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

Published on October 9, 2001


EXHIBIT 10.6

TDH Document No. 4810323494* 2001-01
-------------------
Orig. # 23921





1999

CONTRACT FOR SERVICES

Between

THE TEXAS DEPARTMENT OF HEALTH

And

HMO

PCA Health
1999 Renewal Contract

Bexar Service Area
August 9, 1999




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 SUBCONTRACTS ..................................................15
3.3 MEDICAL DIRECTOR ...........................................................17
3.4 PLAN MATERIALS AND DISTRIBUTION OF PLAN MATERIALS ..........................18
3.5 RECORDS REQUIREMENTS AND RECORDS RETENTION .................................19
3.6 HMO REVIEW OF TDH MATERIALS ................................................20
3.7 HMO TELEPHONE ACCESS REQUIREMENTS ..........................................21

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

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

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

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

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August 9, 1999

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

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

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

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

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

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

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

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

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

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

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

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

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August 9, 1999

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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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August 9, 1999

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

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

ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT.................................135
ARTICLE XVIII EXPLANATION OF REMEDIES..............................................136

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

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

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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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1999 Renewal Contract

Bexar Service Area
August 9, 1999


CONTRACT FOR SERVICES

Between

THE TEXAS DEPARTMENT OF HEALTH

And

HMO

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

ARTICLE I PARTIES AND AUTHORITY TO CONTRACT

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

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

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

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

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

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

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

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

ARTICLE II DEFINITIONS

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

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

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

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

Adjudicate means to deny or pay a clean claim.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Comprehensive Care Program: See definition for Texas Health Steps.

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

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

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

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

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

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

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

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

Day means calendar day unless specified otherwise.

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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.

Proxy Claim Form means a form submitted by providers to document services
delivered to Medicaid Members under a capitated arrangement. It is not a claim
for payment.

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

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

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

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

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

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

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

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

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

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

Special hospital means an establishment that:

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

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

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

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

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

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

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

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

TAC means Texas Administrative Code.

TANF means Temporary Assistance to Needy Families.

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

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

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

TDH means the Texas Department of Health or its designees.

TDHS means the Texas Department of Human Services.

TDI means the Texas Department of Insurance.

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

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

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

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

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13


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

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

THHSC means the Texas Health and Human Services Commission.

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

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

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

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

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

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

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

ARTICLE III PLAN ADMINISTRATIVE AND HUMAN RESOURCE
REQUIREMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.3.1.6 Oversight responsibility for medically related complaints.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE IV FISCAL, FINANCIAL, CLAIMS AND INSURANCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

4.4 INSURANCE

---------

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

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

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

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

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

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

4.6 AUDIT
-----

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.11 INDEMNIFICATION

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

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

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

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

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

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

ARTICLE V STATUTORY AND REGULATORY COMPLIANCE REQUIREMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

5.6.1 TDH is committed to providing procurement and contracting
opportunities to historically underutilized businesses (HUBs),
under the provisions of Texas Government Code, Title 10, Subtitle
D, Chapter 2161 and 1 TAC ss., 111.11(b) and 111.13 (c)(7).
TDH requires its Contractors and subcontractors to make a good
faith effort to assist HUBs in receiving a portion of the total
contract value of this contract.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VI SCOPE OF SERVICES

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

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

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

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

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

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

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

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

6.1.6.1 The approval request must include:

6.1.6.1.1 A detailed description of the service to be offered;

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

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

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

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

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

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

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

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

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

THSteps Dental (including Orthodontia)
Early Childhood Intervention Case

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

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

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

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

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

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

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

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

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

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

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

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

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

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loses Medicaid eligibility.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.7.4.1 general benefits of family planning services and contraception;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.8.7 Newborn Checkups. HMO must have mechanisms in place to ensure
that all newborn Members have an initial newborn checkup before
discharge from the hospital and again within two weeks from the
time of birth. HMO must require providers to send all THSteps
newborn screens to the TDH Bureau of Laboratories or a TDH
certified laboratory. Providers must include detailed identifying
information for all screened

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newborn Members and the Member's mother to allow TDH to link the
screens performed at the hospital with screens performed at the
two week follow-up.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.9.4.1 48 hours following an uncomplicated vaginal delivery; and

6.9.4.2 96 hours for an uncomplicated caesarean delivery.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.12.1 Education, Screening, Diagnosis and Treatment. HMO must provide
Members and providers with education on the prevention, detection
and effective treatment of tuberculosis (TB). HMO must establish
mechanisms to ensure all procedures required to screen at-risk
Members and to form the basis for a diagnosis and proper
prophylaxis and management of TB are available to all Members,
except services referenced in Article 6.1.8 as non-capitated
services. HMO must develop policies and

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procedures to ensure that Members who may be or are at risk for
exposure to TB are screened for TB. An at-risk Member refers to a
person who is susceptible to TB because of the association with
certain risk factors, behaviors, drug resistance, or
environmental conditions. HMO must consult with the local TB
control program to ensure that all services and treatments
provided by HMO are in compliance with the guidelines recommended
by the American Thoracic Society (ATS), the Centers for Disease
Control and Prevention (CDC), and TDH policies and standards.

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

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

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

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

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

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

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

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

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

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

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

6.13.5 HMO must have in its network PCPs and specialty care providers
that have documented experience in treating people with
disabilities or chronic or complex conditions, including
children. For services to children with disabilities or chronic
or complex conditions, HMO must have in its network PCPs and
specialty care providers

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that have demonstrated experience with children with disabilities
or chronic or complex conditions in pediatric specialty centers
such as children's hospitals, medical schools, teaching hospitals
and tertiary center levels.

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

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

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

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

6.13.9.1 Participate in hospital discharge planning;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.15.6 HMO must coordinate with the TDH regional health authority to
ensure that Members with confirmed cases of syphilis, chancroid,
gonorrhea, chlamydia and HIV receive

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risk reduction and partner elicitation/notification counseling.
Coordination must be included in the subcontract required by
Article 7.16.1. HMO may contract with local or regional health
authorities to perform any of the covered services required in
Article 6.15.

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

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

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

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

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

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

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

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

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

6.16.2.1 Prior authorization of services;

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

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

6.16.2.4 Health education;

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

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

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

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

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

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ARTICLE VII PROVIDER NETWORK REQUIREMENTS

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

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

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

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

7.1.3.1 Urgent Care within 24 hours of request;

7.1.3.2 Routine care within 2 weeks of request;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.3.5.3 whether stop-loss protection is provided; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The providers in HMO network must meet the following
qualifications:

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

--------------------------------------------------------------------------------
Physician An individual who is licensed to practice medicine as an M.D.
or a D.O. in the State of Texas either as a primary care
provider or in the area of specialization under which they
will provide medical services under contract with HMO; who is
a provider enrolled in the Medicaid program; and who has a
valid Drug Enforcement Agency registration number and a Texas
Controlled Substance Certificate, if either is required in
their practice.
--------------------------------------------------------------------------------
Hospital An institution licensed as a general or special hospital by
the State of Texas under Chapter 241 of the Health and Safety
Code and Private Psychiatric Hospitals under Chapter 577 of
the Health and Safety Code (or is a provider which is a
component part of a State or local government entity which
does not require a license under the laws of the State of
Texas), which is enrolled as a provider in the Texas Medicaid
Program. HMO will require that all facilities in the network
used for acute inpatient specialty care for people under age
21 with disabilities or chronic or complex conditions will
have a designated pediatric unit; 24-hour laboratory and
blood bank availability; pediatric radiological capability;
meet JCAHO standards; and have discharge planning and social
service units.
--------------------------------------------------------------------------------

Non-Physician An individual holding a license issued by the applicable
Practitioner licensing agency of the State of Texas who is enrolled in the
Provider Texas Medicaid Program or an individual properly trained to
provide behavioral health support services who practices
under the direct supervision of an appropriately licensed
professional.

--------------------------------------------------------------------------------
Clinical An entity having a current certificate issued under the
Laboratory Federal Clinical Laboratory Improvement Act (CLIA), and
enrolled in the Texas Medicaid Program.
--------------------------------------------------------------------------------

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--------------------------------------------------------------------------------
Rural Health An institution which meets all of the criteria for
Clinic (RHC) designation as a rural health clinic, and enrolled in the
Texas Medicaid Program.
--------------------------------------------------------------------------------
Local Health A local health department established pursuant to Health and
Department Safety Code, Title 2, Local Public Health Reorganization Act
ss. 121.031 ff.
--------------------------------------------------------------------------------
Local Mental Under Section 531.002(8) of the Health and Safety Code, the
Health Authority local component of the TXMHMR system designated by TDMHMR to
(LMHA) carry out the legislative mandate for planning, policy
development, coordination, and resource
development/allocation and for supervising and ensuring the
provision of mental health care services to persons with
mental illness in one or more local service areas.

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

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

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

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

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

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

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

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

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

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

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

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

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

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Acceptable:

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

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

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

Unacceptable:

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

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

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

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

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

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

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

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

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

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

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

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

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

HMO must allow a female Member to select an OB/GYN within its
provider network or within a limited provider network in addition
to a PCP, to provide health care services within the scope of the
professional specialty practice of a properly credentialed
OB/GYN. See Article 21.53D of the Texas Insurance Code and 28 TAC
Sections 11.506, 11.1600 and 11.1608. A Member who selects an
OB/GYN must be allowed direct access to the health care services
of the OB/GYN without a referral by the woman's PCP or a prior
authorization or precertification from HMO. HMO must allow
Members to change OB/GYNs up to four times per year. Health care
services must include, but not be limited to:

7.9.1 One well-woman examination per year;

7.9.2 Care related to pregnancy;

7.9.3 Care for all active gynecological conditions; and

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

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

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

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

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

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

7.10.3 HMO must ensure availability and accessibility to appropriate
specialists.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HMO must seek participation in its provider network from:

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

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

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

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

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

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

7.14.1.2 are Significant Traditional Providers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7.16.1.2 Confidential HIV Testing (see Article 6.15);

7.16.1.3 Immunizations;

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

7.16.1.5 Family Planning Services (see Article 6.7);

7.16.1.6 THSteps checkups (see Article 6.8); and

7.16.1.7 Prenatal services (see Article 6.9).

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

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

7.16.2.2 Public Health Entity responsibilities:

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

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

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

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

7.16.2.3 HMO Responsibilities:

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

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

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

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

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

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

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

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

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

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

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(5) Referral for WIC services and information sharing;

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

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

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

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

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

(4) Referral for WIC services and information sharing;

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

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

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

(8) Referral to the TDH Medical Transportation Program;

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

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

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

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7.17 COORDINATION WITH TEXAS DEPARTMENT OF PROTECTIVE AND REGULATORY
SERVICES

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

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

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

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

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

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

7.17.5.1 providing medical records;

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

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

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

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

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

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

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

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

7 18.1.4 not interfere with TDH's oversight and audit responsibilities
including collection and validation of encounter data; or

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

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE VIII MEMBER SERVICES REQUIREMENTS

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

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

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

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

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

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

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

8.3.1 Federal and state law require HMOs and providers to maintain
written policies and procedures for informing and providing
written information to all adult Members 18 years of age and
older about their rights under state and federal law, in advance
of their receiving care (Social Security Act ss.1902(a)(57)
and ss.1903 (m)(1)(A)). The written policies and procedures must
contain procedures for providing written information regarding
the Member's right to refuse, withhold or withdraw medical
treatment advance directives. HMO's policies and procedures must
comply with provisions contained in 42 CFR ss.434.28 and 42
CFR ss.489, SubPart 1, relating to advance directives for all
hospitals, critical access hospitals, skilled nursing facilities,

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

8.3. 1. 1 a Member's right to self-determination in making health care
decisions; and

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

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

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

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

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

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

8.3.2. 1.1 a clarification of any differences between HMO's conscience
objections and those which may be raised by the Member's PCP or
other providers;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.6.13 The provisions of Article 21.58A, Texas Insurance Code, relating
to a Member's right to appeal an adverse determination made by
HMO or a utilization review agent by an independent review
organization, do not apply to a Medicaid recipient. Federal fair

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hearing requirements (Social Security Act ss.1902a(33), codified
at 42 C.F.R. 431.200 et. seq.) require the agency to make a final
decision after a fair hearing, which conflicts with the State
requirement that the IRO make a final decision. Therefore, the
State requirement is pre-empted by the federal requirement.

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

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

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

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

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

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

8.7.2 The notice must contain the following information:

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

8.7.2.2 a statement of the action HMO will take;

8.7.2.3 the date the action will be taken;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8.9.2 The Cultural Competency Plan must include the following:

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

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

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

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

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

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

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

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

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

8.9.3.3 A competent interpreter is defined as someone who is:

8.9.3.4 proficient in both English and the other language;

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

8.9.3.6 has the ability to interpret accurately and impartially.

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

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

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

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

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

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

ARTICLE IX MARKETING AND PROHIBITED PRACTICES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

9.4.1 The provider directory and any revisions must be approved by TDH
prior to publication and distribution to prospective Members (see
Article 3.4.1 regarding the process for plan materials review).
The directory must contain all critical elements specified by
TDH. See Appendix D, Required Critical Elements, for specific
details regarding content requirements.

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9.4.2 If HMO contracts with limited provider networks, the provider
directory must comply with the requirements of 28 TAC 11.
1600(b)(11), relating to the disclosure and notice of limited
provider networks.

9.4.3 Updates to the provider directory must be provided to the
Enrollment Broker at the beginning of each State fiscal year
quarter. This includes the months of September, December, March
and June. HMO is responsible for submitting draft updates to TDH
only if changes other than PCP information are incorporated. HMO
is responsible for sending three final paper copies and one
electronic copy of the updated provider directory to TDH each
quarter. If an electronic format is not available, five paper
copies must be sent. TDH will forward two updated provider
directories, along with its approval notice, to the Enrollment
Broker to facilitate the distribution of the directories.

ARTICLE X MIS SYSTEM REQUIREMENTS

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

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

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

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

10.1.4 HMO is required to submit and receive data as specified in this
contract and HMO Encounter Data Submissions Manual. HMO must
provide complete encounter data of all capitated services within
the scope of services of the contract between HMO and TDH.
Encounter data must follow the format, data elements and method
of transmission specified in the contract and HMO Encounter Data
Submissions Manual. HMO must submit encounter data, including
adjustments to encounter data. The Encounter transmission will
include all encounter data and encounter data adjustments
processed by HMO for the previous month. Data quality validation
will incorporate assessment standards developed jointly by HMO
and TDH. Original records will be

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made available for inspection by TDH for validation purposes.
Data which do not meet quality standards must be corrected and
returned within a time period specified by TDH.

10.1.5 HMO must use the procedure codes, diagnosis codes, and other
codes used for reporting encounters and fee-for-service claims in
the most recent edition of the Medicaid Provider Procedures
Manual or as otherwise directed by TDH. Any exceptions will be
considered on a code-by-code basis after TDH receives written
notice from HMO requesting an exception. HMO must also use the
provider numbers as directed by TDH for both encounter and
fee-for-service claims submissions.

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

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

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

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

(1) Enrollment/Eligibility Subsystem

(2) Provider Subsystem

(3) Encounter/Claims Processing Subsystem

(4) Financial Subsystem

(5) Utilization/Quality Improvement Subsystem

(6) Reporting Subsystem

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(7) Interface Subsystem

(8) TPR Subsystem

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

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

(1) Ability to update and edit data.

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

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

(4) Have procedures and processes for accumulating, archiving,
and restoring data in the event of a system or subsystem
failure.

(5) Maintain automated or manual linkages between and among
all MIS subsystems and interfaces.

(6) Ability to relate Member and provider data with
utilization, service, accounting data, and reporting
functions.

(7) Ability to relate and extract data elements into summary
and reporting formats attached as Appendices to contract.

(8) Must have written process and procedures manuals which
document and describe all manual and automated system
procedures and processes for all the above functions and
features, and the various subsystem components.

(9) Maintain and cross-reference all Member-related
information with the most current Medicaid number.

10.3 ENROLLMENT/ELIGIBILITY SUBSYSTEM
--------------------------------

The Enrollment/Eligibility Subsystem is the central processing
point for the entire MIS. It must be constructed and programmed
to secure all functions which require Membership data. It must
have functions and/or features which support requirements as
follows:

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(1) Identify other health coverage available or third party
liability (TPL), including type of coverage and effective
dates.

(2) Maintain historical data (files) as required by TDH.

(3) Maintain data on enrollments/disenrollments and complaint
activities. The data must include reason or type of
disenrollment, complaint, and resolution--by incident.

(4) Receive, translate, edit and update files in accordance
with TDH requirements prior to inclusion in HMO's MIS.
Updates will be received from TDH's agent and processed
within two working days after receipt.

(5) Provide error reports and a reconciliation process between
new data and data existing in MIS.

(6) Identify enrollee changes in primary care provider and the
reason(s) for those changes and effective dates.

(7) Monitor PCP capacity and limitations prior to connecting
the enrollee to PCP in the system, and provide a kick-out
report when capacity and limitations are exceeded.

(8) Verify enrollee eligibility for medical services rendered
or for other enrollee inquiries.

(9) Generate and track referrals, e.g., Hospitals/Specialists.

(10) Search records by a variety of fields (e.g., name, unique
identification numbers, date of birth, SSN, etc.) for
eligibility verification.

(11) Send PCP assignment updates to TDH in the format as
specified by TDH.

10.4 PROVIDER SUBSYSTEM
------------------

The provider subsystem must accept, process, store and retrieve
current and historical data on providers, including services,
payment methodology, license information, service capacity, and
facility linkages.

Functions and Features:

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(1) Identify specialty(s), admission privileges, enrollee
linkage, capacity, facility linkages, emergency
arrangements or contact, and other limitations,
affiliations, or restrictions.

(2) Maintain provider history files to include audit trails
and effective dates of information.

(3) Maintain provider fee schedules/remuneration agreements to
permit accurate payment for services based on the
financial agreement in effect on the date of service.

(4) Support HMO credentialing, recredentialing, and credential
tracking processes; incorporates or links information to
provider record.

(5) Support monitoring activity for physician to enrollee
ratios (actual to maximum) and total provider enrollment
to physician and HMO capacity.

(6) Flag and identify providers with restrictive conditions
(e.g., limits to capacity, type of patient, age
restrictions, and other services if approved
out-of-network).

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

(8) Provide provider network files 90 days prior to
implementation and updates monthly. Format will be
provided by TDH to contracted entities.

(9) Support the national CLIA certification numbers for
clinical laboratories.

(10) Exclude providers from participation that have been
identified by TDH as ineligible or excluded. Files must be
updated to reflect period and reason for exclusion.

10.5 ENCOUNTER/CLAIMS PROCESSING SUBSYSTEM
-------------------------------------

The encounter/claims processing subsystem must collect, process,
and store data on all health care services delivered for which
HMO is responsible. The functions of these subsystems are
claims/encounter processing and capturing health service
utilization data. The subsystem must capture all health care
services, including medical supplies, using standard codes (e.g.
CPT-4, HCPCS, ICD9-CM UB92 Revenue Codes), rendered by
health-care providers to an eligible enrollee regardless of
payment arrangement (e.g. capitation or fee-for-service). It
approves, prepares for

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payment, or may reject or deny claims submitted. This subsystem
may integrate manual and automated systems to validate and
adjudicate claims and encounters. HMO must use encounter data
validation methodologies prescribed by TDH.

Functions and Features:

(1) Accommodate multiple input methods: electronic submission,
tape, claim document, and media.

(2) Support entry and capture of a minimum of all required
data elements specified in the Encounter Data Submission
Manual.

(3) Edit and audit to ensure allowed services are provided by
eligible providers for Members.

(4) Interface with Member and provider subsystems.

(5) Capture and report TPL potential, reimbursement or denial.

(6) Edit for utilization and service criteria, medical policy,
fee schedules, multiple contracts, contract periods and
conditions.

(7) Submit data to TDH through electronic transmission using
specified formats.

(8) Support multiple fee schedule benefit packages and
capitation rates for all contract periods for individual
providers, groups, services, etc. A claim encounter must
be initially adjudicated and all adjustments must use the
fee applicable to the date of service.

(9) Provide timely, accurate, and complete data for monitoring
claims processing performance.

(10) Provide timely, accurate, and complete data for reporting
medical service utilization.

(11) Maintain and apply prepayment edits to verify accuracy and
validity of claims data for proper adjudication.

(12) Maintain and apply edits and audits to verify timely,
accurate, and complete encounter data reporting.

(13) Submit reimbursement to non-contracted providers for
emergency care rendered to enrollees in a timely and
accurate fashion.

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(14) Validate approval and denials of precertification and
prior authorization requests during adjudication of
claims/encounters.

(15) Track and report the exact date a service was performed.
Use of date ranges must have State approval.

(16) Receive and capture claim and encounter data from TDH.

(17) Receive and capture value-added services codes.

(18) Capability of identifying adjustments and linking them to
the original claims/encounters.

10.6 FINANCIAL SUBSYSTEM
-------------------

The financial subsystem must provide the necessary data for 100%
of all accounting functions including cost accounting, inventory,
fixed assets, payroll, general ledger, accounts receivable,
accounts payable, financial statement presentation, and any
additional data required by TDH. The financial subsystem must
provide management with information that can demonstrate that the
proposed or existing HMO is meeting, exceeding, or failing short
of fiscal goals. The information must also provide management
with the necessary data to spot the early signs of fiscal
distress, far enough in advance to allow management to take
corrective action where appropriate.

Functions and Features:

(1) Provide information on HMO's economic resources, assets,
and liabilities and present accurate historical data and
projections based on historical performance and current
assets and liabilities.

(2) Produce financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) and in the format
prescribed by TDH.

(3) Provide information on potential third party payers;
information specific to the Member; claims made against
third party payers; collection amounts and dates; denials,
and reasons for denials.

(4) Track and report savings by category as a result of cost
avoidance activities.

(5) Track payments per Member made to network providers
compared to utilization of the provider's services.

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(6) Generate Remittance and Status Reports.

(7) Make claim and capitation payments to providers or groups.

(8) Reduce/increase accounts payable/receivable based on
adjustments to claims or recoveries from third party
resources.

10.7 UTILIZATION/QUALITY IMPROVEMENT SUBSYSTEM
-----------------------------------------

The quality management/quality improvement/utilization review
subsystem combines data from other subsystems, and/or external
systems, to produce reports for analysis which focus on the
review and assessment of quality of care given, detection of over
and under utilization, and the development of user defined
reporting criteria and standards. This system profiles
utilization of providers and enrollees and compares them against
experience and norms for comparable individuals. This system also
supports the quality assessment function.

The subsystem tracks utilization control function(s) and
monitoring inpatient admissions, emergency room use, ancillary,
and out-of-area services. It provides provider profiles,
occurrence reporting, and monitoring and evaluation studies. The
subsystem may integrate HMO's manual and automated processes or
incorporate other software reporting and/or analysis programs.

The subsystem incorporates and summarizes information from
enrollee surveys, provider and enrollee complaints, and appeal
processes.

Functions and Features:

(1) Supports provider credentialing and recredentialing
activities.

(2) Supports HMO processes to monitor and identify deviations
in patterns of treatment from established standards or
norms. Provides feedback information for monitoring
progress toward goals, identifying optimal practices, and
promoting continuous improvement.

(3) Supports development of cost and utilization data by
provider and service.

(4) Provides aggregate performance and outcome measures using
standardized quality indicators similar to HEDIS or as
specified by TDH.

(5) Supports quality-of-care Focused Studies.

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(6) Supports the management of referral/utilization control
processes and procedures, including prior authorization
and precertifications and denials of services.

(7) Monitors primary care provider referral patterns.

(8) Supports functions of reviewing access, use and
coordination of services (i.e. actions of Peer Review and
alert/flag for review and/or follow-up; laboratory, x-ray
and other ancillary service utilization per visit).

(9) Stores and reports patient satisfaction data through use
of enrollee surveys.

(10) Provides fraud and abuse detection, monitoring and
reporting.

(11) Meets minimum report/data collection/analysis functions of
Article XI and Appendix A - Standards For Quality
Improvement Programs.

(12) Monitors and tracks provider and enrollee complaints and
appeals from receipt to disposition or resolution by
provider.

10.8 REPORT SUBSYSTEM
----------------

The reporting subsystem supports reporting requirements of all
HMO operations to HMO management and TDH. It allows HMO to
develop various reports to enable HMO management and TDH to make
decisions regarding HMO activity.

Functions and Capabilities:

(1) Produces standard, TDH-required reports and ad hoc reports
from the data available in all MIS subsystems. All reports
will be submitted as a paper copy or electronically in a
format approved by TDH.

(2) Have system flexibility to permit the development of
reports at irregular periods as needed.

(3) Generate reports that provide unduplicated counts of
enrollees, providers, payments and units of service unless
otherwise specified.

(4) Generate an alphabetic Member listing.

(5) Generate a numeric Member listing.

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(6) Generate a Member eligibility listing by PCP (panel
report).

(7) Report on PCP change by reason code.

(8) Report on TPL (COB) information to TDH.

(9) Report on provider capacity and assignment from date of
service to date received.

(10) Generate or produce an aged outstanding liability report.

(11) Produce a Member ID Card.

(12) Produce Member/provider mailing labels.

10.9 DATA INTERFACE SUBSYSTEM
------------------------

10.9.1 The interface subsystem supports incoming and outgoing data from
and to other organizations. It allows HMO to maintain enrollee,
benefit package, eligibility, disenrollment/enrollment status,
and medical services received outside of capitated services and
associated cost. All interfaces must follow the specifications
frequencies and formats listed in the Interface Manual.

10.9.2 HMO must obtain access to the TexMedNet BBS. Some file transfers
and E-mail will be handled through this mechanism.

10.9.3 Provider Network File. The provider file shall supply Network
Provider data between an HMO and TDH. This process shall
accomplish the following:

(1) Provide identifying information for all managed care
providers (e.g. name, address, etc.).

(2) Maintain history on provider enrollment/disenrollment.

(3) Identify PCP capacity.

(4) Identify any restrictions (e.g., age, sex, etc.).

(5) Identify number and types of specialty providers available
to Members.

10.9.4 Eligibility/Enrollment Interface. The enrollment interface must
provide eligibility data between TDH and HMOs.

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(1) Provides benefit package data to HMOs in accordance with
capitated services.

(2) Provides PCP assignments.

(3) Provides Member eligibility status data.

(4) Provides Member demographics data.

(5) Provides HMOs with cross-reference data to identify
duplicate Members.

10.9.5 Encounter/Claim Data Interface. The encounter/claim interface
must transfer paid fee-for-service claims data to HMOs and
capitated services/encounters from HMO, including adjustments.
This file will include all service types, such as inpatient,
outpatient, and medical services. TDH's agent will process claims
for non-capitated services.

10.9.6 Capitation Interface. The capitation interface must transfer
premium and Member information to HMO. This interface's basic
purpose is to balance HMO's Members and premium amount.

10.9.7 TPR Interface. TDH will provide a data file that contains
information on enrollees that have other insurance. Because
Medicaid is the payer of last resort, all services and encounters
should be billed to the other insurance companies for recovery.
TDH will also provide an insurance company data file which
contains the name and address of each insurance company.

10.9.8 TDH will provide a diagnosis file which will give the code and
description of each diagnosis permitted by TDH.

10.9.9 TDH will provide a procedure file which contains the procedures
which must be used on all claims and encounters. This file
contains HCPCS, revenue, and ICD9-CM surgical procedure codes.

10.9.10 TDH will provide a provider file that contains the Medicaid
provider numbers, and the provider's names and addresses. The
provider number authorized by TDH must be submitted on all
claims, encounters, and network provider submissions.

10.10 TPR SUBSYSTEM
-------------

HMO's third party recovery system must have the following
capabilities and capacities:

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(1) Identify, store, and use other health coverage available
to eligible Members or third party liability (TPL)
including type of coverage and effective dates.

(2) Provide changes in information to TDH as specified by TDH.

(3) Receive TPL data from TDH to be used in claim and
encounter processing.

10.11 YEAR 2000 (Y2K) COMPLIANCE
--------------------------

10.11.1 HMO must take all appropriate measures to make all software which
will record, store, and process and present calendar dates
failing on or after January 1, 2000, perform in the same manner
and with the same functionality, data integrity and performance,
as dates falling on or before December 31, 1999, at no added cost
to TDH. HMO must take all appropriate measures to ensure that the
software will not lose, alter or destroy records containing dates
falling on or after January 1, 2000. HMO will ensure that all
software will interface and operate with all TDH, or its agent's,
data systems which exchange data, including but not limited to
historical and archived data. In addition, HMO guarantees that
the year 2000 leap year calculations will be accommodated and
will not result in software, firmware or hardware failures.

10.11.2 TDH and all subcontracted entities are required by state and
federal law to meet Y2K compliance standards. Failure of TDH or a
TDH contractor other than an HMO to meet Y2K compliance standards
which results in an HMO's failure to meet the Y2K requirements of
this contract is a defense of an HMO against a declaration by TDH
of default by an HMO under this contract.

ARTICLE XI QUALITY ASSURANCE AND QUALITY IMPROVEMENT PROGRAM

11.1 QUALITY IMPROVEMENT PROGRAM (QIP) SYSTEM
----------------------------------------

HMO must develop, maintain, and operate a Quality Improvement
Program (QIP) system which complies with federal regulations
relating to Quality Assurance systems, found at 42 C.F.R.
ss.434.34. The system must meet the Standards for Quality
Improvement Programs contained in Appendix A.

11.2 WRITTEN QIP PLAN
----------------

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HM0 must have on file with TDH an approved plan describing its
Quality Improvement Plan (QIP), including how HMO will accomplish
the activities pertaining to each Standard (I-XVI) in Appendix A.
Modifications and amendments must be submitted to TDH no later
than 60 days prior to the implementation of the modification or
amendment.

11.3 QIP SUBCONTRACTING
------------------

If HMO subcontracts any of the essential functions or reporting
requirements of QIP to another entity, HMO must maintain a file
of the subcontractors. The file must be available for review by
TDH or its designee upon request. HMO must notify TDH no later
than 90 days prior to terminating any subcontract affecting a
major performance function of this contract (see Article
3.2.1.2).

11.4 ACCREDITATION

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

If HMO is accredited by an external accrediting agency,
documentation of accreditation must be provided to TDH. HMO must
provide TDH with their accreditation status upon request.

11.5 BEHAVIORAL HEALTH INTEGRATION INTO QIP
--------------------------------------

HMO must integrate behavioral health into its QIP system and
include a systematic and on-going process for monitoring,
evaluating, and improving the quality and appropriateness of
behavioral health care services provided to Members. HMO's QIP
must enable HMO to collect data, monitor and evaluate for
improvements to physical health outcomes resulting from
behavioral health integration into the overall care of the
Member.

11.6 QIP REPORTING REQUIREMENTS
--------------------------

HMO must meet all of the QIP Reporting Requirements contained in
Article XII.

ARTICLE XII REPORTING REQUIREMENTS

12.1 FINANCIAL REPORTS
-----------------

12.1.1 Monthly MCFS Report. HMO must submit the Managed Care
Financial-Statistical Report (MCFS) included in Appendix I. The
report must be submitted to TDH no later than 30 days after the
end of each state fiscal year quarter (i.e., Dec. 30, March

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30, June 30, Sept. 30) and must include complete financial and
statistical information for each month. The MCFS Report must be
submitted for each claims processing subcontractor in accordance
with this Article. HMO must incorporate financial and statistical
data received by its delegated networks (IPAs, ANHCs, Limited
Provider Networks) in its MCFS Report.

12.1.2 For any given month in which an HMO has a net loss of $200,000 or
more for the contract period to date, HMO must submit an MCFS
Report for that month by the 30th day after the end of the
reporting month. The MCFS Report must be completed in accordance
with the Instructions for Completion of the Managed Care
Financial-Statistical Report developed by TDH.

12.1.3 An HMO must submit monthly reports for each of the first 6 months
following the Implementation Date. If the cumulative net loss for
the contract period to date after the 6th month is less than
$200,000, HMO may submit quarterly reports in accordance with the
above provisions unless the condition in Article 12.1.2 exists,
in which case monthly reports must be submitted.

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
Financial- Statistical Reports. The first final report must
reflect expenses incurred through the 90th day after the end of
the contract year. The first final report must be filed on or
before the 120th day after the end of the contract year. The
second final report must reflect data completed through the 334th
day after the end of the contract year and must be filed on or
before the 365th day following the end of the contract year.

12.1.5 Administrative expenses reported in the monthly and Final MCFS
Reports must be reported in accordance with Appendix L, Cost
Principles for Administrative Expenses. Indirect administrative
expenses must be based on an allocation methodology for Medicaid
managed care activities and services that is developed or
approved by TDH.

12.1.6 Affiliate Report. HMO must submit an Affiliate Report to TDH if
this information has changed since the last report was submitted.
The report must contain the following information:

12.1.6.1 A listing of all Affiliates; and

12.1.6.2 A schedule of all transactions with Affiliates which, under the
provisions of this Contract, will be allowable as expenses in
either Line 4 or Line 5 of Part 1 of the MCFS Report for services
provided to HMO by the Affiliates for the prior approval of TDH.
Include financial terms, a detailed description of the services
to be provided,

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and an estimated amount which will be incurred by HMO for such
services during the Contract period.

12.1.7 Annual Audited Financial Report. On or before June 30th of each
year, HMO must submit to TDH a copy of the annual audited
financial report filed with TDI.

12.1.8 Form HCFA-1513. HMO must file an updated Form HCFA-1513 regarding
control, ownership, or affiliation of HMO 30 days prior to the
end of the contract year. An updated Form HCFA 1513 must also be
filed no later than 30 days after any change in control,
ownership, or affiliation of HMO. Forms may be obtained from TDH.

12.1.9 Section 1318 Financial Disclosure Report. HMO must file an
updated HCFA Public Health Service (PHS) "Section 1318 Financial
Disclosure Report" no later than 30 days after the end of the
contract year and no later than 30 days after entering into,
renewing, or terminating a relationship with an affiliated party.
These forms may be obtained from TDH.

12.1.10 TDI Examination Repo Report. HMO must furnish a copy of any TDI
Examination Report no later than 10 days after receipt of the
final report from TDI.

12.1.11 IBNR Plan. HMO must furnish a written IBNR Plan to manage
incurred-but-not-reported (IBNR) expenses, and a description of
the method of insuring against insolvency, including information
on all existing or proposed insurance policies. The Plan must
include the methodology for estimating IBNR. The plan and
description must be submitted to TDH no later than 60 days after
the effective date of this contract, unless previously submitted
to TDH. Changes to the IBNR plan and description must be
submitted to TDH no later than 30 days before changes to the plan
are implemented by HMO.

12.1.12 Third Party Recovery (TPR) Reports. HMO must file quarterly Third
Party Recovery (TPR) Reports in accordance with the format
developed by TDH. TPR reports must include total dollars
recovered from third party payers for services to HMO's Members
for each month and the total dollars recovered through
coordination of benefits, subrogation, and worker's compensation.

12.1.13 Each report required under this Article must be mailed to: Bureau
of Managed Care; Texas Dept. of Health; 1100 West 49th Street;
Austin, TX 78756-3168 (Exception: The MCFS Report may be
submitted to TDH via E-mail). HMO must also mail a copy of the
reports, except for items in Article 12.1.7 and Article 12.1.10
to Texas Department of Insurance, Mail Code 106-3A, HMO Division,
Attention: HMO Division Director, P.O. Box 149104, Austin, TX
78714-9104.

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12.2 STATISTICAL REPORTS
-------------------

12.2.1 HMO must electronically file the following monthly reports: (1)
encounter; (2) encounter detail; (3) institutional; (4)
institutional detail; and (5) claims detail for cost-reimbursed
services filed, if any, with HMO. Encounter data must include the
data elements, follow the format, and use the transmission method
specified by TDH in the Encounter Data Submission Manual.
Encounters must be submitted by HMO to TDH no later than 45 days
after the date of adjudication (finalization) of the claims.

12.2.2 Monthly reports must include current month encounter data and
encounter data adjustments to the previous month's data.

12.2.3 Data quality standards will be developed jointly by HMO and TDH.
Encounter data must meet or exceed data quality standards. Data
that does not meet quality standards must be corrected and
returned within the period specified by TDH. Original records
must be made available to validate all encounter data.

12.2.4 HMO must require providers to submit claims and encounter data to
HMO no later than 95 days after the date services are provided.

12.2.5 HMO must use the procedure codes, diagnosis codes and other codes
contained in the most recent edition of the Texas Medicaid
Provider Procedures Manual and as otherwise provided by TDH.
Exceptions or additional codes must be submitted for approval
before HMO uses the codes.

12.2.6 HMO must use its TDH-specified identification numbers on all
encounter data submissions. Please refer to the TDH Encounter
Data Submission Manual for further specifications.

12.2.7 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission of
encounter data to TDH.

12.2.8 All Claims Summary Report. HMO must submit the "All Claims
Summary Report" identified in the Texas Managed Care Claims
Manual as a contract year-to-date report. The report must be
submitted quarterly by the last day of the month following the
reporting period. The reports must be submitted to TDH in a
format specified by TDH.

12.2.9 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
file preliminary and final Medicaid Disproportionate Share
Hospital (DSH) reports, required by TDH to identify and reimburse
hospitals that qualify for Medicaid DSH funds. The preliminary
and final DSH reports must include the data elements and be

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submitted in the form and format specified by TDH. The
preliminary DSH reports are due on or before June 1 of the year
following the state fiscal year for which data is being reported.
The final DSH reports are due on or before August 15 of the year
following the state fiscal year for which data is being reported.

12.3 ARBITRATION/LITIGATION CLAIMS REPORT
------------------------------------

HMO must submit an Arbitration/Litigation Claims Report in a
format provided by TDH (see Appendix M) identifying all provider
or HMO requests for arbitration or matters in litigation. The
report must be submitted within 30 days from the date the matter
is referred to arbitration or suit is filed, or whenever there is
a change of status in a matter referred to arbitration or
litigation.

12.4 SUMMARY REPORT OF PROVIDER COMPLAINTS
-------------------------------------

HMO must submit a Summary Report of Provider Complaints. HMO must
also report complaints submitted to its subcontracted risk groups
(e.g., IPAs). The complaint report must be submitted in two paper
copies and one electronic copy on or before the 45 days following
the end of the state fiscal quarter using a form specified by
TDH.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.1 Provider Network Report. HMO must submit to the Enrollment Broker
an electronic file summarizing changes in HMO's provider network
including PCPs, specialists, ancillary providers and hospitals.
The file must indicate if the PCPs and specialists participate in
a closed network and the name of the delegated network. The
electronic file must be submitted in the format specified by TDH
and can be submitted as often as daily but must be submitted at
least weekly.

12.5.2 Provider Termination Report. HMO must submit a monthly report
which identifies any providers who cease to participate in HMO's
provider network, either voluntarily or involuntarily. The report
must be submitted to TDH in the format specified by TDH. HMO will
submit the report no later than thirty (30) days after the end of
the reporting month. The information must include the provider's
name, Medicaid number, the reason for the provider's termination,
and whether the termination was voluntary or involuntary.

12.6 MEMBER COMPLAINTS
-----------------

HMO must submit a quarterly summary report of Member complaints.
HMO must also report complaints submitted to its subcontracted
risk groups (e.g., IPAs). The

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complaint report format must be submitted to TDH as two paper
copies and one electronic copy on or before 45 days following the
end of the state fiscal quarter using a form specified by TDH.

12.7 FRAUDULENT PRACTICES
--------------------

HMO must report all fraud and abuse enforcement actions or
investigations taken against HMO and/or any of its subcontractors
or providers by any state or federal agency for fraud or abuse
under Title XVIII or Title XIX of the Social Security Act or any
State law or regulation and any basis upon which an action for
fraud or abuse may be brought by a State or federal agency as
soon as such information comes to the attention of HMO.

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Behavioral health (BH) utilization management reports are
required on a semi-annual basis with submission of data files
that are, at a minimum, due to TDH or its designee, on a
quarterly basis no later than 150 days following the end of the
period. Refer to Appendix H for the standardized reporting format
for each report and detailed instructions for obtaining the
specific data required in the report and for data file submission
specifications. The BH utilization report and data file
submission instructions may periodically be updated by TDH to
facilitate clear communication to the health plan.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are required
on a semi-annual basis with submission of data files that are, at
a minimum, due to TDH or its designee on a quarterly basis no
later than 150 days following the end of the period. Refer to
Appendix J for the standardized reporting format for each report
and detailed instructions for obtaining specific data required in
the report and for data file submission specifications. The PH
Utilization Management Report and data file submission
instructions may periodically be updated by TDH to facilitate
clear communication to the health plan.

12.10 QUALITY IMPROVEMENT REPORTS
---------------------------

12.10.1 HMO must conduct health Focused Studies in well child and
pregnancy, and a study chosen by HMO that may be performed in the
areas of behavioral health care, asthma, or other chronic
conditions. Well child and pregnancy studies shall be conducted
and data collected using criteria and methods developed by TDH.
The following format shall be utilized:

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(1) Executive Summary.

(2) Definition of the population and health areas of concern.

(3) Clinical guidelines/standards, quality indicators, and
audit tools.

(4) Sources of information and data collection methodology.

(5) Data analysis and information/results.

(6) Corrective actions if any, implementation, and follow-up
plans including monitoring, assessment of effectiveness,
and methods for provider feedback.

12.10.2 Annual Focused Studies. Focused Studies on well child, pregnancy,
and a study chosen by the plan, must be submitted to TDH
according to due dates established by TDH.

12.10.3 Annual QIP Summary Report. An annual QIP summary report must be
conducted yearly based on the state fiscal year. The annual QIP
summary report must be submitted by March 31 of each year. This
report must provide summary information on HMO's QIP system and
include the following:

(1) Executive summary of QIP - include results of all QI
reports and interventions.

(2) Activities pertaining to each standard (I through XVI) in
Appendix A. Report must list each standard.

(3) Methodologies for collecting, assessing data and measuring
outcomes.

(4) Tracking and monitoring quality of care.

(5) Role of health professionals in QIP review.

(6) Methodology for collection data and providing feedback to
provider and staff.

(7) Outcomes and/or action plan.

12.10.4 Provider Medical Record Audit and Report. HMO is required to
conform to commonly accepted medical record standards such as
those used by, NCQA, JCAHO, or those used for credentialing
review such as the Texas Environment of Care Assessment Program
(TECAP), and have documentation on file at HMO for review by TDH
or its designee during an on-site review.

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12.11 HUB REPORTS
-----------

HMO must submit quarterly reports documenting HMO's HUB program
efforts and accomplishments. The report must include a narrative
description of HMO's program efforts and a financial report
reflecting payments made to HUB. HMO must use the format included
in Appendix B for HUB quarterly reports. For HUB Certified
Entities: HMO must include the General Service Commission (GSC)
Vendor Number and the ethnicity/gender under which a contracting
entity is registered with GSC. For HUB Qualified (but not
certified) Entities: HMO must include the ethnicity/gender of the
major owner(s) (51%) of the entity. Any entities for which HMO
cannot provide this information, cannot be included in the HUB
report. For both types of entities, an entity will not be
included in the HUB report if HMO does not list ethnicity/gender
information.

12.12 THSTEPS REPORTS
---------------

Minimum reporting requirements. HMO must submit, at a minimum,
80% of all THSteps checkups on HCFA 1500 claim forms as part of
the encounter file submission to the TDH Claims Administrator no
later than thirty (30) days after the date of final adjudication
(finalization) of the claims. Failure to comply with these
minimum reporting requirements will result in Article XVIII
sanctions and money damages.

ARTICLE XIII PAYMENT PROVISIONS

13.1 CAPITATION AMOUNTS
------------------

13.1.1 TDH will pay HMO monthly premiums calculated by multiplying the
number of Member months by Member risk group times the monthly
capitation amount by Member risk group. HMO and network providers
are prohibited from billing or collecting any amount from a
Member for health care services covered by this contract, in
which case the Member must be informed of such costs prior to
providing non-covered services.

13.1.2 Delivery Supplemental Payment (DSP). TDH has submitted the
delivery supplemental payment methodology to HCFA for approval.
The monthly capitation amounts established for each risk group in
the Bexar Service Area using the DSP methodology will apply only
if the methodology is approved by HCFA, and the methodology is
implemented for all HMO's in all existing service areas by

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contract. The monthly capitation amounts for September 1, 1999,
through August 31, 2000 and the DSP amount are listed below and
will supersede the standard Methodology of Article 13.1.3 upon
approval by HCFA.

-----------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000

-----------------------------------------------------------------
TANF Adults $153.73
-----------------------------------------------------------------
TANF Children > 12 Months $ 49.87
of Age
-----------------------------------------------------------------
Expansion Children > 12 $ 59.18
Months of Age
-----------------------------------------------------------------
Newborns (< 12 Months of $375.31
Age)
-----------------------------------------------------------------
TANF Children < 12 Months $375.31
of Age
-----------------------------------------------------------------
Expansion Children < 12 $375.31
Months of Age
-----------------------------------------------------------------
Federal Mandate Children $ 42.25
-----------------------------------------------------------------
CHIP Phase I $ 76.34
-----------------------------------------------------------------
Pregnant Women $241.86
-----------------------------------------------------------------
Disabled/Blind Administration $ 14.00
-----------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,834.10.

13.1.2.1 HMO will receive a DSP for each live or still birth. The one-time
payment is made regardless of whether there is a single or
multiple births at time of delivery. A delivery is the birth of a
liveborn infant, regardless of the duration of the pregnancy, or
a stillborn (fetal death) infant of 20 weeks or more gestation. A
delivery does not

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include a spontaneous or induced abortion, regardless of the
duration pregnancy.

13.1.2.2 For an HMO Member who is classified in the Pregnant Women, TANF
Adults, TANF Children >12 months, Expansion Children >12 months,
Federal Mandate Children >12 months, or CHIP risk group, HMO will
be paid the monthly capitation amount identified in Article
13.1.2 for each month of classification, plus the DSP amount
identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes the
data elements specified by TDH. TDH will consult with contracted
HMOs prior to revising the report data elements and requirements.
The reports must be submitted to TDH in the format and time
specified by TDH. The report must include only unduplicated
deliveries. The report must include only deliveries for which HMO
has made a payment for the delivery, to either a hospital or
other provider. No DSP will be made for deliveries which are not
reported by HMO to TDH within 90 days from the receipt of claim,
or within 30 days from the date of discharge from the hospital
for the stay related to the delivery, whichever is later.

13.1.2.4 HMO must maintain complete claims and adjudication disposition
documentation, including paid and denied amounts for each
delivery. HMO must submit the documentation to TDH within five
(5) days from the date of a TDH request for documents.

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

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

13.1.3 Standard Methodology. If the DSP methodology is not approved by
HCFA, the monthly capitation amounts established for each risk
group in the Bexar Service Area using the Methodology set forth
in Article 13.1.1, without the DSP, are as follows:

-----------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000

-----------------------------------------------------------------
TANF Adults $171.50
-----------------------------------------------------------------
TANF Children $ 60.71
-----------------------------------------------------------------

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-----------------------------------------------------------------
Expansion Children $ 67.32
-----------------------------------------------------------------
Newborns $415.11
-----------------------------------------------------------------
Federal Mandate Children $ 42.39
-----------------------------------------------------------------
CHIP Phase 1 $ 77.81
-----------------------------------------------------------------
Pregnant Women $592.89
-----------------------------------------------------------------
Disabled/Blind Administration $ 14.00
-----------------------------------------------------------------

13.1.4 TDH will re-examine the capitation rates paid to HMO under this
contract during the first year of the contract period and will
provide HMO with capitation rates for the second year of the
contract period no later than 30 days before the date of the
one-year anniversary of the contract's effective date. Capitation
rates for state fiscal year 2001 will be re-examined based on the
most recent available traditional Medicaid cost data for the
contracted risk groups in the service area, trended forward and
discounted.

13.1.4.1 Once HMO has received their capitation rates established by TDH
for the second year of this contract, HMO may terminate this
contract as provided in Article 18.1.6 of this contract. HMO may
also terminate this contract as provided in Article 18.1.6 if
HCFA does not approve the Delivery Supplemental Payment
Methodology described in Article 13.1.2.

13.1.5 The monthly premium payment to HMO is based on monthly
enrollments adjusted to reflect money damages set out in Article
18.8 and adjustments to premiums in Article 13.4

13.1.6 The monthly premium payments will be made to HMO no later than
the 10th working day of the month for which premiums are paid.
HMO must accept payment for premiums by direct deposit into an
HMO account.

13.1.7 Payment of monthly capitation amounts is subject to availability
of appropriations. If appropriations are not available to pay the
full monthly capitation amounts, TDH will equitably adjust
capitation amounts for all participating HMOs, and reduce scope
of service requirements as appropriate.

13.1.8 HMO renewal rates reflect program increases appropriated by the
76th legislature for physician (to include THSteps providers) and
outpatient facility services. HMO must report to TDH any change
in rates for participating physicians (to include THSteps
providers) and outpatient facilities resulting from this
increase. The report must be

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submitted to TDH at the end of the first quarter of the FY2000
and FY2001 contract years according to the deliverables matrix
schedule set for HMO.

13.2 EXPERIENCE REBATE TO STATE
--------------------------

13.1.2 Delivery Supplemental Payment (DSP). TDH has submitted the
delivery supplemental payment methodology to HCFA for approval.
The monthly capitation amounts established for each risk group in
the Travis Service Area using the DSP methodology will apply only
if the methodology is approved by HCFA, and the methodology is
implemented for all HMO's in all existing service areas by
contract. The monthly capitation amounts for September 1, 1999,
through August 31, 2000 and the DSP amount are listed below and
will supersede the standard Methodology of Article 13.1.3 upon
approval by HCFA.

13.2.1 For fiscal year 2000, HMO must pay to TDH the State's portion of
an experience rebate calculated in accordance with the tiered
rebate method listed below based on the excess of allowable HMO
STAR revenues over allowable HMO STAR expenses as measured by any
positive amount on Line 7 of "Part 1: Financial Summary, All
Coverage Groups Combined" of the annual Managed Care
Financial-Statistical Report set forth in Appendix I, as reviewed
and confirmed by TDH. TDH reserves the right to have an
independent audit performed to verify the information provided by
HMO.



---------------------------------------------------------------------
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
- -
---------------------------------------------------------------------
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.

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13.2.2.1 Carry Forward of Loss from one Service Delivery Area to Another:
If HMO operates in multiple Service Delivery Areas (SDAs), losses
in one SDA cannot be used to offset net income before taxes in
another SDA.

13.2.3 Experience rebate will be based on a pre-tax basis.

13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates: HMO
may subtract from an experience rebate owed to the State,
expenses for population-based health initiatives that have been
approved by TDH. A population-based initiative (PBI) is a project
or program designed to improve some aspect of quality of care,
quality of life, or health care knowledge for the community as a
whole. Value-added service does not constitute a PBI.
Contractually required services and activities do not constitute
a PBI.

13.2.5 There will be two settlements for payment(s) of the state share
of the experience rebate. The first settlement shall equal 100
percent of the state share of the experience rebate as derived
from Line 7 of Part 1 (Net Income Before Taxes) of the annual
Managed Care Financial Statistical (MCFS) Report and shall be
paid on the same day the first annual MCFS Report is submitted to
TDH. The second settlement shall be an adjustment to the first
settlement and shall be paid to TDH on the same day that the
second annual MCFS Report is submitted to TDH if the adjustment
is a payment from HMO to TDH. TDH or its agent may audit or
review the MCFS reports. If TDH determines that corrections to
the MCFS reports are required, based on a TDH audit/review or
other documentation acceptable to TDH, to determine an adjustment
to the amount of the second settlement, then final adjustment
shall be made within two years from the date that HMO submits the
second annual MCFS report. HMO must pay the first and second
settlements on the due dates for the first and second MCFS
reports respectively as identified in Article 12.1.5. TDH may
adjust the experience rebate if TDH determines HMO has paid
affiliates amounts for goods or services that are higher than the
fair market value of the goods and services in the service area.
Fair market value may be based on the amount HMO pays a
non-affiliate(s) or the amount another HMO pays for the same or
similar service in the service area. TDH has final authority in
auditing and determining the amount of the experience rebate.

13.3 PERFORMANCE OBJECTIVES
----------------------

13.3.1 Preventive Health Performance Objectives are contained in this
contract at Appendix K. These reports are submitted annually and
must be submitted no later than 150 days after the end of the
State fiscal year.

13.4 ADJUSTMENTS TO PREMIUM
----------------------

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13.4.1 TDH may recoup premiums paid to HMO in error. Error may be either
human or machine error on the part of TDH or an agent or
contractor of TDH. TDH may recoup premiums paid to HMO if a
Member is enrolled into HMO in error, and HMO provided no covered
services to Member for the period of time for which premium was
paid. If services were provided to Member as a result of the
error, recoupment will not be made.

13.4.2 TDH may recoup premium paid to HMO if a Member for whom premium
is paid moves outside the United States, and HMO has not provided
covered services to the Member for the period of time for which
premium has been paid. TDH will not recoup premium if HMO has
provided covered services to the Member during the period of time
for which premium has been paid.

13.4.3 TDH may recoup premium paid to HMO if a Member for whom premium
is paid dies before the first day of the month for which premium
is paid.

13.4.4 TDH may recoup or adjust premium paid to HMO for a Member if the
Member's eligibility status or program type is changed, corrected
as a result of error, or is retroactively adjusted.

13.4.5 Recoupment or adjustment of premium under Articles 13.4.1 through
13.4.4 may be appealed using the TDH dispute resolution process.

13.4.6 TDH may adjust premiums for all Members within an eligibility
status or program type if adjustment is required by reductions in
appropriations and/or if a benefit or category of benefits is
excluded or included as a covered service. Adjustment must be
made by amendment as required by Article 15.2. Adjustment to
premium under this subsection may not be appealed using the TDH
dispute resolution process.

ARTICLE XIV ELIGIBILITY, ENROLLMENT, AND DISENROLLMENT

14.1 ELIGIBILITY DETERMINATION
-------------------------

14.1.1 TDH will identify Medicaid recipients who are eligible for
participation in the STAR program using the eligibility status
described below.

14.1.2 Individuals in the following categories who reside in any part of
the Service Area must enroll in one of the health plans providing
services in the Service Areas:

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14.1.2.1 TANF ADULTS - Individuals age 21 and over who are eligible for
the TANF program. This category may also include some pregnant
women.

14.1.2.2 TANF CHILDREN - Individuals under age 21 who are eligible for the
TANF program. This category may also include some pregnant women
and some children less than one year of age.

14.1.2.3 PREGNANT WOMEN receiving Medical Assistance Only (MAO) - Pregnant
women whose families' income is below 185% of the Federal Poverty
Level (FPL).

14.1.2.4 NEWBORN (MAO) - Children under age one born to Medicaid-eligible
mothers.

14.1.2.5 EXPANSION CHILDREN (MAO) - Children under age 18, ineligible for
TANF because of the applied income of their stepparents or
grandparents.

14.1.2.6 EXPANSION CHILDREN (MAO) - Children under age 1 whose families'
income is below 185% FPL.

14.1.2.7 EXPANSION CHILDREN MAO - Children age 1- 5 whose families' income
is at or below 133% of FPL.

14.1.2.8 FEDERAL MANDATE CHILDREN (MAO) - Children under age 19 born
before October 10, 1983, whose families' income is below the TANF
income limit.

14.1.2.9 CHIP PHASE I - Children's Health Insurance Program Phase I
(Federal Mandate Acceleration) Children under age nineteen (19)
born before October 1, 1983, with family income below 100%
Federal Poverty Income Level.

14.1.3 The following individuals are eligible for the STAR Program and
are not required to enroll in a health plan but have the option
to enroll in a plan. HMO will be required to accept enrollment of
those Medicaid recipients from this group who elect to enroll in
HMO.

14.1.3.1 DISABLED AND BLIND INDIVIDUALS WITHOUT MEDICARE - Recipients with
Supplemental Security Income (SSI) benefits who are not eligible
for Medicare may elect to participate in the STAR program on a
voluntary basis.

14.1.3.2 Certain blind or disabled individuals who lose SSI eligibility
because of Title II income and who are not eligible for Medicare.

14.1.4 During the period after which the Medicaid eligibility
determination has been made but prior to enrollment in HMO,
Members will be enrolled under the traditional

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Medicaid program. All Medicaid-eligible recipients will remain in
the fee-for-service Medicaid program until enrolled in or
assigned to an HMO.

14.2 ENROLLMENT

----------

14.2.1 TDH has the right and responsibility to enroll and disenroll
eligible individuals into the STAR program. TDH will conduct
continuous open enrollment for Medicaid recipients and HMO must
accept all persons who chose to enroll as Members in HMO or who
are assigned as Members in HMO by TDH, without regard to the
Member's health status or any other factor.

14.2.2 All enrollments are subject to the accessibility and availability
limitations and restrictions contained in the ss.1915(b) waiver
obtained by TDH. TDH has the authority to limit enrollment into
HMO if the number and distance limitations are exceeded.

14.2.3 TDH makes no guarantees or representations to HMO regarding the
number of eligible Medicaid recipients who will ultimately be
enrolled as STAR Members of HMO.

14.2.4 HMO must cooperate and participate in all TDH sponsored and
announced enrollment activities. HMO must have a representative
at all TDH enrollment activities unless an exception is given by
TDH. The representative must comply with HMO's cultural and
linguistic competency plan (see Cultural and Linguistic
requirements in Article 8.9). HMO must provide marketing
materials, HMO pamphlets, Member Handbooks, a list of network
providers, HMO's linguistic and cultural capabilities and other
information requested or required by TDH or its Enrollment Broker
to assist potential Members in making informed choices.

14.2.5 TDH will provide HMO with at least 10 days written notice of all
TDH planned activities. Failure to participate in, or send a
representative to a TDH sponsored enrollment activity is a
default of the terms of the contract. Default may be excused if
HMO can show that TDH failed to provide the required notice, or
if HMO's absence is excused by TDH.

14.3 DISENROLLMENT

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

14.3.1 HMO has a limited right to request a Member be disenrolled from
HMO without the Member's consent. TDH must approve any HMO
request for disenrollment of a Member for cause. Disenrollment of
a Member may be permitted under the following circumstances:

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14.3.1.1 Member misuses or loans Member's HMO membership card to another
person to obtain services.

14.3.1.2 Member is disruptive, unruly, threatening or uncooperative to the
extent that Member's membership seriously impairs HMO's or
provider's ability to provide services to Member or to obtain new
Members, and Member's behavior is not caused by a physical or
behavioral health condition.

14.3.1.3 Member steadfastly refuses to comply with managed care
restrictions (e.g., repeatedly using emergency room in
combination with refusing to allow HMO to treat the underlying
medical condition).

14.3.2 HMO must take reasonable measures to correct Member behavior
prior to requesting disenrollment. Reasonable measures may
include providing education and counseling regarding the
offensive acts or behaviors.

14.3.3 HMO must notify the Member of HMO's decision to disenroll the
Member if all reasonable measures have failed to remedy the
problem.

14.3.4 If the Member disagrees with the decision to disenroll the Member
from HMO, HMO must notify the Member of the availability of the
complaint procedure and TDH's Fair Hearing process.

14.3.5 HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE
MEDICALLY NECESSARY FOR TREATMENT OF A MEMBER'S CONDITION.

14.4 AUTOMATIC RE-ENROLLMENT
-----------------------

14.4.1 Members who are disenrolled because they are temporarily
ineligible for Medicaid will be automatically re-enrolled into
the same health plan. Temporary loss of eligibility is defined as
a period of 6 months or less.

14.4.2 HMO must inform its Members of the automatic re-enrollment
procedure. Automatic re-enrollment must be included in the Member
Handbook (see Article 8.2.1).

14.5 ENROLLMENT REPORTS
------------------

14.5.1 TDH will provide HMO enrollment reports listing all STAR Members
who have enrolled in or were assigned to HMO during the initial
enrollment period.

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14.5.2 TDH will provide monthly HMO Enrollment Reports to HMO on or
before the first of the month.

14.5.3 TDH will provide Member verification to HMO and network providers
through telephone verification or TexMedNet.

ARTICLE XV GENERAL PROVISIONS

15.1 INDEPENDENT CONTRACTOR
----------------------

HMO, its agents, employees, network providers, and subcontractors
are independent contractors and do not perform services under
this contract as employees or agents of TDH. HMO is given
express, limited authority to exercise the State's right of
recovery as provided in Article 4.9.

15.2 AMENDMENT

---------

15.2.1 This contract must be amended by TDH if amendment is required to
comply with changes in state or federal laws, rules, or
regulations.

15.2.2 TDH and HMO may amend this contract if reductions in funding or
appropriations make full performance by either party
impracticable or impossible, and amendment could provide a
reasonable alternative to termination. If HMO does not agree to
the amendment, contract may be terminated under Article XVIII.

15.2.3 This contract must be amended if either party discovers a
material omission of a negotiated or required term, which is
essential to the successful performance or maintaining compliance
with the terms of the contract. The party discovering the
omission must notify the other party of the omission in writing
as soon as possible after discovery. If there is a disagreement
regarding whether the omission was intended to be a term of the
contract, the parties must submit the dispute to dispute
resolution under Article 15.9.

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

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

15.2.6 No agreement shall be used to amend this contract unless it is
made a part of this contract by specific reference, and is
numbered sequentially by order of its adoption.

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15.3 LAW, JURISDICTION AND VENUE
---------------------------

Venue and jurisdiction shall be in the state and federal district
courts of Travis County, Texas. The laws of the State of Texas
shall be applied in all matters of state law.

15.4 NON-WAIVER
----------

Failure to enforce any provision or breach shall not be taken by
either party as a waiver of the right to enforce the provision or
breach in the future.

15.5 SEVERABILITY

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

Any part of this contract which is found to be unenforceable,
invalid, void, or illegal shall be severed from the contract. The
remainder of the contract shall be effective.

15.6 ASSIGNMENT

----------

This contract was awarded to HMO based on HMO's qualifications to
perform personal and professional services. HMO cannot assign
this contract without the written consent of TDI and TDH. This
provision does not prevent HMO from subcontracting duties and
responsibilities to qualified subcontractors. If TDI and TDH
consent to an assignment of this contract, a transition period of
90 days will run from the date the assignment is approved by TDI
and TDH so that Members' services are not interrupted and, if
necessary, the notice provided for in Article 15.7 can be sent to
Members. The assigning HMO must also submit a transition plan, as
set out in Article 18.2.1, subject to TDH's approval.

15.7 MAJOR CHANGE IN CONTRACTING
---------------------------

TDH may send notice to Members when a major change affecting HMO
occurs. A "major change" includes, but is not limited to, a
substantial change of subcontractors and assignment of this
contract. The notice letter to Members may permit the Members to
re-select their plan and PCP. TDH will bear the cost of preparing
and sending the notice letter in the event of an approved
assignment of the contract. For any other major change in
contracting, HMO will prepare the notice letter and submit it to
TDH for review and approval. After TDH has approved the letter
for distribution to Members, HMO will bear the cost of sending
the notice letter.

15.8 NON-EXCLUSIVE
-------------

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This contract is a non-exclusive agreement. Either party may
contract with other entities for similar services in the same
service area.

15.9 DISPUTE RESOLUTION
------------------

The dispute resolution process adopted by TDH in accordance with
Chapter 2260, Texas Government Code, will be used to attempt to
resolve all disputes arising under this contract. All disputes
arising under this contract shall be resolved through TDH's
dispute resolution procedures, except where a remedy is provided
for through TDH's administrative rules or processes. All
administrative remedies must be exhausted prior to other methods
of dispute resolution. TDH will assist HMO in resolution of a
conflict of law or interpretation of law between or among state
agencies with authority to regulate and enforce this contract.

15.10 DOCUMENTS CONSTITUTING CONTRACT
-------------------------------

This contract includes this document and all amendments and
appendices to this document, the Request for Application, the
Application submitted in response to the Request for Application,
the Texas Medicaid Provider Procedures Manual and Texas Medicaid
Bulletins addressed to HMOs, contract interpretation memoranda
issued by TDH for this contract, and the federal waiver granting
TDH authority to contract with HMO. If any conflict in provisions
between these documents occurs, the terms of this contract and
any amendments shall prevail. The documents listed above
constitute the entire contract between the parties.

15.11 FORCE MAJEURE
-------------

TDH and HMO are excused from performing the duties and
obligations under this contract for any period that they are
prevented from performing their services as a result of a
catastrophic occurrence, or natural disaster, clearly beyond the
control of either party, including but not limited to an act of
war, but excluding labor disputes.

15.12 NOTICES

-------

Notice may be given by any means which provides for verification
of receipt. All notices to TDH shall be addressed to Bureau
Chief, Texas Department of Health, Bureau of Managed Care, 1100
W. 49th Street, Austin, TX 78756-3168, with a copy to the
Contract Administrator. Notices to HMO shall be addressed to
President/CEO, Michael A. Seltzer, Vice President, West Region,
8431 Fredericksburg Road, San Antonio, Texas, 78229; AND Medicaid
Director, Cheryl Dietz, 8303 Mopac, Suite 450-C, Austin, Texas
78759

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15.13 SURVIVAL

--------

The provisions of this contract which relate to the obligations
of HMO to maintain records and reports shall survive the
expiration or earlier termination of this contract for a period
not to exceed six (6) years unless another period may be required
by record retention policies of the State of Texas or HCFA.

ARTICLE XVI DEFAULT AND REMEDIES

16.1 DEFAULT BY TDH
--------------

16.1.1 FAILURE TO MAKE CAPITATION PAYMENTS
-----------------------------------

Failure by TDH to make capitation payments when due is a default
under this contract.

16.1.2 FAILURE TO PERFORM DUTIES AND RESPONSIBILITIES
----------------------------------------------

Failure by TDH to perform a material duty or responsibility as
set out in this contract is a default under this contract.

16.2 REMEDIES AVAILABLE TO HMO FOR TDH'S DEFAULT
-------------------------------------------

HMO may terminate this contract as set out in Article 18.1.5 of
this contract if TDH commits either of the events of default set
out in Article 16.1.

16.3 DEFAULT BY HMO
--------------

16.3.1 FAILURE TO PERFORM AN ADMINISTRATIVE FUNCTION
---------------------------------------------

Failure of HMO to perform an administrative function is a default
under this contract. Administrative functions are any
requirements under this contract that are not direct delivery of
health care services, including claims payment; encounter data
submission; filing any report when due; cooperating in good faith
with TDH, an entity acting on behalf of TDH, or an agency
authorized by statute or law to require the cooperation of HMO in
carrying out an administrative, investigative, or prosecutorial
function of the Medicaid program; providing or producing records
upon request; or entering into contracts or implementing
procedures necessary to carry out contract obligations.

16.3.1.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

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All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to perform an administrative function under
this contract, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess liquidated money damages as set out in
Article 18.4; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.2 ADVERSE ACTION AGAINST HMO BY TDI
---------------------------------

Termination or suspension of HMO's TDI Certificate of Authority
or any adverse action taken by TDI that TDH determines will
affect the ability of HMO to provide health care services to
Members is a default under this contract.

16.3.2.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For an adverse action against HMO by TDI, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.3 INSOLVENCY

----------

Failure of HMO to comply with state and federal solvency
standards or incapacity of HMO to meet its financial obligations
as they come due is a default under this contract.

16.3.3.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

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All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's insolvency, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.4 FAILURE TO COMPLY WITH FEDERAL LAWS AND REGULATIONS
---------------------------------------------------

Failure of HMO to comply with the federal requirements for
Medicaid, including, but not limited to, federal law regarding
misrepresentation, fraud, or abuse; and, by incorporation,
Medicare standards, requirements, or prohibitions, is a default
under this contract.

The following events are defaults under this contract pursuant to
42 U.S.C. "1396b(m)(5), 1396u-2(e)(1)(A):

16.3.4.1 HMO's substantial failure to provide medically necessary items
and services that are required under this contract to be provided
to Members;

16.3.4.2 HMO's imposition of premiums or charges on Members in excess of
the premiums or charge permitted by federal law;

16.3.4.3 HMO's acting to discriminate among Members on the basis of their
health status or requirements for health care services, including
expulsion or refusal to enroll an individual, except as permitted
by federal law, or engaging in any practice that would reasonably
be expected to have the effect of denying or discouraging
enrollment with HMO by eligible individuals whose medical
condition or history indicates a need for substantial future
medical services;

16.3.4.4 HMO's misrepresentation or falsification of information that is
furnished to HCFA, TDH, a Member, a potential Member, or a health
care provider;

16.3.4.5 HMO's failure to comply with the physician incentive requirements
under 42 U.S.C. '1396b(m)(2)(A)(x); or

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16.3.4.6 HMO's distribution, either directly or through any agent or
independent contractor, of marketing materials that contain false
or misleading information, excluding materials prior approved by
TDH.

16.3.5 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. If HMO repeatedly
fails to meet the requirements of Articles 16.3.4.1 through and
including 16.3.4.6, TDH must, regardless of what other sanctions
are provided, appoint temporary management and permit Members to
disenroll without cause. Exercise of any remedy in whole or in
part does not limit TDH in exercising all or part of any
remaining remedies.

For HMO's failure to comply with federal laws and regulations,
TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Appoint temporary management as set out in Article
18.5; Initiate disenrollment of a Member of Members without cause
as set out in Article 18.6; Suspend or default all enrollment of
individuals; Suspend payment to HMO; Recommend to HCFA that
sanctions be taken against HMO as set out in Article 18.7; Assess
civil monetary penalties as set out in Article 18.8; and/or
Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.6 FAILURE TO COMPLY WITH APPLICABLE STATE LAW
-------------------------------------------

HMO's failure to comply with Texas law applicable to Medicaid,
including, but not limited to, Article 32.039 of the Texas Human
Resources Code and state law regarding misrepresentation, fraud,
or abuse, is a default under this contract.

16.3.6.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

ALL of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to comply with applicable state law, TDH may:

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Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess administrative penalties as set out in
Article 32.039, Government Code, with the opportunity for notice
and appeal as required by Article 32.039; and/or Require
forfeiture of all or part of the TDI performance bond as set out
in Article 18.9.

16.3.7 MISREPRESENTATION OR FRAUD UNDER ARTICLE 4.8
--------------------------------------------

HMO's misrepresentation or fraud under Article 4.8 of this
contract is a default under this contract.

16.3.7.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's misrepresentation or fraud under Article 4.8, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.8 EXCLUSION FROM PARTICIPATION IN MEDICARE OR MEDICAID
----------------------------------------------------

16.3.8.1 Exclusion of HMO or any of the managing employees or persons with
an ownership interest whose disclosure is required by `1124(a) of
the Social Security Act (the Act) from the Medicaid or Medicare
program under the provisions of '1128(a) and/or (b) of the Act is
a default under this contract.

16.3.8.2 Exclusion of any provider or subcontractor or any of the managing
employees or persons with an ownership interest of the provider
or subcontractor whose disclosure is required by `1124(a) of the
Social Security Act (the Act) from the Medicaid or Medicare
program under the provisions of `1128(a) and/or (b) of the Act is
a default under this contract if the exclusion will materially
affect HMO's performance under this contract.

16.3.8.3 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

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All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's exclusion from Medicare or Medicaid, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.9 FAILURE TO MAKE PAYMENTS TO NETWORK PROVIDERS AND SUBCONTRACTORS
----------------------------------------------------------------

HMO's failure to make timely and appropriate payments to network
providers and subcontractors is a default under this contract.
Withholding or recouping capitation payments as allowed or
required under other articles of this contract is not a default
under this contract.

16.3.9.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to make timely and appropriate payments to
network providers and subcontractors, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; Assess liquidated money damages as set out in
Article 18.4; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.10 FAILURE TO TIMELY ADJUDICATE CLAIMS
-----------------------------------

Failure of HMO to adjudicate (paid, denied, or external pended)
at least ninety (90%) of all claims within thirty (30) days of
receipt and ninety-nine percent (99%) of all

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claims within ninety days of receipt for the contract year is a
default under this contract.

16.3.10.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consequently, Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to timely adjudicate claims, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.11 FAILURE TO DEMONSTRATE THE ABILITY TO PERFORM CONTRACT FUNCTIONS
----------------------------------------------------------------

Failure to pass any of the mandatory system or delivery functions
of the Readiness Review required in Article I of this contract is
a default under the contract.

16.3.11.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole all or in part does not limit TDH in exercising
or part of any remaining remedies.

For HMO's failure to demonstrate the ability to perform contract
functions, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.12 FAILURE TO MONITOR AND/OR SUPERVISE ACTIVITIES OF CONTRACTORS OR
NETWORK PROVIDERS
-----------------

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16.3.12.1 Failure of HMO to audit, monitor, supervise, or enforce functions
delegated by contract to another entity that results in a default
under this contract or constitutes a violation of state or
federal laws, rules, or regulations is a default under this
contract.

16.3.12.2 Failure of HMO to property credential its providers, conduct
reasonable utilization review, or conduct quality monitoring is a
default under this contract.

16.3.12.3 Failure of HMO to require providers and contractors to provide
timely and accurate encounter, financial, statistical, and
utilization data is a default under this contract.

16.3.12.4 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to monitor and/or supervise activities of
contractors or network providers, TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or Require forfeiture of all or part of the TDI
performance bond as set out in Article 18.9.

16.3.13 PLACING THE HEALTH AND SAFETY OF MEMBERS IN JEOPARDY
----------------------------------------------------

HMO's placing the health and safety of the Members in jeopardy is
a default under this contract.

16.3.13.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's placing the health and safety of Members in jeopardy,
TDH may:

Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met; Suspend new enrollment as set out in
Article 18.3; and/or

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Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

16.3.14 FAILURE TO MEET ESTABLISHED BENCHMARK
-------------------------------------

Failure of HMO to meet any benchmark established by TDH under
this contract is a default under this contract.

16.3.14.1 REMEDIES AVAILABLE TO TDH FOR THIS HMO DEFAULT
----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to TDH by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit TDH in exercising all
or part of any remaining remedies.

For HMO's failure to meet any benchmark established by TDH under
this contract, TDH may:

Remove the THSteps component from the capitation paid to HMO if
the benchmark(s) missed is for THSteps; Terminate the contract if
the applicable conditions set out in Article 18.1.1 are met;
Suspend new enrollment as set out in Article 18.3; Assess
liquidated money damages as set out in Article 18.4; and/or
Require forfeiture of all or part of the TDI performance bond as
set out in Article 18.9.

ARTICLE XVII NOTICE OF DEFAULT AND CURE OF DEFAULT

17.1 TDH will provide HMO with written notice of default (Notice of
Default) under this contract. The Notice of Default may be given
by any means that provides verification of receipt. The Notice of
Default must contain the following information:

17.1.1 A clear and concise statement of the circumstances or conditions
that constitute a default under this contract;

17.1.2 The contract provision(s) under which default is being declared;

17.1.3 A clear and concise statement of how and/or whether the default
may be cured;

17.1.4 A clear and concise statement of the time period during which HMO
may cure the default if HMO is allowed to cure;

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17.1.5 The remedy or remedies TDH is electing to pursue and when the
remedy or remedies will take effect;

17.1.6 If TDH is electing to impose money damages and/or civil monetary
penalties, the amount that TDH intends to withhold or impose and
the factual basis on which TDH is imposing the chosen remedy or
remedies;

17.1.7 Whether any part of money damages or civil monetary penalties, if
TDH elects to pursue one or both of those remedies, may be passed
through to an individual or entity who is or may be responsible
for the act or omission for which default is declared;

17.1.8 Whether failure to cure the default within the given time period,
if any, will result in TDH pursuing an additional remedy or
remedies, including, but not limited to, additional damages or
sanctions, referral for investigation or action by another
agency, and/or termination of the contract.

ARTICLE XVIII EXPLANATION OF REMEDIES

18.1 TERMINATION

-----------

18.1.1 TERMINATION BY TDH
------------------

TDH may terminate this contract if:

18.1.1.1 HMO substantially fails or refuses to provide medically necessary
services and items that are required under this contract to be
provided to Members after notice and opportunity to cure;

18.1.1.2 HMO substantially fails or refuses to perform administrative
functions under this contract after notice and opportunity to
cure;

18.1.1.3 HMO materially defaults under any of the provisions of Article
XVI;

18.1.1.4 Federal or state funds for the Medicaid program are no longer
available; or

18.1.1.5 TDH has a reasonable belief that HMO has placed the health or
welfare of Members in jeopardy.

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18.1.2 TDH must give HMO 90 days written notice of intent to terminate
this contract if termination is the result of HMO's substantial
failure or refusal to perform administrative functions or a
material default under any of the provisions of Article XVI. TDH
must give HMO reasonable notice under the circumstances if
termination is the result of federal or state funds for the
Medicaid program no longer being available. TDH must give the
notice required under TDH's formal hearing procedures set out in
Section 1.2.1 in Title 25 of the Texas Administrative Code if
termination is the result of HMO's substantial failure or refusal
to provide medically necessary services and items that are
required under the contract to be provided to Members or TDH's
reasonable belief that HMO has placed the health or welfare of
Members in jeopardy.

18.1.2.1 Notice may be given by any means that gives verification of
receipt.

18.1.2.2 Unless termination is the result of HMO's substantial failure or
refusal to provide medically necessary services and items that
are required under this contract to be provided to Members or is
the result of TDH's reasonable belief that HMO has placed the
health or welfare of Members in jeopardy, the termination date is
90 days following the date that HMO receives the notice of intent
to terminate. For HMO's substantial failure or refusal to provide
services and items, HMO is entitled to request a pre-termination
hearing under TDH's formal hearing procedures set out in Section
1.2.1 of Title 25, Texas Administrative Code.

18.1.3 TDH may, for termination for HMO's substantial failure or refusal
to provide medically necessary services and items, notify HMO's
Members of any hearing requested by HMO and permit Members to
disenroll immediately without cause. Additionally, if TDH
terminates for this reason, TDH may enroll HMO's Members with
another HMO or permit HMO's Members to receive Medicaid-covered
services other than from an HMO.

18.1.4 HMO must continue to perform services under the transition plan
described in Article 18.2.1 until the last day of the month
following 90 days from the date of receipt of notice if the
termination is for any reason other than TDH's reasonable belief
that HMO is placing the health and safety of the Members in
jeopardy. If termination is due to this reason, TDH may prohibit
HMO's further performance of services under the contract.

18.1.5 If TDH terminates this contract, HMO may appeal the termination
under ss.32.034, Texas Human Resources Code.

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18.1.6 TERMINATION BY HMO
------------------

HMO may terminate this contract if TDH fails to pay HMO as
required under Article XIII of this contract or otherwise
materially defaults in its duties and responsibilities under this
contract, or by giving notice no later than 30 days after
receiving the capitation rates for the second contract year.
Retaining premium, recoupment, sanctions, or penalties that are
allowed under this contract or that result from HMO's failure to
perform or HMO's default under the terms of this contract is not
cause for termination.

18.1.61 HMO may terminate this contract without cause, except HMO cannot
terminate this contract without cause for the 90 days immediately
following the effective date of the contract.

18.1.7 HMO must give TDH 90 days written notice of intent to terminate
this contract, either for cause or without cause. Notice may be
given by any means that gives verification of receipt. The
termination date will be calculated as the last day of the month
following 90 days from the date the notice of intent to terminate
is received by TDH.

18.1.8 TDH must be given 30 days from the date TDH receives HMO's
written notice of intent to terminate for failure to pay HMO to
pay all amounts due. If TDH pays all amounts then due within this
30-day period, HMO cannot terminate the contract under this
article for that reason.

18.1.9 TERMINATION BY MUTUAL CONSENT
-----------------------------

This contract may be terminated at any time by mutual consent of
both HMO and TDH.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION
----------------------------------------------

When termination of the contract occurs, TDH and HMO must meet
the following obligations:

18.2.1 TDH and HMO must prepare a transition plan, which is acceptable
to and approved by TDH, to ensure that Members are reassigned to
other plans without interruption of services. That transition
plan will be implemented during the 90-day period between receipt
of notice and the termination date unless termination is the
result of TDH's reasonable belief that HMO is placing the health
or welfare of Members in jeopardy.

18.2.2 If the contract is terminated by TDH for any reason other than
federal or state funds for the Medicaid program no longer being
available or if HMO terminates the contract

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135


based on lower capitation rates for the second contract year as
set out in Article 13.1.4.1:

18.2.2.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.2.2 HMO is responsible for all expenses related to giving notice to
Members; and

18.2.2.3 HMO is responsible for all expenses incurred by TDH in
implementing the transition plan.

18.2.3 If the contract is terminated by HMO for any reason other than
based on lower capitation rates for the second contract year as
set out in Article 13.1.4.1:

18.2.3.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services;

18.2.3.2 TDH is responsible for all expenses related to giving notice to
Members; and

18.2.3.3 TDH is responsible for all expenses it incurs in implementing the
transition plan.

18.2.4 If the contract is terminated by mutual consent:

18.2.4.1 TDH is responsible for notifying all Members of the date of
termination and how Members can continue to receive contract
services

18.2.4.2 HMO is responsible for all expenses related to giving notice to
Members; and

18.2.4.3 TDH is responsible for all expenses it incurs in implementing the
transition plan.

18.3 SUSPENSION OF NEW ENROLLMENT
----------------------------

18.3.1 TDH must give HMO 30 days notice of intent to suspend new
enrollment in the Notice of Default other than for default for
fraud and abuse or imminent danger to the health or safety of
Members. The suspension date will be calculated as 30 days
following the date that HMO receives the Notice of Default.

18.3.2 TDH may immediately suspend new enrollment into HMO for a default
declared as a result of fraud and abuse or imminent danger to the
health and safety of Members.

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136


18.3.3 The suspension of new enrollment may be for any duration, up to
the termination date of the contract. TDH will base the duration
of the suspension upon the type and severity of the default and
HMO's ability, if any, to cure the default.

18.4 LIQUIDATED MONEY DAMAGES
------------------------

18.4.1 The measure of damages in the event that HMO fails to perform its
obligations under this contract may be difficult or impossible to
calculate or quantify. Therefore, should HMO fail to perform in
accordance with the terms and conditions of this contract, TDH
may require HMO to pay sums as specified below as liquidated
damages. The liquidated damages set out in this Article are not
intended to be in the nature of a penalty but are intended to be
reasonable estimates of TDH's financial loss and damage resulting
from HMO's non-performance.

18.4.2 If TDH imposes money damages, TDH may collect those damages by
reducing the amount of any monthly premium payments otherwise due
to HMO by the amount of the damages. Money damages that are
withheld from monthly premium payments are forfeited and will not
be subsequently paid to HMO upon compliance or cure of default
unless a determination is made after appeal that the damages
should not have been imposed.

18.4.3 Failure to file or filing incomplete or inaccurate annual,
semi-annual or quarterly reports may result in money damages of
not more than $11,000.00 for every month from the month the
report is due until submitted in the form and format required by
TDH. These money damages apply separately to each report.

18.4.4 Failure to produce or provide records and information requested
by TDH, an entity acting on behalf of TDH, or an agency
authorized by statute or law to require production of records at
the time and place the records were required or requested may
result in money damages of not more than $5,000.00 per day for
each day the records are not produced as required by the
requesting entity or agency if the requesting entity or agency is
conducting an investigation or audit relating to fraud or abuse,
and not more than $1,000.00 per day for each day records are not
produced if the requesting entity or agency is conducting routine
audits or monitoring activities.

18.4.5 Failure to file or filing incomplete or inaccurate encounter data
may result in money damages of not more than $25,000 for each
month HMO fails to submit encounter data in the form and format
required by TDH. TDH will use the encounter data validation
methodology established by TDH to determine the number of
encounter data and the number of months for which damages will be
assessed.

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137


18.4.6 Failing or refusing to cooperate with TDH, an entity acting on
behalf of TDH, or an agency authorized by statute or law to
require the cooperation of HMO in carrying out an administrative,
investigative, or prosecutorial function of the Medicaid program
may result in money damages of not more than $8,000.00 per day
for each day HMO fails to cooperate.

18.4.7 Failure to enter into a required or mandatory contract or failure
to contract for or arrange to have all services required under
this contract provided may result in money damages of not more
than $1,000.00 per day that HMO either fails to negotiate in good
faith to enter into the required contract or fails to arrange to
have required services delivered.

18.4.8 Failure to meet the benchmark for benchmarked services under this
contract may result in money damages of not more than $25,000 for
each month that HMO fails to meet the established benchmark.

18.4.9 TDH may also impose money damages for a default under Article
16.3.9, Failure to Make Payments to Network Providers and
subcontractors, of this contract. These money damages are in
addition to the interest HMO is required to pay to providers
under the provisions of Articles 4.10.4 and 7.2.7.10 of this
contract.

18.4.9.1 If TDH determines that HMO has failed to pay a provider for a
claim or claims for which the provider should have been paid, TDH
may impose money damages of $2 per day for each day the claim is
not paid from the date the claim should have been paid
(calculated as 30 days from the date a clean claim was received
by HMO) until the claim is paid by HMO.

18.4.9.2 If TDH determines that HMO has failed to pay a capitation amount
to a provider who has contracted with HMO to provide services on
a capitated basis, TDH may impose money damages of $10 per day,
per Member for whom the capitation is not paid, from the date on
which the payment was due until the capitation amount is paid.

18.5 APPOINTMENT OF TEMPORARY MANAGEMENT
-----------------------------------

18.5.1 TDH may appoint temporary management to oversee the operation of
HMO upon a finding that there is continued egregious behavior by
HMO or there is a substantial risk to the health of the Members.

18.5.2 TDH may appoint temporary management to assure the health of
HMO's Members if there is a need for temporary management while:

18.5.2.1 there is an orderly termination or reorganization of HMO; or

1999 Renewal Contract

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138


18.5.2.2 are made to remedy violations found under Article 16.3.4.

18.5.3 Temporary management will not be terminated until TDH has
determined that HMO has the capability to ensure that the
violations that triggered appointment of temporary management
will not recur.

18.5.4 TDH is not required to appoint temporary management before
terminating this contract.

18.5.5 No pre-termination hearing is required before appointing
temporary management.

18.5.6 As with any other remedy provided under this contract, TDH will
provide notice of default as is set out in Article XVII to HMO.
Additionally, as with any other remedy provided under this
contract, under Article 18.1 of this contract, HMO may dispute
the imposition of this remedy and seek review of the proposed
remedy.

18.6 TDH-INITIATED DISENROLLMENT OF A MEMBER OR MEMBERS WITHOUT CAUSE
----------------------------------------------------------------

TDH must give HMO 30 days notice of intent to initiate
disenrollment of a Member of Members in the Notice of Default.
The TDH-initiated disenrollment date will be calculated as 30
days following the date that HMO receives the Notice of Default.

18.7 RECOMMENDATION TO HCFA THAT SANCTIONS BE TAKEN AGAINST HMO
----------------------------------------------------------

18.7.1 If HCFA determines that HMO has violated federal law or
regulations and that federal payments will be withheld, TDH will
deny and withhold payments for new enrollees of HMO.

18.7.2 HMO must be given notice and opportunity to appeal a decision of
TDH and HCFA pursuant to 42 CFR '434.67.

18.8 CIVIL MONETARY PENALTIES
------------------------

18.8.1 For a default under Article 16.3.4.1, TDH may assess not more
than $25,000 for each default;

18.8.2 For a default under Article 16.3.4.2, TDH may assess double the
excess amount charged in violation of the federal requirements
for each default. The excess amount shall be deducted from the
penalty and returned to the Member concerned.

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139


18.8.3 For a default under Article 16.3.4.3, TDH may assess not more
than $100,000 for each default, including $15,000 for each
individual not enrolled as a result of the practice described in
Article 16.3.4.3.

18.8.4 For a default under Article 16.3.4.4, TDH may assess not more
than $100,000 for each default if the material was provided to
HCFA or TDH and not more than $25,000 for each default if the
material was provided to a Member, a potential Member, or a
health care provider.

18.8.5 For a default under Article 16.3.4.5, TDH may assess not more
than $25,000 for each default.

18.8.6 For a default under Article 16.3.4.6, TDH may assess not more
than $25,000 for each default.

18.8.7 HMO may be subject to civil money penalties under the provisions
of 42 CFR 1003 in addition to or in place of withholding payments
for a default under Article 16.3.4.

18.9 FORFEITURE OF ALL OR A PART OF THE TDI PERFORMANCE BOND
-------------------------------------------------------

TDH may require forfeiture of all or a portion of the face amount
of the TDI performance bond if TDH determines that an event of
default has occurred. Partial payment of the face amount shall
reduce the total bond amount available pro rata.

18.10 REVIEW OF REMEDY OR REMEDIES TO BE IMPOSED
------------------------------------------

18.10.1 HMO may dispute the imposition of any sanction under this
contract. HMO notifies TDH of its dispute by filing a written
response to the Notice of Default, clearly stating the reason HMO
disputes the proposed sanction. With the written response, HMO
must submit to TDH any documentation that supports HMO's
position. HMO must file the review within 15 days from HMO's
receipt of the Notice of Default. Filing a dispute in a written
response to the Notice of Default suspends imposition of the
proposed sanction.

18.10.2 HMO and TDH must attempt to informally resolve the dispute. If
HMO and TDH are unable to informally resolve the dispute, HMO
must notify the Bureau Chief of Managed Care that HMO and TDH
cannot agree. The Bureau Chief will refer the dispute to the
Associate Commissioner for Health Care Financing who will appoint
a committee to review the dispute under TDH's dispute resolution
procedures. The decision of the dispute resolution committee will
be TDH's final administrative decision.

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140


ARTICLE XIX TERM


19.1 The effective date of this contract is September 1, 1999. This
contract will terminate on August 31, 2001, unless terminated
earlier as provided for elsewhere in this contract.

19.2 This contract may be renewed for an additional one-year period by
written amendment to the contract executed by the parties prior
to the termination date of the present contract. TDH will notify
HMO no later than 90 days before the end of the contract period
of its intent not to renew the contract.

19.3 If either party does not intend to renew the contract beyond its
contract period, the party intending not to renew must submit a
written notice of its intent not to renew to the other party no
later than 90 days before the termination date set out in Article
19.1.

19.4 If either party does not intend to renew the contract beyond its
contract period and sends the notice required in Article 19.3, a
transition period of 90 days will run from the date the notice of
intent not to renew is received by the other party. By signing
this contract, the parties agree that the terms of this contract
shall automatically continue during any transition period.

19.5 The party that does not intend to renew the contract beyond its
contract period and sends the notice required by Article 19.3 is
responsible for sending notices to all Members on how the Member
can continue to receive covered services. The expense of sending
the notices will be paid by the non-renewing party. If TDH does
not intend to renew and sends the required notice, TDH is
responsible for any costs it incurs in ensuring that Members are
reassigned to other plans without interruption of services. If
HMO does not intend to renew and sends the required notice, HMO
is responsible for any costs TDH incurs in ensuring that Members
are reassigned to other plans without interruption of services.
If both parties do not intend to renew the contract beyond its
contract period, TDH will send the notices to Members and the
parties will share equally in the cost of sending the notices and
of implementing the transition plan.

19.6 Non-renewal of this contract is not a contract termination for
purposes of appeal rights under the Human Resources
Code ss.32.034.

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141


SIGNED 1st day of September, 1999.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.

BY: /s/ William R. Archer, III, M.D. BY: /s/ Michael A. Seltzer
-------------------------------- ------------------------------------
William R. Archer, III, M.D. Printed Name: Michael A. Seltzer
Commissioner of Health Title: Vice President, West Region
Humana Health Plan of Texas, Inc.



Approved as to Form:

/s/
------------------------------------
Office of General Counsel

1999 Renewal Contract

Bexar Service Area
August 9, 1999



142







Appendices
----------
Copies of the Appendices will be available upon request.


TDH Doc. # 4810323494 *2001

AMENDMENT NO. 1
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 1 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is September 1,1999. All
other contract provisions remain in full force and effect.

The Parties agree to amend the Contract as follows:

1. Article XIII is amended by deleting existing 13.1.2, 13.1.2.2, and
13.1.2.3 and replacing them with the new Article 13.1.2, 13.1.2.2, and
13.1.2.3 as follows:

(delete the stricken language and add the bold and italicized)

[Deletion]

13.1.2 Delivery Supplemental Payment (DSP). TDH has submitted
the delivery supplemental payment methodology to HCFA for
approval. The monthly capitation amounts for September 1,
1999, through August 31, 2000, and the DSP amount are
listed below. These amounts are effective September 1,
1999. The monthly capitation amounts established for each
risk group in the Bexar Service Area using the Standard
methodology (listed in Article 13.1.3) will apply if the
DSP methodology is not approved by HCFA.

Bexar SDA

1


-----------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 1999 - August 31,
2000

-----------------------------------------------------------------
TANF Adults $153.73
-----------------------------------------------------------------
TANF Children (less than) 12 Months of Age $ 49.87
-----------------------------------------------------------------
Expansion Children (less than) 12 Months of Age $ 59.18
-----------------------------------------------------------------
Newborns (greater than or equal to) 12 Months of Age $375.31
-----------------------------------------------------------------
TANF Children (greater than or equal to)
12 Months of Age $375.31
-----------------------------------------------------------------
Expansion Children (greater than or equal to)
12 Months of Age $375.31
-----------------------------------------------------------------
Federal Mandate Children $ 42.25
-----------------------------------------------------------------
CHIP Phase I $ 76.34
-----------------------------------------------------------------
Pregnant Women $241.86
-----------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
-----------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,834.10.


13.1.2.2 For an HMO Member who is classified in the Pregnant Women, TANF
Adults, TANF Children (less than) 12 months, Expansion Children
(less than) 12 months, Federal Mandate Children [Deletion], or
CHIP risk group, HMO will be paid the monthly capitation amount
identified in Article 13.1.2 for each month of classification,
plus the DSP amount identified in Article 13.1.2.

13.1.2.3 HMO must submit a monthly DSP Report (report) that includes the
data elements specified by TDH. TDH will consult with contracted
HMOs prior to revising the report data elements and requirements.
The reports must be submitted to TDH in the format and time
specified by TDH. The report must include only unduplicated
deliveries. The report must include only deliveries for which HMO
has made a payment for the delivery, to either a hospital or
other provider. No DSP will be made for deliveries which are not
reported by HMO to TDH within [Deletion] 210 days after the date
of delivery, or within 30 days from the date of discharge from
the hospital for the stay related to the delivery, whichever is
later.

2. Article XIII is amended by deleting existing 13.2.5 and replacing it
with the new Article 13.2.5 as follows: (delete the stricken language
and add the bold and italicized)

Bexar SDA

2


13.2.5 There will be two settlements for payment(s) of the state share
of the experience rebate. The first settlement shall equal 100
percent of the state share of the experience rebate as derived
from Line 7 of Part 1 (Net Income Before Taxes) of the [deleted]
Final Managed Care Financial Statistical (MCFS) Report and shall
be paid on the same day the first [deleted] Final MCFS Report is
submitted to TDH. The second settlement shall be an adjustment to
the first settlement and shall be paid to TDH on the same day
that the second [deleted] Final MCFS Report is submitted to TDH
if the adjustment is a payment from HMO to TDH. TDH or its agent
may audit or review the MCFS reports. If TDH determines that
corrections to the MCFS reports are required, based on a TDH
audit/review or other documentation acceptable to TDH, to
determine an adjustment to the amount of the second settlement,
then final adjustment shall be made within two years from the
date that HMO submits the second [deleted] Final MCFS report. HMO
must pay the first and second settlements on the due dates for
the first and second Final MCFS reports respectively as
identified in Article 12.1.5. TDH may adjust the experience
rebate if TDH determines HMO has paid affiliates amounts for
goods or services that are higher than the fair market value of
the goods and services in the service area. Fair market value may
be based on the amount HMO pays a non-affiliate(s) or the amount
another HMO pays for the same or similar service in the service
area and will be determined on a case-by-case basis. TDH has
final authority in auditing and determining the amount of the
experience rebate.



AGREED AND SIGNED by an authorized representative of the parties on December 9,
1999.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.

By: /s/ William R. Archer, III., M.D. By: /s/ Michael A. Seltzer
--------------------------------- ------------------------
William Archer, III., M.D. Michael A. Seltzer
Commissioner of Health V.P., Western Region

Approved as to Form:

/s/
-------------------------
Office of General Counsel

Bexar SDA

3


AMENDMENT NO.2
TO THE
1999 CONTRACT FOR SERVICES
BETWEEN
THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 2 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for
Services between the Texas Department of Health and HMO in the Bexar Service
Area, dated September 1, 1999. The effective date of this Amendment is the date
TDH Signs this Amendment. All other contract provisions remain in full force and
effect.

1. Article II is amended by adding the bold and italicized language

DEFINITIONS

Call coverage means arrangements made by a facility or an attending physician
with an appropriate level of health care provider who agrees to be available on
an as-needed basis to provide medically appropriate services for routine/high
risk/or emergency medical conditions or emergency Behavioral Health condition
that present without being scheduled at the facility or when the attending
physician is unavailable.

Enrollment report/enrollment file means the daily or monthly list of Medicaid
recipients who are enrolled with an HMO as Members on the day or for the month
the report is issued.

2. Article VI is amended by adding the bold and italicized language and deleting
the stricken language.

6.9 PERINATAL SERVICES
------------------
6.9.2 HMO must have a perinatal health care system in place that, at a
minimum, provides the following services:

6.9.3 HMO must have a process to expedite scheduling a prenatal appointment
for an obstetrical exam for a TP40 Member no later than two weeks after
receiving the daily enrollment file verifying enrollment of the Member
into the HMO.

6.9.4 HMO must have procedures in place to contact and assist a
pregnant/delivering Member in selecting a PCP for her baby either
before the birth or as soon as the


baby is born.

6.9.4.5 HMO must provide inpatient care and professional services related
to labor and delivery for its pregnant/delivering Members and
neonatal care for its newborn Members (see Article 14.3.1) at the
time of delivey and for up to 48 hours following an uncomplicated
vaginal delivery and 96 hours following an uncomplicated
Caesarian delivery.

6.9.5.1 HMO must reimburse in-network providers, out-of-network
providers, and specialty physicians who are providing call
coverage, routine, and/or specialty consultation services for the
period of time covered in Article 6.9.5

6.9.5.1.1 HMO must adjudicate provider claims for services provided to a
newborn Member in accordance with TDH's claims processing
requirements using the proxy ID number or State-issued Medicaid
ID number (see Article 4.10). HMO cannot deny claims based on
provider non-use of State-issued Medicaid ID number for a newborn
Member. HMO must accept provider claims for newborn services
based on mother's name and/or Medicaid ID number with
accommodations for multiple births, as specified by the HMO.

6.9.5.2 HMO cannot require prior authorization or PCP assignment to
adjudicate newborn claims for the period of time covered by 6.9.5

6.9.6 HMO may require prior authorization requests for hospital or
professional services provided beyond the time limits in Article
6.9.5 and may


utilized the determination of medical necessity beyond routine care.
HMO must respond to these prior authorization within the requirements
of 28 TAC(s)19.1710-19.1712 and Article 21.58a of the Texas Insurance
Code.

6.9.6.1 HMO must notify providers involved in the care of pregnant/delivering
women and newborns (including out-of-network providers and hospitals)
regarding the HMO's prior authorization requirements.

6.9.6.2 HMO cannot require a prior authorization for services provided to a
pregnant/delivering Member or newborn Member for a medical condition
which requires emergency services, regardless of when the emergency
condition arises (see Article 6.5.6).

3. Article VIII is amended by adding the bold and italicized language and
deleting the stricken language.

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

4. Article XII is amended by adding the bold and italicized language and
deleting the stricken language.

12.2 STATISTICAL REPORTS
-------------------

12.2.4 HMO cannot submit newborn encounters to TDH until the State-issued
Medicaid ID number is received for a newborn. HMO must match the proxy
ID number issued by the HMO with the State-issued Medicaid ID number
prior to submission of encounters to TDH and submit the encounter in
accordance to the HMO Encounter Data Submission Manual. The encounter
must include the State-issued Medicaid ID number. Exceptions to the
45-day deadline for submission of encounter data in Paragraph 12.2.1
will be granted it cases in which the Medicaid ID number is not
available for a newborn Member.


12.2.5 HMO must require providers to submit claims and encounter data to HMO
no later than 95 days after the date services are provided.

12.2.6 HMO must use the procedure codes, diagnosis codes and other codes
contained in the most recent edition of the Texas Medicaid Provider
Procedures Manual and as otherwise provided by TDH. Exceptions or
additional codes must be submitted for approval before HMO uses the
codes.

12.2.7 HMO must use its TDH-specified identification-numbers on all encounter
data submissions. Please refer to the TDH Encounter Data Submission
Manual for further specifications

12.2.8 HMO must validate all encounter data using the encounter data
validation methodology prescribed by TDH prior to submission of
encounter data to TDH.

12.2.9 All Claims Summary Report. HMO must submit the "All Claims Summary
-------------------------
Report" identified in the Texas Managed Care Claims Manual as a
contract year-to-date report. The report must be submitted quarterly
by the last day of the month following the reporting period. The
reports must be submitted to TDH in a format specified by TDH.

12.2.10 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must file
------------------------------------------------------
preliminary and final Medicaid Disproportionate Share Hospital (DSH)
reports, required by TDH to identify and reimburse hospitals that
qualify for Medicaid DSH funds. The preliminary and final DSH reports
must include the data elements and be submitted in the form and format
specified by TDH. The preliminary DSH reports are due on or before
June 1 of the year following the state fiscal year for which data is
being reported. The final DSH reports are due on or before August 15
of the year following the state fiscal year for which data is being
reported.

5. Article XIII is amended by adding the bold and italicized language.

13.5 NEWBORN AND PREGNANT WOMEN PAYMENT PROVISIONS
---------------------------------------------

13.5.1 Newborns born to Medicaid eligible mothers who are enrolled in HMO
are enrolled into HMO for 90 days following the date of birth.

13.5.1.1 The mother of the newborn Member may change her newborn to another
HMO during the first 90 days following the date of birth, but may
only do so through TDH Customer Services.

13.5.2 MAXIMUS will provide HMO with a daily enrollment file which will
list all newborns who have received State-issued Medicaid ID numbers.
This file will


include the Medicaid eligible mothers Medicaid ID number to allow the
HMO to link the newborn's State-issued Medicaid ID numbers with the
proxy ID number. TDH will guarantee capitation payments to HMO for all
newborns who appear on the MAXIMUS daily enrollment file as HMO
Members for each month the newborn is enrolled in the HMO.

13.5.3 All non-TP45 newborns who are born to mothers whose enrollment in HMO
is effective on or before the date of the birth of the newborn will
be retroactively enrolled into the HMO through a manual process
by DHS Data Control

13.5.4 Newborns who do not appear on the MAXIMUS daily enrollment file before
the end of the sixth month following the date of birth will not be
retroactively enrolled into the HMO. TDH will manually reconcile
payment to the HMO for services provided from the date of birth
for TP45 and all other eligibility categories of newborns. Payment
will cover services rendered from the effective date of the proxy ID
number when first issued by the HMO regardless of plan assignment
at the time the State-issued Medicaid ID number is receive.

13.5.5 MW3iWUS will provide HMO with a daily enrollment file which will list
all TP40 Members who have received State-issued Medicaid ID numbers.
TDH will guarantee capitation payments to HMO for all TP40 Members
who appear on the MAXIMUS daily enrollment file as HMO Members for
each month the TP40 Member enrollment is effective

6. Article XIV is amended by adding the bold and italicized language.

14.3 NEWBORN ENROLLMENT
------------------

The HMO is responsible for newborns who are born to mothers whose
enrollment in HMO is effective on or before the date of birth as
follows:

14.3.1 Newborns are presumed Medicaid eligible and enrolled in the mother's
HMO for at least 90 days from the date of birth.

14.3.l.1 A mother of a newborn Member may change plans for her newborn during
the first 90 days by contacting TDH Customer Services. TDH will
notify HMO of newborn plan changes made by a mother when the change
is made by TDH Customer Services.

14.3.2 HMO must establish and implement written policies and procedures to
require professional and facility providers to notify HMOs of a birth
of a newborn to a Member at the time of delivery.

14.3.2.1 HMO must create a proxy ID number in the HMO's Enrollment/Eligibility
and


date of birth of the newborn.

14.3.2.2 HMO must match the proxy ID number and the State-issued Medicaid
ID number once the State-issued Medicaid ID number is received.

14.3.2.3 HMO must submit a Form 7484A to DHS Data Control requesting DHS
Data Control to research DHS's files for a Medicaid ID number if
HMO has not received a State-issued Medicaid ID number for a
newborn within 30 days from the date of birth. If DHS finds that
no Medicaid ID number has been issued to the newborn, DHS Data
Control will issue the Medicaid ID number using the information
provided on the Form 7484A.

14.3.3 Newborns certified Medicaid eligible after the end of the sixth
month following the date of birth will not be retroactively
enrolled to an HMO, but will be enrolled in Medicaid
fee-for-service. TDH will manually reconcile payment to the HMO
for services provided from the date of birth for all Medicaid
eligible newborns as described in Article 13.5.4.

14. DISENROLLMENT
-------------


14.4.1 HMO has a limited right to request a Member be disenrolled from
HMO without the Member's consent. TDH must approve any HMO
request for disenrollment of a Member for cause. Disenrollment of
a Member may be permitted under the following circumstances:

14.4.1.1 Member misuses or loans Member's HMO membership card to another
person to obtain services.

14.4.1.2 Member is disruptive, unruly, threatening or uncooperative to the
extent that Member's membership seriously impairs HMO's or
provider's ability to provide services to Member or to obtain
new Members, and Member's behavior is not caused by a physical or
behavioral health condition.

14.4.1.3 Member steadfastly refuses to comply with managed care
restrictions (e.g., repeatedly using emergency room in
combination with refusing to allow HMO to treat the underlying
medical condition).

14.4.2.1 HMO must take reasonable measures to correct Member behavior
prior to requesting disenrollment. Reasonable measures may
include providing education and counseling regarding the
offensive acts or behaviors.


14.4.3 HMO must notify the Member of HMO's decision to disenroll the Member
if all reasonable measures have failed to remedy the problem.

14.4.4 If the Member disagrees with the decision to disenroll the Member from
HMO, HMO must notify the Member of the availability of the complaint
procedure and TDH's Fair Hearing process.

14.4.5 HMO CANNOT REQUEST A DISENROLLMENT BASED ON ADVERSE CHANGE IN THE
MEMBER'S HEALTH STATUS OR UTILIZATION OF SERVICES WHICH ARE MEDICALLY
NECESSARY FOR TREATMENT OF MEMBER'S CONDITION.


14.5 AUTOMATIC RE-ENROLLMENT
-----------------------

14.5.1 Members who are disenrolled because they are temporarily ineligible
for Medicaid will be automatically re-enrolled into the same health
plan. Temporary loss of eligibility is defined as a period of 6 months
or less.

14.5.2 HMO must inform its Members of the automatic re-enrollment procedure.
Automatic re-enrollment must be included in the Member Handbook (see
Article 8.2.1).


14. ENROLLMENT REPORTS
------------------

14.6.1 TDH will provide HMO enrollment reports listing all STAR Members who
have enrolled in or were assigned to HMO during the initial enrollment
period.

14.6.2 TDH will provide monthly HMO Enrollment Reports to HMO on or before
the first of the month.

14.6.3 TDH will provide Member verification to HMO and network providers
through telephone verification or TexMedNet.




AGREED AND SIGNED by an authorized representative of the parties on April 5,
2001



TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.



By: /s/ C.E. Bell, M.D By: /s/ Michael A. Seltzer
---------------------------- --------------------------------
Charles E. Bell, M.D. Michael Seltzer
Executive Deputy Commissioner Vice President, West Region
of Health

Approved as to Form:


/s/ MaryAnn Slavin
--------------------------------
Office of General Counsel





TDH Doc #4810323494* 2001A-01C

AMENDMENT NO.3

TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 3 is entered into between the Texas Department of Heath (TDH)
and PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is the date TDH Signs
this Amendment. All other contract provisions remain in full force and effect.

1. Article III is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

3.7 HMO TELEPHONE ACCESS REQUIREMENTS

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

1. 80% of all telephone calls must be answered within an average
of 30 seconds;
2. The lost (abandonment) rate must not exceed 10%;
3. HMO cannot impose maximum call duration limits but must allow
calls to be of sufficient length to ensure adequate
information is provided to the Member or Provider.
4. Telephone services must meet cultural competency requirements
(see Article 8.9) and provide "linguistic access" to all
members as defined in Article II. This would include the
provision of interpretive services required for effective
communication for Members and providers.

3.7.2 Member Helpline: The HMO must furnish a toll-free phone line
which members may call 24 hours a day, 7 days a week. An
answering service or other similar mechanism, which allows
callers to obtain information from a live person, may be used for
after-hours and weekend coverage.

3.7.2.1 HMO must provide coverage for the following services at least
during HMO's regular business hours (a minimum of 9 hours a day,
between 8 a.m. and 6.p.m.), [deleted] Monday through Friday:

1. Member ID information


2. To change PCP
3. Benefit explanations
4. PCP verification
5. Access issues (including referrals to specialists)
6. Problems Accessing PCP
7. Member eligibility
8. Complaints
9. Service area issues (including when member is
temporarily out-of-service area)
10. Other services covered by member services.

3.7.2.2 HMO must provide TDH with policies and procedures indicating how
the HMO will meet the needs of members who are unable to contact
HMO during regular business hours.

3.7.3 HMO must ensure that PCPs are available 24 hours a day, 7 days a
week (see Article 7.8). This includes PCP telephone coverage (see
28 TAC 11.2001 (a)1A).

3.7.4 Behavioral Health Hotline Services. HMO must have emergency and
crisis Behavioral Health hotline services available 24 hours a
day, 7 days a week, toll-free throughout the service area. Crisis
hotline staff must include or have access to qualified behavioral
health professionals to assess behavioral health emergencies.
Emergency and crisis behavioral health services may be arranged
through mobile crisis teams. It is not acceptable for an
emergency intake line to be answered by an answering machine.
Hotline services must meet the requirements described in Article
3.7.1

2. Article V is amended by adding the new bold and italicized language and
deleting the stricken language as follows:

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

5.9.3 Notwithstanding 5.9.2. If HMO believes that the requested
information qualifies as a trade secret or as commercial or
financial information, HMO must notify TDH-within three (3)
working days after TDH gives notice that a request has been made
for public information [deleted] -- and request TDH to submit the
request for public information to the Attorney General for an
Open Records Opinion. The HMO will be responsible for presenting
all exceptions to public disclosure to the Attorney General if an
opinion is requested. [deleted]


3. Article VI is amended by adding the new bold and italicized language as
follows:

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

6.4.5 HMO must provide assistance to providers requiring PCP
verification 24 hours a day, 7 days a week.

6.4.5.1 HMO must provide TDH with policies and procedures indicating how
the HMO will provide PCP verification as indicated in article
6.4.5. HMOs providing PCP verification via a telephone must meet
the requirements of 3.7.1.

4. Article VII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

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

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

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

7.18.2.1 HMO is required to include subcontract provisions in its
delegated network contracts which require the UM protocol used by
a delegated network to produce substantially similar outcomes, as
approved by TDH, as the UM protocol employed by the contracting
HMO. The responsibilities of an HMO in delegating UM functions to
a delegated network will be governed by Article [deleted] 16.3.12
of this contract.

5. Article VIII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

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

8.3.1 Federal and state law require HMOs and providers to maintain
written policies and procedures for informing and providing
written information to all adult Members 18 years of age and
older about their rights under state and federal law, in advance
of their receiving care (Social Security Act ss.1902(a)(57) and
ss.1903(m)(1)(A)). The written policies and procedures must
contain procedures for providing written information regarding
advance directives and the Member's right to refuse, withhold or
withdraw medical treatment and mental health treatment. [deleted]
HMO's policies and procedures must comply with provisions
contained in 42 CFR ss.434.28 and 42 CFR ss.489, SubPart I,
relating to advance directives for all hospitals,


critical access hospitals, skilled nursing facilities, home
health agencies, providers of home health care, providers of
personal care services and hospices, as well as the following
state laws and rules:

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

8.3.1.3 the declaration for Mental Health Treatment, Chapter 137, Texas
Civil Practice and Remedies code, which includes: a Member's
right to execute a declaration for mental health treatment in a
document making a declaration of preferences or instructions
regarding mental health treatment.

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

8.3.2.1.3 a description of the [deleted] medical and mental health
conditions or procedures affected by the conscience objection.

[deleted]

8.5 MEMBER COMPLAINT PROCESS
------------------------

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

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

8.5.3 HMO must designate an officer of HMO who has primary
responsibility for ensuring that complaints are resolved in
compliance with written policy and within the time required. An
"officer" of HMO means a president, vice president, secretary,


treasurer, or chairperson of the board for a corporation, the
sole proprietor, the managing general partner of a partnership,
or a person having similar executive authority in the
organization.

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

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

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

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

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

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

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


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

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

8.5.13 The provisions of Article 21.58A, Texas Insurance Code, relating
to a Member's right to appeal an adverse determination made by
HMO or a utilization review agent by an independent review
organization, do not apply to a Medicaid recipient. Federal fair
hearing requirements (Social Security Act ss.1902a(3). codified
at 42 C.F.R. 431.200 et. seq.) require the agency to make a final
decision after a fair hearing, which conflicts with the State
requirement that the IRO make a final decision. Therefore, the
State requirement is pre-empted by the federal requirement.

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

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

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

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

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

8.6.1 HMO must send Members the notice required by 1 Texas
Administrative Code ss.357.5, whenever HMO takes an action to
deny, delay, reduce or terminate covered


services to a Member. The notice must be mailed to the Member no
less than 10 days before HMO intends to take an action. If an
emergency exists, or if the time within which the service must be
provided makes giving 10 days notice impractical or impossible,
notice must be provided by the most expedient means reasonably
calculated to provide actual notice to the Member, including by
phone, direct contact with the Member, or through the provider's
office.

8.6.2 The notice must contain the following information:

8.6.2.1 Member's right to immediately access TDH's Fair Hearing process:

8.6.2.2 a statement of the action HMO will take;

8.6.2.3 the date the action will be taken;

8.6.2.4 an explanation of the reasons HMO will take the action:

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

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

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

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

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

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

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

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

8.7 MEMBER ADVOCATES
----------------

8.7.1 HMO must provide Member Advocates to assist Members. Member
Advocates must be


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

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

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

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

8.8 MEMBER CULTURAL AND LINGUISTIC SERVICES
---------------------------------------

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

8.8.2 The Cultural Competency Plan must include the following:

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

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


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

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

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

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

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

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

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

8.8.3.3 A competent interpreter is defined as someone who is:

8.8.3.4 proficient in both English and the other language;

8.8.3.5 has had orientation or training in the ethics of interpreting;
ant

8.8.3.6 has the ability to interpret accurately and impartially.

8.8.3.7 HMO must provide 24-hour access to interpreter services for
Members to access


emergency medical services within HMO's network.

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

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

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

8.9 CERTIFICATION DATE
------------------

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

6. Article XII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

12.1 FINANCIAL REPORTS
-----------------

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
Financial-Statistical Reports. The first final report must
reflect expenses incurred through the 90th day after the end of
the contract [deleted]. The first final report must be filed on
or before the 120th day after the end of the contract [deleted].
The second final report must reflect data completed through the
334th day after the end of the contract and must be filed on
or before the 365th day following the end of the contract
[deleted].

12.2.9 Medicaid Disproportionate Share Hospital (DSH) Reports. HMO must
file preliminary and final Medicaid Disproportionate Share
Hospital (DSH) reports, required by TDH to identify and reimburse
hospitals that qualify for Medicaid DSH funds. The preliminary
and final DSH reports must include the data elements and be
submitted in the form and format specified by TDH. The
preliminary DSH reports are due on or before June 1 of the year
following the state fiscal year for which data is being reported.
The final DSH reports are due [deleted] no later


than July 15 of the year following the state fiscal year for
which data is being reported.

12.8 UTILIZATION MANAGEMENT REPORTS - BEHAVIORAL HEALTH
--------------------------------------------------

Behavioral Health (BH) utilization management reports are
required on a semi-annual basis [deleted]. Refer to Appendix H
for the standardized reporting format for each report and
detailed instructions for obtaining the specific data required in
the report. [deleted]

12.8.1 In addition, files are due to the TDH External Quality Review
Organization five (5) working days following the end of each
State Quarter. See Appendix H for Submission instructions. The BH
utilization report and data file submission instructions may
periodically updated by TDH to facilitate clear communication to
the health plans.

12.9 UTILIZATION MANAGEMENT REPORTS - PHYSICAL HEALTH
------------------------------------------------

Physical health (PH) utilization management reports are required
on a semi-annual basis [deleted]. Refer to Appendix J for the
standardized reporting format for each report and detailed
instructions for obtaining specific data required in the report.

[deleted]

12.9.1 In addition, data files are due to the TDH External Quality
Review Organization five (5) working days following the end of
each State Quarter. See Appendix J for submission instructions.
The PH utilization report and data file submission instruction
may periodically be updated by TDH to facilitate clear
communication to the health plan.

7. Article XIII is amended by adding the new bold and italicized language
and deleting the stricken language as follows:

13.1 CAPITATION AMOUNTS
------------------

13.1.1 TDH will pay HMO monthly premiums calculated by multiplying the
number of Member months by Member risk group times the monthly
capitation amount by Member risk group. For additional
information regarding the actuarial basis and


methodology used to compute the capitation rates, please
reference the waiver under the document titled "Actuarial
Methodology for Determination of Maximum Monthly Capitation
Amounts". HMO and network providers are prohibited from billing
or collecting any amount from a Member for health care services
covered by this contract, in which case the Member must be
informed of such costs prior to providing non-covered services.

13.2 EXPERIENCE REBATE TO STATE
--------------------------

13.2.1 For the contract period [deleted], HMO must pay to TDH experience
rebate calculated in accordance with the tiered rebate method
listed below based on the excess of allowable HMO STAR revenues
over allowable HMO STAR expenses as measured by any positive
amount on Line 7 of "Part 1: Financial Summary, All Coverage
Groups Combined" of the annual Managed Care Financial-Statistical
Report set forth in Appendix I, as reviewed and confirmed by TDH.
TDH reserves the right to have an independent audit performed to
verify the information provided by HMO.

13.2.5 There will be two settlements for payment(s) [deleted] of the
experience rebate allocated to the state in the table 13.2.1
under the column entitled "State Share of Experience Rebate." The
first settlement shall equal 100 percent [deleted] of the
experience rebate as derived from Line 7 of Part 1 (Net Income
Before Taxes) of the first final [deleted] Managed Care Financial
Statistical (MCFS) Report and shall be paid on the same day the
first final [deleted] MCFS Report is submitted to TDH. The second
settlement shall be an adjustment to the first settlement and
shall be paid to TDH on the same day that the second final
[deleted] MCFS Report is submitted to TDH if the adjustment is a
payment from HMO to TDH. TDH or its agent may audit or review the
MCFS reports. If TDH determines that corrections to the MCFS
reports are required, based on a TDH audit/review or other
documentation acceptable to TDH, to determine an adjustment to
the amount of the second settlement, then final adjustment shall
be made within two years from the date that HMO submits the
second final [deleted] MCFS report. HMO must pay the first and
second settlements on the due dates for the first and second
final MCFS reports respectively as identified in Article
[deleted] 12.1.4. TDH may adjust the experience rebate if TDH
determines HMO has paid affiliates amounts for goods or services
that are higher than the fair market value of the goods and
services in the service area. Fair market value may be based on
the amount HMO pays a non-affiliate(s) or the amount another HMO
pays for the same or similar service in the service area. TDH has
final authority in auditing and determining the amount of the
experience rebate.

8. The Appendices are amended by deleting Appendix H, "Utilization
Management Report -Behavioral Health" and replacing it with new Appendix
H, "Utilization Management Report -Behavioral Health", as attached.

9. The Appendices are amended by deleting Appendix J, "Utilization
Management Report -Physical Health' and replacing it with new Appendix
J, `Utilization Management Report -


Physical Health", as attached.

10. The Appendices are amended by deleting Appendix K, "Preventative Health
Performance Objectives" and replacing it with new Appendix K.
"Preventative Health Performance Objectives", as attached.


AGREED AND SIGNED by an authorized representative of the parties on February 5,
2001.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.

By: /s/ C. E. Bell, M.D By: /s/ Michael A. Seltzer
--------------------------------- ------------------------
Charles. E. Bell, M.D. Michael A. Seltzer
Executive Deputy Commissioner Vice President Western Region

Approved as to Form:

/s/ Mary Ann Slavin

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

TDH DOC # 4810323494* 2001A - 01C
-----------------------


AMENDMENT NO. 4
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 4 is entered into between the Texas Department of Health and
PCA Health Plans of Texas, Inc. (HMO), to amend the Contract for Services
between the Texas Department of Health and HMO in the Bexar Service Area, dated
September 1, 1999. The effective date of this Amendment is [deleted] September
1, 2000. All other contract provisions remain in full force and effect.

The Parties agree to amend the Contract to read as follows:

Article XIII is amended by adding the bold and italicized language and deleting
the stricken language.

13.1.2 Delivery Supplemental Payment (DSP). [Deleted]


-----------------------------------------------------------------
Risk Group Monthly Capitation Amounts
September 1, 2000 - August 31,
2001

-----------------------------------------------------------------
TANF Adults $153.73
-----------------------------------------------------------------
TANF Children > 12 Months of Age [deleted] $49.91
-----------------------------------------------------------------
Expansion Children > 12 Months of Age [deleted] $59.22
-----------------------------------------------------------------
Newborns < 12 Months of Age [deleted] $375.50
-
-----------------------------------------------------------------
TANF Children < 12 Months of Age [deleted] $375.50
-
-----------------------------------------------------------------
Expansion Children < 12 Months of Age [deleted] $375.50
-
-----------------------------------------------------------------
Federal Mandate Children [deleted] $42.29
-----------------------------------------------------------------
CHIP Phase I [deleted] $76.38
-----------------------------------------------------------------
Pregnant Women $241.86
-----------------------------------------------------------------
Disabled/Blind $ 14.00
Administration
-----------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy supplemental
payment for each delivery shall be paid to HMO as provided below in the
following amount: $2834.10.


[deleted]

13.1.3 TDH will re-examine the capitation rates paid to HMO order this
contract during the first year of the contract period and will
provide HMO with capitation rates for the second year of the
contract period no later than 30 days before the date of the
one-year anniversary of the contract's effective date. Capitation
rates for state fiscal year 2001 will be re-examined based on the
most recent available traditional Medicaid cost data for the
contracted risk groups in the service area, trended forward and
discounted.

13.1.3.1 Once HMO has received their capitation rates established by TDH
for the second year of this contract, HMO may terminate this
contact as provided in Article 18.1.6 of this contract.

13.1.4 The monthly premium payment to HMO is based on monthly
enrollments adjusted to reflect money damages set out in Article
18.8 and adjustments to premiums in Article 13.5.

13.1.5 The monthly premium payments will be made to HMO no later than
the 10th working day of the month for which premiums are paid.
HMO must accept payment for premiums by direct deposit into an
HMO account.


13.1.6 Payment of monthly capitation amounts is subject to availability
of appropriations. If appropriations are not available to pay the
full monthly capitation amounts, TDH will equitably adjust
capitation amounts for all participating HMOs, and reduce scope
of service requirement as appropriate.

13.1.7 HMO renewal rates reflect program increases appropriated by the
76th legislature for physician (to include THSteps providers) and
outpatient facility services. HMO must report to TDH any change
in rates for participating physicians (to include THSteps
providers) and outpatient facilities resulting from this
increase. The report must be submitted to TDH at the end of the
first quarter of the FY2000 and FY2001 contract years according
to the deliverables matrix schedule set for HMO.

AGREED AND SIGNED by an authorized representative of the parties on September 7,
2000.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.

By: /s/ William R. Archer, III., M.D. By: /s/ Michael A. Seltzer
--------------------------------- ---------------------------------
William R. Archer, III., M.D. Michael A. Seltzer
Commissioner of Health Vice President, Western Region

Approved as to Form:



/s/ Illegible

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

TDH Doc. No. 4810323494*01-01D

AMENDMENT NO. 5.
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 5 is entered into between the Texas Department of Health
(TDH) and PCA Health Plans of Texas, Inc. (HMO), to amend the 1999 Contract for
Services between the Texas Department of Health and HMO in the Bexar Service
Area. The effective date of this Amendment is the date TDH signs this Amendment.
All other contract provisions remain in full force and effect.

1. Article II & IV is amended by adding the new bold and italicized
language and deleting the stricken language as follows:

2.0 DEFINITION

----------

Clean claim means a claim submitted by a physician or
provider for medical care or health care services rendered to
an enrollee, with documentation reasonably necessary for the
HMO or subcontracted claims processor to process the claim,
as set forth in 28 TAC ss.21.2802(4) and to the extent that
it is not in conflict with the provisions of this contract.

[deleted]

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

4.10.1 HMO and claims processing subcontractors must comply with 28
TAC ss.ss.21.2801 through 21.2816 "Submission of Clean
Claims", to the extent they are not in conflict with
provisions of this contract.

4.10.2 HMO must use a TDH approved or identified claim format that
contains all data fields for final adjudication of the claim.
The required data fields must be complete and accurate. The
TDH required data fields are identified in TDH's "HMO
Encounter Data Claims Submission Manual."

12/21/00

Page 1 of 3


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

4.10.4 HMO must forward claims submitted to HMO in error to either:
1) the correct HMO, if the correct HMO can be determined from
the claim or is otherwise known to HMO; 2) the State's claims
administrator; or 3) the provider who submitted the claim in
error, along with an explanation of why the claim is being
returned.

4.10.5 HMO must not pay any claim submitted by a provider who has
been excluded or suspended from the Medicare or Medicaid
programs for fraud and abuse when HMO has knowledge of the
exclusion or suspension.

4.10.6 All provider clean claims must be adjudicated (finalized as
paid or denied adjudicated) within 30 days from the date the
claim is received by HMO. HMO must pay providers interest on
a clean claim which is not adjudicated within 30 days from
the date the claim is received by HMO or becomes clean at a
rate of 1.5% per month (18% annual) for each month the clean
claim remains unadjudicated. HMO will be held to a minimum
performance level of 90% of all clean claims paid or denied
within 30 days of receipt and 99% of all clean claims paid or
denied within 90 days of receipt. Failure to meet these
performance levels is a default under this contract and could
lead to damages or sanctions as outlined in Article XVII. The
performance levels are subject to changes if required to
comply with federal and state laws or regulations.

4.10.6.1 All claims and appeals submitted to HMO and claims processing
subcontractors must be paid-adjudicated (clean claims),
denied-adjudicated (clean claims), or denied for additional
information (unclean claims) to providers within 30 days from
the date the claim is received by HMO. Providers must be sent
a written notice for each claim that is denied for additional
information (unclean claims) identifying the claim, all
reasons why the claim is being denied, the date the claim was
received by HMO, all information required from the provider
in order for HMO to adjudicate the claim, and the date by
which the requested information must be received from the
provider.

4.10.6.2 Claims that are suspended (pended internally) must be
subsequently paid-adjudicated, denied-adjudicated, or denied
for additional information (pended externally) within 30 days
from date of receipt. No claim can be suspended for a period
exceeding 30 days from date of receipt of the claim.

12/21/00

Page 2 of 3


4.10.6.3 HMO must identify each data field of each claim form that is
required from the provider in order for HMO to adjudicate the
claim. HMO must inform all network providers about the
required fields no later than 30 days prior to the effective
date of the contract or as a provision within HMO/provider
contract. Out-of-network providers must be informed of all
required fields if the claim is denied for additional
information. The required fields must include those required
by HMO and TDH.

4.10.7 HMO is subject to Article XVI, Default and Remedies, for
claims that are not processed on a timely basis as required
by this contract and the Claims Manual. Notwithstanding the
provisions of Articles 4.10.4, 4.10.4.1 and 4.10.4.2, HMO's
failure to adjudicate (paid, denied, or external pended) at
least ninety percent (90%) of all claims within thirty (30)
days of receipt and ninety-nine percent (99%) within ninety
(90) days of receipt for the contract year to date is a
default under Article XVI of this contract.

4.10.8 HMO must comply with the standards adopted by the U.S.
Department of Health and Human Services under the Health
Insurance Portability and Accountability Act of 1996
submitting and receiving claims information through
electronic data interchange (EDI) that allows for automated
processing and adjudication of claims within two or three
years, as applicable, from the date the rules promulgated
under HIPAA are adopted.

4.10.9 For claims requirements regarding retroactive PCP changes for
mandatory Members, see Article 7.8.12.2.



AGREED AND SIGNED by an authorized representative of the parties on April 2,
2001.

TEXAS DEPARTMENT OF HEALTH PCA Health Plans of Texas, Inc.

By: /s/ Charles E. Bell, M.D. By: /s/ Michael A. Seltzer
-------------------------- -------------------------------
Charles E. Bell, M.D. Michael A. Seltzer
Executive Deputy Vice President, West Region
Commissioner of Health

Approved as to Form:

/s/ Mary Ann Slavin

-------------------------
Office of General Counsel

TDH DOC. NO. 4810323494* 01-01D

12/21/00

Page 3 of 3


TDH DOC 0. 4810323494* 2001-01E
--------------------

AMENDMENT NO. 6
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

The 1999 Contract for Services entered into between the Texas Department of
Health and PCA Health Plans of Texas, Inc. (HMO) in the Bexar Service Area is
hereby amended to reflect the merger of PCA Health Plans of Texas, Inc. into
Humana Health Plan of Texas, Inc. The Texas Department of Insurance has approved
the merger and all requisite documents have been filed. Copies of the Agreement
and Plan of Merger, Articles of Merger, and Official Order of the Commissioner
of Insurance are attached.

This Amendment No. 6 hereby substitutes Humana Health Plan of Texas, Inc. in the
place of PCA Health Plans of Texas, Inc. into the 1999 Contract for Services
referenced above. Humana Health Plan of Texas, Inc. agrees to abide by the
Application submitted in response to the Texas Department of Health's Request
for Application and all of the terms and conditions set forth in the 1999
Contract for Services and all of its duly executed Amendments.

AGREED TO:


TEXAS DEPARTMENT OF HEALTH HUMANA HEALTH PLAN OF TEXAS, INC.



By: /s/ Charles E. Bell, M.D By: /s/ Michael A. Seltzer
------------------------------------- ------------------------------
Charles E. Bell, M.D. Michael A. Seltzer
Deputy Commissioner of Health CEO, South Texas Market

Date: 05/16/01 Date: ____________________

Approved as to Form:


/s/ Mary Ann Slavin

----------------------------------------
Office of General Counsel

No. 00-0377
-------

OFFICIAL ORDER

of the COMMISSIONER OF INSURANCE

of the

STATE OF TEXAS

AUSTIN, TEXAS

Date: Mar 31, 2000

Subject Considered: MERGER OF
PCA HEALTH PLANS OF TEXAS, INC.
Austin, Texas

TDI No. 28-05818

AND

HUMANA HMO TEXAS, INC.
San Antonio, Texas

TDI No. 28-94466

INTO

HUMANA HEALTH PLAN OF TEXAS, INC.
San Antonio, Texas

TDI No. 28-93827

CONSENT ORDER

DOCKET NO. C-00-0296

General remarks and official action taken:

On this day, came for consideration by the Commissioner of Insurance pursuant to
TEX. INS. CODE ANN. art. 20A and art. 21.25 the Plan and Agreement of Merger by
and between PCA HEALTH PLANS OF TEXAS, INC., Austin, Texas, hereinafter referred
to as "PCA HEALTH" and HUMANA HMO TEXAS, INC., San Antonio, Texas, hereinafter
referred to as "HUMANA HMO", and collectively hereinafter referred to as
"NON-SURVIVORS", whereby NON-SURVIVORS would be merged with and into HUMANA
HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, hereinafter referred to as
"HUMANA HEALTH" with HUMANA HEALTH being the survivor.

Staff for the Texas Department of Insurance and the duly authorized
representative for NON-SURVIVORS and HUMANA HEALTH have consented to the entry
of this order and have requested the Commissioner of Insurance informally
dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN.ss.36.104 (former article 1.33 (e)), TEX. GOV'T CODE ANN.ss.2001.056, and 28
TEX. ADMIN. CODE ss.1.47.

WAIVER

NON-SURVIVORS and HUMANA HEALTH acknowledge the existence of their rights
including but not limited to, the issuance and service of

00-0377
COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 2 OF 5


notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN.ss.ss.36.201-36.205 (former article 1.04)(D)
and TEX. GOV'T CODE ANN.ss.ss.2001.051, 2001.052, 2001.145 and 2001.146, and
have expressly waived each and every such right.

FINDINGS OF FACT

----------------

Based upon the information provided to the Texas Department of Insurance
pursuant to TEX. ADMIN. CODE, art. 11.301(4)(D) and art.ss.11.1202, the
Commissioner of Insurance makes the following findings of fact:

1. NON-SURVIVORS and HUMANA HEALTH have represented to the Commissioner of
Insurance that they desire to waive all procedural requirements for the
entry of an order, including but not limited to, notice of hearing, a
public hearing, a proposal for decision, rehearing by the Commissioner
of Insurance, and judicial review of the order as provided in TEX. INS.
CODE ANN.ss.ss.36.201-36.205 (former article 1.04), and TEX. GOV'T CODE
ANN. ss.ss.2001.051, 2001.052, 2001.145 and 2001.146.

2. PCA HEALTH is a domestic Health Maintenance Organization duly licensed
in the State of Texas pursuant to the provisions of Chapter 20A of the
Texas Insurance Code.

3. HUMANA HMO is a domestic Health Maintenance Organization duly licensed
in the State of Texas pursuant to the provisions of Chapter 20A of the
Texas Insurance Code.

4. HUMANA HEALTH is a domestic Health Maintenance Organization duly
licensed in the State of Texas pursuant to the provisions of Chapter 20A
of the Texas Insurance Code.

5. NON-SURVIVORS and HUMANA HEALTH are authorized to do a similar line of
business, which is a prerequisite for merger approval under TEX. INS.
CODE ANN. art. 20A.04 and 28 TEX. ADMIN. CODE ss.11.301(4)(D).

6. Documentation has been presented to the Texas Department of Insurance
evidencing the fact that the Plan and Agreement of Merger has been
approved by the Board of Directors and

00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA TEXAS, INC.
PAGE 3 OF 6

shareholders of both NON-SURVIVORS and HUMANA HEALTH in accordance with
the requirements of TEX. INS. CODE ANN. art. 21.25.

7. As a result of the mergers, all of the issued and outstanding shares of
stock of NON-SURVIVORS shall be canceled.

8. HUMANA HEALTH shall be the surviving corporation of the merger
transactions.

9. As a result of the mergers, HUMANA HEALTH will assume and carry out all
the liability and responsibility under insurance or reinsurance
agreements now entered into by NON-SURVIVORS and any other obligations
outstanding against such companies the time of merger on the same terms
and under the same conditions as provided in such policies, contracts,
insurance or reinsurance agreements.

10. As December 31, 1999 on a proforma basis, HUMANA HEALTH would have had a
consolidated net worth of $34,613,362.

11. Pursuant to Article 1, of the Agreement and Plan of Merger, the
effective date of the merger is the close of business on March 31, 2000.

12. No evidence has been presented that the Plan and Agreement of Merger
between NON-SURVIVORS and HUMANA HEALTH is contrary to law, is not in
the best interest of the policyholders affected by the merger, or would
substantially reduce the security of and service to be rendered to
policyholders of NON-SURVIVORS in Texas or elsewhere.

13. No evidence has been presented that immediately upon consummation of the
transactions contemplated in the Plan and Agreement of Merger, HUMANA
HEALTH would not be able to satisfy the requirements for the issuance of
a license to write the line or lines of insurance for which
NON-SURVIVORS are presently licensed.

14. No evidence has been presented that the effect of such acquisition of
control as a result of the mergers would be


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


00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 5 OF 6

HUMANA HMO TEXAS, INC., San Antonio, Texas, are to be merged with and into
HUMANA HEALTH PLAN OF TEXAS, INC., San Antonio, Texas, with HUMANA HEALTH PLAN
OF TEXAS, INC. being the survivor, all as specified in the Plan and Agreement of
Merger, be, and the same is hereby, approved.

IT IS FURTHER ORDERED that Certificate of Authority No. 9152, dated February 26,
1990, issued to PCA HEALTH PLANS OF TEXAS, INC. and Certificate of Authority No.
11004, dated February 28, 1996, issued to HUMANA HMO TEXAS, INC., San Antonio,
Texas, be canceled, and that the mergers be effective as of the close of
business on March 31, 2000.

JOSE MONTEMAYOR
COMMISSIONER OF INSURANCE


By: /s/ Betty Patterson

-------------------------------------
Betty Patterson
Senior Associate Commissioner
Financial Program
Order No. 94-0576



Recommended by:


/s/ Loretta Calderon

-----------------------------
Loretta Calderon
Insurance Specialist

Company Licensing & Registration

Reviewed by:


/s/ Steve Harper

-----------------------------
Steve Harper,
Financial Analysis & Examination


00-0377

COMMISSIONER'S ORDER
PCA HEALTH PLANS OF TEXAS, INC.
HUMANA HMO TEXAS, INC.
PAGE 6 OF 6

Accepted by:

PCA HEALTH PLANS OF TEXAS, INC.


/s/ Kathleen Pellegrino

-------------------------------------
Title: Vice President

-------------------------------------
(Printed Name): Kathleen Pellegrino

-------------------------------------


Accepted by:

HUMANA HMO TEXAS, INC.


/s/ Kathleen Pellegrino

-------------------------------------
Title: Vice President

-------------------------------------
(Printed Name): Kathleen Pellegrino

-------------------------------------


Accepted by:

HUMANA HEALTH PLAN OF TEXAS, INC.


/s/ Walter E. Neely

-------------------------------------
Title: Vice President

-------------------------------------
(Printed Name): Walter E. Neely
-------------------------------------


ARTICLES OF MERGER

OF

HUMANA HMO TEXAS, INC.
a TEXAS Health Maintenance Organization
&
PCA HEALTH PLANS OF TEXAS, INC.
a TEXAS Health Maintenance Organization

INTO

HUMANA HEALTH PLAN OF TEXAS, INC.
a TEXAS Health Maintenance Organization

Pursuant to provisions of the Texas Business Corporation Act, Articles
5.01B, 5.03A, 5.04A, 5.07, and 5.16, and the Texas Insurance Code, Article
21.25, the domestic corporations herein named do hereby adopt the following
Articles of Merger:

1. The Agreement and Plan of Merger ("Plan") as set forth in Exhibit A,
attached hereto, and made a part hereof, for merging HUMANA HMO TEXAS, INC., a
Texas health maintenance organization, and PCA HEALTH PLANS OF TEXAS, INC., a
Texas health maintenance organization (collectively the "Non-Survivors"), into
HUMANA HEALTH PLAN OF TEXAS, INC., a Texas health maintenance organization (the
"Survivor"), was approved by Unanimous Written Consent of the Board of Directors
of the Non-Survivors dated December 27, 1999 and approved by Unanimous Written
Consent of the Board of Directors of the Survivor dated December 27, 1999.

2. HUMANA HEALTH PLAN OF TEXAS, INC. shall be the surviving corporation
of said merger.

3. Survivor shall be responsible for the payment of all fees and
franchise taxes of the Non-Survivors as required by law, and Survivor will be
obligated to pay such fees and franchise taxes if not timely paid.

4. The Articles of Incorporation of the Survivor, as filed with the
Texas Secretary of State and incorporated herein by reference, shall be the
Articles of Incorporation of the surviving corporation. No changes or amendments
shall be made to the Articles of Incorporation because of the merger.

5. The Plan was approved by unanimous written consent of the
shareholders of each of the undersigned corporations, and:

Page 1 of 3


(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 shall
be at the close of business on March 31, 2000.

Dated as of this 30th day of December, 1999.

HUMANA HMO TEXAS, INC.



By: /s/ Walter E. Neely
-------------------------------------
Walter E. Neely
Vice President

PCA HEALTH PLANS OF TEXAS, INC



By: /s/ Walter E. Neely
-------------------------------------
Walter E. Neely
Vice President

HUMANA HEALTH PLAN OF TEXAS, INC.


By: /s/ Kathleen Pellegrino

-------------------------------------
Kathleen Pellegrino
Vice President

Page 3 of 3


---------
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
Texas, Inc. (the "Surviving Corporation"), a Texas corporation (the "Merger"),
which is hereinafter designated as the surviving corporation of the Merger (the
"Surviving Corporation"); and

(2) Terms of the Merger: The Merger shall become effective at the close
of business at the Effective Time of Merger. At the Effective Time of Merger (i)
the separate existence of the Non-Survivors shall cease and the Non-Survivors
shall be merged with and into Humana Health Plan of Texas, Inc., with Humana
Health Plan of Texas, Inc. continuing in existence as the Surviving Corporation,
and (ii) Humana Health Plan of Texas. Inc. shall succeed to all rights and
privileges and assume all liabilities and obligations of the Non-Survivors.

(3) Taking of Necessary Action: The Surviving Corporation and the
Non-Survivors, respectively, shall take all action as may be necessary or
appropriate in order to effectuate the transactions contemplated by these Merger
Documents. In case, at any time and from time to time after the Effective Time
of Merger, any further action is necessary or desirable to carry out the
purposes of these Merger Documents and to vest the Surviving Corporation
effective on and after the Effective Time of Merger, with full title to all
properties, assets, rights, approvals, immunities and franchises of the
Non-Survivors, the persons serving as officer and directors of the Surviving
Corporation at the Effective Time of Merger, at the expense of the Surviving
Corporation, shall be authorized to take any and all such actions on behalf of
the Non-Survivors deemed necessary or desirable by the Surviving Corporation.

(4) Effect on Capital Stock: a) On the Effective Time of the Merger,
each issued and outstanding share of capital stock of Humana Health Plan of
Texas, Inc. shall remain outstanding and shall represent one issued and
outstanding share of the Surviving Corporation and all of the issued and
outstanding shares of the capital stock of the Non-Survivors shall be cancelled
and no shares of the Surviving Corporation shall be issued in exchange therefor.

(b) There are no rights to acquire shares, obligations, or other
securities of the Surviving Corporation or any of the Non-Survivors in whole or
in part, for cash or other property.

(5) No Amendment to Articles of Incorporation of Surviving Corporation:
The Articles of Incorporation of Humana Health Plan of Texas, Inc., filed with
the Secretary of State of

Page 2 of 3


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


TDH Doc. # 7427705425* 2001-01D
AMENDMENT NO. 7
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

This Amendment No. 7 entered into between the Texas Department of Health (TDH)
and Superior Health Plan, Inc. (HMO) in Bexar Service Area, to amend the 1999
Contract for Services between the Texas Department of Health and HMO. The
effective date of this Amendment is the date TDH Signs this Amendment. All other
contract provisions remain in full force and effect. The Parties agree to amend
the Contract as follows:

Article XII is amended to read as follows:

12.8.1 In addition, data files are due to TDH or its designee no later than
the fifth working day following the end of each month. See Utilization
Data Transfer Encounter Submission Manual for submission instructions.
The BH utilization report and data file submission instructions may
periodically be updated by TDH to facilitate clear communication to the
health plans.

12.9.1 In addition, data files are due to TDH or its designee no later than
the fifth working day following the end of each month. See Utilization
Data Transfer Encounter Submission Manual for submission instructions.
The PH utilization report and data file submission instructions may
periodically be updated by TDH to facilitate clear communication to the
health plan.

AGREED AND SIGNED by an authorized representative of the parties on Aug 2, 2001.

------------

Texas Department of Health Superior Health Plan, Inc.


By: /s/ Charles E. Bell, M.D. By: /s/ Michael D. McKinney, M.D.,
--------------------------------------- -------------------------------
Charles E. Bell, M.D. Michael D. McKinney, M.D.
Executive Deputy Commissioner of Health President


Approved as to Form:

/s/ Mary Ann Slavin

----------------------------
Office General Counsel


02(992 Orig #


AMENDMENT NO. 8
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN

THE TEXAS DEPARTMENT OF HEALTH AND HMO

September 1, 1999 the Texas Department of Health (TDH) and Humana Health Plan of
Texas, Inc. entered into a Contract for Services for the provision of
comprehensive health care services to qualified and Medicaid eligible recipients
in the Bexar Service Area through a managed care delivery system. This Contract
for Services was subsequently renewed in 1999 for a period of two years. Section
15.6 of the above referenced contract allows assignment or the contract with the
written consent of the Texas Department of Insurance (TDI) and TDH.

Humana Health Plan of Texas, Inc. entered into a Management and Risk Transfer
Agreement and an Asset Sale and Purchase Agreement with Superior HealthPlan,
Inc. for the assignment and assumption of the Contract for Services. With the
written consent of both TDI and TDH, effective June 1, 2001, Humana Health Plan
of Texas, Inc. assigned and Superior HealthPlan, Inc. assumed the contract
referenced herein in its entirety.

The purpose of this Amendment No. 8 is to substitute Superior HealthPlan, Inc.
for Humana Health Plan of Texas, Inc. as the party to this contract as a result
of the assignment and assumption. For adequate consideration received Superior
HealthPlan, Inc. agrees to abide by the Application submitted by Humana Health
Plan of Texas, Inc. in response to the Texas Department of Health's Request for
Application and all of the terms and conditions set forth in the 1999 Contract
for Services, its subsequent renewal(s), and all of its duly executed
Amendments.

AGREED AND SIGNED by an authorized representative of the parties on 8/17/01
2001.

TEXAS DEPARTMENT OF HEALTH SUPERIOR HEALTHPLAN, INC.


By: /s/ Charles E. Bell, M.D. /s/ Michael D. McKinney M.D.
---------------------------------- ---------------------------------
Charles E. Bell, M.D. Michael D. McKinney, M.D.
Deputy Commissioner of Health President



Approved as to Form: /s/ Michael D. McKenney
---------------------------------
Printed Name

/s/ [Illegible] Alexander 8/16/01 /s/ President

--------------------------------- ---------------------------------
Office of General Counsel Title of Signator


AMENDMENT NO. 9
TO THE

1999 CONTRACT FOR SERVICES

BETWEEN
HEALTH AND HUMAN SERVICES COMMISSION AND HMO

This Amendment No. 9 is entered into between the Health and Human Services
Commission (HHSC) and Superior Health Plan, Inc. (HMO), to amend the Contract
for Services between the Health and Human Services Commission and HMO in the
Bexar Service Area. The effective date of this amendment is September 1, 2001.
The Parties agree to amend the Contract as follows:

1. HHSC and HMO acknowledge the transfer of responsibility and the
assignment of the original Contract for Services from TDH to HHSC on
September 1, 2001. Where the original Contract for Services and any
Amendment to the original Contract for Services assigns a right, duty,
or responsibility to TDH, that right, duty, or responsibility may be
exercised by HHSC or its designee.

2. Articles II, III, VI, VII, VIII, IX, X, XII, XIII, XV, XVI, XVIII and
XIX are amended to read as follows:

2.0 DEFINITIONS

-----------

Chemical Dependency Treatment Facility means a facility licensed by the
Texas Commission on Alcohol and Drug Abuse (TCADA) under See. 464.002 of
the Health and Safety Code to provide chemical dependency treatment.

Chemical Dependency Treatment means treatment provided for a chemical
dependency condition by a Chemical Dependency Treatment Facility,
Chemical Dependency Counselor or Hospital.

Chemical Dependency Condition means a condition which meets at least
three of the diagnostic criteria for psychoactive substance dependence
in the American Psychiatric Association's Diagnostic and Statistical
Manual of Mental Disorders (DSM IV).

Chemical Dependency Counselor means an individual licensed by TCADA
under Sec. 504 of the Occupations Code to provide chemical dependency
treatment or a master's level therapist (LMSW-ACP, LMFT or LPC) or a
master's level therapist (LMSW-ACP, LMFT or LPC) with a minimum of two
years of post licensure experience in chemical dependency treatment.

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Experience rebate means the portion of the HMO's net income
before taxes (financial Statistical Report, Part 1, Line 7) that
is returned to the state in accordance with Article 13.2.1.

Joint Interface Plan (JIP) means a document used to communicate
basic system interface information of the Texas Medicaid
Administrative System (TMAS) among and across State TMAS
Contractors and Partners so that all entities are aware of the
interfaces that affect their business. This information includes:
file structure, data elements, frequency, media, type of file,
receiver and sender of the file, and file I.D. The JIP must
include each of the HMO's interfaces required to conduct State
TMAS business. The JIP must address the coordination with each of
the Contractor's interface partners to ensure the development and
maintenance of the interface; and the timely transfer of required
data elements between contractors and partners.

3.5 RECORDS REQUIREMENTS AND RECORDS RETENTION
------------------------------------------

3.5.8 The use of Medicaid funds for abortion is prohibited unless the
pregnancy is the result of a rape, incest, or continuation of the
pregnancy endangers the life of the woman. A physician must
certify in writing that based on his/her professional judgment,
the life of the mother would be endangered if the fetus were
carried to term. HMO must maintain a copy of the certification
for at least three years.

6.6 BEHAVIORAL HEALTH CARE SERVICES - SPECIFIC REQUIREMENTS
-------------------------------------------------------

6.6.13 Chemical dependency treatment must conform to the standards set
forth in the Texas Administrative Code, Title 28, Part 1, Chapter
3, Subchapter HH.

6.8 TEXAS HEALTH STEPS (EPSDT)
--------------------------

6.8.3 Provider Education and Training. HMO must provide appropriate
training to all network providers and provider staff in the
providers' area of practice regarding the scope of benefits
available and the THSteps program. Training must include THSteps
benefits, the periodicity schedule for THSteps checkups and
immunizations, the required elements of a THSteps medical screen,
providing or arranging for all required lab screening tests
(including lead screening), and Comprehensive Care Program (CCP)
services available under the THSteps program to Members under age
21 years. Providers must also be educated and trained regarding
the requirements imposed upon the department and contracting HMOs
under the Consent Decree entered in Frew vs. McKinney, et al.,
Civil Action No. 3:93CV65, in the United States District Court
for the Eastern District of Texas, Paris Division. Providers
should be educated and trained to treat each THSteps visit as an
opportunity for a comprehensive assessment of the Member.

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HMO must report provider education and training regarding THSteps
in accordance with Article 7.4.4.

7.2 PROVIDER CONTRACTS
------------------

7.2.5 HHSC reserves the right and retains the authority to make
reasonable inquiry and conduct investigations into provider and
Member complaints against HMO or any intermediary entity with
whom HMO contracts to deliver health care services under this
contract. HHSC may impose appropriate sanctions and contract
remedies to ensure HMO compliance with the provisions of this
contract.

7.5 MEMBER PANEL REPORTS
--------------------

7.5 HMO must furnish each PCP with a current list of enrolled Members
enrolled or assigned to that Provider no later than 5 working
days after HMO receives the Enrollment File from the Enrollment
Broker each month.

7.7 PROVIDER QUALIFICATIONS - GENERAL
---------------------------------
The providers in HMO network must meet the following
qualifications:

--------------------------------------------------------------------------------
FQHC A Federally Qualified Health Center meets the standards
established by federal rules and procedures. The FQHC must also
be an eligible provider enrolled in the Medicaid.

--------------------------------------------------------------------------------
Physician An individual who is licensed to practice medicine as an MD or a
DO in the State of Texas either as a primary care provider or in
the area of specialization under which they will provide medical
services under contract with HMO; who is a provider enrolled in
the Medicaid; who has a valid Drug Enforcement Agency
registration number, and a Texas Controlled Substance
Certificate, if either is required in their practice.

--------------------------------------------------------------------------------
Hospital An institution licensed as a general or special hospital by the
State of Texas under Chapter 241 of the Health and Safety Code
which is enrolled as a provider in the Texas Medicaid Program.
HMO will require that all facilities in the network used for
acute inpatient specialty care for people under age 21 with
disabilities or chronic or complex conditions will have a
designated pediatric unit; 24 hour laboratory and blood bank
availability; pediatric radiological capability; meet JCAHO
standards; and have discharge planning and social service units.
--------------------------------------------------------------------------------

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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 Federal
Laboratory Laboratory Improvement Act (CLIA), and is enrolled in the Texas
Medicaid Program.
----------------------------------------------------------------------------------------------
Rural Health An institution which meets all of the criteria for designation as
Clinic (RHC) a rural health clinic and is enrolled in the Texas Medicaid
Program.

----------------------------------------------------------------------------------------------
Local Health A local health department established pursuant to Health and
Department Safety Code, Title 2, Local Public Health Reorganization Act
ss.121.031ff.

----------------------------------------------------------------------------------------------
Non-Hospital A provider of health care services which is licensed and
Facility Provider credentialed to provide services and is enrolled in the Texas
Medicaid Program.
----------------------------------------------------------------------------------------------
School Based Clinics located at school campuses that provide on site primary
Health Clinic and preventive care to children and adolescents.
(SBHC)
----------------------------------------------------------------------------------------------
Chemical A facility licensed by the Texas Commission on Alcohol and Drug
Dependency Abuse (TCADA) under Sec. 464,002 of the Health and Safety Code to
Treatment provide chemical dependency treatment.
Facility

----------------------------------------------------------------------------------------------
Chemical An individual licensed by TCADA under Sec. 504 of the Occupations
Dependency Code to provide chemical dependency treatment or a master's level
Counselor therapist (LMSW-ACP, LMFT or LPC) with a minimum of two years of
post-licensure experience in chemical dependency treatment.
----------------------------------------------------------------------------------------------


7.10 SPECIALTY CARE PROVIDERS
------------------------

7.10.1 HMO must maintain specialty providers, actively serving within
that specialty, including pediatric specialty providers and
chemical dependency specialty providers, within the network in
sufficient numbers and areas of practice to meet the needs of all
Members requiring specialty care services.

7.11 SPECIAL HOSPITALS AND SPECIALTY CARE FACILITIES
-----------------------------------------------

7.11.1 HMO must include all medically necessary specialty services
through its network specialists, sub-specialists and specialty
care facilities (e.g., children's hospitals, licensed chemical
dependency treatment facilities and tertiary care hospitals).

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4


8.2 MEMBER HANDBOOK
---------------

8.2.1 HMO must mail each newly enrolled Member a Member Handbook no
later than 5 working days after HMO receives the Enrollment File.
The Member Handbook must be written at a 4th - 6th grade reading
comprehension level. The Member Handbook must contain all
critical elements specified by TDH. See Appendix D, Required
Critical Elements, for specific details regarding content
requirements. HMO must submit a Member Handbook to TDH for
approval prior to the effective date of the contract unless
previously approved (see Article 3.4.1 regarding the process for
plan materials review).

8.4 MEMBER ID CARDS
---------------

8.4.2 HMO must issue a Member Identification Card (ID) to the Member
within 5 working days from the date the HMO receives the monthly
Enrollment File from the Enrollment Broker. The ID Card must
include, at a minimum, the following: Member's name; Member's
Medicaid number; either the issue date of the card or effective
date of the PCP assignment; PCP's name, address, and telephone
number; name of HMO; name of IPA to which the Member's PCP
belongs, if applicable; the 24-hour, seven (7) day a week
toll-free telephone number operated by HMO; the toll-free number
for behavioral health care services; and directions for what to
do in an emergency. The ID Card must be reissued if the Member
reports a lost card, there is a Member name change, if Member
requests a new PCP, or for any other reason which results in a
change to the information disclosed on the ID Card.

9.2 MARKETING ORIENTATION AND TRAINING
----------------------------------

9.2.1 HMO must require that all HMO staff having direct marketing
contact with Members as part of their job duties and their
supervisors satisfactorily complete HHSC's marketing orientation
and training program, conducted by HHSC or health plan staff
trained by HHSC, prior to engaging in marketing activities on
behalf of HMO. HHSC will notify HMO of scheduled orientations.

9.2.2 Marketing Policies and Procedures. HMO must adhere to the
Marketing Policies and Procedures as set forth by the Health and
Human Services Commission.

10.1 MODEL MIS REQUIREMENTS
----------------------

10.1.3 HMO must have a system that can be adapted to the change in
Business Practices/Policies within the timeframe negotiated
between HHSC and the HMO.

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5


10.1.3.1 HMO must notify and advise BIR of major systems changes and
implementations. HMO is required to provide an implementation
plan and schedule of proposed system change at the time of this
notification.

10.1.3.2 BIR conducts a Systems Readiness test to validate the
contractor's ability to meet the MMIS requirements. This is done
through systems demonstration and performance of specific MMIS
and subsystem functions. The System Readiness test may include a
desk review and/or. an onsite review and is conducted for the
following events:

o A new plan is brought into the program
o An existing plan begins business in a new SDA
o An existing plan changes location
o An existing plan changes their processing system

10.1.3.3 Desk Review. HMO must complete and pass systems desk review prior
to onsite systems testing conducted by HHSC.

10.1.3.4 Onsite Review. HMO is required to provide a detailed and
comprehensive Disaster and Recovery Plan, and complete and pass
an onsite Systems Facility Review during the State's onsite
systems testing.

10.1.3.5 HMO is required to provide a Corrective Action Plan in response
to HHSC Systems Readiness Testing Deficiencies no later than 10
working days after notification of deficiencies by HHSC.

10.1.3.6 HMO is required to provide representation to attend and
participate in the HHSC Systems Workgroup as a part of the weekly
Systems Scan Call.

10.1.9 HMO must submit a joint interface plan (JIP) in a format
specified by HHSC. The JIP will include required information on
all contractor interfaces that support the Medicaid Information
Systems. The submission of the JIP will be in coordination with
other TMAS contractors and is due no later than 10 working days
after the end of each state fiscal year calendar.

10.3. ENROLLMENT ELIGIBILITY SUBSYSTEM
--------------------------------

(11) Send PCP assignment updates to HHSC or its designee, in the
format specified by HHSC or its designee. Updates can be sent as
often as daily but must be sent at least weekly.

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6


12.1 FINANCIAL REPORTS
-----------------

12.1.1 MCFS Report. HMO must submit the Managed Care Financial
Statistical Report (MCFS) included in Appendix I. The report must
be submitted to HHSC no later than 30 days after the end of each
state fiscal year quarter (i.e., Dec. 30, March 30, June 30,
Sept. 30) and must include complete and updated financial and
statistical information for each month of the state fiscal
year-to-date reporting period. The MCFS Report must be submitted
for each claims processing subcontractor in accordance with this
Article. HMO must incorporate financial and statistical data
received by its delegated networks (IPAs, ANHCs, Limited Provider
Networks) in its MCFS Report.

12.1.4 Final MCFS Reports. HMO must file two Final Managed Care
Financial-statistical Reports after the end of the second year of
the contract for the first two- year portion of the contract and
again after the third year of the contract for the third year
(second portion) of the contract. The first final report must
reflect expenses incurred through the 90th day after the end of
the first two-year portion of the contract and again after the
end of the third year of the contract for the third year (second
portion) of the contract. The first final report must be filed on
or before the 120th day after the end of each portion of the
contract. The second final report must reflect data completed
through the 334th day after the end of the second year of the
contract for the first two year portion of the contract and again
after the end of the third year of the contract for the third
year (second portion) of the contract and must be filed on or
before the 365th day following the end of each portion of the
contract year.

12.5 PROVIDER NETWORK REPORTS
------------------------

12.5.3 PCP Error Report. HMO must submit to the Enrollment Broker an
electronic file summarizing changes in PCP assignments. The file
must be submitted in a format specified by HHSC and can be
submitted as often as daily but must be submitted at least
weekly. When HMO receives a PCP assignment Error Report /File,
HMO must send corrections to HHSC or its designee within five
working days.

12.13 EXPEDITED PRENATAL OUTREACH REPORT
----------------------------------

12.13 HMO must submit the Expedited Prenatal Outreach Report for each
monthly reporting period in accordance with a format developed by
HHSC in consultation with the HMOs. The report must include
elements that demonstrate the level of effort and the outcomes of
the HMO in outreaching to pregnant women for the purpose of
scheduling and/or completing the initial obstetrical examination
prior to 14 days after the receipt of the daily enrollment file
by the HMO. Each monthly report is due by the last day of the
month following each monthly reporting period.

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13.1 CAPITATION AMOUNTS
------------------

13.1.2 Delivery Supplemental Payment (DSP). The monthly capitation
amounts and the DSP amount are listed below.

-------------------------------------------------------------
Risk Group Monthly Capitation Amounts

-------------------------------------------------------------
TANF Adults $180.43
-------------------------------------------------------------
TANF Children (less than 12
or equal to)
Months of Age $65.49
-------------------------------------------------------------
Expansion Children (less than 12
or equal to)
Months of Age $60.94
-------------------------------------------------------------
Newborns (greater than) 12 Months of
or equal to)
Age $378.59
-------------------------------------------------------------
TANF Children (greater than 12
or equal to)
Months of Age $378.59
-------------------------------------------------------------
Expansion Children (greater than 12
or equal to)
Months of Age $378.59
-------------------------------------------------------------
Federal Mandate Children $54.61
-------------------------------------------------------------
CHIP Phase I $72.19
-------------------------------------------------------------
Pregnant Women $255.17
-------------------------------------------------------------
Disabled/Blind

Administration $14.00
-------------------------------------------------------------

Delivery Supplemental Payment: A one-time per pregnancy
supplemental payment for each delivery shall be paid to HMO as
provided below in the following amount: $2,834.10.

13.1.3.1 Once HMO has received its capitation rates established by HHSC
for the second or third year of this contract, HMO may terminate
this contract as provided in Article 18.1.6.

13.1.7 HMO renewal rates reflect program increases appropriated by the
76th and 77th legislature for physician (to include THSteps
providers) and outpatient facility services. HMO must report to
HHSC any change in rates for participating physicians (to include
THSteps providers) and outpatient facilities resulting from this
increase. The report must be submitted to HHSC at the end of the
first quarter of the FY2000, FY2001 and FY2002 contract years
according to the deliverables matrix schedule set for HMO.

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13.2 EXPERIENCE REBATE TO THE STATE
------------------------------

13.2.1 For the contract period, HMO must pay to TDH an experience rebate
calculated in accordance with the tiered rebate method listed
below based on the excess of allowable HMO STAR revenues over
allowable HMO STAR expenses as measured by any positive amount on
Line 7 of "Part 1: Financial Summary, All Coverage Groups
Combined" of the annual Managed Care Financial-Statistical Report
set forth in Appendix I, as reviewed and confirmed by TDH. TDH
reserves the right to have an independent audit performed to
verify the information provided by HMO.

-----------------------------------------------------------------
Graduated Rebate Method

-----------------------------------------------------------------
Net income before HMO Share State Share
taxes as a Percentage
of Revenues

-----------------------------------------------------------------
0% -3% 100% 0%
-----------------------------------------------------------------
Over 3% - 7 % 75% 25%
-----------------------------------------------------------------
Over 7% - 10% 50% 50%
-----------------------------------------------------------------
Over 10% - 15% 25% 75%
-----------------------------------------------------------------
Over 15% 0% 100%
-----------------------------------------------------------------

13.2.2.1 The experience rebate for the HMO shall be calculated by applying
the experience rebate formula in Article 13.2.1 to the sum of the
net income before taxes (Financial Statistical Report, Part 1,
Line 7) for all STAR Medicaid service areas contracted between
the State and HMO.

13.2.4 Population-Based Initiatives (PBIs) and Experience Rebates: HMO
may subtract from an experience rebate owed to the State,
expenses for population-based health initiatives that have been
approved by HHSC. A population-based initiative (PBI) is a
project or program designed to improve some aspect of quality of
care, quality of life, or health care knowledge for the Medicaid
population that may also benefit the community as a whole.
Value-added service does not constitute a PBI. Contractually
required services and activities do not constitute a PBI.

13.2.5 There will be two settlements for payment(s) of the experience
rebate for FY 2000-2001 and two settlements for payment(s) for
the experience rebate for FY 2002. The first settlement for the
specified time period shall equal 100 percent

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9


of the experience rebate as derived from Line 7 of Part I (Net
Income Before Taxes) of the first final Managed Care Financial
Statistical (MCFS) Report and shall be paid on the same day the
first final MCFS Report is submitted to HHSC for the specified
time period. The second settlement shall be an adjustment to the
first settlement and shall be paid to HHSC on the same day that
the second final MCFS Report is submitted to HHSC for that
specified time period if the adjustment is a payment from HMO to
HHSC. If the adjustment is a payment from HHSC to HMO, HHSC shall
pay such adjustment to HMO within thirty (30) days of receipt of
the second final MCFS Report. HHSC or its agent may audit or
review the MCFS report. If HHSC determines that corrections to
the MCFS reports are required, based on a HHSC audit/review of
other documentation acceptable to HHSC, to determine an
adjustment to the amount of the second settlement, then final
adjustment shall be made within two years from the date, that HMO
submits the second final MCFS report. HMO must pay the first and
second settlements on the due dates for the first and second
final MCFS reports, respectively as identified in Article 12.1.4.
HHSC may adjust the experience rebate if HHSC determines HMO has
paid affiliates amounts for goods or services that are higher
than the fair market value of the goods and services in the
service area. Fair market value may be based on the amount HMO
pays a non-affiliate(s) or the amount another HMO pays for the
same or similar service in the service area. HHSC has final
authority in auditing and determining the amount of the
experience rebate.

13.3 PERFORMANCE OBJECTIVES INCENTIVES
---------------------------------

13.3.1 Preventive Health Performance Objectives. Preventive Health
Performance Objectives are contained in this contract at Appendix
K. HMO must accomplish the performance objectives or a designated
percentage in order to be eligible for payment of financial
incentives. Performance objectives are subject to change. HHSC
will consult with HMO prior to revising performance objectives.

13.3.2 HMO will receive credit for accomplishing a performance objective
upon receipt of accurate encounter data required under Article
10.5 and 12.2 of this contract and/or a Detailed Data Element
Report from HMO with report formal as determined by HHSC and
aggregate data report by HMO in accordance with a report format
as determined by HHSC (Performance Objective Report). Accuracy
and completeness of the Detailed Data Element Report and the
Aggregate Data Performance Objective Report will be determined by
HHSC through an HHSC audit of the HMO claims processing system.
If HHSC determines that the Detailed Data Element Report and
Performance Objectives Report are sufficiently supported by the
results of the HHSC audit, the payment of financial incentives
will be made to HMO. Conversely, if the audit results do not
support the reports as determined by HHSC, HMO will not receive
payment

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of the financial incentive. HHSC may conduct provider chart
reviews to validate the accuracy of the claims data related to
HMO accomplishment of performance objectives. If the results of
the chart review do not support the HMO claims system data or the
HMO Detailed Data Element Report and the Performance Objectives
Report, HHSC may recoup payment made to the HMO for performance
objectives incentives.

13.3.3 HMO will also receive credit for performance objectives performed
by other organizations if a network primary pare provider or the
HMO retains documentation from the performing organization which
satisfies the requirements contained in Appendix K of this
contract.

13.3.4 HMO will receive performance objective bonuses for accomplishing
the following percentages of performance objectives:

-----------------------------------------------------------------
Percent of Each Performance Percent of Performance Objective
Objective Accomplished Allocations Paid to HMO
-----------------------------------------------------------------
60% to 65 % 20%
-----------------------------------------------------------------
65% to 70% 30%
-----------------------------------------------------------------
70% to 75 % 40%
-----------------------------------------------------------------
75% to 80% 50%
-----------------------------------------------------------------
80% to 85% 60%
-----------------------------------------------------------------
85% to 90% 70%
-----------------------------------------------------------------
90% to 95% 80%
-----------------------------------------------------------------
95% to 100% 90%
-----------------------------------------------------------------
100% 100%
-----------------------------------------------------------------

13.3.5 HMO must submit the Detailed Data Element Report and the
Performance Objectives Report regardless of whether or not the
HMO intends to claim payment of performance objective bonuses.

13.3.6 Payment of performance objective bonus is contingent upon
availability of appropriations. If appropriations are not
available to pay performance objective bonuses as set out below,
HHSC will equitably distribute all available funds to each HMO
that has accomplished performance objectives.

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13.3.7 In addition to the capitation amounts set forth in Article
13.1.2, a performance premium of two dollars ($2.00) per Member
month will be allocated by HHSC for the accomplishment of
performance objectives.

13.3.8 The HMO must submit the Performance Objectives Report and the
Detailed Data Element Report as referenced in Article 13.3.2,
within 150 days from the end of each State fiscal year.
Performance premiums will be paid to HMO within 120 days after
the State receives and validates the data contained in each
required Performance Objectives Report.

13.3.9 The performance objective allocation for HMO shall be assigned to
each performance objective, described in Appendix K, in
accordance with the following percentages:

-----------------------------------------------------------------
EPSDT SCREENS Percent of Performance Objective
Incentive Fund
-----------------------------------------------------------------
1. < 12 months 12%
-----------------------------------------------------------------
2. 12 to 24 months 12%
-----------------------------------------------------------------
3. 25 months - 20 years 20%
-----------------------------------------------------------------

-----------------------------------------------------------------
IMMUNIZATIONS Percent of Performance Objective
Incentive Fund
-----------------------------------------------------------------
4. < 12 months 7%
-----------------------------------------------------------------
5. 12 to 24 months 5%
-----------------------------------------------------------------

-----------------------------------------------------------------
ADULT ANNUAL VISITS Percent of Performance Objective
Incentive Fund
-----------------------------------------------------------------
6. Adult Annual Visits 3%
-----------------------------------------------------------------

-----------------------------------------------------------------
PREGNANCY VISITS Percent of Performance Objective -
Incentive Fund
-----------------------------------------------------------------
7. Initial prenatal exam 15%
-----------------------------------------------------------------
8. Visits by Gestational Age 14%
-----------------------------------------------------------------
9. Postpartum visit 12%
-----------------------------------------------------------------

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13.3.10 Compass 21 Encounter Data Conversion Performance Incentive. A
Compass 21 encounter data conversion performance incentive payment
will be paid by the State to each HM0 that achieves the identified
conversion performance standard for at least one month in the
first quarter of SFY 2002 as demonstration of successful
conversion to the C21 system. The encounter data conversion
performance standard is as follows:

------------------------------------------------------------------
Performance Objective Encounter Data Conversion
Performance Incentive
------------------------------------------------------------------
Percentage of encounters 65%
submitted that are successfully
accepted into
C21

------------------------------------------------------------------

13.3.10.1 The amount of the incentive will be based on the total amount
identified by the state for the encounter data conversion
performance incentive pool ("Pool"). The pool will be equally
distributed between all the HMOs that achieve the performance
objective within the first quarter of SFY 2002. HMOs with multiple
contracts with HHSC are eligible to receive only one allocation
from the Pool. Required HMO performance for the identified
objectives will be verified by HHSC for accuracy and completeness.
The incentive will be paid only after HHSC has verified that HMO
performance has met the required performance standard. Payments
will be made in the second quarter of the fiscal year.

13.5.4 NEWBORN AND PREGNANT WOMAN PAYMENT PROVISIONS
---------------------------------------------

13.5.4 Newborns who appear on the MAXIMUS daily enrollment file but do
not appear on the MAXIMUS monthly enrollment or adjustment file
before the end of the sixth month following the date of birth will
not be retroactively enrolled into the HMO. HHSC will manually
reconcile payment to the HMO for services provided from the date
of birth for TP45 and all other eligibility categories of
newborns. Payment will cover services rendered from the effective
date of the proxy ID number when first issued by the HMO
regardless of plan assignment at the time the State-issued
Medicaid ID number is received.

15.6 ASSIGNMENT

----------

15.6 This contract was awarded to HMO based on HMO's qualifications to
perform personal and professional services. HMO cannot assign this
contract without the written consent of HHSC. This provision does
not prevent HMO from

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subcontracting duties and responsibilities to qualified
subcontractors. If HHSC consents to an assignment of this
contract, a transition period of 90 days will run from the date
the assignment is approved by HHSC so that Members' services are
not interrupted and, if necessary, the notice provided for in
Article 15.7 can be sent to Members. The assigning HMO must also
submit a transition plan, as set out in Article 18.2,1, subject to
HHSC 's approval.

16.3 DEFAULT BY HMO
--------------

16.3.14.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to HHSC by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit HHSC in exercising all
or part of any remaining remedies.

For HMO's failure to meet any benchmark established by HHSC under
this contract, or for failure to meet improvement targets, as
identified by HHSC, HHSC may:

o Remove all or part of the THSteps component from the
capitation paid to HMO
o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4;
and/or
o Require forfeiture of all or part of the TDI performance bond
as set out in Article 18.9.

16.3.15 FAILURE TO PERFORM A MATERIAL DUTY OR RESPONSIBILITY
----------------------------------------------------

Failure of HMO to perform a material duty or responsibility as
set out in this Contract is a default under this contract and
HHSC may impose one or more of the remedies contained within its
provisions and all other remedies available to HHSC by law or in
equity.

16.3.15.1 REMEDIES AVAILABLE TO HHSC FOR THIS HMO DEFAULT
-----------------------------------------------

All of the listed remedies are in addition to all other remedies
available to HHSC by law or in equity, are joint and several, and
may be exercised concurrently or consecutively. Exercise of any
remedy in whole or in part does not limit HHSC in exercising all
or part of any remaining remedies.

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For HMO's failure to perform an administrative function under
this contract, HHSC may:

o Terminate the contract if the applicable conditions set out in
Article 18.1.1 are met;
o Suspend new enrollment as set out in Article 18.3;
o Assess liquidated money damages as set out in Article 18.4;
and/or
o Require forfeiture of all or part of the TDI performance bond
as set out in Article 18.9.

18. 1.6 TERMINATION BY HMO

18.1.6 HMO may terminate this contract if HHSC fails to pay HMO as
required under Article XIII of this contract or otherwise
materially defaults in its duties and responsibilities under this
contract, or by giving notice no later than 30 days after
receiving the capitation rates for the second or third contract
years. Retaining premium, recoupment, sanctions, or penalties
that are allowed under this contract or that result from HMO's
failure to perform or HMO's default under the terms of this
contract is not cause for termination.

18.2 DUTIES OF CONTRACTING PARTIES UPON TERMINATION

18.2.2 If the contract is terminated by HHSC for any reason other than
federal or state funds for the Medicaid program no longer being
available or if HMO terminates the contract based on lower
capitation rates for the second or third contract years as set
out in Article 13.1.3.1:

18.2.3 If the contract is terminated by HMO for any reason other than
based on lower capitation rates for the second or third contract
years as set out in Article 13.1.3.1:

Article XIX TERM

----

19.1 The effective date of this contract is August 30, 1999. This
contract will terminate on August 31, 2002, unless terminated
earlier as provided for elsewhere in the contract.

3. The Appendices are amended by replacing page 10 of Appendix A "Standards
for Quality Improvement Programs" to incorporate a change in item F,
number 1 on recredentialing.

4. The Appendices are amended by deleting Appendix D, "Required Critical
Elements," and replacing it with new Appendix D, "Required Critical
Elements", as attached.

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AGREED AND SIGNED by an authorized representative of the parties on
____________________________ 2001.

Health and Human Services Commission Superior Health Plan, Inc.

By: /s/ Don A. Gilbert By: /s/ Michael D. McKinney, M.D.
--------------------------------- -------------------------------
Don A. Gilbert Michael D. McKinney, M.D.
President & CEO

Approved as to Form:

/s/ ILLEGIBLE
---------------------------------
Office of General Counsel

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