may be brought in the state courts of the
State of California and the parties hereto hereby consent to the jurisdiction of
such courts.

ADOPTED BY THE BOARD OF DIRECTORS: July 25, 2002

APPROVED BY THE STOCKHOLDERS:      July 31, 2002




                                       15

                                                                   EXHIBIT 10.14

                             MOLINA HEALTHCARE, INC.

                        2002 EMPLOYEE STOCK PURCHASE PLAN

     1. Establishment of Plan. Molina Healthcare, Inc. (the "Company") proposes
to grant options to purchase shares of the Company's common stock, $0.001 par
value per share (the "Common Stock"), to eligible employees of the Company and
its Participating Affiliates (as defined below) pursuant to this Employee Stock
Purchase Plan (this "Plan"). For purposes of this Plan, "Parent Corporation" and
"Subsidiary Corporation" shall have the same meanings as "parent corporation"
and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code"). "Participating
Affiliates" are Parent Corporations or Subsidiary Corporations that the Board of
Directors of the Company (the "Board") designates from time to time as
corporations that shall participate in this Plan. Affiliates may be designated
as Participating Affiliates either before or after this Plan is approved by the
Company's stockholders as provided in Section 22. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 15,000 shares of the Common Stock are reserved for issuance under this
Plan. As of the last day of each fiscal year of the Company, the number of
shares of Common Stock reserved for issuance under the Plan shall be increased
by one percent of the issued and outstanding shares of Common Stock immediately
after the end of such fiscal year, but in no event shall the total number of
shares of Common Stock reserved for issuance exceed 55,000 shares. For purposes
of clarification, all references to the number of shares reserved for issuance
hereunder shall be construed to refer to the number of shares of the Company
prior to the effectiveness of the merger contemplated by that certain Agreement
of Merger between the Company and Molina Healthcare, Inc., a Delaware
corporation, as amended (the "Reincorporation Merger").

     2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Affiliates with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Affiliates, and to provide an incentive for continued employment.

     3. Administration

     (a) This Plan shall be administered by the Compensation Committee of the
Board (the "Committee"). Subject to the provisions of this Plan and the
limitations of Section 423 of the Code or any successor provision in the Code,
all questions of interpretation or application of this Plan shall be determined
by the Committee in its sole discretion and its decisions shall be final and
binding upon all participants. Members of the Committee shall receive no
compensation for their services in connection with the administration of this
Plan, other than standard fees as established from time to time by the



Board for services rendered by Board members serving on Board committees. All
expenses incurred in connection with the administration of this Plan shall be
paid by the Company.

     (b) The Committee may, from time to time, consistent with the Plan and the
requirements of Section 423 of the Code, establish, change or terminate such
rules, guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper administration
of the Plan, including, without limitation: (a) a minimum payroll deduction
amount required for participation in an Offering Period, (b) a limitation on the
frequency or number of changes permitted in the rate of payroll deduction during
an Offering Period, (c) a payroll deduction greater or less than the amount
designated by a participant in order to adjust for the Company's delay or
mistake in processing an Enrollment Form or in otherwise effecting a
participant's election under the Plan or as advisable to comply with the
requirements of Section 423 of the Code, (d) determination of the date and
manner by which the Fair Market Value of the Common Stock is determined for
purposes of administration of the Plan, (e) delegate responsibility for Plan
operation, management and administration, subject to the Committee's oversight
and control, on such terms as the Committee may establish, and (f) delegate to
other persons the responsibility for performing appropriate functions as
necessary, desirable or appropriate to further the purposes of this Plan.

     4. Eligibility. Any individual employed by the Company or the Participating
Affiliates on the "Offering Date" of an "Offering Period" (each as defined in
Section 5 below) is eligible to participate in such Offering Period except the
following:

     (a) employees who are customarily employed for twenty (20) hours or less
per week; and

     (b) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Affiliates or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined power or value of all classes of stock of the Company or any of its
Participating Affiliates; and

     (c) individuals who provide services to the Company or any of its
Participating Affiliates as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.

     5. Offering Periods. The offering periods of this Plan (each, an "Offering
Period") shall be of six (6) months duration commencing on January 1 and July 1
of the Company's fiscal year; provided, however, that the first such Offering
Period shall commence on the date (the "IPO Date") of the first fully
underwritten, firm commitment public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, other than
on Forms S-4 or S-8 or their then equivalents, covering the

                                       2



offer and sale by the Company of its equity securities or such other events as a
result of or following which the Common Stock shall be publicly held (the
"Initial Public Offering") and shall end on December 31, 2003 (the "First
Offering Period"). The first day of each Offering Period is referred to as the
"Offering Date." The last day of each Offering Period is referred to as the
"Purchase Date." The Committee shall have the power to change the Offering Dates
or Purchase Dates and the duration of Offering Periods without stockholder
approval if such change is announced prior to the start of the relevant Offering
Period, or prior to such other time period as specified by the Committee;
provided, however, that no Offering Period may have a duration exceeding
twenty-seven (27) months. If the first or last day of an Offering Period is not
a day on which the New York Stock Exchange is open for trading, the Company
shall specify the trading day that will be deemed the first or last day, as the
case may be, of the Offering Period.

     6. Participation in this Plan. An employee may participate during an
Offering Period on the first Offering Date after such employee satisfies the
eligibility requirements set forth in Section 4 above and delivers an enrollment
form in substantially the form attached hereto as Exhibit A (the "Enrollment
Form") to the Company prior to such Offering Date, or such other time period as
specified by the Committee; provided, however, that: the Company will
automatically enroll on the IPO Date all employees eligible to participate in
the Plan as determined under Section 4 as of such date, and such eligible
employees shall be deemed to have completed an Enrollment Form specifying a
contribution rate to the Plan equal to ten percent (10%) of each such employee's
"Compensation" (as defined in Section 9 below). Notwithstanding the foregoing,
the Committee may set a later time for filing the Enrollment Form authorizing
payroll deductions for all eligible employees with respect to a given Offering
Period. An eligible employee who does not timely deliver an Enrollment Form to
the Company after becoming eligible to participate in such Offering Period shall
not participate in that Offering Period or any subsequent Offering Period until
filing an Enrollment Form with the Company prior to the applicable Offering
Date, or such other time period as specified by the Committee. Once an employee
becomes a participant in an Offering Period, such employee will automatically
participate in the Offering Period commencing immediately following the last day
of the prior Offering Period unless the employee withdraws or is deemed to
withdraw from this Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. A participant who has not otherwise
withdrawn from this Plan under Section 11 is not required to file any additional
Enrollment Form in order to continue participation in this Plan. However a
participant may deliver a new Enrollment Form for a subsequent Offering Period
in accordance with the procedures set forth in this Section 6 if the participant
wishes to change any of the elections contained in the participant's then
effective Enrollment Form.

     7. Grant of Option on Enrollment. Enrollment by an eligible employee in an
Offering Period under this Plan will constitute the grant (as of the Offering
Date for such Offering Period) by the Company to such employee of an option to
purchase on the Purchase Date up to that number of shares of Common Stock of the
Company determined by dividing (a) the amount accumulated in such employee's
payroll deduction account during such Offering Period (or, if applicable for
those employees participating in the First Offering Period, the amount of the
lump sum cash payment required to purchase shares

                                       3



pursuant to Sections 6 and 9) by (b) the Per Share Purchase Price as determined
pursuant to Section 8 below (but in no event less than the par value of a share
of Company's Common Stock), provided, however, that the number of shares of the
Company's Common Stock subject to any option granted pursuant to this Plan shall
not exceed the maximum number of shares which may be purchased pursuant to
Section 10 below with respect to the applicable Purchase Date. The Fair Market
Value of a share of the Company's Common Stock shall be determined as provided
in Section 8 below.

     8. Purchase Price. The purchase price per share ("Per Share Purchase
Price") at which a share of Common Stock will be sold in any Offering Period
shall be eighty-five percent (85%) of the lesser of:

     (a) The Fair Market Value on the Offering Date; or

     (b) The Fair Market Value on the Purchase Date.

     For purposes of this Plan, the term "Fair Market Value" of the Common Stock
on any given date means (i) the last reported closing price for a share of Stock
on the New York Stock Exchange or, (ii) in the absence of reported sales on the
New York Stock Exchange on a given date, the closing price of the New York Stock
Exchange on the last date on which a sale occurred prior to such date; or (iii)
if the stock is no longer publicly traded on the New York Stock Exchange, the
Committee in good faith shall determine Fair Market Value; provided that, if the
date for which the Fair Market Value is determined is the first day when trading
prices for the Stock are reported on the New York Stock Exchange, the Fair
Market Value shall be the public offering price set forth on the cover page for
the final prospectus relating to the Company's Initial Public Offering.

     9. Payment of Purchase Price; Changes in Payroll Deductions; Issuance of
Shares.

     (a) The purchase price of the shares shall be accumulated by regular
payroll deductions made during each Offering Period; provided, however, that the
purchase price of the shares for the First Offering Period shall be paid by the
participant in a lump sum cash payment on such Offering Period's Purchase Date
(unless the participant makes an election to commence payroll deductions
pursuant to Section 9(b) below). The deductions are made as a percentage of the
participant's Compensation in one percent (1%) increments not less than one
percent (1%) (except as a result of an election pursuant to Section 9(c) to stop
payroll deductions during an Offering Period), nor greater than fifteen percent
(15%) or such lower limit set by the Committee. "Compensation" shall mean all
W-2 cash compensation, including base salary, wages, commissions, overtime,
shift premiums and bonuses, provided, however, that for purposes of determining
a participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Notwithstanding the
foregoing, Compensation shall not include reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any other compensation not included above. Payroll deductions shall

                                       4



commence on the first payday of the Offering Period and shall continue to the
end of the Offering Period unless sooner altered or terminated as provided in
this Plan; provided, however, that payroll deductions for the First Offering
Period shall only commence if the participant makes an election pursuant to
Section 9(b) below.

     (b) A participant may increase or decrease the rate of payroll deductions
during an Offering Period by filing with the Company a new Enrollment Form, in
which case the new rate shall become effective for the next payroll period
commencing after the Company's receipt of the Enrollment Form and shall continue
for the remainder of the Offering Period unless changed as described below. Such
change in the rate of payroll deductions may be made at any time during an
Offering Period, but not more than one (1) change may be made effective during
any Offering Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Company a new
Enrollment Form prior to the beginning of such Offering Period, or prior to such
other time period as specified by the Committee. Additionally, and
notwithstanding the foregoing, during the First Offering Period, a participant
may only elect to have the purchase price of the shares accumulated by regular
payroll deductions by filing with the Company an Enrollment Form after the IPO
Date and on or before December 31, 2003.

     (c) A participant may reduce his or her payroll deduction percentage to
zero during an Offering Period by filing with the Company a revised Enrollment
Form. Such reduction shall be effective beginning with the next payroll period
after the Company's receipt of the request and no further payroll deductions
will be made for the duration of the Offering Period. Payroll deductions
credited to the participant's account prior to the effective date of the request
shall be used to purchase shares of Common Stock in accordance with Section (e)
below. A participant may not resume making payroll deductions during the
Offering Period in which he or she reduced his or her payroll deductions to
zero.

     (d) All payroll deductions made for a participant are credited to his or
her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.

     (e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a revised Enrollment Form
withdrawing from the Plan before such Purchase Date in accordance with Section
11, the Company shall apply the funds then in the participant's account (or, if
applicable, the lump sum cash payment received from the participant) to the
purchase of whole shares of Common Stock reserved under the option granted to
such participant with respect to the Offering Period to the extent that such
option is exercisable on the Purchase Date. The Per Share Purchase Price shall
be as specified in Section 8. Any cash remaining in such participant's account
on a Purchase Date which is less than the amount necessary to purchase a full
share of Common Stock of the Company shall be carried forward, without interest,
into the next Offering Period. If this Plan has been oversubscribed, all funds
not used to purchase

                                       5



shares on the Purchase Date shall be returned to the participant, without
interest. No Common Stock shall be purchased on a Purchase Date on behalf of any
employee whose participation in this Plan has terminated prior to such Purchase
Date.

     (f) As promptly as practicable after the Purchase Date, the Company shall
issue shares for the participant's benefit representing the shares purchased
upon exercise of his or her option, subject to compliance with Section 24 below.

     (g) During a participant's lifetime, his or her option to purchase shares
hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.

     10. Limitations on Shares to be Purchased.

     (a) No participant shall be entitled to purchase Common Stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Parent
Corporation or Subsidiary Corporation, exceeds $25,000 in Fair Market Value,
determined as of the Offering Date (or such other limit as may be imposed by the
Code) for each calendar year in which the employee participates in this Plan.
The Company shall automatically suspend the payroll deductions of any
participant as necessary to enforce such limit; provided that when the Company
automatically resumes such payroll deductions, the Company must apply the rate
in effect immediately prior to such suspension.

     (b) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Prior to the
commencement of any Offering Period or before such time period as specified by
the Committee, the Committee may, in its sole discretion, set a maximum number
of shares which may be purchased by any employee at any single Purchase Date
(the "Maximum Share Amount"). Until otherwise determined by the Committee, there
shall be no Maximum Share Amount. If a new Maximum Share Amount is set, then all
participants must be notified of such Maximum Share Amount before commencing the
next Offering Period. The Maximum Share Amount shall continue to apply with
respect to all succeeding Purchase Dates and Offering Periods unless revised by
the Committee as set forth above.

     (c) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable.

     (d) Any payroll deductions accumulated in a participant's account which are
not used to purchase stock due to the limitations in this Section 10 shall be
returned to the participant as soon as practicable after the end of the
applicable Offering Period, without interest, provided that, any amount
remaining in such participant's account which is less than the amount necessary
to purchase a full share of Common Stock of the

                                       6



Company shall be carried forward, without interest, into the next Offering
Period or Offering Period.

     11. Withdrawal.

     (a) Each participant may withdraw from an Offering Period under this Plan
by signing and delivering to the Company a revised Enrollment Form indicating
such participant's intention to withdraw. Such withdrawal may be elected at any
time prior to the end of an Offering Period, or such other time period as
specified by the Committee.

     (b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. If a participant voluntarily elects to
withdraw from this Plan, he or she may not resume his or her participation in
this Plan during the same Offering Period, but he or she may participate in any
Offering Period under this Plan commencing after such withdrawal by filing a new
authorization for payroll deductions in the same manner as set forth in Section
6 above for initial participation in this Plan.

     12. Termination of Employment. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Affiliate,
immediately terminates his or her participation in this Plan. In such event, the
payroll deductions credited to the participant's account will be returned to him
or her or, in the case of his or her death, to his or her legal representative,
without interest. For purposes of this Section 12, an employee will not be
deemed to have terminated employment or failed to remain in the continuous
employ of the Company or of a Participating Affiliate in the case of sick leave,
military leave, or any other leave of absence approved by the Board; provided
that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.

     13. Return of Payroll Deductions. If a participant's interest in this Plan
is terminated by withdrawal, termination of employment or otherwise, or if this
Plan is terminated by the Board, the Company shall deliver to the participant
all payroll deductions credited to such participant's account. No interest shall
accrue on the payroll deductions of a participant in this Plan.

     14. Capital Changes. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each option under
this Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under this Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under this Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock
resulting from a stock split or the payment of a stock dividend (but only on the
Common Stock) or any other increase or decrease in the number of issued and
outstanding shares of Common Stock effected without receipt of any consideration
by the Company; provided, however, that conversion of any convertible securities
of the

                                       7



Company shall not be deemed to have been "effected without receipt of
consideration". Notwithstanding the foregoing, any fractional shares resulting
from an adjustment pursuant to this Section 14 shall be rounded down to the
nearest whole number, and in no event may the Per Share Purchase Price be
decreased to an amount less than the par value, if any, of the Common Stock.
Such adjustment shall be made by the Committee, whose determination shall be
final, binding and conclusive. Notwithstanding the foregoing, the required
adjustment under this Section 14 in connection with the effectiveness of the
Reincorporation Merger shall be consistent with the adjustment made to all then
outstanding shares of the Common Stock of the Company.

     In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in its sole discretion in such instances, declare that this Plan shall terminate
as of a date fixed by the Committee and either give each participant the right
to purchase shares under this Plan prior to such termination or return all
accumulated payroll deductions to each participant, without interest. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction
(including pursuant to the Reincorporation Merger), or other transaction in
which there is no substantial change in the stockholders of the Company or their
relative stock holdings, provided that the options under this Plan are assumed,
converted or replaced by the successor corporation, which assumption will be
binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, (each a "Sale Event") the
Company shall apply the funds contributed under the Plan to the purchase of
shares of Common Stock pursuant to the provisions of Section 9 immediately prior
to the effective date of such Sale Event. Notwithstanding the foregoing, the
surviving, continuing, successor or purchasing corporation or parent corporation
thereof (the "Acquiring Corporation"), may elect to assume the Company's rights
and obligations under the Plan and, in that event, there shall be no purchase
before the end of the Offering Period in which the Sale Event occurs.

     The Committee may, if it so determines in its sole discretion, also make
provision for adjusting the share reserve set forth in Section 1, as well as the
price per share of Common Stock covered by each outstanding option, solely in
the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock, or in the event of the Company being
consolidated with or merged into any other corporation; provided, however, that
upon the effectiveness of the Reincorporation Merger, the number of shares set
forth in Section 1 shall be automatically adjusted on the same basis as each
outstanding share of the Common Stock of the Company immediately prior to the
effect of the Reincorporation Merger.

                                       8



     15. Withholding. The participant shall make adequate provision for the
foreign, federal, state and local tax withholding obligations of the Company or
any of its Participating Affiliates, if any, which arise in connection with
participation in the Plan. The Company and its Participating Affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.

     16. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 23 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.

     17. Reports. Individual accounts will be maintained for each participant in
this Plan. Each participant shall receive as soon as practicable after the end
of each Offering Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Offering Period.

     18. Notice of Disqualifying Disposition. Each participant shall notify the
Company in writing if the participant disposes of any of the shares purchased in
any Offering Period pursuant to this Plan if such disposition occurs within two
(2) years from the Offering Date or within one (1) year from the Purchase Date
on which such shares were purchased (the "Notice Period"). The Company may, at
any time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.

     19. No Rights as Stockholder or to Continued Employment. A participant
shall have no rights as a stockholder by virtue of participation in the Plan
until the date of the issuance of a certificate for the shares purchased
pursuant to the exercise of the participant's purchase right (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 14. Neither this Plan
nor the grant of any option hereunder shall confer any right on any employee to
remain in the employ of the Company or any Participating Affiliate, or restrict
the right of the Company or any Participating Affiliate to terminate such
employee's employment at any time.

     20. Equal Rights and Privileges. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the

                                       9



Company, the Committee or the Board, be reformed to comply with the requirements
of Section 423. This Section 20 shall take precedence over all other provisions
in this Plan.

     21. Notices. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

     22. Term; Stockholder Approval. This plan shall be effective on the date
(the "Effective Date") immediately prior to effectiveness of the Reincorporation
Merger. All references to the number or type of shares reserved for issuance
under the Plan shall be adjusted to take into account changes in the Company's
capital structure due to the Reincorporation Merger as provided under Section
14. Notwithstanding the effectiveness of the Reincorporation Merger, no Offering
Period may commence before the IPO Date. This Plan shall continue until the
earlier to occur of (a) termination of this Plan by the Board (which termination
may be effected by the Board at any time), (b) issuance of all of the shares of
Common Stock reserved for issuance under this Plan, or (c) July 24, 2012.

     23. Designation of Beneficiary

     (a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under this
Plan in the event of such participant's death subsequent to the end of any
Offering Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.

     (b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

     24. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or automated quotation
system upon which the shares may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.

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     25. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.

     26. Amendment or Termination of this Plan. The Board may at any time amend,
terminate or extend the term of this Plan, except that (i) any such termination
cannot affect options previously granted under this Plan unless the Board
determines that the termination of the Plan immediately following any Purchase
Date is in the best interests of the Company and its stockholders, (ii) any
amendment may not adversely affect the previously granted purchase right of any
participant unless permitted by the Plan or as may be necessary to qualify the
Plan as an employee stock purchase plan pursuant to Section 423 of the Code or
to obtain qualification or registration of the Common Stock under applicable
federal, state or foreign securities laws, and (iii) any amendment must be
approved by the stockholders of the Company in accordance with Section 2 above
within twelve (12) months of the adoption of such amendment (or earlier if
required by Section 22) if such amendment would:

     (a) increase the number of shares that may be issued under this Plan;

     (b) change the designation of the employees (or class of employees)
eligible for participation in this Plan; or

     (c) any other action taken by the Board that, by its terms, is contingent
on stockholder approval.

     Notwithstanding the foregoing, the Board may make such amendments to the
Plan as the Board determines to be advisable, if the continuation of the Plan or
any Offering Period would result in financial accounting treatment for the Plan
that is different from the financial accounting treatment in effect on July 23,
2002.

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