S-1: General form of registration statement for all companies including face-amount certificate companies

Published on October 9, 2001


Exhibit 10.4


TDH Document No.___________________




1999

CONTRACT FOR SERVICES

Between

THE TEXAS DEPARTMENT OF HEALTH

And

HMO

El Paso Service Area HMO Contract

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TABLE OF CONTENTS

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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




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v


APPENDICES

APPENDIX A
Standards for Quality Improvement Programs

APPENDIX B
HUB Progress Assessment Reports

APPENDIX C
Scope of Services

APPENDIX D
Family Planning Providers

APPENDIX E
Transplant Facilities

APPENDIX F
Trauma Facilities

APPENDIX G
Hemophilia Treatment Centers And Programs

APPENDIX H
Utilization Management Report - Behavioral Health

APPENDIX I
Managed Care Financial - Statistical Report

APPENDIX J
Utilization Management Report - Physical Health

APPENDIX K
Preventive Health Performance Objectives

APPENDIX L
Cost Principals for Administrative Expenses

APPENDIX M
Required Critical Elements

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vi


1999

CONTRACT FOR SERVICES

Between

THE TEXAS DEPARTMENT OF HEALTH

And

HMO

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

ARTICLE I PARTIES AND AUTHORITY TO CONTRACT

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE II DEFINITIONS

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

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

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

Adjudicate means to deny or pay a clean claim.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Day means a calendar day unless specified otherwise.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HCFA means the federal Health Care Financing Administration.

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

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

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

JCAHO means Joint Accreditation of Health Care Organizations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MIS means management information system.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Special hospital means an establishment that:

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

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

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

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

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

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

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

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

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

THHSC means the Texas Health and Human Services Commission.

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

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

THSteps means Texas Health Steps.

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

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

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

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

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

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

ARTICLE III PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

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

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

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

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

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

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.3.1.6 Oversight responsibility for medically related complaints.

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

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

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


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

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

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

3.4.2.2 translated into the language of any major population group.

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

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

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

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

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


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

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

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

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

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

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

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


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

ARTICLE IV FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

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

4.4 INSURANCE

---------

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

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

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

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

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

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

4.6 AUDIT
-----

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


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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.11 INDEMNIFICATION

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

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

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

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

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

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

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS


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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

ARTICLE VI SCOPE OF SERVICES

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

6.7.4.1 general benefits of family planning services and contraception;

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.9.4.1 48 hours following an uncomplicated vaginal delivery; and

6.9.4.2 96 hours for an uncomplicated caesarian delivery.

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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6.13.9.1 Participate in hospital discharge planning;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.16.2.1 Prior authorization of services;

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

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

6.16.2.4 Health education;

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

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

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

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

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

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

ARTICLE VII PROVIDER NETWORK REQUIREMENTS

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

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

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

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

7.1.3.1 Urgent Care within 24 hours of request;

7.1.3.2 Routine care within 2 weeks of request;

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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


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7.3.5.3 whether stop-loss protection is provided; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The providers in HMO network must meet the following qualifications:

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

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


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

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

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

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


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

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

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

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

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

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

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

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

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

El Paso Service Area HMO Contract

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

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

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

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

Acceptable:

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

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

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

Unacceptable:

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

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

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

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

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

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

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

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


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

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

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

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

7.9.1 One well-woman examination per year;

7.9.2 Care related to pregnancy;

7.9.3 Care for all active gynecological conditions; and


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

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

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

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

7.10.3 HMO must ensure availability and accessibility to appropriate
specialists.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.14.1.2 are Significant Traditional Providers.

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

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

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

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

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

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

------

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

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

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

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

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

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

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

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

7.16.1.2 Confidential HIV Testing (see Article 6.15);

7.16.1.3 Immunizations (see Article 6.8.9); and

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


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

7.16.2.1 Family Planning Services (see Article 6.7);

7.16.2.2 THSteps checkups (see Article 6.8); and

7.16.2.3 Prenatal services.

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

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

7.16.3.2 Public Health Entity Responsibilities:

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

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

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

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

7.16.3.3 HMO Responsibilities:


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

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

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

7.16.4 Non-Reimbursed Arrangements with Public Health Entities

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

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

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

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

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

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

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

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

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

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

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

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

(4) Referral for WIC services and information sharing;

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

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

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

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

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

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

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

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

--------

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

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

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

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

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

7.17.5.1 providing medical records;

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

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

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

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

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

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


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

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

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

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

7.18.1.6 HMO must include this contract as an attachment to any IPA contract
for Medicaid managed care services.

7.18.2 HMO cannot delegate claims payment to an IPA, even under a capitated
partial or full-risk arrangement. This provision does not apply to a
limited healthcare service plan, a single healthcare service plan or
a basic healthcare service plan.

7.18.3 In addition to the mandatory provisions for all subcontracts under
Articles 3.2 and 7.2, all HMO/IPA contracts must include the
following mandatory standard provisions:

7.18.3.1 HMO is required to include subcontract provisions in its IPA
contracts which require the UM protocol used by an IPA to produce
substantially similar outcomes, as approved by TDH, as the UM
protocol employed by the contracting HMO. The responsibilities of an
HMO in delegating UM functions to an IPA will be governed by Article
16.11.

7.18.3.2 The IPA must comply with the same encounter, utilization, quality,
and financial reporting requirements as HMO under this contract. The
IPA must comply with the same report filing timelines and include
the same information and use the same format as HMO under this
contract.

7.18.3.3 The IPA must comply with the same records retention and production
requirements as HMO under this contract, including Public
Information requests.

7.18.3.4 The IPA is subject to the same marketing restrictions and
requirements as HMO under this contract.

7.18.3.5 HMO is responsible for ensuring that IPAs comply with the
requirements and provisions of the TDH/HMO contract. TDH will impose
appropriate sanctions and remedies upon HMO for any default under
the TDH/HMO contract which is caused directly or indirectly by the
acts or omissions of the IPA. Sanctions imposed by TDH upon HMO
cannot be passed through or recouped from the IPA or network

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providers unless specifically allowed by TDH in the Notice of
Default and the pass through or recoupment is disclosed as an
HMO/IPA contract provision.

7.18.4 HMO cannot enter into contracts with IPAs to provide services under
this contract which require the participating providers to enter
into exclusive contracts with the IPA as a condition for
participation in the IPA.

7.18.4.1 Article 7.18.4 does not apply to providers who are employees or
participants in limited or closed panel provider networks.

7.18.5 All limited provider or closed panel IPA networks with whom HMO
contracts must either independently meet the access provisions of 28
Texas Administrative Code ss.11.1607, relating to access
requirements, or HMO must provide for access through other network
providers outside the closed panel IPA.

7.18.6 HMO cannot delegate to an IPA the enrollment, reenrollment,
assignment or reassignment of a Member.

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

7.18.8 HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
RESPONSIBILITY OR SERVICE IS CONTRACTED OR DELEGATED TO ANOTHER. HMO
MUST PROVIDE A COMPLETE COPY OF THIS CONTRACT TO ANY PROVIDER
NETWORK OR GROUP WITH WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE
SERVICES ON A RISK SHARING OR CAPITATED BASIS OR TO PROVIDE HEALTH
CARE SERVICES OTHER THAN MEDICAL CARE SERVICE OR ANCILLARY SERVICES.

ARTICLE VIII MEMBER SERVICES REQUIREMENTS


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

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

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


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8.2.1 HMO must mail each Member a Member Handbook within five (5) days
from the date that the Member's name appears on the Enrollment
Report. The Member Handbook must be written at a 4th - 6th grade
reading comprehension level. The Member Handbook must contain all
critical elements specified by TDH. See Appendix M, Required
Critical Elements, for specific details regarding content
requirements. HMO must submit a Member Handbook to TDH for approval
not later than 90 days before the Implementation Date (see Article
3.4.1 regarding the process for plan materials review).

8.2.2. Member Handbook Updates. HMO must provide updates to the Handbook to
all Members as changes are made to the above policies. HMO must make
the Member Handbook available in the languages of the major
population groups and in a format accessible to blind or visually
impaired Members.

8.2.3 THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED BY
TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS.

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

8.3.1 Federal Law requires HMOs and providers to maintain written policies
and procedures for informing and providing written information to
all adult Members about their rights under state and federal law, in
advance of their receiving care (Social Security Act ss.1902(a)(57)
and ss.1903(m)(1)(A)). The written policies and procedures must
contain procedures for providing written information regarding the
Member's right to refuse, withhold or withdraw medical treatment
advance directives. HMO's policies and procedures must comply with
provisions contained in 42 CFR ss.434.28 and 42 CFR ss.489, SubPart
I, relating to advance directives for all hospitals, critical access
hospitals, skilled nursing facilities, home health agencies,
providers of home health care, providers of personal care services
and hospices, as well as the following state laws and rules:

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

8.3.1.2 the Member's rights under the Natural Death Act (Texas Health and
Safety Code, Chapter 672) to execute an advance written Directive to
Physicians, or to make a non-written directive regarding their right
to withhold or withdraw life sustaining procedures in the event of a
terminal condition;

8.3.1.3 the Member's rights under Texas Health and Safety Code, Chapter 674,
relating to written and non-written Out-of-Hospital
Do-Not-Resuscitate Orders;

8.3.1.4 the Member's right to execute a Durable Power of Attorney for Health
Care regarding their right to appoint an agent to make medical
treatment decisions on their behalf

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if the member becomes incapacitated (Civil Practice and Remedies
Code, Chapter 135); and

8.3.1.5 HMO's policies for implementing a Member's advance directives,
including a clear and concise statement of limitations if HMO or a
participating provider cannot or will not be able to carry out a
Member's advance directive.

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

8.3.2.1 clarify any differences between HMO's conscience objections and
those which may be raised by the Member's PCP or other providers;

8.3.2.2 identify the state legal authority permitting HMO's conscience
objections to carrying out an advance directive; and

8.3.2.3 describe the range of medical conditions or procedures affected by
the conscience objection.

8.3.3 The policies and procedures must require HMO and Subcontractor to
comply with the requirements of state and federal laws relating to
advance directives. HMO must provide education and training to
employees, Members and the community on issues concerning advance
directives. HMO must submit a copy of its policies and procedures
for TDH review and approval during Phase I of Readiness Review.

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

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

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

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

8.4.2 HMO must issue a Member Identification Card to the Member within
five (5) days from receiving notice of enrollment of the Member into
HMO. The Member

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Identification Card must include, at a minimum, the following:
Member's name; Member's Medicaid number, the effective date of the
card; PCP's name, address, and telephone number; name of HMO; name
of IPA to which the Member's PCP belongs, if applicable; the
24-hour, seven (7) day a week toll-free telephone number operated by
HMO; the toll-free number for behavioral health services; and
directions for what to do in an emergency. Identification Card must
be reissued if the Member reports a lost card, there is a Member
name change, if Member requests a new PCP, or for any other reason
which results in a change to the information disclosed on the
Identification Card.

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

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

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

8.6.1 HMO must develop, implement and maintain a Member complaint system
that complies with the requirements of Article 20A.12 of the Texas
Insurance Code, relating to the Complaint System, except where
otherwise provided in this contract or in federal law.

8.6.2 HMO must have written policies and procedures for taking, tracking,
reviewing, and reporting and resolving of member complaints. The
procedures must be reviewed and approved in writing by TDH before
Phase I of Readiness Review. Any amendments to the procedures must
be submitted to TDH for approval thirty (30) days prior to the
effective date of the amendment.

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

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

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

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

8.6.7 HMO's process must include a requirement that the Governing Body of
HMO reviews the written records (logs) for complaints and appeals.
An officer of HMO must be designated to have direct responsibility
for the complaint system.

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

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

8.6.10 If a complaint relates to the denial, delay, reduction, termination
or suspension of covered services by either HMO or a utilization
review agent contracted to perform utilization review by HMO, HMO
must inform Members they have the right to access the TDH Fair
Hearing process at any time in lieu of the internal complaint system
provided by HMO. HMO is required to comply with the notice
requirements contained in 25 TAC Chapter 36, relating to notice and
Fair Hearings in the Medicaid program, whenever an action is taken
to deny, delay, reduce, terminate or suspend a covered service.

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

8.6.12 The provisions of Article 21.58A, Texas Insurance Code, relating to
a Member's right to appeal an adverse determination made by HMO or a
utilization review agent by an independent review organization, do
not apply to a Medicaid recipient. Federal fair hearing regulations
(Social Security Actss.1902a(3), codified at 42 C.F.R. 431.200 et.
seq.) require the agency to make a final decision after a Fair
Hearing,


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which conflicts with the State requirement that the IRO make a final
decision. Therefore, the State requirement is pre-empted by the
federal requirement.

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

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

8.6.15 HMO must provide Member Advocates to assist Members in understanding
and using HMO's complaint system.

8.6.16 HMO's Member Advocates must assist Members in writing or filing a
complaint and monitoring the complaint through the Contractor's
complaint process until the issue is resolved.

8.6.17 Member Advocates must file a Member Advocate Report of their review
and participation in the complaint procedure for each complaint
brought by a Member and a summary of each complaint resolution. A
copy of the Member Advocate Report must be included in HMO's
quarterly report (see Article 12.6).

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

8.7.1 HMO must send Members the notice required by 25 TAC, Chapter 36,
whenever HMO takes an action to deny, delay, reduce or terminate
covered services to a Member. The notice must be mailed to the
Member no less than 10 days before HMO intends to take an action. If
an emergency exists, or if the time within which the service must be
provided makes giving 10 days notice impractical or impossible,
notice must be provided by the most expedient means reasonably
calculated to provide actual notice to the Member, including by
phone or through the provider's office.

8.7.2 The notice must contain the following information:

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

8.7.2.2 a statement of the action HMO will take;

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

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


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

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

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

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

8.7.2.9 a statement that if the Member wants a TDH Fair Hearing on the
action, Member must make the request for a Fair Hearing within 90
days of the date on the notice;

8.7.2.10 an explanation that the Member may request that resolution through
HMO complaint process or TDH Fair Hearing be conducted based on
written information without the necessity of taking oral testimony;
and

8.7.2.11 a statement explaining that HMO must make a decision, or a final
decision must be made by TDH, within 90 days from the date the
complaint is filed or a Fair Hearing requested.

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

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

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

8.8.3 Member Advocates are responsible for making recommendations to
management on any changes needed to improve either the care provided
or the way care is delivered. Member Advocates are also responsible
for helping or referring Members to community resources available to
meet Member needs that are not available from HMO as Medicaid
covered services.

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8.8.4 Member Advocates must provide outreach to Members and participate in
TDH-sponsored enrollment activities and participate in the Group
Needs Assessment process.

8.8.5 HMO must designate an individual to act as the tribal liaison with
the Tigua Indians. This individual must be qualified to represent
the interests of the Tigua Indian tribe. HMO-designated individual
must attend cultural competency training as provided by the tribe. A
Member Advocate of HMO could serve this function.

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

8.9.1 Linguistic Services and Cultural Competency Plan. HMO must have a
comprehensive written Linguistic Services and Cultural Competency
Plan describing how HMO will meet the linguistic and cultural needs
of Members. The Plan must describe how the individuals and systems
within HMO will effectively provide services to people of all
cultures, races, ethnic backgrounds, and religions in a manner that
recognizes, values, affirms, and respects the worth of the
individuals and protects and preserves the dignity of each. HMO must
submit a written plan to TDH not later than 90 days prior to the
Implementation Date. The Plan must also be made available to HMO's
network of providers.

8.9.2 HMO must develop and implement written policies and procedures for
the provision of linguistic services following Title VI of the Civil
Rights Act guidelines and must monitor the performance of the
individuals who provide linguistic services. HMO must disseminate
these policies and procedures to ensure that both Staff and
Subcontractors are aware of their responsibilities under Title VI.

8.9.3 The Linguistic Services and Cultural Competency Plan must include
but no be limited to the following:

8.9.3.1 A description of how HMO will educate its staff on linguistic and
cultural needs and the characteristics of its Members:

8.9.3.2 A description of how HMO will implement the plan in its
organization, including the designation of staff responsible for
carrying out all portions of the Linguistic Services and Cultural
Competency Plan;

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

8.9.3.4 A description of how HMO will assist Members in writing/filing a
complaint and monitoring the complaint through the Contractor's
complaint process until the issue is resolved;

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8.9.3.5 Recommendations to HMO management on any changes needed to improve
either the care provided or the way care is delivered;

8.9.3.6 A description of how HMO will provide outreach to Members and
participate in TDH-sponsored enrollment activities;

8.9.3.7 A description of how HMO will help Members access community health
or social services resources that are not covered under the contract
with TDH; and

8.9.3.8 A description of how HMO will participate in the Group Needs
Assessment process.

8.9.4 HMO must provide the following types of linguistic services;
interpreters, translated signage, and referrals to culturally and
linguistically appropriate community services programs.

8.9.5 HMO must forward all approved English versions of materials to DHS
for DHS to translate into Spanish. DHS must provide the written and
approved translation into Spanish to HMO within 15 days from receipt
of the English version. HMO must incorporate the approved
translations into all materials distributed to Members. TDH reserves
the right to require revisions to materials if inaccuracies are
discovered, or if changes are required by changes in policy or law.

8.9.6 Interpreter Services. HMO must provide trained, professional
interpreters when technical, medical, or treatment information is to
be discussed.

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

8.9.6.2 HMO must have in place policies and procedures that outline how
Members can access face-to-face interpreter services in a provider's
office if necessary to ensure the availability of effective
communication regarding treatment, medical history or health
education for a Member.

8.9.6.3 A current copy of the list of interpreters must be provided to each
provider in HMO's provider network and updated as necessary. This
list must be available to Members and TDH or its agent(s) upon
request. A competent interpreter is defined a someone who is:

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8.9.6.3.1 proficient in both English and the other language;

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

8.9.6.3.3 has fundamental knowledge in both languages of any specialized
medical terms and concepts.

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

8.9.6.5 Family Members, especially minor children, should not be used as
interpreters in assessments, therapy or other medical situations in
which impartiality and confidentiality are critical, unless
specifically requested by the Member. However, a family member or
friend may be used as an interpreter if they can be relied upon to
provide a complete and accurate translation of the information being
provided to the Member; the Member is advised that a free
interpreter is available; and the Member expresses a preference to
rely on the family member or friend.

8.9.7 All Member orientation presentations and education classes must be
conducted in the languages of the major population groups, as
specified by TDH, in the service area(s) as the identified need
arises.

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

ARTICLE IX MARKETING AND PROHIBITED PRACTICES

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

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

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

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

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

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

9.3.1.1 conducting any direct-contact marketing to prospective Members
except through TDH-sponsored enrollment events;

9.3.1.2 making any written or oral statement containing material
misrepresentations of fact or law relating to HMO's plan or the STAR
program;

9.3.1.3 making false, misleading or inaccurate statements relating to
services or benefits of HMO or the STAR program;

9.3.1.4 offering prospective Members anything of material or financial value
as an incentive to enroll with a particular PCP or HMO; and

9.3.1.5 discriminating against an eligible Member because of race, creed,
age, color, sex, religion, national origin, ancestry, marital
status, sexual orientation, physical or mental handicap, health
status, or requirements for health care services.

9.3.2 HMO may offer nominal gifts with a retail value of no more than $10
and/or free health screens to potential Members, as long as these
gifts and free health screenings are offered whether or not the
client enrolls in their HMO. Free health screenings cannot be used
to discourage less healthy potential Members from joining the HMO.
All gifts must be approved by TDH prior to distribution to Members.
The results of free screenings must be shared with the Member's PCP
if the Member enrolls with the HMO providing the screen.

9.3.3 Marketing representatives may not conduct or participate in
marketing activities for more than one HMO.

9.4 NETWORK PROVIDER DIRECTORY
--------------------------

9.4.1 HMO must submit a provider directory to TDH no later than 180 days
prior to the Implementation Date. HMO must provide the provider
directory to the Enrollment Broker for prospective members. The
directory must contain all critical elements specified by TDH. See
Appendix M, Required Critical Elements, for specific details
regarding content requirements.

9.4.2 If HMO contracts with limited provider networks, the provider
directory must comply with the requirements of 28 TAC
11.1600(b)(11), relating to the disclosure and notice of limited
provider networks.

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9.4.3 Updates to the provider directory must be provided to the Enrollment
Broker at the beginning of each State fiscal year quarter. This
includes the months of September, December, March and June. HMO is
responsible for submitting draft updates to TDH only if changes
other than PCP information are incorporated. HMO is responsible for
sending five final copies of the updated provider directory to TDH
each quarter. TDH will forward two updated provider directories,
along with its approval notice, to the Enrollment Broker to
facilitate their distribution.

ARTICLE X MIS SYSTEM REQUIREMENTS

10.1 MODEL MIS REQUIREMENTS
----------------------

10.1.1 HMO must maintain a MIS that will provide support for all functions
of HMO's processes and procedures related to the flow and use of
data within HMO. The MIS must enable HMO to meet the requirements of
this contract. The MIS must have the capacity and capability of
capturing and utilizing various data elements to develop information
for HMO administration.

10.1.2 HMO must maintain a claim retrieval service processing system that
can identify date of receipt, action taken on all provider claims or
encounters (i.e., paid, denied, other), and when any action was
taken in real time.

10.1.3 HMO must have a system that can be adapted to the change in Business
Practices/Policies within a short period of time.

10.1.4 HMO is required to submit and receive data as specified in this
contract and HMO Encounter Data Submissions Manual. The MIS must
provide complete encounter data for 100% of all capitated services
within the scope of services of the contract between HMO and TDH.
Encounter data must follow the format, data elements and method of
transmission specified in the contract and HMO Encounter Data
Submissions Manual. HMO must submit encounter data, including
adjustments to encounter data, by the 10th day of each month. The
Encounter transmission will include 100% of all encounter data and
encounter data adjustments processed by HMO for the previous month.
Data quality validation will incorporate assessment standards
developed jointly by HMO and TDH. Original records will be made
available for inspection by TDH for validation purposes. Data which
do not meet quality standards must be corrected and returned within
a time period specified by TDH.

10.1.5 HMO must use the procedure codes, diagnosis codes, and other codes
used for reporting encounters and fee-for-service claims in the most
recent edition of the Medicaid Provider Procedures Manual or as
otherwise directed by TDH. Any


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exceptions will be considered on a code-by-code basis after TDH
receives written notice from HMO requesting an exception. HMO must
also use the provider numbers as directed by TDH for both encounter
and fee-for-service claims submissions.

10.1.6 HMO must have hardware, software, network and communications system
with the capability and capacity to handle and operate all MIS
subsystems.

10.1.7 HMO must provide an organizational chart and description of
responsibilities of HMO's MIS department dedicated to or supporting
this Contract by Phase I of Readiness Review. Any updates to the
organizational chart and the description of responsibilities must be
provided to TDH at least 30 days prior to the effective date of the
change. Official points of contact must be provided to TDH on an
on-going basis. An Internet E-mail address must be provided for each
point of contact.

10.1.8 HMO must operate and maintain a MIS that meets or exceeds the
requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1 The Contractor's system must be able to meet all eight MIS Model
Guidelines as listed below. The eight subsystems are used in the
Model MIS Requirements to identify specific functions or features
required by HMO's MIS. These subsystems focus on the individual
systems functions or capabilities to support the following
operational and administrative areas:

(1) Enrollment/Eligibility Subsystem

(2) Provider Subsystem

(3) Encounter/Claims Processing Subsystem

(4) Financial Subsystem

(5) Utilization/Quality Improvement Subsystem

(6) Reporting Subsystem

(7) Interface Subsystem

(8) TPR Subsystem

10.2 SYSTEM-WIDE FUNCTIONS
---------------------

HMO MIS system must include functions and/or features which must
apply across all subsystems as follows:

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(1) Ability to update and edit data.

(2) Maintain a history of changes and adjustments and audit
trails for current and retroactive data. Audit trails will
capture date, time, and reasons for the change, as well as
who made the change.

(3) Allow input mechanisms through manual and electronic
transmissions.

(4) Have procedures and processes for accumulating, archiving,
and restoring data in the event of a system or subsystem
failure.

(5) Maintain automated or manual linkages between and among all
MIS subsystems and interfaces.

(6) Ability to relate Member and provider data with utilization,
service, accounting data, and reporting functions.

(7) Ability to relate and extract data elements into summary and
reporting formats attached as Appendices to contract.

(8) Must have written process and procedures manuals which
document and describe all manual and automated system
procedures and processes for all the above functions and
features, and the various subsystem components.

(9) Maintain and cross-reference all Member-related information
with the most current Medicaid number.

10.3 ENROLLMENT/ELIGIBILITY SUBSYSTEM
--------------------------------

The Enrollment/Eligibility Subsystem is the central processing point
for the entire MIS. It must be constructed and programmed to secure
all functions which require Membership data. It must have functions
and/or features which support requirements as follows:

(1) Identify other health coverage available or third party
liability (TPL), including type of coverage and effective
dates.

(2) Maintain historical data (files) as required by TDH.

(3) Maintain data on enrollments/disenrollments and complaint
activities. The data must include reason or type of
disenrollment, complaint, and resolution - by incident.

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(4) Receive, translate, edit and update files in accordance with
TDH requirements prior to inclusion in HMO's MIS. Updates
will be received from TDH's agent and processed within two
working days after receipt.

(5) Provide error reports and a reconciliation process between
new data and data existing in MIS.

(6) Identify enrollee changes in primary care provider and the
reason(s) for those changes and effective dates.

(7) Monitor PCP capacity and limitations prior to connecting the
enrollee to PCP in the system, and provide a kick-out report
when capacity and limitations are exceeded.

(8) Verify enrollee eligibility for medical services rendered or
for other enrollee inquiries.

(9) Generate and track referrals, e.g., Hospitals/Specialists.

(10) Search records by a variety of fields (e.g., name, unique
identification numbers, date of birth, SSN, etc.) for
eligibility verification.

(11) Send PCP assignment updates to TDH in the format as specified
by TDH.

10.4 PROVIDER SUBSYSTEM
------------------

The provider subsystem must accept, process, store and retrieve
current and historical data on providers, including services,
payment methodology, license information, service capacity, and
facility linkages.

Functions and Features:

(1) Identify specialty(s), admission privileges, enrollee
linkage, capacity, facility linkages, emergency arrangements
or contact, and other limitations, affiliations, or
restrictions.

(2) Maintain provider history files to include audit trails and
effective dates of information.

(3) Maintain provider fee schedules/remuneration agreements to
permit accurate payment for services based on the financial
agreement in effect on the date of service.

(4) Support HMO credentialing, recredentialing, and credential
tracking processes; incorporates or links information to
provider record.

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(5) Support monitoring activity for physician to enrollee ratios
(actual to maximum) and total provider enrollment to
physician and HMO capacity.

(6) Flag and identify providers with restrictive conditions
(e.g., limits to capacity, type of patient, age restrictions,
and other services if approved out- of- network).

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

(8) Provide provider network files 90 days prior to
implementation and updates monthly. Format will be provided
by TDH to contracted entities.

(9) Support the national CLIA certification numbers for clinical
laboratories.

(10) Exclude providers from participation that have been
identified by TDH as ineligible or excluded. Files must be
updated to reflect period and reason for exclusion.

10.5 ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
-------------------------------------

The encounter/claims processing subsystem must collect, process, and
store data on 100% of all health services delivered for which HMO is
responsible. The functions of these subsystems are claims/encounter
processing and capturing health service utilization data. The
subsystem must capture all health-related services, including
medical supplies, using standard codes (e.g., CPT-4, HCPCS, ICD9-CM,
UB92 Revenue Codes), rendered by health-care providers to an
eligible enrollee regardless of payment arrangement (e.g. capitation
or fee-for-service). It approves, prepares for payment, or may
return or deny claims submitted. This subsystem may integrate manual
and automated systems to validate and adjudicate claims and
encounters. HMO must use encounter data validation methodologies
prescribed by TDH.

Functions and Features:

(1) Accommodate multiple input methods: electronic submission,
tape, claim document, and media.

(2) Support entry and capture of a minimum of two diagnosis codes
for each individual service as defined by TDH.

(3) Edit and audit to ensure allowed services are provided by
eligible providers for eligible recipients.

(4) Interface with Member and provider subsystems.


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(5) Capture and report TPL potential, reimbursement or denial.

(6) Edit for utilization and service criteria, medical policy,
fee schedules, multiple contracts, contract periods and
conditions.

(7) Submit data to TDH through electronic transmission using
specified formats.

(8) Support multiple fee schedule benefit packages and capitation
rates for all contract periods for individual providers,
groups, services, etc. A claim encounter must be initially
adjudicated and all adjustments must use the fee applicable
to the date of service.

(9) Provide timely, accurate, and complete data for monitoring
claims processing performance.

(10) Provide timely, accurate, and complete data for reporting
medical service utilization.

(11) Maintain and apply prepayment edits to verify accuracy and
validity of claims data for proper adjudication.

(12) Maintain and apply edits and audits to verify timely,
accurate, and complete encounter data reporting.

(13) Submit reimbursement to non-contracted providers for
emergency care rendered to enrollees in a timely and accurate
fashion.

(14) Validate approval and denials of precertification and prior
authorization requests during adjudication of
claims/encounters.

(15) Track and report the exact date a service was performed. Use
of date ranges must have State approval.

(16) Receive and capture claim and encounter data from TDH.

(17) Receive and capture value-added services codes.

10.6 FINANCIAL SUBSYSTEM
-------------------

The financial subsystem must provide the necessary data for 100% of
all accounting functions including cost accounting, inventory, fixed
assets, payroll, general ledger, accounts receivable, accounts
payable, financial statement presentation, and any additional data
required by TDH. The financial subsystem must provide

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management with information that can demonstrate that the proposed
or existing HMO is meeting, exceeding, or falling short of fiscal
goals. The information must also provide management with the
necessary data to spot the early signs of fiscal distress, far
enough in advance to allow management to take corrective action
where appropriate.

Functions and Features:

(1) Provide information on HMO's economic resources, assets, and
liabilities and present accurate historical data and
projections based on historical performance and current
assets and liabilities.

(2) Produce financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) and in the format
prescribed by TDH.

(3) Provide information on potential third party payers;
information specific to the client; claims made against third
party payers; collection amounts and dates; denials, and
reasons for denials.

(4) Track and report savings by category as a result of cost
avoidance activities.

(5) Track payments per Member made to network providers compared
to utilization of the provider's services.

(6) Generate Remittance and Status Reports.

(7) Make claim and capitation payments to providers or groups.

(8) Reduce/increase accounts payable/receivable based on
adjustments to claims or recoveries from third party
resources.

10.7 UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
-----------------------------------------

The quality management/quality improvement/utilization review
subsystem combines data from other subsystems, and/or external
systems, to produce reports for analysis which focus on the review
and assessment of quality of care given, detection of over and under
utilization, and the development of user defined reporting criteria
and standards. This system profiles utilization of providers and
enrollees and compares them against experience and norms for
comparable individuals. This system also supports the quality
assessment function.

The subsystem tracks utilization control function(s) and monitoring
inpatient admissions, emergency room use, ancillary, and out-of-area
services. It provides provider profiles, occurrence reporting,
monitoring and evaluation studies, and

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enrollee satisfaction survey compilations. The subsystem may
integrate HMO's manual and automated processes or incorporate other
software reporting and/or analysis programs.

The subsystem incorporates and summarizes information from enrollee
surveys, provider and enrollee complaints, and appeal processes.

Functions and Features:

(1) Supports provider credentialing and recredentialing
activities.

(2) Supports HMO processes to monitor and identify deviations in
patterns of treatment from established standards or norms.
Provides feedback information for monitoring progress toward
goals, identifying optimal practices, and promoting
continuous improvement.

(3) Supports development of cost and utilization data by provider
and service.

(4) Provides aggregate performance and outcome measures using
standardized quality indicators similar to HEDIS or as
specified by TDH.

(5) Supports quality-of-care Focused Studies.

(6) Supports the management of referral/utilization control
processes and procedures, including prior authorization and
precertifications and denials of services.

(7) Monitors primary care provider referral patterns.

(8) Supports functions of reviewing access, use and coordination
of services (i.e. actions of Peer Review and alert/flag for
review and/or follow-up; laboratory, x-ray and other
ancillary service utilization per visit).

(9) Stores and reports patient satisfaction data through use of
enrollee surveys.

(10) Provides fraud and abuse detection, monitoring and reporting.

(11) Meets minimum report/data collection/analysis functions of
Article XI and Appendix A - Standards For Quality Improvement
Programs.

(12) Monitors and tracks provider and enrollee complaints and
appeals from receipt to disposition or resolution by
provider.

10.8 REPORT SUBSYSTEM
----------------


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The reporting subsystem supports reporting requirements of all HMO
operations to HMO management and TDH. It allows HMO to develop
various reports to enable HMO management and TDH to make decisions
regarding HMO activity.

Functions and Capabilities:

(1) Produces standard, TDH-required reports and ad hoc reports
from the data available in all MIS subsystems. All reports
will be submitted on hard copy or electronically in a format
approved by TDH.

(2) Have system flexibility to permit the development of reports
at irregular periods as needed.

(3) Generate reports that provide unduplicated counts of
enrollees, providers, payments and units of service unless
otherwise specified.

(4) Generate an alphabetic Member listing.

(5) Generate a numeric Member listing.

(6) Generate a client eligibility listing by PCP (panel report).

(7) Report on PCP change by reason code.

(8) Report on TPL (COB) information to TDH.

(9) Report on provider capacity and assignment from date of
service to date received.

(10) Generate or produce an aged outstanding liability report.

(11) Produce a Member ID Card.

(12) Produce client/provider mailing labels.

10.9 DATA INTERFACE SUBSYSTEM
------------------------

10.9.1 The interface subsystem supports incoming and outgoing data from and
to other organizations. It allows HMO to maintain enrollee, benefit
package, eligibility, disenrollment/enrollment status, and medical
services received outside of capitated services and associated cost.
All interfaces must follow the specifications frequencies and
formats listed in the Interface Manual.

10.9.2 HMO must obtain access to the TexMedNet BBS. Some file transfers and
E-mail will be handled through this mechanism.


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10.9.3 Provider Network File. The provider file shall supply Network
Provider data between an HMO and TDH. This process shall accomplish
the following:

(1) Provide identifying information for all managed care
providers (e.g. name, address, etc.).

(2) Maintain history on provider enrollment/disenrollment.

(3) Identify PCP capacity.

(4) Identify any restrictions (e.g., age, sex, etc.).

(5) Identify number and types of specialty providers available to
Members.

10.9.4 Eligibility/Enrollment Interface. The enrollment interface must
provide eligibility data between TDH and HMOs.

(1) Provides benefit package data to HMOs in accordance with
capitated services.

(2) Provides PCP assignments.

(3) Provides Member eligibility status data.

(4) Provides Member demographics data.

(5) Provides HMOs with cross-reference data to identify duplicate
Members.

10.9.5 Encounter/Claim Data Interface. The encounter/claim interface must
transfer paid fee-for-service claims data to HMOs and capitated
services/encounters from HMO, including adjustments. This file will
include all service types, such as inpatient, outpatient, and
medical services. TDH's agent will process claims for non-capitated
services.

10.9.6 Capitation Interface. The capitation interface must transfer premium
and Member information to HMO. This interface's basic purpose is to
balance HMO's Members and premium amount.

10.9.7 TPR Interface. TDH will provide a data file that contains
information on enrollees that have other insurance. Because Medicaid
is the payer of last resort, all services and encounters should be
billed to the other insurance companies for recovery. TDH will also
provide an insurance company data file which contains the name and
address of each insurance company.

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10.9.8 TDH will provide a diagnosis file which will give the code and
description of each diagnosis permitted by TDH.

10.9.9 TDH will provide a procedure file which contains the procedures
which must be used on all claims and encounters. This file contains
HCPCS, revenue, and ICD9-CM surgical procedure codes.

10.9.10 TDH will provide a provider file that contains the Medicaid provider
numbers, and the provider's names and addresses. The provider number
authorized by TDH must be submitted on all claims, encounters, and
network provider submissions.

10.10 TPR SUBSYSTEM
-------------

HMO's third party recovery system must have the following
capabilities and capacities:

(1) Identify, store, and use other health coverage available to
eligible Members or third party liability (TPL) including
type of coverage and effective dates.

(2) Provide changes in information to TDH as specified by TDH.

(3) Receive TPL data from TDH to be used in claim and encounter
processing.

10.11 YEAR 2000 (Y2K COMPLIANCE)
--------------------------

10.11.1 HMO must take all appropriate measures to make all software which
will record, store, and process and present calendar dates falling
on or after January 1, 2000, perform in the same manner and with the
same functionality, data integrity and performance, as dates falling
on or before December 31, 1999, at no added cost to TDH. HMO must
take all appropriate measures to ensure that the software will not
lose, alter or destroy records containing dates falling on or after
January 1, 2000. HMO will ensure that all software will interface
and operate with all TDH, or its agent's, data systems which
exchange data, including but not limited to historical and archived
data. In addition, HMO guarantees that the year 2000 leap year
calculations will be accommodated and will not result in software,
firmware or hardware failures.

10.11.2 TDH and all subcontracted entities are required by state and federal
law to meet Y2K compliance standards. Failure of TDH or a TDH
contractor other than an HMO to meet Y2K compliance standards which
results in an HMO's failure to meet the Y2K requirements of this
contract is a defense against a declaration of default under this
contract.

ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM


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11.1 QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
----------------------------------------

HMO must develop, maintain, and operate a Quality Improvement
Program (QIP) system which complies with federal regulations
relating to Quality Assurance systems, found at 42 C.F.R. ss.434.34.
The system must meet the Standards for Quality Improvement Programs
contained in Appendix A.

11.2 WRITTEN QIP PLAN
----------------

HMO must have an approved plan describing its Quality Improvement
Plan (QIP), including how HMO will accomplish the activities
pertaining to each Standard (I-XVI) in Appendix A on file with TDH.

11.3 QIP SUBCONTRACTING
------------------

If HMO subcontracts any of the essential functions or reporting
requirements of QIP to another entity, HMO must submit a list - 60
days prior to the Implementation Date - of the Subcontractors and a
description of how the Subcontractors will meet the standards and
reporting requirements of this contract. HMO must notify TDH no
later than 90 days prior to terminating any subcontract affecting a
major performance function of this contract (see Article 3.2.1.1).

11.4 ACCREDITATION

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

If HMO is accredited by an external accrediting agency,
documentation of accreditation must be provided to TDH. HMO must
provide TDH with their accreditation status upon request.

11.5 BEHAVIORAL HEALTH INTEGRATION INTO QIP
--------------------------------------

HMO must integrate behavioral health into its QIP system and include
a systematic and on-going process for monitoring, evaluating, and
improving the quality and appropriateness of behavioral health
services provided to Members. HMO's QIP must enable HMO to collect
data, monitor and evaluate for improvements to physical health
outcomes resulting from behavioral health integration into the
overall care of the Member.

11.6 QIP REPORTING REQUIREMENTS
--------------------------

HMO must meet all of the QIP Reporting Requirements contained in
Article XII.

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ARTICLE XII REPORTING REQUIREMENTS

12.1 FINANCIAL REPORTS
-----------------

12.1.1 Monthly MCFS Report. HMO must submit the Managed Care
Financial-Statistical Report (MCFS) included in Appendix I as may be
modified or amended by TDH. The report must be submitted to TDH 30
days after the end of each state fiscal year quarter and must
include complete financial and statistical information for each
month. The MCFS Report must be submitted for each claims processing
Subcontractor in accordance with this Article. HMO must incorporate
financial and statistical data received by its provider networks
(IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.2 For any given month in which an HMO has a net loss of $200,000 or
more for the contract period to date, HMO must submit an MCFS Report
for that month by the 30th day after the end of the reporting month.
The MCFS Report must be completed in accordance with the
Instructions for Completion of the Managed Care
Financial-Statistical Report developed by TDH.

12.1.3 An HMO must submit monthly reports for each of the first 6 months
following the Implementation Date of the contract between TDH and
HMO. If the cumulative net loss for the contract period to date
after the 6th month is less than $200,000, HMO may submit quarterly
reports in accordance with the above provisions unless the condition
in Article 12.1.2 exists, in which case monthly reports must be
submitted.

12.1.4 Annual MCFS Report. HMO must file two annual Managed Care
Financial-Statistical Reports. The first annual report must reflect
expenses incurred through the 90th day after the end of the contract
year. The first annual report must be filed on or before the 120th
day after the end of the contract year. The second annual report
must reflect data completed through the 334th day after the end of
the contract year and must be filed on or before the 365th day
following the end of the contract year.

12.1.5 Administrative expenses reported in the monthly and annual MCFS
Reports must be reported in accordance with Appendix L, Cost
Principles for Administrative Expenses. Indirect administrative
expenses must be based on an allocation methodology for Medicaid
managed care activities and services that is developed or approved
by TDH.

12.1.6 Affiliated Related Parties Report. HMO must submit an Affiliated
Related Parties Report to TDH not later than 90 days prior to the
Implementation Date. The report must contain the following
information:

12.1.6.1 A listing of all Affiliates/Related parties; and


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12.1.6.2 A schedule of all transactions with Affiliates which, under the
provisions of this Contract, will be allowable as expenses in either
Line 4 or Line 5 of Part I of the MCFS Report for services provided
to HMO by the Affiliates for the prior approval of TDH. Include
financial terms, a detailed description of the services to be
provided, and an estimated amount which will be incurred by HMO for
such services during the Contract period.

12.1.7 Annual Audited Financial Report. On or before June 30th of each
year, HMO must submit to TDH a copy of the annual audited financial
report filed with TDI.

12.1.8 Form HCFA-1513. HMO must file an updated Form HCFA-1513 regarding
control, ownership, or affiliation of HMO 30 days prior to the end
of the contract year. An updated Form HCFA-1513 must also be filed
within 30 days of any change in control, ownership, or affiliation
of HMO. Forms may be obtained from TDH.

12.1.9 Section 1318 Financial Disclosure Report. HMO must file an updated
HCFA Public Health Service (PHS) "Section 1318 Financial Disclosure
Report" within 30 days from the end of the contract year and within
30 days of entering into, renewing, or terminating a relationship
with an affiliated party. These forms may be obtained from TDH.

12.1.10 TDI Examination Report. HMO must furnish a copy of any TDI
Examination Report no later than 10 days after receipt of the final
report from TDI.

12.1.11 IBNR Plan. HMO must furnish a written IBNR Plan to manage
incurred-but-not-reported (IBNR) expenses, and a description of the
method of insuring against insolvency, including information on all
existing or proposed insurance policies. The Plan must include the
methodology for estimating IBNR. The plan and description must be
submitted to TDH not later than 60 days prior to the Implementation
Date.

12.1.12 Third Party Recovery (TPR) Reports. HMO must file quarterly Third
Party Recovery (TPR) Reports in accordance with the format developed
by TDH. TPR reports must include total dollars recovered from third
party payers for services to HMO's Members for each month and the
total dollars recovered through coordination of benefits,
subrogation, and worker's compensation.

12.1.13 Pre-implementation Expenses. Pre-implementation expenses (i.e.,
expenses incurred between the effective date of the contract and the
Implementation Date) will be allowable expenses as determined by
TDH. Such expenses must be reported for each month in which the
expenses were incurred. Such expenses shall be counted toward the
calculation of total expenses for the first contract year for
purposes of calculating the net income before taxes. Such expenses
shall not be allocated or amortized beyond the first contract year.


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12.1.14 Each report required under this Article must be mailed to: Bureau of
Managed Care; Texas Dept. of Health; 1100 West 49th Street; Austin,
TX 78756-3168. HMO must also mail a copy of the reports, except for
items in Article 12.1.7 and Article 12.1.10 to Texas Department of
Insurance, Mail Code 106-3A, HMO Division, Attention: HMO Division
Director, P.O. Box 149104, Austin, TX 78714-9104.

12.2 STATISTICAL REPORTS
-------------------

12.2.1 HMO must electronically file the following monthly reports: (1)
encounter; (2) encounter detail; (3) institutional; (4)
institutional detail; and (5) claims detail for cost-reimbursed
services filed, if any, with HMO. Monthly reports must be submitted
by the 10th day following the end of the reporting month. Encounter
data must include the data elements, follow the format, and use the
transmission method specified by TDH.

12.2.2 Monthly reports must include current month encounter data and
encounter data adjustments to the previous month's data.

12.2.3 Data quality standards will be developed jointly by HMO and TDH.
Encounter data must meet or exceed data quality standards. Data that
does not meet quality standards must be corrected and returned
within the period specified by TDH. Original records must be made
available to validate all encounter data.

12.2.4 HMO must require providers to submit claims and encounter data to
HMO no later than 95 days after the date services are provided.

12.2.5 HMO must use the procedure codes, diagnosis codes and other codes
contained in the most recent edition of the Texas Medicaid Provider
Procedures Manual and as otherwise provided by TDH. Exceptions or
additional codes must be submitted for approval before HMO uses the
codes.

12.2.6 HMO must use Medicaid provider numbers on all encounter and
fee-for-service claim submissions. Any exceptions must be approved
by TDH.

12.2.7 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission of
encounter data to TDH.

12.2.8 Claims Aging and Summary Report. HMO must submit the monthly Claims
Aging and Summary Reports identified in the Texas Managed Care
Claims Manual by the third Monday of the month following the
reporting period. The reports must be submitted to TDH in a format
using the instructions specified by TDH.

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12.2.9 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
file preliminary and final Medicaid Disproportionate Share Hospital
(DSH) reports, required by TDH to identify and reimburse hospitals
that qualify for Medicaid DSH funds. The preliminary and final DSH
reports must include the data elements and be submitted in the form
and format specified by TDH. The preliminary DSH reports are due on
or before June 1 of the year following the state fiscal year for
which data is being reported. The final DSH reports are due on or
before August 15 of the year following the state fiscal year for
which data is being reported.

12.3 ARBITRATION/LITIGATION CLAIMS REPORT
------------------------------------

HMO must submit a monthly Arbitration/Litigation Claims Report in a
form developed by TDH identifying all provider complaints that are
in arbitration or litigation. The report is to be submitted by the
last working day of the month following the reporting month.

12.4 SUMMARY REPORT OF PROVIDER COMPLAINTS
-------------------------------------

HMO must submit a Summary Report of Provider Complaints. The report
must include a copy of any complaints submitted to either HMO or an
arbitrator, or both. The report must also include a copy of the
provider complaint log. HMO must also report complaints submitted to
its subcontracted risk groups (e.g., IPAs). The report must be
submitted on or before the fifteenth of the month following the end
of the state fiscal quarter using a form specified by TDH.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.1 Provider Network Change Reports. HMO must submit a monthly report
summarizing changes in HMO's provider network. The report must be
submitted to TDH in the format specified by TDH. HMO will submit the
report thirty (30) days following the end of the reporting month.
The report must identify provider additions and deletions and the
impact to the following:

(1) geographic access for the Members;

(2) cultural and linguistic services;

(3) the ethnic composition of providers;

(4) the number of Members assigned to PCPs;

(5) the change in the ration of providers with pediatric
experience to the number of Members under age 21; and


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(6) number of specialists serving as PCPs.

12.5.1.1 Provider Termination Report. HMO must also include in the Provider
Network Change Report information identifying any providers who
cease to participate in HMO's provider network, either voluntarily
or involuntarily. The information must include the provider's name,
Medicaid number, the reason for the provider's termination, and
whether the termination was voluntary or involuntary.

12.5.2 PCP Network and Capacity Report. HMO must submit electronically to
Enrollment Broker a weekly report that shows changes to the PCP
network and PCP capacity.

12.6 MEMBER COMPLAINTS
-----------------

HMO must submit a quarterly summary report of Member complaints. The
report must show the date upon which each complaint was filed, a
summary of the facts surrounding the complaint, the date of the
resolution of the complaint, an explanation of the procedure
followed, and the outcome of the complaint process. It should also
include the Member Advocate Report (see Article 8.6.17). The
complaint report format must be approved by TDH and submitted in
hard copy and diskette. HMO must also report complaints submitted to
its subcontracted risk groups (e.g., IPAs).

12.7 FRAUDULENT PRACTICES
--------------------

HMO must report all fraud and abuse enforcement actions or
investigations taken against HMO and/or any of its Subcontractors or
providers by any state or federal agency for fraud or abuse under
Title XVIII or Title XIX of the Social Security Act or any State law
or regulation and any basis upon which an action for fraud or abuse
may be brought by a State or federal agency as soon as such
information comes to the attention of HMO.

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Several behavioral health (BH) utilization management reports are
required on a quarterly basis and are due 120 days following the end
of the State fiscal quarter and are to be provided in hard copy and
in a format specified by TDH. Refer to Appendix H for the
standardized reporting format for each report and detailed
instructions for obtaining the specific data required in the report.
The BH utilization report instructions may periodically be updated
by TDH to include new codes and to facilitate clear communication to
the health plan.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are required on
a quarterly basis and are due no later than 120 days after the end
of the State Fiscal Quarter and are

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to be provided in hard copy and in a format specified by TDH. Refer
to Appendix J for the standardized reporting format for each report
and detailed instructions for obtaining specific data required in
the report. The PH Utilization Management Report instructions may
periodically be updated by TDH to include new codes and to
facilitate clear communication to the health plan.

12.10 QUALITY IMPROVEMENT REPORTS
---------------------------

12.10.1 HMO must conduct health Focused Studies in pregnancy and prenatal
care, THSteps, asthma (or another chronic disease as required by
TDH). HMO will be required to conduct no more than two Focused
Studies, as instructed by TDH. These studies shall be conducted and
data collected using criteria and methods developed by TDH. The
following format shall be utilized:

(1) Executive Summary.

(2) Definition of the population and health areas of concern.

(3) Clinical guidelines/standards, quality indicators, and audit
tools.

(4) Sources of information and data collection methodology.

(5) Data analysis and information/results.

(6) Corrective actions if any, implementation, and follow-up
plans including monitoring, assessment of effectiveness, and
methods for provider feedback.

12.10.2 Annual Focused Studies. Focused Studies on well child, asthma, and
Attention Deficit Hyperactivity Disorder (ADHD) must be submitted to
TDH no later than March 1, 2001. Focused Studies on pregnancy and
substance abuse in pregnancy must be submitted no later than June 1,
2001.

12.10.3 Annual QIP Summary Report. An annual QIP summary report must be
conducted yearly based on the state fiscal year. The annual QIP
summary report must be submitted by March 31 of each year. This
report must provide summary information on HMO's QIP system and
include the following:

(1) Executive summary of QIP - include results of all QI reports
and interventions.

(2) Activities pertaining to each standard (I through XVI) in
Appendix A. Report must list each standard.

(3) Methodologies for collecting, assessing data and measuring
outcomes.


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(4) Tracking and monitoring quality of care.

(5) Role of health professionals in QIP review.

(6) Methodology for collection data and providing feedback to
provider and staff.

(7) Outcomes and/or action plan.

12.10.4 Provider Medical Record Audit and Report. HMO must submit
semi-annual provider medical record audits that conform to the
medical record requirements fond in Standard XII in Appendix A. The
audits are alternated between PCPs and behavioral health providers.

12.10.4.1 HMO must submit a written plan for correcting the noncompliance
(<80% compliance rate) and a time line for achieving compliance if
audits reveal non-compliance with TDH medical records standards.

12.10.5 HMO must submit to TDH semi-annual reports on its subspecialty
network in a format provided by TDH.

12.11 HUB REPORTS
-----------

HMO must submit quarterly reports documenting HMO's HUB program
efforts and accomplishments. The report must include a narrative
description of HMO's program efforts and a financial report
reflecting payments made to HUB. HMO must use the format included in
Appendix B for HUB quarterly reports.

12.12 THSTEPS REPORTS
---------------

Minimum reporting requirements. HMO must submit, at a minimum, 80%
of all THSteps checkups on HCFA 1500 claim forms as part of the
encounter file submission to the TDH Claims Administrator no later
than 120 days after the date of service. Failure to comply with
these minimum reporting requirements will result in Article XVIII
sanctions and money damages.

12.13 REPORTING REQUIREMENTS DUE DATES
--------------------------------

TDH will provide HMO with a matrix of all contract deliverables,
with due dates. The due dates for deliverables may be changed by
TDH. TDH will provide HMO with 30 days notice of a change in a
deliverable due date.

ARTICLE XIII PAYMENT PROVISIONS


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13.1 CAPITATION AMOUNTS
------------------

13.1.1 TDH will pay HMO monthly premiums calculated by multiplying the
number of Member months by Member risk group times the monthly
capitation amount by Member risk group. HMO and network providers
are prohibited from billing or collecting any amount from a Member
for health care services covered by this contract, in which case the
Member must be informed of such costs prior to providing non-covered
services.

13.1.2 Delivery Supplemental Payment (DSP). DSP is a payment process to HMO
is which the costs of delivery were extracted from the Standard
Capitation Payment Methodology of other risk groups and included in
a one-time payment for each delivery. TDH has submitted the DSP
methodology to HCFA for approval. The monthly capitation amounts
established for each risk group in the El Paso Service Area using
the DSP methodology will apply only if the methodology is approved
by HCFA, and the methodology is implemented for all HMOs in all
existing service areas by contract. The rates for December 1, 1999,
through August 31, 2000, and related contract provisions will be
provided upon approval by HCFA and will supersede the Standard
Methodology of Article 13.1.3.

13.1.3 Standard Methodology. If the DSP methodology is not approved by
HCFA, the monthly capitation amounts established for each risk group
in the El Paso Service Area using the methodology set forth in
Article 13.1.1, without the DSP, are as follows:

-------------------------------------------------------------
Risk Group December 1, 1999 - August 31,
2000

-------------------------------------------------------------
TANF Adults $150.27
-------------------------------------------------------------
TANF Children $ 66.93
-------------------------------------------------------------
Expansion Children $ 83.66
-------------------------------------------------------------
Newborns $317.14
-------------------------------------------------------------
Federal Mandate Children $ 43.21
-------------------------------------------------------------
CHIP $ 85.35
-------------------------------------------------------------
Pregnant Women $531.65
-------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
-------------------------------------------------------------


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13.1.4 The monthly capitation amounts for each risk group for state fiscal
year 2001 will be provided to HMO by September 1, 2000, based on the
most recent available traditional Medicaid cost data for the
contracted risk groups, trended forward and discounted.

13.1.5 The monthly premium payment to HMO is based on monthly enrollments
adjusted to reflect money damages set out in Article 18.8 and
adjustments to premiums in Article 13.5.

13.1.6 The monthly premium payments will be made to HMO no later than the
10th working day of the month for which premiums are paid. HMO must
accept payment for premiums by direct deposit into an HMO account.

13.1.7 Payment of monthly capitation amounts is subject to availability of
appropriations. If appropriations are not available to pay the full
monthly capitation amounts, TDH will equitably adjust capitation
amounts for all participating HMOs, and reduce scope of service
requirements as appropriate.

13.2 EXPERIENCE REBATE TO STATE
--------------------------

13.2.1 HMO must pay to TDH an experience rebate equal to fifty percent
(50%) of the excess of allowable HMO STAR revenues over allowable
HMO STAR expenses as measured by any positive amount on Line 7 of
"Part 1: Financial Summary, All Coverage Groups Combined" of the
annual Managed Care Financial-Statistical Report set forth in
Appendix I, as audited and confirmed by TDH.

13.2.2 There will be two settlements for payment of the experience rebate.
The first settlement shall equal 100 percent of the experience
rebate as derived from Line 7 of Part I (Net Income Before Taxes) of
the annual Managed Care Financial-Statistical (MCFS) Report. The
second settlement shall be an adjustment to the first settlement and
shall be paid to TDH if the adjustment is a payment from HMO to TDH.
TDH or its agent may audit or review the MCFS reports. If TDH
determines that corrections to the MCFS reports are required, based
on a TDH audit/review or other documentation acceptable to TDH, to
determine an adjustment to the amount of the second settlement, then
final adjustment shall be made within two years from the date that
HMO submits the second annual MCFS report. HMO must pay the first
and second settlements on the due dates for the first and second
MCFS reports respectively as identified in Article 12.1.4. TDH may
adjust the experience rebate if TDH determines HMO has paid
affiliates amounts for goods or services that are higher than the
fair market value of the goods and services in the service area.
Fair market value may be based on the amount HMO pays a
non-affiliate(s) or the amount


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another HMO pays for the same or similar service in the service
area. TDH will have final authority in assessing the amount of the
experience rebate.

13.3 PERFORMANCE OBJECTIVES
----------------------

13.3.1 Preventive Health Performance Objectives are contained in this
contract at Appendix K. HMO must accomplish the performance
objectives or a designated percentage in order to be eligible for
payment of financial incentives. Performance objectives are subject
to change. TDH will consult with HMO prior to revising performance
objectives.

13.3.2 HMO will receive credit for accomplishing a performance objective
upon receipt of accurate encounter data required under Articles 10.5
and 12.2 of this contract and/or a Detailed Data Element Report from
HMO with report format as determined by TDH and aggregate data
reported by HMO in accordance with a report format as determined by
TDH (Performance Objectives Report). Accuracy and completeness of
the detailed data element report and the aggregate data Performance
Objectives Report will be determined by TDH through a TDH audit of
HMO claims processing system. If TDH determines that the Detailed
Data Element Report and Performance Objectives Report are
sufficiently supported by the results of the TDH audit, the payment
of financial incentives will be made to HMO. Conversely, if the
audit results do not support the reports as determined by TDH, HMO
will not receive payment of the financial incentive. TDH may conduct
provider chart reviews to validate the accuracy of the claims data
related to HMO accomplishment of performance objectives. If the
results of the chart review do not support HMO claims system data or
HMO Detailed Data Element Report and the Performance Objectives
Report, TDH may recoup payments made to HMO for performance
objectives incentives.

13.3.3 HMO will also receive credit for performance objectives performed by
other organizations if a network primary care provider or HMO
retains documentation from the performing organization which
satisfies the requirements contained in Appendix K of this contract.

13.3.4 HMO will receive performance objective bonuses for accomplishing the
following percentages of performance objectives:

-------------------------------------------------------------------
Percent of Each Performance Percent of Performance Objective
Objective Accomplished Allocations Paid to HMO
-------------------------------------------------------------------
60% to 65% 20%
-------------------------------------------------------------------
65% to 70% 30%
-------------------------------------------------------------------


El Paso Service Area HMO Contract

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70% to 75% 40%
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75% to 80% 50%
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80% to 85% 60%
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85% to 90% 70%
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90% to 95% 80%
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95% to 100% 90%
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100% 100%
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13.3.5 HMO must submit the Detailed Data Element Report and the Performance
Objectives Report regardless of whether or not HMO intends to claim
payment of performance objective bonuses.

13.4 PAYMENT OF PERFORMANCE OBJECTIVE BONUSES
----------------------------------------

13.4.1 Payment of performance objective bonuses is contingent upon
availability of appropriations. If appropriations are not available
to pay performance objective bonuses as set out below, TDH will
equitably distribute all available funds to each HMO that has
accomplished the performance objectives.

13.4.2 In addition to the capitation amounts set forth in Article 13.1.2, a
performance premium of two dollars ($2.00) per Member month will be
allocated by TDH for the accomplishment of performance objectives.

13.4.3 HMO must submit the Performance Objectives Report and the Detailed
Data Element Report as referenced in Article 13.3.2, no later than
150 days after the end of each State fiscal year. Performance
premiums will be paid to HMO no later than 120 days after the State
receives and validates the data contained in each required
Performance Objectives Report.

13.4.4 The performance objective allocation for HMO shall be assigned to
each performance objective, described in Appendix K, in accordance
with the following percentages:

--------------------------------------------------------
EPSDT SCREENS Percent of Performance
Objective Incentive Fund

--------------------------------------------------------
1. <12 months 7%
--------------------------------------------------------
2. 12 to 24 months 7%
--------------------------------------------------------


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--------------------------------------------------------
3. 25 months - 20 years 19%
--------------------------------------------------------
4. <12 months = 3.8 screens 21%
--------------------------------------------------------
5. 12 to 24 months = 2.8 14%
screens

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

--------------------------------------------------------
IMMUNIZATIONS Percent of Performance
Objective Incentive Fund

--------------------------------------------------------
6. <12 months 6%
--------------------------------------------------------
7. 12 to 24 months 3%
--------------------------------------------------------

--------------------------------------------------------
ADULT ANNUAL VISITS Percent of Performance
Objective Incentive Fund

--------------------------------------------------------
8. Adult Annual Visits 2%
--------------------------------------------------------

--------------------------------------------------------
PREGNANCY VISITS Percent of Performance
Objective Incentive Fund

--------------------------------------------------------
9. Initial Prenatal Exam 6%
--------------------------------------------------------
10. Visits by Gestational Age 10%
--------------------------------------------------------
11. Postpartum Visit 5%
--------------------------------------------------------

13.5 ADJUSTMENTS TO PREMIUM
----------------------

13.5.1 TDH may recoup premiums paid to HMO in error. Error may be either
human or machine error on the part of TDH or an agent or contractor
of TDH. TDH may recoup premiums paid to HMO if a Member is enrolled
into HMO in error, and HMO provided no covered services to Member
for the period of time for which premium was paid. If services were
provided to Member as a result of the error, recoupment will not be
made.

13.5.2 TDH may recoup premium paid to HMO if a Member for whom premium is
paid moves outside the United States, and HMO has not provided
covered services to the Member for the period of time for which
premium has been paid. TDH will not recoup premium if HMO has
provided covered services to the Member during the period of time
for which premium has been paid.

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13.5.3 TDH may recoup premium paid to HMO if a Member for whom premium is
paid dies before the first day of the month for which premium is
paid.

13.5.4 TDH may recoup or adjust premium paid to HMO for a Member if the
Member's eligibility status or program type is changed, corrected as
a result of error, or is retroactively adjusted.

13.5.5 Recoupment or adjustment or premium under Articles 13.5.1 through
13.5.4 may be appealed using the TDH dispute resolution process.

13.5.6 TDH may adjust premiums for all Members within an eligibility status
or program type if adjustment is required by reductions in
appropriations and/or if a benefit or category of benefits is
excluded or included as a covered service. Adjustment must be made
by amendment as required by Article 15.2. Adjustment to premium
under this subsection may not be appealed using the TDH dispute
resolution process.

ARTICLE XIV ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1 ELIGIBILITY DETERMINATION
-------------------------

14.1.1 TDH will identify Medicaid recipients who are eligible for
participation in the STAR program using the eligibility status
described below.

14.1.2 Individuals in the following categories who reside in any part of
the Service Area must enroll in one of the health plans providing
services in the Service Areas:

14.1.2.1 TANF ADULTS - Individuals age 21 and over who are eligible for the
TANF program. This category may also include some pregnant women.

14.1.2.2 TANF CHILDREN - Individuals under age 21 who are eligible for the
TANF program. This category may also include some pregnant women and
some children less than one year of age.

14.1.2.3 PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant
women whose families' income is below 185% of the Federal Poverty
Level (FPL).

14.1.2.4 NEWBORN (MAO) - Children under age one born to Medicaid-eligible
mothers.

14.1.2.5 EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
TANF because of the applied income of their stepparents or
grandparents.

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14.1.2.6 EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
income is below 185% FPL.

14.1.2.7 EXPANSION CHILDREN MAO - Children age 1-5 whose families' income is
at or below 133% of FPL.

14.1.2.8 FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born before
October 10, 1983, whose families' income is below the TANF income
limit.

14.1.2.9 CHIP PHASE I - Children's Health Insurance Program Phase I (Federal
Mandate Acceleration) Children under age nineteen (19) born before
October 1, 1983, with family income below 100% Federal Poverty
Income Level.

14.1.3 The following individuals are eligible for the STAR Program and are
not required to enroll in a health plan but have the option to
enroll in a plan. HMO will be required to accept enrollment of those
recipients from this group who elect to enroll in HMO.

14.1.3.1 DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients with
Supplemental Security Income (SSI) benefits who are not eligible for
Medicare may elect to participate in the STAR program on a voluntary
basis.

14.1.3.2 Certain blind or disabled individuals who lose SSI eligibility
because of Title II income and who are not eligible for Medicare.

14.1.3.3 Non-institutionalized blind and disabled people enrolled in 1915(c)
waivers whose income is above SSI limits, whose eligibility was
determined using the institutional cap (300%), and who are not
Medicare eligible. (TDH will be phasing out this population during
FY 99.)

14.1.3.4 Members of the Tigua Indian tribe.

14.1.4 During the period after which the Medicaid eligibility determination
has been made but prior to enrollment in HMO, Members will be
enrolled under the traditional Medicaid program. All Medicaid
eligible recipients will remain in the fee-for-service Medicaid
program until enrolled in or assigned to an HMO.

14.2 ENROLLMENT

----------

14.2.1 TDH has the right and responsibility to enroll and disenroll
eligible individuals into the STAR program. TDH will conduct
continuous open enrollment for Medicaid recipients and HMO must
accept all persons who chose to enroll as Members in HMO or who are
assigned as Members in HMO by TDH, without regard to the Member's
health status or any other factor.

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14.2.2 All enrollments are subject to the accessibility and availability
limitations and restrictions contained in the ss.1915(b) waiver
obtained by TDH. TDH has the authority to limit enrollment into HMO
if the number and distance limitations are exceeded.

14.2.3 TDH makes no guarantees or representations to HMO regarding the
number of eligible Medicaid recipients who will ultimately be
enrolled as STAR Members of HMO.

14.2.4 HMO must cooperate and participate in all TDH sponsored and
announced enrollment activities. HMO must have a representative at
all TDH enrollment activities unless an exception is given by TDH.
The representative must comply with HMO's cultural and linguistic
competency plan (see Cultural and Linguistic requirements in Article
8.9). HMO must provide marketing materials, HMO pamphlets, Member
Handbooks, a list of network providers, HMO's linguistic and
cultural capabilities and other information requested or required by
TDH or its Enrollment Broker to assist potential Members in making
informed choices.

14.2.5 TDH will provide HMO with at least 10 days written notice of all TDH
planned activities. Failure to participate in, or send a
representative to a TDH sponsored enrollment activity is a default
of the terms of the contract. Default may be excused if HMO can show
that TDH failed to provide the required notice, or if HMO's absence
is excused by TDH.

14.3 DISENROLLMENT

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

14.3.1 HMO has a limited right to request a Member be disenrolled from HMO
without the Member's consent. TDH must approve any HMO request for
disenrollment of a Member for cause. Disenrollment of a Member may
be permitted under the following circumstances:

14.3.1.1 Member misuses or loans Member's HMO membership card to another
person to obtain services.

14.3.1.2 Member is disruptive, unruly, threatening or uncooperative to the
extent that Member's membership seriously impairs HMO's or
provider's ability to provide services to Member or to obtain new
Members, and Member's behavior is not caused by a physical or
behavioral health condition.

14.3.1.3 Member steadfastly refuses to comply with managed care restrictions
(e.g., repeatedly using emergency room in combination with refusing
to allow HMO to treat the underlying medical condition).

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14.3.2 HMO must take reasonable measures to correct Member behavior prior
to requesting disenrollment. Reasonable measures may include
providing education and counseling regarding the offensive acts or
behaviors.

14.3.3 HMO must notify the Member of HMO's decision to disenroll the Member
if all reasonable measures have failed to remedy the problem.

14.3.4 If the Member disagrees with the decision to disenroll the Member
from HMO, HMO must notify the Member of the availability of the
complaint procedure and TDH's Fair Hearing process.

14.3.5 HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4 AUTOMATIC RE-ENROLLMENT
-----------------------

14.4.1 Members who are disenrolled because they are temporarily ineligible
for Medicaid will be automatically re-enrolled into the same health
plan. Temporary loss of eligibility is defined as a period of 3
months or less.

14.4.2 HMO must inform its Members of the automatic re-enrollment
procedure. Automatic re-enrollment must be included in the Member
Handbook (see Article 8.2.1).

14.5 ENROLLMENT REPORTS
------------------

14.5.1 TDH will provide HMO enrollment reports listing all STAR Members who
have enrolled in or were assigned to HMO during the initial
enrollment period.

14.5.2 TDH will provide monthly HMO Enrollment Reports to HMO on or before
the first of the month.

14.5.3 TDH will provide Member verification to HMO and network providers
through telephone verification or TexMedNet.

ARTICLE XV GENERAL PROVISIONS

15.1 INDEPENDENT CONTRACTOR
----------------------

HMO, its agents, employees, network providers, and Subcontractors
are independent contractors and do not perform services under this
contract as employees or agents

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of TDH. HMO is given express, limited authority to exercise the
State's right of recovery as provided in Article 4.9.

15.2 AMENDMENT

---------

15.2.1 This contract must be amended by TDH if amendment is required to
comply with changes in state or federal laws, rules, or regulations.

15.2.2 TDH and HMO may amend this contract if reductions in funding or
appropriations make full performance by either party impracticable
or impossible, and amendment could provide a reasonable alternative
to termination. If HMO does not agree to the amendment, contract may
be terminated under Article XVIII.

15.2.3 This contract must be amended if either party discovers a material
omission of a negotiated or required term, which is essential to the
successful performance or maintaining compliance with the terms of
the contract. The party discovering the omission must notify the
other party of the omission in writing as soon as possible after
discovery. If there is a disagreement regarding whether the omission
was intended to be a term of the contract, the parties must submit
the dispute to dispute resolution under Article 15.8.

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

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

15.2.6 No agreement shall be used to amend this contract unless it is made
a part of this contract by specific reference, and is numbered
sequentially by order of its adoption.

15.3 LAW, JURISDICTION AND VENUE
---------------------------

Venue and jurisdiction shall be in the state and federal district
courts of Travis County, Texas. The laws of the State of Texas shall
be applied in all matters of state law.

15.4 NON-WAIVER
----------

Failure to enforce any provision or breach shall not be taken by
either party as a waiver of the right to enforce the provision or
breach in the future.

15.5 SEVERABILITY

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

Any part of this contract which is found to be unenforceable,
invalid, void, or illegal shall be severed from the contract. The
remainder of the contract shall be effective.

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15.6 ASSIGNMENT

----------

This contract was awarded to HMO based on HMO's qualifications to
perform personal and professional services. HMO cannot assign this
contract without the written consent of TDI and TDH. This provision
does not prevent HMO from subcontracting duties and responsibilities
to qualified Subcontractors.

15.7 NON-EXCLUSIVE
-------------

This contract is a non-exclusive agreement. Either party may
contract with other entities for similar services in the same
service area.

15.8 DISPUTE RESOLUTION
------------------

All dispute arising under this contract shall be resolved through
TDH's dispute resolution procedures, except where a remedy is
provided for through TDH's administrative rules or processes. All
administrative remedies must be exhausted prior to other methods of
dispute resolution.

15.9 DOCUMENTS CONSTITUTING CONTRACT
-------------------------------

This contract includes this document and all amendments and
appendices to this document, the Request for Application, the
Application submitted in response to the Request for Application,
the Texas Medicaid Provider Procedures Manual and Texas Medicaid
Bulletins addressed to HMOs, contract interpretation memoranda
issued by TDH for this contract, and the federal waiver granting TDH
authority to contract with HMO. If any conflict in provisions
between these documents occurs, the terms of this contract and any
amendments shall prevail. The documents listed above constitute the
entire contract between the parties.

15.10 FORCE MAJEURE
-------------

TDH and HMO are excused from performing the duties and obligations
under this contract for any period that they are prevented from
performing their services as a result of a catastrophic occurrence,
or natural disaster, clearly beyond the control of either party,
including but not limited to an act of war, but excluding labor
disputes.

15.11 NOTICES

-------

Notice may be given by any means which provides for verification of
receipt. All notices to TDH shall be addressed to Bureau Chief,
Texas Department of Health, Bureau of Managed Care, 1100 W. 49th
Street, Austin, TX 78756-3168, with a copy to the Contract
Administrator. Notices to HMO shall be addressed to CEO/President,

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15.12 SURVIVAL

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

The provisions of this contract which relate to the obligations of
HMO to maintain records and reports shall survive the expiration or
earlier termination of this contract for a period not to exceed six
(6) years unless another period may be required by record retention
policies of the State of Texas or HCFA.

ARTICLE XVI DEFAULT

16.1 FAILURE TO PROVIDE COVERED SERVICES
-----------------------------------

If a member requests a Fair Hearing before TDH because HMO has
failed to provide a covered service, the Bureau of Managed Care may
recommend to the hearing officer that a determination be made to
impose sanctions upon HMO, in addition to any remedy entered for an
on behalf of the Member. The recommendation to impose sanctions must
include an amount of recommended sanctions. The amount of the
sanction may be in any amount of not less than $1,000 or more than
$25,000 depending upon the nature of the denial and the hardship or
health threat that the denial placed upon the Member.

16.2 FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
---------------------------------------------

Failure of HMO to perform an administrative function is a default
under this contract. Administrative functions are any requirements
under this contract which are not direct delivery of health or
health-related services, including claims payments, encounter data
submissions, filing any reports when due, providing or producing
records upon request or failing to enter into contracts or
implementing procedures necessary to carry out contract obligations.

16.3 HMO CERTIFICATE OF AUTHORITY
----------------------------

Termination or suspension of HMO's TDI Certificate of Authority or
any adverse action taken by TDI which TDH determines will affect the
ability of HMO to provide health care services to Members is a
default under this contract.

16.4 INSOLVENCY

----------


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Failure of HMO to maintain protection against fiscal insolvency as
required under State or federal law or incapacity of HMO to meet its
financial obligations as they come due is a default under this
contract.

16.5 FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
---------------------------------------------------

Failure of HMO to comply with the federal requirements for Medicare
or Medicaid standards, requirements, or prohibitions, is a default
under this contract.

16.6 EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
----------------------------------------------------

16.6.1 Exclusion of HMO or any of the managing employees or persons with an
ownership interest whose disclosure is required by ss. 1124(a) of
the Social Security Act (the Act), under the provisions of
ss. 1128(a) and/or (b) of the Act, is a default of this contract.

16.6.2 Exclusion of any provider or Subcontractor or any of the managing
employees or persons with an ownership interest of the provider or
Subcontractor whose disclosure is required by ss. 1124(a) of the
Act, under the provisions of ss. 1128(a) and/or (b) of the Act, is a
default of this contract if the exclusion will materially affect
HMO's performance under this contract.

16.7 MISREPRESENTATION, FRAUD OR ABUSE
---------------------------------

Misrepresentation or fraud under the provisions of Article 4.8 of
this contract is a default under this contract.

Misrepresentation or fraud and abuse under any state or federal law,
regulation or rule or under the common law of the State of Texas, is
a default under this contract.

16.8 FAILURE TO MAKE CAPITATION PAYMENTS
-----------------------------------

Failure by TDH to make capitation payments when due is a default
under this contract.

16.9 FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
----------------------------------------------------------------

Failure to make timely and appropriate payments to network providers
and Subcontractors is a default under this contract. Withholding or
recouping capitation payments as allowed or required under other
Articles of this contract is not a default under this contract.

16.10 FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
----------------------------------------------------------------


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Failure to pass any of the mandatory system or delivery function
requirements of Readiness Review outlined in Article I is a default
under the contract.

16.11 FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
----------------------------------------------------------------
NETWORK PROVIDERS
-----------------

16.11.1 Failure of HMO to audit, monitor, supervise, or enforce functions
delegated by contract to another entity which results in a default
under this contract or constitutes a violation of state or federal
laws, rules, or regulations is a default under this contract.

16.11.2 Failure of HMO to properly credential, conduct reasonable
utilization review, and quality monitoring is a default under this
contract.

16.11.3 Failure of HMO to require providers and contractors to provide
timely and accurate encounter, financial, statistical and
utilization data is a default under this contract.

ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1 TDH will provide HMO with written notice of default under this
contract. The written notice must contain the following information:

17.1.1 A clear and concise statement of the circumstances or conditions
which constitute a default under this contract;

17.1.2 The contract provision(s) under which default is being declared;

17.1.3 A clear and concise statement of how and/or whether the default may
be cured;

17.1.4 A clear and concise statement of the time period HMO will be allowed
to cure the default;

17.1.5 The amount of damages or the types of sanctions which are being or
will be imposed pending cure, and the date they began or will begin;

17.1.6 Whether any part of the damages or sanctions may be recouped from or
passed through to an individual or entity who is or may be
responsible for the act or omission for which default is declared;
and


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17.1.7 Whether failure to cure within the given time period will result in
additional damages or sanctions and/or referral for investigation or
action by another agency, and/or termination of the contract.

17.2 Sanctions and damages for acts or omissions which are events of
default under Article XVI will be imposed from the date of
occurrence until cured, unless otherwise stated in the notice of
default.

ARTICLE XVIII REMEDIES AND SANCTIONS

18.1 TERMINATION BY TDH
------------------

18.1.1 TDH may terminate this contract if:

18.1.1.1 HMO repeatedly fails or refuses to provide services and perform
administrative functions under this contract after notice and
opportunity to cure;

18.1.1.2 HMO materially defaults under any of the provisions of Article XVI;

18.1.1.3 Federal or state funds for the Medicaid program are no longer
available; or

18.1.1.4 TDH has a reasonable belief that HMO has placed the health or
welfare of Members in jeopardy.

18.1.2 TDH must give HMO 30 days written notice of intent to terminate this
contract if termination is a result of HMO's failure to cure a
default under Article XVIII. If termination is a result of Article
18.1.1.3, TDH will provide HMO with reasonable notice under the
circumstances. If termination is a result of Article 18.1.1.4, TDH
will give the notice required under the provisions of TDH's formal
hearing procedures in 25 Texas Administrative Code ss. 1.2.1.
Notice may be given by any means that gives verification of receipt.
The termination date will be calculated as 30 days following the
date that HMO receives the notice of intent to terminate.

18.1.3 HMO must continue to perform services until the last day of the
month following 30 days from the date of receipt of notice if the
termination is a result of Articles 18.1.1.1, 18.1.1.2, or 18.1.1.3.
TDH may prohibit HMO's further performance of services under the
contract if the reason for termination is Article 18.1.1.4.

18.1.4 HMO may appeal the termination of this contract under the provisions
of the Texas Human Resources Code,ss.32.034.

18.1.5 The remedies available to TDH set forth above are in addition to all
other remedies available to TDH by law or in equity, are joint and
several, and may be exercised


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concurrently or consecutively. Exercise of any remedy in whole or in
part shall not limit TDH in exercising all or part of any remaining
remedies.

18.2 TERMINATION BY HMO
------------------

18.2.1 HMO may terminate this contract if TDH fails to pay HMO as required
under Article XIII or otherwise materially defaults in its duties
and responsibilities under this contract. Retaining premium,
recoupment, sanctions, or penalties which are allowed under this
contract or which result from HMO's failure to perform or a default
under the terms of the contract are not cause for termination.

18.2.2 HMO must give TDH 60 days written notice of intent to terminate this
contract. Notice may be given by any means that gives verification
of receipt. The termination date will be calculated as the last day
of the month following 60 days from the date the notice of intent to
termination is received by TDH.

18.2.3 TDH must be given 30 days to pay all amounts due. If TDH pays all
amounts then due, HMO cannot terminate the contract under this
Article.

18.3 TERMINATION BY MUTUAL CONSENT
-----------------------------

This contract may be terminated at any time by mutual consent of
both HMO and TDH.

18.4 DUTIES UPON TERMINATION OF CONTRACTING PARTIES
----------------------------------------------

When termination of the contract occurs, TDH and HMO must meet the
following obligations:

18.4.1 If the contract is terminated unilaterally by TDH, because of
failure of HMO to perform duties and obligations required by the
contract or by mutual consent with termination initiated by HMO:

18.4.1.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services; and

18.4.1.2 HMO is responsible for all expenses related to giving notice to
Members.

18.4.2 If the contract is terminated for any reason other than those
included in Article 18.4.1:

18.4.2.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services; and

18.4.2.2 TDH is responsible for all expenses related to giving notice to
Members.


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18.5 STATE AND FEDERAL DAMAGES, PENALTIES AND SANCTIONS
--------------------------------------------------

18.5.1 TDH may recommend to HCFA that sanctions be taken against HMO for
violations of 42 C.F.R. 434.67(a), relating to sanctions against
HMOs with risk comprehensive contracts. These violations are also
defaults of Article XVI of this contract. If HCFA determines that
HMO has violated one or more of these provisions of the regulations
and determines that federal payments will be withheld, TDH will deny
and withhold payments for new enrollees of HMO.

18.5.1.1 HMO must be given notice and opportunity to appeal a decision of TDH
and HCFA as required in 42 C.F.R. 434.67(c) and (d).

18.5.1.2 HMO may be subject to civil money penalties under the provisions of
42 C.F.R. 1003 in addition to or in place of withholding payments
under Article 18.5.1.

18.5.2 HMO may be subject to damages and penalties under the Human
Resources Code, ss.32.039, relating to damages and penalties for
events of default under this contract and violations of the
provisions of ss.32.039.

18.5.2.1 HMO will be given notice of the default or violation upon which
damages or penalties are based and an opportunity to appeal under
the provision of ss.32.039.

18.6 SUSPENSION OF NEW ENROLLMENT
----------------------------

18.6.1 TDH may suspend new enrollment into HMO for any default under this
contract.

18.6.2 TDH must give HMO 30 days written notice of intent to suspend new
enrollment other than for defaults which are imposed as a result of
fraud and abuse or imminent danger to the health or safety of
Members. Notice may be given by any means which gives verification
of receipt. The suspension date will be calculated as 30 days
following the date that HMO receives the notice of intent to suspend
new enrollment. During the 30-day notice period, HMO will be given
an opportunity to cure the defaults, if a cure is possible.

18.6.3 TDH may immediately suspend new enrollment into HMO for a default
declared as a result of fraud and abuse or imminent danger to the
health and safety of Members or investigation, prosecution, or
suspension by an agency charged with the duty of investigation of
state and federal laws.

18.6.4 The suspension of new enrollment may be for any duration, up to the
termination date of the contract. TDH will impose a duration of
suspension based upon the type and severity of the default and HMO's
ability to cure the default.

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18.7 TDH INITIATED DISENROLLMENT
---------------------------

18.7.1 TDH may initiate disenrollment of a Member or reduce the total
number of Members enrolled in HMO through disenrollment if HMO fails
to provide covered services to a Member or if TDH determines that
HMO has a pattern or practice of failing to provide covered services
to Members.

18.7.2 TDH must give HMO 30 days written notice of intent to initiate
disenrollment of a Member. Notice may be given by any means which
gives verification of receipt. The TDH initiated disenrollment date
will be calculated as 30 days following the date that HMO receives
the notice of intent to disenroll. HMO will not be given an
opportunity to cure the default unless the right to cure is
expressly authorized in the notice letter.

18.7.3 TDH may continue to reduce the number of Members enrolled in HMO
until HMO demonstrates that it can and/or will provide covered
services as required under this contract.

18.8 LIQUIDATED MONEY DAMAGES - WITHHOLDING PAYMENTS
-----------------------------------------------

18.8.1 TDH may impose liquidated money damages in addition to other
remedies and sanctions provided under this contract. If money
damages are imposed, TDH may either reduce the amount of any monthly
premium payments otherwise due to HMO by the amount of the damages
or require direct payment. Money damages, which are withheld, are
forfeited and will not be subsequently paid to HMO upon compliance
or cure of default, unless a determination is made after appeal that
the damages should not have been imposed.

18.8.2 Failure to perform or comply with an administrative function. TDH
may impose and withhold the following money damages for each event
of default:

18.8.2.1 Failure to file or filing incomplete or inaccurate annual or
quarterly reports will result in money damages of not less than
$3,000.00 or more than $11,000.00 for every month from the month the
report is due until submitted in the form and format required by
TDH. These money damages apply separately to each report.

18.8.2.2 Failure to produce or provide records and information requested by
TDH, or an entity acting on behalf of TDH, or an agency authorized
by statute or law to require production of records at the time and
place the records were required or requested, will result in money
damages of not less than $1,000.00 per day for each day the records
are not produced as required by the requesting entity or agency if
the requesting entity or agency is conducting an investigation or
audit relating to fraud or abuse, and $500.00 per day for each day
records are not produced if the requesting entity or agency is
conducting routine audits or monitoring activities.


El Paso Service Area HMO Contract

5/14/99


18.8.2.3 Failure to file or filing incomplete or inaccurate encounter data
will result in money damages of not less than $10,000 nor more than
$25,000 for each month HMO fails to submit encounter data in the
form and format required by TDH. These damages are in addition to
the damages contained in Article 18.8.2.1. TDH will use the
encounter data validation methodology established by TDH to
determine the numbers of encounter data and the number of days for
which damages will be assessed.

18.8.2.4 Failing or refusing to cooperate with TDH, an entity acting on
behalf of TDH, or an agency authorized by statute or law to require
the cooperation of HMO, in carrying out an administrative,
investigative, or prosecutorial function of the Medicaid program,
will result in money damages of not less than $ 1,000.00 per day for
each day HMO fails to cooperate.

18.8.3 Failure to provide or pay for covered services. TDH will impose and
withhold the following money damages for each event of default:

18.8.3.1 Failure to provide mandatory and/or benchmarked services. If HMO
fails to deliver services or to report encounter data documenting
the delivery of services which are mandated by federal law or for
which a benchmark is established under this contract, TDH will
impose money damages. Damages imposed will be not less than $10,000
nor more than $25,000 for each month that HMO substantially fails to
deliver the services and/or report the encounter data documenting
the delivery of the services, or fails to meet the established
benchmark. These damages are in addition to failure to document or
submit encounter data and reports required elsewhere in this
contract.

18.8.3.2 Failure to provide a covered service requested or required by a
Member. If a Member requests a Fair Hearing before TDH because HMO
has substantially failed to provide a covered service, the Bureau of
Managed Care may make a recommendation to the hearing officer
conducting the Fair Hearing to impose sanctions upon HMO. The
recommendation of the Bureau of Managed Care to impose sanctions
must include an amount of recommended sanctions, and the
justification for entering a finding that HMO has substantially
failed to deliver the requested service. The amount of the sanction
may be in any amount of not less than $ 1,000.00 nor more than
$25,000.00 depending upon the nature of the denial and the hardship
or health threat that the denial placed upon the Member.

18.8.3.3 If TDH has provided or paid for a service requested by a Member
pending a decision after a Fair Hearing and the decision is adverse
to HMO, TDH will withhold the entire amount TDH paid for the service
in addition to the damages under Article 18.8.3.

18.8.3.4 Failure to enter into a required or mandatory contract or failure to
contract for or arrange to have all services required under this
contract provided will result in money

El Paso Service Area HMO Contract

5/14/99


damages of $1,000.00 per day that HMO either fails to negotiate in
good faith to enter into the required contract or fails to arrange
to have required services delivered.

18.8.3.5 Failing to pay providers claims for covered services. TDH will
impose and withhold the following money damages for each event of
default. These money damages are in addition to the interest HMO is
required to pay to providers under the provisions of Article
7.2.7.10.

18.8.3.6 If TDH determines that HMO has failed to pay a provider for a claim
or claims for which provider should have been paid, TDH will impose
money damages of $2 per day for each day the claim is not paid from
the date the claim should have been paid (calculated as 30 days from
the date a clean claim was received by HMO) until the claim is paid
by HMO.

18.8.3.7 If TDH determines that HMO has failed to pay a capitation amount to
a provider who has contracted with IB40 to provide services on a
capitated basis, TDH will impose money damages of $10 per day, per
Member for whom the capitation is not paid, from the date on which
the payment was due until the capitation amount is paid.

18.8.4 TDH must provide HMO with 7 days written notice of intent to
withhold capitation amounts under this Article 18.8. The notice will
include the reason for the withhold, the amount that TDH intends to
withhold, and the facts and detail sufficient for HMO to determine
the accuracy of the proposed withhold. Notice may be given by any
means that gives verification of receipt.

18.8.5 HMO may appeal the decision of TDH to withhold capitation amounts by
filing a written response to the notice clearly stating the reason
that HMO disputes the withhold and include any supporting
documentation with the response. HMO must file the appeal within 15
days from HMO's receipt of the notice. Filing an appeal will not
pend or suspend the withhold.

18.8.6 HMO and TDH must attempt to informally resolve the dispute. If HMO
and TDH are unable to informally resolve the dispute, HMO must
notify the Bureau Chief of Managed Care that they are unable to come
to an agreement. The Bureau Chief will refer the dispute to the
Associate Commissioner for Health Care Financing who will appoint a
committee to review the dispute under TDH's dispute resolution
procedures. The decision of the dispute resolution committee will be
the final administrative decision by TDH.

18.9 FORFEITURE OF TDI PERFORMANCE BOND
----------------------------------

TDH may require forfeiture of all or a portion of the face amount of
the TDI performance bond if TDH determines that an event of default
has occurred. Partial payment of the face amount shall reduce the
total bond amount available pro rata.

El Paso Service Area HMO Contract

5/14/99


ARTICLE XIX TERM

19.1 The effective date of this contract is _________________________,
1999. This contract will terminate on August 31, 2001, unless
terminated earlier as provided elsewhere in this contract.

19.2 The contract will not automatically renew beyond the initial term.
TDH will notify HMO not less than 60 days before the end of the
contract term of its intent not to renew the contract.

19.3 If HMO does not intend to renew beyond the initial term of the
contract, HMO must submit a written Notice of Intent Not to Renew,
along with a transition plan for its existing Members, not less than
90 days before the end of the contract term in Article 19.1. HMO
will be responsible for paying all costs of providing notice to
Members and any additional costs incurred by TDH to ensure that
Members are reassigned to other plans without interruption of
services.

19.4 HMO may enter into a new contract to continue to provide managed
care services under the following terms and conditions:

19.4.1 HMO submits a written Request to Continue Operations Without
Interruption not less than 90 days before the end of the contract
term in Article 19.1;

19.4.2 HMO submits to a Readiness Review by TDH under the provisions of
Gov. Code ss.533.107;

19.4.3 HMO cures any past defaults or deficiencies or submits a written
plan documenting how past defaults or deficiencies will be avoided
under a future contract, and the written plan is approved by TDH;
and

19.4.4 HMO submits all reports and encounter data currently due or past due
under this contract before the termination date of this contract.

19.4.5 If HMO submits a Request to Continue Operations Without Interruption
but either fails to meet the requirements of this Article or decides
prior to execution of a renewal contract not to continue operations,
HMO will be responsible for paying all costs of providing notice to
Members and any additional costs incurred by TDH to ensure that
Members are reassigned to other plans without interruption of
services. HMO must continue to provide services to Members for 60
days or until all Members have been reassigned to other plans.


El Paso Service Area HMO Contract

5/14/99


19.5 This contract may be extended on a temporary basis if the
requirements of this section have been initiated but the
requirements of Article 19.3 have not been completed and/or
evaluated by TDH before the termination date.

19.6 Non-renewal of this contract is not a contract termination for
purposes of appeal rights under the Human Resources Code ss.32.034.

SIGNED twenty-second day of July , 1999.
----------------------------- -----------------------------

TEXAS DEPARTMENT OF HEALTH Name of HMO



BY: /s/ WILLIAM R. ARCHER, III BY: /s/ Michael McKinney
------------------------------ -----------------------------
William R. Archer III, M.D. Printed Name: Michael D. McKinney M.D.
Commissioner of Health -----------------------------
Title: President/CEO
-----------------------------


Approved as to Form: /s/ Illegible

Office of General Counsel

El Paso Service Area HMO Contract

5/14/99







Appendices
----------
Copies of the Appendices will be available upon request.


TDH Doc. No. 7427705425*2001-01A


AMENDMENT NO. 1
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. I is entered into between the Texas Department of Health and
Superior Health Plan, Inc., to amend the Contract for Services between the Texas
Department of Health and HMO in the El Paso Service Area, dated July 22, 1999.
The effective date of this amendment is January 1, 2000. All other contract
provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1. Article XIII is amended by deleting the stricken language and adding
the bold and italicized language to Article 13.1.2 as follows:

13.1.2 Delivery Supplemental Payment (DSP). DSP is a payment
process to HMO in which the costs of delivery were extracted
from the Standard Capitation Payment Methodology of other
risk groups and included in a one-time payment for each
delivery. TDH has submitted the delivery supplemental
payment methodology to HCFA for approval. The monthly
capitation amounts established for each risk group in the El
Paso Service Area using the DSP methodology will apply only
if the methodology is approved by HCFA, and the methodology
is implemented for all HMOs in all existing service areas by
contract. [DELETED] The monthly capitation amounts for
January 1, 2000, through August 31, 2000, using the DSP
methodology, and the DSP amounts are listed below. These
amounts are effective January 1, 2000. The monthly
capitation amounts established for each risk group in the El
Paso Service Area using the Standard methodology (listed in
Article 13.1.3) will apply if the DSP methodology is not
approved by HCFA.


El Paso SDA

1


-----------------------------------------------------------------
Risk Group Monthly Capitation Amounts
January 1, 2000 August 31,
2000

-----------------------------------------------------------------
TANF Adults $123.17
-----------------------------------------------------------------
TANF Children > 12 $ 60.59
Months of Age
-----------------------------------------------------------------
Expansion Children > 12 $ 83.90
Months of Age
-----------------------------------------------------------------
Newborns < 12 Months of $299.20
Age
-----------------------------------------------------------------
TANF Children < 12 $299.20
Months of Age
-----------------------------------------------------------------
Expansion Children < 12 $299.20
Months of Age
-----------------------------------------------------------------
Federal Mandate Children $ 46.44
-----------------------------------------------------------------
CHIP Phase I $ 68.70
-----------------------------------------------------------------
Pregnant Women $206.20
-----------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
-----------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO
as provided below in the following amount: $2,885.39.

13.1.2.1 HMO will receive a DSP for each live or still birth. The
one-time payment is made regardless of whether there is a
single or multiple births at time of delivery. A delivery is
the birth of a liveborn infant, regardless of the duration
of the pregnancy, or a stillborn (fetal death) infant of 20
weeks or more gestation. A delivery does not include a
spontaneous or induced abortion, regardless of the duration
of the pregnancy.

13.1.2.2 For an HMO Member who is classified in the Pregnant Women,
TANF Adults, TANF Children > 12 months, Expansion Children >
12 months, Federal Mandate Children, or CHIP risk group, HMO
will be paid the monthly capitation amount identified in
Article 13.1.2 for each month of classification, plus the
DSP amount identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes
the data elements specified by TDH. TDH will consult with
contracted


El Paso SDA

2


HMOs prior to revising the report data elements and
requirements. The reports must be submitted to TDH in the
format and time specified by TDH. The report must include
only unduplicated deliveries. The report must include only
deliveries for which HMO has made a payment for the
delivery, to either a hospital or other provider. No DSP
will be made for deliveries which are not reported by HMO to
TDH within 210 days after the date of delivery, or within 30
days from the date of discharge from the hospital for the
stay related to the delivery, whichever is later.

13.1.2.4 HMO must maintain complete claims and adjudication
disposition documentation, including paid and denied amounts
for each delivery. HMO must submit the documentation to TDH
within five (5) days from the date of a TDH request for
documents.

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

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

AGREED AND SIGNED by an authorized representative of the parties on 1/3/2000.

TEXAS DEPARTMENT OF HEALTH Superior Health Plan, Inc.

By: /s/ WILLIAM R. ARCHER, III By: /s/ MICHAEL D. MCKINNEY
------------------------------ ------------------------------
William R. Archer, III., M.D. Michael D. McKinney, M.D.
Commissioner of Health CEO


Approved as to Form:



/s/ L. WIEGMAN 1-3-2000
--------------------------------
Office of General Counsel

TDH Doc. No. 7427705425*2001-01A El Paso SDA

3


DR# 026906
DOC# 7427705425*2001 O1B


AMENDMENT NO 3
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 3 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO). to amend the Contract for Services
between the Texas Department of Health and HMO in the El Paso Service Area.
dated September 1, 1999. The effective date of this Amendment is the date TDH
Signs this Amendment. All other contract provisions remain in full force and
effect.


1. Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with all appropriate level of health care provider who agrees to be available
oil all as-needed basis to provide medically appropriate services for
routine/high risk/or emergency medical conditions or emergency Behavioral Health
condition that present without being scheduled at the facility or when the
attending physician is unavailable.

[DELETED] Enrollment report/enrollment file means the daily or monthly list of
Medicaid recipients who are enrolled with an HMO as Members oil the day or for
the month the report is issued.

2. Article VI is amended by adding the bold and italicized language and
deleting the stricken language.

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

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

6.9.3 HMO must have a process to expedite scheduling a prenatal
appointment for all obstetrical exam for a TP40 Member no later than
two weeks after receiving the daily enrollment file verifying
enrollment of the Member into the HMO.

6.9.3.4 HM0 must have procedures in place to contact and assist a
pregnant/delivering Member in selecting a PCP for her baby either
before the birth or as soon as the


baby is born. [DELETED]

6.9.4.5 HMO must provide inpatient care and professional services related to
labor and delivery for its pregnant/delivering Members and neonatal
care for its newborn Members (see Article 14.3.1) at the time of
delivery and for up to 48 hours following an uncomplicated vaginal
delivery and 96 hours following an uncomplicated Caesarian delivery.
[DELETED]

6.9.5.1 HMO must reimburse in-network providers, out-of-network providers,
and specialty physicians who are providing call coverage, routine,
and/or specialty consultation services for the period of time
covered in Article 6.9.5.

6.9.5.1.1 HMO must adjudicate provider claims for services provided to a
newborn Member in accordance with TDH's claims processing
requirements using the proxy ID number or State-issued Medicaid ID
number (see Article 4.10). HMO cannot deny claims based on provider
non-use of State-issued Medicaid ID number for a newborn Member.
HMO must accept provider claims for newborn services based on
mother's name and/or Medicaid ID number with accommodations for
multiple births. as specified by the HMO.

6.9.5.2 HMO cannot require prior authorization or PCP assignment to
adjudicate newborn claims for the period of time covered by 6.9.5

[DELETED]

6.9.6 [DELETED] HMO may require prior authorization requests for hospital
or professional services provided beyond the time limits in Article
6.9.5. HMO must respond to these prior authorization within the
requirements of 28 TAC ss.19.1710 - 19.1712


and Article 21.58a of the Texas Insurance Code.

6.9.6.1 HMO must notify providers involved in the care of
pregnant/delivering women and newborns (including out-of-network
providers and hospitals) regarding the HMO's prior authorization
requirements.

6.9.6.2 HMO cannot require a prior authorization for services provided to a
pregnant/delivering Member or newborn Member for a medical condition
which requires emergency services, regardless of when the emergency
condition arises (see Article 6.5.6).

3. Article VIII is amended by adding the bold and italicized language and
deleting the stricken language

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

4. Article XII is amended by adding the bold and italicized language and
deleting the stricken language.

12.2 STATISTICAL REPORTS
-------------------

12.2.4 HMO cannot submit newborn encounters to TDH until the State-issued
Medicaid ID number is received for a newborn. HMO must match the
proxy ID number issued by the HMO with the State-issued Medicaid ID
number prior to submission of encounters to TDH and submit the
encounter in accordance to the HMO Encounter Data Submission Manual.
The encounter must include the State issued Medicaid ID number.
Exceptions to the 45-day deadline will be granted in cases in which
the Medicaid ID number is not available for a newborn Member.

12.2.5 HMO must require providers to submit claims and encounter data to
HMO no later than 95 days after the date services are provided.


12.2.6 HMO must use the procedure codes. diagnosis codes and other codes
contained in the most recent edition of the Texas Medicaid Provider
Procedures Manual and as otherwise provided by TDH. Exceptions or
additional codes must be submitted for approval before HMO uses the
codes.

12.2.7 HMO Must Use its TDH-specified identification numbers on all
encounter data Submissions. Please refer to the TDH Encounter Data
Submission Manual for further specifications.

12.2.8 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission of
encounter data to TDH.

12.2.9 All Claims Summary Report. HMO must submit the "All Claims Summary
Report" identified in the Texas Managed Care Claims Manual as a
contract year-to-date report. The report must be submitted quarterly
by the last day of the month following the reporting period. The
reports must be submitted to TDH in a format specified by TDH.

12.2.10 Medicaid Disproportionate Share Hospital (DSH) Report HMO must file
preliminarv and final Medicaid Disproportionate Share Hospital (DSH)
reports. required by TDH to identify and reimburse hospitals that
qualify for Medicaid DSH funds. The preliminary and final DSH
reports must include the data elements and be submitted in the form
and format specified b TDH. The preliminary DSH reports are due on
or before June 1 of the year following the state fiscal year for
which data is being reported. The final DSH reports are due on or
before August 15 of the year following the state fiscal year for
which data is being reported.

5. Article XIII is amended by adding the bold and italicized language.

13.5 NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
---------------------------------------------

13.5.1 Newborns born to Medicaid eligible mothers who are enrolled in HMO
are enrolled into HMO for 90 days following the date of birth.

13.5.1.1 The mother of the newborn Member may change her newborn to another
HMO during the first 90 days following the date of birth, but may
only do so through TDH Customer Services.

13.5.2 MAXIMUS will provide HMO with a daily enrollment file which will
list all newborns who have received State-issued Medicaid ID
numbers. This file will include the Medicaid eligible mother's
Medicaid ID number to allow the HMO to link the newborn's
State-issued Medicaid ID numbers with the proxy ID number. TDH will
guarantee capitation payments to HMO for all newborns who appear on
the MAXIMUS daily enrollment file as HMO Members for each month the
newborn is enrolled in the HMO.


13.5.3 All non-TP45 newborns whose mothers are HMO Members at the time of
the birth of the newborn will be retroactively enrolled into the HMO
through a manual process by DHS Data Control.

13.5.4 Newborns who do not appear on the MAXIMUS daily enrollment file
before the end of the sixth month following the date of birth will
not be retroactively enrolled into the HMO TDH will manually
reconcile payment to the HMO for services provided from the date of
birth for TP45 and all other eligibility categories of newborns.
Payment will cover services rendered from the effective date of the
proxy ID number when first issued by the HMO regardless of plan
assignment at the time the State-issued Medicaid ID number is
received.

13.5.5 MAXIMUS will provide HMO with a daily enrollment file which will
list all TP40. Members who have received State-issued Medicaid ID
numbers. TDH will guarantee capitation payments to HMO for all TP40
Members who appear on the MAXIMUS daily enrollment file as HMO
Members for each month the TP40 Member enrollment is effective.

6. Article XIV is amended by adding the bold and italicized language.

14.3 NEWBORN ENROLLMENT
------------------

The HMO is responsible for newborns who are born to mothers who are
enrolled in HMO on the date of birth as follows:

14.3.1 Newborns are presumed Medicaid eligible and enrolled in the mother's
HMO for at least 90 days from the date of birth.

14.3.1.1 A mother of a newborn Member may change plans for her newborn during
the first 90 days by contacting TDH Customer Services. TDH will
notify HMO of newborn plan changes made by a mother when the change
is made by TDH Customer Services.

14.3.2 HMO must establish and implement written policies and procedures to
require professional and facility providers to notify HMOs of a
birth of a newborn to a Member at the time of delivery.

14.3.2.1 HMO must create a proxy ID number in the HMO's
Enrollment/Eligibility and claims processing systems. HMO proxy ID
number effective date is equal to the date of birth of the newborn.

14.3.2.2 HMO must match the proxy ID number and the State-issued Medicaid ID
number once the State-issued Medicaid ID number is received.

14.3.2.3 HMO must submit a Form 7484A to DHS Data Control requesting DHS Data


Control to research DHS's files for a Medicaid ID number if HMO has
not received a State-issued Medicaid ID number for a newborn within
30 days froM the date of birth. If DHS finds that no Medicaid ID
number has been issued to the newborn. DHS Data Control will issue
the Medicaid ID number using the information provided on the Form
7484A.

14.3.3 Newborns certified Medicaid eligible after the end of the sixth
month following the date of birth will not be retroactively enrolled
to an HMO, but will be enrolled in Medicaid fee-for-service TDH will
manually reconcile payment to the HMO for services provided from
the date of birth for all Medicaid eligible newborns as described in
Article 13.5.4.

14.4 DISENROLLMENT

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

14.4.1 HMO has a limited right to request a Member be disenrolled from HMO
without the Member's consent. TDH must approve any HMO request for
disenrollment of a Member for cause. Disenrollment of a Member may
be permitted under the following circumstances:

14.4.1.1 Member misuses or loans Member's HMO membership card to another
person to obtain services.

14.4.1.2 Member is disruptive, unruly, threatening or uncooperative to the
extent that Member's membership seriously impairs HMO's or
provider's ability to provide services to Member or to obtain new
Members, and Member's behavior is not caused by a physical or
behavioral health condition.

14.4.1.3 Member steadfastly refuses to comply with managed care restrictions
(e.g. repeatedly using emergency room in combination with refusing
to allow HMO to treat the underlying medical condition).

14.4.2.1 HMO must take reasonable measures to correct Member behavior prior
to requesting disenrollment. Reasonable measures may include
providing education and counseling regarding the offensive acts or
behaviors.

14.4.3 HMO must notify the Member of HMO's decision to disenroll the Member
if all reasonable measures have failed to remedy the problem.

14.4.4 If the Member disagrees with the decision to disenroll the Member
from HMO, HMO


must notify the Member of the availability of the complaint
procedure and TDH's Fair Hearing process.

14.4.5 HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.5 AUTOMATIC RE-ENROLLMENT
-----------------------

14.5.1 Members who are disenrolled because they are temporarily ineligible
for Medicaid will be automatically re-enrolled Into the same health
plan. Temporary loss of eligibility is defined as a period of 6
months or less.

14.5.2 HMO must inform its Members of the automatic re-enrollment
procedure. Automatic re-enrollment must be included in the Member
Handbook (see Article 8.2.1).

14.6 ENROLLMENT REPORTS
------------------

14.6.1 TDH will provide HMO enrollment reports listing all STAR Members who
have enrolled in or were assigned to HMO during the initial
enrollment period.

14.6.2 TDH will provide monthly HMO Enrollment Reports to HMO on or before
the first or the month.

14.6.3 TDH will provide Member verification to HMO and network providers
through telephone verification or TexMedNet.


AGREED AND SIGNED by an authorized representative of the parties on
_______________ 2000.

TEXAS DEPARTMENT OF HEALTH Superior Health Plan, Inc.

By: /s/ WILLIAM R. ARCHER, III By: /s/ MICHAEL D. MCKINNEY
----------------------------- ------------------------------
William R. Archer, III, M.D. Michael D. McKinney,
Commissioner of Health President and CEO



Approved as to Form:



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


TDH Doc. # 7427705425* 2001-01G


AMENDMENT NO. 4
TO THE

1999 and CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO) in El Paso Service Area, to amend the
1999 Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH signs this Amendment. All other
contract provisions remain in full force and effect. The parties agree to amend
the Contract as follows:

1. The previous amendment to this contract identified as Amendment No.
3 to the 1999 TDH/HMO contract should be Amendment No. 2, and the
previous amendment to this contract identified as Amendment No. 5
should be Amendment No. 3. This mistake is corrected by this
amendment and Amendment No. 3 will be renumbered as Amendment No. 2,
and Amendment No. 5 will be renumbered as Amendment No. 3 from this
point forward.

Article XII is amended to read as follows:

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Behavioral health (BH) utilization management reports are required
on a semi-annual basis. Refer to Appendix H for the standardized
reporting format for each report and detailed instructions for
obtaining the specific data required in the report.

12.8.1 In addition, data files are due to TDH or its designee no later than
the fifth working day following the end of each month. See
Utilization Data Transfer Encounter Submission Manual for submission
instructions. The BH utilization report and data file submission
instructions may periodically be updated by TDH to facilitate clear
communication to the health plans.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are required on
a semi-annual basis. Refer to Appendix J for the standardized
reporting format for each report and detailed instructions for
obtaining the specific data required in the report.


12.9.1 In addition, data files are due to TDH or its designee no later than
the fifth working day following the end of each month. See
Utilization Data Transfer Encounter Submission Manual for submission
instructions. The PH utilization report and data file submission
instructions may periodically be updated by TDH to facilitate clear
communication to the health plans.

AGREED AND SIGNED by an authorized representative of the parties on August 2,
2001.

TEXAS DEPARTMENT OF HEALTH Superior Health Plan, Inc.

By: /s/ CHARLES E. BELL, M.D. By: /s/ MICHAEL D. MCKINNEY
------------------------------ ------------------------------
Charles E. Bell M.D. Michael D. McKinney, M.D.
Executive Deputy Commissioner of Health President


Approved as to Form:



/s/ MARY ANN GLAVIN
------------------------------
Office of General Counsel

TDH Doc. # 7427705425* 2001-01G


TDH Doc. # 7427705425* 2001-01F


AMENDMENT No. 5

TO THE 1999
CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO), to amend the 1999 Contract for
services between the Texas Department of Health and HMO. The effective date of
this Amendment is the date TDH signs this Amendment. All other contract
provisions remain in full force and effect. The Parties agree to amend the
Contract as follows:

1. Article I

ARTICLE I PARTIES AND AUTHORITY TO CONTRACT

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

2. Article II

ARTICLE II DEFINITIONS

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

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

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

1 May 31, 2001


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

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

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

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

Comprehensive Care Program: See definition for Texas Health Steps.

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

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

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

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

2 May 31, 2001


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

Experience Rebate means the state's share of excess of allowable HMO STAR
revenues over allowable HMO STAR expenses.

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

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

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

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

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

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

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

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

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

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

3 May 31, 2001


Proxy Claim Form means a form submitted by providers to document services
delivered to Medicaid Members under capitated arrangement. It is not a claim for
payment.

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

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

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

3. Article III is amended by adding the following bolded and italicized
language and deleting the following stricken language:

ARTICLE III PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

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

3.2.1 HMO must enter into written contracts with all Subcontractors and
maintain copies of the subcontracts in HMO's administrative office.
HMO must submit two copies of all non-provider subcontracts relating
to the delivery or payment of covered health services to TDH for
approval no later that 120 days prior to Implementation Date.
Subcontracts entered into after the Implementation Date of this
contract must be submitted no later than 10 days after the date of
execution of the subcontract. On an on-going basis, HMO must make
non-provider subcontracts available to TDH upon request, at the time
and location requested by TDH.

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

3.2.1.2 HMO must notify TDH no later than 90 days prior to terminating any
subcontract affecting a major performance function of this contract.
All major subcontractor terminations or substitutions require TDH
approval (see Article 15.7). TDH may require HMO to provide a
transition plan describing how the subcontracted function

4 May 31, 2001


will continue to be provided. All subcontracts are subject to the
terms and conditions of this contract and must contain the
provisions of Article V, Statutory and Regulatory Compliance, and
the provisions contained in article 3.2.4.

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

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

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

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

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

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

3.4.3 All materials regarding the STAR Program, including Member education
materials, must be submitted to TDH for approval prior to
distribution. TDH has 15 working days to review the materials and
recommend any suggestions or required changes. If TDH has not
responded to HMO by the fifteenth day, HMO may print and distribute
STAR Program materials. TDH reserves the right to request HMO to
modify plan materials that are deemed approved and have been printed
or distributed. TDH-requested modifications of previously approved,
printed or distributed materials can be made at the next printing
unless substantial non-compliance exists.


5 May 31, 2001


An exception to the 15 working day timeframe may be requested in
writing by HMO for written provider materials that require a quick
turn-around time (e.g., letters). Materials requiring a quick
turn-around time will be reviewed by TDH within 5 working days.

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

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

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

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

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

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

6 May 31, 2001


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

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

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

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

1. 80% of all telephone calls must be answered within an average
of 30 seconds;
2. The lost (abandonment) rate must not exceed 10%;
3. HMO cannot impose maximum call duration limits but must allow
calls to be of sufficient length to ensure adequate
information is provided to the Member or Provider.
4. Telephone services must meet cultural competency requirements
(see Article 8.9) and provide "linguistic access" to all
members as defined in Article II. This would include the
provision of interpretive services required for effective
communication for Members and providers.

3.7.2 Member Helpline: The HMO must furnish a toll free phone line which
members may call 24 hours a day, 7 days a week. An answering service
or other similar mechanism, which allows callers to obtain
information from a live person, may be used for after-hours and
weekend coverage.

3.7.2.1 HMO must provide coverage for the following services at least during
HMO's regular business hours, (a minimum of 9 hours a day, between 8
a.m. and 6 p.m.), Monday through Friday:

1. Member ID information
2. PCP Change
3. Benefit understanding
4. PCP verification
5. Access issues (including referrals to specialists)
6. Unavailability of PCP
7. Member eligibility
8. Complaints
9. Service area issues (including when member is temporarily
out-of-service area)
10. Other services covered by member services.


7 May 31, 2001


3.7.2.2 HMO must provide TDH with policies and procedures indicating how the
HMO will meet the needs of members who are unable to contact HMO
during regular business hours.

3.7.3 HMO must ensure that PCPs are available 24 hours a day, 7 days a
week (see Article 7.8). This includes PCP telephone coverage (see 28
TAC 11.2001 (a)1A).

3.7.4 Behavioral Health Hotline Services. HMO must have emergency and
crisis Behavioral Health hotline services available 24 hours a day,
7 days a week, toll-free throughout the service area. Crisis hotline
staff must include or have access to qualified behavioral health
professionals to assess behavioral health emergencies. Emergency and
crisis behavioral health services may be arranged through mobile
crisis teams. It is not acceptable for an emergency intake line to
be answered by an answering machine. Hotline services must meet the
requirements described in Article 3.7.1

4. Article IV

ARTICLE IV FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

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

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

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

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

4.6 AUDIT
-----


8 May 31, 2001


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

5. Article V

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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

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

5.3.2 Compliance Plan. HMO must submit to TDH for approval a written fraud
and abuse compliance plan which is based on the Model Compliance
Plan issued by the U.S. Department of Health and Human Services, the
Office of Inspector General (OIG), at least 120 days prior to the
Implementation Date. HMO must designate an officer or director in
its organization who has the responsibility and authority for
carrying out the provisions of its compliance plan. HMO must submit
any updates or modifications in its compliance plan to TDH for
approval at least 30 days prior to the modifications going into
effect. HMO's fraud and abuse compliance plan must:

5.3.3 Training. HMO must designate executive and essential personnel to
attend mandatory training in fraud and abuse detection, prevention
and reporting. The training will be conducted by the Office of
Investigations and Enforcement, Health and Human Services
Commission, and will be provided free of charge. Training must be
scheduled not later than 150 days before the Implementation Date and
be completed by all designated personnel not later than 60 days
before the Implementation Date. HMO must schedule and complete
training no later than 90 days after the effective date of any
updates or modifications of its written compliance plan.

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

9 May 31, 2001


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

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

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

5.3.6 Subcontractors. HMO must submit the documentation described in
Articles 5.3.6.1 through 5.3.6.3, in compliance with Texas
Government Code ss.533.012, regarding any subcontractor providing
health care services under this contract except for those providers
who have re-enrolled as a provider in the Medicaid program as
required by Section 2.07, Chapter 1153, Acts of the 75th
Legislature, Regular Session, 1997, or who modified a contract in
compliance with that section. HMO must submit information in a
format as specified by TDH. Documentation must be submitted no later
than 120 days after the effective date of this contract.
Subcontracts entered into after the effective date of this contract
must be submitted no later than 90 days after the effective date of
the subcontract. The documentation required under this provision is
not subject to disclosure under Chapter 552, Government Code. The
information which must be submitted must include:

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

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

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

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

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

10 May 31, 2001


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

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

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

5.9.3 If HMO believes that the requested information qualifies as a trade
secret or as commercial or financial information, HMO must notify
TDH -- within three (3) working days after TDH gives notice that a
request has been made for public information -- and request TDH to
submit the request for public information to the Attorney General
for an Open Records Opinion. The HMO will be responsible for
presenting all exceptions to public disclosure to the Attorney
General if an opinion is requested.

6. Article VI

ARTICLE VI SCOPE OF SERVICES

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

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

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

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

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

11 May 31, 2001


subsequent editions of the Provider Procedures Manual published
during the contract period.

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

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

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

6.1.6.1 The approval request for value-added services must include:

6.1.6.1.1 A detailed description of the service to be offered;

6.1.6.1.2 Identification of the category or group of Members eligible to
receive the service if it is a type of service that is not
appropriate for all Members. (HMO has the discretion to determine if
voluntary Members are eligible for the value-added services);

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

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

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

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

12 May 31, 2001


6.1.6.3 Value-added services must be offered to all mandatory HMO Members,
as indicated in Article 6.1.6.1.2, unless the contract is amended or
the contract terminates.

6.1.7 HMO may offer additional benefits that are outside the scope of
services of this contract to individual Members on a case-by-case
basis, based on medical necessity, cost effectiveness, and
satisfaction and improved health/behavioral health status of the
Member/Member family.

6.1.8 Non-Capitated Services. The following Texas Medicaid program
services have been excluded from the services included in the
calculation of HMO capitation rate:

THSteps Dental (including Orthodontia)

Early Childhood Intervention Case Management/Service Coordination
MHMR Targeted Case Management

Mental Health Rehabilitation

Pregnant Women and Infants Case Management

THSteps Medical Case Management

Texas School Health and Related Services

Texas Commission for the Blind Case Management

Tuberculosis Services Provided by TDH-approved providers (Directly
Observed Therapy and Contact Investigation)

Vendor Drugs (out-of-office drugs)

Medical Transportation

TDHS Hospice Services

Refer to relevant chapters in the Provider Procedures Manual and the
Texas Medicaid Bulletins for more information.

Although HMO is not responsible for paying or reimbursing for these
non-capitated services, HMO remains responsible for providing
appropriate referrals for Members to obtain or access these
services.

6.1.8.1 HMO is responsible for informing providers that all non-capitated
services must be submitted to TDH's Claims Administrator for payment
or reimbursement.

6.3 SPAN OF ELIGIBILITY
-------------------

The following outlines HMO's responsibilities for payment of
hospital and freestanding psychiatric facility (facility)
admissions:

6.3.1 Inpatient Admission Prior to Enrollment in HMO. HMO is responsible
for payment of physician and non-hospital/facility charges for the
period for which HMO is paid


13 May 31, 2001


a capitation payment for a Member. HMO is not responsible for
hospital/facility charges for Members admitted prior to the date of
enrollment in HMO.

6.3.2 Inpatient Admission After Enrollment in HMO. HMO is responsible for
all charges until the Member is discharged from the
hospital/facility or until the Member loses Medicaid eligibility.

6.3.2.1 If a Member regains Medicaid eligibility and the Member was enrolled
in HMO at the time the Member was admitted to the hospital, HMO is
responsible for charges as follows:

6.3.2.1.1 Member Re-enrolls into HMO After Regaining Medicaid Eligibility. HMO
is responsible for all charges for the period for which HMO receives
a capitation payment for the Member or until the Member is
discharged or loses Medicaid eligibility.

6.3.2.1.2 Member Re-enrolls in Another Health Plan After Regaining Medicaid
Eligibility. HMO is responsible for hospital/facility charges until
the Member is discharged or loses Medicaid eligibility.

6.3.3 Plan Change. A Member cannot change from one health plan to another
health plan during an inpatient hospital stay.

6.3.4 Hospital/Facility Transfer. Discharge from one acute care
hospital/facility and readmission to another acute care
hospital/facility within 24 hours for continued treatment is not a
discharge under this contract.

6.4 CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
-----------------------------------------------

6.4.3 HMO must pay a Member's existing out-of-network providers for
covered services until the Member's records, clinical information
and care can be transferred to a network provider. Payment must be
made within the time period required for network providers. HMO may
pay any out-of-network provider a reasonable and customary amount
determined by the HMO. This Article does not extend the obligation
of HMO to reimburse the Member's existing out-of-network providers
of on-going care for more than 90 days after Member enrolls in HMO
or for more than nine months in the case of a Member who at the time
of enrollment in HMO has been diagnosed with and receiving treatment
for a terminal illness. The obligation of HMO to reimburse the
Member's existing out-of-network provider for services provided to a
pregnant Member with 12 weeks or less remaining before the expected
delivery date extends through delivery of the child, immediate
postpartum care, and the follow-up checkup within the first six
weeks of delivery.


14 May 31, 2001


6.4.5 HMO must provide assistance to providers requiring PCP verification
24 hours a day 7 days a week.

6.4.5.1 HMO must provide TDH with policies and procedures indicating how the
HMO will provide PCP verification as indicated in Article 6.4.5.
HMOs providing PCP verification via a telephone must meet the
requirements of 3.7.1.

6.5 EMERGENCY SERVICES
------------------

6.5.1 HMO must pay for the professional, facility, and ancillary services
that are medically necessary to perform the medical screening
examination and stabilization of HMO Member presenting as an
emergency medical condition or an emergency behavioral health
condition to the hospital emergency department, 24 hours a day, 7
days a week, rendered by either HMO's in-network or out-of-network
providers. HMO may elect to pay any emergency services provider an
amount negotiated between the emergency provider and HMO, or a
reasonable and customary amount determined by the HMO.

6.5.2 HMO must ensure that its network primary care providers (PCPs) have
after-hours telephone availability 24 hours a day, 7 days a week
throughout the service area.

6.5.3 HMO cannot require prior authorization as a condition for payment
for an emergency medical condition, an emergency behavioral health
condition, or for a labor and delivery.

6.5.4 Medical Screening Examination. A medical screening examination may
range from a relatively simple history, physical examination,
diagnosis, and treatment, to a complex examination, diagnosis, and
treatment that requires substantial use of hospital emergency
department and physician services. HMO must pay for the emergency
medical screening examination required to determine whether an
emergency condition exists, as required by 42 U.S.C. 1395dd. HMOs
must reimburse for both the physician's services and the hospital's
emergency services, including the emergency room and its ancillary
services.

6.5.5 Stabilization Services. HMO must pay for emergency services
performed to stabilize the Member as documented by the Emergency
physician in the Member's medical record. HMOs must reimburse for
physician's services and hospital's emergency services including the
emergency room and its ancillary services. With respect to an
emergency medical condition, to stabilize is to provide such medical
care as to assure within reasonable medical probability that no
deterioration of the condition is likely to result from or occur
during discharge, transfer, or admission of the Member from the
emergency room.


15 May 31, 2001


6.5.6 Post-stabilization Services. Post-stabilization services are
services subsequent to an emergency that a treating physician views
as medically necessary after an emergency medical condition has been
stabilized. They are not "emergency services" and are subject to
HMO's prior authorization process. HMO must be available to
authorize or deny post-stabilization services within one hour after
being contacted by the treating physician.

6.5.7 HMO must provide access to the TDH-designated Level I and Level II
trauma centers within the State or hospitals meeting the equivalent
level of trauma care. HMOs may make out-of-network reimbursement
arrangements with the TDH-designated Level I and Level II trauma
centers to satisfy this access requirement.

6.6 BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
-------------------------------------------------------

6.6.1 HMO must provide or arrange to have provided to Members all
behavioral health care services included as covered services. These
services are described in detail in the Texas Medicaid Provider
Procedures Manual (Provider Procedures Manual) and the Texas
Medicaid Bulletin, which is the bi-monthly update to the Provider
Procedures Manual. Clinical information regarding covered services
is published by the Texas Medicaid program in the Texas Medicaid
Service Delivery Guide (See Article 6.1).

6.6.2 HMO must maintain a behavioral health provider network that includes
psychiatrists, psychologists and other behavioral health providers.
HMO must provide or arrange to have provided behavioral health
benefits described as covered services (see Article 6. 1). The
network must include providers with experience in serving children
and adolescents to ensure accessibility and availability of
qualified providers to all eligible children and adolescents in the
service area. The list of providers including names, addresses and
phone numbers must be available to TDH upon request.

6.6.10 HMO must require, through contract provisions, that all Members
receiving inpatient psychiatric services are scheduled for
outpatient follow-up and/or continuing treatment prior to discharge.
The outpatient treatment must occur within 7 days from the date of
discharge. HMO must ensure that behavioral health providers contact
Members who have missed appointments within 24 hours to reschedule
appointments.

6.7 FAMILY PLANNING - SPECIFIC REQUIREMENTS
---------------------------------------

6.7.1 Counseling and Education. HMO must require, through contract
provisions, that Members requesting contraceptive services or family
planning services are also provided counseling and education about
family planning and family planning services are available to
Members. HMO must develop outreach programs to increase

16 May 31, 2001


community support for family planning and encourage Members to use
available family planning services. HMO is encouraged to include a
representative cross-section of Members and family planning
providers who practice in the community in developing, planning and
implementing family planning outreach programs.

6.7.2 Freedom of Choice. HMO must ensure that the Members have the right
to choose any Medicaid participating family planning provider,
whether the provider chosen by the Member is in or outside HMO
provider network. HMO must provide Member access to information
about the providers of family planning services available and the
Member's right to choose any Medicaid family planning provider. HMO
must provide access to confidential family planning services.

6.7.3 Provider Standards and Payment. HMO must require all subcontractors
who are family planning agencies to deliver family planning services
according to the TDH Family Planning Service Delivery Standards. HMO
must provide, at minimum, the full scope of services available under
the Texas Medicaid program for family planning services. HMO will
reimburse family planning agencies and out-of-network family
planning providers the Medicaid fee-for-service amounts for family
planning services, including medically necessary medications,
contraceptives, and supplies.

6.7.6 HMO must develop, implement, monitor and maintain standards,
policies and procedures for providing information regarding family
planning to providers and Members, specifically regarding State and
federal laws governing Member confidentiality (including minors).
Providers and family planning agencies cannot require parental
consent for minors to receive family planning services.

6.8 TEXAS HEALTH STEPS (EPSDT)
--------------------------

6.8.1 THSteps Services. HMO must develop effective methods to ensure that
children under the age of 21 receive THSteps services when due and
according to the recommendations established by the American Academy
of Pediatrics and the THSteps periodicity schedule for children. HMO
must arrange for THSteps services to be provided to all eligible
Members except when a Member knowingly and voluntarily declines or
refuses services after the Member has been provided information upon
which to make an informed decision.

6.8.3 Provider Education and Training. HMO must provide appropriate
training to all network providers and provider staff in the
providers' area of practice regarding the scope of benefits
available and the THSteps program. Training must include THSteps
benefits, the periodicity schedule for THSteps checkups and
immunizations, and Comprehensive Care Program (CCP) services
available under the THSteps program to Members under age 21 years.
Providers must also be educated and


17 May 31, 2001


trained regarding the requirements imposed upon TDH and contracting
HMOs under the Consent Decree entered in Frew v. McKinney, et. al.,
Civil Action No. 3:93CV65, in the United States District Court for
the Eastern District of Texas, Paris Division. Providers should be
educated and trained to treat each THSteps visit as an opportunity
for a comprehensive assessment of the Member.

6.8.4 Member Outreach. HMO must provide an outreach-unit that works with
Members to ensure they receive prompt services and are effectively
informed about available THSteps services. Each month HMO must
retrieve from the Enrollment Broker BBS a list of Members who are
due and overdue THSteps services. Using these lists and their own
internally generated lists, HMOs will contact Members and encourage
Members who are periodically due or overdue a THSteps service to
obtain the service as soon as possible. HMO outreach staff must
coordinate with TDH THSteps outreach staff to ensure that Members
have access to the Medical Transportation Program, and that any
coordination with other agencies is maintained.

6.8.7 Newborn Checkups. HMO must have mechanisms in place to ensure that
all newborn Members have an initial newborn checkup before discharge
from the hospital and again within two weeks from the time of birth.
HMO must require providers to send all THSteps newborn screens to
the TDH Bureau of Laboratories or a TDH certified laboratory.
Providers must include detailed identifying information for all
screened newborn Members and the Member's mother to allow TDH to
link the screens performed at the hospital with screens performed at
the two week follow-up.

6.8.7.1 Laboratory Tests: All laboratory specimens collected as a required
component of a THSteps checkup (see Medicaid Provider Procedures
Manual for age-specific requirements) must be submitted to the TDH
Laboratory for analysis. HMO must educate providers about THSteps
program requirements for submitting laboratory tests to the TDH
Bureau of Laboratories.

6.8.9 Immunizations. HMO must educate providers on the Immunization
Standard Requirements set forth in Chapter 161, Health and Safety
Code; the standards in the ACIP Immunization Schedule; and AAP
Periodicity Schedule.

6.8.9.1 ImmTrac Compliance. HMO must educate providers about and require
providers to comply with the requirements of Chapter 161, Health and
Safety Code, relating to the Texas Immunization Registry (ImmTrac),
to include parental consent on the Vaccine Information Statement.

6.8.11 Compliance with THSteps Performance Benchmark. TDH will establish
performance benchmarks against which HMO's full compliance with the
THSteps periodicity schedule will be measured. The performance
benchmarks will establish


18 May 31, 2001


minimum compliance measures which will increase over time. HMO must
meet all performance benchmarks required for THSteps services.

6.11 SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS, AND
--------------------------------------------------------------
CHILDREN (WIC) - SPECIFIC REQUIREMENTS
--------------------------------------

6.11.4 HMO may use the nutrition education provided by WIC to satisfy
health education requirements described in this contract.

6.12 TUBERCULOSIS (TB)
-----------------

6.12.1 Education, Screening, Diagnosis and Treatment. HMO must provide
Members and providers with education on the prevention, detection
and effective treatment of tuberculosis (TB). HMO must establish
mechanisms to ensure all procedures required to screen at-risk
Members and to form the basis for a diagnosis and proper prophylaxis
and management of TB are available to all Members, except services
referenced in Article 6.1.8 as non-capitated services. HMO must
develop policies and procedures to ensure that Members who may be or
are at risk for exposure to TB are screened for TB. An at-risk
Member refers to a person who is susceptible to TB because of the
association with certain risk factors, behaviors, drug resistance,
or environmental conditions. HMO must consult with the local TB
control program to ensure that all services and treatments provided
by HMO are in compliance with the guidelines recommended by the
American Thoracic Society (ATS), the Centers for Disease Control and
Prevention (CDC), and TDH policies and standards.

6.12.2 Reporting and Referral. HMO must implement policies and procedures
requiring providers to report all confirmed or suspected cases of TB
to the local TB control program within one working day of
identification of a suspected case, using the forms and procedures
for reporting TB adopted by TDH (25 TAC ss.97). HMO must require
that in-state labs report mycobacteriology culture results positive
for M. Tuberculosis and M. Tuberculosis antibiotic susceptibility to
TDH as required for in state labs by 25 TAC ss.97.5(a). Referral to
state-operated hospitals specializing in the treatment of
tuberculosis should only be made for TB-related treatment.

6.12.4 Coordination and Cooperation with the Local TB Control Program. HMO
must coordinate with the local TB control program to ensure that all
Members with confirmed or suspected TB have a contact investigation
and receive Directly Observed Therapy (DOT). HMO must require,
through contract provisions, that providers report any Member who is
non-compliant, drug resistant, or who is or may be posing a public
health threat to TDH or the local TB control program. HMO must
cooperate with the local TB control program in enforcing the control
measures and quarantine procedures contained in Chapter 81 of the
Texas Health and Safety Code.


19 May 31, 2001


6.13 PEOPLE WITH DISABILITIES OR CHRONIC OR COMPLEX CONDITIONS
---------------------------------------------------------

6.13.1 HMO shall provide the following services to persons with
disabilities or chronic or complex conditions. These services are in
addition to the covered services described in detail in Article 6.1
Scope of Services.

6.13.3 HMO must require that the PCP for all persons with disabilities or
chronic or complex conditions develops a plan of care to meet the
needs of the Member. The plan of care must be based on health needs,
specialist(s) recommendations, and periodic reassessment of the
Member's developmental and functional status and service delivery
needs. HMO must require providers to maintain record keeping systems
to ensure that each Member who has been identified with a disability
or chronic or complex condition has an initial plan of care in the
primary care provider's medical records, Member agrees to that plan
of care, and that the plan is updated as often as the Member's needs
change, but at least annually.

6.13.5 HMO must have in its network PCPs and specialty care providers that
have documented experience in treating people with disabilities or
chronic or complex conditions, including children. For services to
children with disabilities or chronic or complex conditions, HMO
must have in its network PCPs and specialty care providers that have
demonstrated experience with children with disabilities or chronic
or complex conditions in pediatric specialty centers such as
children's hospitals, medical schools, teaching hospitals, and
tertiary center levels.

6.13.11 HMO must assist, through information and referral, eligible Members
in accessing providers of non-capitated Medicaid services listed in
Article 6.1.8, as applicable.

6.13.12 HMO must ensure that Members who require routine or regular
laboratory and ancillary medical tests or procedures to monitor
disabilities or chronic or complex conditions are allowed by HMO to
receive the services from the provider in the provider's office or
at a contracted lab located at or near the provider's office.

6.14 HEALTH EDUCATION AND WELLNESS AND PREVENTION PLANS
--------------------------------------------------

6.14.3 Health Education Plan. HMO must develop, implement and submit to TDH
a Health Education plan describing how it will provide health
education to Members. The health education plan must tell Members
how HMO system operates, how to obtain services, including emergency
care and out-of-plan services. The plan must emphasize the value of
screening and preventive care and must contain disease specific
information and education materials. The final Health Education Plan
is due to TDH 30 days after the Group Needs Assessment Report has
been completed and filed with TDH.


20 May 31, 2001


6.14.3.1 Wellness Promotion Programs. HMO must conduct wellness promotion
programs to improve the health status of its Members. HMO may
cooperatively conduct Health Education classes for all enrolled STAR
Members with one or more HMOs also contracting with TDH in the
service area to provide services to Medicaid recipients in all
counties of the service area. Providers and HMO staff must integrate
health education, wellness and prevention training into the care of
each Member. HMO must provide a range of health promotion and
wellness information and activities for Members in formats that meet
the needs of all Members. HMO must:

(1) develop, maintain and distribute health education services
standards, policies and procedures to providers;

(2) monitor provider performance to ensure the standards for
health education services are complied with;

(3) inform providers in writing about any non-compliance with the
plan standards, policies or procedures;

(4) establish systems and procedures that ensure that provider's
medical instruction and education on preventive services
provided to the Member are documented in the Member's medical
record; and

(5) establish mechanisms for promoting preventive care services to
Members who do not access care, e.g. newsletters, reminder
cards, and mail outs.

6.14.4 Health Education Activities Report. HMO must submit, upon request, a
Health Education Activities Schedule to TDH or its designee listing
the time and location of classes, health fairs or other events
conducted during the time period of the request.

6.16 BLIND AND DISABLED MEMBERS
--------------------------

6.16.2.7 Coordination to link Blind and Disabled Members with applicable
community resources and targeted case management programs (see
Non-Capitated Services in Article 6.1.8).

7. Article VII

ARTICLE VII PROVIDER NETWORK REQUIREMENTS

7.1 PROVIDER ACCESSIBILITY
----------------------

7.1.3.4 HMO must establish policies and procedures to ensure that THSteps
checkups be provided within 90 days of new enrollment, except
newborns Members should be seen within 2 weeks of enrollment, and in
all cases for all Members be consistent with the American Academy of
Pediatrics and THSteps periodicity schedule which

21 May 31, 2001


is based on the American Academy of Pediatrics schedule and
delineated in the Texas Medicaid Provider Procedures Manual and the
bi-monthly Medicaid Bulletin (see also Article 6. 1, Scope of
Services). If the Member does not request a checkup, HMO must
establish a procedure for contacting the Member to schedule the
checkup.

7.2 PROVIDER CONTRACTS
------------------

7.2.1 All providers must have a written contract, either with an
intermediary entity or an HMO, to participate in the Medicaid
program (provider contract). HMO must make all contracts available
to TDH upon request, at the time and location requested by TDH. All
standard formats of provider contracts must be submitted to TDH for
approval no later than 120 days prior to the Implementation Date.
Standard formats of provider contracts to be executed later than 120
days prior to the Implementation Date must be submitted to TDH prior
to use of the standard format. HMO must submit 1 paper copy and 1
electronic copy in a form specified by TDH. Any substantive change
to the standard format must be submitted to TDH for approval no
later than 30 days prior to the implementation of the new standard
format. All provider contracts are subject to the terms and
conditions of this contract and must contain the provisions of
Article V, Statutory and Regulatory Compliance, and the provisions
contained in Article 3.2.4.

7.2.1.1 TDH has 15 working days to review the materials and recommend any
suggestions or required changes. If TDH has not responded to HMO by
the fifteenth day, HMO may execute the contract. TDH reserves the
right to request HMO to modify any contract that has been deemed
approved.

7.2.7 To the extent feasible within HMO's existing claims processing
systems, HMO should have a single or central address to which
providers must submit claims. If a central processing center is not
possible within HMO's existing claims processing systems, HMO must
provide each network provider a complete list of all entities to
whom the providers must submit claims for processing and/or
adjudication. The list must include the name of the entity, the
address to which claims must be sent, explanation for determination
of the correct claims payer based on services rendered, and a phone
number the provider may call to make claim inquiries. HMO must
notify providers in writing of any changes in the claims filing list
at least 30 days prior to the effective date of change. If HMO is
unable to provide 30 days notice, providers must be given a 30-day
extension on their claims filing deadline to ensure claims are
routed to correct processing center.

7.2.8 HMO, all IPAs, and other intermediary entities must include contract
language which substantially complies with the following standard
contract provisions in each Medicaid provider contract. This
language must be included in each contract with

22 May 31, 2001


an actual provider of services, whether through a direct contract or
through intermediary provider contracts:

7.2.8.1 [Provider] is being contracted to deliver Medicaid managed care
under the TDH STAR program. HMO must provide copies of the TDH/HMO
Contract to the [Provider) upon request. [Provider) understands that
services provided under this contract are funded by State and
federal funds under the Medicaid program. [Provider) is subject to
all state and federal laws, rules and regulations that apply to all
persons or entities receiving state and federal funds. [Provider]
understands that any violation by a provider of a State or federal
law relating to the delivery of services by the provider under this
HMO/Provider contract, or any violation of the TDH/HMO contract
could result in liability for money damages, and/or civil or
criminal penalties and sanctions under state and/or federal law.

7.2.8.2 [Provider] understands and agrees that HMO has the sole
responsibility for payment of covered services rendered by the
provider under HMO/Provider contract. In the event of HMO insolvency
or cessation of operations, [Provider's] sole recourse is against
HMO through the bankruptcy, conservatorship, or receivership estate
of HMO.

7.2.8.3 [Provider) understands and agrees TDH is not liable or responsible
for payment for any Medicaid covered services provided to mandatory
Members under HMO/Provider contract. Federal and State laws provide
severe penalties for any provider who attempts to collect any
payment from or bill a Medicaid recipient for a covered service.

7.2.8.4 [Provider] agrees that any modification, addition, or deletion of
the provisions of this contract will become effective no earlier
than 30 days after HMO notifies TDH of the change in writing. If TDH
does not provide written approval within 30 days from receipt of
notification from HMO, changes can be considered provisionally
approved, and will become effective. Modifications, additions or
deletions which are required by TDH or by changes in state or
federal law are effective immediately.

7.2.8.5 This contract is subject to all state and federal laws and
regulations relating to fraud and abuse in health care and the
Medicaid program. [Provider] must cooperate and assist TDH and any
state or federal agency that is charged with the duty of
identifying, investigating, sanctioning or prosecuting suspected
fraud and abuse. [Provider) must provide originals and/or copies of
any and all information, allow access to premises and provide
records to TDH or its authorized agent(s), THHSC, HCFA, the U.S.
Department of Health and Human Services, FBI, TDI, and the Texas
Attorney General's Medicaid Fraud Control Unit, upon request, and
free-of-charge. [Provider] must report any suspected fraud or abuse
including any suspected fraud


23 May 31, 2001


and abuse committed by HMO or a Medicaid recipient to TDH for
referral to THHSC.

7.2.8.6 [Provider] is required to submit proxy claims forms to HMO for
services provided to all STAR Members that are capitated by HMO in
accordance with the encounter data submissions requirements
established by HMO and TDH.

7.2.8.7 HMO is prohibited from imposing restrictions upon the [Provider's]
free communication with Members about a Member's medical conditions,
treatment options, HMO referral policies, and other HMO policies,
including financial incentives or arrangements and all STAR managed
care plans with whom [Provider] contracts.

7.2.8.8 The Texas Medicaid Fraud Control Unit must be allowed to conduct
private interviews of [Providers] and the [Providers'] employees,
contractors, and patients. Requests for information must be complied
with, in the form and language requested. [Providers] and their
employees and contractors must cooperate fully in making themselves
available in person for interviews, consultation, grand jury
proceedings, pre-trial conference, hearings, trial and in any other
process, including investigations. Compliance with this Article is
at HMO's and [Provider's] own expense.

7.2.8.9 HMO must include the method of payment and payment amounts in all
provider contracts.

7.2.8.10 All provider clean claims must be adjudicated within 30 days. HMO
must pay provider interest on all clean claims that are not paid
within 30 days at a rate of 1.5% per month (18% annual) for each
month the claim remains unadjudicated.

7.2.8.11 HMO must prohibit network providers from interfering with or placing
liens upon the state's right or HMO's right, acting as the state's
agent, to recovery from third party resources. HMO must prohibit
network providers from seeking recovery in excess of the Medicaid
payable amount or otherwise violating state and federal laws.

7.2.9 HMO must comply with the provisions of Chapter 20A ss. 18A of HMO
Act relating to Physician and Provider contracts, except Subpart
(e), which relates to capitation payments.

7.2.10 HMO must include a complaint and appeals process which complies with
the requirements of Article 20A.12 of the Texas Insurance Code
relating to Complaint System in all subcontracts. HMO's complaint
and appeals process must be the same for all Contractors.

24 May 31, 2001


7.2.11 HMO must notify TDH no later than 90 days prior to terminating any
subcontract affecting a major performance function of this contract.
If HMO seeks to terminate a provider's contract for imminent harm to
patient health, actions against a license or practice, or fraud,
contract termination may be immediate. TDH will require assurances
that any contract termination will not result in an interruption of
an essential service or major contract function.

7.3 PHYSICIAN INCENTIVE PLANS
-------------------------

7.3.4 HMO must submit the information required in Article 7.3.2.6 one year
after the effective date of initial contract or effective date of
renewal contract, and annually each subsequent year under the
contract. HMO's who put physicians or physician groups at
substantial financial risk, as defined in 42 C.F.R. ss.417.479, must
conduct a survey of all Members who have voluntarily disenrolled in
the previous year. A list of voluntary disenrollees may be obtained
from the Enrollment Broker.

7.4 PROVIDER MANUAL AND PROVIDER TRAINING
-------------------------------------

7.4.1 HMO must prepare and issue a Provider Manual(s), including any
necessary specialty manuals (e.g. behavioral health) to the
providers in HMO network and to newly contracted providers in HMO
network within five (5) working days from inclusion of the provider
into the network. The Provider Manual must contain sections relating
to special requirements of the STAR Program as required under this
contract. See Appendix D, Required Critical Elements, for specific
details regarding content requirements. HMO must submit a Provider
Manual to TDH for approval 120 days prior to the Implementation Date
(see Article 3.4.1 regarding the process for plan materials review).
Any revisions must be approved by TDH prior to publication and
distribution to providers.

7.4.2.1 HMO training for all providers must be completed no later than 30
days after placing a newly contracted provider on active status. HMO
must provide on-going training to new and existing providers as
required by HMO or TDH to comply with this contract.

7.5 MEMBER PANEL REPORTS
--------------------

HMO must furnish each PCP with a current list of enrolled Members
enrolled or assigned to that Provider no later than 5 days after HMO
receives the Enrollment File from the Enrollment Broker each month.
If the 5th day falls on a weekend or state holiday, the file must be
provided by the following working day.

7.6 PROVIDER COMPLAINT AND APPEAL PROCEDURES
----------------------------------------


25 May 31, 2001


7.6.1 HMO must develop, implement and maintain a provider complaint
system. HMO must submit the written complaint and appeal procedure
to TDH by Phase II of Readiness Review. The complaint and appeals
procedures must be in compliance with all applicable state and
federal law or regulations. All Member complaints and/or appeals of
an adverse determination requested by a physician or provider acting
on behalf of the enrollee must comply with the provisions of this
Article. Modifications and amendments to the complaint system must
be submitted to TDH no later than 30 days prior to the
implementation of the modification or amendment.

7.6.3 HMO's complaint and appeal process cannot contain provisions
requiring a Provider to submit a complaint or appeal to TDH for
resolution in lieu of the HMO's process.

7.8 PRIMARY CARE PROVIDERS
----------------------

7.8.5 HMO must have in its provider network physicians with board
eligibility/certification in pediatrics available for referral for
Members under the age of 21.

7.8.5.1 Individual PCPs may serve more than 2,000 Members. However, if TDH
determines that a PCP's Member enrollment exceeds the PCPs
availability to provide accessible, quality care, TDH may prohibit
the PCP from receiving further enrollments. TDH may direct HMOs to
assign or reassign Members to another PCP's panel.

7.8.7 HMO's primary care provider network may include providers from any
of the following practice areas: General Practitioners; Family
Practitioners; Internists; Pediatricians;
Obstetricians/Gynecologists (OB/GYN); Advanced Practice Nurses
(APNs) and Certified Nurse Midwives (CNMs) practicing under the
supervision of a physician; Physician Assistants (PAs) practicing
under the supervision of a physician specializing in Family
Practice, Internal Medicine, Pediatrics or Obstetrics/Gynecology who
also qualifies as a PCP under this contract; or Federally Qualified
Health Centers (FQHCs), Rural Health Clinics (RHCs) and similar
community clinics; and specialists who are willing to provide
medical homes to selected Members with special needs and conditions
(see Article 7.8.8).

7.8.12 PCP Selection and Changes. All Medicaid recipients who are eligible
for participation in the STAR program have the right to select their
PCP and HMO. Medicaid recipients who are mandatory STAR participants
who do not select a PCP and/or HMO during the time period allowed
will be assigned to a PCP and/or HMO using the TDH default process.
Members may change PCPs at any time, but these changes are limited
to four (4) times per year. If a PCP or OB/GYN who has been selected
by or assigned to a Member is no longer in HMO's provider network,
HMO


26 May 31, 2001


must contact the Member and provide them an opportunity to reselect.
If the Member does not want to change the PCP or OB/GYN to another
provider in HMO network, the Member must be directed to the
Enrollment Broker for resolution or reselection. If a PCP or OB/GYN
who has been selected by or assigned to a Member is no longer in an
IPA's provider network but continues to participate in HMO network,
HMO or IPA may not change the Member's PCP or OB/GYN.

7.8.12.1 Voluntary SSI Members. PCP changes cannot be performed retroactively
for voluntary SSI Members. If an SSI Member requests a PCP change on
or before the 15th of the month, the change will be effective the
first day of the next month, if an SSI Member requests a PCP change
after the 15th of the month, the change will be effective the first
day of the second month that follows. Exceptions to this policy will
be allowed for reasons of medical necessity or other extenuating
circumstances.

7.8.12.2 Mandatory Members. Retroactive changes to a Member's PCP should only
be made if it is medically necessary or there are other
circumstances which necessitate a retroactive change. HMO must pay
claim's for services provided by the original PCP. If the original
PCP is paid on a capitated basis and services were provided during
the period for which capitation was paid, HMO cannot recoup the
capitation.

7.9 OBSTETRICAL/GYNECOLOGICAL (OB/GYN) PROVIDERS
--------------------------------------------

HMO must allow a female Member to select an OB/GYN within its
provider network or within a limited provider network in addition to
a PCP, to provide health care services within the scope of the
professional specialty practice of a properly credentialed OB/GYN.
See Article 21.53D of the Texas Insurance Code and 28 TAC Sections
11.506, 11.1600 and 11. 1608. A Member who selects an OB/GYN must be
allowed direct access to the health care services of the OB/GYN
without a referral by the woman's PCP or a prior authorization or
precertification from HMO. HMO must allow Members to change OB/GYNs
up to four times per year. Health care services must include, but
not be limited to:

7.9.5 HMOs which allow its Members to directly access any OB/GYN provider
within its network must ensure that the provisions of Articles 7.9.1
through 7.9.4 continue to be met.

7.9.6 OB/GYN providers must comply with HMO's procedures contained in
HMO's provider manual or provider contract for OB/GYN providers,
including but not limited to prior authorization procedures.

7.12 BEHAVIORAL HEALTH - LOCAL MENTAL HEALTH AUTHORITY (LMHA)
--------------------------------------------------------


27 May 31, 2001


7.12.1 Assessment to determine eligibility for rehabilitative and targeted
MHMR case management services is a function of the LMHA. HMO must
provide or arrange to have provided all covered services described
in detail in Article 6.1 Scope of Services. Covered services must be
provided to Members with severe and persistent mental illness (SPMI)
and severe emotional disturbance (SED), when medically necessary,
whether or not they are also receiving targeted case management or
rehabilitation services through the LMHA.

7.12.3 HMO must enter into written agreements with all LMHAs in the service
area which describes the process(es) which HMO and LMHA will use to
coordinate services for STAR Members with SPMI or SED. The agreement
will contain the following provisions:

7.12.3.1 Describe the behavioral health covered services indicated in detail
in Article 6.1 Scope of Services. Also include the amount, duration,
and scope of basic and value-added services, and HMO's
responsibility to provide these services;

7.13 SIGNIFICANT TRADITIONAL PROVIDERS (STPS)
----------------------------------------

HMO must demonstrate a good faith effort to include STPs in its
provider network. HMO must seek participation in its provider
network from:

7.13.1 Each health care provider in the service area who has traditionally
provided care to Medicaid recipients;

7.13.2 Each hospital in the service area that has been designated as a
disproportionate share hospital under Medicaid; and

7.13.3 Each specialized pediatric laboratory in the service area, including
those laboratories located in children's hospitals.

7.13.4 HMO must include STPs as designated by TDH in its provider network
to provide primary care and specialty care services. HMO must
include STPs in its provider network for at least three (3) years
following the Implementation Date in the service area.

7.13.5 STPs must agree to the contract requirements contained in Article
7.2, unless exempted from a requirement by law or rule. STPs must
also agree to the following contract requirements:

7.13.5.1 STP must agree to accept the standard reimbursement rate offered by
HMO to other providers for the same or similar services.

28 May 31, 2001


7.13.5.2 STP must meet the credentialing requirements of HMO. HMO must not
require STPs to meet a different or higher credentialing standard
than is required of other providers providing the same or similar
services. HMO must not require STP's to contract with a
Subcontractor which requires a different or higher credentialing
standard than the HMO's if the application of the higher standard
results in a disproportionate number of STPs being excluded from the
Subcontractor.

7.13.6 Failure to demonstrate a good faith effort to meet TDH's compliance
objectives to include STPs in HMO's provider network, is a defaults
under this contract and may result in any or all of the sanctions
and remedies included in Article XVIII of this contract. HMO's
fulfillment of TDH's compliance objectives for STP participation
will be monitored by TDH based on HMOs electronic file submission to
the Enrollment Broker as required in Article 12.5.1

7.14 RURAL HEALTH PROVIDERS
----------------------

7.14.4 HMO must reimburse physicians who practice in rural counties with
fewer than 50,000 persons at a rate using the current Medicaid fee
schedule.

7.16 COORDINATION WITH PUBLIC HEALTH

7.16.1 Reimbursed Arrangements. HMO must make a good faith effort to enter
into a subcontract for the covered health care services as specified
below with TDH Public Health Regions, city and/or county health
departments or districts in each county of the service area that
will be providing these services to the Members (Public Health
Entities), who will be paid for services by HMO, including any or
all of the following services or any covered service which the
public health department and HMO have agreed to provide:

7.16.1.1 Sexually Transmitted Diseases (STDs) Services (see Article 6.15);

7.16.1.2 Confidential HIV Testing (see Article 6.15);

7.16.1.3 Immunizations

7.16.1.4 Tuberculosis (TB) Care (see Article 6.12).

7.16.1.5 Family Planning Services (see Article 6.7);

7.16.1.6 THSteps checkups (see Article 6.8); and

7.16.1.7 Prenatal services.


29 May 31, 2001


7.16.2 HMO must make a good faith effort to enter into subcontracts with
public health entities in the service area at least 90 days prior to
the Implementation Date. The subcontracts must be available for
review by TDH or its designated agent(s) on the same basis as all
other subcontracts. If any changes are made to the contract, it must
be resubmitted to TDH. If an HMO is unable to enter into a contract
with public health entities, HMO must document current and past
efforts to TDH. Documentation must be submitted no later than 120
days after the execution of this amendment. Public health
subcontracts must include the following areas:

7.16.2.1 General Relationship Between HMO and the Public Health Entity. The
subcontracts must specify the scope and responsibilities of both
parties, the methodology and agreements regarding billing and
reimbursements, reporting responsibilities, Member and provider
educational responsibilities, and the methodology and agreements
regarding sharing of confidential medical record information between
the public health entity and the PCP.

7.16.2.2 Public Health Entity Responsibilities:

(1) Public health providers must inform Members that confidential
health care information will be provided to the PCP.

(2) Public health providers must refer Members back to PCP for any
follow-up diagnostic, treatment, or referral services.

(3) Public health providers must educate Members about the
importance of having a PCP and assessing PCP services during
office hours rather than seeking care from Emergency
Departments, Public Health Clinics, or other Primary Care
Providers or Specialists.

(4) Public health entities must identify a staff person to act as
liaison to HMO to coordinate Member needs, Member referral,
Member and provider education, and the transfer of
confidential medical record information.

7.16.2.3 HMO Responsibilities:

(1) HMO must identify care coordinators who will be available to
assist public health providers and PCPs in getting efficient
referrals of Members to the public health providers,
specialists, and health-related service providers either
within or outside HMO's network.

(2) HMO must inform Members that confidential healthcare
information will be provided to the PCP.

(3) HMO must educate Members on how to better utilize their PCPs,
public health providers, emergency departments, specialists,
and health-related service providers.

7.16.3 Non-Reimbursed Arrangements with Public Health Entities


30 May 31, 2001


7.16.3.1 Coordination with Public Health Entities. HMOs must make a good
faith effort to enter into a Memorandum of Understanding (MOU) with
Public Health Entities in the service area regarding the provision
of services for essential public health care services. These MOUs
must be entered into at least 90 days before the Implementation Date
in the service area and are subject to TDH approval. If any changes
are made to the MOU, it must be resubmitted to TDH. If HMO is unable
to enter into an MOU with a public entity, HMO must submit
documentation substantiating reasonable efforts to enter into such
an agreement to TDH. Documentation must be submitted no later than
120 days after the Implementation Date. MOUs must contain the roles
and responsibilities of HMO and the public health department for the
following services:

(1) Public health reporting requirements regarding communicable
diseases and/or diseases which are preventable by immunization
as defined by state law;

(2) Notification of and referral to the local Public Health
Entity, as defined by state law, of communicable disease
outbreaks involving Members;

(3) Referral to the local Public Health Entity for TB contact
investigation and evaluation and preventive treatment of
persons whom the Member has come into contact;

(4) Referral to the local Public Health Entity for STD/HIV contact
investigation and evaluation and preventive treatment of
persons whom the Member has come into contact; and,

(5) Referral for WIC services and information sharing;
(6) Coordination and follow-up of suspected or confirmed cases of
childhood lead exposure.

7.16.3.2 Coordination with Other TDH Programs. HMOs must make a good faith
effort to enter into a Memorandum of Understanding (MOU) with other
TDH programs regarding the provision of services for essential
public health care services. These MOUs must be entered into at
least 90 days before the Implementation Date in the service area and
are subject to TDH approval. If any changes are made to the MOU, it
must be resubmitted to TDH. If an HMO is unable to enter into an MOU
with other TDH programs, HMO must submit documentation
substantiating reasonable efforts to enter into such an agreement to
TDH. Documentation must be submitted no later than 120 days after
the Implementation Date. MOUs must delineate the roles and
responsibilities of HMO and the TDH programs for the following
services:

(1) Use of the TDH laboratory for THSteps newborn screens; lead
testing; and hemoglobin/hematocrit tests;
(2) Availability of vaccines through the Vaccines for Children
Program;
(3) Reporting of immunizations provided to the statewide ImmTrac
Registry including parental consent to share data;
(4) Referral for WIC services and information sharing;


31 May 31, 2001


(5) Pregnant Women and Infant (PWI) Targeted Case Management;
(6) THSteps outreach, informing and Medical Case Management;
(7) Participation in the community-based coalitions with the
Medicaid-funded case management programs in MHMR, ECI, TCB,
and TDH (PWI, CIDC and THSteps Medical Case Management);
(8) Referral to the TDH Medical Transportation Program;
(9) Cooperation with activities required of public health
authorities to conduct the annual population and community
based needs assessment; and
(10) Coordination and follow-up of suspected or confirmed cases of
childhood lead exposure.

7.16.4 All public health contracts must contain provider network
requirements in Article VII, as applicable.

7.17 COORDINATION WITH THE TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
-------------------------------------------------------------------
SERVICES

--------

7.17.3 HMO cannot deny, reduce, or controvert the medical necessity of any
health or behavioral health care services included in an Order
entered by a court. HMO may participate in the preparation of the
medical and behavioral care plan prior to TDPRS submitting the
health care plan to the Court. Any modification or termination of
court ordered services must be presented and approved by the court
with jurisdiction over the matter.

7.18 DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND ANHCs)
--------------------------------------------------------------

7.18.1 All HMO contracts with any of the entities described in Texas
Insurance Code Article 20A.02 (ee) or a group of providers who are
licensed to provide the same health care services or an entity that
is wholly-owned or controlled by one or more hospitals and
physicians including a physician-hospital organization (delegated
network contracts) must be submitted to TDH no later than 120 days
prior to Implementation Date. All delegated network contracts must:

7.18.1.1 contain the mandatory contract provisions for all subcontractors in
Article 3.2 of this contract;

7.18.1.2 comply with the requirements, duties and responsibilities of this
contract;

7.18.1.3 not create a barrier for full participation to significant
traditional providers;

7.18.1.4 not interfere with TDH's oversight and audit responsibilities
including collection and validation of encounter data; or


32 May 31, 2001


7.18.1.5 be consistent with the federal requirement for simplicity in the
administration of the Medicaid program.

7.18.2 In addition to the mandatory provisions for all subcontracts under
Articles 3.2 and 7.2, all HMO delegated network contracts must
include the following mandatory standard provisions:

7.18.2.1 HMO is required to include subcontract provisions in its delegated
network contracts which require the UM protocol used by a delegated
network to produce substantially similar outcomes, as approved by
TDH, as the UM protocol employed by the contracting HMO. The
responsibilities of an HMO in delegating UM functions to a delegated
network will be governed by Article 16.3.12 of this contract.

7.18.2.2 Delegated networks that have been delegated claims payment
responsibilities by HMO must also have the responsibility to submit
encounter, utilization, quality, and financial data to HMO. HMO
remains responsible for integrating all delegated network data
reports into HMO's reports required under this contract. If HMO is
not able to collect and report all delegated network data for HMO
reports required by this contract, HMO must not delegate claims
processing to the delegated network.

7.18.2.3 The delegated network must comply with the same records retention
and production requirements, including Open Records requirements, as
the HMO under this contract.

7.18.2.4 The delegated network is subject to the same marketing restrictions
and requirements as the HMO under this contract.

7.18.2.5 HMO is responsible for ensuring that delegated network contracts
comply with the requirements and provisions of the TDH/HMO contract.
TDH will impose appropriate sanctions and remedies upon HMO for any
default under the TDH/HMO contract which is caused directly or
indirectly by the acts or omissions of the delegated network.

7.18.3 HMO cannot enter into contracts with delegated networks to provide
services under this contract which require the delegated network to
enter into exclusive contracts with HMO as a condition for
participation with HMO.

7.18.3.1 Article 7.18.3 does not apply to providers who are employees or
participants in limited or closed panel provider networks.

7.18.4 All delegated networks that limit Member access to those providers
contracted with the delegated network (closed or limited panel
networks) with whom HMO contracts must either independently meet the
access provisions of 28 Texas Administrative Code ss. 11.1607,
relating to access requirements for those Members enrolled or

33 May 31, 2001


assigned to the delegated network, or HA40 must provide for access
through other network providers outside the closed panel delegated
network.

7.18.5 HMO cannot delegate to delegated network the enrollment,
re-enrollment, assignment or reassignment of a Member.

7.18.6 In addition to the above provision HMO and Approved Non-Profit
Health Corporations (ANHCs) must comply with all of the requirements
contained in 28 TAC ss. 11.1604, relating to Requirements of
Certain Contracts between Primary HMOs and ANHCs and Primary HMOs
and Provider HMOs.

7.18.7 HMO REMAINS RESPONSIBLE FOR PERFORMING ALL DUTIES, RESPONSIBILITIES
AND SERVICES UNDER THIS CONTRACT REGARDLESS OF WHETHER THE DUTY,
RESPONSIBILITY OR SERVICE IS CONTRACTED OR DELEGATED TO ANOTHER. HMO
MUST PROVIDE A COPY OF THE CONTRACT PROVISIONS THAT SET OUT HMO'S
DUTIES, RESPONSIBILITIES, AND SERVICES TO ANY PROVIDER NETWORK OR
GROUP WITH WHOM HMO CONTRACTS TO ANY PROVIDER NETWORK OR GROUP WITH
WHOM HMO CONTRACTS TO PROVIDE HEALTH CARE SERVICES ON A RISK SHARING
OR CAPITATED BASIS OR TO PROVIDE HEALTH CARE SERVICES.

8. Article VIII

ARTICLE VIII MEMBER SERVICES REQUIREMENTS

8.2 MEMBER HANDBOOK
---------------

8.2.1 HMO must mail each newly enrolled Member a Member Handbook no later
than five (5) days after. HMO receives the Enrollment File. If the
5th day falls on a weekend or state holiday, the Member Handbook
must be mailed by the following working day. The Member Handbook
must be written at a 4th - 6th grade reading comprehension level.
The Member Handbook must contain all critical elements specified by
TDH. See Appendix D, Required Critical Elements, for specific
details regarding content requirements. HMO must submit a Member
Handbook to TDH for approval not later than 90 days before the
Implementation Date (see Article 3.4.1 regarding the process for
plan materials review).

8.2.2 Member Handbook Updates. HMO must provide updates to the Handbook to
all Members as changes are made to the Required Critical Elements in
Appendix D. HMO must make the Member Handbook available in the
languages of the major


34 May 31, 2001


population groups and in a format accessible to the visually
impaired served by HMO.

8.2.3 THE MEMBER HANDBOOK AND ANY REVISIONS OR CHANGES MUST BE APPROVED BY
TDH PRIOR TO PUBLICATION AND DISTRIBUTION TO MEMBERS (See Article
3.4.1 regarding the process for plan materials review).

8.3 ADVANCE DIRECTIVES
------------------

8.3.1 Federal and state law require HMOs and providers to maintain written
policies and procedures for informing and providing written
information to all adult Members 18 years of age and older about
their rights under state and federal law, in advance of their
receiving care (Social Security Act ss.1902(a)(57)
and ss.1903(m)(1)(A)). The written policies and procedures must
contain procedures for providing written information regarding the
Member's right to refuse, withhold or withdraw medical treatment and
mental health treatment advance directives. HMO policies and
procedures must comply with provisions contained in 42 CFR ss.434.28
and 42 CFR ss.489, Subpart I, relating to advance directives for all
hospitals, critical access hospitals, skilled nursing facilities,
home health agencies, providers of home health care, providers of
personal care services and hospices, as well as the following state
laws and rules:

8.3.1.1 a Member's right to self-determination in making health care
decisions; and

8.3.1.2 the Advance Directives Act, Chapter 166, Texas Health and Safety
Code, which includes:

8.3.1.2.1 a Member's right to execute an advance written directive to
physicians and family or surrogates, or to make a non-written
directive to administer, withhold or withdraw life-sustaining
treatment in the event of a terminal or irreversible condition;

8.3.1.2.2 a Member's right to make written and non-written Out-of-Hospital
Do-Not-Resuscitate Orders; and

8.3.1.2.3 a Member's right to execute a Medical Power of Attorney to appoint
an agent to make health care decisions on the Member's behalf if the
Member becomes incompetent; and

8.3.1.3 the declaration for Mental Health Treatment, Chapter 137, Texas
Civil Practices and Remedies Code, which includes: a Member's right
to execute a declaration for mental health treatment in a document
making a declaration of preferences or instructions regarding mental
health treatment.

35 May 31, 2001


8.3.2 HMO must maintain written policies for implementing a Member's
advance directive. Those policies must include a clear and precise
statement of limitations if HMO or a participating provider cannot
or will not implement a Member's advance directive.

8.3.2.1 A statement of limitation on implementing a Member's advance
directive should include at least the following information:

8.3.2.1.1 a clarification of any differences between HMO's conscience
objections and those which may be raised by the Member's PCP or
other providers;

8.3.2.1.2 identification of the state legal authority permitting HMO's
conscience objections to carrying out an advance directive; and

8.3.2.1.3 a description of the medical and mental health conditions or
procedures affected by the conscience objection.

8.3.3 HMO cannot require a Member to execute or issue an advance directive
as a condition for receiving health care services.

8.3.4 HMO cannot discriminate against a Member based on whether or not the
Member executed or issued an advance directive.

8.3.5 HMO's policies and procedures must require HMO and subcontractor to
comply with the requirements of state and federal law relating to
advance directives. HMO must provide education and training to
employees, Members, and the community on issues concerning advance
directives. HMO must submit a copy of its policies and procedures
for TDH review and approval during Phase I of Readiness Review.

8.3.6 All materials provided to Members regarding advance directives must
be written at a 7th - 8th grade reading comprehension level, except
where a provision is required by state or federal law and the
provision cannot be reduced or modified to a 7th - 8th grade reading
level because it is a reference to the law or is required to be
included "as written" in the state or federal law. HMO must submit
to TDH any revisions to existing approved advance directive
materials.

8.3.7 HMO must notify Members of any changes in state or federal laws
relating to advance directives within 90 days from the effective
date of the change, unless the law or regulation contains a specific
time requirement for notification.

8.4 MEMBER ID CARDS
---------------


36 May 31, 2001


8.4.1 A Medicaid Identification Form (Form 3087) is issued monthly by the
TDHS. The form includes the "STAR" Program logo and the name and
toll free number of the Member's health plan. A Member may have a
temporary Medicaid Identification (Form 1027-A) which will include a
STAR indicator.

8.4.2 HMO must issue a Member Identification Card (ID) to the Member
within five (5) days from receiving the Enrollment File from the
Enrollment Broker. If the 5th day falls on a weekend or state
holiday, the ID Card must be issued by the following working day.
The ID Card must include, at a minimum, the following: Member's
name; Member's Medicaid number; either the issue date of the card or
effective date of the PCP assignment; PCP's name, address, and
telephone number; name of HMO; name of IPA to which the Member's PCP
belongs, if applicable; the 24-hour, seven (7) day a week toll-free
telephone number operated by HMO; the toll-free number for
behavioral health care services; and directions for what to do in an
emergency. The ID Card must be reissued if the Member reports a lost
card; there is a Member name change, if Member requests a new PCP,
or for any other reason which results in a change to the information
disclosed on the ID Card.

8.5 MEMBER COMPLAINT PROCESS
------------------------

8.5.1 HMO must develop, implement and maintain a Member complaint system
that complies with the requirements of Article 20A.12 of the Texas
Insurance Code, relating to the Complaint System, except where
otherwise provided in this contract and in applicable federal law.
The complaint and appeals procedure must be the same for all members
and must comply with Texas Insurance Code, Article 20A.12 or
applicable federal law. Modifications and amendments must be
submitted to TDH at least 30 days prior to the implementation of the
modification or amendment.

8.5.2 HMO must have written policies and procedures for receiving,
tracking, reviewing, and reporting and resolving Member complaints.
The procedures must be reviewed and approved in writing by TDH
before Phase I of Readiness Renewal Review. Any changes or
modifications to the procedures must be submitted to TDH for
approval thirty (30) days prior to the effective date of the
amendment.

8.5.3 HMO must designate an officer of HMO who has primary responsibility
for ensuring that complaints are resolved in compliance with written
policy and within the time required. An "officer" of HMO means a
president, vice president, secretary, treasurer, or chairperson of
the board for a corporation, the sole proprietor, the managing
general partner of a partnership, or a person having similar
executive authority in the organization.

37 May 31, 2001


8.4.1 A Medicaid Identification Form (Form 3087) is issued monthly by the
TDHS. The form includes the "STAR" Program logo and the name and
toll free number of the Member's health plan. A Member may have a
temporary Medicaid Identification (Form 1027-A) which will include a
STAR indicator.

8.4.2 HMO must issue a Member Identification Card (ID) to the Member
within five (5) days from receiving the Enrollment File from the
Enrollment Broker. If the 5th day falls on a weekend or state
holiday, the ID Card must be issued by the following working day.
The ID Card must include, at a minimum, the following: Member's
name; Member's Medicaid number; either the issue date of the card or
effective date of the PCP assignment; PCP's name, address, and
telephone number; name of HMO; name of IPA to which the Member's PCP
belongs, if applicable; the 24-hour, seven (7) day a week toll-free
telephone number operated by HMO; the toll-free number for
behavioral health care services; and directions for what to do in an
emergency. The ID Card must be reissued if the Member reports a lost
card, there is a Member name change, if Member requests a new PCP,
or for any other reason which results in a change to the information
disclosed on the ID Card.

8.5 MEMBER COMPLAINT PROCESS
------------------------

8.5.1 HMO must develop, implement and maintain a Member complaint system
that complies with the requirements of Article 20A.12 of the Texas
Insurance Code, relating to the Complaint System, except where
otherwise provided in this contract and in applicable federal law.
The complaint and appeals procedure must be the same for all members
and must comply with Texas Insurance Code, Article 20A.12 or
applicable federal law. Modifications and amendments must be
submitted to TDH at least 30 days prior to the implementation of the
modification or amendment.

8.5.2 HMO must have written policies and procedures for receiving,
tracking, reviewing, and reporting and resolving Member complaints.
The procedures must be reviewed and approved in writing by TDH
before Phase I of Readiness Renewal Review. Any changes or
modifications to the procedures must be submitted to TDH for
approval thirty (30) days prior to the effective date of the
amendment.

8.5.3 HMO must designate an officer of HMO who has primary responsibility
for ensuring that complaints are resolved in compliance with written
policy and within the time required. An "officer" of HMO means a
president, vice president, secretary, treasurer, or chairperson of
the board for a corporation, the sole proprietor, the managing
general partner of a partnership, or a person having similar
executive authority in the organization.

37 May 31, 2001


8.5.4 HMO must have a routine process to detect patterns of complaints and
disenrollments and involve management and supervisory staff to
develop policy and procedural improvements to address the
complaints. HMO must cooperate with TDH and TDH's Enrollment Broker
in Member complaints relating to enrollment and disenrollment.

8.5.5 HMO's complaint procedures must be provided to Members in writing
and in alternative communication formats. A written description of
HMO's complaint procedures must be in appropriate languages and easy
for Members to understand. HMO must include a written description in
the Member Handbook. HMO must maintain at least one local and one
toll-free telephone number for making complaints.

8.5.6 HMO's process must require that every complaint received in person,
by telephone or in writing, is recorded in a written record and is
logged with the following details: date; identification of the
individual filing the complaint; identification of the individual
recording the complaint; nature of the complaint; disposition of the
complaint; corrective action required; and date resolved.

8.5.7 HMO's process must include a requirement that the Governing Body of
HMO reviews the written records (logs) for complaints and appeals.

8.5.8 HMO is prohibited from discriminating against a Member because that
Member is making or has made a complaint.

8.5.9 HMO cannot process requests for disenrollments through HMO's
complaint procedures. Requests for disenrollments must be referred
to TDH within five (5) business days after the Member makes a
disenrollment request.

8.5.10 HMO must develop, implement and maintain an appeal of adverse
determination procedure that complies with the requirements of
Article 21.58A of the Texas Insurance Code, relating to the
utilization review, except where otherwise provided in this contract
and in applicable federal law. The appeal of an adverse
determination procedure must be the same for all Members and must
comply with Texas Insurance Code, Article 21.58A or applicable
federal law. Modifications and amendments must be submitted to TDH
no less than 30 days prior to the implementation of the modification
or amendment. When an enrollee, a person acting on behalf of an
enrollee, or an enrollee's provider of record expresses orally or in
writing any dissatisfaction or disagreement with an adverse
determination, HMO or UR agent must regard the expression of
dissatisfaction as a request to appeal an adverse determination.


38 May 31, 2001


8.5.11 If a complaint or appeal of an adverse determination relates to the
denial, delay, reduction, termination or suspension of covered
services by either HMO or a utilization review agent contracted to
perform utilization review by HMO, HMO must inform Members they have
the right to access the TDH Fair Hearing process at any time in lieu
of the internal complaint system provided by HMO. HMO is required to
comply with the requirements contained in 1 TAC Chapter 357,
relating to notice and Fair Hearings in the Medicaid program,
whenever an action is taken to deny, delay, reduce, terminate or
suspend a covered service.

8.5.12 If Members utilize HMO's internal complaint or appeal of adverse
determination system and the complaint relates to the denial, delay,
reduction, termination or suspension of covered services by either
HMO or a utilization review agent contracted to perform utilization
review by HMO, HMO must inform the Member that they continue to have
a right to appeal the decision through the TDH Fair Hearing process.

8.5.13 The provisions of Article 21.58A, Texas Insurance Code, relating to
a Member's right to appeal an adverse determination made by HMO or a
utilization review agent by an independent review organization, do
not apply to a Medicaid recipient. Federal fair hearing regulations
(Social Security Act ss.1902a(3), codified at 42 C.F.R. 431.200 et
seq.) require the agency to make a final decision after a Fair
Hearing, which conflicts with the State requirement that the IRO
make a final decision. Therefore, the State requirement is
pre-empted by the federal requirement.

8.5.14 HMO will cooperate with the Enrollment Broker and TDH to resolve all
Member complaints. Such cooperation may include, but is not limited
to, participation by HMO or Enrollment Broker and/or TDH internal
complaint committees.

8.5.15 HMO must have policies and procedures in place outlining the role of
HMO's Medical Director in the Member Complaint System and appeal of
an adverse determination. The Medical Director must have a
significant role in monitoring, investigating and hearing
complaints.

8.5.16 HMO must provide Member Advocates to assist Members in understanding
and using HMO's complaint system and appeal of an adverse
determination.

39 May 31, 2001


8.5.17 HMO's Member Advocates must assist Members in writing or filing a
complaint or appeal of an adverse determination and monitoring the
complaint or appeal through the Contractor's complaint or appeal of
an adverse determination process until the issue is resolved.

8.6 MEMBER NOTICE, APPEAL AND FAIR HEARING
--------------------------------------

8.6.1 HMO must send Members the notice required by 1 Texas Administrative
Code ss.357.5, whenever HMO takes an action to deny, delay, reduce
or terminate covered services to a Member. The notice must be mailed
to the Member no less than 10 days before HMO intends to take an
action. If an emergency exists, or if the time within which the
service must be provided makes giving 10 days notice impractical or
impossible, notice must be provided by the most expedient means
reasonably calculated to provide actual notice to the Member,
including by phone, direct contact with the Member, or through the
provider's office.

8.6.2 The notice must contain the following information:

8.6.2.1 Member's right to immediately access TDH's Fair Hearing process;

8.6.2.2 a statement of the action HMO will take;

8.6.2.3 the date the action will be taken;

8.6.2.4 an explanation of the reasons HMO will take the action;

8.6.2.5 a reference to the state and/or federal regulations which support
HMO's action;

8.6.2.6 an address where written requests may be sent and a toll-free number
Member can call to: request the assistance of a Member
representative, or file a complaint, or request a Fair Hearing;

8.6.2.7 a procedure by which Member may appeal HMO's action through either
HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8 an explanation that Members may represent themselves, or be
represented by HMO's representative, a friend, a relative, legal
counsel or another spokesperson;


40 May 31, 2001


8.6.2.9 an explanation of whether, and under what circumstances, services
may be continued if a complaint is filed or a Fair Hearing
requested;

8.6.2.10 a statement that if the Member wants a TDH Fair Hearing on the
action, Member must make the request for a Fair Hearing within 90
days of the date on the notice or the right to request a hearing is
waived;

8.6.2.11 a statement explaining that HMO must make its decision within 30
days from the date the complaint is received by HMO; and

8.6.2.12 a statement explaining that a final decision must be made by TDH
within 90 days from the date a Fair Hearing is requested.

8.7 MEMBER ADVOCATES
----------------

8.7.1 HMO must provide Member Advocates to assist Members. Member
Advocates must be physically located within the service area. Member
Advocates must inform Members of their rights and responsibilities,
the complaint process, the health education and the services
available to them, including preventive services.

8.7.2 Member Advocates must assist Members in writing complaints and are
responsible for monitoring the complaint through HMO's complaint
process until the Member's issues are resolved or a TDH Fair Hearing
requested (see Articles 8.6.15, 8.6.16, and 8.6.17).

8.7.3 Member Advocates are responsible for making recommendations to
management on any changes needed to improve either the care provided
or the way care is delivered. Member Advocates are also responsible
for helping or referring Members to community resources available to
meet Member needs that are not available from HMO as Medicaid
covered services.

8.7.4 Member Advocates must provide outreach to Members and participate in
TDH-sponsored enrollment activities.

8.8 MEMBER CULTURAL AND LINGUISTIC SERVICES
---------------------------------------

8.8.1 Cultural Competency Plan. HMO must have a comprehensive written
Cultural Competency Plan describing how HMO will ensure culturally
competent services, and provide linguistic and disability related
access. The Plan must describe how the individuals and systems
within HMO will effectively provide services to people of

41 May 31, 2001


all cultures, races, ethnic backgrounds, and religions, as well as
those with disabilities, in a manner that recognizes, values,
affirms, and respects the worth of the individuals and protects and
preserves the dignity of each. HMO must submit a written plan to TDH
no later than 90 days prior to the Implementation Date.
Modifications and amendments to the written plan must be submitted
to TDH no less than 30 days prior to implementation of the
modification or amendment. The Plan must also be made available to
HMO's network of providers.

8.8.2 The and Cultural Competency Plan must include the following:

8.8.2.1 HMO's written policies and procedures for ensuring effective
communication through the provision of linguistic services following
Title VI of the Civil Rights Act guidelines and the provision of
auxiliary aids and services, in compliance with the Americans with
Disabilities Act, Title III, Department of Justice Regulation
36.303. HMO must disseminate these policies and procedures to ensure
that both Staff and subcontractors are aware of their
responsibilities under this provision of the contract.

8.8.2.2 A description of how HMO will educate and train its staff and
subcontractors on culturally competent service delivery, and the
provision of linguistic and/or disability-related access as related
to the characteristics of its members;

8.8.2.3 A description of how HMO will implement the plan in its
organization, identifying a person in the organization who will
serve as the contact with TDH on the Cultural Competency Plan;

8.8.2.4 A description of how HMO will develop standards and performance
requirements for the delivery of culturally competent care and
linguistic access, and monitor adherence with those standards and
requirements;

8.8.2.5 A description of how HMO will provide outreach and health education
to Members, including racial and ethnic minorities, non-English
speakers or limited-English speakers, and those with disabilities;
and

8.8.2.6 A description of how HMO will help Members access culturally and
linguistically appropriate community health or social service
resources;

8.8.3 Linguistic, Interpreter Services, and Provision of Auxiliary Aids
and Services. HMO must provide experienced, professional
interpreters when technical, medical or


42 May 31, 2001


treatment information is to be discussed. See Title VI of the Civil
Rights Act of 1964, 42 U.S.C. ss.ss.2000d, et seq. HMO must ensure
the provision of auxiliary aids and services necessary for effective
communication, as per the Americans with Disabilities Act, Title
III, Department of Justice Regulations 36.303.

8.8.3.1 HMO must adhere to and provide to Members the Member Bill of Rights
and Responsibilities as adopted by the Texas Health and Human
Services Commission and contained at 1 Texas Administrative Code
(TAC) ss.ss.353.202-353.203. The Member Bill of Rights and
Responsibilities assures Members the right "to have interpreters, if
needed, during appointments with [their] providers and when talking
to [their] health plan. Interpreters include people who can speak in
[their] native language, assist with a disability, or help [them]
understand the information."

8.8.3.2 HMO must have in place policies and procedures that outline how
Members can access face-to-face interpreter services in a provider's
office if necessary to ensure the availability of effective
communication regarding treatment, medical history or health
education for a Member. HMOs must inform its providers on how to
obtain an updated list of participating, qualified interpreters.

8.8.3.3 A competent interpreter is defined as someone who is:

8.8.3.4 proficient in both English and the other language;

8.8.3.5 has had orientation or training in the ethics of interpreting; and

8.8.3.6 has the ability to interpret accurately and impartially.

8.8.3.7 HMO must provide 24-hour access to interpreter services for Members
to access emergency medical services within HMO's network.

8.8.3.8 Family Members, especially minor children, should not be used as
interpreters in assessments, therapy or other medical situations in
which impartiality and confidentiality are critical, unless
specifically requested by the Member. However, a family member or
friend may be used as an interpreter if they can be relied upon to
provide a complete and accurate translation of the information being
provided to the Member; the Member is advised that a free
interpreter is available; and the Member expresses a preference to
rely on the family member or friend.

8.8.4 All Member orientation presentations, education classes and
materials must be presented in the languages of the major population
groups making up 10% or more

43 May 31, 2001


of the Medicaid population in the service area, as specified by TDH.
HMO must provide auxiliary aids and services, as needed, including
materials in alternative formats (i.e., large print, tape or
Braille), and interpreters or real-time captioning to accommodate
the needs of persons with disabilities that affect communication.

8.8.5 HMO must provide or arrange access to TDD to Members who are deaf or
hearing impaired.

8.9 CERTIFICATION DATE
------------------

8.9.1 On the date of the new Member's enrollment, TDH will provide HMOs
with the Member's Medicaid certification date.

9. Article IX is amended by adding the following bolded and italicized
language and deleting the following stricken language:

ARTICLE IX MARKETING AND PROHIBITED PRACTICES

9.4 NETWORK PROVIDER DIRECTORY
--------------------------

9.4.1 HMO must submit a provider directory to TDH no later than 180 days
prior to the Implementation Date. Any revisions must be approved by
TDH prior to publication and distribution to prospective Members
(see Article 3.4.1 regarding the process for plan materials review).
The directory must contain all critical elements specified by TDH.
See Appendix, Required Critical Elements, for specific details
regarding content requirements.

9.4.3 Updates to the provider directory must be provided to the Enrollment
Broker at the beginning of each State fiscal year quarter. This
includes the months of September, December, March and June. HMO is
responsible for submitting draft updates to TDH only if changes
other than PCP information are incorporated. HMO is responsible for
sending three final paper copies and one electronic copy of the
updated provider directory to TDH each quarter. If an electronic
format is not available, five paper copies must be sent. TDH will
forward two updated provider directories, along with its approval
notice, to the Enrollment Broker to facilitate their distribution of
the directories.

10. Article X is amended by adding the following bolded and italicized
language and deleting the following stricken language:

ARTICLE X MANAGEMENT INFORMATION SYSTEM (MIS) REQUIREMENTS


44 May 31, 2001


10.1 MODEL MIS REQUIREMENTS
----------------------

10.1.4 HMO is required to submit and receive data as specified in this
contract and HMO Encounter Data Submission Manual. HMO must provide
complete encounter data of all capitated services within the scope
of services of the contract between HMO and TDH. Encounter data must
follow the format, data elements and methods of transmission
specified in the contract and HMO Encounter Data Submission Manual.
HMO must submit encounter data, including adjustments to encounter
data. The Encounter transmission will include all encounter data and
encounter data adjustments processed by HMO for the previous month.
Data quality validation will incorporate assessment standards
developed jointly by HMO and TDH. Original records will be made
available for inspection by TDH for validation purposes. Data which
do not meet quality standards must be corrected and returned within
a time period specified by TDH.

10.5 ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
-------------------------------------

The encounter/claims processing subsystem must collect, process, and
store data on all health care services delivered for which HMO is
responsible. The functions of these subsystems are claims/encounter
processing and capturing health service utilization data. The
subsystem must capture all health-care services, including medical
supplies, using standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92
Revenue Codes), rendered by health-care providers to an eligible
enrollee regardless of payment arrangement (e.g. capitation or
fee-for-service). It approves, prepares for payment, or may return,
reject or deny claims submitted. This subsystem may integrate manual
and automated systems to validate and adjudicate claims and
encounters. HMO must use encounter data validation methodologies
prescribed by TDH.

Functions and Features:

(1) Accommodate multiple input methods: electronic submission,
tape, claim document, and media.

(2) Support entry and capture of a minimum of all required data
elements specified in the Encounter Data Submissions manual
and the Texas Medicaid Managed Care Claims Manual.

(3) Edit and audit to ensure allowed services are provided by
eligible providers for eligible recipients.

(4) Interface with Member and provider subsystems.

(5) Capture and report TPL potential, reimbursement or denial.

(6) Edit for utilization and service criteria, medical policy, fee
schedules, multiple contracts, contract periods and
conditions.

(7) Submit data to TDH through electronic transmission using
specified formats.

45 May 31, 2001


(8) Support multiple fee schedule benefit packages and capitation
rates for all contract periods for individual providers,
groups, services, etc. A claim encounter must be initially
adjudicated and all adjustments must use the fee applicable to
the date of service.

(9) Provide timely, accurate, and complete data for monitoring
claims processing performance.

(10) Provide timely, accurate, and complete data for reporting
medical service utilization.

(11) Maintain and apply prepayment edits to verify accuracy and
validity of claims data for proper adjudication.

(12) Maintain and apply edits and audits to verify timely,
accurate, and complete encounter data reporting.

(13) Submit reimbursement to non-contracted providers for emergency
care rendered to enrollees in a timely and accurate fashion.

(14) Validate approval and denials of precertification and prior
authorization requests during adjudication of
claims/encounters.

(15) Track and report the exact date a service was performed. Use
of date ranges must have State approval.

(16) Receive and capture claim and encounter data from TDH.

(17) Receive and capture value-added services codes.

(18) Capability of identifying adjustments and linking them to the
original claims/encounters.

10.7 UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
-----------------------------------------

The quality management/quality improvement/utilization review
subsystem combines data from other subsystems, and/or external
systems, to produce reports for analysis which focus on the review
and assessment of quality of care given, detection of over and under
utilization, and the development of user defined reporting criteria
and standards. This system profiles utilization of providers and
enrollees and compares them against experience and norms for
comparable individuals. This system also supports the quality
assessment function.

The subsystem tracks utilization control function(s) and monitoring
inpatient admissions, emergency room use, ancillary, and out-of-area
services. It provides provider profiles, occurrence reporting, and
monitoring and evaluation studies. The subsystem may integrate HMO's
manual and automated processes or incorporate other software
reporting and/or analysis programs.

The subsystem incorporates and summarizes information from enrollee
surveys, provider and enrollee complaints, and appeal processes.

Functions and Features:


46 May 31, 2001


(1) Supports provider credentialing and recredentialing
activities.

(2) Supports HMO processes to monitor and identify deviations in
patterns of treatment from established standards or norms.
Provides feedback information for monitoring progress toward
goals, identifying optimal practices, and promoting continuous
improvement.

(3) Supports development of cost and utilization data by provider
and service.

(4) Provides aggregate performance and outcome measures using
standardized quality indicators similar to HEDIS or as
specified by TDH.

(5) Supports quality-of-care Focused Studies.

(6) Supports the management of referral/utilization control
processes and procedures, including prior authorization and
precertifications and denials of services.

(7) Monitors primary care provider referral patterns.

(8) Supports functions of reviewing access, use and coordination
of services (i.e. actions of Peer Review and alert/flag for
review and/or follow-up; laboratory, x-ray and other ancillary
service utilization per visit).

(9) Stores and reports patient satisfaction data through use of
enrollee surveys.

(10) Provides fraud and abuse detection, monitoring and reporting.

(11) Meets minimum report/data collection/analysis functions of
Article XI and Appendix A - Standards For Quality Improvement
Programs.

(12) Monitors and tracks provider and enrollee complaints and
appeals from receipt to disposition or resolution by provider.

11. Article XI is amended by adding the following bolded and italicized
language and deleting the following stricken language:

ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.2 WRITTEN QIP PLAN
----------------

HMO must have on file with TDH an approved plan describing its
Quality Improvement Plan (QIP), including how HMO will accomplish
the activities pertaining to each Standard (I-XVI) in Appendix A.
Modifications and amendments must be submitted to TDH upon review
and approval of the QI Committee and Board of Director's of HMO.

11.3 QIP SUBCONTRACTING
------------------

If HMO subcontracts any of the essential functions or reporting
requirements of QIP to another entity, HMO must maintain a file of
the subcontractors. The file must be available for review by TDH or
its designee upon request. HMO must notify

47 May 31, 2001


TDH no later than 90 days prior to terminating any subcontract
affecting a major performance function of this contract (see Article
3.2.1.2).

12. Article XII is amended by adding the following bolded and italicized
language and deleting the following stricken language:

ARTICLE XII REPORTING REQUIREMENTS

12.1 FINANCIAL REPORTS
-----------------

12.1.1 MCFS Report. HMO must submit the Managed Care Financial Statistical
Report (MCFS) included in Appendix I. The report must be submitted
to TDH no later than 30 days after the end of each state fiscal year
quarter (i.e., Dec. 30, March 30, June 30, Sept. 30) and must
include complete financial and statistical information for each
month. The MCFS Report must be submitted for each claims processing
subcontractor in accordance with this Article. HMO must incorporate
financial and statistical data received by its delegated networks
(IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.3 An HMO must submit monthly reports for each of the first 6 months
following the Implementation Date. If the cumulative net loss for
the contract period to date after the 6th month is less than
$200,000, HMO may submit quarterly reports in accordance with the
above provisions unless the condition in Article 12.1.2 exists, in
which case monthly reports must be submitted.

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care Financial
Statistical Reports. The first final report must reflect expenses
incurred through the 90th day after the end of the contract. The
first final report must be filed on or before the 120th day after
the end of the contract. The second final report must reflect data
completed through the 334th day after the end of the contract and
must be filed on or before the 365th day following the end of the
contract.

12.1.5 Administrative expenses reported in the monthly and Final MCFS
Reports must be reported in accordance with Appendix L, Cost
Principles for Administrative Expenses. Indirect administrative
expenses must be based on an allocation methodology for Medicaid
managed care activities and services that is developed or approved
by TDH.

12.1.6 Affiliate Report. HMO must submit an Affiliates Report to TDH no
later than 90 days prior to the Implementation Date. The report must
contain the following information:


48 May 31, 2001


12.1.6.1 A listing of all Affiliates; and

12.1.6.2 A schedule of all transactions with Affiliates which, under the
provisions of this Contract, will be allowable as expenses in either
Line 4 or Line 5 of Part 1 of the MCFS Report for services provided
to HMO by the Affiliates for the prior approval of TDH. Include
financial terms, a detailed description of the services to be
provided, and an estimated amount which will be incurred by HMO for
such services during the Contract period.

12.1.11 IBNR Plan. HMO must furnish a written IBNR Plan to manage
incurred-but-not- reported (IBNR) expenses, and a description of the
method of insuring against insolvency, including information on all
existing or proposed insurance policies. The Plan must include the
methodology for estimating IBNR. The plan and description must be
submitted to TDH not later than 60 days prior to the Implementation
Date. Changes to the IBNR plan and description must be submitted to
TDH no later than 30 days before changes to the plan are implemented
by HMO.

12.1.14 Each report required under this Article must be mailed to: Bureau of
Managed Care; Texas Dept. Of Health; 1100 West 49th Street; Austin,
TX 78756-3168 (exceptions: The MCFS Report may be submitted to TDH
via E-mail). HMO must also mail a copy of the reports, except for
items in Article 12.1.7 and Article 12.1.10 to Texas Department of
Insurance, Mail Code 106-3A, HMO Division, Attention: HMO Division
Director, PO Box 149104, Austin, TX 78714-9104.

12.2 STATISTICAL REPORTS
-------------------

12.2.1 HMO must electronically file the following monthly reports: (1)
encounter; (2) encounter detail; (3) institutional; (4)
institutional detail; and (5) claims detail for cost-reimbursed
services filed, if any, with HMO. Encounter data must include the
data elements, follow the format, and use the transmission method
specified by TDH in the Encounter Data Submission Manual. Encounters
must be submitted by HMO to TDH no later than 45 days after the date
of adjudication (finalization) of the claims.

12.2.6 HMO must use its TDH-specified identification numbers on all
encounter data submissions. Please refer to the TDH Encounter Data
Submission Manual for further specifications.

12.2.8 All Claims Summary Report. HMO must submit the "All Claims Summary
Report" identified in the Texas Managed Care Claims Manual as a
contract year-to-date report. The report must be submitted quarterly
by the last day of the month following the reporting period. The
reports must be submitted to TDH in a format specified by TDH.

49 May 31, 2001


12.2.9 Medicaid Disproportionate Share Hospital (DHS) Reports. HMO must
file preliminary and final Medicaid Disproportionate Share Hospital
(DSH) reports, required by TDH to identify and reimburse hospitals
that qualify for Medicaid SDH funds. The preliminary and final DSH
reports must include the data element and be submitted in the form
and format specified by TDH. The preliminary DSH reports are due on
or before June of the year following the state fiscal year for which
data is being reported. The final DSH reports re due no later than
July 15 of the year following the state fiscal year for which data
is being reported.

12.3 ARBITRATION/LITIGATION CLAIMS REPORT
------------------------------------

HMO must submit an Arbitration/Litigation Claims Report in a format
provided by TDH (see Appendix M) identifying all provider or HMO
requests for arbitration or matters in litigation. The report must
be submitted within 30 days from the date the matter is referred to
arbitration or suit is filed, or whenever there is a change of
status in a matter referred to arbitration or litigation.

12.4 SUMMARY REPORT OF PROVIDER COMPLAINTS
-------------------------------------

HMO must submit a Summary Report of Provider Complaints. HMO must
also report complaints submitted to its subcontracted risk groups
(e.g., IPAs). The complaint report must be submitted in two paper
copies and one electronic copy no later than 45 days after the end
of the state fiscal quarter using a form specified by TDH.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.1 Provider Network Reports. HMO must submit to the Enrollment Broker
an electronic file summarizing changes in HMO's provider network
including PCPs, specialists, ancillary providers and hospitals. The
file must indicate if the PCPs and specialists participate in a
closed network and the name of the delegated network. The electronic
file must be submitted in the format specified by TDH and can be
submitted as often as daily, but must be submitted at least weekly.

12.5.1.1 Provider Termination Report. HMO must submit a monthly report which
identifies any providers who cease to participate in HMO's provider
network, either voluntarily or involuntarily. The report must be
submitted to TDH in the format specified by TDH. HMO will submit the
report no later than thirty (30) days after the end of the reporting
month. The information must include the provider's name, Medicaid
number, the reason for the provider's termination, and whether the
termination was voluntary or involuntary.


50 May 31, 2001


12.6 MEMBER COMPLAINTS
-----------------

HMO must submit a quarterly summary report of Member complaints. HMO
must also report complaints submitted to its delegated networks
(e.g., IPAs). The complaint report format must be submitted to TDH
as two paper copies and one electronic copy on or before 45 days
following the end of the state fiscal quarter using a form specified
by TDH.

12.10 QUALITY IMPROVEMENT REPORTS
---------------------------

12.10.2 Annual Focused Studies. Focused Studies on well child, pregnancy,
and a study chosen by the plan must be submitted to TDH according to
due dates established by TDH.

12.10.4 Provider Medical Record Audit and Report. HMO is required to conform
to commonly accepted medical record standards such as those used by
NCQA, JCAHO, or those used for credentialing review such as the
Texas Environment of Care Assessment Program (TECAP), and have
documentation on file at HMO for review by TDH or its designee
during an on-site review.

12.11 HUB Reports

-----------

HMO must submit quarterly reports documenting HMO's HUB program
efforts and accomplishments. The report must include a narrative
description of HMO's program efforts and a financial report
reflecting payments made to HUB. HMO must use the format included in
Appendix B for HUB Quarterly reports. For HUB Certified Entities:
HMO must include the General Service Commission (GSC) Vendor Number
and the ethnicity/gender under which a contracting entity is
registered with GSC. For HUB Qualified (but not certified) Entities:
HMO must include the ethnicity /gender of the major owner(s) (51 %)
of the entity. Any entities for which HMO cannot provide this
information cannot be included in the HUB report. For both types of
entities, an entity will not be included in the HUB Report if HMO
does not list ethnicity/gender information.

12.12 THSTEPS REPORTS
---------------

Minimum reporting requirements. HMO must submit, at a minimum, 80%
of all THSteps checkups on HCFA 1500 claim forms as part of the
encounter file submission to the TDH Claims Administrator no later
than thirty (30) days after the date of final adjudication
(finalization) of the claims. Failure to comply with these minimum
reporting requirements will result in Article XVIII sanctions and
money damages.

51 May 31, 2001


13. Article XIII is amended by adding the following bolded and
italicized language and striking the following stricken language:

ARTICLE XIII PAYMENT PROVISIONS

13.1 CAPITATION AMOUNTS
------------------

13.2 EXPERIENCE REBATE TO STATE
--------------------------

13.2.1 For the contract period, HMO must pay to TDH an experience rebate
calculated in accordance with the tiered rebate method listed below
based on the excess of allowable HMO STAR revenues over allowable
HMO STAR expenses as measured by any positive amount on Line 7 of
"Part 1: Financial Summary, All Coverage Groups Combined" of the
Final Managed Care Financial-Statistical Report set forth in
Appendix I, as reviewed and confirmed by TDH. TDH reserves the right
to have an independent audit performed to verify the information
provided by HMO.

-----------------------------------------------------------
Graduated Rebate Method

-----------------------------------------------------------
Experience Rebate as a HMO Share State Share
Percentage of
Revenues

-----------------------------------------------------------
0%-3% 100% 0%
-----------------------------------------------------------
Over 3% - 7% 75% 25%
-----------------------------------------------------------
Over 7% - 10% 50% 50%
-----------------------------------------------------------
Over 10% - 15% 25% 75%
-----------------------------------------------------------
Over 15% 0% 100%
-----------------------------------------------------------

13.2.2 Carry Forward of Prior Contract Period Losses: Losses incurred for
one contract period can only be carried forward to the next contract
period.

13.2.2.1 Carry Forward of Loss from one Service Delivery Area to Another: If
HMO operates in multiple Service Delivery Areas (SDAs), losses in
one SDA cannot be used to offset net income before taxes in another
SDA.

13.2.3 Experience rebate will be based on a pre-tax basis.


52 May 31, 2001


13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates: HMO may
subtract from an experience rebate owed to the State, expenses for
population-based health initiatives that have been approved by TDH.
A population-based initiative (PBI) is a project or program designed
to improve some aspect of quality of care, quality of life, or
health care knowledge for the community as a whole. Value-added
service does not constitute a PBI. Contractually required services
and activities do not constitute a PBI.

13.2.5 There will be two settlements for payment(s) of the experience
rebate. The first settlement shall equal 100 percent of the
experience rebate as derived from Line 7 of Part 1 (Net Income
Before Taxes) of the first Final Managed Care Financial Statistical
(MCFS) Report and shall be paid on the same day the first annual
MCFS Report is submitted to TDH. The second settlement shall be an
adjustment to the first settlement and shall be paid to TDH on the
same day that the second Final MCFS Report is submitted to TDH if
the adjustment is a payment from HMO to TDH. TDH or its agent may
audit or review the MCFS reports. If TDH determines that corrections
to the MCFS reports are required, based on a TDH audit/review or
other documentation acceptable to TDH, to determine an adjustment to
the amount of the second settlement, then final adjustment shall be
made within two years from the date that HMO submits the second
Final MCFS report. HMO must pay the first and second settlements on
the due dates for the first and second Final MCFS reports
respectively as identified in Article 12.1.4. TDH may adjust the
experience rebate if TDH determines HMO has paid affiliates amounts
for goods or services that are higher than the fair market value of
the goods and services in the service area. Fair market value may be
based on the amount HMO pays a non-affiliate(s) or the amount
another HMO pays for the same or similar service in the service
area. TDH has final authority in auditing and determining the amount
of the experience rebate.

13.4 PAYMENT OF PERFORMANCE OBJECTIVE BONUSES
----------------------------------------

13.4.3 The HMO must submit the Performance Objectives Report and the
Detailed Data Element Report as referenced in Article 13.3.2, within
150 days from the end of each State fiscal year. Performance
premiums will be paid to HMO within 120 days after the State
receives and validates the data contained in each required
Performance Objectives Report.

13.4.4 The performance objective allocation for HMO shall be assigned to
each performance objective, described in Appendix K, in accordance
with the following percentages:

53 May 31, 2001


---------------------------------------------------------------
EPSDT SCREENS Percent of Performance
Objective Incentive Fund

---------------------------------------------------------------
1. <12 months 12%
---------------------------------------------------------------
2. 12 to 24 months 12%
---------------------------------------------------------------
3. 25 months - 20 years 20%
---------------------------------------------------------------

---------------------------------------------------------------
IMMUNIZATIONS Percent of Performance
Objective Incentive Fund

---------------------------------------------------------------
4. <12 months 7%
---------------------------------------------------------------
5. 12 to 24 months 5%
---------------------------------------------------------------

---------------------------------------------------------------
ADULT ANNUAL VISITS Percent of Performance
Objective Incentive Fund

---------------------------------------------------------------
6. Adult Annual Visits 3%
---------------------------------------------------------------

---------------------------------------------------------------
PREGNANCY VISITS Percent of Performance
Objective Incentive Fund

---------------------------------------------------------------
7. Initial Prenatal Exam 15%
---------------------------------------------------------------
8. Visits by Gestational Age 14%
---------------------------------------------------------------
9. Postpartum Visit 12%
---------------------------------------------------------------


14. Article XIV is amended by adding the following bolded and italicized
language and deleting the following stricken language:

14.1 ELIGIBILITY DETERMINATION
-------------------------

14.1.3.3 Members of the Tigua Indian tribe.

14.4 AUTOMATIC RE-ENROLLMENT
-----------------------

14.4.1 Members who are disenrolled because they are temporarily ineligible
for Medicaid will be automatically re-enrolled in the same health
plan. Temporary loss of eligibility is defined as a period of 6
months or less.

54 May 31, 2001


15. Article XV is amended by adding the following bolded and italicized
language and deleting the following stricken language:

15.6 ASSIGNMENT

----------

This contract was awarded to HMO based on HMO's qualifications to
perform personal and professional services. HMO cannot assign this
contract without the written consent of TDI and TDH. This provision
does not prevent HMO from subcontracting duties and responsibilities
to qualified subcontractors. If TDI and TDH consent to an assignment
of this contract, a transition period of 90 days will run from the
date the assignment is approved by TDI and TDH so that Members'
services are not interrupted and, if necessary, the notice provided
for in Article 15.7 can be sent to Members. The assigning HMO must
also submit a transition plan, as set out in Article 18.2.1, subject
to TDH's approval.

15.7 MAJOR CHANGE IN CONTRACTING
---------------------------

TDH may send notice to Members when a major change affecting HMO
occurs. A "major change" includes, but is not limited to, a
substantial change of subcontractors and assignment of this
contract. TDH will provide HMO with an advanced copy of such letter
prior to its printing and distribution. The notice letter to Members
may permit the Members to re-select their plan and PCP. TDH will
bear the cost of preparing and sending the notice letter in the
event of an approved assignment of the contract. For any other major
change in contracting, HMO will prepare the notice letter and submit
it to TDH for review and approval. After TDH has approved the letter
for distribution to Members, HMO will bear the cost of sending the
notice letter.

15.8 NON-EXCLUSIVE
-------------

This contract is a non-exclusive agreement. Either party may
contract with other entities for similar services in the same
service area.

15.9 DISPUTE RESOLUTION
------------------

The dispute resolution process adopted by TDH in accordance with
Chapter 2260, Texas Government Code, will be used to attempt to
resolve all disputes arising under this contract. All disputes
arising under this contract shall be resolved through TDH's dispute
resolution procedures, except where a remedy is provided for through

55 May 31, 2001


TDH's administrative rules or processes. All administrative remedies
must be exhausted prior to other methods of dispute resolution.

15.10 DOCUMENTS CONSTITUTING CONTRACT
-------------------------------

This contract includes this document and all amendments and
appendices to this document, the Request for Application, the
Application submitted in response to the Request for Application,
the Texas Medicaid Provider Procedures Manual and Texas Medicaid
Bulletins addressed to HMOs, contract interpretation memoranda
issued by TDH for this contract, and the federal waiver granting TDH
authority to contract with HMO. If any conflict in provisions
between these documents occurs, the terms of this contract and any
amendments shall prevail. The documents listed above constitute the
entire contract between the parties.

15.11 FORCE MAJEURE
-------------

TDH and HMO are excused from performing the duties and obligations
under this contract for any period that they are prevented from
performing their services as a result of a catastrophic occurrence,
or natural disaster, clearly beyond the control of either party,
including but not limited to an act of war, but excluding labor
disputes.

15.12 NOTICES

-------

Notice may be given by any means which provides for verification of
receipt. All notices to TDH shall be addressed to Bureau Chief,
Texas Department of Health, Bureau of Managed Care, 1100 W. 49th
Street, Austin, TX 78756-3168, with a copy to the Contract
Administrator. Notices to HMO shall be addressed to CEO/President,

--------------------------------------------------------------------

--------------------------------------------------------------------

--------------------------------------------------------------------

15.13 SURVIVAL

--------

The provisions of this contract which relate to the obligations of
HMO to maintain records and reports shall survive the expiration or
earlier termination of this contract for a period not to exceed six
(6) years unless another period may be required by record retention
policies of the State of Texas or HCFA.

56 May 31, 2001


16. Article XVI is amended by adding the bolded and italicized language
and deleting the following stricken language:

ARTICLE XVI DEFAULT AND REMEDIES

16.1 DEFAULT BY TDH
--------------

16.1.11 FAILURE TO MAKE CAPITATION PAYMENTS
-----------------------------------

Failure by TDH to make capitation payments when due is a default
under this contract.

16.1.2 FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
----------------------------------------------

Failure by TDH to perform a material duty or responsibility as set
out in this contract is a default under this contract.

16.2 REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
-------------------------------------------

HMO may terminate this contract as set out in Article 18.1.5 of this
contract if TDH commits either of the events of default set out in
Article 16.1.

16.3 DEFAULT BY HMO
--------------

16.3.1 FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
---------------------------------------------

Failure of HMO to perform an administrative function is a default
under this contract. Administrative functions are any requirements
under this contract that are not direct delivery of health care
services, including claims payments, encounter data submission,
filing any reports when due, cooperating in good faith with TDH, an
entity acting on behalf of TDH, or an agency authorized by statute
or law to require the cooperation of HMO in carrying out an
administrative, investigative, or prosecutorial function of the
Medicaid program, providing or producing records upon request, or
entering into contracts or implementing procedures necessary to
carry out contract obligations.

16.3.1.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------


57 May 31, 2001


All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's failure to perform an administrative function under this
contract, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.2 ADVERSE ACTION AGAINST HMO BY TDI
---------------------------------

Termination or suspension of HMO's TDI Certificate of Authority or
any adverse action taken by TDI that TDH determines will affect the
ability of HMO to provide health care services to Members is a
default under this contract.

16.3.2.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For an adverse action against HMO by TDI, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.3 INSOLVENCY

----------

Failure of HMO to comply with state and federal solvency standards
or incapacity of HMO to meet its financial obligations as they come
due is a default under this contract.

58 May 31, 2001


16.3.3.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's insolvency, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.4 FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
---------------------------------------------------

Failure of HMO to comply with the federal requirements for Medicaid,
including, but not limited to, federal law regarding
misrepresentation, fraud, or abuse; and, by incorporation, Medicare
standards, requirements, or prohibitions, is a default under this
contract.

The following events are defaults under this contract pursuant to 42
U.S.C. ss.ss.1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1 HMO's substantial failure to provide medically necessary items and
services that are required under this contract to be provided to
Members;

16.3.4.2 HMO's imposition of premiums or charges on Members in excess of the
premiums or charges permitted by federal law;

16.3.4.3 HMO's acting to discriminate among Members on the basis of their
health status or requirements for health care services, including
expulsion or refusal to enroll an individual, except as permitted by
federal law, or engaging in any practice that would reasonably be
expected to have the effect of denying or discouraging enrollment
with HMO by eligible individuals whose medical condition or history
indicates a need for substantial future medical services;

16.3.4.4 HMO's misrepresentation or falsification of information that is
furnished to HCFA, TDH, a Member, a potential Member, or a health
care provider;

59 May 31, 2001


16.3.4.5 HMO's failure to comply with the physician incentive requirements
under 42 U.S.C. ss.1396b(m)(2)(A)(x); or

16.3.4.6 HMO's distribution, either directly or through any agent or
independent contractor, of marketing materials that contain false or
misleading information, excluding materials prior approved by TDH.

16.3.5 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. If HMO repeatedly fails
to meet the requirements of Articles 16.3.4.1 through and including
16.3.4.6, TDH must, regardless of what other sanctions are provided,
appoint temporary management and permit Members to disenroll without
cause. Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to comply with federal laws and regulations, TDH
may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Appoint temporary management as set out in Article 18.5;
o Initiate disenrollment of a Member or Members without cause as set
out in Article 18.6;
o Suspend or default all enrollment of individuals;
o Suspend payment to HMO;
o Recommend to HCFA that sanctions be taken against HMO as set out
in Article 18.7;
o Assess civil monetary penalties as set out in Article 18.8; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.6 FAILURE TO COMPLY WITH APPLICABLE STATE LAW
-------------------------------------------

HMO's failure to comply with Texas law applicable to Medicaid,
including, but not limited to, Article 32.039 of the Texas Human
Resources Code and state law regarding misrepresentation, fraud, or
abuse, is a default under this contract.

16.3.6.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or

60 May 31, 2001


consecutively. Exercise of any remedy in whole or in part does not
limit TDH in exercising all or part of any remaining remedies.

For HMO's failure to comply with applicable state law, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess administrative penalties as set out in Article 32.039,
Government Code, with the opportunity for notice and appeal as
required by Article 32.039; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.7 MISREPRESENTATION, FRAUD UNDER ARTICLE 4.8
------------------------------------------

HMO's misrepresentation or fraud under Article 4.8 of this contract
is a default under this contract.

16.3.7.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's misrepresentation or fraud under Article 4.8, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.8 EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
----------------------------------------------------

16.3.8.1 Exclusion of HMO or any of the managing employees or persons with an
ownership interest whose disclosure is required by ss. 1124(a) of
the Social Security Act (the Act) from the Medicaid or Medicare
program under the provisions of ss. 1128(a) and/or (b) of the Act is
a default under this contract.

61 May 31, 2001


16.3.8.2 Exclusion of any provider or subcontractor or any of the managing
employees or persons with an ownership interest of the provider or
subcontractor whose disclosure is required by ss. 1124(a) of the
Social Security Act (the Act) from the Medicaid or Medicare program
from the Medicaid or Medicare program under the provisions of ss.
1128(a) and/or (b) of the Act is a default under this contract if
the exclusion will materially affect HMO's performance under this
contract.

16.3.8.3 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's exclusion from Medicare or Medicaid, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.9 FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
----------------------------------------------------------------

HMO's failure to make timely and appropriate payments to network
providers and Subcontractors is a default under this contract.
Withholding or recouping capitation payments as allowed or required
under other articles of this contract is not a default under this
contract.

16.3.9.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's failure to make timely and appropriate payments to network
providers and subcontractors, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;


62 May 31, 2001


o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.10 FAILURE TO TIMELY ADJUDICATE CLAIMS
-----------------------------------

Failure of HMO to adjudicate (paid, denied, or external pended) at
least ninety (90%) of all claims within thirty (30) days of receipt
and ninety-nine percent (99%) of all claims within ninety days of
receipt for the contract year is a default under this contract.

16.3.10.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consequently. Exercise of any remedy in
whole or in part does not limit TDH in exercising all or part of any
remaining remedies.

For HMO's failure to timely adjudicate claims, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.11 FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
----------------------------------------------------------------

Failure to pass any of the mandatory system or delivery functions of
the Readiness Review required in Article I of this contract is a
default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's failure to demonstrate the ability to perform contract
functions, TDH may:

63 May 31, 2001


o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.12 FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
----------------------------------------------------------------
NETWORK PROVIDERS
-----------------

16.3.12.1 Failure of HMO to audit, monitor, supervise, or enforce functions
delegated by contract to another entity that results in a default
under this contract or constitutes a violation of state or federal
laws, rules, or regulations is a default under this contract.

16.3.12.2 Failure of HMO to properly credential its providers, conduct
reasonable utilization review, or conduct quality monitoring is a
default under this contract.

16.3.12.3 Failure of HMO to require providers and contractors to provide
timely and accurate encounter, financial, statistical, and
utilization data is a default under this contract.

16.3.12.4 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's failure to monitor and/or supervise activities of
contractors or network providers, TDH may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.13 PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
----------------------------------------------------

HMO's placing the health and safety of the Members in jeopardy is a
default under this contract.

64 May 31, 2001


16.3.13.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's placing the health and safety of Members in jeopardy, TDH
may:

o Terminate the contract if the applicable conditions set out in
Article 18. 1.1 are met;
o Suspend new enrollment as set out in Article 18.3; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.14 FAILURE TO MEET ESTABLISHED BENCHMARK
-------------------------------------

Failure of HMO to meet any benchmark established by TDH under this
contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and may
be exercised concurrently or consecutively. Exercise of any remedy
in whole or in part does not limit TDH in exercising all or part of
any remaining remedies.

For HMO's failure to meet any benchmark established by TDH under
this contract, TDH may:

o Remove the THSteps component from the capitation paid to HMO if
the benchmark(s) missed is for THSteps;
o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

17. Article XVII is amended by adding bolded and italicized language and
deleting the following stricken language:

ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT


65 May 31, 2001


17.1 TDH will provide HMO with written notice of default (Notice of
Default) under this contract. The Notice of Default may be given by
any means that provides verification of receipt. The notice of
default must contain the following information:

17.1.4 A clear and concise statement of the time period during which HMO
may cure the default if HMO is allowed to cure;

17.1.5 The remedy or remedies TDH is electing to pursue and when the remedy
or remedies will take effect;

17.1.6 If TDH is electing to impose money damages and/or civil monetary
penalties, the amount that TDH intends to withhold or impose and the
factual basis on which TDH is imposing the chosen remedy or
remedies;

17.1.7 Whether any part of money damages or civil monetary penalties, if
TDH elects to pursue one or both of those remedies, may be passed
through to an individual or entity who is or may be responsible for
the act or omission for which default is declared;

17.1.8 Whether failure to cure the default within the given time period, if
any, will result in TDH pursuing an additional remedy or remedies,
including, but not limited to, additional damages or sanctions,
referral for investigation or action by another agency, and/or
termination of the contract.

18. Article XVIII is amended by deleting existing Article XVIII and
replacing it with new Article XVIII as follows:

ARTICLE XVIII EXPLANATION OF REMEDIES

18.1 TERMINATION

-----------

18.1.1 TERMINATION BY TDH
------------------

TDH may terminate this contract if:

18.1.1.1 HMO substantially fails or refuses to provide medically necessary
services and items that are required under this contract to be
provided to Members after notice and opportunity to cure;

66 May 31, 2001


18.1.1.2 HMO substantially fails or refuses to perform administrative
functions under this contract after notice and opportunity to cure;

18.1.1.3 HMO materially defaults under any of the provisions of Article XVI;

18.1.1.4 Federal or state funds for the Medicaid program are no longer
available; or

18.1.1.5 TDH has a reasonable belief that HMO has placed the health or
welfare of Members in jeopardy.

18.1.2 TDH must give HMO 90 days written notice of intent to terminate this
contract if termination is the result of HMO's substantial failure
or refusal to perform administrative functions or a material default
under any of the provisions of Article XVI. TDH must give HMO
reasonable notice under the circumstances if termination is the
result of federal or state funds for the Medicaid program no longer
being available. TDH must give the notice required under TDH's
formal hearing procedures set out in Section 1.2.1 in Title 25 of
the Texas Administrative Code if termination is the result of HMO's
substantial failure or refusal to provide medically necessary
services and items that are required under the contract to be
provided to Members or TDH's reasonable belief that HMO has placed
the health or welfare of Members in jeopardy.

18.1.2.1 Notice may be given by any means that gives verification of receipt.

18.1.2.2 Unless termination is the result of HMO's substantial failure or
refusal to provide medically necessary services and items that are
required under this contract to be provided to Members or is the
result of TDH's reasonable belief that HMO has placed the health or
welfare of Members in jeopardy, the termination date is 90 days
following the date that HMO receives the notice of intent to
terminate. For HMO's substantial failure or refusal to provide
services and items, HMO is entitled to request a pre-termination
hearing under TDH's formal hearing procedures set out in Section
1.2.1 of Title 25, Texas Administrative Code.

18.1.3 TDH may, for termination for HMO's substantial failure or refusal to
provide medically necessary services and items, notify HMO's Members
of any hearing requested by HMO and permit Members to disenroll
immediately without cause. Additionally, if TDH terminates for this
reason, TDH may enroll HMO's Members with another HMO or permit
HMO's Members to receive Medicaid-covered services other than from
an HMO.

18.1.4 HMO must continue to perform services under the transition plan
described in Article 18.2.1 until the last day of the month
following 90 days from the date of receipt of

67 May 31, 2001


notice if the termination is for any reason other than TDH's
reasonable belief that HMO is placing the health and safety of the
Members in jeopardy. If termination is due to this reason, TDH may
prohibit HMO's further performance of services under the contract.

18.1.5 If TDH terminates this contract, HMO may appeal the termination
under ss.32.034, Texas Human Resources Code.

18.1.6 TERMINATION BY HMO
------------------

HMO may terminate this contract if TDH fails to pay HMO as required
under Article XIII of this contract or otherwise materially defaults
in its duties and responsibilities under this contract, or by giving
notice no later than 30 days after receiving the capitation rates
for the second contract year. Retaining premium, recoupment,
sanctions, or penalties that are allowed under this contract or that
result from HMO's failure to perform or HMO's default under the
terms of this contract is not cause for termination.

18.1.7 HMO must give TDH 90 days written notice of intent to terminate this
contract. Notice may be given by any means that gives verification
of receipt. The termination date will be calculated as the last day
of the month following 90 days from the date the notice of intent to
terminate is received by TDH.

18.1.8 TDH must be given 30 days from the date TDH receives HMO's written
notice of intent to terminate for failure to pay HMO to pay all
amounts due. If TDH pays all amounts then due within this 30-day
period, HMO cannot terminate the contract under this article for
that reason.

18.1.9 TERMINATION BY MUTUAL CONSENT
-----------------------------

This contract may be terminated at any time by mutual consent of
both HMO and TDH.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION
----------------------------------------------

When termination of the contract occurs, TDH and HMO must meet the
following obligations:

18.2.1 TDH and HMO must prepare a transition plan, which is acceptable to
and approved by TDH, to ensure that Members are reassigned to other
plans without interruption of services. That transition plan will be
implemented during the 90-day period between receipt of notice and
the termination date unless termination is the result of

68 May 31, 2001


TDH's reasonable belief that HMO is placing the health or welfare of
Members in jeopardy.

18.2.2 If the contract is terminated by TDH for any reason other than
federal or state funds for the Medicaid program no longer being
available or if HMO terminates the contract based on lower
capitation rates for the second contract year as set out in Article
13.1.4.1:

18.2.2.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.2.2 HMO is responsible for all expenses related to giving notice to
Members; and

18.2.2.3 HMO is responsible for all expenses incurred by TDH in implementing
the transition plan.

18.2.3 If the contract is terminated by HMO for any reason other than based
on lower capitation rates for the second contract year as set out in
Article 13.1.4.1:

18.2.3.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.3.2 TDH is responsible for all expenses related to giving notice to
Members; and.

18.2.3.3 TDH is responsible for all expenses it incurs in implementing the
transition plan.

18.2.4 If the contract is terminated by mutual consent:

18.2.4.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services

18.2.4.2 HMO is responsible for all expenses related to giving notice to
Members; and

18.2.4.3 TDH is responsible for all expenses it incurs in implementing the
transition plan.

18.3 SUSPENSION OF NEW ENROLLMENT
----------------------------

18.3.1 TDH must give HMO 30 days notice of intent to suspend new enrollment
in the Notice of Default other than for default for fraud and abuse
or imminent danger to the health or safety of Members. The
suspension date will be calculated as 30 days following the date
that HMO receives the Notice of Default.

69 May 31, 2001


18.3.2 TDH may immediately suspend new enrollment into HMO for a default
declared as a result of fraud and abuse or imminent danger to the
health and safety of Members.

18.3.3 The suspension of new enrollment may be for any duration, up to the
termination date of the contract. TDH will base the duration of the
suspension upon the type and severity of the default and HMO's
ability, if any, to cure the default.

18.4 LIQUIDATED MONEY DAMAGES
------------------------

18.4.1 The measure of damages in the event that HMO fails to perform its
obligations under this contract may be difficult or impossible to
calculate or quantify. Therefore, should HMO fail to perform in
accordance with the terms and conditions of this contract, TDH may
require HMO to pay sums as specified below as liquidated damages.
The liquidated damages set out in this Article are not intended to
be in the nature of a penalty but are intended to be reasonable
estimates of TDH's financial loss and damage resulting from HMO's
non-performance.

18.4.2 If TDH imposes money damages, TDH may collect those damages by
reducing the amount of any monthly premium payments otherwise due to
HMO by the amount of the damages. Money damages that are withheld
from monthly premium payments are forfeited and will not be
subsequently paid to HMO upon compliance or cure of default unless a
determination is made after appeal that the damages should not have
been imposed.

18.4.3 Failure to file or filing incomplete or inaccurate annual,
semi-annual or quarterly reports may result in money damages of not
more than $11,000.00 for every month from the month the report is
due until submitted in the form and format required by TDH. These
money damages apply separately to each report.

18.4.4 Failure to produce or provide records and information requested by
TDH, an entity acting on behalf of TDH, or an agency authorized by
statute or law to require production of records at the time and
place the records were required or requested may result in money
damages of not more than $5,000.00 per day for each day the records
are not produced as required by the requesting entity or agency if
the requesting entity or agency is conducting an investigation or
audit relating to fraud or abuse, and not more than $1,000.00 per
day for each day records are not produced if the requesting entity
or agency is conducting routine audits or monitoring activities.

18.4.5 Failure to file or filing incomplete or inaccurate encounter data
may result in money damages of not more than $25,000 for each month
HMO fails to submit encounter data in the form and format required
by TDH. TDH will use the encounter data

70 May 31, 2001


validation methodology established by TDH to determine the number of
encounter data and the number of months for which damages will be
assessed.

18.4.6 Failing or refusing to cooperate with TDH, an entity acting on
behalf of TDH, or an agency authorized by statute or law to require
the cooperation of HMO in carrying out an administrative,
investigative, or prosecutorial function of the Medicaid program may
result in money damages of not more than $8,000.00 per day for each
day HMO fails to cooperate.

18.4.7 Failure to enter into a required or mandatory contract or failure to
contract for or arrange to have all services required under this
contract provided may result in money damages of not more than
$1,000.00 per day that HMO either fails to negotiate in good faith
to enter into the required contract or fails to arrange to have
required services delivered.

18.4.8 Failure to meet the benchmark for benchmarked services under this
contract may result in money damages of not more than $25,000 for
each month that HMO fails to meet the established benchmark.

18.4.9 TDH may also impose money damages for a default under Article
16.3.9, Failure to Make Payments to Network Providers and
subcontractors, of this contract. These money damages are in
addition to the interest HMO is required to pay to providers under
the provisions of Articles 4.10.4 and 7.2.8.10 of this contract.

18.4.9.1 If TDH determines that HMO has failed to pay a provider for a claim
or claims for which the provider should have been paid, TDH may
impose money damages of $2 per day for each day the claim is not
paid from the date the claim should have been paid (calculated as 30
days from the date a clean claim was received by HMO) until the
claim is paid by HMO.

18.4.9.2 If TDH determines that HMO has failed to pay a capitation amount to
a provider who has contracted with HMO to provide services on a
capitated basis, TDH may impose money damages of $10 per day, per
Member for whom the capitation is not paid, from the date on which
the payment was due until the capitation amount is paid.

18.5 APPOINTMENT OF TEMPORARY MANAGEMENT
-----------------------------------

18.5.1 TDH may appoint temporary management to oversee the operation of HMO
upon a finding that there is continued egregious behavior by HMO or
there is a substantial risk to the health of the Members.

71 May 31, 2001


18.5.2 TDH may appoint temporary management to assure the health of HMO's
Members if there is a need for temporary management while:

18.5.2.1 there is an orderly termination or reorganization of HMO; or

18.5.2.2 improvements are made to remedy violations found under Article
16.3.4.

18.5.3 Temporary management will not be terminated until TDH has determined
that HMO has the capability to ensure that the violations that
triggered appointment of temporary management will not recur.

18.5.4 TDH is not required to appoint temporary management before
terminating this contract.

18.5.5 No pre-termination hearing is required before appointing temporary
management.

18.5.6 As with any other remedy provided under this contract, TDH will
provide notice of default as is set out in Article XVII to HMO.
Additionally, as with any other remedy provided under this contract,
under Article 18.1 of this contract, HMO may dispute the imposition
of this remedy and seek review of the proposed remedy.

18.6 TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE
----------------------------------------------------------------

TDH must give HMO 30 days notice of intent to initiate disenrollment
of a Member of Members in the Notice of Default. The TDH-initiated
disenrollment date will be calculated as 30 days following the date
that HMO receives the Notice of Default.

18.7 RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
----------------------------------------------------------

18.7.1 If HCFA determines that HMO has violated federal law or regulations
and that federal payments will be withheld, TDH will deny and
withhold payments for new enrollees of HMO.

18.7.2 HMO must be given notice and opportunity to appeal a decision of TDH
and HCFA pursuant to 42 CFR ss.434.67.

18.8 CIVIL MONETARY PENALTIES
------------------------

18.8.1 For a default under Article 16.3.4.1, TDH may assess not more than
$25,000 for each default;


72 May 31, 2001


18.8.2 For a default under Article 16.3.4.2, TDH may assess double the
excess amount charged in violation of the federal requirements for
each default. The excess amount shall be deducted from the penalty
and returned to the Member concerned.

18.8.3 For a default under Article 16.3.4.3, TDH may assess not more than $
100,000 for each default, including $15,000 for each individual not
enrolled as a result of the practice described in Article 16.3.4.3.

18.8.4 For a default under Article 16.3.4.4, TDH may assess not more than
$100,000 for each default if the material was provided to HCFA or
TDH and not more than $25,000 for each default if the material was
provided to a Member, a potential Member, or a health care provider.

18.8.5 For a default under Article 16.3.4.5, TDH may assess not more than
$25,000 for each default.

18.8.6 For a default under Article 16.3.4.6, TDH may assess not more than
$25,000 for each default.

18.8.7 HMO may be subject to civil money penalties under the provisions of
42 CFR 1003 in addition to or in place of withholding payments for a
default under Article 16.3.4.

18.9 FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
-------------------------------------------------------

TDH may require forfeiture of all or a portion of the face amount of
the TDI performance bond if TDH determines that an event of default
has occurred. Partial payment of the face amount shall reduce the
total bond amount available pro rata.

18.10 REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
------------------------------------------

18.10.1 HMO may dispute the imposition of any sanction under this contract.
HMO notifies TDH of its dispute by filing a written response to the
Notice of Default, clearly stating the reason HMO disputes the
proposed sanction. With the written response, HMO must submit to TDH
any documentation that supports HMO's position. HMO must file the
review within 15 days from HMO's receipt of the Notice of Default.
Filing a dispute in a written response to the Notice of Default
suspends imposition of the proposed sanction.

18.10.2 HMO and TDH must attempt to informally resolve the dispute. If HMO
and TDH are unable to informally resolve the dispute, HMO must
notify the Bureau Chief of Managed Care that HMO and TDH cannot
agree. The Bureau Chief will refer the dispute to the Associate
Commissioner for Health Care Financing who will appoint

73 May 31, 2001


a committee to review the dispute under TDH's dispute resolution
procedures. The decision of the dispute resolution committee will be
TDH's final administrative decision.

19. Article XIX is amended by adding the following bold and italicized
language and deleting the stricken language as follows:

ARTICLE XIX TERM

19.2 This contract may be renewed for an additional one-year period by
written amendment to the contract executed by the parties prior to
the termination date of the present contract. TDH will notify HMO no
later than 90 days before the end of the contract period of its
intent not to renew the contract.

19.3 If either party does not intend to renew the contract beyond its
contract period, the party intending not to renew must submit a
written notice of its intent not to renew to the other party no
later than 90 days before the termination date set out in Article
19.1.

19.4 If either party does not intend to renew the contract beyond its
contract period and sends the notice required in Article 19.3, a
transition period of 90 days will run from the date the notice of
intent not to renew is received by the other party. By signing this
contract, the parties agree that the terms of this contract shall
automatically continue during any transition period.

19.5 The party that does not intend to renew the contract beyond its
contract period and sends the notice required by Article 19.3 is
responsible for sending notices to all Members on how the Member can
continue to receive covered services. The expense of sending the
notices will be paid by the non-renewing party. If TDH does not
intend to renew and sends the required notice, TDH is responsible
for any costs it incurs in ensuring that Members are reassigned to
other plans without interruption of services. If HMO does not intend
to renew and sends the required notice, HMO is responsible for any
costs TDH incurs in ensuring that Members are reassigned to other
plans without interruption of services. If both parties do not
intend to renew the contract beyond its contract period, TDH will
send the notices to Members and the parties will share equally in
the cost of sending the notices and of implementing the transition
plan.

74 May 31, 2001


20. The Appendices are amended by deleting existing Appendix A,
"Standards for Quality Improvement Programs" and replacing it with
new Appendix A "Standards for Quality Improvement Programs", as
attached.

21. The Appendices are amended by deleting from Appendix B "HUB Progress
Assessment Reports" the reporting sheet entitled "Progress
Assessment Report By Non-Historically Utilized Business of Work
Sub-Contracted (Non-HUB-PAR)" and replacing it with new reporting
sheet in Appendix B, as attached.

22. The Appendices are amended by deleting the current Appendix C,
"Scope of Services" and replacing it with new Appendix C
"Value-added Services", as attached.

23. The Appendices are amended by deleting current Appendix D, "Family
Planning Providers" and replacing it with new Appendix D "Required
Critical Elements", which was formerly Appendix M and has been
redesignated.

24. The Appendices are amended by deleting existing Appendix E,
"Transplant Facilities" and replacing it with new Appendix E
"Transplant Facilities", as attached.

25. The Appendices are amended by deleting existing Appendix F, "Trauma
Facilities" and replacing it with new Appendix F "Trauma
Facilities", as attached.

26. The Appendices are amended by deleting existing Appendix G,
"Hemophilia Treatment Centers and Programs" and replacing it with
new Appendix G, "Hemophilia Treatment Centers and Programs", as
attached.

27. The Appendices are amended by deleting existing Appendix H,
"Utilization Management Report - Behavioral Health" and replacing it
with new Appendix H, "Utilization Management Report - Behavioral
Health", as attached.

28. The Appendices are amended by deleting existing Appendix I, "Managed
Care Financial-Statistical Report" and replacing it with new
Appendix I, "Managed Care Financial-Statistical Report", as
attached.

29. The Appendices are amended by deleting existing Appendix J,
"Utilization Management Report - Physical Health" and replacing it
with new Appendix J, "Utilization Management Report - Physical
Health", as attached.

30. The Appendices are amended by deleting existing Appendix K,
"Preventive Performance Objectives" and replacing it with new
Appendix K, "Preventive Performance Objectives", as attached.

75 May 31, 2001


31. The current Appendix M, "Required Critical Elements" is replaced by
new Appendix M, "Arbitration/Litigation Report", as attached.



AGREED AND SIGNED by an authorized representative of the parties on Aug. 2,
2001.


TEXAS DEPARTMENT OF HEALTH Superior Health Plan, Inc.

By: /s/ C. E. BELL, M.D. By: /s/ MICHAEL D MCKINNEY, M.D.
------------------------------ ------------------------------
Charles E. Bell, M.D. Michael D. McKinney, M.D.
Executive Deputy Commissioner President and CEO
of Health

Approved as to Form:


/s/ MAS
------------------------------
Office of General Counsel

TDH Doc. # 7427705425* 2001-01F

76 May 31, 2001


AMENDMENT NO. 6
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN
HEALTH AND HUMAN SERVICES COMMISSION AND HMO


This Amendment No. 6 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the El
Paso Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1. HHSC and HMO acknowledge the transfer of responsibility and the assignment
of the original Contract for Services from TDH to HHSC on September 1,
2001. Where the original Contract for Services and any Amendment to the
original Contract for Services assigns a right, duty, or responsibility to
TDH, that right, duty, or responsibility may be exercised by HHSC or its
designee.

2. Articles II, III, VI, VII, VIII, IX, X, XII, XIII, XV, XVI, XVIII and XIX
are amended to read as follows:

2.0 DEFINITIONS

-----------

Chemical Dependency Treatment Facility means a facility licensed by
the Texas Commission on Alcohol and Drug Abuse (TCADA) under Sec.
464.002 of the Health and Safety Code to provide chemical dependency
treatment.

Chemical Dependency Treatment means treatment provided for a
chemical dependency condition by a Chemical Dependency Treatment
Facility, Chemical Dependency Counselor or Hospital.

Chemical Dependency Condition means a condition which meets at least
three of the diagnostic criteria for psychoactive substance
dependence in the American Psychiatric Association's Diagnostic and
Statistical Manual of Mental Disorders (DSM IV).

Chemical Dependency Counselor means an individual licensed by TCADA
under Sec. 504 of the Occupations Code to provide chemical
dependency treatment or a master's level therapist (LMSW-ACP, LMFT
or LPC) or a master's level therapist (LMSW-ACP, LMFT or LPC) with a
minimum of two years of post licensure experience in chemical
dependency treatment.

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Experience rebate means the portion of the HMO's net income before
taxes (financial Statistical Report, Part 1, Line 7) that is
returned to the state in accordance with Article 13.2.1.

Joint Interface Plan (JIP) means a document used to communicate
basic system interface information of the Texas Medicaid
Administrative System (TMAS) among and across State TMAS Contractors
and Partners so that all entities are aware of the interfaces that
affect their business. This information includes: file structure,
data elements, frequency, media, type of file, receiver and sender
of the file, and file I.D. The JIP must include each of the HMO's
interfaces required to conduct State TMAS business. The JIP must
address the coordination with each of the Contractor's interface
partners to ensure the development and maintenance of the interface;
and the timely transfer of required data elements between
contractors and partners.

3.5 RECORDS REQUIREMENTS AND RECORDS RETENTION
------------------------------------------

3.5.8 The use of Medicaid funds for abortion is prohibited unless the
pregnancy is the result of a rape, incest, or continuation of the
pregnancy endangers the life of the woman. A physician must certify
in writing that based on his/her professional judgment, the life of
the mother would be endangered if the fetus were carried to term.
HMO must maintain a copy of the certification for at least three
years.

6.6 BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
-------------------------------------------------------

6.6.13 Chemical dependency treatment must conform to the standards set
forth in the Texas Administrative Code, Title 28, Part 1, Chapter 3,
Subchapter HH.

6.8 TEXAS HEALTH STEPS (EPSDT)
--------------------------

6.8.3 Provider Education and Training. HMO must provide appropriate
training to all network providers and provider staff in the
providers' area of practice regarding the scope of benefits
available and the THSteps program. Training must include THSteps
benefits, the periodicity schedule for THSteps checkups, and
immunizations, the required elements of a THSteps medical screen,
providing or arranging for all required lab screening tests
(including lead screening), and Comprehensive Care Program (CCP)
services available under the THSteps program to Members under age 21
years. Providers must also be educated and trained regarding the
requirements imposed upon the department and contracting HMOs under
the Consent Decree entered in Frew vs. McKinney, et al., Civil
Action No. 3:93CV65, in the United States District Court for the
Eastern District of Texas, Paris Division. Providers should be
educated and trained to treat each THSteps visit as an opportunity
for a comprehensive assessment of the Member.


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HMO must report provider education and training regarding THSteps in
accordance with Article 7.4.4.

7.2 PROVIDER CONTRACTS
------------------

7.2.5 HHSC reserves the right and retains the authority to make reasonable
inquiry and conduct investigations into provider and Member
complaints against HMO or any intermediary entity with whom HMO
contracts to deliver health care services under this contract. HHSC
may impose appropriate sanctions and contract remedies to ensure HMO
compliance with the provisions of this contract.

7.5 MEMBER PANEL REPORTS
--------------------

7.5 HMO must furnish each PCP with a current list of enrolled Members
enrolled or assigned to that Provider no later than 5 working days
after HMO receives the Enrollment File from the Enrollment Broker
each month.

7.7 PROVIDER QUALIFICATIONS - GENERAL
---------------------------------

The providers in HMO network must meet the following qualifications:

--------------------------------------------------------------------------------
FQHC A Federally Qualified Health Center meets the standards
established by federal rules and procedures. The FQHC must
also be an eligible provider enrolled in the Medicaid.

--------------------------------------------------------------------------------
Physician An individual who is licensed to practice medicine as an MD
or a DO in the State of Texas either as a primary care
provider or in the area of specialization under which they
will provide medical services under contract with HMO; who
is a provider enrolled in the Medicaid; who has a valid Drug
Enforcement Agency registration number, and a Texas
Controlled Substance Certificate, if either is required in
their practice.
--------------------------------------------------------------------------------
Hospital An institution licensed as a general or special hospital by
the State of Texas under Chapter 241 of the Health and
Safety Code which is enrolled as a provider in the Texas
Medicaid Program. HMO will require that all facilities in
the network used for acute inpatient specialty care for
people under age 21 with disabilities or chronic or complex
conditions will have a designated pediatric unit; 24 hour
laboratory and blood bank availability; pediatric
radiological capability; meet JCAHO standards; and have
discharge planning and social service units.


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--------------------------------------------------------------------------------
Non-Physician An individual holding a license issued by the applicable
Practitioner licensing agency of the State of Texas who is enrolled in
Provider the Texas Medicaid Program.


--------------------------------------------------------------------------------
Clinical An entity having a current certificate issued under the
Laboratory Federal Clinical Laboratory Improvement Act (CLIA), and
is enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health An institution which meets all of the criteria for
Clinic (RHC) designation as a rural health clinic and is enrolled in the
Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health A local health department established pursuant to Health and
Department Safety Code, Title 2, Local Public Health Reorganization
Act ss.121.031ff.
--------------------------------------------------------------------------------
Non-Hospital A provider of health care services which is licensed and
Facility Provider credentialed to provide services and is enrolled in the
Texas Medicaid Program.
--------------------------------------------------------------------------------
School-Based Clinics located at school campuses that provide on site
Health Clinic primary and preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------
Chemical A facility licensed by the Texas Commission on Alcohol and
Dependency Drug Abuse (TCADA) under Sec. 464.002 of the Health and
Treatment Safety Code to provide chemical dependency treatment.
Facility

--------------------------------------------------------------------------------
Chemical An individual licensed by TCADA under Sec. 504 of the
Dependency Occupations Code to provide chemical dependency treatment or
Counselor a master's level therapist (LMSW-ACP, LMFT or LPC) with a
minimum of two years of post-licensure experience in
chemical dependency treatment.
--------------------------------------------------------------------------------


7.10 SPECIALTY CARE PROVIDERS
------------------------

7.10.1 HMO must maintain specialty providers, actively serving within that
specialty, including pediatric specialty providers and chemical
dependency specialty providers, within the network in sufficient
numbers and areas of practice to meet the needs of all Members
requiring specialty care services.

7.11 SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
-----------------------------------------------

7.11.1 HMO must include all medically necessary specialty services through
its network specialists, sub-specialists and specialty care
facilities (e.g., children's hospitals, licensed chemical dependency
treatment facilities and tertiary care hospitals).

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8.2 MEMBER HANDBOOK
---------------

8.2.1 HMO must mail each newly enrolled Member a Member Handbook no later
than 5 working days after HMO receives the Enrollment File. The
Member Handbook must be written at a 4th - 6th grade reading
comprehension level. The Member Handbook must contain all critical
elements specified by TDH. See Appendix D, Required Critical
Elements, for specific details regarding content requirements. HMO
must submit a Member Handbook to TDH for approval prior to the
effective date of the contract unless previously approved (see
Article 3.4.1 regarding the process for plan materials review).

8.4 MEMBER ID CARDS
---------------

8.4.2 HMO must issue a Member Identification Card (ID) to the Member
within 5 working days from the date the HMO receives the monthly
Enrollment File from the Enrollment Broker. The ID Card must
include, at a minimum, the following: Member's name; Member's
Medicaid number; either the issue date of the card or effective date
of the PCP assignment, PCP's name, address, and telephone number;
name of HMO; name of IPA to which the Member's PCP belongs, if
applicable; the 24-hour, seven (7) day a week toll-free telephone
number operated by HMO; the toll-free number for behavioral health
care services; and directions for what to do in an emergency. The ID
Card must be reissued if the Member reports a lost card, there is a
Member name change, if Member requests a new PCP, or for any other
reason which results in a change to the information disclosed on the
ID Card.

9.2 MARKETING ORIENTATION AND TRAINING
----------------------------------

9.2.1 HMO must require that all HMO staff having direct marketing contact
with Members as part of their job duties and their supervisors
satisfactorily complete HHSC's marketing orientation and training
program, conducted by HHSC or health plan staff trained by HHSC,
prior to engaging in marketing activities on behalf of HMO. HHSC
will notify HMO of scheduled orientations.

9.2.2 Marketing Policies and Procedures. HMO must adhere to the Marketing
Policies and Procedures as set forth by the Health and Human
Services Commission.

10.1 MODEL MIS REQUIREMENTS
----------------------

10.1.3 HMO must have a system that can be adapted to the change in Business
Practices/Policies within the timeframe negotiated between HHSC and
the HMO.

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10.1.3.1 HMO must notify and advise BIR of major systems changes and
implementations. HMO is required to provide an implementation plan
and schedule of proposed system change at the time of this
notification.

10.1.3.2 BIR conducts a Systems Readiness test to validate the contractor's
ability to meet the MMIS requirements. This is done through systems
demonstration and performance of specific MMIS and subsystem
functions. The System Readiness test may include a desk review
and/or an onsite review and is conducted for the following events:

o A new plan is brought into the program

o An existing plan begins business in a new SDA

o An existing plan changes location

o An existing plan changes their processing system

10.1.3.3 Desk Review. HMO must complete and pass systems desk review prior to
onsite systems testing conducted by HHSC.

10.1.3.4 Onsite Review. HMO is required to provide a detailed and
comprehensive Disaster and Recovery Plan, and complete and pass an
onsite Systems Facility Review during the State's onsite systems
testing.

10.1.3.5 HMO is required to provide a Corrective Action Plan in response to
HHSC Systems Readiness Testing Deficiencies no later than 10 working
days after notification of deficiencies by HHSC.

10.1.3.6 HMO is required to provide representation to attend and participate
in the HHSC Systems Workgroup as a part of the weekly Systems Scan
Call.

10.1.9 HMO must submit a joint interface plan (JIP) in a format specified
by HHSC. The JIP will include required information on all contractor
interfaces that support the Medicaid Information Systems. The
submission of the JIP will be in coordination with other TMAS
contractors and is due no later than 10 working days after the end
of each state fiscal year calendar.

10.3 ENROLLMENT ELIGIBILITY SUBSYSTEM
--------------------------------

(11) Send PCP assignment updates to HHSC or its designee, in the format
specified by HHSC or its designee. Updates can be sent as often as
daily but must be sent at least weekly.

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12.1 FINANCIAL REPORTS
-----------------

12.1.1 MCFS Report. HMO must submit the Managed Care Financial Statistical
Report (MCFS) included in Appendix I. The report must be submitted
to HHSC no later than 30 days after the end of each state fiscal
year quarter (i.e., Dec. 30, March 30, June 30, Sept. 30) and must
include complete and updated financial and statistical information
for each month of the state fiscal year-to-date reporting period.
The MCFS Report must be submitted for each claims processing
subcontractor in accordance with this Article. HMO must incorporate
financial and statistical data received by its delegated networks
(IPAs, ANHCs, Limited Provider Networks) in its MCFS Report.

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
Financial-Statistical Reports after the end of the second year of
the contract for the first two year portion of the contract and
again after the third year of the contract for the third year
(second portion) of the contract. The first final report must
reflect expenses incurred through the 90th day after the end of the
first two-year portion of the contract and again after the end of
the third year of the contract for the third year (second portion)
of the contract. The first final report must be filed on or before
the 120th day after the end of each portion of the contract. The
second final report must reflect data completed through the 334th
day after the end of the second year of the contract for the first
two year portion of the contract and again after the end of the
third year of the contract for the third year (second portion) of
the contract and must be filed on or before the 365th day following
the end of each portion of the contract year.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.3 PCP Error Report. HMO must submit to the Enrollment Broker an
electronic file summarizing changes in PCP assignments. The file
must be submitted in a format specified by HHSC and can be submitted
as often as daily but must be submitted at least weekly. When HMO
receives a PCP assignment Error Report /File, HMO must send
corrections to HHSC or its designee within five working days.

12.13 EXPEDITED PRENATAL OUTREACH REPORT
----------------------------------

12.13 HMO must submit the Expedited Prenatal Outreach Report for each
monthly reporting period in accordance with a format developed by
HHSC in consultation with the HMOs. The report must include elements
that demonstrate the level of effort and the outcomes of the HMO in
outreaching to pregnant women for the purpose of scheduling and/or
completing the initial obstetrical examination prior to 14 days
after the receipt of the daily enrollment file by the HMO. Each
monthly report is due by the last day of the month following each
monthly reporting period.

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13.1 CAPITATION AMOUNTS
------------------

13.1.2 Delivery Supplemental Payment (DSP). The monthly capatation amounts
and the DSP amount are listed below.

--------------------------------------------------------
Risk Group Monthly Capatation Amounts

--------------------------------------------------------
TANF Adults $178.01
--------------------------------------------------------
TANF Children greater than 12 $ 83.96
Months of Age
--------------------------------------------------------
Expansion Children greater than 12 $ 72.32
Months of Age
--------------------------------------------------------
Newborns less than/= 12 Months of $362.28
Age
--------------------------------------------------------
TANF Children less than/= 12 $362.28
Months of Age
--------------------------------------------------------
Expansion Children less than/= 12 $362.28
Months of Age
--------------------------------------------------------
Federal Mandate Children $ 47.77
--------------------------------------------------------
CHIP Phase 1 $ 61.85
--------------------------------------------------------
Pregnant Women $213.88
--------------------------------------------------------
Disabled/Blind $ 14.00
Administration
--------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy supplemental
payment for each delivery shall be paid to HMO as provided below in
the following amount: $2,992.02.

13.1.3.1 Once HMO has received its capitation rates established by HHSC for
the second or third year of this contract, HMO may terminate this
contract as provided in Article 18.1.6.

13.1.7 HMO renewal rates reflect program increases appropriated by the 76th
and 77th legislature for physician (to include THSteps providers)
and outpatient facility services. HMO must report to HHSC any change
in rates for participating physicians (to include THSteps providers)
and outpatient facilities resulting from this increase. The report
must be submitted to HHSC at the end of the first quarter of the
FY2000, FY2001 and FY2002 contract years according to the
deliverables matrix schedule set for HMO.


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13.2 EXPERIENCE REBATE TO THE STATE
------------------------------

13.2.1 For the contract period, HMO must pay to TDH an experience rebate
calculated in accordance with the tiered rebate method listed below
based on the excess of allowable HMO STAR revenues over allowable
HMO STAR expenses as measured by any positive amount on Line 7 of
"Part 1: Financial Summary, All Coverage Groups Combined" of the
annual Managed Care Financial-Statistical Report set forth in
Appendix I, as reviewed and confirmed by TDH. TDH reserves the right
to have an independent audit performed to verify the information
provided by HMO.

-----------------------------------------------------------
Graduated Rebate Method

-----------------------------------------------------------
Net income before HMO Share State Share
taxes as a Percentage
of Revenues

-----------------------------------------------------------
0% -3% 100% 0%
-----------------------------------------------------------
Over 3% - 7% 75% 25%
-----------------------------------------------------------
Over 7% - 10% 50% 50%
-----------------------------------------------------------
Over 10% - 15% 25% 75%
-----------------------------------------------------------
Over 15% 0% 100%
-----------------------------------------------------------

13.2.2.1 The experience rebate for the HMO shall be calculated by applying
the experience rebate formula in Article 13.2.1 to the sum of the
net income before taxes (Financial Statistical Report, Part 1, Line
7) for all STAR Medicaid service areas contracted between the State
and HMO.

13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates: HMO may
subtract from an experience rebate owed to the State, expenses for
population-based health initiatives that have been approved by HHSC.
A population-based initiative (PBI) is a project or program designed
to improve some aspect of quality of care, quality of life, or
health care knowledge for the Medicaid population that may also
benefit the community as a whole. Value-added service does not
constitute a PBI. Contractually required services and activities do
not constitute a PBI.

13.2.5 There will be two settlements for payment(s) of the experience
rebate for FY 2000-2001 and two settlements for payment(s) for the
experience rebate for FY 2002. The first settlement for the
specified time period shall equal 100 percent

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of the experience rebate as derived from Line 7 of Part 1 (Net
Income Before Taxes) of the first final Managed Care Financial
Statistical (MCFS) Report and shall be paid on the same day the
first final MCFS Repot is submitted to HHSC for the specified time
period. The second settlement shall be an adjustment to the first
settlement and shall be paid to HHSC on the same day that the second
final MCFS Report is submitted to HHSC for that specified time
period if the adjustment is a payment from HMO to HHSC. If the
adjustment is a payment from HHSC to HMO, HHSC shall pay such
adjustment to HMO within thirty (30) days of receipt of the second
final MCFS Report. HHSC or its agent may audit or review the MCFS
report. If HHSC determines that corrections to the MCFS reports are
required, based on a HHSC audit/review of other documentation
acceptable to HHSC, to determine an adjustment to the amount of the
second settlement, then final adjustment shall be made within two
years from the date that HMO submits the second final MCFS report.
HMO must pay the first and second settlements on the due dates for
the first and second final MCFS reports respectively as identified
in Article 12.1.4. HHSC may adjust the experience rebate if HHSC
determines HMO has paid affiliates amounts for goods or services
that are higher than the fair market value of the goods and services
in the service area. Fair market value may be based on the amount
HMO pays a non-affiliate(s) or the amount another HMO pays for the
same or similar service in the service area. HHSC has final
authority in auditing and determining the amount of the experience
rebate.

13.3 PERFORMANCE OBJECTIVES INCENTIVES
---------------------------------

13.3.1 Preventive Health Performance Objectives. Preventive Health
Performance Objectives are contained in this contract at Appendix K.
HMO must accomplish the performance objectives or a designated
percentage in order to be eligible for payment of financial
incentives. Performance objectives are subject to change. HHSC will
consult with HMO prior to revising performance objectives.

13.3.2 HMO will receive credit for accomplishing a performance objective
upon receipt of accurate encounter data required under Article 10.5
and 12.2 of this contract and/or a Detailed Data Element Report from
HMO with report format as determined by HHSC and aggregate data
report by HMO in accordance with a report format as determined by
HHSC (Performance Objective Report). Accuracy and completeness of
the Detailed Data Element Report and the Aggregate Data Performance
Objective Report will be determined by HHSC through an HHSC audit of
the HMO claims processing system. If HHSC determines that the
Detailed Data Element Report and Performance Objectives Report are
sufficiently supported by the results of the HHSC audit, the payment
of financial incentives will be made to HMO. Conversely, if the
audit results do not support the reports as determined by HHSC, HMO
will not receive payment


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of the financial incentive. HHSC may conduct provider chart reviews
to validate the accuracy of the claims data related to HMO
accomplishment of performance objectives. If the results of the
chart review do not support the HMO claims system data or the HMO
Detailed Data Element Report and the Performance Objectives Report,
HHSC may recoup payment made to the HMO for performance objectives
incentives.

13.3.3 HMO will also receive credit for performance objectives performed by
other organizations if a network primary care provider or the HMO
retains documentation from the performing organization which
satisfies the requirements contained in Appendix K of this contract.

13.3.4 HMO will receive performance objective bonuses for accomplishing the
following percentages of performance objectives:

--------------------------------------------------------------------
Percent of Each Performance Percent of Performance Objective
Objective Accomplished Allocations Paid to HMO
--------------------------------------------------------------------
60% to 65% 20%
--------------------------------------------------------------------
65% to 70% 30%
--------------------------------------------------------------------
70% to 75% 40%
--------------------------------------------------------------------
75% to 80% 50%
--------------------------------------------------------------------
80% to 85% 60%
--------------------------------------------------------------------
85% to 90% 70%
--------------------------------------------------------------------
90% to 95% 80%
--------------------------------------------------------------------
95% to 100% 90%
--------------------------------------------------------------------
100% 100%
--------------------------------------------------------------------

13.3.5 HMO must submit the Detailed Data Element Report and the Performance
Objectives Report regardless of whether or not the HMO intends to
claim payment of performance objective bonuses.

13.3.6 Payment of performance objective bonus is contingent upon
availability of appropriations. If appropriations are not available
to pay performance objective bonuses as set out below, HHSC will
equitably distribute all available funds to each HMO that has
accomplished performance objectives.

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13.3.7 In addition to the capitation amounts set forth in Article 13.1.2, a
performance premium of two dollars ($2.00) per Member month will be
allocated by HHSC for the accomplishment of performance objectives.

13.3.8 The HMO must submit the Performance Objectives Report and the
Detailed Data Element Report as referenced in Article 13.3.2, within
150 days from the end of each State fiscal year. Performance
premiums will be paid to HMO within 120 days after the State
receives and validates the data contained in each required
Performance Objectives Report.

13.3.9 The performance objective allocation for HMO shall be assigned to
each performance objective, described in Appendix K, in accordance
with the following percentages:

--------------------------------------------------------------------
EPSDT SCREENS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------------
1. < 12 months 12%
--------------------------------------------------------------------
2. 12 to 24 months 12%
--------------------------------------------------------------------
3. 25 months - 20 years 20%
--------------------------------------------------------------------

--------------------------------------------------------------------
IMMUNIZATIONS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------------
4. < 12 months 7%
--------------------------------------------------------------------
5. 12 to 24 months 5%
--------------------------------------------------------------------

--------------------------------------------------------------------
ADULT ANNUAL VISITS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------------
6. Adult Annual Visits 3%
--------------------------------------------------------------------

--------------------------------------------------------------------
PREGNANCY VISITS Percent of Performance Objective
Incentive Fund

--------------------------------------------------------------------
7. Initial prenatal exam 15%
--------------------------------------------------------------------
8. Visits by Gestational Age 14%
--------------------------------------------------------------------
9. Postpartum visit 12%
--------------------------------------------------------------------


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13.3.10 Compass 21 Encounter Data Conversion Performance Incentive. A
Compass 21 encounter data conversion performance incentive payment
will be paid by the State to each HMO that achieves the identified
conversion performance standard for at least one month in the first
quarter of SFY 2002 as demonstration of successful conversion to the
C21 system. The encounter data conversion performance standard is as
follows:

--------------------------------------------------------------------
Performance Objective Encounter Data Conversion
Performance Incentive

--------------------------------------------------------------------
Percentage of encounters submitted 65%
that are successfully accepted into
C21

--------------------------------------------------------------------

13.3.10.1 The amount of the incentive will be based on the total amount
identified by the state for the encounter data conversion
performance incentive pool ("Pool"). The pool will be equally
distributed between all the HMOs that achieve the performance
objective within the first quarter of SFY 2002. HMOs with multiple
contracts with HHSC are eligible to receive only one allocation from
the Pool. Required HMO performance for the identified objectives
will be verified by HHSC for accuracy and completeness. The
incentive will be paid only after HHSC has verified that HMO
performance has met the required performance standard. Payments will
be made in the second quarter of the fiscal year.

13.5.4 NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
---------------------------------------------

13.5.4 Newborns who appear on the MAXIMUS daily enrollment file but do not
appear on the MAXIMUS monthly enrollment or adjustment file before
the end of the sixth month following the date of birth will not be
retroactively enrolled into the HMO. HHSC will manually reconcile
payment to the HMO for services provided from the date of birth for
TP45 and all other eligibility categories of newborns. Payment will
cover services rendered from the effective date of the proxy ID
number when first issued by the HMO regardless of plan assignment at
the time the State-issued Medicaid ID number is received.

15.6 ASSIGNMENT

----------

15.6 This contract was awarded to HMO based on HMO's qualifications to
perform personal and professional services. HMO cannot assign this
contract without the written consent of HHSC. This provision does
not prevent HMO from


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subcontracting duties and responsibilities to qualified
subcontractors. If HHSC consents to an assignment of this contract,
a transition period of 90 days will run from the date the assignment
is approved by HHSC so that Members' services are not interrupted
and, if necessary, the notice provided for in Article 15.7 can be
sent to Members. The assigning HMO must also submit a transition
plan, as set out in Article 18.2.1, subject to HHSC 's approval.

16.3 DEFAULT BY HMO
--------------

16.3.14.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to HHSC by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit HHSC in exercising all or
part of any remaining remedies.

For HMO's failure to meet any benchmark established by HHSC under
this contract, or for failure to meet improvement targets, as
identified by HHSC, HHSC may:

o Remove all or part of the THSteps component from the capitation
paid to HMO
o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.15 FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
----------------------------------------------------

Failure of HMO to perform a material duty or responsibility as set
out in this Contract is a default under this contract and HHSC may
impose one or more of the remedies contained within its provisions
and all other remedies available to HHSC by law or in equity.

16.3.15.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to HHSC by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit HHSC in exercising all or
part of any remaining remedies.

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For HMO's failure to perform an administrative function under this
Contract, HHSC may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4; and/or
o Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

18.1.6 TERMINATION BY HMO
------------------

18.1.6 HMO may terminate this contract if HHSC fails to pay HMO as required
under Article XIII of this contract or otherwise materially defaults
in its duties and responsibilities under this contract, or by giving
notice no later than 30 days after receiving the capitation rates
for the second or third contract years. Retaining premium,
recoupment, sanctions, or penalties that are allowed under this
contract or that result from HMO's failure to perform or HMO's
default under the terms of this contract is not cause for
termination.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION
----------------------------------------------

18.2.2 If the contract is terminated by HHSC for any reason other than
federal or state funds for the Medicaid program no longer being
available or if HMO terminates the contract based on lower
capitation rates for the second or third contract years as set out
in Article 13.1.3.1:

18.2.3 If the contract is terminated by HMO for any reason other than based
on lower capitation rates for the second or third contract years as
set out in Article 13.1.3.1:

Article XIX TERM

----

19.1 The effective date of this contract is August 30, 1999. This
contract will terminate on August 31, 2002, unless terminated
earlier as provided for elsewhere in the contract.

3. The Appendices are amended by replacing page 10 of Appendix A "Standards
for Quality Improvement Programs" to incorporate a change in item F, number
1 on recredentialing.

4. The Appendices are amended by deleting Appendix D, "Required Critical
Elements," and replacing it with new Appendix D, "Required Critical
Elements", as attached.

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AGREED AND SIGNED by an authorized representative of the parties on
August 24 2001.
---------
Health and Human Services Commission Superior Health Plan, Inc.


By: /s/ DON A. GILBERT By:/s/ MICHAEL D. MCKINNEY, M.D.
------------------------------ ------------------------------
Don A. Gilbert Michael D. McKinney, M.D.
President & CEO


Approved as to Form:

/s/ ILLEGIBLE
------------------------------
Office of General Counsel

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