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

Published on October 9, 2001


Exhibit 10.5

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





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







TABLE OF CONTENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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






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APPENDICES


APPENDIX A
Standards For Quality Improvement Programs

APPENDIX B
HUB Progress Assessment Reports

APPENDIX C
Value-added Services

APPENDIX D
Required Critical Elements

APPENDIX E
Transplant Facilities

APPENDIX F
Trauma Facilities

APPENDIX G
Hemophilia Treatment Centers And Programs

APPENDIX H
Utilization Management Report - Behavioral Health

APPENDIX I
Managed Care Financial-Statistical Report

APPENDIX J
Utilization Management Report - Physical Health

APPENDIX K
Preventive Health Performance Objectives

APPENDIX L
Cost Principles For Administrative Expenses

APPENDIX M
Arbitration/Litigation Report

1999

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CONTRACT FOR SERVICES
Between
THE TEXAS DEPARTMENT OF HEALTH
And
HMO


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

ARTICLE I PARTIES AND AUTHORITY TO CONTRACT

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

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

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

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

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

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

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

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

ARTICLE II DEFINITIONS


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

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

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

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

Adjudicate means to deny or pay a clean claim.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Comprehensive Care Program: See definition for Texas Health Steps.

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

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

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

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

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

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

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

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

Day means calendar day unless specified otherwise.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HCFA means the federal Health Care Financing Administration.

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

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

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

JCAHO means Joint Commission on Accreditation of Health Care Organizations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MIS means management information system.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Special hospital means an establishment that:

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

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

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

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

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

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

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12


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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

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

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

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

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

THHSC means the Texas Health and Human Services Commission.

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

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

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

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

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

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


ARTICLE III PLAN ADMINISTRATIVE AND HUMAN RESOURCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.3.1.6 Oversight responsibility for medically related complaints.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


ARTICLE IV - FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

4.4 INSURANCE
---------


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

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

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

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

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

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

4.6 AUDIT
-----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VI SCOPE OF SERVICES

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

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

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


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

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

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

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

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

6.1.6.1 The approval request must include:

6.1.6.1.1 A detailed description of the service to be offered;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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37


loses Medicaid eligibility.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.7.4.1 general benefits of family planning services and
contraception;

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42


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

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

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

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

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

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

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

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

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

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

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

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

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43


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

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

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

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

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

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

1999 Renewal Contract
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all THSteps newborn screens to the TDH Bureau of Laboratories
or a TDH certified laboratory. Providers must include detailed
identifying information for all screened newborn Members and
the Member's mother to allow TDH to link the screens performed
at the hospital with screens performed at the two week
follow-up.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.9.4.1 48 hours following an uncomplicated vaginal delivery; and

1999 Renewal Contract
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6.9.4.2 96 hours for an uncomplicated caesarian delivery.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.13.9.1 Participate in hospital discharge planning;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.16.2.1 Prior authorization of services;

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

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

6.16.2.4 Health education;

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

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

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

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

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

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ARTICLE VII PROVIDER NETWORK REQUIREMENTS

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

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

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

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

7.1.3.1 Urgent Care within 24 hours of request;

7.1.3.2 Routine care within 2 weeks of request;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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58


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

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

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

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

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

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

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59


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

7.3.5.3 whether stop-loss protection is provided; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The providers in HMO network must meet the following
qualifications:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Acceptable:

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

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

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

Unacceptable:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.9.1 One well-woman examination per year;

7.9.2 Care related to pregnancy;

7.9.3 Care for all active gynecological conditions; and

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

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

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

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

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

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

7.10.3 HMO must ensure availability and accessibility to appropriate
specialists.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HMO must seek participation in its provider network from:

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

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

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

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

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

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

7.14.1.2 are Significant Traditional Providers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.16.1.2 Confidential HIV Testing (see Article 6.15);

7.16.1.3 Immunizations;

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

7.16.1.5 Family Planning Services (see Article 6.7);

7.16.1.6 THSteps checkups (see Article 6.8); and

7.16.1.7 Prenatal services (see Article 6.9).

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

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

7.16.2.2 Public Health Entity responsibilities:

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

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

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

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

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7.16.2.3 HMO Responsibilities:

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

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

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

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

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

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

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

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

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

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

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(5) Referral for WIC services and information sharing;

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

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

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

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

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

(4) Referral for WIC services and information sharing;

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

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

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

(8) Referral to the TDH Medical Transportation Program;

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

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


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

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

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

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

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

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

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

7.17.5.1 providing medical records;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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ARTICLE VIII MEMBER SERVICES REQUIREMENTS


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.7.2 The notice must contain the following information:

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

8.7.2.2 a statement of the action HMO will take;

8.7.2.3 the date the action will be taken;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.9.2 The Cultural Competency Plan must include the following:

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

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

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

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

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

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

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

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

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

8.9.3.3 A competent interpreter is defined as someone who is:

8.9.3.4 proficient in both English and the other language;

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

8.9.3.6 has the ability to interpret accurately and impartially.

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

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

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

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

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

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


ARTICLE IX MARKETING AND PROHIBITED PRACTICES


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

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

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

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

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

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

9.3.1.1 conducting any direct-contact marketing to prospective Members
except through TDH-sponsored enrollment events;

9.3.1.2 making any written or oral statement containing material
misrepresentations of fact or law relating to HMO's plan or
the STAR program;

9.3.1.3 making false, misleading or inaccurate statements relating to
services or benefits of HMO or the STAR program;

9.3.1.4 offering prospective Members anything of material or financial
value as an incentive to enroll with a particular PCP or HMO;
and

9.3.1.5 discriminating against an eligible Member because of race,
creed, age, color, sex, religion, national origin, ancestry,
marital status, sexual orientation, physical or mental
handicap, health status, or requirements for health care
services.

9.3.2 HMO may offer nominal gifts with a retail value of no more
than $10 and/or free health screens to potential Members, as
long as these gifts and free health screenings are offered
whether or not the potential Member enrolls in their HMO. Free
health screenings cannot be used to discourage less healthy
potential Members from joining HMO. All gifts must be approved
by TDH prior to distribution to Members. The results of free
screenings must be shared with the Member's PCP if the Member
enrolls with HMO providing the screen.

9.3.3 Marketing representatives may not conduct or participate in
marketing activities for more than one HMO.

9.4 NETWORK PROVIDER DIRECTORY
--------------------------

9.4.1 The provider directory and any revisions must be approved by
TDH prior to publication and distribution to prospective
Members (see Article 3.4.1 regarding the process for plan
materials review). The directory must contain all critical
elements specified by TDH. See Appendix D, Required Critical
Elements, for specific details regarding content requirements.

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9.4.2 If HMO contracts with limited provider networks, the provider
directory must comply with the requirements of 28 TAC
11.1600(b)(11), relating to the disclosure and notice of
limited provider networks.

9.4.3 Updates to the provider directory must be provided to the
Enrollment Broker at the beginning of each State fiscal year
quarter. This includes the months of September, December,
March and June. HMO is responsible for submitting draft
updates to TDH only if changes other than PCP information are
incorporated. HMO is responsible for sending three final paper
copies and one electronic copy of the updated provider
directory to TDH each quarter. If an electronic format is not
available, five paper copies must be sent. TDH will forward
two updated provider directories, along with its approval
notice, to the Enrollment Broker to facilitate the
distribution of the directories.

ARTICLE X MIS SYSTEM REQUIREMENTS

10.1 MODEL MIS REQUIREMENTS
----------------------

10.1.1 HMO must maintain an MIS that will provide support for all
functions of HMO's processes and procedures related to the
flow and use of data within HMO. The MIS must enable HMO to
meet the requirements of this contract. The MIS must have the
capacity and capability of capturing and utilizing various
data elements to develop information for HMO administration.

10.1.2 HMO must maintain a claim retrieval service processing system
that can identify date of receipt, action taken on all
provider claims or encounters (i.e., paid, denied, other), and
when any action was taken in real time.

10.1.3 HMO must have a system that can be adapted to the change in
Business Practices/Policies within a short period of time.

10.1.4 HMO is required to submit and receive data as specified in
this contract and HMO Encounter Data Submissions Manual. HMO
must provide complete encounter data of all capitated services
within the scope of services of the contract between HMO and
TDH. Encounter data must follow the format, data elements and
method of transmission specified in the contract and HMO
Encounter Data Submissions Manual. HMO must submit encounter
data, including adjustments to encounter data. The Encounter
transmission will include all encounter data and encounter
data adjustments processed by HMO for the previous month. Data
quality validation will incorporate assessment standards
developed jointly by HMO and TDH. Original records will be

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made available for inspection by TDH for validation purposes.
Data which do not meet quality standards must be corrected and
returned within a time period specified by TDH.

10.1.5 HMO must use the procedure codes, diagnosis codes, and other
codes used for reporting encounters and fee-for-service claims
in the most recent edition of the Medicaid Provider Procedures
Manual or as otherwise directed by TDH. Any exceptions will be
considered on a code-by-code basis after TDH receives written
notice from HMO requesting an exception. HMO must also use the
provider numbers as directed by TDH for both encounter and
fee-for-service claims submissions.

10.1.6 HMO must have hardware, software, network and communications
system with the capability and capacity to handle and operate
all MIS subsystems.

10.1.7 HMO must notify TDH of any changes to HMO's MIS department
dedicated to or supporting this contract by Phase I of Renewal
Review. Any updates to the organizational chart and the
description of responsibilities must be provided to TDH at
least 30 days prior to the effective date of the change.
Official points of contact must be provided to TDH on an
on-going basis. An Internet E-mail address must be provided
for each point of contact.

10.1.8 HMO must operate and maintain a MIS that meets or exceeds the
requirements outlined in the Model MIS Guidelines that follow:

10.1.8.1 The Contractor's system must be able to meet all eight MIS
Model Guidelines as listed below. The eight subsystems are
used in the Model MIS Requirements to identify specific
functions or features required by HMO's MIS. These subsystems
focus on the individual systems functions or capabilities to
support the following operational and administrative areas:

(1) Enrollment/Eligibility Subsystem

(2) Provider Subsystem

(3) Encounter/Claims Processing Subsystem

(4) Financial Subsystem

(5) Utilization/Quality Improvement Subsystem

(6) Reporting Subsystem

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(7) Interface Subsystem

(8) TPR Subsystem

10.2 SYSTEM-WIDE FUNCTIONS
---------------------

HMO MIS system must include functions and/or features which
must apply across all subsystems as follows:

(1) Ability to update and edit data.

(2) Maintain a history of changes and adjustments and
audit trails for current and retroactive data. Audit
trails will capture date, time, and reasons for the
change, as well as who made the change.

(3) Allow input mechanisms through manual and electronic
transmissions.

(4) Have procedures and processes for accumulating,
archiving, and restoring data in the event of a
system or subsystem failure.

(5) Maintain automated or manual linkages between and
among all MIS subsystems and interfaces.

(6) Ability to relate Member and provider data with
utilization, service, accounting data, and reporting
functions.

(7) Ability to relate and extract data elements into
summary and reporting formats attached as Appendices
to contract.

(8) Must have written process and procedures manuals
which document and describe all manual and automated
system procedures and processes for all the above
functions and features, and the various subsystem
components.

(9) Maintain and cross-reference all Member-related
information with the most current Medicaid number.

10.3 ENROLLMENT/ELIGIBILITY SUBSYSTEM
--------------------------------

The Enrollment/Eligibility Subsystem is the central processing
point for the entire MIS. It must be constructed and
programmed to secure all functions which require Membership
data. It must have functions and/or features which support
requirements as follows:

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(1) Identify other health coverage available or third
party liability (TPL), including type of coverage and
effective dates.

(2) Maintain historical data (files) as required by TDH.

(3) Maintain data on enrollments/disenrollments and
complaint activities. The data must include reason or
type of disenrollment, complaint, and resolution--by
incident.

(4) Receive, translate, edit and update files in
accordance with TDH requirements prior to inclusion
in HMO's MIS. Updates will be received from TDH's
agent and processed within two working days after
receipt.

(5) Provide error reports and a reconciliation process
between new data and data existing in MIS.

(6) Identify enrollee changes in primary care provider
and the reason(s) for those changes and effective
dates.

(7) Monitor PCP capacity and limitations prior to
connecting the enrollee to PCP in the system, and
provide a kick-out report when capacity and
limitations are exceeded.

(8) Verify enrollee eligibility for medical services
rendered or for other enrollee inquiries.

(9) Generate and track referrals,
e.g., Hospitals/Specialists.

(10) Search records by a variety of fields (e.g., name,
unique identification numbers, date of birth, SSN,
etc.) for eligibility verification.

(10) Send PCP assignment updates to TDH in the format as
specified by TDH.


10.4 PROVIDER SUBSYSTEM
------------------

The provider subsystem must accept, process, store and
retrieve current and historical data on providers, including
services, payment methodology, license information, service
capacity, and facility linkages.

Functions and Features:

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(1) Identify specialty(s), admission privileges, enrollee
linkage, capacity, facility linkages, emergency
arrangements or contact, and other limitations,
affiliations, or restrictions.

(2) Maintain provider history files to include audit
trails and effective dates of information.

(3) Maintain provider fee schedules/remuneration
agreements to permit accurate payment for services
based on the financial agreement in effect on the
date of service.

(4) Support HMO credentialing, recredentialing, and
credential tracking processes; incorporates or links
information to provider record.

(5) Support monitoring activity for physician to enrollee
ratios (actual to maximum) and total provider
enrollment to physician and HMO capacity.

(6) Flag and identify providers with restrictive
conditions (e g., limits to capacity, type of
patient, age restrictions, and other services if
approved out-of-network).

(7) Support national provider number format (UPIN, NPIN,
CLIA, etc., as required by TDH).

(8) Provide provider network files 90 days prior to
implementation and updates monthly. Format will be
provided by TDH to contracted entities.

(9) Support the national CLIA certification numbers for
clinical laboratories.

(10) Exclude providers from participation that have been
identified by TDH as ineligible or excluded. Files
must be updated to reflect period and reason for
exclusion.

10.5 ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
-------------------------------------

The encounter/claims processing subsystem must collect,
process, and store data on all health care services delivered
for which HMO is responsible. The functions of these
subsystems are claims/encounter processing and capturing
health service utilization data. The subsystem must capture
all health care services, including medical supplies, using
standard codes (e.g. CPT-4, HCPCS, ICD9-CM, UB92 Revenue
Codes), rendered by health-care providers to an eligible
enrollee regardless

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of payment arrangement (e.g. capitation or fee-for-service).
It approves, prepares for payment, or may reject or deny
claims submitted. This subsystem may integrate manual and
automated systems to validate and adjudicate claims and
encounters. HMO must use encounter data validation
methodologies prescribed by TDH.

Functions and Features:

(1) Accommodate multiple input methods: electronic
submission, tape, claim document, and media.

(2) Support entry and capture of a minimum of all
required data elements specified in the Encounter
Data Submission Manual.

(3) Edit and audit to ensure allowed services are
provided by eligible providers for Members.

(4) Interface with Member and provider subsystems.

(5) Capture and report TPL potential, reimbursement or
denial.

(6) Edit for utilization and service criteria, medical
policy, fee schedules, multiple contracts, contract
periods and conditions.

(7) Submit data to TDH through electronic transmission
using specified formats.

(8) Support multiple fee schedule benefit packages and
capitation rates for all contract periods for
individual providers, groups, services, etc. A claim
encounter must be initially adjudicated and all
adjustments must use the fee applicable to the date
of service.

(9) Provide timely, accurate, and complete data for
monitoring claims processing performance.

(10) Provide timely, accurate, and complete data for
reporting medical service utilization.

(11) Maintain and apply prepayment edits to verify
accuracy and validity of claims data for proper
adjudication.

(12) Maintain and apply edits and audits to verify timely,
accurate, and complete encounter data reporting.

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(13) Submit reimbursement to non-contracted providers for
emergency care rendered to enrollees in a timely and
accurate fashion.

(14) Validate approval and denials of precertification and
prior authorization requests during adjudication of
claims/encounters.

(15) Track and report the exact date a service was
performed. Use of date ranges must have State
approval.

(16) Receive and capture claim and encounter data from
TDH.

(17) Receive and capture value-added services codes.

(18) Capability of identifying adjustments and linking
them to the original claims/encounters.

10.6 FINANCIAL SUBSYSTEM
-------------------

The financial subsystem must provide the necessary data for
100% of all accounting functions including cost accounting,
inventory, fixed assets, payroll, general ledger, accounts
receivable, accounts payable, financial statement
presentation, and any additional data required by TDH. The
financial subsystem must provide management with information
that can demonstrate that the proposed or existing HMO is
meeting, exceeding, or falling short of fiscal goals. The
information must also provide management with the necessary
data to spot the early signs of fiscal distress, far enough in
advance to allow management to take corrective action where
appropriate.

Functions and Features:

(1) Provide information on HMO's economic resources,
assets, and liabilities and present accurate
historical data and projections based on historical
performance and current assets and liabilities.

(2) Produce financial statements in conformity with
Generally Accepted Accounting Principles (GAAP) and
in the format prescribed by TDH.

(3) Provide information on potential third party payers;
information specific to the Member; claims made
against third party payers; collection amounts and
dates; denials, and reasons for denials.

(4) Track and report savings by category as a result of
cost avoidance activities.

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(5) Track payments per Member made to network providers
compared to utilization of the provider's services.

(6) Generate Remittance and Status Reports.

(7) Make claim and capitation payments to providers or
groups.

(8) Reduce/increase accounts payable/receivable based on
adjustments to claims or recoveries from third party
resources.

10.7 UTILIIZATION/QUALITY IMPROVEMENT SUBSYSTEM
------------------------------------------

The quality management/quality improvement/utilization review
subsystem combines data from other subsystems, and/or external
systems, to produce reports for analysis which focus on the
review and assessment of quality of care given, detection of
over and under utilization, and the development of user
defined reporting criteria and standards. This system profiles
utilization of providers and enrollees and compares them
against experience and norms for comparable individuals. This
system also supports the quality assessment function.

The subsystem tracks utilization control function(s) and
monitoring inpatient admissions, emergency room use,
ancillary, and out-of-area services. It provides provider
profiles, occurrence reporting, and monitoring and evaluation
studies. The subsystem may integrate HMO's manual and
automated processes or incorporate other software reporting
and/or analysis programs.

The subsystem incorporates and summarizes information from
enrollee surveys, provider and enrollee complaints, and appeal
processes.

Functions and Features:

(1) Supports provider credentialing and recredentialing
activities.

(2) Supports HMO processes to monitor and identify
deviations in patterns of treatment from established
standards or norms. Provides feedback information for
monitoring progress toward goals, identifying optimal
practices, and promoting continuous improvement.

(3) Supports development of cost and utilization data by
provider and service.

(4) Provides aggregate performance and outcome measures
using standardized quality indicators similar to
HEDIS or as specified by TDH.

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(5) Supports quality-of-care Focused Studies.

(6) Supports the management of referral/utilization
control processes and procedures, including prior
authorization and precertifications and denials of
services.

(7) Monitors primary care provider referral patterns.

(8) Supports functions of reviewing access, use and
coordination of services (i.e. actions of Peer Review
and alert/flag for review and/or follow-up;
laboratory, x-ray and other ancillary service
utilization per visit).

(9) Stores and reports patient satisfaction data through
use of enrollee surveys.

(10) Provides fraud and abuse detection, monitoring and
reporting.

(11) Meets minimum report/data collection/analysis
functions of Article XI and Appendix A - Standards
For Quality Improvement Programs.

(12) Monitors and tracks provider and enrollee complaints
and appeals from receipt to disposition or resolution
by provider.

10.8 REPORT SUBSYSTEM
----------------

The reporting subsystem supports reporting requirements of all
HMO operations to HMO management and TDH. It allows HMO to
develop various reports to enable HMO management and TDH to
make decisions regarding HMO activity.

Functions and Capabilities:

(1) Produces standard, TDH-required reports and ad hoc
reports from the data available in all MIS
subsystems. All reports will be submitted as a paper
copy or electronically in a format approved by TDH.

(2) Have system flexibility to permit the development of
reports at irregular periods as needed.

(3) Generate reports that provide unduplicated counts of
enrollees, providers, payments and units of service
unless otherwise specified.

(4) Generate an alphabetic Member listing.

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(5) Generate a numeric Member listing.

(6) Generate a Member eligibility listing by PCP (panel
report).

(7) Report on PCP change by reason code.

(8) Report on TPL (COB) information to TDH.

(9) Report on provider capacity and assignment from date
of service to date received.

(10) Generate or produce an aged outstanding liability
report.

(11) Produce a Member ID Card.

(12) Produce Member/provider mailing labels.

10.9 DATA INTERFACE SUBSYSTEM
------------------------

10.9.1 The interface subsystem supports incoming and outgoing data
from and to other organizations. It allows HMO to maintain
enrollee, benefit package, eligibility,
disenrollment/enrollment status, and medical services received
outside of capitated services and associated cost. All
interfaces must follow the specifications frequencies and
formats listed in the Interface Manual.

10.9.2 HMO must obtain access to the TexMedNet BBS. Some file
transfers and E-mail will be handled through this mechanism.

10.9.3 Provider Network File. The provider file shall supply Network
Provider data between an HMO and TDH. This process shall
accomplish the following:

(1) Provide identifying information for all managed care
providers (e.g. name, address, etc.).

(2) Maintain history on provider
enrollment/disenrollment.

(3) Identify PCP capacity.

(4) Identify any restrictions (e.g., age, sex, etc.).

(5) Identify number and types of specialty providers
available to Members.

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10.9.4 Eligibility/Enrollment Interface. The enrollment interface
must provide eligibility data between TDH and HMOs.

(1) Provides benefit package data to HMOs in accordance
with capitated services.

(2) Provides PCP assignments.

(3) Provides Member eligibility status data.

(4) Provides Member demographics data.

(5) Provides HMOs with cross-reference data to identify
duplicate Members.

10.9.5 Encounter/Claim Data Interface. The encounter/claim interface
must transfer paid fee-for-service claims data to HMOs and
capitated services/encounters from HMO, including adjustments.
This file will include all service types, such as inpatient,
outpatient, and medical services. TDH's agent will process
claims for non-capitated services.

10.9.6 Capitation Interface. The capitation interface must transfer
premium and Member information to HMO. This interface's basic
purpose is to balance HMO's Members and premium amount.

10.9.7 TPR Interface. TDH will provide a data file that contains
information on enrollees that have other insurance. Because
Medicaid is the payer of last resort, all services and
encounters should be billed to the other insurance companies
for recovery. TDH will also provide an insurance company data
file which contains the name and address of each insurance
company.

10.9.8 TDH will provide a diagnosis file which will give the code and
description of each diagnosis permitted by TDH.

10.9.9 TDH will provide a procedure file which contains the
procedures which must be used on all claims and encounters.
This file contains HCPCS, revenue, and ICD9-CM surgical
procedure codes.

10.9.10 TDH will provide a provider file that contains the Medicaid
provider numbers, and the provider's names and addresses. The
provider number authorized by TDH must be submitted on all
claims, encounters, and network provider submissions.

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10.10 TPR SUBSYSTEM
-------------

HMO's third party recovery system must have the following
capabilities and capacities:

(1) Identify, store, and use other health coverage
available to eligible Members or third party
liability (TPL) including type of coverage and
effective dates.

(2) Provide changes in information to TDH as specified by
TDH.

(3) Receive TPL data from TDH to be used in claim and
encounter processing.

10.11 YEAR 2000 (Y2K) COMPLIANCE
--------------------------

10.11.1 HMO must take all appropriate measures to make all software
which will record, store, and process and present calendar
dates falling on or after January 1, 2000, perform in the same
manner and with the same functionality, data integrity and
performance, as dates falling on or before December 31, 1999,
at no added cost to TDH. HMO must take all appropriate
measures to ensure that the software will not lose, alter or
destroy records containing dates falling on or after January
1, 2000. HMO will ensure that all software will interface and
operate with all TDH, or its agent's, data systems which
exchange data, including but not limited to historical and
archived data. In addition, HMO guarantees that the year 2000
leap year calculations will be accommodated and will not
result in software, firmware or hardware failures.

10.11.2 TDH and all subcontracted entities are required by state and
federal law to meet Y2K compliance standards. Failure of TDH
or a TDH contractor other than an HMO to meet Y2K compliance
standards which results in an HMO's failure to meet the Y2K
requirements of this contract is a defense of an HMO against a
declaration by TDH of default by an HMO under this contract.


ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM


11.1 QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
----------------------------------------

HMO must develop, maintain, and operate a Quality Improvement
Program (QIP) system which complies with federal regulations
relating to Quality Assurance systems, found at 42 C.F.R.
ss. 434.34. The system must meet the Standards for Quality
Improvement Programs contained in Appendix A.

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11.2 WRITTEN QIP PLAN
-----------------

HMO must have on file with TDH an approved plan describing its
Quality Improvement Plan (QIP), including how HMO will
accomplish the activities pertaining to each Standard (I-XVI)
in Appendix A. Modifications and amendments must be submitted
to TDH no later than 60 days prior to the implementation of
the modification or amendment.

11.3 QIP SUBCONTRACTING
------------------

If HMO subcontracts any of the essential functions or
reporting requirements of QIP to another entity, HMO must
maintain a file of the subcontractors. The file must be
available for review by TDH or its designee upon request. HMO
must notify TDH no later than 90 days prior to terminating any
subcontract affecting a major performance function of this
contract (see Article 3.2.1.2).

11.4 ACCREDITATION
-------------

If HMO is accredited by an external accrediting agency,
documentation of accreditation must be provided to TDH. HMO
must provide TDH with their accreditation status upon request.

11.5 BEHAVIORAL HEALTH INTEGRATION INTO QIP
--------------------------------------

HMO must integrate behavioral health into its QIP system and
include a systematic and on-going process for monitoring,
evaluating, and improving the quality and appropriateness of
behavioral health care services provided to Members. HMO's QIP
must enable HMO to collect data, monitor and evaluate for
improvements to physical health outcomes resulting from
behavioral health integration into the overall care of the
Member.

11.6 QIP REPORTING REQUIREMENTS
--------------------------

HMO must meet all of the QIP Reporting Requirements contained
in Article XII.

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ARTICLE XII REPORTING REQUIREMENTS

12.1 FINANCIAL REPORTS
-----------------

12.1.1 Monthly MCFS Report. HMO must submit the Managed Care
Financial-Statistical Report (MCFS) included in Appendix I.
The report must be submitted to TDH no later than 30 days
after the end of each state fiscal year quarter (i.e., Dec.
30, March 30, June 30, Sept. 30) and must include complete
financial and statistical information for each month. The MCFS
Report must be submitted for each claims processing
subcontractor in accordance with this Article. HMO must
incorporate financial and statistical data received by its
delegated networks (IPAs, ANHCs, Limited Provider Networks) in
its MCFS Report.

12.1.2 For any given month in which an HMO has a net loss of $200,000
or more for the contract period to date, HMO must submit an
MCFS Report for that month by the 30th day after the end of
the reporting month. The MCFS Report must be completed in
accordance with the Instructions for Completion of the Managed
Care Financial-Statistical Report developed by TDH.

12.1.3 An HMO must submit monthly reports for each of the first 6
months following the Implementation Date. If the cumulative
net loss for the contract period to date after the 6th month
is less than $200,000, HMO may submit quarterly reports in
accordance with the above provisions unless the condition in
Article 12.1.2 exists, in which case monthly reports must be
submitted.

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
------------------
Financial-Statistical Reports. The first final report must
reflect expenses incurred through the 90th day after the end
of the contract year. The first final report must be filed on
or before the 120th day after the end of the contract year.
The second final report must reflect data completed through
the 334th day after the end of the contract year and must be
filed on or before the 365th day following the end of the
contract year.

12.1.5 Administrative expenses reported in the monthly and Final MCFS
Reports must be reported in accordance with Appendix L, Cost
Principles for Administrative Expenses. Indirect
administrative expenses must be based on an allocation
methodology for Medicaid managed care activities and services
that is developed or approved by TDH.

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12.1.6 Affiliate Report. HMO must submit an Affiliate Report to TDH
----------------
if this information has changed since the last report was
submitted. The report must contain the following information:

12.1.6.1 A listing of all Affiliates; and

12.1.6.2 A schedule of all transactions with Affiliates which, under
the provisions of this Contract, will be allowable as expenses
in either Line 4 or Line 5 of Part 1 of the MCFS Report for
services provided to HMO by the Affiliates for the prior
approval of TDH. Include financial terms, a detailed
description of the services to be provided, and an estimated
amount which will be incurred by HMO for such services during
the Contract period.

12.1.7 Annual Audited Financial Report. On or before June 30th of
-------------------------------
each year, HMO must submit to TDH a copy of the annual audited
financial report filed with TDI.

12.1.8 Form HCFA-1513. HMO must file an updated Form HCFA-1513
--------------
regarding control, ownership, or affiliation of HMO 30 days
prior to the end of the contract year. An updated Form HCFA
1513 must also be filed no later than 30 days after any change
in control, ownership, or affiliation of HMO. Forms may be
obtained from TDH.

12.1.9 Section 1318 Financial Disclosure Report. HMO must file an
----------------------------------------
updated HCFA Public Health Service (PHS) "Section 1318
Financial Disclosure Report" no later than 30 days after the
end of the contract year and no later than 30 days after
entering into, renewing, or terminating a relationship with an
affiliated party. These forms may be obtained from TDH.

12.1.10 TDI Examination Report. HMO must furnish a copy of any TDI
----------------------
Examination Report no later than 10 days after receipt of the
final report from TDI.

12.1.11 IBNR Plan. HMO must furnish a written IBNR Plan to manage
---------
incurred-but-not-reported (IBNR) expenses, and a description
of the method of insuring against insolvency, including
information on all existing or proposed insurance policies.
The Plan must include the methodology for estimating IBNR. The
plan and description must be submitted to TDH no later than 60
days after the effective date of this contract, unless
previously submitted to TDH. Changes to the IBNR plan and
description must be submitted to TDH no later than 30 days
before changes to the plan are implemented by HMO.

12.1.12 Third Party Recovery (TPR) Reports. HMO must file quarterly
----------------------------------
Third Party Recovery (TPR) Reports in accordance with the
format developed by TDH. TPR reports must

1999 Renewal Contract
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106



include total dollars recovered from third party payers for
services to HMO's Members for each month and the total dollars
recovered through coordination of benefits, subrogation, and
worker's compensation.

12.1.13 Each report required under this Article must be mailed to:
Bureau of Managed Care; Texas Dept. of Health; 1100 West 49th
Street; Austin, TX 78756-3168 (Exception: The MCFS Report may
be submitted to TDH via E-mail). HMO must also mail a copy of
the reports, except for items in Article 12.1.7 and Article
12.1.10 to Texas Department of Insurance, Mail Code 106-3A,
HMO Division, Attention: HMO Division Director, P.O. Box
149104, Austin, TX 78714-9104.

12.2 STATISTICAL REPORTS
-------------------

12.2.1 HMO must electronically file the following monthly reports:
(1) encounter; (2) encounter detail; (3) institutional; (4)
institutional detail; and (5) claims detail for
cost-reimbursed services filed, if any, with HMO. Encounter
data must include the data elements, follow the format, and
use the transmission method specified by TDH in the Encounter
Data Submission Manual. Encounters must be submitted by HMO to
TDH no later than 45 days after the date of adjudication
(finalization) of the claims.

12.2.2 Monthly reports must include current month encounter data and
encounter data adjustments to the previous month's data.

12.2.3 Data quality standards will be developed jointly by HMO and
TDH. Encounter data must meet or exceed data quality
standards. Data that does not meet quality standards must be
corrected and returned within the period specified by TDH.
Original records must be made available to validate all
encounter data.

12.2.4 HMO must require providers to submit claims and encounter data
to HMO no later than 95 days after the date services are
provided.

12.2.5 HMO must use the procedure codes, diagnosis codes and other
codes contained in the most recent edition of the Texas
Medicaid Provider Procedures Manual and as otherwise provided
by TDH. Exceptions or additional codes must be submitted for
approval before HMO uses the codes.

12.2.6 HMO must use its TDH-specified identification numbers on all
encounter data submissions. Please refer to the TDH Encounter
Data Submission Manual for further specifications.

12.2.7 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission
of encounter data to TDH.

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12.2.8 All Claims Summary Report. HMO must submit the "All Claims
-------------------------
Summary Report" identified in the Texas Managed Care Claims
Manual as a contract year-to-date report. The report must be
submitted quarterly by the last day of the month following the
reporting period. The reports must be submitted to TDH in a
format specified by TDH.

12.2.9 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
------------------------------------------------------
must file preliminary and final Medicaid Disproportionate
Share Hospital (DSH) reports, required by TDH to identify and
reimburse hospitals that qualify for Medicaid DSH funds. The
preliminary and final DSH reports must include the data
elements and be submitted in the form and format specified by
TDH. The preliminary DSH reports are due on or before June 1
of the year following the state fiscal year for which data is
being reported. The final DSH reports are due on or before
August 15 of the year following the state fiscal year for
which data is being reported.

12.3 ARBITRATION/LITIGATION CLAIMS REPORT
------------------------------------

HMO must submit an Arbitration/Litigation Claims Report in a
format provided by TDH (see Appendix M) identifying all
provider or HMO requests for arbitration or matters in
litigation. The report must be submitted within 30 days from
the date the matter is referred to arbitration or suit is
filed, or whenever there is a change of status in a matter
referred to arbitration or litigation.

12.4 SUMMARY REPORT OF PROVIDER COMPLAINTS
-------------------------------------

HMO must submit a Summary Report of Provider Complaints. HMO
must also report complaints submitted to its subcontracted
risk groups (e.g., IPAs). The complaint report must be
submitted in two paper copies and one electronic copy on or
before the 45 days following the end of the state fiscal
quarter using a form specified by TDH.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.1 Provider Network Report. HMO must submit to the Enrollment
-----------------------
Broker an electronic file summarizing changes in HMO's
provider network including PCPs, specialists, ancillary
providers and hospitals. The file must indicate if the PCPs
and specialists participate in a closed network and the name
of the delegated network. The electronic file must be
submitted in the format specified by TDH and can be submitted
as often as daily but must be submitted at least weekly.

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12.5.2 Provider Termination Report. HMO must submit a monthly report
---------------------------
which identifies any providers who cease to participate in
HMO's provider network, either voluntarily or involuntarily.
The report must be submitted to TDH in the format specified by
TDH. HMO will submit the report no later than thirty (30) days
after the end of the reporting month. The information must
include the provider's name, Medicaid number, the reason for
the provider's termination, and whether the termination was
voluntary or involuntary.

12.6 MEMBER COMPLAINTS
----------------
HMO must submit a quarterly summary report of Member
complaints. HMO must also report complaints submitted to its
subcontracted risk groups (e.g., IPAs). The complaint report
format must be submitted to TDH as two paper copies and one
electronic copy on or before 45 days following the end of the
state fiscal quarter using a form specified by TDH.

12.7 FRAUDULENT PRACTICES
--------------------

HMO must report all fraud and abuse enforcement actions or
investigations taken against HMO and/or any of its
subcontractors or providers by any state or federal agency for
fraud or abuse under Title XVIII or Title XIX of the Social
Security Act or any State law or regulation and any basis upon
which an action for fraud or abuse may be brought by a State
or federal agency as soon as such information comes to the
attention of HMO.

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Behavioral health (BH) utilization management reports are
required on a semi-annual basis with submission of data files
that are, at a minimum, due to TDH or its designee, on a
quarterly basis no later than 150 days following the end of
the period. Refer to Appendix H for the standardized reporting
format for each report and detailed instructions, for
obtaining the specific data required in the report and for
data file submission specifications. The BH utilization report
and data file submission instructions may periodically be
updated by TDH to facilitate clear communication to the health
plan.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are
required on a semi-annual basis with submission of data files
that are, at a minimum, due to TDH or its designee on a
quarterly basis no later than 150 days following the end of
the period. Refer to Appendix J for the standardized reporting
format for each report and detailed

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instructions for obtaining specific data required in the
report and for data file submission specifications. The PH
Utilization Management Report and data file submission
instructions may periodically be updated by TDH to facilitate
clear communication to the health plan.

12.10 QUALITY IMPROVEMENT REPORTS
---------------------------

12.10.1 HMO must conduct health Focused Studies in well child and
pregnancy, and a study chosen by HMO that may be performed in
the areas of behavioral health care, asthma, or other chronic
conditions. Well child and pregnancy studies shall be
conducted and data collected using criteria and methods
developed by TDH. The following format shall be utilized:

(1) Executive Summary.

(2) Definition of the population and health areas of
concern.

(3) Clinical guidelines/standards, quality indicators,
and audit tools.

(4) Sources of information and data collection
methodology.

(5) Data analysis and information/results.

(6) Corrective actions if any, implementation, and
follow-up plans including monitoring, assessment of
effectiveness, and methods for provider feedback.

12.10.2 Annual Focused Studies. Focused Studies on well child,
----------------------
pregnancy, and a study chosen by the plan, must be submitted
to TDH according to due dates established by TDH.

12.10.3 Annual QIP Summary Report. An annual QIP summary report must
-------------------------
be conducted yearly based on the state fiscal year. The annual
QIP summary report must be submitted by March 31 of each year.
This report must provide summary information on HMO's QIP
system and include the following:

(1) Executive summary of QIP - include results of all QI
reports and interventions.

(2) Activities pertaining to each standard (I through
XVI) in Appendix A. Report must list each standard.

(3) Methodologies for collecting, assessing data and
measuring outcomes.

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(4) Tracking and monitoring quality of care.

(5) Role of health professionals in QIP review.

(6) Methodology for collection data and providing
feedback to provider and staff.

(7) Outcomes and/or action plan.

12.10.4 Provider Medical Record Audit and Report. HMO is required to
----------------------------------------
conform to commonly accepted medical record standards such as
those used by, NCQA, JCAHO, or those used for credentialing
review such as the Texas Environment of Care Assessment
Program (TECAP), and have documentation on file at HMO for
review by TDH or its designee during an on-site review.

12.11 HUB REPORTS
-----------

HMO must submit quarterly reports documenting HMO's HUB
program efforts and accomplishments. The report must include a
narrative description of HMO's program efforts and a financial
report reflecting payments made to HUB. HMO must use the
format included in Appendix B for HUB quarterly reports. For
HUB Certified Entities: HMO must include the General Service
Commission (GSC) Vendor Number and the ethnicity/gender under
which a contracting entity is registered with GSC. For HUB
Qualified (but not certified) Entities: HMO must include the
ethnicity/gender of the major owner(s) (51%) of the entity.
Any entities for which HMO cannot provide this information,
cannot be included in the HUB report. For both types of
entities, an entity will not be included in the HUB report if
HMO does not list ethnicity/gender information.

12.12 THSTEPS REPORTS
---------------

Minimum reporting requirements. HMO must submit, at a minimum,
80% of all THSteps checkups on HCFA 1500 claim forms as part
of the encounter file submission to the TDH Claims
Administrator no later than thirty (30) days after the date of
final adjudication (finalization) of the claims. Failure to
comply with these minimum reporting requirements will result
in Article XVIII sanctions and money damages.

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111


ARTICLE XIII PAYMENT PROVISIONS


13.1 CAPITATION AMOUNTS
------------------

13.1.1 TDH will pay HMO monthly premiums calculated by multiplying
the number of Member months by Member risk group times the
monthly capitation amount by Member risk group. HMO and
network providers are prohibited from billing or collecting
any amount from a Member for health care services covered by
this contract, in which case the Member must be informed of
such costs prior to providing non-covered services.

13.1.2 Delivery Supplemental Payment (DSP). TDH has submitted the
delivery supplemental payment methodology to HCFA for
approval. The monthly capitation amounts established for each
risk group in the Travis Service Area using the DSP
methodology will apply only if the methodology is approved by
HCFA, and the methodology is implemented for all HMO's in all
existing service areas by contract. The monthly capitation
amounts for September 1, 1999, through August 31, 2000 and the
DSP amount are listed below and will supersede the standard
Methodology of Article 13.1.3 upon approval by HCFA.

--------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000
--------------------------------------------------------------
TANF Adults $107.58
--------------------------------------------------------------
TANF Children > 12 Months $57.03
of Age
--------------------------------------------------------------
Expansion Children > 12 $73.44
Months of Age
--------------------------------------------------------------
Newborns (<12 Months of $390.55
Age)
--------------------------------------------------------------
TANF Children < 12 Months $390.55
of Age
--------------------------------------------------------------
Expansion Children < 12 $390.55
Months of Age
--------------------------------------------------------------
Federal Mandate Children $41.89
--------------------------------------------------------------

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112

--------------------------------------------------------------
CHIP Phase I $71.71
--------------------------------------------------------------
Pregnant Women $164.78
--------------------------------------------------------------
Disabled/Blind Administration $14.00
--------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,817.00.

13.1.2.1 HMO will receive a DSP for each live or still birth. The
one-time payment is made regardless of whether there is a
single or multiple births at time of delivery. A delivery is
the birth of a liveborn infant, regardless of the duration of
the pregnancy, or a stillborn (fetal death) infant of 20 weeks
or more gestation. A delivery does not include a spontaneous
or induced abortion, regardless of the duration of the
pregnancy.

13.1.2.2 For an HMO Member who is classified in the Pregnant Women,
TANF Adults, TANF Children >12 months, Expansion Children >12
months, Federal Mandate Children >12 months, or CHIP risk
group, HMO will be paid the monthly capitation amount
identified in Article 13.1.2 for each month of classification,
plus the DSP amount identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes
the data elements specified by TDH. TDH will consult with
contracted HMOs prior to revising the report data elements and
requirements. The reports must be submitted to TDH in the
format and time specified by TDH. The report must include only
unduplicated deliveries. The report must include only
deliveries for which HMO has made a payment for the delivery,
to either a hospital or other provider. No DSP will be made
for deliveries which are not reported by HMO to TDH within 90
days from the receipt of claim, or within 30 days from the
date of discharge from the hospital for the stay related to
the delivery, whichever is later.

13.1.2.4 HMO must maintain complete claims and adjudication disposition
documentation, including paid and denied amounts for each
delivery. HMO must submit the documentation to TDH within five
(5) days from the date of TDH request for documents.

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113


13.1.2.5 The DSP will be made by TDH to HMO within twenty (20) state
working days after receiving an accurate report from HMO.

13.1.2.6 All infants of age equal to or less than twelve months
(Newborns) in the TANF Children, Expansion Children, and
Newborns risk groups will be capitated at the Newborns
classification capitation amount in Article 13.1.2.

13.1.3 Standard Methodology. If the DSP methodology is not approved
by HCFA, the monthly capitation amounts established for each
risk group in the Travis Service Area using the Methodology
set forth in Article 13.1.1, without the DSP, are as follows:

--------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1,1999 - August 31,
2000
--------------------------------------------------------------
TANF Adults $138.32
--------------------------------------------------------------
TANF Children $75.09
--------------------------------------------------------------
Expansion Children $90.48
--------------------------------------------------------------
Newborns $455.14
--------------------------------------------------------------
Federal Mandate Children $42.25
--------------------------------------------------------------
CHIP Phase I $77.26
--------------------------------------------------------------
Pregnant Women $546.69
--------------------------------------------------------------
Disabled/Blind Administration $14.00
--------------------------------------------------------------

13.1.4 TDH will re-examine the capitation rates paid to HMO under
this contract during the first year of the contract period and
will provide HMO with capitation rates for the second year of
the contract period no later than 30 days before the date of
the one-year anniversary of the contract's effective date.
Capitation rates for state fiscal year 2001 will be
re-examined based on the most recent available traditional
Medicaid cost data for the contracted risk groups in the
service area, trended forward and discounted.

13.1.4.1 Once HMO has received their capitation rates established by
TDH for the second year of this contract, HMO may terminate
this contract as provided in Article 18.1.6 of this contract.
HMO may also terminate this contract as provided in Article
18.1.6 if HCFA does not approve the Delivery Supplemental
Payment Methodology described

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114


in Article 13.1.2.

13.1.5 The monthly premium payment to HMO is based on monthly
enrollments adjusted to reflect money damages set out in
Article 18.8 and adjustments to premiums in Article 13.4

13.1.6 The monthly premium payments will be made to HMO no later than
the 10th working day of the month for which premiums are paid.
HMO must accept payment for premiums by direct deposit into an
HMO account.

13.1.7 Payment of monthly capitation amounts is subject to
availability of appropriations. If appropriations are not
available to pay the full monthly capitation amounts, TDH will
equitably adjust capitation amounts for all participating
HMOs, and reduce scope of service requirements as appropriate.

13.1.8 HMO renewal rates reflect program increases appropriated by
the 76th legislature for physician (to include THSteps
providers) and outpatient facility services. HMO must report
to TDH any change in rates for participating physicians (to
include THSteps providers) and outpatient facilities resulting
from this increase. The report must be submitted to TDH at the
end of the first quarter of the FY2000 and FY2001 contract
years according to the deliverables matrix schedule set for
HMO.

13.2 EXPERIENCE REBATE TO STATE

13.2.1 For fiscal year 2000, HMO must pay to TDH the State's portion
of an experience rebate calculated in accordance with the
tiered rebate method listed below based on the excess of
allowable HMO STAR revenues over allowable HMO STAR expenses
as measured by any positive amount on Line 7 of "Part 1:
Financial Summary, All Coverage Groups Combined" of the annual
Managed Care Financial-Statistical Report set forth in
Appendix I, as reviewed and confirmed by TDH. TDH reserves the
right to have an independent audit performed to verify the
information provided by HMO.

--------------------------------------------------------------------------------
Graduated Rebate Method
--------------------------------------------------------------------------------
Excess as a Percentage HMO Share of State Share of
of Revenues Experience Rebate Experience Rebate
--------------------------------------------------------------------------------
0% - 3% 100% of excess between 0% of excess between
0% and 3%-of revenues 0% and 3% of revenues
--------------------------------------------------------------------------------
Over 3% - 7% 75% of excess >3% and 25% of excess >3%
<7% of revenues and <7% of revenues
- -
--------------------------------------------------------------------------------
Over 7% - 10% 50% of excess >7% and 50% of excess >7%
<10% of revenues and <10% of revenues
- -
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
Over 10% - 15% 25% of excess >10% 75% of excess >10%
and <15% of revenues and <15% of revenues
- -
--------------------------------------------------------------------------------
Over 15% 0% of excess of 15% of 100% of excess over
revenues 15% of revenues
--------------------------------------------------------------------------------

13.2.2 Carry Forward of Prior Contract Period Losses: Losses incurred
for one contract period can only be carried forward to the
next contract period.

13.2.2.1 Carry Forward of Loss from one Service Delivery Area to
Another: If HMO operates in multiple Service Delivery Areas
(SDAs), losses in one SDA cannot be used to offset net income
before taxes in another SDA.

13.2.3 Experience rebate will be based on a pre-tax basis.

13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates:
HMO may subtract from an experience rebate owed to the State,
expenses for population-based health initiatives that have
been approved by TDH. A population-based initiative (PBI) is a
project or program designed to improve some aspect of quality
of care, quality of life, or health care knowledge for the
community as a whole. Value-added service does not constitute
a PBI. Contractually required services and activities do not
constitute a PBI.

13.2.5 There will be two settlements for payment(s) of the state
share of the experience rebate. The first settlement shall
equal 100 percent of the state share of the experience rebate
as derived from Line 7 of Part 1 (Net Income Before Taxes) of
the annual Managed Care Financial Statistical (MCFS) Report
and shall be paid on the same day the first annual MCFS Report
is submitted to TDH. The second settlement shall be an
adjustment to the first settlement and shall be paid to TDH on
the same day that the second annual MCFS Report is submitted
to TDH if the adjustment is a payment from HMO to TDH. TDH or
its agent may audit or review the MCFS reports. If TDH
determines that corrections to the MCFS reports are required,
based on a TDH audit/review or other documentation acceptable
to TDH, to determine an adjustment to the amount of the second
settlement, then final adjustment shall be made within two
years from the date that HMO submits the second annual MCFS
report. HMO must pay the first and second settlements on the
due dates for the first and second MCFS reports respectively
as identified in Article 12.1.5. TDH may adjust the experience
rebate if TDH determines HMO has paid affiliates amounts for
goods or services that are higher than the fair market value
of the goods and services in the service area. Fair market
value may be based on the amount HMO pays a non-affiliate(s)
or the amount another HMO pays for the same or similar service
in the service area. TDH has final authority in auditing and
determining the amount of the experience rebate.

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Travis Service Area
August 9, 1999
116


13.3 PERFORMANCE OBJECTIVES
----------------------

13.3.1 Preventive Health Performance Objectives are contained in this
contract at Appendix K. These reports are submitted annually
and must be submitted no later than 150 days after the end of
the State fiscal year.

13.4 ADJUSTMENTS TO PREMIUM
----------------------

13.4.1 TDH may recoup premiums paid to HMO in error. Error may be
either human or machine error on the part of TDH or an agent
or contractor of TDH. TDH may recoup premiums paid to HMO if a
Member is enrolled into HMO in error, and HMO provided no
covered services to Member for the period of time for which
premium was paid. If services were provided to Member as a
result of the error, recoupment will not be made.

13.4.2 TDH may recoup premium paid to HMO if a Member for whom
premium is paid moves outside the United States, and HMO has
not provided covered services to the Member for the period of
time for which premium has been paid. TDH will not recoup
premium if HMO has provided covered services to the Member
during the period of time for which premium has been paid.

13.4.3 TDH may recoup premium paid to HMO if a Member for whom
premium is paid dies before the first day of the month for
which premium is paid.

13.4.4 TDH may recoup or adjust premium paid to HMO for a Member if
the Member's eligibility status or program type is changed,
corrected as a result of error, or is retroactively adjusted.

13.4.5 Recoupment or adjustment of premium under Articles 13.4.1
through 13.4.4 may be appealed using the TDH dispute
resolution process.

13.4.6 TDH may adjust premiums for all Members within an eligibility
status or program type if adjustment is required by reductions
in appropriations and/or if a benefit or category of benefits
is excluded or included as a covered service. Adjustment must
be made by amendment as required by Article 15.2. Adjustment
to premium under this subsection may not be appealed using the
TDH dispute resolution process.


ARTICLE XIV ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

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Travis Service Area
August 9, 1999
117


14.1 ELIGIBILITY DETERMINATION
-------------------------

14.1.1 TDH will identify Medicaid recipients who are eligible for
participation in the STAR program using the eligibility status
described below.

14.1.2 Individuals in the following categories who reside in any part
of the Service Area must enroll in one of the health plans
providing services in the Service Areas:

14.1.2.1 TANF ADULTS - Individuals age 21 and over who are eligible for
the TANF program. This category may also include some pregnant
women.

14.1.2.2 TANF CHILDREN - Individuals under age 21 who are eligible for
the TANF program. This category may also include some pregnant
women and some children less than one year of age.

14.1.2.3 PREGNANT WOMEN receiving Medical Assistance Only (MAO) -
Pregnant women whose families' income is below 185% of the
Federal Poverty Level (FPL).

14.1.2.4 NEWBORN (MAO) - Children under age one born to
Medicaid-eligible mothers.

14.1.2.5 EXPANSION CHILDREN (MAO) - Children under age 18, ineligible
for TANF because of the applied income of their stepparents or
grandparents.

14.1.2.6 EXPANSION CHILDREN (MAO) - Children under age 1 whose
families' income is below 185% FPL.

14.1.2.7 EXPANSION CHILDREN MAO - Children age 1- 5 whose families'
income is at or below 133% of FPL.

14.1.2.8 FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
before October 10, 1983, whose families' income is below the
TANF income limit.

14.1.2.9 CHIP PHASE I - Children's Health Insurance Program Phase I
(Federal Mandate Acceleration) Children under age nineteen
(19) born before October 1, 1983, with family income below
100% Federal Poverty Income Level.

14.1.3 The following individuals are eligible for the STAR Program
and are not required to enroll in a health plan but have the
option to enroll in a plan. HMO will be required to accept
enrollment of those Medicaid recipients from this group who
elect to enroll in HMO.

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August 9, 1999
118


14.1.3.1 DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients
with Supplemental Security Income (SSI) benefits who are not
eligible for Medicare may elect to participate in the STAR
program on a voluntary basis.

14.1.3.2 Certain blind or disabled individuals who lose SSI eligibility
because of Title II income and who are not eligible for
Medicare.

14.1.4 During the period after which the Medicaid eligibility
determination has been made but prior to enrollment in HMO,
Members will be enrolled under the traditional Medicaid
program. All Medicaid-eligible recipients will remain in the
fee-for-service Medicaid program until enrolled in or assigned
to an HMO.

14.2 ENROLLMENT
----------

14.2.1 TDH has the right and responsibility to enroll and disenroll
eligible individuals into the STAR program. TDH will conduct
continuous open enrollment for Medicaid recipients and HMO
must accept all persons who chose to enroll as Members in HMO
or who are assigned as Members in HMO by TDH, without regard
to the Member's health status or any other factor.

14.2.2 All enrollments are subject to the accessibility and
availability limitations and restrictions contained in the
ss. 1915(b) waiver obtained by TDH. TDH has the authority to
limit enrollment into HMO if the number and distance
limitations are exceeded.

14.2.3 TDH makes no guarantees or representations to HMO regarding
the number of eligible Medicaid recipients who will ultimately
be enrolled as STAR Members of HMO.

14.2.4 HMO must cooperate and participate in all TDH sponsored and
announced enrollment activities. HMO must have a
representative at all TDH enrollment activities unless an
exception is given by TDH. The representative must comply with
HMO's cultural and linguistic competency plan (see Cultural
and Linguistic requirements in Article 8.9). HMO must provide
marketing materials, HMO pamphlets, Member Handbooks, a list
of network providers, HMO's linguistic and cultural
capabilities and other information requested or required by
TDH or its Enrollment Broker to assist potential Members in
making informed choices.

14.2.5 TDH will provide HMO with at least 10 days written notice of
all TDH planned activities. Failure to participate in, or send
a representative to a TDH sponsored enrollment activity is a
default of the terms of the contract. Default may be excused

1999 Renewal Contract
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if HMO can show that TDH failed to provide the required
notice, or if HMO's absence is excused by TDH.

14.3 DISENROLLMENT
-------------

14.3.1 HMO has a limited right to request a Member be disenrolled
from HMO without the Member's consent. TDH must approve any
HMO request for disenrollment of a Member for cause.
Disenrollment of a Member may be permitted under the following
circumstances:

14.3.1.1 Member misuses or loans Member's HMO membership card to
another person to obtain services.

14.3.1.2 Member is disruptive, unruly, threatening or uncooperative to
the extent that Member's membership seriously impairs HMO's or
provider's ability to provide services to Member or to obtain
new Members, and Member's behavior is not caused by a physical
or behavioral health condition.

14.3.1.3 Member steadfastly refuses to comply with managed care
restrictions (e.g., repeatedly using emergency room in
combination with refusing to allow HMO to treat the underlying
medical condition).

14.3.2 HMO must take reasonable measures to correct Member behavior
prior to requesting disenrollment. Reasonable measures may
include providing education and counseling regarding the
offensive acts or behaviors.

14.3.3 HMO must notify the Member of HMO's decision to disenroll the
Member if all reasonable measures have failed to remedy the
problem.

14.3.4 If the Member disagrees with the decision to disenroll the
Member from HMO, HMO must notify the Member of the
availability of the complaint procedure and TDH's Fair Hearing
process.

14.3.5 HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN
THE MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH
ARE MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4 AUTOMATIC RE-ENROLLMENT
-----------------------
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14.4.1 Members who are disenrolled because they are temporarily
ineligible for Medicaid will be automatically re-enrolled into
the same health plan. Temporary loss of eligibility is defined
as a period of 6 months or less.

14.4.2 HMO must inform its Members of the automatic re-enrollment
procedure. Automatic re-enrollment must be included in the
Member Handbook (see Article 8.2.1).

14.5 ENROLLMENT REPORTS
------------------

14.5.1 TDH will provide HMO enrollment reports listing all STAR
Members who have enrolled in or were assigned to HMO during
the initial enrollment period.

14.5.2 TDH will provide monthly HMO Enrollment Reports to HMO on or
before the first of the month.

14:5.3 TDH will provide Member verification to HMO and network
providers through telephone verification or TexMedNet.


ARTICLE XV GENERAL PROVISIONS


15.1 INDEPENDENT CONTRACTOR
----------------------

HMO, its agents, employees, network providers, and
subcontractors are independent contractors and do not perform
services under this contract as employees or agents of TDH.
HMO is given express, limited authority to exercise the
State's right of recovery as provided in Article 4.9.

15.2 AMENDMENT
---------

15.2.1 This contract must be amended by TDH if amendment is required
to comply with changes in state or federal laws, rules, or
regulations.

15.2.2 TDH and HMO may amend this contract if reductions in funding
or appropriations make full performance by either party
impracticable or impossible, and amendment could provide a
reasonable alternative to termination. If HMO does not agree
to the amendment, contract may be terminated under Article
XVIII.

15.2.3 This contract must be amended if either party discovers a
material omission of a negotiated or required term, which is
essential to the successful performance or maintaining
compliance with the terms of the contract. The party
discovering the

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omission must notify the other party of the omission in
writing as soon as possible after discovery. If there is a
disagreement regarding whether the omission was intended to be
a term of the contract, the parties must submit the dispute to
dispute resolution under Article 15.9.

15.2.4 This contract may be amended by mutual agreement at any time.

15.2.5 All amendments to this contract must be in writing and signed
by both parties.

15.2.6 No agreement shall be used to amend this contract unless it is
made a part of this contract by specific reference, and is
numbered sequentially by order of its adoption.

15.3 LAW, JURISDICTION AND VENUE
---------------------------

Venue and jurisdiction shall be in the state and federal
district courts of Travis County, Texas. The laws of the State
of Texas shall be applied in all matters of state law.

15.4 NON-WAIVER
----------

Failure to enforce any provision or breach shall not be taken
by either party as a waiver of the right to enforce the
provision or breach in the future.

15.5 SEVERABILITY
------------

Any part of this contract which is found to be unenforceable,
invalid, void, or illegal shall be severed from the contract.
The remainder of the contract shall be effective.

15.6 ASSIGNMENT
----------

This contract was awarded to HMO based on HMO's qualifications
to perform personal and professional services. HMO cannot
assign this contract without the written consent of TDI and
TDH. This provision does not prevent HMO from subcontracting
duties and responsibilities to qualified subcontractors. If
TDI and TDH consent to an assignment of this contract, a
transition period of 90 days will run from the date the
assignment is approved by TDI and TDH so that Members'
services are not interrupted and, if necessary, the notice
provided for in Article 15.7 can be sent to Members. The
assigning HMO must also submit a transition plan, as set out
in Article 18.2.1, subject to TDH's approval.

15.7 MAJOR CHANGE IN CONTRACTING
---------------------------

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TDH may send notice to Members when a major change affecting
HMO occurs. A "major change" includes, but is not limited to,
a substantial change of subcontractors and assignment of this
contract. The notice letter to Members may permit the Members
to re-select their plan and PCP. TDH will bear the cost of
preparing and sending the notice letter in the event of an
approved assignment of the contract. For any other major
change in contracting, HMO will prepare the notice letter and
submit it to TDH for review and approval. After TDH has
approved the letter for distribution to Members, HMO will bear
the cost of sending the notice letter.

15.8 NON-EXCLUSIVE
-------------

This contract is a non-exclusive agreement. Either party may
contract with other entities for similar services in the same
service area.

15.9 DISPUTE RESOLUTION
------------------

The dispute resolution process adopted by TDH in accordance
with Chapter 2260, Texas Government Code, will be used to
attempt to resolve all disputes arising under this contract.
All disputes arising under this contract shall be resolved
through TDH's dispute resolution procedures, except where a
remedy is provided for through TDH `s administrative rules or
processes. All administrative remedies must be exhausted prior
to other methods of dispute resolution. TDH will assist HMO in
resolution of a conflict of law or interpretation of law
between or among state agencies with authority to regulate and
enforce this contract.

15.10 DOCUMENTS CONSTITUTING CONTRACT
-------------------------------

This contract includes this document and all amendments and
appendices to this document, the Request for Application, the
Application submitted in response to the Request for
Application, the Texas Medicaid Provider Procedures Manual and
Texas Medicaid Bulletins addressed to HMOs, contract
interpretation memoranda issued by TDH for this contract, and
the federal waiver granting TDH authority to contract with
HMO. If any conflict in provisions between these documents
occurs, the terms of this contract and any amendments shall
prevail. The documents listed above constitute the entire
contract between the parties.

15.11 FORCE MAJEURE
-------------

TDH and HMO are excused from performing the duties and
obligations under this contract for any period that they are
prevented from performing their services as a result of a
catastrophic occurrence, or natural disaster, clearly beyond
the control of either party, including but not limited to an
act of war, but excluding labor disputes.

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15.12 NOTICES
-------

Notice may be given by any means which provides for
verification of receipt. All notices to TDH shall be addressed
to Bureau Chief, Texas Department of Health, Bureau of Managed
Care, 1100 W. 49th Street, Austin, TX 78756-3168, with a copy
to the Contract Administrator. Notices to HMO shall be
addressed to President/CEO, Michael A. Seltzer, Vice
President, West Region, 8431 Fredericksburg Road, San Antonio,
Texas 78229; AND Medicaid Director, Cheryl Dietz, 8303 Mopac,
Suite 450-C, Austin, Texas 78759.

15.13 SURVIVAL
--------

The provisions of this contract which relate to the
obligations of HMO to maintain records and reports shall
survive the expiration or earlier termination of this contract
for a period not to exceed six (6) years unless another period
may be required by record retention policies of the State of
Texas or HCFA.


ARTICLE XVI DEFAULT AND REMEDIES


16.1 DEFAULT BY TDH
--------------

16.1.1 FAILURE TO MAKE CAPITATION PAYMENTS
-----------------------------------

Failure by TDH to make capitation payments when due is a
default under this contract.

16.1.2 FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
----------------------------------------------

Failure by TDH to perform a material duty or responsibility as
set out in this contract is a default under this contract.

16.2 REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
-------------------------------------------

HMO may terminate this contract as set out in Article 18.1.5
of this contract if TDH commits either of the events of
default set out in Article 16.1.

16.3 DEFAULT BY HMO
--------------

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16.3.1 FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
---------------------------------------------

Failure of HMO to perform an administrative function is a
default under this contract. Administrative functions are any
requirements under this contract that are not direct delivery
of health care services, including claims payment; encounter
data submission; filing any report when due; cooperating in
good faith with TDH, an entity acting on behalf of TDH, or an
agency authorized by statute or law to require the cooperation
of HMO in carrying out an administrative, investigative, or
prosecutorial function of the Medicaid program; providing or
producing records upon request; or entering into contracts or
implementing procedures necessary to carry out contract
obligations.

16.3.1.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to perform an administrative function under
this contract, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess liquidated money damages as set out in
Article 18.4; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.2 ADVERSE ACTION AGAINST HMO BY TDI
---------------------------------

Termination or suspension of HMO's TDI Certificate of
Authority or any adverse action taken by TDI that TDH
determines will affect the ability of HMO to provide health
care services to Members is a default under this contract.

16.3.2.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For an adverse action against HMO by TDI, TDH may:

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Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.3 INSOLVENCY
----------

Failure of HMO to comply with state and federal solvency
standards or in capacity of HMO to meet its financial
obligations as they come due is a default under this contract.

16.3.3.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's insolvency, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.4 FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
---------------------------------------------------

Failure of HMO to comply with the federal requirements for
Medicaid, including, but not limited to, federal law regarding
misrepresentation, fraud, or abuse; and, by incorporation,
Medicare standards, requirements, or prohibitions, is a
default under this contract.

The following events are defaults under this contract pursuant
to 42 U.S.C. 1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1 HMO's substantial failure to provide medically necessary items
and services that are required under this contract to be
provided to Members;

16.3.4.2 HMO's imposition of premiums or charges on Members in excess
of the premiums or charge permitted by federal law;

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16.3.4.3 HMO's acting to discriminate among Members on the basis of
their health status or requirements for health care services,
including expulsion or refusal to enroll an individual, except
as permitted by federal law, or engaging in any practice that
would reasonably be expected to have the effect of denying or
discouraging enrollment with HMO by eligible individuals whose
medical condition or history indicates a need for substantial
future medical services;

16.3.4.4 HMO's misrepresentation or falsification of information that
is furnished to HCFA, TDH, a Member, a potential Member, or a
health care provider;

16.3.4.5 HMO's failure to comply with the physician incentive
requirements under 42 U.S.C. '1396b(m)(2)(A)(x); or

16.3.4.6 HMO's distribution, either directly or through any agent or
independent contractor, of marketing materials that contain
false or misleading information, excluding materials prior
approved by TDH.

16.3.5 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
If HMO repeatedly fails to meet the requirements of Articles
16.3.4.1 through and including 16.3.4.6, TDH must, regardless
of what other sanctions are provided, appoint temporary
management and permit Members to disenroll without cause.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to comply with federal laws and regulations,
TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Appoint temporary management as set out in
Article 18.5; Initiate disenrollment of a Member of Members
without cause as set out in Article 18.6; Suspend or default
all enrollment of individuals; Suspend payment to HMO;
Recommend to HCFA that sanctions be taken against HMO as set
out in Article 18.7; Assess civil monetary penalties as set
out in Article 18.8; and/or Require forfeiture of all or part
of the TDI performance bond as set out in Article 18.9.

16.3.6 FAILURE TO COMPLY WITH APPLICABLE STATE LAW
-------------------------------------------

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HMO's failure to comply with Texas law applicable to Medicaid,
including, but not limited to, Article 32.039 of the Texas
Human Resources Code and state law regarding
misrepresentation, fraud, or abuse, is a default under this
contract.

16.3.6.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to comply with applicable state law, TDH
may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess administrative penalties as set out in
Article 32.039, Government Code, with the opportunity for
notice and appeal as required by Article 32.039; and/or
Require forfeiture of all or part of the TDI performance bond
as set out in Article 18.9.

16.3.7 MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8
--------------------------------------------

HMO's misrepresentation or fraud under Article 4.8 of this
contract is a default under this contract.

16.3.7.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's misrepresentation or fraud under Article 4.8, TDH
may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.8 EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
----------------------------------------------------

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16.3.8.1 Exclusion of HMO or any of the managing employees or persons
with an ownership interest whose disclosure is required by
'1124(a) of the Social Security Act (the Act) from the
Medicaid or Medicare program under the provisions of '1128(a)
and/or (b) of the Act is a default under this contract.

16.3.8.2 Exclusion of any provider or subcontractor or any of the
managing employees or persons with an ownership interest of
the provider or subcontractor whose disclosure is required by
'1124(a) of the Social Security Act (the Act) from the
Medicaid or Medicare program under the provisions of '1128(a)
and/or (b) of the Act is a default under this contract if the
exclusion will materially affect HMO's performance under this
contract.

16.3.8.3 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's exclusion from Medicare or Medicaid, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.9 FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND
SUBCONTRACTORS
--------------

HMO's failure to make timely and appropriate payments to
network providers and subcontractors is a default under this
contract. Withholding or recouping capitation payments as
allowed or required under other articles of this contract is
not a default under this contract.

16.3.9.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

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For HMO's failure to make timely and appropriate payments to
network providers and subcontractors, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess liquidated money damages as set out in
Article 18.4; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.10 FAILURE TO TIMELY ADJUDICATE CLAIMS
-----------------------------------

Failure of HMO to adjudicate (paid, denied, or external
pended) at least ninety (90%) of all claims within thirty (30)
days of receipt and ninety-nine percent (99%) of all claims
within ninety days of receipt for the contract year is a
default under this contract.

16.3.10.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consequently.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to timely adjudicate claims, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.11 FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT
FUNCTIONS
--------

Failure to pass any of the mandatory system or delivery
functions of the Readiness Review required in Article I of
this contract is a default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

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For HMO's failure to demonstrate the ability to perform
contract functions, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.12 FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS
OR NETWORK PROVIDERS
--------------------

16.3.12.1 Failure of HMO to audit, monitor, supervise, or enforce
functions delegated by contract to another entity that results
in a default under this contract or constitutes a violation of
state or federal laws, rules, or regulations is a default
under this contract.

16.3.12.2 Failure of HMO to properly credential its providers, conduct
reasonable utilization review, or conduct quality monitoring
is a default under this contract.

16.3.12.3 Failure of HMO to require providers and contractors to provide
timely and accurate encounter, financial, statistical, and
utilization data is a default under this contract.

16.3.12.4 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDK
in exercising all or part of any remaining remedies.

For HMO's failure to monitor and/or supervise activities of
contractors or network providers, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.13 PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
----------------------------------------------------

HMO's placing the health and safety of the Members in jeopardy
is a default under this contract.

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16.3.13.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's placing the health and safety of Members in
jeopardy, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the
TDI performance bond as set out in Article 18.9.

16.3.14 FAILURE TO MEET ESTABLISHED BENCHMARK
-------------------------------------

Failure of HMO to meet any benchmark established by TDH under
this contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to TDH by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit TDH
in exercising all or part of any remaining remedies.

For HMO's failure to meet any benchmark established by TDH
under this contract, TDH may:

Remove the THSteps component from the capitation paid to HMO
if the benchmark(s) missed is for THSteps; Terminate the
contract if the applicable conditions set out in Article
18.1.1 are met; Suspend new enrollment as set out in Article
18.3; Assess liquidated money damages as set out in Article
18.4; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.


ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT

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17.1 TDH will provide HMO with written notice of default (Notice of
Default) under this contract. The Notice of Default may be
given by any means that provides verification of receipt. The
Notice of Default must contain the following information:

17.1.1 A clear and concise statement of the circumstances or
conditions that constitute a default under this contract;

17.1.2 The contract provision(s) under which default is being
declared;

17.1.3 A clear and concise statement of how and/or whether the
default may be cured;

17.1.4 A clear and concise statement of the time period during which
HMO may cure the default if HMO is allowed to cure;

17.1.5 The remedy or remedies TDH is electing to pursue and when the
remedy or remedies will take effect;

17.1.6 If TDH is electing to impose money damages and/or civil
monetary penalties, the amount that TDH intends to withhold or
impose and the factual basis on which TDH is imposing the
chosen remedy or remedies;

17.1.7 Whether any part of money damages or civil monetary penalties,
if TDH elects to pursue one or both of those remedies, may be
passed through to an individual or entity who is or may be
responsible for the act or omission for which default is
declared;

17.1.8 Whether failure to cure the default within the given time
period if any, will result in TDH pursuing an additional
remedy or remedies, including, but not limited to, additional
damages or sanctions, referral for investigation or action by
another agency, and/or termination of the contract.


ARTICLE XVIII EXPLANATION OF REMEDIES

18.1 TERMINATION
-----------

18.1.1 TERMINATION BY TDH
------------------

TDH may terminate this contract if:

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18.1.1.1 HMO substantially fails or refuses to provide medically
necessary services and items that are required under this
contract to be provided to Members after notice and
opportunity to cure;

18.1.1.2 HMO substantially fails or refuses to perform administrative
functions under this contract after notice and opportunity to
cure;

18.1.1.3 HMO materially defaults under any of the provisions of Article
XVI;

18.1.1.4 Federal or state funds for the Medicaid program are no longer
available; or

18.1.1.5 TDH has a reasonable belief that HMO has placed the health or
welfare of Members in jeopardy.

18.1.2 TDH must give HMO 90 days written notice of intent to
terminate this contract if termination is the result of HMO's
substantial failure or refusal to perform administrative
functions or a material default under any of the provisions of
Article XVI. TDH must give HMO reasonable notice under the
circumstances if termination is the result of federal or state
funds for the Medicaid program no longer being available. TDH
must give the notice required under TDH's formal hearing
procedures set out in Section 1.2.1 in Title 25 of the Texas
Administrative Code if termination is the result of HMO's
substantial failure or refusal to provide medically necessary
services and items that are required under the contract to be
provided to Members or TDH's reasonable belief that HMO has
placed the health or welfare of Members in jeopardy.

18.1.2.1 Notice may be given by any means that gives verification of
receipt.

18.1.2.2 Unless termination is the result of HMO's substantial failure
or refusal to provide medically necessary services and items
that are required under this contract to be provided to
Members or is the result of TDH's reasonable belief that HMO
has placed the health or welfare of Members in jeopardy, the
termination date is 90 days following the date that HMO
receives the notice of intent to terminate. For HMO's
substantial failure or refusal to provide services and items,
HMO is entitled to request a pre-termination hearing under
TDH's formal hearing procedures set out in Section 1.2.1 of
Title 25, Texas Administrative Code.

18.1.3 TDH may, for termination for HMO's substantial failure or
refusal to provide medically necessary services and items,
notify HMO's Members of any hearing requested by HMO and
permit Members to disenroll immediately without cause.
Additionally, if TDH terminates for this reason, TDH may
enroll HMO's Members

1999 Renewal Contract
Travis Service Area
August 9, 1999
134


with another HMO or permit HMO's Members to receive
Medicaid-covered services other than from an HMO.

18.1.4 HMO must continue to perform services under the transition
plan described in Article 18.2.1 until the last day of the
month following 90 days from the date of receipt of notice if
the termination is for any reason other than TDH's reasonable
belief that HMO is placing the health and safety of the
Members in jeopardy. If termination is due to this reason, TDH
may prohibit HMO's further performance of services under the
contract.

18.1.5 If TDH terminates this contract, HMO may appeal the
termination under ss. 32.034, Texas Human Resources Code.

18.1.6 TERMINATION BY HMO
------------------

HMO may terminate this contract if TDH fails to pay HMO as
required under Article XIII of this contract or otherwise
materially defaults in its duties and responsibilities under
this contract, or by giving notice no later than 30 days after
receiving the capitation rates for the second contract year.
Retaining premium, recoupment, sanctions, or penalties that
are allowed under this contract or that result from HMO's
failure to perform or HMO's default under the terms of this
contract is not cause for termination.

18.1.6.1 HMO may terminate this contract without cause, except HMO
cannot terminate this contract without cause for the 90 days
immediately following the effective date of the contract.

18.1.7 HMO must give TDH 90 days written notice of intent to
terminate this contract, either for cause or without cause.
Notice may be given by any means that gives verification of
receipt. The termination date will be calculated as the last
day of the month following 90 days from the date the notice of
intent to terminate is received by TDH.

18.1.8 TDH must be given 30 days from the date TDH receives HMO's
written notice of intent to terminate for failure to pay HMO
to pay all amounts due. If TDH pays all amounts then due
within this 30-day period, HMO cannot terminate the contract
under this article for that reason.

18.1.9 TERMINATION BY MUTUAL CONSENT
-----------------------------

This contract may be terminated at any time by mutual consent
of both HMO and TDH.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION
----------------------------------------------

1999 Renewal Contract
Travis Service Area
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135




When termination of the contract occurs, TDH and HMO must meet
the following obligations:

18.2.1 TDH and HMO must prepare a transition plan, which is
acceptable to and approved by TDH, to ensure that Members are
reassigned to other plans without interruption of services.
That transition plan will be implemented during the 90-day
period between receipt of notice and the termination date
unless termination is the result of TDH's reasonable belief
that HMO is placing the health or welfare of Members in
jeopardy.

18.2.2 If the contract is terminated by TDH for any reason other than
federal or state funds for the Medicaid program no longer
being available or if HMO terminates the contract based on
lower capitation rates for the second contract year as set out
in Article 13.1.4.1:

18.2.2.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.2.2 HMO is responsible for all expenses related to giving notice
to Members; and

18.2.2.3 HMO is responsible for all expenses incurred by TDH in
implementing the transition plan.

18.2.3 If the contract is terminated by HMO for any reason other than
based on lower capitation rates for the second contract year
as set out in Article 13.1.4.1:

18.2.3.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.3.2 TDH is responsible for all expenses related to giving notice
to Members; and.

18.2.3.3 TDH is responsible for all expenses it incurs in implementing
the transition plan.

18.2.4 If the contract is terminated by mutual consent:

18.2.4.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services

18.2.4.2 HMO is responsible for all expenses related to giving notice
to Members; and

18.2.4.3 TDH is responsible for all expenses it incurs in implementing
the transition plan.

1999 Renewal Contract
Travis Service Area
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136


18.3 SUSPENSION OF NEW ENROLLMENT
----------------------------

18.3.1 TDH must give HMO 30 days notice of intent to suspend new
enrollment in the Notice of Default other than for default for
fraud and abuse or imminent danger to the health or safety of
Members. The suspension date will be calculated as 30 days
following the date that HMO receives the Notice of Default.

18.3.2 TDH may immediately suspend new enrollment into HMO for a
default declared as a result of fraud and abuse or imminent
danger to the health and safety of Members.

18.3.3 The suspension of new enrollment may be for any duration, up
to the termination date of the contract. TDH will base the
duration of the suspension upon the type and severity of the
default and HMO's ability, if any, to cure the default.

18.4 LIQUIDATED MONEY DAMAGES
------------------------

18.4.1 The measure of damages in the event that HMO fails to perform
its obligations under this contract may be difficult or
impossible to calculate or quantify. Therefore, should HMO
fail to perform in accordance with the terms and conditions of
this contract, TDH may require HMO to pay sums as specified
below as liquidated damages. The liquidated damages set out in
this Article are not intended to be in the nature of a penalty
but are intended to be reasonable estimates of TDH's financial
loss and damage resulting from HMO's non-performance.

18.4.2 If TDH imposes money damages, TDH may collect those damages by
reducing the amount of any monthly premium payments otherwise
due to HMO by the amount of the damages. Money damages that
are withheld from monthly premium payments are forfeited and
will not be subsequently paid to HMO upon compliance or cure
of default unless a determination is made after appeal that
the damages should not have been imposed.

18.4.3 Failure to file or filing incomplete or inaccurate annual,
semi-annual or quarterly reports may result in money damages
of not more than $11,000.00 for every month from the month the
report is due until submitted in the form and format required
by TDH. These money damages apply separately to each report.

18.4.4 Failure to produce or provide records and information
requested by TDH, an entity acting on behalf of TDH, or an
agency authorized by statute or law to require production of
records at the time and place the records were required or
requested may result in money damages of not more than
$5,000.00 per day for each day the records are not produced as
required by the requesting entity or agency if the

1999 Renewal Contract
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137


requesting entity or agency is conducting an investigation or
audit relating to fraud or abuse, and not more than $1,000.00
per day for each day records are not produced if the
requesting entity or agency is conducting routine audits or
monitoring activities.

18.4.5 Failure to file or filing incomplete or inaccurate encounter
data may result in money damages of not more than $25,000 for
each month HMO fails to submit encounter data in the form and
format required by TDH. TDH will use the encounter data
validation methodology established by TDH to determine the
number of encounter data and the number of months for which
damages will be assessed.

18.4.6 Failing or refusing to cooperate with TDH, an entity acting on
behalf of TDH, or an agency authorized by statute or law to
require the cooperation of HMO in carrying out an
administrative, investigative, or prosecutorial function of
the Medicaid program may result in money damages of not more
than $8,000.00 per day for each day HMO fails to cooperate.

18.4.7 Failure to enter into a required or mandatory contract or
failure to contract for or arrange to have all services
required under this contract provided may result in money
damages of not more than $1,000.00 per day that HMO either
fails to negotiate in good faith to enter into the required
contract or fails to arrange to have required services
delivered.

18.4.8 Failure to meet the benchmark for benchmarked services under
this contract may result in money damages of not more than
$25,000 for each month that HMO fails to meet the established
benchmark.

18.4.9 TDH may also impose money damages for a default under Article
16.3.9, Failure to Make Payments to Network Providers and
subcontractors, of this contract. These money damages are in
addition to the interest HMO is required to pay to providers
under the provisions of Articles 4.10.4 and 7.2.7.10 of this
contract.

18.4.9.1 If TDH determines that HMO has failed to pay a provider for a
claim or claims for which the provider should have been paid,
TDH may impose money damages of $2 per day for each day the
claim is not paid from the date the claim should have been
paid (calculated as 30 days from the date a clean claim was
received by HMO) until the claim is paid by HMO.

18.4.9.2 If TDH determines that HMO has failed to pay a capitation
amount to a provider who has contracted with HMO to provide
services on a capitated basis, TDH may impose money damages of
$10 per day, per Member for whom the capitation is not paid,
from the date on which the payment was due until the
capitation amount is paid.

1999 Renewal Contract
Travis Service Area
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138


18.5 APPOINTMENT OF TEMPORARY MANAGEMENT
-----------------------------------

18.5.1 TDH may appoint temporary management to oversee the operation
of HMO upon a finding that there is continued egregious
behavior by HMO or there is a substantial risk to the health
of the Members.

18.5.2 TDH may appoint temporary management to assure the health of
HMO's Members if there is a need for temporary management
while:

18.5.2.1 there is an orderly termination or reorganization of HMO; or

18.5.2.2 are made to remedy violations found under Article 16.3.4.

18.5.3 Temporary management will not be terminated until TDH has
determined that HMO has the capability to ensure that the
violations that triggered appointment of temporary management
will not recur.

18.5.4 TDH is not required to appoint temporary management before
terminating this contract.

18.5.5 No pre-termination hearing is required before appointing
temporary management.

18.5.6 As with any other remedy provided under this contract, TDH
will provide notice of default as is set out in Article XVII
to HMO. Additionally, as with any other remedy provided under
this contract, under Article 18.1 of this contract, HMO may
dispute the imposition of this remedy and seek review of the
proposed remedy.

18.6 TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT
----------------------------------------------------------
CAUSE
-----

TDH must give HMO 30 days notice of intent to initiate
disenrollment of a Member of Members in the Notice of Default.
The TDH-initiated disenrollment date will be calculated as 30
days following the date that HMO receives the Notice of
Default.

18.7 RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
----------------------------------------------------------

18.7.1 If HCFA determines that HMO has violated federal law or
regulations and that federal payments will be withheld, TDH
will deny and withhold payments for new enrollees of HMO.

1999 Renewal Contract
Travis Service Area
August 9, 1999
139


18.7.2 HMO must be given notice and opportunity to appeal a decision
of TDH and HCFA pursuant to 42 CFR '434.67.

18.8 CIVIL MONETARY PENALTIES
------------------------

18.8.1 For a default under Article 16.3.4.1, TDH may assess not more
than $25,000 for each default;

18.8.2 For a default under Article 16.3.4.2, TDH may assess double
the excess amount charged in violation of the federal
requirements for each default. The excess amount shall be
deducted from the penalty and returned to the Member
concerned.

18.8.3 For a default under Article 16.3.4.3, TDH may assess not more
than $100,000 for each default, including $15,000 for each
individual not enrolled as a result of the practice described
in Article 16.3.4.3.

18.8.4 For a default under Article 16.3.4.4, TDH may assess not more
than $100,000 for each default if the material was provided to
HCFA or TDH and not more than $25,000 for each default if the
material was provided to a Member, a potential Member, or a
health care provider.

18.8.5 For a default under Article 16.3.4.5, TDH may assess not more
than $25,000 for each default.

18.8.6 For a default under Article 16.3.4.6, TDH may assess not more
than S25,000 for each default.

18.8.7 HMO may be subject to civil money penalties under the
provisions of 42 CFR 1003 in addition to or in place of
withholding payments for a default under Article 16.3.4.

18.9 FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
-------------------------------------------------------

TDH may require forfeiture of all or a portion of the face
amount of the TDI performance bond if TDH determines that an
event of default has occurred. Partial payment of the face
amount shall reduce the total bond amount available pro rata.

18.10 REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
------------------------------------------

18.10.1 HMO may dispute the imposition of any sanction under this
contract. HMO notifies TDH of its dispute by filing a written
response to the Notice of Default, clearly stating the reason
HMO disputes the proposed sanction. With the written response,
HMO must submit to TDH any documentation that supports HMO's
position. HMO must

1999 Renewal Contract
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140


file the review within 15 days from HMO's receipt of the
Notice of Default. Filing a dispute in a written response to
the Notice of Default suspends imposition of the proposed
sanction.

18.10.2 HMO and TDH must attempt to informally resolve the dispute. If
HMO and TDH are unable to informally resolve the dispute, HMO
must notify the Bureau Chief of Managed Care that HMO and TDH
cannot agree. The Bureau Chief will refer the dispute to the
Associate Commissioner for Health Care Financing who will
appoint a committee to review the dispute under TDH's dispute
resolution procedures. The decision of the dispute resolution
committee will be TDH's final administrative decision.


ARTICLE XIX TERM


19.1 The effective date of this contract is September 1, 1999. This
contract will terminate on August 31, 2001, unless terminated
earlier as provided for elsewhere in this contract.

19.2 This contract may be renewed for an additional one-year period
by written amendment to the contract executed by the parties
prior to the termination date of the present contract. TDH
will notify HMO no later than 90 days before the end of the
contract period of its intent not to renew the contract.

19.3 If either party does not intend to renew the contract beyond
its contract period, the party intending not to renew must
submit a written notice of its intent not to renew to the
other party no later than 90 days before the termination date
set out in Article 19.1.

19.4 If either party does not intend to renew the contract beyond
its contract period and sends the notice required in Article
19.3, a transition period of 90 days will run from the date
the notice of intent not to renew is received by the other
party. By signing this contract, the parties agree that the
terms of this contract shall automatically continue during any
transition period.

19.5 The party that does not intend to renew the contract beyond
its contract period and sends the notice required by Article
19.3 is responsible for sending notices to all Members on how
the Member can continue to receive covered services. The
expense of sending the notices will be paid by the
non-renewing party. If TDH does not intend to renew and sends
the required notice, TDH is responsible for any costs it
incurs in ensuring that Members are reassigned to other plans
without interruption of services. If HMO does not intend to
renew and sends the required notice, HMO is responsible

1999 Renewal Contract
Travis Service Area
August 9, 1999
141


for any costs TDH incurs in ensuring that Members are
reassigned to other plans without interruption of services. If
both parties do not intend to renew the contract beyond its
contract period, TDH will send the notices to Members and the
parties will share equally in the cost of sending the notices
and of implementing the transition plan.

19.6 Non-renewal of this contract is not a contract termination for
purposes of appeal rights under the Human Resources
Code ss. 32.034.



SIGNED 1st day of September, 1999.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans Of Texas, Inc.

BY: /s/ WILLIAM R. ARCHER, III BY: /s/ MICHAEL A. SELTZER
------------------------------- ---------------------------------
William R. Archer III, M.D. Printed Name: Michael A. Seltzer
Commissioner of Health Title: Vice President, West Region
Humana Health Plan of Texas, Inc.

Approved as to Form:

Office of General Counsel







Appendices
----------
Copies of the Appendices will be available upon request.




AMENDMENT NO. 1
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 1 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is September 1, 1999.
All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1. Article XIII is amended by deleting existing 13.1.2, 13.1.2.2, and
13.1.2.3 and replacing them with the new Article 13.1.2, 13.1.2.2, and
13.1.2.3 as follows:


13.1.2 Delivery Supplemental Payment (DSP). TDH has
submitted the delivery supplemental payment
methodology to HCFA for approval. The monthly
capitation amounts for September 1, 1999, through
August 31, 2000, and the DSP amount are listed below.
These amounts are effective September 1, 1999. The
monthly capitation amounts established for each risk
group in the Travis Service Area using the Standard
methodology (listed in Article 13.1.3) will apply if
the DSP methodology is not approved by HCFA.

Travis SDA
1


--------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000
--------------------------------------------------------------
TANF Adults $107.58
--------------------------------------------------------------
TANF Children > 12 $ 57.03
Months of Age
--------------------------------------------------------------
Expansion Children > 12 $ 73.44
Months of Age
--------------------------------------------------------------
Newborns <12 Months of $390.55
-
Age
--------------------------------------------------------------
TANF Children <12 $390.55
-
Months of Age
--------------------------------------------------------------
Expansion Children <12 $390.55
-
Months of Age
--------------------------------------------------------------
Federal Mandate Children $ 41.89
--------------------------------------------------------------
CHIP Phase I $ 71.71
--------------------------------------------------------------
Pregnant Women $164.78
--------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
--------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,817.00.


13.1.2.2 For an HMO Member who is classified in the Pregnant Women,
TANF Adults, TANF Children >12 months, Expansion Children >12
months, Federal Mandate Children, or CHIP risk group, HMO will
be paid the monthly capitation amount identified in Article
13.1.2 for each month of classification, plus the DSP amount
identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes
the data elements specified by TDH. TDH will consult with
contracted HMOs prior to revising the report data elements and
requirements. The reports must be submitted to TDH in the
format and time specified by TDH. The report must include only
unduplicated deliveries. The report must include only
deliveries for which HMO has made a payment for the delivery,
to either a hospital or other provider. No DSP will be made
for deliveries which are not reported by HMO to TDH within 210
days after the date of delivery, or within 30 days from the
date of discharge from the hospital for the stay related to
the delivery, whichever is later.


Travis SDA
2

--------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000
--------------------------------------------------------------
TANF Adults $107.58
--------------------------------------------------------------
TANF Children > 12 $ 57.03
Months of Age
--------------------------------------------------------------
Expansion Children > 12 $ 73.44
Months of Age
--------------------------------------------------------------
Newborns <12 Months of $390.55
-
Age
--------------------------------------------------------------
TANF Children <12 $390.55
-
Months of Age
--------------------------------------------------------------
Expansion Children <12 $390.55
-
Months of Age
--------------------------------------------------------------
Federal Mandate Children $ 41.89
--------------------------------------------------------------
CHIP Phase I $ 71.71
--------------------------------------------------------------
Pregnant Women $164.78
--------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
--------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,817.00.


13.1.2.2 For an HMO Member who is classified in the Pregnant Women,
TANF Adults, TANF Children >12 months, Expansion Children >12
months, Federal Mandate Children, or CHIP risk group, HMO will
be paid the monthly capitation amount identified in Article
13.1.2 for each month of classification, plus the DSP amount
identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes
the data elements specified by TDH. TDH will consult with
contracted HMOs prior to revising the report data elements and
requirements. The reports must be submitted to TDH in the
format and time specified by TDH. The report must include only
unduplicated deliveries. The report must include only
deliveries for which HMO has made a payment for the delivery,
to either a hospital or other provider. No DSP will be made
for deliveries which are not reported by HMO to TDH within 210
days after the date of delivery, or within 30 days from the
date of discharge from the hospital for the stay related to
the delivery, whichever is later.


Travis SDA
2


2. Article XIII is amended by deleting existing 13.2.5 and
replacing it with the new Article 13.2.5 as follows: (delete
the stricken language and add the bold and italicized)

13.2.5 There will be two settlements for payment(s) of the
state share of the experience rebate. The first
settlement shall equal 100 percent of the state share
of the experience rebate as derive from Line 7 of
Part 1 (Net Income Before Taxes) of the [Deletion]
Final Managed Care Financial Statistical (MCFS)
Report and shall be paid on the same day the first
[Deletion] Final MCFS Report is submitted to TDH. The
second settlement shall be an adjustment to the first
settlement and shall be paid to TDH on the same day
that the second [Deletion] Final MCFS Report is
submitted to TDH if the adjustment is a payment from
HMO to TDH. TDH or its agent may audit or review the
MCFS reports. If TDH determines that corrections to
the MCFS reports are required, based on a TDH
audit/review or other documentation acceptable to
TDH, to determine an adjustment to the amount of the
second settlement, then final adjustment shall be
made within two years from the date that HMO submits
the second [Deletion] Final MCFS report. HMO must pay
the first and second settlements on the due dates for
the first and second Final MCFS reports respectively
as identified in Article 12.1.5. TDH may adjust the
experience rebate if TDH determines HMO has paid
affiliates amounts for goods or services that are
higher than the fair market value of the goods and
services in the service area. Fair market value may
be based on the amount HMO pays a non-affiliate(s) or
the amount another HMO pays for the same or similar
service in the service area and will be determined on
a case-by-case basis. TDH has final authority in
auditing and determining the amount of the experience
rebate.


AGREED AND SIGNED by an authorized representative of the parties on December 9,
1999.


TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.


By: /s/ William R. Archer, III, M.D. By: /s/ Michael A. Seltzer
-------------------------------- --------------------------------
William R. Archer, III., M.D. Michael A. Seltzer
Commissioner of Health V.P., Western Region


Approved as to Form:
---------------------------
Office of General Counsel


Travis SDA
3


AMENDMENT NO. 2
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO



This Amendment No. 2 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.


1. Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health condition
that present without being scheduled at the facility or when the attending
physician is unavailable.

[deletion] Enrollment report/enrollment file means the daily or monthly list of
Medicaid recipients who are enrolled with an HMO as Members on the day or for
the month the report is issued.

2. Article VI is amended by adding the bold and italicized language and
deleting the stricken language.

6.9 PERINATAL SERVICES
------------------

6.9.2 HMO [Deletion] must have a perinatal health care system in
place that, at a minimum, provides the following services:

6.9.3 HMO must have a process to expedite scheduling a prenatal
appointment for an obstetrical exam for a TP40 Member no later
than two weeks after receiving the daily enrollment file
verifying enrollment of the Member into the HMO.

6.9.4 HMO must have procedures in place to contact and assist a
pregnant/delivering Member in selecting a PCP for her baby
either before the birth or as soon as the



baby is born. [Deletion]

6.9.4.5 HMO must provide inpatient care and professional services
related to labor and delivery for its pregnant/delivering
Members and neonatal care for its newborn Members (see Article
14.3.1) at the time of delivery and for up to 48 hours
following an uncomplicated vaginal delivery and 96 hours
following an uncomplicated Caesarian delivery.
[Deletion]

6.9.5.1 HMO must reimburse in-network providers, out-of-network
providers, and specialty physicians who are providing call
coverage, routine, and/or specialty consultation services for
the period of time covered in Article 6.9.5.

6.9.5.1.1 HMO must adjudicate provider claims for services provided to a
newborn Member in accordance with TDH's claims processing
requirements using the proxy ID number or State-issued
Medicaid ID number (see Article 4.10). HMO cannot deny claims
based on provider non-use of State-issued Medicaid ID number
for a newborn: Member. HMO must accept provider claims for
newborn services based on mother's name and/or Medicaid ID
number with accommodations for multiple births, as specified
by the HMO.

6.9.5.2 HMO cannot require prior authorization or PCP assignment to
adjudicate newborn claims for the period of time covered by
6.9.5

[Deletion]

6.9.6 [deletion] HMO may require prior authorization requests for
hospital or professional services provided beyond the time
limits in Article 6.9.5 and may


utilized the determination of medical necessity beyond routine
care. HMO must respond to these prior authorization within the
requirements of 28 TAC ss. 19.1710-19.1712 and Article 21.58a
of the Texas Insurance Code.

6.9.6.1 HMO must notify providers involved in the care of
pregnant/delivering women and newborns (including
out-of-network providers and hospitals) regarding the HMO's
prior authorization requirements.

6.9.6.2 HMO cannot require a prior authorization for services provided
to a pregnant/delivering Member or newborn Member for a
medical condition which requires emergency services,
regardless of when the emergency condition arises (see Article
6.5.6).

3. Article VIII is amended by adding the bold and italicized language and
deleting the stricken language.

8.4.2 HMO must issue a Member Identification Card (ID) to the Member
within five (5) days from the date the HMO receives the
monthly Enrollment File from the Enrollment Broker. If the 5th
day falls on a weekend or state holiday, the ID Card must be
issued by the following working day. The ID Card must include,
at a minimum, the following: Member's name; Member's Medicaid
number; either the issue date of the card or effective date of
the PCP assignment; PCP's name, address, and telephone number;
name of HMO; name of IPA to which the Member's PCP belongs, if
applicable; the 24-hour, seven (7) day a week toll-free
telephone number operated by HMO; the toll-free number for
behavioral health care services; and directions for what to do
in an emergency. The ID Card must be reissued if the Member
reports a lost card, there is a Member name change, if Member
requests a new PCP, or for any other reason which results in a
change to the information disclosed on the ID Card.

4. Article XII is amended by adding the bold and italicized language and
deleting the stricken language.

12.2 STATISTICAL REPORTS
-------------------

12.2.4 HMO cannot submit newborn encounters to TDH until the
State-issued Medicaid ID number is received for a newborn. HMO
must match the proxy ID number issued by the HMO with the
State-issued Medicaid ID number prior to submission of
encounters to TDH and submit the encounter in accordance to
the HMO Encounter Data Submission Manual. The encounter must
include the State-issued Medicaid ID number. Exceptions to the
45-day deadline [Deletion] for submission of encounter data in
paragraph 12.2.1 will be granted in cases in which the
Medicaid ID number is not available for a newborn Member.



12.2.5 HMO must require providers to submit claims and encounter data
to HMO no later than 95 days after the date services are
provided.

12.2.6 HMO must use the procedure codes, diagnosis codes and other
codes contained in the most recent edition of the Texas
Medicaid Provider Procedures Manual and as otherwise provided
by TDH. Exceptions or additional codes must be submitted for
approval before HMO uses the codes.

12.2.7 HMO must use its TDH-specified identification numbers on all
encounter data submissions. Please refer to the TDH Encounter
Data Submission Manual for further specifications.

12.2.8 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission
of encounter data to TDH.

12.2.9 All Claims Summary Report. HMO must submit the "All Claims
-------------------------
Summary Report" identified in the Texas Managed Care Claims
Manual as a contract year-to-date report. The report must be
submitted quarterly by the last day of the month following the
reporting period. The report; must be submitted to TDH in a
format specified by TDH.

12.2.10 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
------------------------------------------------------
must file preliminary and final Medicaid Disproportionate
Share Hospital (DSH) reports, required by TDH to identify and
reimburse hospitals that qualify for Medicaid DSH funds. The
preliminary and final DSH reports must include the data
elements and be submitted in the form and format specified by
TDH. The preliminary DSH reports are due on or before June 1
of the year following the state fiscal year for which data is
being reported. The final DSH reports are due on or before
August 15 of the year following the state fiscal year for
which data is being reported.


5. Article XIII is amended by adding the bold and italicized language.

13.5 NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
---------------------------------------------

13.5.1 Newborns born to Medicaid eligible mothers who are enrolled in
HMO are enrolled into HMO for 90 days following the date of
birth.

13.5.1.1 The mother of the newborn Member may change her newborn to
another HMO during the first 90 days following the date of
birth, but may only do so through TDH Customer Services.

13.5.2 MAXIMUS will provide HMO with a daily enrollment file which
will list all newborns who have received State-issued Medicaid
ID numbers. This file will



include the Medicaid eligible mother's Medicaid ID number to
allow the HMO to link the newborn State-issued Medicaid ID
numbers with the proxy ID number. TDH will guarantee
capitation payments to HMO for all newborns who appear on the
MAXIM US daily enrollment file as HMO Members for each month
the newborn is enrolled in the HMO.

13.5.3 All non-TP45 newborns who are born to mothers whose enrollment
in HMO is effective on or before the date of the birth of the
newborn will be retroactively enrolled into the HMO through a
manual process by DHS Data Control.

13.5.4 Newborns who do not appear on the MAXIMUS daily enrollment
file before the end of the sixth month following the date of
birth will not be retroactively enrolled into the HMO. TDH
will manually reconcile payment to the HMO for services
provided from the date of birth for TP45 and all other
eligibility categories of newborns. Payment will cover
services rendered from the effective date of the proxy ID
number when first issued by the HMO regardless of plan
assignment at the time the State-issued Medicaid ID member is
received.

13.5.5 MAXIMUS will provide HMO with a daily enrollment file which
will list all TP40 Members who have received State-issued
Medicaid ID members. TDH will guarantee capitation payments to
HMO for all TP40 Members who appear on the MAXIMUS daily
enrollment file as HMO Members for each mouth the TP40 Member
enrollment is effective.

6. Article XIV is amended by adding the bold and italicized language.

14.3 NEWBORN ENROLLMENT
------------------

The HMO is responsible for newborns who are born to mothers
whose enrollment in HMO is effective on or before the date of
birth as follows:

14.3.1 Newborns are presumed Medicaid eligible and enrolled in the
mother's HMO for at least 90 days from the date of birth.

14.3.1.1 A mother of a newborn Member may change plans for her newborn
during the first 90 days by contacting TDH Customer Services.
TDH will notify HMO of newborn plan changes made by a mother
when the change is made by TDH Customer Services.

14.3.2 HMO must establish and implement written policies and
procedures to require professional and facility providers to
notify HMOs of a birth of a newborn to a Member at the time of
delivery.

14.3.2.1 HMO must create a proxy ID member in the HMO's
Enrollment/Eligibility and



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 of 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 April 10,
2001.



TEXAS DEPARTMENT OF HEALTH PCA Health Plan of Texas, Inc.


By: /s/ C.E. Bell, M.D. By: /s/ Michael A. Seltzer
----------------------------- --------------------------------
Charles E. Bell, M.D. Michael Seltzer
Executive Deputy Commissioner of Health Vice President, West Region


Approved as to Form:



/s/ Mary Ann Slavin
-------------------
Office of General Counsel

TDH DOC. NO. 4810323494* 01A-01D




AMENDMENT NO. 3
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 3 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.


1. Article III is amended by adding the new bold and italicized language
and deleting the stricken language as follows:


3.7 HMO TELEPHONE ACCESS REQUIREMENTS
---------------------------------

3.7.1 For all HMO telephone access (including Behavioral Health
Telephone services), HMO must ensure [Deletion]
adequately-staffed telephone lines. Telephone personnel must
receive customer service telephone training. HMO must ensure
that telephone staffing is adequate to fulfill the standards
of promptness and quality listed below:

1. 80% of all telephone calls must be answered within an
average of 30 seconds;
2. The lost (abandonment) rate must not exceed 10%;
3. HMO cannot impose maximum call duration limits but
must allow calls to be of sufficient length to ensure
adequate information is provided to the Member or
Provider.
4. Telephone services must meet cultural competency
requirements (see Article 8.9) and provide
"linguistic access" to all members as defined in
Article II. This would include the provision of
interpretive services required for effective
communication for Members and providers.

3.7.2 Member Helpline: The HMO must furnish a toll-free phone line
which members may call 24 hours a day, 7 days a week. An
answering service or other similar mechanism, which allows
callers to obtain information from a live person, may be used
for after-hours and weekend coverage.

3.7.2.1 HMO must provide coverage for the following services at least
during HMO's regular business hours (a minimum of 9 hours a
day, between 8 a.m. and 6 p.m.), [Deletion] Monday through
Friday:

1. Member ID information



2. To change PCP
3. Benefit explanations
4. PCP verification
5. Access issues (including referrals to specialists)
6. Problems Accessing PCP
7. Member eligibility
8. Complaints
9. Service area issues (including when member is
temporarily out-of-service area)
10. Other services covered by member services.

3.7.2.2 HMO must provide TDH with policies and procedures indicating
how the HMO will meet the needs of members who are unable to
contact HMO during regular business hours.

3.7.3 HMO must ensure that PCPs are available 24 hours a day, 7 days
a week (see Article 7.8). This includes PCP telephone
coverage (see 28 TAC 11.2001 (a)1A).

3.7.4 Behavioral Health Hotline Services. HMO must have emergency
and crisis Behavioral Health hotline services available 24
hours a day, 7 days a week, toll-free throughout the service
area. Crisis hotline staff must include or have access to
qualified behavioral health professionals to assess behavioral
health emergencies. Emergency and crisis behavioral health
services may be arranged through mobile crisis teams. It is
not acceptable for all emergency intake line to be answered by
an answering machine. Hotline services must meet the
requirements described in Article 3.7.1


2. Article V is amended by adding the new bold and italicized language and
deleting the stricken language as follows:

5.9 REQUESTS FOR PUBLIC INFORMATION
-------------------------------

5.9.3. Notwithstanding 5.9.2. If HMO believes that the requested
information qualifies as a trade secret or as commercial or
financial information, HMO must notify TDH--within three (3)
working days after TDH gives notice that a request has been
made for public information [Deletion] -- and request TDH to
submit the request for public information to the Attorney
General for an Open Records Opinion. The HMO will be
responsible for presenting all exceptions to public disclosure
to the Attorney General if an opinion is requested. [Deletion]



3. Article VI is amended by adding the new bold and italicized language as
follows:

6.4 CONTINUITY OF CARE AND OUT-OF-NETWORK PROVIDERS
-----------------------------------------------

6.4.5 HMO must provide assistance to providers requiring PCP
verification 24 hours a day, 7 days a week.

6.4.5.1 HMO must provide TDH with policies and procedures indicating
how the HMO will provide PCP verification as indicated in
article 6.4.5. HMOs providing PCP verification via a
telephone must meet the requirements of 3.7.1.

4. Article VII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

7.6 PROVIDER COMPLAINT AND APPEAL PROCEDURES
----------------------------------------

7.6.3 HMO's complaint and appeal process cannot contain provisions
requiring a provider to submit a complaint or appeal to TDH
for resolution in lieu of the HMO's process.

7.18 DELEGATED NETWORKS (IPAs, LIMITED PROVIDER NETWORKS AND
-------------------------------------------------------
ANHCs)
-----

7.18.2.1 HMO is required to include subcontract provisions in its
delegated network contracts which require the UM protocol used
by a delegated network to produce substantially similar
outcomes, as approved by TDH, as the UM protocol employed by
the contracting HMO. The responsibilities of an HMO in
delegating UM functions to a delegated network will be
governed by Article [Deletion] 16.3.12 of this contract.

5. Article VIII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

8.3 ADVANCE DIRECTIVES
------------------

8.3.1 Federal and state law require HMOs and providers to maintain
written policies and procedures for informing and providing
written information to all adult Members 18 years of age and
older about their rights under state and federal law, in
advance of their receiving care (Social Security
Act ss. 1902(a)(57) andss.1903(m)(1)(A)). The written policies
and procedures must contain procedures for providing written
information regarding advance directives and the Member's
right to refuse, withhold or withdraw medical treatment and
mental health treatment. [Deletion] HMO's policies and
procedures must comply with provisions contained in 42 CFR
ss. 434.28 and 42 CFR ss. 489, SubPart I, relating to advance
directives for all hospitals,





critical access hospitals, skilled nursing facilities, home
health agencies, providers of home health care, providers of
personal care services and hospices, as well as the following
state laws and rules:

8.3.1.2.3 a Member's right to execute a Medical Power of Attorney to
appoint an agent to make health care decisions on the Member's
behalf if the Member becomes incompetent; and

8.3.1.3 the declaration for Mental Health Treatment, Chapter 137,
Texas Civil Practice and Remedies Code, which includes: a
Member's right to execute a declaration for mental health
treatment in a document making a declaration of preferences or
instructions regarding mental health treatment.

8.3.2 HMO must maintain written policies for implementing a Member's
advance directive. Those policies must include a clear and
precise statement of limitation if HMO or a participating
provider cannot or will not implement a Member's advance
directive.

8.3.2.1.3 a description of the medical and mental health conditions or
procedures affected by the conscience objection.

[Deletion]

8.5 MEMBER COMPLAINT PROCESS
------------------------

8.5.1 HMO must develop, implement and maintain a Member complaint
system that complies with the requirements of Article 20A.12
of the Texas Insurance Code, relating to the Complaint System,
except where otherwise provided in this contract and in
applicable federal law. The complaint and appeals procedure
must be the same for all Members and must comply with Texas
Insurance Code, Article 20A.12 or applicable federal law.
Modifications and amendments must be submitted to TDH at least
30 days prior to the implementation of the modification or
amendment.

8.5.2 HMO must have written policies and procedures for receiving,
tracking, reviewing, and reporting and resolving of Member
complaints. The procedures must be reviewed and approved in
writing by TDH. Any changes or modifications to the procedures
must be submitted to TDH for approval thirty (30) days prior
to the effective date of the amendment.

8.5.3 HMO must designate an officer of HMO who has primary
responsibility for ensuring that complaints are resolved in
compliance with written policy and within the time required.
An "officer" of HMO means a president, vice president,
secretary,



treasurer, or chairperson of the board for a corporation, the
sole proprietor, the managing general partner of a
partnership, or a person having similar executive authority in
the organization.

8.5.4 HMO must have a routine process to detect patterns of
complaints and disenrollments and involve management and
supervisory staff to develop policy and procedural
improvements to address the complaints. HMO must cooperate
with TDH and TDH's Enrollment Broker in Member complaints
relating to enrollment and disenrollment.

8.5.5 HMO's complaint procedures must be provided to Members in
writing and in alternative communication formats. A written
description of HMO's complaint procedures must be in
appropriate languages and easy for Members to understand. HMO
must include a written description in the Member Handbook. HMO
must maintain at least one local and one toll-free telephone
number for making complaints.

8.5.6 HMO's process must require that every complaint received in
person, by telephone or in writing, is recorded in a written
record and is logged with the following details: date;
identification of the individual filing the complaint;
identification of the individual recording the complaint;
nature of the complaint; disposition of the complaint;
corrective action required; and date resolved.

8.5.7 HMO's process must include a requirement that the Governing
Body of HMO reviews the written records (logs) for complaints
and appeals.

8.5.8 HMO is prohibited from discriminating against a Member because
that Member is making or has made a complaint.

8.5.9 HMO cannot process requests for disenrollments through HMO's
complaint procedures. Requests for disenrollments must be
referred to TDH within five (5) business days after the Member
makes a disenrollment request.

8.5.10 HMO must develop, implement and maintain an appeal of adverse
determination procedure that complies with the requirements of
Article 21.58A of the Texas Insurance Code, relating to the
utilization review, except where otherwise provided in this
contract and in applicable federal law. The appeal of an
adverse determination procedure must be the same for all
Members and must comply with Texas Insurance Code, Article 21
.58A or applicable federal law. Modifications and amendments
must be submitted to TDH no less than 30 days prior to the
implementation of the modification or amendment. When an
enrollee, a person acting on behalf of an enrollee, or an
enrollee's provider of record expresses orally or in writing
any dissatisfaction or disagreement with an adverse
determination, HMO or UR agent must regard the expression of
dissatisfaction as a request to appeal an adverse
determination.



8.5.11 If a complaint or appeal of an adverse determination relates
to the denial, delay. reduction, termination or suspension of
covered services by either HMO or a utilization review agent
contracted to perform utilization review by HMO, HMO must
inform Members they have the right to access the TDH Fair
Hearing process at any time in lieu of the internal complaint
system provided by HMO. HMO is required to comply with the
requirements contained in 1 TAC Chapter 357, relating to
notice and Fair Hearings in the Medicaid program, whenever an
action is taken to deny, delay, reduce, terminate or suspend a
covered service.

8.5.12 If Members utilize HMO's internal complaint or appeal of
adverse determination system and the complaint relates to the
denial, delay. reduction, termination or suspension of covered
services by either HMO or a utilization review agent
contracted to perform utilization review by HMO, HMO must
inform the Member that they continue to have a right to appeal
the decision through the TDH Fair Hearing process.

8.5.13 The provisions of Article 21.58A, Texas Insurance Code,
relating to a Member's right to appeal an adverse
determination made by HMO or a utilization review agent by an
independent review organization, do not apply to a Medicaid
recipient. Federal fair hearing requirements (Social Security
Act ss. 1902a(3), codified at 42 C.F.R. 431.200 et. seq.)
require the agency to make a final decision after a fair
hearing, which conflicts with the State requirement that the
IRO make a final decision. Therefore, the State requirement is
pre-empted by the federal requirement.

8.5.14 HMO will cooperate with the Enrollment Broker and TDH to
resolve all Member complaints. Such cooperation may include,
but is not limited to, participation by HMO or Enrollment
Broker and/or TDH internal complaint committees.

8.5.15 HMO must have policies and procedures in place outlining the
role of HMO's Medical Director in the Member Complaint System
and appeal of an adverse determination. The Medical Director
must have a significant role in monitoring, investigating and
hearing complaints.

8.5.16 HMO must provide Member Advocates to assist Members in
understanding and using HMO's complaint system and appeal of
an adverse determination.

8.5.17 HMO's Member Advocates must assist Members in writing or
filing a complaint or appeal of an adverse determination and
monitoring the complaint or appeal through the Contractor's
complaint or appeal of an adverse determination process until
the issue is resolved.

8.6 MEMBER NOTICE, APPEALS AND FAIR HEARINGS
----------------------------------------

8.6.1 HMO must send Members the notice required by 1 Texas
Administrative Code ss. 357.5, whenever HMO takes an action to
deny, delay, reduce or terminate covered



services to a Member. The notice must be mailed to the Member
no less than 10 days before HMO intends to take an action. If
an emergency exists, or if the time within which the service
must be provided makes giving 10 days notice impractical or
impossible, notice must be provided by the most expedient
means reasonably calculated to provide actual notice to the
Member, including by phone, direct contact with the Member, or
through the provider's office.

8.6.2 The notice must contain the following information:

8.6.2.1 Member's right to immediately access TDH's Fair Hearing
process:

8.6.2.2 a statement of the action HMO will take;

8.6.2.3 the date the action will be taken;

8.6.2.4 an explanation of the reasons HMO will take the action;

8.6.2.5 a reference to the state and/or federal regulations which
support HMO's action;

8.6.2.6 an address where written requests may be sent and a toll-free
number Member can call to: request the assistance of a Member
representative, or file a complaint, or request a Fair
Hearing;

8.6.2.7 a procedure by which Member may appeal HMO's action through
either HMO's complaint process or TDH's Fair Hearings process;

8.6.2.8 an explanation that Members may represent themselves, or be
represented by HMO's representative, a friend, a relative,
legal counsel or another spokesperson;

8.6.2.9 an explanation of whether, and under what circumstances,
services may be continued if a complaint is filed or a Fair
Hearing requested;

8.6.2.10 a statement that if the Member wants a TDH Fair Hearing on the
action, Member must make the request for a Fair Hearing within
90 days of the date on the notice or the right to request a
hearing is waived;

8.6.2.11 a statement explaining that HMO must make its decision within
30 days from the date the complaint is received by HMO; and

8.6.2.12 a statement explaining that a final decision must be made by
TDH within 90 days from the date a Fair Hearing is requested.

8.7 MEMBER ADVOCATES
----------------

8.7.1 HMO must provide Member Advocates to assist Members. Member
Advocates must




be physically located within the service area. Member
Advocates must inform Members of their rights and
responsibilities, the complaint process. the health education
and the services available to them, including preventive
services.

8.7.2 Member Advocates must assist Members in writing complaints and
are responsible for monitoring the complaint through HMO's
complaint process until the Member's issues are resolved or a
TDH Fair Hearing requested (see Articles 8.6.15, 8.6.16. and
8.6.17).

8.7.3 Member Advocates are responsible for making recommendations to
management on any changes needed to improve either the care
provided or the way care is delivered. Member Advocates are
also responsible for helping or referring Members to community
resources available to meet Member needs that are not
available from HMO as Medicaid covered services.

8.7.4 Member Advocates must provide outreach to Members and
participate in TDH-sponsored enrollment activities.

8.8 MEMBER CULTURAL AND LINGUISTIC SERVICES
---------------------------------------

8.8.1 Cultural Competency Plan. HMO must have a comprehensive
written Cultural Competency Plan describing how HMO will
ensure culturally competent services, and provide linguistic
and disability-related access. The Plan must describe how the
individuals and systems within HMO will effectively provide
services to people of all cultures, races, ethnic backgrounds,
and religions as well as those with disabilities in a manner
that recognizes, values, affirms, and respects the worth of
the individuals and protects and preserves the dignity of
each. HMO must submit a written plan to TDH prior to the
effective date of this contract unless previously submitted.
Modifications and amendments to the written plan must be
submitted to TDH no later than 30 days prior to implementation
of the modification or amendment. The Plan must also be made
available to HMO's network of providers.

8.8.2 The Cultural Competency Plan must include the following:

8.8.2.1 HMO's written policies and procedures for ensuring effective
communication through the provision of linguistic services
following Title VI of the Civil Rights Act guidelines and the
provision of auxiliary aids and services, in compliance with
the Americans with Disabilities Act, Title III, Department of
Justice Regulation 36.303. HMO must disseminate these policies
and procedures to ensure that both Staff and subcontractors
are aware of their responsibilities under this provision of
the contract.

8.8.2.2 A description of how HMO will educate and train its staff and
subcontractors on culturally competent service delivery, and
the provision of linguistic and/or disability-related access
as related to the characteristics of its Members;




8.8.2.3 A description of how HMO will implement the plan in its
organization, identifying a person in the organization who
will serve as the contact with TDH on the Cultural Competency
Plan;

8.8.2.4 A description of how HMO will develop standards and
performance requirements for the delivery of culturally
competent care and linguistic access. and monitor adherence
with those standards and requirements;

8.8.2.5 A description of how HMO will provide outreach and health
education to Members, including racial and ethnic minorities,
non-English speakers or limited-English speakers, and those
with disabilities, and

8.8.2.6 A description of how HMO will help Members access culturally
and linguistically appropriate community health or social
service resources;

8.8.3 Linguistic, Interpreter Services, and Provision of Auxiliary
Aids and Services. HMO must provide experienced, professional
interpreters when technical, medical, or treatment information
is to be discussed. See Title VI of the Civil Rights Act of
1964, 42 U.S.C. ss. ss. 2000d, et. seq. HMO must ensure the
provision of auxiliary aids and services necessary for
effective communication, as per the Americans with
Disabilities Act. Title III, Department of Justice Regulations
36.303.

8.8.3.1 HMO must adhere to and provide to Members the Member Bill of
Rights and Responsibilities as adopted by the Texas Health and
Human Services Commission and contained at 1 Texas
Administrative Code (TAC) ss. ss. 353.202-353.203. The Member
Bill of Rights and Responsibilities assures Members the right
"to have interpreters, if needed, during appointments with
their providers and when talking to their health plan.
Interpreters include people who can speak in their native
language, assist with a disability, or help them understand
the information."

8.8.3.2 HMO must have in place policies and procedures that outline
how Members can access face-to-face interpreter services in a
provider's office if necessary to ensure the availability of
effective communication regarding treatment, medical history
or health education for a Member. HMOs must inform its
providers on how to obtain an updated list of participating,
qualified interpreters.

8.8.3.3 A competent interpreter is defined as someone who is:

8.8.3.4 proficient in both English and the other language;

8.8.3.5 has had orientation or training in the ethics of interpreting;
and

8.8.3.6 has the ability to interpret accurately and impartially.

8.8.3.7 HMO must provide 24-hour access to interpreter services for
Members to access




emergency medical services within HMO's network.

8.8.3.8 Family Members, especially minor children, should not be used
as interpreters in assessments, therapy or other medical
situations in which impartiality and confidentiality are
critical, unless specifically requested by the Member.
However, a family member or friend may be used as an
interpreter if they can be relied upon to provide a complete
and accurate translation of the information being provided to
the Member; provided that the Member is advised that a free
interpreter is available; and the Member expresses a
preference to rely on the family member or friend.

8.8.4 All Member orientation presentations education classes and
materials must be presented in the languages of the major
population groups making up 10% or more of the Medicaid
population in the service area, as specified by TDH. HMO must
provide auxiliary aids and services, as needed, including
materials in alternative formats (i.e., large print, tape or
Braille), and interpreters or real-time captioning to
accommodate the needs of persons with disabilities that affect
communication.

8.8.5 HMO must provide or arrange access to TDD to Members who are
deaf or hearing impaired.

8.9 CERTIFICATION DATE
------------------

8.9.1 On the date of the new Member's enrollment, TDH will provide
HMOs with the Member's Medicaid certification date.

6. Article XII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

12.1 FINANCIAL REPORTS
-----------------

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
------------------
Financial-Statistical Reports. The first final report must
reflect expenses incurred through the 90th day after the end
of the contract. The first final report must be filed on or
before the 120th day after the end of the contract. The second
final report must reflect data completed through the 334th day
after the end of the contract year and must be filed on or
before the 365th day following the end of the contract.

12.2.9 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO
------------------------------------------------------
must file preliminary and final Medicaid Disproportionate
Share Hospital (DSH) reports, required by TDH to identify and
reimburse hospitals that qualify for Medicaid DSH funds. The
preliminary and final DSH reports must include the data
elements and be submitted in the form and format specified by
TDH. The preliminary DSH reports are due on or before June 1
of the year following the state fiscal year for which data is
being reported. The final DSH reports are due [Deletion] no
later




than July 15 of the year following the state fiscal year for
which data is being reported.

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Behavioral health (BH) utilization management reports are
required on a semi-annual basis. [Deletion] Refer to Appendix
H for the standardized reporting format for each report and
detailed instructions for obtaining the specific data required
in the report. [Deletion]

12.8.1 In addition, files are due to the TDH External Quality Review
Organization five (5) working days following the end of each
State Quarter. See Appendix H for Submission instructions. The
BH utilization report and data file submission instructions
may periodically updated by TDH to facilitate clear
communication to the health plans.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are
required on a semi-annual basis. [Deletion] Refer to Appendix
J for the standardized reporting format for each report and
detailed instructions for obtaining specific data required in
the report. [Deletion]

12.9.1 In addition, data files are due to the TDH External Quality
Review Organization five (5) working days following the end of
each State Quarter. See Appendix J for submission
instructions. The PH utilization report and data file
submission instruction may periodically be updated by TDH to
facilitate clear communication to the health plan.

7. Article XIII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

13.1 CAPITATION AMOUNTS
------------------

13.1.1 TDH will pay HMO monthly premiums calculated by multiplying
the number of Member months by Member risk group times the
monthly capitation amount by Member risk group. For additional
information regarding the actuarial basis and




methodology used to compute the capitation rates, please
reference the waiver under the document titled "Actuarial
Methodology for Determination of Maximum Monthly Capitation
Amounts". HMO and network providers are prohibited from
billing or collecting any amount from a Member for health care
services covered by this contract, in which case the Member
must be informed of such costs prior to providing non-covered
services.

13.2 EXPERIENCE REBATE TO STATE
--------------------------

13.2.1 For the contract period, [Deletion] HMO must pay to TDH an
experience rebate calculated in accordance with the tiered
rebate method listed below based on the excess of allowable
HMO STAR revenues over allowable HMO STAR expenses as
measured by any positive amount on Line 7 of "Part 1:
Financial Summary, All Coverage Groups Combined" of the
annual Managed Care Financial-Statistical Report set forth in
Appendix I, as reviewed and confirmed by TDH. TDH reserves the
right to have an independent audit performed to verify the
information provided by HMO.

13.2.5 There will be two settlements for payment(s) [Deletion] of the
experience rebate allocated to the state in the table 13.2.1
under the column entitled "State Share of Experience Rebate".
The first settlement shall equal 100 percent [Deletion] of the
experience rebate as derived from Line 7 of Part 1 (Net Income
Before Taxes) of the first final [Deletion] Managed Care
Financial Statistical (MCFS) Report and shall be paid on the
same day the first final [Deletion] MCFS Report is submitted
to TDH. The second settlement shall be an adjustment to the
first settlement and shall be paid to TDH on the same day that
the second final [Deletion] MCFS Report is submitted to TDH if
the adjustment is a payment from HMO to TDH. TDH or its agent
may audit or review the MCFS reports. If TDH determines that
corrections to the MCFS reports are required, based on a TDH
audit/review or other documentation acceptable to TDH, to
determine an adjustment to the amount of the second
settlement, then final adjustment shall be made within two
years from the date that HMO submits the second final
[Deletion] MCFS report. HMO must pay the first and second
settlements on the due dates for the first and second final
MCFS reports respectively as identified in Article [Deletion]
12.1.4. TDH may adjust the experience rebate if TDH determines
MO has paid affiliates amounts for goods or services that are
higher than the fair market value of the goods and services in
the service area. Fair market value may be based on the amount
HMO pays a non-affiliate(s) or the amount another HMO pays for
the same or similar service in the service area. TDH has final
authority in auditing and determining the amount of the
experience rebate.

8. The Appendices are amended by deleting Appendix H, "Utilization
Management Report -Behavioral Health" and replacing it with new
Appendix H, "Utilization Management Report -Behavioral Health", as
attached.

9. The Appendices are amended by deleting Appendix J, "Utilization
Management Report -Physical Health" and replacing it with new Appendix
J, "Utilization Management Report -




Physical Health", as attached.

10. The Appendices are amended by deleting Appendix K, "Preventative Health
Performance Objectives" and replacing it with new Appendix K,
"Preventative Health Performance Objectives", as attached.


AGREED AND SIGNED by an authorized representative of the parties on February 5,
2001.



TEXAS DEPARTMENT OF HEALTH PCA Health Plan; of Texas, Inc.



By: /s/ C.E. Bell, M.D. By /s/ Michael A. Seltzer
---------------------------------- ---------------------------------
Charles E. Bell, M.D. Michael Seltzer
Executive Deputy Commissioner Vice President, West Region



Approved as to Form:




/s/ Mary Ann Slavin
-------------------------
Office of General Counsel

TDH DOC# 4810323494* 2001A-O1C



AMENDMENT NO. 4
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Travis Service Area, dated
September 1, 1999. The effective date of this Amendment is [Deletion] September
7, 2000. All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract to read as follows:

1. Article XIII is amended by the bold and italicized language and
deleting the stricken language.

13.1.2 Delivery Supplemental Payment (DSP). [Deletion] The monthly
capitation amounts and the DSP amount are listed below.
[Deletion]



-----------------------------------------------------------------------
Risk Group Monthly Capitation Amounts [Deletion]
September 1, 2000 - August 31, 2001
-----------------------------------------------------------------------
TANF Adults $107.58
-----------------------------------------------------------------------
TANF Children (less than) 12 [Deletion] $57.06
Months of Age
-----------------------------------------------------------------------
Expansion Children (less than) 12 [Deletion] $73.48
Months of Age
-----------------------------------------------------------------------
Newborns 12 Months of [Deletion] $390.73

Age
-----------------------------------------------------------------------
TANF Children 12 [Deletion] $390.73

Months of Age
-----------------------------------------------------------------------
Expansion Children 12 [Deletion] $390.73

Months of Age
-----------------------------------------------------------------------
Federal Mandate Children [Deletion] $41.93
-----------------------------------------------------------------------
CHIP Phase I [Deletion] $71.75
-----------------------------------------------------------------------
Pregnant Women $164.78
-----------------------------------------------------------------------
Disabled/Blind $14.00
Administration
-----------------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy supplemental
payment for each delivery shall be paid to HMO as provided below in the
following amount: $2817.00.





[Deletion]

[Deletion]

13.1.3 TDH will re-examine the capitation rates paid to HMO under
this contract during the first year of the contract period and
will provide HMO with capitation rates for the second year of
the contract period no later than 30 days before the date of
the one-year anniversary of the contract's effective date.
Capitation rates for state fiscal year 2001 will be
re-examined based on the most traditional Medicaid cost data
for the contracted risk groups in the service area, trended
forward and discounted.

13.1.3.1 Once HMO has received their capitation rates established by
TDH for the second year of this contract, HMO may terminate
this contract as provided in Article 18.1.6 of this contract.

13.1.4 The monthly premium payment to HMO is based on monthly
enrollments adjusted to reflect money damages set out in
Article 18.8 and adjustments to premiums in Article 13.5.

13.1.5 The monthly premium payments will be made to HMO no later than
the 10th working day of the month for which premiums are paid.
HMO must accept payment for premiums by direct deposit into an
HMO account.



13.1.6 Payment of monthly capitation amounts is subject to
availability of appropriations. If appropriations are not
available to pay the full monthly capitation amounts, TDH will
equitably adjust capitation amounts for all participating
HMOs, and reduce scope of service requirements as appropriate.

13.1.7 HMO renewal rates reflect program increases appropriated by
the 76th legislature for physician (to include THSteps
providers) and outpatient facility services. HMO must report
to TDH any change in rates for participating physicians (to
include THSteps providers) and outpatient facilities resulting
from this increase. The report must be submitted to TDH at the
end of the first quarter of the FY2000 and FY2001 contract
years according to the deliverables matrix schedule set for
HMO.


AGREED AND SIGNED by an authorized representative of the parties on September 7,
2000.


TEXAS DEPARTMENT OF HEALTH PCA HEALTH PLANS OF TEXAS, INC.


By: /s/ William R. Archer By: /s/ Michael Seltzer
--------------------------------- ---------------------------------
William R. Archer, III, M.D. Michael Seltzer
Commissioner of Health Vice President, West Region


Approved as to Form:



/s/ Illegible
------------------------
Office of General Counsel


AMENDMENT NO. 5
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO


This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the 1999 Contract for
Services between the Texas Department of Health and HMO in the Travis Service
Area. The effective date of this Amendment is the date TDH signs this Amendment.
All other contract provisions remain in full force and effect.

1. Article II & IV is amended by adding the new bold and italicized
language and deleting the stricken language as follows:

2.0 DEFINITION
----------

Clean claim means a claim submitted by a physician or provider
for medical care or health care services rendered to an
enrollee, with documentation reasonably necessary for the HMO
or subcontracted claims processor to process the claim, as set
forth in 28 TAC ss. 21.2802(4) and to the extent that it is
not in conflict with the provisions of this contract.

[Deletion]

4.10 CLAIMS PROCESSING REQUIREMENTS
------------------------------

4.10.1 HMO and claims processing subcontractors must comply with 28
TAC ss.ss. 21.2801 through 21.2816 "Submission of Clean
Claims", to the extent they are not in conflict with
provisions of this contract.

4.10.2 HMO must use a TDH approved or identified claim format that
contains all data fields for final adjudication of the claim.
The required data fields must be complete and accurate. The
TDH required data fields are identified in TDH's "HMO
Encounter Data Claims Submission Manual."

Page 1 of 3


4.10.3 HMO and claims processing subcontractors must comply with
TDH's Texas Medicaid Managed Care Claims Manual (Claims
Manual), which contains TDH's claims processing requirements.
HMO must comply with any changes to the Claims Manual with
appropriate notice of changes from TDH.

4.10.4 HMO must forward claims submitted to HMO in error to either:
1) the correct HMO, if the correct HMO can be determined from
the claim or is otherwise known to HMO; 2) the State's claims
administrator; or 3) the provider who submitted the claim in
error, along with an explanation of why the claim is being
returned.

4.10.5 HMO must not pay any claim submitted by a provider who has
been excluded or suspended from the Medicare or Medicaid
programs for fraud and abuse when HMO has knowledge of the
exclusion or suspension.

4.10.6 All provider clean claims must be adjudicated (finalized as
paid or denied adjudicated) within 30 days from the date the
claim is received by HMO. HMO must pay providers interest on a
clean claim which is not adjudicated within 30 days from the
date the claim is received by HMO or becomes clean at a rate
of 1.5% per month (18% annual) for each month the clean claim
remains unadjudicated. HMO will be held to a minimum
performance level of 90% of all clean claims paid or denied
within 30 days of receipt and 99% of all clean claims paid or
denied within 90 days of receipt. Failure to meet these
performance levels is a default: under this contract and could
lead to damages or sanctions as outlined in Article XVI. The
performance levels are subject to changes if required to
comply with federal and state laws or regulations.

4.10.6.1 All claims and appeals submitted to HMO and claims processing
subcontractors must be paid-adjudicated (clean claims),
denied-adjudicated (clean claims), or denied for additional
information (unclean claims) to providers within 30 days from
the date the claim is received by HMO. Providers must be sent
a written notice for each claim that is denied for additional
information (unclean claims) identifying the claim, all
reasons why the claim is being denied, the date the claim was
received by HMO, all information required from the provider in
order for HMO to adjudicate the claim, and the date by which
the requested information must be received from the provider.

4.10.6.2 Claims that are suspended (pended internally) must be
subsequently paid-adjudicated, denied-adjudicated, or denied
for additional information (pended externally) within 30 days
from date of receipt. No claim can be suspended for a period
exceeding 30 days from date of receipt of the claim.


Page 2 of 3 12/21/00



4.10.6.3 HMO must identify each data field of each claim form that s
required from the provider in order for HMO to adjudicate the
claim. HMO must inform all network providers about the
required fields no later than 30 days prior to the effective
date of the contract or as a provision within HMO/provider
contract. Out-of-network providers must be informed of all
required fields if the claim is denied for additional
information. The required fields must include those required
HMO and TDH.

4.10.7 HMO is subject to Article XVI, Default and Remedies, for
claims that are not processed on a timely basis as required by
this contract and the Claims Manual. Notwithstanding the
provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
failure to adjudicate (paid, denied, or external pended) at
least ninety percent (90%) of all claims within thirty (30)
days of receipt and ninety-nine percent (99%) within ninety
(90) days of receipt for the contract year to date is a
default under Article XVI of this contract.

4.10.8 HMO must comply with the standards adopted by the U.S.
Department of Health and Human Services under the Health
Insurance Portability and A accountability Act of 1996
submitting and receiving claims information through electronic
data interchange (EDI) that allows for automated processing
and adjudication of claims within two or three years, as
applicable, from the date the rules promulgated under HIPAA
are adopted.

4.10.9 For claims requirements regarding retroactive PCP changes for
mandatory Members, see Article 7.8.12.2.


AGREED AND SIGNED by an authorized representative of the parties on April 10,
2001.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.


By: /s/ C.E. BELL, M.D. By: /s/ MICHAEL SELTZER
---------------------------------- ---------------------------------
Charles B. Bell, M.D. Michael Seltzer
Executive Deputy Commissioner of Health Vice President, West Region


Approved as to Form:

/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel TDH DOC. NO.
4810323494-1A-01E
12/27/00


Page 3 of 3


AMENDMENT NO.6
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO


The 1999 Contract for Services entered into between the Texas Department of
Health and PCA Health Plans of Texas, Inc. (HMO) in the Travis Service Area is
hereby amended to reflect the merger of PCA Health Plans of Texas, Inc. into
Humana Health Plan of Texas, Inc. The Texas Department of Insurance has approved
the merger and all requisite documents have been filed. Copies of the Agreement
and Plan of Merger, Articles of Merger, and Official Order of the Commissioner
of Insurance are attached.

This Amendment No. 6 hereby substitutes Humana Health Plan of Texas, Inc. in the
place of PCA Health Plans of Texas, Inc. into the 1999 Contract for Services
referenced above. Humana Health Plan of Texas, Inc. agrees to abide by the
Application submitted in response to the Texas Department of Health's Request
for Application and all of the terms and conditions set forth in the 1999
Contract for Services and all of its duly executed Amendments.

AGREED TO:


TEXAS DEPARTMENT OF HEALTH HUMANA HEALTH PLAN OF TEXAS, INC.


By: /s/ C.E. BELL, M.D. By: /s/ MICHAEL A. SELTZER
------------------------------- ---------------------------------
Charles E. Bell, M.D. Michael A Seltzer
Deputy Commissioner of Health CEO, South Texas Market


Date: 05/16/01 Date:
------------------------------ -------------------------------

Approved as to Form:


/s/ MARY ANN SLAVIN
-------------------------
Office of General Counsel

No. 00-0377


OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date: March 31, 2000

Subject Considered:

MERGER OF
PCA HEALTH PLANS OF TEXAS, INC.
Austin, Texas
TDI No. 28-05818
AND
HUMANA HMO TEXAS, INC.
San Antonio, Texas
28-94466
INTO
HUMANA HEALTH PLAN OF TEXAS, INC.
San Antonio, Texas
TDI No. 28-93827

CONSENT ORDER
DOCKET NO. C-00-0296

General remarks and official action taken:

On this day, came for consideration by the Commission of Insurance pursuant to
TEX, INS. CODE ANN. art. 20A and art. 21.25, the Plan and Agreement of Merger by
and between PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, hereinafter referred
to as "PCA HEALTH" and HUMANA HMO TEXAS, INC., San Antonio, Texas, hereinafter
referred to as "HUMANA HMO", and collectively hereinafter referred to as
"NON-SURVIVORS" whereby NON-SURVIVORS would be merged with and into A HEALTH
PLAN OF TEXAS, INC., San Antonio, Texas, hereinafter referred to as "HUMANA
HEALTH" with HUMANA HEALTH being the survivor.

Staff for the Texas Department of Insurance and the duly authorized
representative for NON-SURVIVORS and HUMANA HEALTH have consented to the entry
of this order and have requested the Commissioner of Insurance informally
dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN.ss. 36.104 (former article 1.33(e)), TEX. GOV'T CODE ANN.ss. 2001.056, and
28 TEX. ADMIN. CODE ss. 1.47.

WAIVER
------

NON-SURVIVORS and HUMANA HEALTH acknowledge the existence of their rights
including but not limited to, the issuance and service of


00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 2 OF 5


notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN.ss.ss. 36.201-36.205 (former article 1.04)
and TEX. GOV'T CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146, and
have expressly waived each and every such right.

FINDINGS OF FACT
----------------

Based upon the information provided to the Texas Department of Insurance
pursuant to TEX. ADMIN. CODE, art. 11.301(4) (D) and art.ss. 11.1202, the
Commissioner of Insurance makes the following findings of fact:

1. NON-SURVIVORS and HUMANA HEALTH have represented to the Commissioner of
Insurance that they desire to waive all procedural requirements for the
entry of an order, including but not limited to, notice of hearing, a
public hearing, a proposal for decision, rehearing by the Commissioner
of Insurance, and judicial review of the order as provided in TEX. INS.
CODE ANN.ss.ss. 36.201-36.205 (former article 1.04), and TEX. GOV'T
CODE ANN.ss.ss. 2001.051, 2001.052, 2001.145 and 2001.146.

2. PCA HEALTH is a domestic Health Maintenance Organization duly licensed
in the State of Texas pursuant to the: provisions of Chapter 20A of the
Texas Insurance Code.

3. HUMANA HMO is a domestic Health Maintenance Organization duly licensed
in the State of Texas pursuant to the provisions of Chapter 20A of the
Texas Insurance Code.

4. HUMANA HEALTH is a domestic Health Maintenance Organization duly
licensed in the State of Texas pursuant to the provisions of Chapter
20A of the Texas Insurance Code.

5. NON-SURVIVORS and HUMANA HEALTH are authorized to do a similar line of
business, which is a prerequisite for merger approval under TEX. INS.
CODE ANN. art. 20A.04 and 28 TEX. ADMIN. CODE ss. 11.301(4)(D).

6. Documentation has been presented to the Texas Department of Insurance
evidencing the fact that the Plan and Agreement of Merger has been
approved by the Board of Directors and



COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 3 OF 5

shareholders of both NON-SURVIVORS and HUMANA HEALTH in accordance with
the requirements of TEX. INS. CODE ANN. art. 21.25.

7. As a result of the mergers, all of the issued and outstanding shares of
stock of NON-SURVIVORS shall be canceled.

8. HUMANA HEALTH shall be the surviving corporation of the merger
transactions.

9. As a result of the mergers, HUMANA HEALTH will assume and carry out all
the liability and responsibility and or insurance or reinsurance
agreements now entered into by NON-SURVIVORS and any other obligations
outstanding against such companies the time of merger on the same terms
and under the same conditions as provided in such policies, contracts,
insurance or reinsurance agreements.

10. As December 31, 1999 on a pro forma basis, HEALTH would have had a
consolidated net worth of $34,613,862.

11. Pursuant to Article 1, of the Agreement and Plan of Merger, the
effective date of the merger is the close of business on March 31,
2000.

12. No evidence has been presented that the Plan a d Agreement of Merger
between NON-SURVIVORS and HUMANA HEALTH is contrary to law, is not in
the best interest of the policyholders affected by the merger, or would
substantially reduce the security of and service to be rendered to
policyholders of NON-SURVIVORS in Texas or elsewhere.

13. No evidence has been presented that immediately upon consummation of
the transactions contemplated in the Plan d Agreement of Merger, HUMANA
HEALTH would not be able to satisfy the requirements for the issuance
of a license to write the line or lines of insurance for which
NON-SURVIVORS are presently licensed.

14. No evidence has been presented that the effect of such acquisition of
control as a result of the mergers would be


00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 4 OF 6

substantially to lessen competition in insurance in this state or tend
to create a monopoly therein

15. No evidence was presented that the financial condition of HUMANA HEALTH
is such as might jeopardize the financial stability or prejudice the
interests of its policyholders.

16. No evidence was presented that HUMANA HEALTH has any plans or proposals
to liquidate the surviving corporation, cause it to declare dividends
or make other distributions, sell any of its assets, consolidate or
merge it with any person, make any material change in its business or
corporate structure or management, or cause the health maintenance
organization to enter into material agreements, arrangements, or
transactions of any kind with any party that are unfair, prejudicial
hazardous, or unreasonable to the policyholders of HUMANA HEALTH, the
surviving corporation, and not in the public interest.

17. No evidence was presented that the competence, integrity,
trustworthiness, and experience of those persons who would control the
operations of HUMANA HEALTH are such that it would not be in the
interests of the policyholders of NON-SURVIVORS and HUMANA HEALTH and
the public to permit the merger.

CONCLUSIONS OF LAW
------------------


Based upon the foregoing findings of fact the Commissioner of Insurance makes
the following conclusions of law:

1. The Commissioner of Insurance has jurisdiction over this matter
pursuant to TEX. INS. CODE ANN. art. 20A and art. 21.25.

2. The proposed mergers of NON-SURVIVORS and HUMANA HEALTH is properly
supported by the required documents and meets all requirements of law
for its approval.

3. The Commissioner of Insurance has no substantial evidence upon which to
predicate denial of the mergers.

IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the mergers
whereby PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, and


COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 5 OF 5

HUMANA HMO TEXAS, INC., San Antonio, Texas, are to be merged with and into
HUMANA HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, with HUMANA HEALTH PLAN
OF TEXAS, INC. being the survivor, all as specified in the Plan and Agreement of
Merger, be, and the same is hereby, approved.

IT IS FURTHER ORDERED that Certificate of Authority No. 9152, dated February 26,
1990, issued to PCA HEALTH PLANS OF TEXAS, INC. and Certificate of Authority No.
11004, dated February 28, 1996, issued to HUMANA HMO TEXAS, INC., San Antonio,
Texas, be canceled, and that the mergers be effective as of the close of
business on March 31, 2000.


JOSE MONTEMAYOR
COMMISSIONER OF INSURANCE


BY: /s/ BETTY PATTERSON
-------------------------------------
Betty Patterson
Senior Associate Commissioner
Financial Program
Order No. 94-0576




Recommended by:


/s/ LORETTA CALDERON
----------------------------
Loretta Calderon
Insurance Specialist
Company Licensing & Registration


Reviewed by:


/s/ STEVE HARPER
----------------------------
Steve Harper, Analyst
Financial Analysis & Examination




COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 6 OF 6

Accepted by:

PCA HEALTH PLANS OF TEXAS, INC.



/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title: Vice President
(Printed Name): Kathleen Pellegrino



Accepted by:

HUMANA HMO TEXAS, INC.



/s/ KATHLEEN PELLEGRINO
--------------------------------------
Title: Vice President
(Printed Name): Kathleen Pellegrino



Accepted by:

HUMANA HEALTH PLAN OF TEXAS, INC.



/s/ WALTER E. NEELY
--------------------------------------
Title: Vice President
(Printed Name): Walter E. Neely






ARTICLES OF MERGER
OF

HUMANA HMO TEXAS, INC.
a TEXAS Health Maintenance Organization
&
PCA HEALTH PLANS OF TEXAS, INC.
a TEXAS Health Maintenance Organization

INTO

HUMANA HEALTH PLAN OF TEXAS, INC.
a TEXAS Health Maintenance Organization

Pursuant to provisions of the Texas Business Corporation Act, Articles
5.01B, 5.03A. 5.04A, 507, and 5.16, and the Texas Insurance Code, Article 21.25,
the domestic corporations herein named do hereby adopt the following Articles of
Merger:

1. The Agreement and Plan of Merger ("Plan") as set forth in
Exhibit A, attached hereto, and made a part hereof, for merging HUMANA HMO
TEXAS, INC., a Texas health maintenance organization, and PCA HEALTH PLANS OF
TEXAS, INC., a Texas health maintenance organization (collectively the
"Non-Survivors"). into HUMANA HEALTH PLAN OF TEXAS. INC., a Texas health
maintenance organization (the "Survivor"), was approved by Unanimous Written
Consent of the Board of Directors of the Non-Survivors dated December 27, 1999
and approved by Unanimous Written Consent of the Board of Directors of the
Survivor dated December 27, 1999.

2. HUMANA HEALTH PLAN OF TEXAS, INC. shall be the surviving
corporation of said merger.

3. Survivor shall be responsible for the payment of all fees and
franchise taxes of the Non-Survivors as required by law, and Survivor will be
obligated to pay such fees and franchise taxes if not timely paid.

4. The Articles of Incorporation of the Survivor, as filed with
the Texas Secretary of State and incorporated herein by reference, shall be the
Articles of Incorporation of the surviving corporation. No changes or amendments
shall be made to the Articles of Incorporation because of the merger.

5. The Plan was approved by unanimous written consent of the of
each of the undersigned corporations, and:


Page 1 of 3


(i) the designation, number of outstanding shares, and
number of votes entitled to be cast by each voting group
entitled to vote separately on the Plan as to each corporation
were:

Number of Number of Votes
Name of Corporation Designation Outstanding Shares Entitled to be Cast
------------------- ----------- ------------------ -------------------

PCA HEALTH PLANS Common 100,000 100,000
OF TEXAS, INC.
Preferred 30,000 Series A 30,000 Series A
30,000 Series B 30,000 Series B

HUMANA HMO Common 1,000 1,000
TEXAS, INC.

HUMANA HEALTH Common 1,000 1,000
PLAN OF TEXAS, INC.


(ii) the total number of undisputed votes represented by
the unanimous written consent of the sole shareholder, cast
for the Plan separately by each voting group was:


Total Number of
Undisputed Votes Cast
Name of Corporation Voting Group For the Plan
------------------- ------------ ------------

PCA HEALTH PLANS OF Common 100,000
TEXAS, INC.
Preferred 30,000 Series A
30,000 Series B

HUMANA HMO TEXAS Common 1,000
INC.

HUMANA HEALTH PLAN
OF TEXAS, INC. Common 1,000


and the action being unanimous, the number of votes cast for the Plan by each
voting group was sufficient for approval by that group.

Page 2 of 3


6. An executed copy of the Plan, subject to approval by the Texas
Department of Insurance and the Texas Secretary of State, shall be kept on file
at the principal executive office of the Survivor at 500 West Main Street,
Louisville, KY 40202, with a duplicate copy at the administrative address of the
Survivor at 8431 Fredericksburg Road, San Antonio, TX 78229.

7. The effective time and date of the merger in the State of
Texas be at the close of business on March 31,2000.

Dated as of this 30th day of December, 1999.


HUMAN HMO TEXAS, INC.

By: /s/ WALTER E. NEELY
--------------------------------
Walter E. Neely
Vice President


PCA HEALTH PLANS OF TEXAS, INC.

By: /s/ WALTER E. NEELY
--------------------------------
Walter E. Neely
Vice President


HUMANA HEALTH PLAN OF TEXAS, INC.


By: /s/ KATHLEEN PELLEGRINO
--------------------------------
Kathleen Pellegrino
Vice President


Page 3 of 3




Exhibit A

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the "Plan of Merger"), dated as of
December 30, 1999. by and among HUMANA HMO TEXAS, INC., and PCA HEALTH PLANS OF
TEXAS, INC., (collectively the "Non-Survivors"), both Texas health maintenance
organizations, into HUMANA HEALTH PLAN OF TEXAS, INC., (the "Surviving
Corporation"), a Texas health maintenance organization and a wholly-owned
subsidiary of Humana Inc. ("HUMANA"), a Delaware corporation.

WITNESSETH:

The respective Board of Directors of the Surviving Corporation and the
Non-Survivors deem it advisable to merger the Non-Survivors into the Surviving
Corporation ("Merger") pursuant to this Plan of Merger to be executed by the
Surviving Corporation and the Non-Survivors.

NOW, THEREFORE, in consideration of the foregoing, the parties hereto
hereby agree as follows:

ARTICLE 1
---------

GENERAL PROVISION

1.1 Execution of Articles of Merger. Subject to the provisions of
this Plan of Merger, and subject to the approval by the Texas Department of
Insurance and the Secretary of State of Texas, Articles of Merger required to
effectuate the terms of this Plan of Merger (collectively the "Merger
Documents") shall be executed, acknowledged, and thereafter delivered to the
offices of the Texas Department of insurance and the Secretary of State of
Texas, the domestic state of the Non-Survivors and the Surviving Corporation,
for filing and recording in accordance with applicable law, with an effective
date and time of the close of business on March 31, 2000 (the "Effective Time of
Merger").

The plan of merger is as follows:


Page 1 of 3



(1) Entities: The Non-Survivors shall merge into Humana Health
--------
Plan of Texas, Inc. (the "Surviving Corporation"), a Texas corporation (the
"Merger"), which is hereinafter designated as the surviving corporation of the
Merger (the "Surviving Corporation"); and

(2) Terms of the Merger: The Merger shall become effective at the
-------------------
close of business at the Effective Time of Merger. At the Effective Time of
Merger (i) the separate existence of the Non-Survivors shall cease and the
Non-Survivors shall be merged with and into Humana Health Plan of Texas, Inc.,
with Humana Health Plan of Texas, Inc. continuing in existence as the Surviving
Corporation, and (ii) Humana Health Plan of Texas, Inc. shall succeed to all
rights and privileges and assume all liabilities and obligations of the
Non-Survivors.

(3) Taking of Necessary Action: The Surviving Corporation and the
--------------------------
Non-Survivors, respectively, shall take all action as may be necessary or
appropriate in order to effectuate the transactions contemplated by these Merger
Documents. In case, at any time and from time to time after the Effective Time
of Merger, any further action is necessary or desirable to carry out the
purposes of these Merger Documents and to vest the Surviving Corporation
effective on and after the Effective Time of Merger, with full title to all
properties, assets, rights, approvals, immunities and franchises of the
Non-Survivors, the persons serving as officers and directors of the Surviving
Corporation at the Effective Time of Merger, at the expense of the Surviving
Corporation, shall be authorized to take any and all such actions on behalf of
the Non-Survivors deemed necessary or desirable by the Surviving Corporation.

(4) Effect on Capital Stock: a) On the Effective Time of the
-----------------------
Merger, each issued and outstanding share of capital stock of Humana Health Plan
of Texas, Inc. shall remain outstanding and shall represent one issued and
outstanding share of the Surviving Corporation and all of the issued and
outstanding shares of the capital stock of the Non-Survivors shall be cancelled
and no shares of the Surviving Corporation shall be issued in exchange therefor.

(b) There are no rights to acquire shares, obligations, or other
securities of the Surviving Corporation or any of the Non-Survivors, in whole or
in part, for cash or other property.

(5) No Amendment to Articles of Incorporation of Surviving
------------------------------------------------------
Corporation: The Articles of Incorporation of Humana Health Plan of Texas. Inc.,
-----------
filed with the Secretary of State of


Page 2 of 3



Texas and attached as Exhibit 1 shall be the Articles of incorporation of the
Surviving Corporation. No change or amendments shall be made to the Articles of
Incorporation because of the Merger.

(6) General Provisions:
------------------

(a) By-laws of Surviving Corporation. The By-laws of Humana Health
--------------------------------
Plan of Texas, Inc. shall be the By-laws of the Surviving Corporation. No
changes or amendments shall be made to the By-laws because of the Merger.

(b) Directors and Officers. The directors and officers of Humana
----------------------
Health Plan of Texas, Inc. shall be the directors and officers of the Surviving
Corporation and shall serve until their successors are duly elected and
qualified.


IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf and attested by its duly authorized
officers, all as of the day and year first written above.


HUMANA HEALTH PLAN OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN By: /s/ KATHLEEN PELLEGRINO
------------------------------------ --------------------------------
Joan O. Lenahan Kathleen Pellegrino
Secretary Vice President


HUMANA HMO TEXAS, INC.

ATTEST:

By: /s/ JOAN O. LENAHAN By: /s/ WALTER E. NEELY
------------------------------------ --------------------------------
Joan O. Lenahan Walter E. Neely
Secretary Vice President


PCA HEALTH PLANS OF TEXAS, INC.
ATTEST:

By: /s/ JOAN O. LENAHAN By: /s/ WALTER E. NEELY
------------------------------------ --------------------------------
Joan O. Lenahan Walter E. Neely
Secretary Vice President


Page 3 of 3

029945 Orig #
TDH Document No. 7427705425* 2001-01E

AMENDMENT NO. 7
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 7 is entered into between the Texas Department of Health
(TDH) and Superior Health Plan, Inc. (HMO) in Travis Service Area, to amend the
1999 Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH Signs this Amendment. All other
contract provisions remain in full force and effect. The Parties agree to amend
the Contract as follows:

Article XII is amended to read as follows:


12.8.1 In addition, data files are due to TDH or its designee no
later than the fifth working day following the end of each
month. See Utilization Data Transfer Encounter Submission
Manual for submission instructions. The RH utilization report
and data file submission instructions may periodically be
updated by TDH to facilitate clear communication to the health
plans.

12.9.1 In addition, data files are due to TDH or its designee no
later than the fifth working day following the end of each
month. See Utilization Data Transfer Encounter Submission
Manual for submission instructions. The PH utilization report
and data file submission instructions may periodically be
updated by TDH to facilitate clear communication to the health
plan.


AGREED AND SIGNED by an authorized representative of the parties on Aug. 2,
2001.

Texas Department of Health Superior Health Plan, Inc.


By: /s/ CHARLES E. BELL M.D. By: /s/ MICHAEL D. MCKINNEY, M.D.
--------------------------------------- --------------------------------
Charles E. Bell M.D. Michael D. McKinney, M.D.
Executive Deputy Commissioner of Health President


Approved as to Form:

/s/ MARY ANN SLAVIN
------------------------------
Office of General Counsel





AMENDMENT NO. 8
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO

September 1, 1999 the Texas Department of Health (TDH) and Humana Health Plan of
Texas, Inc. entered into a Contract for Services for the provision of
comprehensive health care services to qualified and Medicaid eligible recipients
in the Travis Service Area through a managed care delivery system. This Contract
for Services was subsequently renewed in 1999 for a period of two years. Section
15.6 of the above referenced contract allows assignment of the contract with the
written consent of the Texas Department of Insurance (TDI) and TDH.

Human Health Plan of Texas, Inc. entered into a Management and Risk Transfer
Agreement and an Asset Sale and Purchase Agreement with Superior HealthPlan,
Inc. for the assignment and assumption of the Contract for Services. With the
written consent of both TDI and TDH, effective June 1, 2001, Humana Health Plan
of Texas, Inc. assigned and Superior HealthPlan, Inc. assumed the contract
referenced herein in its entirety.

The purpose of this Amendment No. 8 is to substitute Superior HealthPlan, Inc.
for Humana Health Plan of Texas, Inc. as the party to this contract as a result
of the assignment and assumption. For adequate consideration received Superior
HealthPlan, Inc. agrees to abide by the Application submitted by Humana Health
Plan of Texas, Inc. in response to the Texas Department of Health's Request for
Application and all of the terms and conditions set forth in the 1999 Contract
for Services, its subsequent renewal(s), and all of its duly executed
Amendments.

AGREED AND SIGNED by an authorized representative of the parties on 8/17/01.

TEXAS DEPARTMENT OF HEALTH SUPERIOR HEALTHPLAN, INC.

By: /s/ CHARLES E. BELL, M.D. By: /s/ MICHAEL D. MCKINNEY, M.D.
------------------------------ --------------------------------
Charles B. Bell, M.D. Michael D. McKinney, M.D.
Deputy Commissioner of Health President

MICHAEL D. MCKINNEY
------------------------------------
Approved as to Form: Printed Name


/s/ S.D. ALEXANDER 8/16/01 PRESIDENT
--------------------------------- ------------------------------------
Office of General Counsel Title of Signator




AMENDMENT NO. 9
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 9 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the
Travis Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1. HHSC and HMO acknowledge the transfer of responsibility and
the assignment of the original Contract for Services from TDH
to HHSC on September 1, 2001. Where the original Contract for
Services and any Amendment to the original Contract for
Services assigns a right, duty, or responsibility to TDH, that
right, duty, or responsibility may be exercised by HHSC or its
designee.

2. Articles II, III, VI, VII. VIII. IX, X, XII, XIII, XV, XVI,
XVIII and XIX are amended to read as follows:

2.0 DEFINITIONS:
-----------

Chemical Dependency Treatment Facility means a facility
licensed by the Texas Commission on Alcohol and Drug Abuse
(TCADA) under Sec. 464.002 of the Health and Safety Code to
provide chemical dependency treatment.

Chemical Dependency Treatment means treatment provided for a
chemical dependency condition by a Chemical Dependency
Treatment Facility, Chemical Dependency Counselor or Hospital.

Chemical Dependency Condition means a condition which meets at
least three of the diagnostic criteria for psychoactive
substance dependence in the American Psychiatric Association's
Diagnostic and Statistical Manual of Mental Disorders (DSM
IV).

Chemical Dependency Counselor means an individual licensed by
TCADA under Sec. 504 of the Occupations Code to provide
chemical dependency treatment or a master's level therapist
(LMSW-ACP, LMFT or LPC) or a master's level therapist
(LMSW-ACP, LMFT or LPC) with a minimum of two years of post
licensure experience in chemical dependency treatment.

Contract Extension Amendment
7/18/01
1



Experience rebate means the portion of the HMO's net income
before taxes (financial Statistical Report, Part 1, Line 7)
that is returned to the state in accordance with Article
13.2.1.

Joint Interface Plan (JIP) means a document used to
communicate basic system interface information of the Texas
Medicaid Administrative System (TMAS) among and across State
TMAS Contractors and Partners so that all entities are aware
of the interfaces that affect their business. This information
includes: file structure, data elements, frequency, media,
type of file, receiver and sender of the file, and file I.D.
The JIP must include each of the HMO's interfaces required to
conduct State TMAS business. The JIP must address the
coordination with each of the Contractor's interface partners
to ensure the development and maintenance of the interface;
and the timely transfer of required data elements between
contractors and partners.

3.5 RECORDS REQUIREMENTS AND RECORDS RETENTION
------------------------------------------

3.5.8 The use of Medicaid funds for abortion is prohibited unless
the pregnancy is the result of a rape, incest, or continuation
of the pregnancy endangers the life of the woman. A physician
must certify in writing that based on his/her professional
judgment, the life of the mother would be endangered if the
fetus were carried to term. HMO must maintain a copy of the
certification for at least three years.

6.6 BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
-------------------------------------------------------

6.6.13 Chemical dependency treatment must conform to the standards
set forth in the Texas Administrative Code, Title 28, Part 1,
Chapter 3, Subchapter HH.

6.8 TEXAS HEALTH STEPS (EPSDT)
-------------------------

6.8.3 Provider Education and Training. HMO must provide appropriate
training to all network providers and provider staff in the
providers' area of practice regarding the scope of benefits
available and the THSteps program. Training must include
THSteps benefits, the periodicity schedule for THSteps
checkups and immunizations, the required elements of a THSteps
medical screen, providing or arranging for all required lab
screening tests (including lead screening), and Comprehensive
Care Program (CCP) services available under the THSteps
program to Members under age 21 years. Providers must also be
educated and trained regarding the requirements imposed upon
the department and contracting HMOs under the Consent Decree
entered in Frew vs. McKinney, et al., Civil Action No.
-----------------
3:93CV65, in the United States District Court for the Eastern
District of Texas, Paris Division. Providers should be
educated and trained to treat each THSteps visit as an
opportunity for a comprehensive assessment of the Member.

Contract Extension Amendment
7/18/01
2



HMO must report provider education and training regarding
THSteps in accordance with Article 7.4.4.

7.2 PROVIDER CONTRACTS
------------------

7.2.5 HHSC reserves the right and retains the authority to make
reasonable inquiry and conduct investigations into provider
and Member complaints against HMO or any intermediary entity
with whom HMO contracts to deliver health care services under
this contract. HHSC may impose appropriate sanctions and
contract remedies to ensure HMO compliance with the provisions
of this contract.

7.5 MEMBER PANEL REPORTS
--------------------

7.5 HMO must furnish each PCP with a current list of enrolled
Members enrolled or assigned to that Provider no later than 5
working days after HMO receives the Enrollment File from the
Enrollment Broker each month.

7.7 PROVIDER QUALIFICATIONS - GENERAL
---------------------------------

The providers in HMO network must meet the following
qualifications:

--------------------------------------------------------------------------------
FQHC A Federal Qualified Health Center meets the standards
established by federal rules and procedures. The FQHC must
also be an eligible provider enrolled in the Medicaid.
--------------------------------------------------------------------------------
Physician An individual who is licensed to practice medicine as an MD or
a DO in the State of Texas either as a primary care provider
or in the area of specialization under which they will provide
medical services under contract with HMO; who is a provider
enrolled in the Medicaid; who has a valid Drug Enforcement
Agency registration number, and a Texas Controlled Substance
Certificate, if either is required in their practice.
--------------------------------------------------------------------------------
Hospital An institution licensed as a general or special hospital by
the State of Texas under Chapter 241 of the Health and Safety
Code which is enrolled as a provider in the Texas Medicaid
Program. HMO will require that all facilities in the network
used for acute impatient specialty care for people under age
21 with disabilities or chronic or complex conditions will
have a designated pediatric unit; 24 hour laboratory and blood
bank availability; pediatric radiological capability; meet
JCAHO standards; and have discharge planning and social
service units.
--------------------------------------------------------------------------------
Contract Extension Amendment
7/18/01
3


--------------------------------------------------------------------------------
Non-Physician An individual holding a license issued by the applicable
Practitioner licensing agency of the State of Texas who is enrolled in the
Provider Texas Medicaid Program.
--------------------------------------------------------------------------------
Clinical An entity having a current certificate issued under the
Laboratory Federal Clinical Laboratory Improvement Act (CLIA), and is
enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------
Rural Health An institution which meets all of the criteria for designation
Clinic (RHC) as a rural health clinic and is enrolled in the Texas Medicaid
Program.
--------------------------------------------------------------------------------
Local Health A local health department established pursuant to Health and
Department Safety Code, Title 2, Local Public Health Reorganization Act
ss. 121.031ff.
--------------------------------------------------------------------------------
Non-Hospital A provider of health care services which is licensed and
Facility credentialed to provide services and is enrolled in the Texas
Provider Medicaid Program.
--------------------------------------------------------------------------------
School Based Clinics located at school campuses that provide on site
Health Clinic primary and preventive care to children and adolescents.
(SBHC)
--------------------------------------------------------------------------------
Chemical A facility licensed by the Texas Commission on Alcohol and
Dependency Drug Abuse (TCADA) under Sec. 464.002 of the Health and Safety
Treatment Code to provide chemical dependency treatment.
Facility
--------------------------------------------------------------------------------
Chemical An individual licensed by TCADA under Sec. 504 of the
Dependency Occupations Code to provide chemical dependency treatment or a
Counselor master's level therapist (LMSW-ACP, LMFT or LPC) with a
minimum of two years of post-licensure experience in chemical
dependency treatment.
--------------------------------------------------------------------------------


7.10 SPECIALTY CARE PROVIDERS
------------------------

7.10.1 HMO must maintain specialty providers, actively serving within
that specialty, including pediatric specialty providers and
chemical dependency specialty providers, within the network in
sufficient numbers and areas of practice to meet the needs of
all Members requiring specialty care services.

7.11 SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
-----------------------------------------------

7.11.1 HMO must include all medically necessary specialty services
through its network specialists, sub-specialists and specialty
care facilities (e.g., children's hospitals, licensed chemical
dependency treatment facilities and tertiary care hospitals).

Contract Extension Amendment
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4



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.

Contract Extension Amendment
7/18/01
5



10.1.3.1 HMO must notify and advise BIR of major systems changes and
implementations. HMO is required to provide an implementation
plan and schedule of proposed system change at the time of
this notification.

10.1.3.2 BIR conducts a Systems Readiness test to validate the
contractor's ability to meet the MMIS requirements. This is
done through systems demonstration and performance of specific
MMIS and subsystem functions. The System Readiness test may
include a desk review and/or an onsite review and is conducted
for the following events:
o A new plan is brought into the program
o An existing plan begins business in a new SDA
o An existing plan changes location
o An existing plan changes their processing system

10.1.3.3 Desk Review. HMO must complete and pass systems desk review
prior to onsite systems testing conducted by HHSC.

10.1.3.4 Onsite Review. HMO is required to provide a detailed and
comprehensive Disaster and Recovery Plan, and complete and
pass an onsite Systems Facility Review during the State's
onsite systems testing.

10.1.3.5 HMO is required to provide a Corrective Action Plan in
response to HHSC Systems Readiness Testing Deficiencies no
later than 10 working days notification of deficiencies by
HHSC.

10.1.3.6 HMO is required to provide representation to attend and
participate in the HHSC Systems Workgroup as a part of the
weekly Systems Scan Call.

10.1.9 HMO must submit a joint interface plan (JIP) in a format
specified by HHSC. The JIP will include required information
on all contractor interfaces that support the Medicaid
Information Systems. The submission of the JIP will be in
coordination with other TMAS contractors and is due no later
than 10 working days after the end of each state fiscal year
calendar.

10.3 ENROLLMENT ELIGIBILITY SUBSYSTEM
--------------------------------

(11) Send PCP assignment updates to HHSC or its designee, in the
format specified by HHSC or its designee. Updates can be sent
as often as daily but must be sent at least weekly.

Contract Extension Amendment
7/18/01
6


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.

Contract Extension Amendment
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7



13.1 CAPITATION AMOUNTS
------------------

13.1.2 Delivery Supplemental Payment (DSP). The monthly capatation
amounts and the DSP amount are listed below.

--------------------------------------------------------------
Risk Group Monthly Capatation Amounts
--------------------------------------------------------------
TANF Adults $164.33
--------------------------------------------------------------
TANF Children > 12 $74.79
Months of Age
--------------------------------------------------------------
Expansion Children > 12 $60.67
Months of Age
--------------------------------------------------------------
Newborns < 12 Months of Age $356.29
-
--------------------------------------------------------------
TANF Children < 12 $356.29
-
Months of Age
--------------------------------------------------------------
Expansion Children < 12 $356.29
-
Months of Age
--------------------------------------------------------------
Federal Mandate Children $59.01
--------------------------------------------------------------
CHIP Phase I $71.50
--------------------------------------------------------------
Pregnant Women $267.89
--------------------------------------------------------------
Disabled/Blind $14.00
Administration
--------------------------------------------------------------


Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,817.00.

13.1.3.1 Once HMO has received its capitation rates established by HHSC
for the second or third year of this contract, HMO may
terminate this contract as provided in Article 18.1.6.

13.1.7 HMO renewal rates reflect program increases appropriated by
the 76th and 77th legislature for physician (to include
THSteps providers) and outpatient facility services. HMO must
report to HHSC any change in rates for participating
physicians (to include THSteps providers) and outpatient
facilities resulting from this increase. The report must be
submitted to HHSC at the end of the first quarter of the
FY2000, FY2001 and FY2002 contract years according to the
deliverables matrix schedule set for HMO.

Contract Extension Amendment
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8



13.2 EXPERIENCE REBATE TO THE STATE
------------------------------

13.2.1 For the contract period, HMO must pay to TDH an experience
rebate calculated in accordance with the tiered rebate method
listed below based on the excess of allowable HMO STAR
revenues over allowable HMO STAR expenses as measured by any
positive amount on Line 7 of "Part 1: Financial Summary, All
Coverage Groups Combined" of the annual Managed Care
Financial-Statistical Report, set forth in Appendix I, as
reviewed and confirmed by TDH. TDH reserves the right to have
an independent audit performed to verify the information
provided by HMO.


Graduated Rebate Method
-----------------------------------------------------------------------
Net income before HMO Share State Share
taxes as a Percentage
of Revenues
-----------------------------------------------------------------------
0% - 3% 100% 0%
-----------------------------------------------------------------------
Over 3% - 7% 75% 25%
-----------------------------------------------------------------------
Over 7% - 10% 50% 50%
-----------------------------------------------------------------------
Over 10% - 15% 25% 75%
-----------------------------------------------------------------------
Over 15% 0% 100%
-----------------------------------------------------------------------


13.2.2.1 The experience rebate for the HMO shall be calculated by
applying the experience rebate formula in Article 13.2.1 to
the sum of the net income before taxes (Financial Statistical
Report, Part 1, Line 7) for all STAR Medicaid service areas
contracted between the State and HMO.

13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates:
HMO may subtract from an experience rebate owed to the State,
expenses for population-based health initiatives that have
been approved by HHSC. A population-based initiative (PBI) is
a project or program designed to improve some aspect of
quality of care, quality of life, or health care knowledge for
the Medicaid population that may also benefit the community as
a whole. Value-added service does not constitute a PBI.
Contractually required services and activities do not
constitute a PBI.

13.2.5 There will be two settlements for payment(s) of the experience
rebate for FY 2000-2001 and two settlements for payment(s) for
the experience rebate for FY 2002. The first settlement for
the specified time period shall equal 100 percent

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of the experience rebate as derived from Line 7 of Part 1 (Net
Income Before Taxes) of the first final Managed Care Financial
Statistical (MCFS) Report and shall be paid on the same day
the first final MCFS Report is submitted to HHSC for the
specified time period. The second settlement shall be an
adjustment to the first settlement and shall be paid to HHSC
on the same day that the second final MCFS Report is submitted
to HHSC for that specified time period if the adjustment is
the payment from HMO to HHSC. If the adjustment is a payment
from HHSC to HMO, HHSC shall pay such adjustment to HMO within
thirty (30) days of receipt of the second final MCFS Report.
HHSC or its agent may audit or review the MCFS report. If HHSC
determines that corrections to the MCFS reports are required,
based on a HHSC audit/review of other documentation acceptable
to HHSC, to determine an adjustment to the amount of the
second settlement, then final adjustment shall be made within
two years from the date that HMO submits the second final MCFS
report. HMO must pay the first and second settlements on the
due dates for the first and second final MCFS reports
respectively as identified in Article 12.1.4. HHSC may adjust
the experience rebate if HHSC determines HMO has paid
affiliates amounts for goods or services that are higher than
the fair market value of the goods and services in the
services area. Fair market value may be based on the amount
HMO pays a non-affiliate(s) or the amount another HMO pays for
same or similar service in the service area. HHSC has final
authority in auditing and determining the amount of the
experience rebate.

13.3 PERFORMANCE OBJECTIVES/INCENTIVES
---------------------------------

13.3.1 Preventive Health Performance Objectives. Preventive Health
----------------------------------------
Performance Objectives are contained in this contract at
Appendix K. HMO must accomplish the performance objectives or
a designated percentage in order to be eligible for payment of
financial incentives. Performance objectives are subject to
change. HHSC will consult with HMO prior to revising
performance objectives.

13.3.2 HMO will receive credit for accomplishing a performance
objective upon receipt of accurate encounter data required
under Article 10.5 and 12.2 of this contract and/or a Detailed
Data Element Report from HMO with report format as determined
by HHSC and aggregate data report by HMO in accordance with a
report format as determined by HHSC (Performance Objective
Report). Accuracy and completeness of the Detailed Data
Element Report and the Aggregate Data Performance Objective
Report will be determined by HHSC through an HHSC audit of the
HMO claims processing system. If HHSC determines that the
Detailed Data Element Report and Performance Objectives Report
are sufficiently supported by the results of the HHSC audit,
the payment of financial incentives will be made to HMO.
Conversely, if the audit results do not support the reports as
determined by HHSC, HMO will not receive payment

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of the financial incentive. HHSC may conduct provider chart
reviews to validate the accuracy of the claims data related to
HMO accomplishment of performance objectives. If the results
of the chart review do not support the HMO claims system data
or the HMO Detailed Data Element Report and the Performance
Objectives Report, HHSC may recoup payment made to the HMO for
performance objectives incentives.

13.3.3 HMO will also receive credit for performance objectives
performed by other organizations if a network primary care
provider or the HMO retains documentation from the performing
organization which satisfies the requirements contained in
Appendix K of this contract.

13.3.4 HMO will receive performance objective bonuses for
accomplishing the following percentages of performance
objectives:

-----------------------------------------------------------------
Percent of Each Performance Percent of Performance Objective
Objective Accomplished Allocations Paid to HMO
-----------------------------------------------------------------
60% to 65% 20%
-----------------------------------------------------------------
65% to 70% 30%
-----------------------------------------------------------------
70% to 75% 40%
-----------------------------------------------------------------
75% to 80% 50%
-----------------------------------------------------------------
80% to 85% 60%
-----------------------------------------------------------------
85% to 90% 70%
-----------------------------------------------------------------
90% to 95% 80%
-----------------------------------------------------------------
95% to 100% 90%
-----------------------------------------------------------------
100% 100%
-----------------------------------------------------------------


13.3.5 HMO must submit the Detailed Data Element Report and the
Performance Objectives Report regardless of whether or not the
HMO intends to claim payment of performance objective bonuses.

13.3.6 Payment of performance objective bonus is contingent upon
availability of appropriations. If appropriations are not
available to pay performance objective bonuses as set out
below, HHSC will equitably distribute all available funds to
each HMO that has accomplished performance objectives.

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13.3.7 In addition to the capitation amounts set forth in Article
13.1.2. a performance premium of two dollars ($2.00) per
Member month will be allocated by HHSC for the accomplishment
of performance objectives.

13.3.8 The HMO must submit the Performance Objectives Report and the
Detailed Data Element Report as referenced in Article 13.3.2,
within 150 days from the end of each State fiscal year.
Performance premiums will be paid to HMO within 120 days after
The State receives and validates the data contained in each
required Performance Objectives Report.

13.3.9 The performance objective allocation for HMO shall be assigned
to each performance objective, described in Appendix K, in
accordance with the following percentages:

--------------------------------------------------------------
EPSDT SCREENS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------
1. < 12 months 12%
--------------------------------------------------------------
2. 12 to 24 months 12%
--------------------------------------------------------------
3. 25 months - 20 years 20%
--------------------------------------------------------------

IMMUNIZATIONS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------
4. < 12 months 7%
--------------------------------------------------------------
5. 12 to 24 months 5%
--------------------------------------------------------------

ADULT ANNUAL VISITS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------
6. Adult Annual Visits 3%
--------------------------------------------------------------
PREGNANCY VISITS Percent of Performance Objective
Incentive Fund
--------------------------------------------------------------
7. Initial prenatal exam 15%
--------------------------------------------------------------
8. Visits by Gestational Age 14%
--------------------------------------------------------------
9. Postpartum visit 12%
--------------------------------------------------------------

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13.3.10 Compass 21 Encounter Data Conversion Performance Incentive. A
----------------------------------------------------------
Compass 21 encounter data conversion performance incentive
payment will be paid by the State to each HMO that achieves
the identified conversion performance standard for at least
one month in the first quarter of SFY 2002 as demonstration of
successful conversion to the C21 system. The encounter
conversion performance standard is as follows:

--------------------------------------------------------------
Performance Objective Encounter Data Conversion
Performance Incentive
--------------------------------------------------------------
Percentage of encounters submitted 65%
that are successfully accepted into
C21
--------------------------------------------------------------

13.3.10.1 The amount of the incentive will be based on the total amount
identified by the state for the encounter data conversion
performance incentive pool ("Pool"). The pool will be equally
distributed between all the HMOs that achieve the performance
objective within the first quarter of SFY 2002. HMOs with
multiple contracts with HHSC are eligible to receive only one
allocation from the Pool. Required HMO performance for the
identified objectives will be verified by HHSC for accuracy
and completeness. The incentive will be paid only after HHSC
has verified that HMO performance has met the required
performance standard. Payments will be made in the second
quarter of the fiscal year.

13.5.4 NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
---------------------------------------------

13.5.4 Newborns who appear on the MAXIMUS daily enrollment file but
do not appear on the MAXIMUS monthly enrollment or adjustment
File before the end of the sixth month following the date of
birth will not be retroactively enrolled into the HMO. HHSC
will manually reconcile payment to the HMO for services
provided from the date of birth for TP45 and all other
eligibility categories of newborns. Payment will cover
services rendered from the effective date of the proxy ID
number when first issued by the HMO regardless of plan
assignment at the time the State-issued Medicaid ID number is
received.

15.6 ASSIGNMENT
----------

15.6 This contract was awarded to HMO based on HMO's qualifications
to perform personal and professional services. HMO cannot
assign this contract without the written consent of HHSC. This
provision does not prevent HMO from

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subcontracting duties and responsibilities to qualified
subcontractors. If HHSC consents to an assignment of this
contract, a transition period of 90 days will run from the
date the assignment is approved by HHSC so that Members'
services are not interrupted and, if necessary, the notice
provided for in Article 15.7 can be sent to Members. The
assigning HMO must also submit a transition plan, as set out
in Article 18.2.1, subject to HHSC 's approval.

16.3 DEFAULT BY HMO
--------------

16.3.14.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to HHSC by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit HHSC
in exercising all or part of any remaining remedies.

For HMO's failure to meet any benchmark established by HHSC
under this contract, or for failure to meet improvement
targets, as identified by HHSC, HHSC may:

o Remove all or part of the THSteps component from the
capitation paid to HMO
o Terminate the contract if the applicable conditions
set out in Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article
18.4; and/or
o Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.15 FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
----------------------------------------------------

Failure of HMO to perform a material duty or responsibility as
set out in this Contract is a default under this contract and
HHSC may impose one or more of the remedies contained within
its provisions and all other remedies available to HHSC by law
or in equity.

16.3.15.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other
remedies available to HHSC by law or in equity, are joint and
several, and may be exercised concurrently or consecutively.
Exercise of any remedy in whole or in part does not limit HHSC
in exercising all or part of any remaining remedies.

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For HMO's failure to perform an administrative function under
this contract, HHSC may:

o Terminate the contract if the applicable conditions
set out in Article 18. 1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article
18.4; and/or
o Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

18.1.6 TERMINATION BY HMO
------------------

18.1.6 HMO may terminate this contract if HHSC fails to pay HMO as
required under Article XIII of this contract or otherwise
materially defaults in its duties and responsibilities under
this contract, or by giving notice no later than 30 days after
receiving the capitation rates for the second or third
contract years. Retaining premium, recoupment, sanctions, or
penalties that are allowed under this contract or that result
from HMO's failure to perform or HMO's default under the terms
of this contract is not cause for termination.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION
----------------------------------------------

18.2.2 If the contract is terminated by HHSC for any reason other
than federal or state funds for the Medicaid program no longer
being available or if HMO terminates the contract based on
lower capitation rates for the second or third contract years
as set out in Article 13.1.3.1:

18.2.3 If the contract is terminated by HMO for any reason other than
based on lower capitation rates for the second or third
contract years as set out in Article 13.1.3.1:

Article XIX TERM
----

19.1 The effective date of this contract is August 30, 1999. This
contract will terminate on August 31, 2002, unless terminated
earlier as provided for elsewhere in the contract.

3. The Appendices are amended by replacing page 10 of Appendix A
"Standards for Quality Improvement Programs" to incorporate a
change in Item F, number 1 on recredentialing.

4. The Appendices are amended by deleting Appendix D, "'Required
Critical Elements," and replacing it with new Appendix D,
"Required Critical Elements", as attached.

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AGREED AND SIGNED by an authorized representative of the parties on 2001.


Health and Human Services Commission Superior Health Plan, Inc.


By: /s/ DON A. GILBERT By: /s/ MICHAEL D. MCKINNEY, M.D.
-------------------------------- --------------------------------
Don A. Gilbert Michael D. McKinney, M.D.
President & CEO



Approved as to Form:

-------------------------------
Office of General Counsel


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