UNITED PAYORS & UNITED PROVIDERS INC, S-3, 1999-03-15

UNITED PAYORS & UNITED PROVIDERS INC
S-3, 1999-03-15
SERVICES, NEC

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<PAGE>

As filed with the Securities and Exchange Commission on March 15, 1999
Registration No. 333-_________
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________

FORM S-3

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_____________________________________

UNITED PAYORS & UNITED PROVIDERS, INC.
(Exact Name of Registrant as Specified in its Certificate of Incorporation)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6411 51-0374698
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification Number)
of Incorporation or Organization) Classification Code Number)
</TABLE>

2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
(301) 548-1000
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principle Executive Offices)

Thomas L. Blair
Chairman of the Board and Co-Chief Executive Officer
Edward S. Civera
Co-Chief Executive Officer and President
United Payors & United Providers, Inc.
2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
(301) 548-1000

(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)

__________________________________________
Copies to:
<TABLE>
<S> <C>
Douglas P. Faucette, Esq. Donald J. Murray, Esq.
Thomas J. Haggerty, Esq. Dewey Ballantine LLP
Muldoon, Murphy & Faucette LLP 1301 Avenue of the Americas
5101 Wisconsin Avenue, N.W. New York, New York 10019
Washington, D.C. 20016 (212) 259-8000
(202) 362-0840
___________________________________________
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities herein registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
___________________________________________

Calculation of Registration Fee

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Amount To Be Offering Price Aggregate Offering Registration
Title of Shares To Be Registered Registered Per Share Price (1) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Common Stock, $0.01 per value 2,875,000 (2) $26.00 $74,750,000 $20,781
- ------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee. Based on the last sale price of the Common Stock on
the Nasdaq Stock Market on March 11, 1999.
(2) This number represents the maximum total number of shares to be sold by the
Company, including up to 375,000 shares of common stock that may be sold
pursuant to the Underwriters' over-allotment option and 1,250,000 shares to
be sold by the selling stockholder.

______________________________________________

The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 15, 1999

PROSPECTUS

2,500,000 Shares

[LOGO OF UNITED PAYORS APPEARS HERE]

Common Stock

$ per share

--------

United Payors & United Providers, Inc. is selling 1,250,000 shares of its
common stock and the selling stockholder named in this prospectus is selling
1,250,000 shares. UP&UP will not receive any proceeds from the sale of shares
by the selling stockholder. The underwriters named in this prospectus may
purchase up to 375,000 additional shares of common stock from UP&UP under
certain circumstances.

The common stock is quoted on the Nasdaq National Market under the symbol
"UPUP." The last reported sale price for the common stock on the Nasdaq
National Market on March 11, 1999 was $26.00 per share.

--------

Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

--------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price $ $
Underwriting Discounts $ $
Proceeds to the Company (before expenses) $ $
Proceeds to the Selling Stockholder $ $
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 1999.

Warburg Dillon Read LLC
BT Alex. Brown
Scott & Stringfellow, Inc.

, 1999
<PAGE>

[GRAPH APPEARS HERE]

[UNITED PAYORS & UNITED PROVIDERS LOGO]

A FINANCIAL AND
TECHNOLOGICAL INTERFACE
- --------------------------------------------------------------------------------
Payors
- --------------------------------------------------------------------------------
Who Uses UP&UP:

. Aetna . John Hancock
. CIGNA . MetraHealth
. Conseco . Mutual of Omaha
. Golden Rule . New York Life
. Government Employee . State of Kentucky
Hospital Association . United Healthcare

. Others, including commercial insurers, government agencies, self-insured
employers, managed care companies and unions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Why Payors Use UP&UP
- --------------------------------------------------------------------------------
. UP&UP's provider network generates substantial cost savings for payor clients
. National provider network to service national, multi-site accounts
. More cost effective than payor developing new provider network
. Database management and information systems enables payor to reprice medical
claims
. More efficient in managing costs by using medical protocols and information
systems
. Improves clinical outcomes, reduces costs under case management programs
. Reduces payor clients' management workload
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Providers
- --------------------------------------------------------------------------------
Who comprises UP&UP's Network:

. 2,900 acute care hospitals
. 14,500 ancillary facilities
. 153,000 physicians
. coverage in all 50 states and the District of Columbia
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Why Providers Use UP&UP
- --------------------------------------------------------------------------------
. UP&UP represents a significant number of major insurance payors
. Beneficiaries given financial incentives to use contracting providers
. Prepayment option for contracting hospitals enhances positive cash flow
. Consistent/reliable communications
. Incentive provided for timely payment of claims
- --------------------------------------------------------------------------------

You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.

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

TABLE OF CONTENTS

<TABLE>
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Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 13
The Company.............................................................. 13
Use of Proceeds.......................................................... 14
Price Range of Common Stock.............................................. 14
Dividend Policy.......................................................... 15
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 21
Management............................................................... 33
Certain Transactions..................................................... 39
Principal and Selling Stockholders....................................... 40
Shares Eligible for Future Sale.......................................... 43
Underwriting............................................................. 44
Legal Matters............................................................ 45
Experts.................................................................. 46
Where You Can Find More Information...................................... 46
Index to Consolidated Financial Statements............................... 47
</TABLE>

2
<PAGE>

SUMMARY

. This summary highlights selected information in this prospectus. You should
carefully read the entire prospectus (including the documents incorporated by
reference) prior to investing in the common stock.

. The information in this prospectus assumes that the Underwriters' over-
allotment option will not be exercised and reflects the May 1998 three-for-two
stock split, effected as a dividend, unless otherwise indicated or the context
otherwise requires.

The Company

UP&UP has developed a network of providers offering nationwide access to
discounted health care services for payors of health care services who contract
with it. UP&UP enters into contractual arrangements with providers such as
hospitals, ancillary facilities and physicians who agree to provide services on
a discounted basis to its payor clients. These payor clients include
traditional indemnity insurance companies, self-insured entities, unions and
federal government health plans. UP&UP's provider network consisted of
approximately 2,900 hospitals, 14,500 ancillary medical facilities and 153,000
physicians located in all 50 states and the District of Columbia as of December
31, 1998. In addition, as of that date, UP&UP had contracts with other local or
regional provider networks which furnish payor clients with access to an
additional 3,600 facilities (including approximately 475 hospitals) and 62,000
physicians. In 1998, approximately $2.4 billion of medical claims were
processed utilizing UP&UP's provider network (and other local and regional
networks accessed through UP&UP). UP&UP also provides management and
administrative outsourcing services for payor clients with respect to their
relationships with provider networks. In addition, UP&UP offers a broad array
of utilization review and case management services through its subsidiary,
National Health Services, Inc. National Health Services is the third largest
independent utilization management company in the United States, based on
annual acute in-patient admission volume.

UP&UP derives its revenues primarily from the receipt of a percentage of the
price concessions that its payor clients receive from the contracting providers
in the UP&UP provider network, a percentage of cost savings realized by its
payor clients using its network management services, monthly membership-based
fees for utilization review services, and hourly fees for case management
services. UP&UP's contracts do not assume obligations to contracting providers
for payment of medical claims or to beneficiaries of payor clients for health
care services. Consequently, UP&UP is not subject to health care underwriting
risks.

UP&UP's proprietary information systems capabilities and expertise are
designed to facilitate the repricing of claims under its provider network
contracts and promote the efficient transmission and processing of claims.
UP&UP offers its payor clients and contracting providers access to an
extensive, proprietary database of provider charges and other information
regarding certain medical procedures by geographic area. In addition, certain
UP&UP payor clients are provided with an analysis of encounter and cost data
for specific service areas.

UP&UP has focused its marketing efforts on establishing relationships with
payor clients who have a nationwide presence and represent, in the aggregate,
large numbers of beneficiaries. As of December 31, 1998, UP&UP had contracts
with approximately 500 payor clients, including health insurance companies,
third party administrators, unions, self-insured entities and governmental
agencies. UP&UP intends to continue to market to national payors because of the
associated significant claims volume.

3
<PAGE>

Business and Customers

Attraction of Provider Network for Contracting Providers

UP&UP believes contracting providers participate in its provider network
because:

. UP&UP's payor clients include a significant number of major health care
insurance companies, which collectively represent substantial claims
volume to many contracting providers;

. UP&UP offers a prepayment option to certain contracting provider
hospitals that can enhance their cash flow and liquidity;

. UP&UP's payor clients are required to provide incentives, including
shared cost savings or a reduction in deductibles, to encourage their
beneficiaries to use contracting providers;

. UP&UP's consistent and reliable communications contribute to the prompt
processing of claims for contracting providers by payor clients, increase
information flow to contracting providers and enable more accurate
accounting by contracting providers; and

. Contract terms generally require timely payment of claims.

Attraction of Provider Network For Payor Clients

UP&UP believes that its payor clients subscribe to its provider network
because:

. Individual payor clients recognize the value of UP&UP's ability to focus
the combined purchasing power of all of its payor clients in negotiating
discounts with contracting providers, which generate substantial cost
savings for the payor clients, and thereby enhance the ability of payor
clients to offer competitively-priced health insurance products;

. UP&UP has a national provider network which can service national clients
having multi-site accounts;

. Some payor clients lack either the critical mass, knowledge or technology
needed to effectively contract with providers on a national basis and
build a national network;

. Some payor clients determine it is more cost effective to contract with
UP&UP rather than develop their own national or local provider network;
and

. Payor clients are able to reprice efficiently a large volume of medical
claims for the discounts offered by UP&UP's provider network with the
assistance provided by UP&UP's database management and information
systems.

Attraction of Utilization and Network Management Services for Payor Clients

UP&UP believes that its payor clients contract for its utilization and
network management services because:

. Payor clients determine they can more efficiently manage costs through
the clinical oversight performed by National Health Services' expert
staff of nurses and physicians using its medical protocols and
information systems;

. National Health Services has demonstrated its ability to improve clinical
outcomes and reduce costs for payor clients and their insured
beneficiaries under its case management programs; and

. Payor clients can reduce some of their management functions regarding
their relationships with multiple provider networks by outsourcing these
functions to UP&UP.

4
<PAGE>

Changing Industry Dynamics

Health care expenditures in the United States exceeded $1 trillion in 1996
and are expected to grow to more than $2.1 trillion by 2007, according to the
United States Health Care Financing Administration. As of February 1, 1996,
there were 6,400 hospitals, 780,000 physicians, and 200,000 ancillary medical
facilities in the United States, also according to the United States Health
Care Financing Administration. According to a 1998 William M. Mercer report,
approximately 29% of the health insured population in the United States is
covered by traditional closed plan health maintenance organizations, 58% is
covered by more flexible managed care systems (such as preferred provider
organizations and similar plans) and 13% is covered by traditional indemnity
insurance plans.

Strategy

. Increase its provider network claims volume with existing payor clients
by expanding its provider network, increasing utilization of its provider
network by payor clients by assisting their marketing efforts for new
national accounts, and marketing new opportunities for payor clients to
use its provider network;

. Establish relationships with new payor clients;

. Expand its utilization and network management services business,
principally by cross selling these services to existing payor clients and
adding additional case management programs; and

. Broaden its portfolio of complementary services, including through
acquisitions.

Recent Changes in Ownership by Principal Stockholders

In February 1999, certain principal stockholders of the Company engaged in
transactions that have resulted in significant changes in the ownership of
UP&UP's common stock. As a result:

. Principal Mutual Holding Company, which had been UP&UP's largest
stockholder, reduced its ownership of common stock from 6,600,000 shares
to 2,100,000 shares, and is further reducing its beneficial ownership to
850,000 shares by selling 1,250,000 shares in this offering;

. Thomas L. Blair, UP&UP's Chairman and Co-Chief Executive Officer,
increased his beneficial ownership from 3,383,150 shares to 7,183,150
shares; and if the proposed sale of shares in this offering by Principal
Mutual is not completed, Principal Mutual and Mr. Blair intend that Mr.
Blair would also contract to purchase those shares;

. Capital Z Financial Services Fund II, L.P. purchased 1,750,000 shares of
common stock from management and employees of UP&UP and an option to
purchase from Mr. Blair an additional 2,250,000 shares of common stock.

For more information on these transactions, see "Principal and Selling
Stockholders--Recent Changes in Ownership by Principal Stockholders."

5
<PAGE>

The Offering

<TABLE>
<S> <C>
Common stock offered by:
The Company................. 1,250,000 shares
The Selling Stockholder,
Principal Health Care,
Inc., an indirect, wholly
owned subsidiary of
Principal Mutual Holding
Company.................... 1,250,000 shares
Common stock to be outstanding
after the offering........... 18,803,803 shares(1)
Use of proceeds............... Repayment of existing indebtedness and for
working capital and general corporate purposes,
including funding of prepayment options and
potential acquisitions
Nasdaq National Market
symbol....................... UPUP
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 1, 1999. Excludes
2,302,500 shares issuable upon exercise of options and warrants at a
weighted average exercise price of $9.50 per share.

6
<PAGE>

Summary Consolidated Financial and Other Data
(In thousands, except per share and other operating data)(1)

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1996 1997 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Provider network....................... $ 877 $31,259 $41,195 $57,952
Utilization management services........ -- 4,190 19,833 20,497
------ ------- ------- -------
Total revenue........................ 877 35,449 61,028 78,449
------ ------- ------- -------
Operating expenses:
Direct contract expenses............... 2,238 15,295 29,173 33,524
General and administrative............. 334 2,783 6,221 8,365
Depreciation and amortization.......... 114 538 1,695 4,028
------ ------- ------- -------
Total operating expenses............. 2,686 18,616 37,089 45,917
------ ------- ------- -------
Operating (loss) income.................. (1,809) 16,833 23,939 32,532
Other income, net........................ 699 971 1,426 729
------ ------- ------- -------
(Loss) income before income taxes...... (1,110) 17,804 25,365 33,261
Income taxes ............................ 399 (7,158) (10,388) (13,682)
------ ------- ------- -------
Net (loss) income........................ $ (711) $10,646 $14,977 $19,579
====== ======= ======= =======
Basic earnings (loss) per share.......... $(0.05) $ 0.70 $ 0.87 $ 1.15
====== ======= ======= =======
Weighted average common shares
outstanding--basic...................... 13,200 15,189 17,239 17,065
====== ======= ======= =======
Diluted earnings (loss) per share........ $(0.05) $ 0.70 $ 0.86 $ 1.09
====== ======= ======= =======
Weighted average shares outstanding--
diluted................................. 13,200 15,193 17,486 17,981
====== ======= ======= =======
Other Operating Data--Provider Network:
Number of contracting provider hospitals
(direct contracts, at end of period).... 1,029 1,502 2,723 2,893
Number of provider network payor clients
(at end of period)...................... 16 45 116 497(2)
</TABLE>

<TABLE>
<CAPTION>
December 31, 1998
----------------------
Actual As Adjusted(3)
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<S> <C> <C>
Balance Sheet Data:
Working capital.......................................... $27,147 $ 41,758
Total assets............................................. 115,945 125,515
Long-term debt, including current portion................ 22,064 --
Total stockholders' equity............................... 78,458 110,092
</TABLE>
- --------
(1) All periods reflect the effect of the three-for-two stock split in the form
of a stock dividend paid on May 4, 1998.
(2) Of the increase in 1998, 335 payor clients resulted from the acquisition of
ProAmerica Managed Care, Inc.
(3) Adjusted to reflect (i) receipt by UP&UP of $3.1 million of proceeds from
the exercise of 466,500 stock options in February 1999, (ii) receipt by
UP&UP of the estimated net proceeds from the sale of the 1,250,000 shares
of common stock offered by it hereby at an assumed public offering price of
$24.50 per share and (iii) the application of a portion of such proceeds to
the repayment of approximately $22.1 million of long-term debt, including
the current portion, as described under "Use of Proceeds."

7
<PAGE>

RISK FACTORS

You should consider carefully the following factors and the other
information in this prospectus before you decide to invest in the shares.

UP&UP Is Dependent Upon the Use of its Provider Network by a Small Number of
Payor Clients

A significant portion of UP&UP's revenues are derived from a small number of
payor clients. In 1998, Conseco, Inc. accounted for approximately 16% of
revenues, the Department of Health and Human Services of the State of Kentucky
accounted for approximately 11% of revenues and an affiliate of Principal
Mutual Holding Company accounted for approximately 10% of revenues. The loss
of a contract with a major payor client and the inability to replace any such
client with significant new clients could have a material adverse effect on
UP&UP.

UP&UP's contracts with its payor clients for access to the provider network
generally require the annual renegotiation of terms and permit either party to
terminate the contract at any time upon satisfaction of notice requirements.
Also, those contracts do not prohibit payor clients from entering into
contracts with or utilizing other provider networks or developing their own
provider networks. Therefore, even if a payor client does not terminate its
contract with UP&UP, UP&UP could experience a decrease in claims from that
payor client as a result of the use of their own provider networks, other
provider networks, or other managed care systems. UP&UP's contract with the
State of Kentucky is terminable for the convenience of the government.

Furthermore, the health insurance industry has been experiencing significant
consolidation, particularly consolidation designed to promote an increase in
managed health care insurance programs, as opposed to the indemnity style
programs for which the UP&UP provider network is most attractive. UP&UP
believes these consolidation trends have in the past reduced utilization of
the UP&UP provider network by particular health insurance programs, and, in
the future, could further reduce utilization of the UP&UP provider network, as
a result of both a decrease in the number of payor clients and a decrease in
the need for payor clients to utilize the UP&UP provider network. For
additional information regarding UP&UP's reliance upon a small number of payor
clients, see "Business--Contracts with Payors and Providers."

UP&UP Also Is Dependent Upon its Ability to Retain and Expand its Network of
Contracting Providers and its Fee Arrangements with Those Providers

UP&UP's growth depends on its ability to retain existing contracting
providers, to attract additional contracting providers, and to retain or
improve the price concessions granted by contracting providers. The
termination of a significant number of contracts with contracting providers
having a high volume of claims with UP&UP's payor clients, the inability to
replace those contracts with similar contracting providers and/or the
renegotiation of contracts resulting in reduced price concessions could have a
material adverse effect on UP&UP. UP&UP's contracts with contracting providers
typically have a one-year term, renewable automatically for successive one-
year terms unless either party gives notice of intent not to renew, and may be
terminated at any time, for any reason, upon satisfaction of the notification
requirements. Also, the contracts do not prohibit the contracting providers
from entering into discounted arrangements with others. For additional
information regarding UP&UP's dependence on contracting providers, see
"Business--Contracts with Payors and Providers."

The Significant Changes Being Experienced by the Health Care Industry and
Changing and Increasing Government Regulation Could Have a Material Adverse
Effect on UP&UP

UP&UP's business is dependent in significant part on its ability to enter
into contracts with payors and providers on terms attractive to all parties
and the absence of substantial changes in the health care industry that would
decrease the need for the services offered by it. UP&UP's ability to continue
conducting business in its current manner could be seriously jeopardized if,
among other things, a significant number of payors, such as

8
<PAGE>

insurance companies, were to seek price concessions directly from providers.
In addition, UP&UP's opportunities to maintain or expand its existing
operations could be limited by substantial changes in the health care
industry, such as further adoption of capitation payment systems, which have
become more prevalent in recent years, or the enactment of legislation or the
adoption of regulations unfavorable to UP&UP and/or its relationships with
payors or providers. Any of these developments could have a material adverse
effect on UP&UP and could cause it to alter substantially its business
objectives and methods of operation. For additional information regarding
possible adverse changes in industry practices and government regulation, see
"Business--Industry Overview" and "Business--Government Regulation."

During the past several years, the United States health care industry has
been subject to changing and increasing government regulation. A number of
proposals for health care reform have been made at the federal and state
levels, including proposals to provide greater government control of health
care spending, to reduce fraud and abuse, to broaden access to health care
services and to change the operating environment for health care providers and
payors. UP&UP cannot predict what impact, if any, these activities, which
include efforts to effect reform through legislation and changes in the
administration or interpretation of government health care programs, laws,
regulations or policies, might have on it. Any of these activities could have
a material adverse effect on UP&UP. For additional information regarding
health care reform, see "Business--Government Regulation."

The Growth Strategy Pursued by UP&UP Places Significant Demands on its
Managerial Resources, Which, If Not Properly Managed, Could Have a Material
Adverse Effect on UP&UP

UP&UP's strategy is to continue to grow aggressively, both internally and
through acquisitions. Since its initial public offering in July 1996, UP&UP
has made three acquisitions, most recently the ProAmerica Managed Care, Inc.
acquisition in December 1998. This strategy is likely to continue to place
significant demands on UP&UP's financial, operational and management
resources, and to expose it to a variety of risks, including the risk that
UP&UP will be unable to attract and retain the personnel or obtain the
financial and other resources necessary to pursue and manage its growth.
UP&UP's growth makes for greater demands on the time and attention of its key
personnel. Expenses arising from UP&UP's efforts to complete acquisitions,
develop new products or increase its existing market penetration could have a
material adverse effect on it. Furthermore, UP&UP may not be able to identify,
acquire or integrate acquisition candidates successfully or manage profitably
any additional products and services resulting from acquisitions. Acquired
businesses, products and services may not contribute to UP&UP's overall
strategy or produce returns that justify the related investment or
implementation by UP&UP. In addition, UP&UP may acquire companies or seek to
develop products or services in areas in which it does not currently operate
or have meaningful experience. For example, UP&UP has recently entered into an
agreement to acquire a federal savings bank. These acquisitions or
developments may require UP&UP's management to develop expertise in new areas
and to attract a new customer base and could have a material adverse effect on
UP&UP. UP&UP may not be able to implement its growth strategy successfully or,
if successful in consummating acquisitions, be able to manage its expanded
operations effectively and profitably. For additional information regarding
risks related to growth, see "Business--Strategy."

The Failure by UP&UP to Successfully Integrate Acquisitions Could Have a
Material Adverse Effect on It

UP&UP must successfully combine and integrate the operations of acquired
entities in order to realize the anticipated benefits of acquisitions.
Integrating management services, administrative organizations, facilities,
management information systems and other operational aspects of acquired
businesses, products or services can be time consuming and costly and may
distract management from day-to-day operations. Challenges in coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures could magnify
integration problems. UP&UP cannot guarantee that its integration processes
will be successful or that the anticipated benefits of any past or future
acquisitions will be realized. Furthermore, UP&UP may experience substantial
unanticipated costs or liabilities or other material adverse effects
associated with past or future acquisitions and integration activities
conducted by it. For additional information regarding the risks of integrating
acquired operations, see "Business--Strategy."

9
<PAGE>

The Competition Faced by UP&UP, Including Competition from Entities Having
Substantially Greater Financial Resources, Creates a Significant Impediment to
UP&UP

The market for UP&UP's services is highly competitive. UP&UP competes (or
may in the future have to compete) for clients with national, regional and
local provider networks, managed care organizations and health care
information companies. Several of UP&UP's competitors have significantly
greater financial, technical and marketing resources than UP&UP, which could
put UP&UP at a significant competitive disadvantage. UP&UP may not be able to
compete effectively with any of these parties in attracting and retaining
clients. For additional information regarding UP&UP's major competitors, see
"Business--Competition."

The Utilization Review Services Provided by National Health Services Subjects
It to Possible Claims for Adverse Medical Consequences

UP&UP, through its subsidiary, National Health Services, applies medical
treatment guidelines in its utilization review and case management services.
As a result, National Health Services could become subject to claims related
to adverse medical consequences as a result of, or for the costs of, services
denied, and claims, such as malpractice, arising from the errors or omissions
of health care professionals. A successful claim against UP&UP or a subsidiary
could have a material adverse effect on it. Furthermore, UP&UP may incur
substantial costs in defending against claims, regardless of their merit or
eventual outcome. Procedures implemented by UP&UP may not limit its liability
or be effective, and litigation to which UP&UP is or may become subject could
have a material adverse effect on it. UP&UP maintains insurance coverage that
it believes is reasonable in light of its experience to date. However, this
insurance may be insufficient to protect UP&UP from liability and may not
continue to be available to it at reasonable cost or at all. For additional
information regarding exposure to professional liability, see "Business--Legal
Proceedings."

Purchasers of UP&UP's Common Stock are Subject to Significant Uncertainty
Regarding Possible Future Sales of Significant Blocks of UP&UP Common Stock
and the Possible Effect of These Sales on the Trading Market for UP&UP Common
Stock and the Control of UP&UP

Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer of
UP&UP, beneficially owns an aggregate of 7,183,150 shares, or approximately
40.9% of UP&UP's common stock. This beneficial ownership includes 4,500,000
shares, or approximately 25.6% of outstanding shares, which Mr. Blair has
committed to purchase on or prior to February 25, 2003. These 4,500,000 shares
currently are held by Independent Divestment Trust, which acquired them from
Principal Mutual. In addition, Capital Z recently purchased 1,750,000 shares
from officers and employees of UP&UP and an option to purchase from Mr. Blair
an additional 2,250,000 shares of common stock on or prior to February 25,
2003. For additional information regarding the recent changes in stock
ownership by significant stockholders, see "Principal and Selling
Stockholders--Recent Changes in Ownership by Principal Stockholders."

Effect on Trading Market For UP&UP Common Stock. If the 4,500,000 shares of
UP&UP common stock are not purchased by February 25, 2003 by Mr. Blair, as he
is obligated to do, those shares would have to be sold by the trust in which
they have been placed. Further, Mr. Blair likely would seek to sell shares to
pay the purchase price of at least some of the shares he purchases from the
trust. Also, Capital Z could seek to sell shares it has purchased, and/or
shares it purchases from Mr. Blair upon the exercise of the option.
Registration rights held by Capital Z would facilitate public resales of its
shares of UP&UP common stock. Thus, it is likely that a significant number of
shares of UP&UP common stock would be resold during the next four years. The
possibility of a sale of those shares could have an adverse effect on the
trading market for UP&UP's common stock. A private sale of a significant
number of shares could effect a change in control of UP&UP. For additional
information regarding the possible effect on the trading market for UP&UP's
common stock, see "Shares Eligible For Future Sale."

Effect on Control of UP&UP. The controlling influence Mr. Blair has with
respect to UP&UP is enhanced by his agreement to purchase the 4,500,000 shares
of common stock. However, Mr. Blair has no right to vote

10
<PAGE>

those 4,500,000 shares until he actually purchases them from the trust. The
trust is required to vote the UP&UP shares it holds in the same proportion as
all other UP&UP stockholders vote their shares. In effect, the voting power
held by all other stockholders is increased while the trust holds these
shares. Mr. Blair's power to vote 2,683,150 shares, giving effect to the trust
voting arrangement, would mean that he has approximately 20.6% of the voting
power. For additional information regarding ownership of UP&UP common stock by
Mr. Blair and others, see "Certain Transactions" and "Principal and Selling
Stockholders."

In addition, UP&UP has agreed to nominate two designees of Capital Z for
election as directors. Thus, Capital Z could gain a significant influence in
the business of UP&UP.

If UP&UP Acquires a Savings Bank, as Proposed, It Will Become Subject to
Extensive Federal Regulations Which Could Limit Its Future Operations

UP&UP has entered into an agreement to acquire a savings and loan holding
company and its wholly owned, federal savings bank subsidiary, subject to the
approval of shareholders of the holding company and federal banking
regulators. The bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision and the Federal Deposit
Insurance Company. If this acquisition is completed, UP&UP would become a
savings and loan holding company, subject to supervision and examination by
the Office of Thrift Supervision of the U.S. Department of Treasury. UP&UP
would be a unitary savings and loan holding company, if the current control of
UP&UP by Principal Mutual Holding Company is divested, as proposed. As a
unitary savings and loan holding company, UP&UP generally will not be
restricted under existing laws as to the type of business activities in which
it may engage, provided the bank continues to meet the standards as a
qualified thrift lender. Nevertheless, the Office of Thrift Supervision will
have enforcement authority over UP&UP and its non-savings association
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings bank.

UP&UP Would Be Adversely Affected If It Fails to Retain the Services of Key
Personnel

UP&UP depends to a significant extent on its Chairman and Co-Chief Executive
Officer, Thomas L. Blair, its Co-Chief Executive Officer and President, Edward
S. Civera, its Vice President of Operations, Spiro A. Karadimas, and its Vice
President and Chief Financial Officer, S. Joseph Bruno. UP&UP's growth and
future success will depend in large part on its ability to retain and attract
highly qualified personnel. UP&UP has entered into a five-year employment
agreement with Mr. Civera extending to January 1, 2004, and has entered into
two-year employment agreements with Messrs. Karadimas, Blair and Bruno,
extending to January 1, 2001. If UP&UP were to lose any of its key personnel,
particularly any of its executive officers, or be unable to retain or hire
qualified personnel, then it could be potentially and adversely affected. For
additional information regarding dependence on key personnel, see "Management"
and "Certain Transactions."

There Is a Risk That UP&UP's Business Operations Could Be Significantly
Disrupted by the Year 2000 Data Problem

UP&UP could experience a significant disruption to its business operations
and, as a result, a significant adverse impact on its financial condition and
results of operations if its computer systems, the computer systems operated
by its payor clients and contracting providers or the computer systems
operated by third party vendors on which it relies, are not able to properly
handle problems created by the year 2000. UP&UP is actively working to make
sure as best it can that this does not happen or, at least, that the effects
are lessened as much as possible. However, UP&UP cannot give any assurances
that its efforts will be successful. In particular, UP&UP has very limited
ability, if any, to influence the computer readiness of its payor clients and
contracting providers. For additional information regarding Year 2000
problems, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure."

11
<PAGE>

Possible Takeover Attempts Could Be Impeded by UP&UP's Ownership Structure,
Provisions of Its Certificate of Incorporation and Bylaws and Regulatory
Requirements

The concentration of ownership of UP&UP's common stock could impede an
effort by a third party to effect a change of control of UP&UP. In addition,
UP&UP's certificate of incorporation and bylaws contain a number of provisions
that could inhibit a change of control by means of a tender offer, merger,
proxy contest or otherwise, including advance notice and supermajority
provisions, provisions that establish a classified board of directors and
provisions that enable UP&UP to issue "blank check" preferred stock. These
provisions could reduce or eliminate any takeover premium in the market price
for UP&UP's common stock or otherwise limit the price certain investors might
be willing to pay for UP&UP's common stock. For additional information
regarding proposed amendments to the certificate of incorporation which would
reduce or eliminate certain of the provisions which could make a change in
control more difficult, see "Principal and Selling Stockholders--Recent
Changes in Ownership by Principal Stockholders."

Also, if UP&UP acquires the federal savings bank as it proposes, UP&UP would
be subject to regulation by the Office of Thrift Supervision as a savings and
loan holding company. The regulatory approval or notice requirements
applicable to persons seeking to acquire control of a savings and loan holding
company could inhibit or delay a possible acquisition of UP&UP, even an
acquisition desired by UP&UP's stockholders. For regulatory purposes,
presumptions of control can arise once a person's beneficial ownership,
together with that of persons acting in concert, of outstanding voting stock
exceeds 10%.

UP&UP's Annual and Quarterly Operating Results are Subject to Fluctuation

UP&UP's annual and quarterly operating results could fluctuate in the future
as a result of a number of factors, including:

.the expiration or termination of contracts with significant payor clients
or contracting providers;
.the timing of new product and service introductions;
.changes in pricing;
.increases in operating expenses;
.increases in selling, general and administrative expenses;
.increased competition;
.the impact of acquisitions;
.regulatory changes; and
.conditions in the healthcare industry and the economy generally.

You should not rely on annual or quarter-to-quarter comparisons of UP&UP's
results of operations as an indication of future performance. It is possible
that in some future periods UP&UP's results of operations may be below the
expectations of public market analysts and investors. If this were to occur,
the price of UP&UP's common stock may decline.

UP&UP's Non-Payment of Dividends Could Have an Adverse Effect on the Trading
Market for Its Stock

UP&UP does not plan to pay any dividends on its common stock for the
foreseeable future. For additional information regarding dividends, see
"Dividend Policy."

The Market Price of UP&UP's Common Stock Could Be Adversely Affected by the
Risks to UP&UP and Other Factors

The potential impact of all of the above risk factors is difficult for UP&UP
to forecast. Nevertheless, these or other factors, such as fluctuations in
UP&UP's earnings, changes in estimates of those earnings by security analysts
and sales of substantial amounts of UP&UP's common stock in the public market,
may materially adversely affect UP&UP's operating results and/or the trading
price of the common stock. Recently, the stock market has experienced extreme
price and volume fluctuations that have particularly affected the market
prices of securities of many companies, for reasons frequently unrelated to
the performance of the specific companies. These fluctuations, as well as
general economic, political and market conditions, may materially adversely
affect the market price of UP&UP's common stock. UP&UP does not guarantee that
the trading price for the common stock will remain at or above the public
offering price in this offering.

12
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus, including the documents incorporated by reference, contains
certain forward-looking statements, including without limitation, statements
concerning UP&UP's operations, economic performance and financial condition.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "anticipate" and other similar expressions generally
identify forward-looking statements. Investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
their dates. These forward-looking statements are based largely on UP&UP's
current expectations and are subject to a number of risks and uncertainties,
including, without limitation, those identified under "Risk Factors" and
elsewhere in this prospectus, including the documents incorporated by
reference. Actual results could differ materially from results referred to in
the forward-looking statements. In addition, important factors to consider in
evaluating such forward-looking statements include changes in external market
factors, changes in UP&UP's business or growth strategy or an inability to
execute its strategy due to changes in its industry or the economy generally,
the emergence of new or growing competitors and various other competitive
factors. In light of these risks and uncertainties, there can be no assurances
that the results referred to in the forward-looking statements contained in
this prospectus will in fact occur. UP&UP undertakes no obligation to publicly
revise these forward-looking statements to reflect any future events or
circumstances.

THE COMPANY

United Payors & United Providers, Inc. ("UP&UP" or the "Company") is a
Delaware corporation which is the successor to an Iowa corporation organized
in February 1995 by its Chairman and Co-Chief Executive Officer, Thomas L.
Blair, and an affiliate of Principal Mutual Holding Company ("Principal
Mutual"). Effective December 31, 1995, the Company's original stockholders and
a subsidiary of a stockholder contributed to the Company certain complementary
businesses, including certain payor client contracts transferred to UP&UP
under an agreement with America's Health Plan, Inc. ("AHP"), an indirect
wholly owned subsidiary of Principal Mutual. Effective September 1997, the
Company acquired the remaining operations of AHP from an affiliate of
Principal Mutual. In October 1996, the Company acquired National Health
Services, Inc. ("NHS"), a national health care utilization and case management
services subsidiary; and in December 1998, the Company acquired ProAmerica
Managed Care, Inc. ("ProAmerica"), which operates a national network of health
care providers.

The Company is headquartered at 2275 Research Boulevard, Rockville, Maryland
20850, and its telephone number is (301) 548-1000.

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,250,000 shares of
common stock offered by the Company hereby, at an assumed public offering
price of $24.50 per share, are estimated to be approximately $28.5 million
after deducting underwriting discounts and commissions and estimated offering
expenses of $600,000.

The Company intends to use the net proceeds to repay long-term debt,
including current portion, totaling approximately $22.1 million and the
remainder for working capital and general corporate purposes, including
funding prepayment options offered to certain contracting provider hospitals,
and for potential acquisitions. The debt was used as part of the funding of
the acquisitions of AHP and ProAmerica. The debt to be repaid bears interest
at the London Interbank Offered Rate ("LIBOR") + 1 1/8%. Pending such uses, as
set forth above, the Company intends to invest the net proceeds from the
offering in short-term, investment-grade, interest-bearing securities.

Although the Company engages in evaluations of and discussions regarding
acquisitions on an ongoing basis, the Company is not presently a party to any
binding agreement with respect to any acquisitions other than the proposed
acquisition of a federal savings bank. There can be no assurances that any
acquisition would be available in the future on terms favorable to the Company
or that the Company would possess adequate financial resources to make such an
acquisition.

The Company will not receive any proceeds from the sale of common stock by
the selling stockholder.

PRICE RANGE OF COMMON STOCK

The common stock has been quoted on the Nasdaq National Market under the
symbol "UPUP" since the Company's initial public offering in July 1996. The
following table sets forth, for the periods indicated, the high and low sale
prices for the common stock:

<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1997
First quarter............................................... $ 9.50 $ 6.92
Second quarter.............................................. 9.50 7.83
Third quarter............................................... 12.33 8.33
Fourth quarter.............................................. 14.25 11.33
1998
First quarter............................................... 22.69 11.50
Second quarter.............................................. 24.38 19.00
Third quarter............................................... 29.75 14.00
Fourth quarter.............................................. 29.63 14.25
1999
First quarter (through March 11, 1999)...................... 29.25 20.88
</TABLE>

On March 11, 1999, the last closing sale price of the common stock, as
reported by the Nasdaq National Market, was $26.00 per share. As of March 11,
1999, the Company had approximately 1,050 stockholders of record.

14
<PAGE>

DIVIDEND POLICY

The Company has never paid any cash dividends on its common stock and does
not anticipate paying cash dividends in the foreseeable future. Under the
terms of a loan agreement with a bank, the Company may not pay dividends on
its common stock in an amount in excess of 50% of the Company's consolidated
net income. Consolidated net income, as defined in the loan agreement,
excludes certain income items, such as net gains on the sale of assets and
extraordinary income items as determined in accordance with generally accepted
accounting principles. This limitation on the payment of dividends does not
apply to dividends paid in shares of a class of stock to stockholders of that
class of stock. The Company currently intends to retain future earnings to
fund the development and growth of its business.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1998 on an historical basis and as adjusted.

<TABLE>
<CAPTION>
December 31, 1998
----------------------------
Actual(1) As Adjusted(2)
------------ --------------
<S> <C> <C>
Cash and cash equivalents......................... $ 27,510,647 $37,080,638
============ ============
Long-term debt, including current portion of bank
loans and capital leases......................... $ 22,063,689 $ --
------------ ------------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000
shares authorized, none issued and
outstanding.................................... -- --
Common stock, $0.01 par value, 35,000,000 shares
authorized, 17,360,454 and 18,803,803 shares
issued at December 31, 1998 and as adjusted,
respectively(3)................................ 173,605 188,038
Additional paid-in capital...................... 37,123,886 66,108,643
Treasury stock, at cost, 273,151 and no shares at
December 31, 1998 and as adjusted, respectively.. (2,634,490) --
Retained earnings................................. 44,491,012 44,491,012
Deferred compensation, net........................ (695,700) (695,700)
------------ ------------
Total stockholders' equity...................... 78,458,313 110,091,993
------------ ------------
Total stockholders' equity and long-term debt... $100,522,002 $110,091,993
============ ============
</TABLE>
- --------
(1) Reflects the effect of the three-for-two stock split in the form of a
stock dividend paid on May 4, 1998.
(2) Adjusted to reflect (i) receipt by UP&UP of $3.1 million of proceeds from
the exercise of 466,500 stock options in February 1999, (ii) receipt by
UP&UP of the estimated net proceeds from the sale of the 1,250,000 shares
of common stock offered by it hereby at an assumed public offering price
of $24.50 per share and (iii) the application of a portion of such
proceeds to the repayment of approximately $22.1 million of long-term
debt, including the current portion, as described under "Use of Proceeds."
(3) As of December 31, 1998 and as adjusted, does not include options and
warrants to purchase an aggregate of 2,769,000 and 2,302,500 shares of
common stock, respectively, at a weighted average exercise price of $9.03
and $9.50 per share, respectively.

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)(1)

The following selected consolidated financial data as of and for the years
ended December 31, 1995, 1996, 1997 and 1998 have been derived from the
audited financial statements of the Company. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of the Company, including notes thereto, appearing elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1996 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Provider network...................... $ 877 $31,259 $ 41,195 $ 57,952
Utilization management services....... -- 4,190 19,833 20,497
------- ------- -------- --------
Total revenue....................... 877 35,449 61,028 78,449
------- ------- -------- --------
Operating expenses:
Direct contract expenses.............. 2,238 15,295 29,173 33,524
General and administrative............ 334 2,783 6,221 8,365
Depreciation and amortization......... 114 538 1,695 4,028
------- ------- -------- --------
Total operating expenses............ 2,686 18,616 37,089 45,917
------- ------- -------- --------
Operating (loss) income................. (1,809) 16,833 23,939 32,532
Other income, net....................... 699 971 1,426 729
------- ------- -------- --------
(Loss) income before income taxes..... (1,110) 17,804 25,365 33,261
Income taxes ........................... 399 (7,158) (10,388) (13,682)
------- ------- -------- --------
Net (loss) income....................... $ (711) $10,646 $ 14,977 $ 19,579
======= ======= ======== ========
Basic earnings (loss) per share......... $ (0.05) $ 0.70 $ 0.87 $ 1.15
======= ======= ======== ========
Weighted average common shares
outstanding--basic..................... 13,200 15,189 17,239 17,065
======= ======= ======== ========
Diluted earnings (loss) per share....... $ (0.05) $ 0.70 $ 0.86 $ 1.09
======= ======= ======== ========
Weighted average shares outstanding--
diluted................................ 13,200 15,193 17,486 17,981
======= ======= ======== ========
<CAPTION>
At December 31,
------------------------------------
1995 1996 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......................... $ 3,384 $28,113 $ 24,513 $ 27,147
Total assets............................ 12,763 53,248 82,515 115,945
Long-term debt, including current
portion ............................... 160 655 15,241 22,064
Total stockholders' equity.............. 5,296 45,176 58,297 78,458
</TABLE>
- --------
(1) All periods presented reflect the effect of the three-for-two stock split
in the form of a stock dividend paid on May 4, 1998.

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

. Readers are urged to carefully review and consider the entire prospectus
and the information contained in the Company's other filings with the
Securities and Exchange Commission which are incorporated into this
prospectus.

. The following discussion may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements involve a number of risks and uncertainties.
The Company undertakes no obligation to revise any forward-looking statements
in order to reflect events or circumstances that may arise after the date of
this prospectus. For additional information regarding forward-looking
statements, see "Forward-Looking Statements."

. The term "Payor Client" means a payor for health care services which has
contracted with the Company for access to the network of providers developed
by UP&UP (the "Provider Network") and/or for other services, and "Contracting
Provider" means a hospital, ancillary facility or physician who agrees to
provide services on a discounted basis to the Company's Payor Clients.

General

UP&UP is a Delaware corporation which is the successor to an Iowa
corporation organized in February 1995 by its Chairman and Co-Chief Executive
Officer, Thomas L. Blair, and an affiliate of Principal Mutual. Effective
December 31, 1995, the Company's original stockholders and a subsidiary of a
stockholder contributed to the Company certain complementary businesses,
including certain Payor Client contracts transferred to UP&UP under an
agreement with AHP, an indirect wholly owned subsidiary of Principal Mutual.

In October 1996, the Company acquired NHS, the Company's national health
care utilization and network management services subsidiary. Effective
September 1, 1997, the Company acquired the remaining operations of AHP from
an affiliate of Principal Mutual. Effective December 1, 1998, the Company
acquired ProAmerica, which operates a network of health care providers. The
acquisitions of AHP, NHS and ProAmerica have been accounted for as purchases
and, accordingly, the results of operations for AHP, NHS and ProAmerica have
been included in the Selected Consolidated Financial Data since the effective
date of the respective acquisitions.

UP&UP has developed a network of providers offering nationwide access to
discounted health care services for payors of health care services who
contract with it. UP&UP enters into contractual arrangements with its
Contracting Providers. The Payor Clients include traditional indemnity
insurance companies, self-insured entities, unions and federal government
health plans. UP&UP also provides management and administrative outsourcing
services for Payor Clients with respect to their relationships with provider
networks. In addition, UP&UP offers a broad array of utilization review and
case management services through its subsidiary, NHS, the third largest
independent utilization management company in the United States, based on
annual acute in-patient admission volume.

UP&UP derives its revenues primarily from the receipt of a percentage of the
price concessions that Payor Clients receive from the Contracting Providers in
the Provider Network, a percentage of cost savings realized by Payor Clients
using its network management services, monthly membership-based fees for
utilization review services, and hourly fees for case management services.
UP&UP's contracts do not assume obligations to Contracting Providers for
payment of medical claims or to beneficiaries of Payor Clients for health care
services. Consequently, UP&UP is not subject to health care underwriting
risks.

Effective January 1, 1998, the operating infrastructures of UP&UP and AHP
were fully integrated into a single business, administrative and financial
reporting unit. During the second quarter of 1998, the Company completed the
merger of the UP&UP and AHP individual provider networks into a single, fully
integrated provider network.

17
<PAGE>

Period-to-period comparisons are not necessarily meaningful due to the
impact of acquisitions and formation transactions completed during the
periods.

Direct Contract Expenses

Direct contract expenses include access fees paid by the Company for the
utilization of other provider networks, marketing commissions, and other
direct costs of services, such as personnel, related to repricing of claims,
client services, and other costs incurred in connection with the generation of
revenues and the development of the Company's Provider Network. Direct
contract expenses also include the costs of medical personnel (nurses and
doctors) and other expenses related to utilization review and case management
services. Marketing commissions are payable to consultants and marketing
organizations who became entitled to such commissions for their role in
obtaining contracts with certain Payor Clients.

General and Administrative Expenses

General and administrative expenses include salaries and related costs for
personnel involved in the administration of the Company and other costs, such
as professional services and general overhead expenses.

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Total revenues increased by $17.4 million, from $61.0 million in 1997 to
$78.4 million in 1998. Provider Network revenues increased by $16.7 million,
from $41.2 million in 1997 to $57.9 million in 1998. This increase was
attributable to the acquisitions of AHP and ProAmerica, the addition of new
Payor Clients, the growth in the overall claims volume from existing Payor
Clients and the expansion of the Company's Provider Network. Because of the
merger of the UP&UP and AHP provider networks, the Company is not able to
quantify the portion of the increase attributable to the acquisition of AHP.
At December 31, 1998, the Provider Network consisted of direct contracts with
approximately 17,400 medical facilities and approximately 153,000 physicians
compared to approximately 14,700 medical facilities and approximately 125,000
physicians at December 31, 1997. Utilization management services revenues
increased by approximately $0.7 million, from $19.8 million in 1997 to $20.5
million in 1998.

Direct contract expenses increased by $4.3 million, from $29.2 million in
1997 to $33.5 million in 1998. Access fees to other provider networks as a
percentage of Provider Network revenues decreased by 3.7%, from 11.8% ($4.9
million) in 1997 to 8.1% ($4.7 million) in 1998. This percentage decrease was
attributable to the growth in the number of providers contracting directly
with UP&UP and Payor Clients accessing more direct contracts. Other direct
costs of services increased by approximately $4.5 million, from $24.3 million
in 1997 to $28.8 million in 1998. This increase was primarily attributable to
the acquisitions of AHP and ProAmerica and an overall increase in expenses of
UP&UP resulting primarily from an increase in the number of employees to
accommodate growth in the provider network business, increased provider
network development activities and the continued development of new products
and services. Because of the integration of the operations of UP&UP and AHP,
the Company is not able to quantify the portion of the increase in expenses
attributable to each of the components.

General and administrative expenses increased by approximately $2.1 million,
from approximately $6.2 million in 1997 to approximately $8.3 million in 1998.
The increase was primarily attributable to the acquisitions of AHP and
ProAmerica and an overall increase in expenses of UP&UP resulting from an
increase in the number of employees in the administrative and executive areas
and an increase in professional fees for accounting and legal services.
Because of the integration of the operations of UP&UP and AHP, the Company is
not able to quantify the portion of the overall increase in expenses
attributable to each of the components.

Depreciation and amortization increased by approximately $2.3 million, from
approximately $1.7 million in 1997 to approximately $4.0 million in 1998. The
increase was primarily attributable to the amortization of

18
<PAGE>

goodwill of AHP and other intangible assets and the depreciation on
investments made to achieve the consolidation of the UP&UP and AHP operations
and to enhance the information technology infrastructure in order to allow for
future growth and capabilities.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Total revenues increased by $25.6 million, from $35.4 million in 1996 to
$61.0 million in 1997. Provider Network revenues increased by $9.9 million,
from $31.3 million in 1996 to $41.2 million in 1997. Of this increase, $5.8
million was attributable to the addition of new Payor Clients, the growth in
the overall claims volume from existing Payor Clients and the expansion of the
Company's Provider Network. The remainder of the increase was attributable to
the acquisition of AHP. At December 31, 1997, the Provider Network consisted
of approximately 14,700 medical facilities and approximately 125,000
physicians compared to approximately 6,000 medical facilities and 12,000
physicians at December 31, 1996. Utilization management services revenues
increased $15.6 million, from $4.2 million in 1996 to $19.8 million in 1997.
The increase was attributable primarily to the inclusion of the operations of
NHS for a full year in 1997 as compared to three months in 1996.

Direct contract expenses increased by $13.9 million, from $15.3 million in
1996 to $29.2 million in 1997. Access fees to other provider networks as a
percentage of Provider Network revenues decreased by 6.2%, from 18.0% ($5.6
million) in 1996 to 11.8% ($4.9 million) in 1997. This percentage decrease was
attributable to the growth in the number of providers contracting directly
with the Company, Payor Clients accessing more direct contracts and the
negotiation of lower rates in agreements with other provider networks. Other
direct costs of services increased by approximately $14.6 million, from $9.7
million in 1996 to $24.3 million in 1997. Of this increase, approximately
$11.2 million was attributable to the acquisitions of NHS and AHP, which were
acquired effective October 1, 1996 and September 1, 1997, respectively. The
remainder of the increase was attributable to an overall increase in expenses
resulting primarily from a significant increase in the number of employees to
accommodate growth in the provider network business, increased provider
network development activities and the continued development of new products
and services.

General and administrative expenses increased approximately $3.4 million,
from approximately $2.8 million in 1996 to approximately $6.2 million in 1997.
Of this increase, approximately $1.6 million represented expenses of NHS and
AHP. The remainder of the increase was attributable to an overall increase in
expenses resulting from the addition of employees in the administrative and
executive areas, expenses related to bonus and other benefit programs which
became effective subsequent to the initial public offering and an increase in
professional fees for accounting and legal services.

Depreciation and amortization increased by approximately $1.2 million, from
approximately $0.5 million in 1996 to approximately $1.7 million in 1997. The
increase was primarily attributable to the depreciation expense and
amortization of goodwill of NHS and AHP, as well as depreciation on increased
capital expenditures to accommodate growth.

Liquidity and Capital Resources

At December 31, 1998 and December 31, 1997, the Company had working capital
of approximately $27.1 million and $24.5 million, respectively. Net cash
provided by operating activities increased by $9.2 million, from $13.3 million
in 1997 to $22.5 million in 1998. In December 1998, the Company utilized the
proceeds from a $10 million line of credit with a bank as part of the
consideration paid for the acquisition of ProAmerica. In February 1999, the
Company entered into a five-year $10 million term loan with the same bank and
utilized the proceeds from the term loan to replenish the amount drawn under
the line of credit.

The Company's primary capital resources commitment is to fund advances to
Contracting Provider hospitals upon exercise of prepayment options
("Prepayment Options") granted to those Contracting Providers. Depending on
increases in claims volume and in the number of Payor Clients and Contracting
Provider hospitals electing to accept the Prepayment Option, the Company
estimates that $15 million to $20 million could be

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required to fund the Prepayment Options during 1999. In 1997, the Board of
Directors of the Company approved a common stock repurchase program of up to
$5 million. The Company canceled the common stock repurchase program as of
February 1, 1998. As of December 31, 1998, the Company had repurchased 389,625
shares of its outstanding common stock under the program, at an aggregate
purchase price of $3.5 million, and reissued 116,474 of the shares for an
aggregate consideration of $0.9 million.

The Company believes that its existing liquidity sources, anticipated funds
from operations, credit arrangements, and the proceeds from this offering will
satisfy cash requirements for its operations for the next twenty-four months.
However, in the event of additional acquisitions and/or in the event that the
advances for Prepayment Options exceed the Company's currently anticipated
estimates and/or other available sources of liquidity to fund such payments
are not as great as anticipated, or in the event that, if acquired the Bank
requires funding to maintain its capital requirements or to expand its
business, the Company could be required to borrow additional funds or issue
additional equity securities to fund the balance of such advances. There can
be no assurances that the Company will be able to effect any such additional
borrowings or issue additional equity securities on acceptable terms.

Interest Rate Sensitivity

The Company is subject to interest rate risk on its short-term investments
portfolio and its outstanding bank loans. The Company has determined that a
10% move in the current weighted average interest rates of its short-term
investments and its outstanding bank loans would not have a material effect on
the Company's financial position, results of operations and cash flows over
the next fiscal year.

Impact of Inflation

Since the Company's revenues are based on medical costs, the impact of
inflation on operating costs and expenses should be offset by the impact of
inflation of medical costs.

Year 2000 Readiness Disclosure

The Company is aware of the issues associated with the programming code in
existing computer and software systems regarding the Year 2000. The Company,
like other organizations, is in the process of assessing and modifying or
replacing its information technology and non-information technology to ensure,
to the extent within the control of the Company, their functionality with
respect to the "Year 2000" millennium change and to identify and evaluate
potential risks to the Company to the extent that Year 2000 problems not
within the Company's control could impact the Company. The Company's primary
computer systems operate from an IBM platform and were designed in the 1990's,
generally with four digit year capability. With respect to non-information
technology, all of the Company's facilities are relatively modern, post-1990,
and are believed, based on the evaluation to date, not to have any significant
Year 2000 problems. The Company has budgeted $1 million, as a conservative
estimate of the maximum cost to it, to address "Year 2000 problems," and has
presently spent approximately $300,000. The Company anticipates that it will
be Year 2000 ready by July 1, 1999 and will spend the remainder of 1999
testing. While there can be no guarantee, the Company believes that Year 2000
issues with respect to both the information technology and non-information
technology systems within its control will be adequately addressed by it and
will not cause material disruption to the Company's operations. The Company
intends to monitor its progress towards addressing its Year 2000 issues
successfully and intends to develop contingency plans if necessary.

However, the Company's operations are dependent to a substantial extent on
the ability of its Payor Clients, and to a lesser extent, possibly its
Contracting Providers, to address successfully their Year 2000 issues in
connection with their claims processing. The Company has no guarantee that its
Payor Clients or Contracting Providers will be able to resolve all of their
own Year 2000 problems in a timely manner. The Company has had discussions
with its major Payor Clients and the Company believes, based on the
discussions and other information available to it, that all of its major Payor
Clients are aware of the Year 2000 issue and are expending significant
resources to identify and resolve all of their Year 2000 problems. The Company
could be materially and adversely affected as a result of Year 2000 problems
incurred by Payor Clients or Contracting Providers or their inability to
interface with the Company's systems, or as a result of unforeseen problems
regarding the Company's own system. The Company intends to continue to monitor
to the best of its ability the likelihood of significant problems experienced
by such entities which could materially affect the Company or its operations.

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BUSINESS

General

UP&UP has developed a network of providers offering nationwide access to
discounted health care services for payors of health care services who
contract with it. UP&UP enters into contractual arrangements with providers
such as hospitals, ancillary facilities and physicians who agree to provide
services on a discounted basis to its Payor Clients. These Payor Clients
include traditional indemnity insurance companies, self-insured entities,
unions and federal government health plans. UP&UP's Provider Network consisted
of approximately 2,900 hospitals, 14,500 ancillary medical facilities and
153,000 physicians located in all 50 states and the District of Columbia as of
December 31, 1998. In addition, as of such date, UP&UP had contracts with
other local or regional provider networks which furnish Payor Clients with
access to an additional 3,600 facilities (including approximately 475
hospitals) and 62,000 physicians. In 1998, approximately $2.4 billion of
medical claims were processed utilizing UP&UP's Provider Network (and other
local and regional networks accessed through UP&UP). UP&UP also provides
management and administrative outsourcing services for Payor Clients with
respect to their relationships with provider networks. In addition, UP&UP
offers a broad array of utilization review and case management services
through its subsidiary, NHS. NHS is the third largest independent utilization
management company in the United States, based on annual acute in-patient
admission volume.

UP&UP derives its revenues primarily from the receipt of a percentage of the
price concessions that its Payor Clients receive from the Contracting
Providers in the UP&UP Provider Network, a percentage of cost savings realized
by its Payor Clients using its network management services, monthly
membership-based fees for utilization review services, and hourly fees for
case management services. UP&UP's contracts do not assume obligations to
Contracting Providers for payment of medical claims or to beneficiaries of
Payor Clients for health care services. Consequently, UP&UP is not subject to
health care underwriting risks.

UP&UP's proprietary information systems capabilities and expertise are
designed to facilitate the repricing of claims under its Provider Network
contracts and promote the efficient transmission and processing of claims.
UP&UP offers its Payor Clients and Contracting Providers access to an
extensive, proprietary database of provider charges and other information
regarding certain medical procedures by geographic area. In addition, certain
Payor Clients are provided with an analysis of encounter and cost data for
specific service areas.

UP&UP has focused its marketing efforts on establishing relationships with
Payor Clients who have a nationwide presence and represent, in the aggregate,
large numbers of beneficiaries. As of December 31, 1998, UP&UP had contracts
with approximately 500 Payor Clients, including health insurance companies,
third party administrators, unions, self-insured entities and governmental
agencies. UP&UP intends to continue to market to national payors because of
the associated significant claims volume.

Attraction of Provider Network for Contracting Providers

UP&UP believes Contracting Providers participate in its Provider Network
because:

. Payor Clients include a significant number of major health care insurance
companies, which collectively represent substantial claims volume to many
Contracting Providers;

. UP&UP offers a Prepayment Option to certain Contracting Provider
hospitals that can enhance their cash flow and liquidity;

. Payor Clients are required to provide incentives, including shared cost
savings or a reduction in deductibles, to encourage their beneficiaries
to use Contracting Providers;

. UP&UP's consistent and reliable communications contribute to the prompt
processing of claims for Contracting Providers by Payor Clients, increase
information flow to Contracting Providers and enable more accurate
accounting by Contracting Providers; and

. Contract terms generally require timely payment of claims.

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Attraction of Provider Network For Payor Clients

UP&UP believes that its Payor Clients subscribe to its Provider Network
because:

. Individual Payor Clients recognize the value of UP&UP's ability to focus
the combined purchasing power of all of its Payor Clients in negotiating
discounts with Contracting Providers, which generate substantial cost
savings for the Payor Clients, and thereby enhance the ability of Payor
Clients to offer competitively-priced health insurance products;

. UP&UP has a national Provider Network which can service national clients
having multi-site accounts;

. Some Payor Clients lack either the critical mass, knowledge or technology
needed to effectively contract with providers on a national basis and
build a national network;

. Some Payor Clients determine it is more cost effective to contract with
UP&UP rather than develop their own national or local provider network;
and

. Payor Clients are able to reprice efficiently a large volume of medical
claims for the discounts offered by the Provider Network with the
assistance provided by UP&UP's database management and information
systems.

Attraction of Utilization and Network Management Services for Payor Clients

UP&UP believes that its Payor Clients contract for its utilization and
network management services because:

. Payor Clients determine they can more efficiently manage costs through
the clinical oversight performed by NHS' expert staff of nurses and
physicians using its medical protocols and information systems;

. NHS has demonstrated its ability to improve clinical outcomes and reduce
costs for Payor Clients and their insured beneficiaries under its case
management programs; and

. Payor Clients can reduce some of their management functions regarding
their relationships with multiple provider networks by outsourcing these
functions to UP&UP.

Industry Overview

General

The health care industry in the United States constitutes a substantial
portion of the Gross National Product, with 1996 expenditures exceeding $1
trillion, according to the United States Health Care Financing Administration
("HCFA"). Of this total, hospital charges represented approximately $360
billion, and physician charges represented approximately $200 billion. HCFA
estimates that annual United States health care expenses will grow to more
than $2.1 trillion, or approximately 7% per year, by 2007.

The health care industry is rapidly changing. Traditionally, health care
services have been provided on a fee-for-service basis through a generally
fragmented system of health care providers. As of January 1, 1996, there were
approximately 6,400 hospitals, over 780,000 physicians and over 200,000
ancillary medical facilities according to HCFA. Historically, health insurers
offering traditional indemnity fee-for-service insurance were the principal
payors of health care benefits for employers and individuals. In response to
escalating health care costs, managed care plans, such as health maintenance
organizations ("HMOs"), have developed and expanded during the past two
decades. More recently there has been a shift in health care insurance towards
managed care products which provide more consumer choice than traditional,
closed plan HMOs. According to a 1998 William M. Mercer report, approximately
29% of the health insured population in the United States is covered by
traditional, closed plan HMOs, 58% is covered by more flexible managed care
systems, such as preferred provider organizations ("PPO"), and similar plans,
including point-of-service products, and 13% is covered by traditional
indemnity insurance plans.

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Trends

Underlying the rapid changes which the health care industry has been
undergoing are the following trends:

Demand for More Flexible Health Care Insurance. Employers and beneficiaries
of health plans are demanding lower cost health insurance plans with greater
patient flexibility (e.g., fewer provider restrictions) than is provided by
traditional HMOs. Employers and beneficiaries of health plans also are seeking
the ability to access providers across wider geographic areas in response to
decentralization and other trends in the workplace. As a result, there has
been a series of innovations that combine the aspects of both the cost
savings' benefits of managed care insurance with the provider choices afforded
by traditional indemnity insurance. Managed care companies now offer PPOs and
similar plans, including point-of-service plans and open-access plans that
allow out-of-network usage, often at substantially higher out-of-pocket costs
to the insured. A national network of health care providers offering services
on a discounted basis promotes the ability of health care payors to offer cost
effective flexible insurance plans which enable their health care
beneficiaries significant flexibility in choosing their own health care
providers.

Continued Cost Containment Pressures. From 1994 to 1998, the average medical
cost increase exceeded the average premium increase. The reasons for increased
medical costs are numerous and include an increased number of procedures, and
an increased use and cost of pharmaceuticals and medical supplies. Demographic
changes resulting in an increasingly larger percentage of the population being
represented by the elderly have magnified these increases. These cost
increases have occurred despite significant cost containment efforts through
expansion of traditional, closed plan HMOs and other managed care
arrangements. Recently, demand for more flexible insurance plans has limited
the further expansion of HMOs and the ability to control costs through
stringent managed care structures. As a result, payors of medical claims
continue to seek cost savings opportunities.

Emergence of Nationwide Service in Response to Customer Needs. Health care
payors are seeking to offer insurance plans that address customer needs on a
nationwide basis. In addition, payors are seeking to generate greater revenues
and profits from existing client relationships, especially large employers, by
capturing additional employees who are outside of the payors' traditional core
marketplace. As a result, payors are finding it increasingly important to have
an established national provider network through direct contracting or through
establishing a relationship with provider networks. National payors are
increasingly relying on contractual arrangements with other companies to: (i)
produce meaningful cost savings on medical claims; (ii) expand the provider
network available to their health care beneficiaries to a larger number of
geographic regions; and (iii) reduce their administrative costs.

Information Technology-Driven Efficiencies. In order to influence and
control health care costs, payors and providers need the ability, either
directly or through a third party, to monitor health care encounters and
corresponding costs and process their claim volume in a cost-efficient manner.
Thus, there is a need for information technology systems that have the ability
to: (i) interface with a wide variety of medical claims processing systems;
(ii) track provider cost and clinical outcome data; (iii) analyze the tracked
data; and (iv) process high volumes of medical claims.

Strategy

UP&UP's strategic objective is to enhance its position as a leading
contractor with health care payors by offering a comprehensive array of
services which can be customized to address specific Payor Client needs to
maximize their cost savings. To achieve this objective, the Company seeks to:
(i) increase Provider Network claims volume; (ii) establish relationships with
new Payor Clients; (iii) expand its utilization and network management
services business; and (iv) broaden its portfolio of complementary services.
The Company intends to pursue these objectives through internal means as well
as through acquisitions.

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Increase Provider Network Claims Volume

Existing Payor Clients. The Company believes significant growth
opportunities exist to capture greater claims volume from its existing base of
Payor Clients, which includes many of the leading indemnity insurers in the
United States. UP&UP plans to achieve this by expanding its Provider Network
to increase the number of claims covered by its Payor Clients eligible for the
Company's discount. The Company uses its information systems capability to
identify those providers which represent the highest claims volumes for the
Company's Payor Clients, but which do not have contracts with the Company.
UP&UP then uses its base of high volume Payor Clients, its Prepayment Option
and its other services to market to those providers.

The Company also seeks to increase claim volumes with existing Payor Clients
by: (i) increasing utilization of the Provider Network by a greater variety of
insurance plans offered by the Payor Client; (ii) persuading Payor Clients to
use a greater portion of the Provider Network, particularly the 153,000
physician network primarily obtained in the Company's acquisition of AHP;
(iii) maintaining competitive discounts with Contracting Providers by
leveraging its Payor Client-base; (iv) continuing to provide high quality
service to both Payor Clients and Contracting Providers, and minimizing
complexity and errors in billing, while maximizing efficiency; and (v)
providing incremental high quality services, such as electronic claims
transmission and customized provider database analysis utilizing its
information systems.

New Payor Clients. The Company actively markets its Provider Network and
technological expertise to attract new Payor Clients. The Company's marketing
efforts target large payors who could achieve significant cost savings from
the Provider Network based on their volume of claims. In 1998, the Company
added 381 Payor Clients, including 335 Payor Clients through the acquisition
of ProAmerica.

Expand Utilization and Network Management Services Business

The Company also markets NHS's existing utilization management services to
existing and potential Payor Clients. The Company considers mid-tier insurance
companies and insurance plan administrators as its primary market for these
utilization management services. In addition, NHS continues to develop new
case management services. During 1998, NHS added one Payor Client. Also, the
Company intends to continue to market its Provider Network management
services, which are designed to address the preference of Payor Clients to
deal with as few intermediaries as possible in their provider network
arrangements. The Company believes that its network management services are
complementary to its Provider Network and furnish an opportunity for the
Company to sell its array of services and establish multiple links with its
existing Payor Clients.

Acquire Complementary Services

The Company continues to pursue possible acquisition opportunities which
would supplement its own expansion of services or would complement its
existing array of services. For example, UP&UP has entered into an agreement
to acquire a savings bank and most recently acquired ProAmerica in December
1998. In particular, the Company intends to consider possible acquisitions of
other local provider networks, which would increase its core business, and
expand its utilization review and case management services.

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Services Provided

National Provider Network

General. As of December 31, 1998, UP&UP's Provider Network consisted of
approximately 2,900 hospitals, 14,500 ancillary health care facilities, and
153,000 physicians located in all 50 states and the District of Columbia. In
addition, as of that date, the Company had contracts with other local or
regional provider networks which furnish Payor Clients with access to an
additional 3,600 facilities (including approximately 475 hospitals) and 62,000
physicians. The Provider Network is designed to meet the medical, financial
and geographic needs of Payor Clients by enabling the health care
beneficiaries of such Payor Clients to access cost effective health care
services nationwide or in particular geographic regions. Price concessions are
individually negotiated with each Contracting Provider (or Contracting
Provider group) and generally consist of discounts from billed charges or per-
diem rates. The Company believes its ability to obtain price concessions for
its Payor Clients results from its ability to focus the aggregate claims
volume of its Payor Clients and, with respect to Contracting Provider
hospitals, from the Prepayment Option. The Provider Network accounted for
approximately 74% of the Company's total revenue for 1998.

Prepayment Option Program for Hospitals. UP&UP offers Contracting Provider
hospitals interest-free cash advances through the Prepayment Option. The
Prepayment Option provides tangible benefits to hospitals in the form of
increased liquidity, and helps establish long-term financial linkages between
Contracting Provider hospitals and the Company. The Prepayment Option
demonstrates the financial commitment UP&UP makes to its Contracting Provider
hospitals. The Company's payment under a Prepayment Option is made at the
option of the Contracting Provider hospital, either at the beginning of a
contract period based on an estimate of claims volume or at the end of the
contract period based typically upon one-twelfth of the hospital's actual
claims volume with health care beneficiaries of the Company's Payor Clients in
the preceding twelve-month period. Hospitals exercising a Prepayment Option
are obligated to repay the amount of the advance, without interest, within 30
days of the termination by either party of the contractual relationship. This
repayment obligation creates a cash flow consideration for those hospitals
which decide to leave the Provider Network. In many cases, UP&UP retains the
right to reconcile claims due to a Contracting Provider against such
Contracting Provider's obligation to repay the Prepayment Option.

Automated Claims Repricing. UP&UP has developed a proprietary information
system that allows each Payor Client to automatically reprice a high volume of
claims. The Company has installed its proprietary software and related
business processes in the facilities of most of its large Payor Clients to
allow those clients to perform their own claims repricing. UP&UP also offers
each Payor Client the option of electronically transmitting claims to the
Company's information systems, for the Company to reprice those claims, and
then transmit the repriced claims back to the Payor Client. The Company's
repricing system is continually updated to ensure that Payor Clients realize
the maximum amount of savings to which they are entitled. Currently, the
Company's software systems interfaces have been installed in 20 Payor Clients
and an additional 20 Payor Clients reprice their claims through a remote dial-
up with UP&UP's systems. These Payor Clients represented approximately 72% and
8%, respectively, of the Provider Network's annualized claims volume for 1998.
In addition to these claims repricing services, UP&UP can also serve as a
payment agent on behalf of the Payor Client and send payments to Contracting
Providers, for which additional service UP&UP typically receives a larger
percentage of the savings generated.

Single-Source Interface. The Company also has the systems capabilities to
allow a Payor Client to utilize the Company as a single source interface with
all of its provider networks. The Company also can incorporate PPOs into its
Provider Network to enable a Payor Client to create health insurance plans
that utilize a network of providers tailored specifically for specific health
insurance plans.

Provider Database. The Company maintains and updates a provider database
that tracks reimbursement rates, charges per day, occupancy rates, and the
volume of medical claims being generated by each Contracting

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Provider for each Payor Client. This database is available to all Payor
Clients to assist them in evaluating which providers may be most cost
effective for various geographic areas, medical procedures, and types of care.
This provider database also assists the Company in the performance of its
network management services.

Network Management Services. The Company offers network management services
whereby it assumes all or a portion of the administration of a Payor Client's
relationships with provider networks, including evaluating prospective
provider organizations, negotiating access agreements with provider
organizations and providing day-to-day support in billing and dispute
resolution. Services offered by the Company include: (i) access analysis
services, which include identifying which provider organization should be used
and the repricing of claims pursuant to the applicable contractual
arrangements; (ii) network development services, which include identifying
cost saving opportunities obtainable from alternative provider organizations
and negotiating arrangements with those organizations; (iii) database
management services, which include developing and updating tracking processes
to ensure timely claims flow and payments; and (iv) directory management
services, which include arranging production and distribution of provider
directories to be used by the Payor Client's insured population and providing
toll-free locator services which provide comprehensive listings of all
participant providers, differentiated by product, geography and coverage.

Utilization Management Services

The Company, through NHS, provides health care utilization review and case
management services for Payor Clients. Payor Clients can outsource their
utilization review and/or case management services in whole or in part to NHS.
NHS clinical personnel perform prospective and concurrent utilization reviews
of medical cases in order to ensure that appropriate medical care is provided
while avoiding unnecessary procedures or hospitalizations. The Company also
provides catastrophic case management, professional clinical opinions,
ancillary therapy review and physician consultations. These utilization review
and case management services are provided by a staff which includes 138 full-
time registered nurses, a full-time medical panel of 11 physicians and an 81
member sub-specialty consulting physician panel. The NHS staff also analyzes
and interprets utilization data in order to identify and recommend the
implementation of treatment strategies that are designed to maximize the
effectiveness of health care dollars spent. The Company utilizes proprietary
software, CareReview(R), which integrates three critical modules: hospital
admission pre-certification, triage and medical case management. In 1998, the
Company performed over 710,000 utilization reviews and provided specialized
management for 18,000 cases on behalf of 19 Payor Clients. NHS accounted for
approximately 26% of UP&UP's revenues for 1998.

The Company considers its primary market for outsourced utilization review
and case management services to be mid-tier insurance companies. NHS promotes
a "center of excellence concept" whereby it customizes its services to the
needs and standards of a particular client, including the applicable medical
protocols and software, and dedicates staff to a particular client to promote
understanding and application of the client's specific requirements. The
Company offers sub-specialty case management programs in the areas of high
risk pregnancies, cardiovascular problems and asthma and intends to develop
and market other disease management programs for such problems as diabetes.
The Company may seek to pursue acquisitions or alliances with other companies
that provide similar services, for example, a pharmacy management program.

Federal Savings Bank

The Company on October 6, 1998 entered into an agreement to acquire for $2.5
million Baltimore American Savings Bank, a federal savings bank (the "Bank"),
and Quantum Financial Holding, Inc., its parent holding company, having total
assets of approximately $27 million, subject to the approval of shareholders
of the holding company and federal banking regulators. The holding company had
net income of $18,000 for 1997 and a net loss of $189,000 for the first nine
months of 1998. This acquisition would promote the Company's strategy to
develop an accounts receivable financing product for hospitals that would
complement the Company's Prepayment Option. After its acquisition, the Company
intends that the Bank would continue its traditional

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<PAGE>

community oriented lending activities. In addition, however, the Bank would
serve as an incubator to develop hospital accounts receivable financing
business. The Bank initially would focus on the financing of claims to be
reimbursed by commercial insurance companies. These insurance companies could
be Payor Clients.

The Bank is subject to extensive regulations, supervision and examination by
the Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Upon acquisition of the Bank, the Company would
become a savings and loan holding company, subject to supervision and
examination by the OTS. UP&UP would be a unitary savings and loan holding
company, if the current control of UP&UP by Principal Mutual is divested, as
proposed. As a unitary savings and loan holding company, UP&UP generally will
not be restricted under existing laws as to the type of business activities in
which it may engage, provided the Bank continues to meet the standards as a
qualified thrift lender. Nevertheless, the OTS will have enforcement authority
over the Company and its non-savings association subsidiaries. Among other
things, this authority permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings bank.

There can be no assurance that the Company's acquisition of the Bank will be
approved by the OTS. The Company believes such approval will be given only,
among other things, if the OTS is satisfied as to the arrangements by
Principal Mutual to divest control of the Company within the meaning of the
Savings and Loan Holding Company Act (the "Holding Company Act"). Principal
Mutual already is a unitary savings and loan holding company.

Health Extras

HealthExtras LLC ("HealthExtras") is a company that was founded by Thomas L.
Blair and Principal Mutual. UP&UP has no ownership interest in HealthExtras.
HealthExtras provides catastrophic benefits to plan members related to
permanent disability. HealthExtras intends to develop additional products that
supplement an individual's primary health coverage.

UP&UP has a royalty agreement with HealthExtras that was effective January
1, 1999. The royalty agreement provides UP&UP with a per member/per month
("PMPM") royalty fee in exchange for UP&UP granting HealthExtras members
access to its Provider Network at no fee over a four-year period. The royalty
fee initially starts at $1.00 PMPM in year one and increases to $1.50 PMPM in
year four. The royalty fee is based upon the tenure of each member
participating in the HealthExtras program. It is likely that any future
HealthExtras product development will integrate the use of the Provider
Network.

UP&UP also provides administrative services to HealthExtras at cost. These
services relate to operating, marketing and financial staff, as well as office
space and telecommunication services.

Contracts With Payors And Providers

The following discussion summarizes certain provisions typically included in
the various contractual arrangements of the Company.

Provider Network

Payors. UP&UP enters into contracts with Payor Clients, including indemnity
insurance companies, government health plans and self-insured companies and
unions. Under these contracts, the discounted rates negotiated by UP&UP with
its Contracting Providers may be applied to medical services rendered to
persons eligible under a Payor Client's health insurance plan. Frequently, the
contracts obligate Payor Clients to make all reasonable efforts to promptly
reimburse (generally within 30 days of receipt of a clean claim) Contracting
Providers for such claims. Some contracts also require Payor Clients to
provide to UP&UP documentation regarding their insurance plan features,
methods of identifying covered persons, service relationships and other
information relevant to the processing of those claims which take advantage of
discounts from Contracting Providers.

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Under its Payor Client contracts, UP&UP is entitled to fees which are
usually derived from a percentage of the Payor Clients' savings (i.e., the
difference between the Payor Clients' payment obligations prior to receipt of
discounts through the Provider Network and the Payor Clients' payment
obligations after such application). Frequently, UP&UP commits to target and
attempt to contract with additional providers identified by Payor Clients and
to use its best efforts to maintain its Provider Network. Frequently, the
contracts require UP&UP to obtain confirmation from, or contractually require
that, Contracting Providers meet appropriate accreditation and state licensing
requirements. These contracts also set forth the respective obligations of
UP&UP and the Payor Clients with regard to the repricing of claims,
particularly identifying detailed delivery schedules for repriced claims data
depending on whether the Payor Client or UP&UP has assumed primary
responsibility under the contract for such repricing.

Payor contracts typically include a cross-indemnity provision for losses,
damages and expenses incurred as a result of acts or omissions related to
duties performed under the agreements. The contracts frequently require UP&UP
to maintain liability insurance for claims that may arise from performance of
its obligations under the agreements. In addition, the contracts also contain
mutual confidentiality undertakings. Payor Client contracts typically have a
one-year term and renew automatically for an additional one-year term on each
anniversary date unless either party gives notice of termination by a
specified date (usually 30 or 90 days) prior to any such anniversary date.
Either party may terminate the contract for material breach and, in most
instances, without cause upon expiration of a specified notice period (usually
30 or 90 days).

Providers. UP&UP enters into contracts with those providers of medical
services, including hospitals, physicians and physician groups, that
participate in its Provider Network. Under these contracts, Contracting
Providers agree to render services to persons eligible under UP&UP's Payor
Clients' health benefit programs, subject to the availability of facilities
and services, and to accept as payment for these services an amount equal to
the negotiated discounted fees. The discount typically ranges from 5% to 30%
of billed charges. In instances in which a Contracting Provider hospital has
elected to exercise the Prepayment Option, the contracts require UP&UP to
establish a prepaid balance with the hospital in an amount equal to the
monthly average of the previous twelve months' charges for covered services on
covered persons or to a mutually agreed-upon one-month estimate. The
agreements obligate the hospital to repay to UP&UP the prepaid balance within
30 days of termination of the agreement. Many Contracting Provider hospital
contracts also provide that "clean claims" not paid within 30 days of receipt
must be paid at the hospital's non-discounted rate.

The contracts also require Contracting Providers to meet applicable
licensing and certification requirements and accreditation standards.
Generally, the contracts require Contracting Providers to use their best
efforts to participate in the utilization review and necessity of care
evaluation programs, coordination of benefit activities and other cost
containment activities provided for under each Payor Clients' health benefit
program. The contracts also generally obligate UP&UP to use its best efforts
in encouraging each Payor Client to create incentives for covered persons to
use Contracting Providers. The contracts typically require Contracting
Providers, and in some cases UP&UP, to maintain liability insurance in
specified minimum amounts or in amounts required by applicable state law. In
addition, the contracts often mandate both Contracting Providers and UP&UP to
maintain the confidentiality of the medical records of persons covered under
the Payor Clients' benefit plans. The contracts typically include a cross-
indemnity provision for losses, damages and expenses incurred as a result of
acts or omissions related to duties performed under the contracts. The
contracts typically have a one-year term and renew automatically for an
additional one-year term on each anniversary date unless either party gives
notice of termination by a specified date (usually 90 days) prior to any such
anniversary date. Either party may terminate the contract for material breach
and, in most instances, without cause upon expiration of a specified notice
period (usually 30 or 90 days).

Other Provider Networks. UP&UP enters into contracts with other provider
networks ("Other Provider Networks"). UP&UP's contracts with Other Provider
Networks provide UP&UP's Payor Clients access to the providers covered by such
Other Provider Networks at the discounted rates available from such Other
Provider Networks. Under these contracts, UP&UP agrees to pay the Other
Provider Networks either a percentage of the fees to which UP&UP is entitled
to be paid by its Payor Clients from claims processed through the Other

28
<PAGE>

Provider Networks or a percentage of savings realized by the Payor Client from
claims processed through the Other Provider Networks. Pursuant to these
contracts, UP&UP, generally, is prohibited from soliciting any Payor Client
with whom an Other Provider Network currently has contractual relationships
during the term of the contract and for one year thereafter and from
soliciting certain providers identified by an Other Provider Network. The
contracts with Other Provider Networks prohibit UP&UP from providing access to
those networks to payors who are not Payor Clients of UP&UP covered by the
contract with the Other Provider Network. These contracts generally provide
that the failure by an UP&UP Payor Client to promptly reimburse an Other
Provider Network medical provider may result in the loss of contractual fee
discounts.

The contracts with Other Provider Networks typically include a cross-
indemnity provision for losses, damages and expenses incurred as a result of
acts or omissions related to duties performed under the agreements and in some
instances require both the Other Provider Network and UP&UP to maintain
liability insurance in specified minimum amounts. In addition, the contracts
also require both the Other Provider Network and UP&UP to maintain the
confidentiality of the medical records of persons covered under Payor Client
benefit plans and any proprietary information of the other party. These
contracts typically have initial terms of one to three years and renew
automatically for an additional one-year term on each anniversary date unless
either party gives notice of termination by a specified date (usually 90 days)
prior to any such anniversary date. Either party may terminate the contract
for material breach and, in most instances, without cause upon expiration of a
specified notice period (usually 30 or 90 days).

Network Management

Under its network management contracts, UP&UP is entitled to fees which may
consist of a percentage of savings realized by the Payor Client due to UP&UP's
management services and/or fixed monthly payments. Fees for the production and
distribution of provider directories are based on cost plus a fixed margin.
These contracts typically include a cross-indemnity provision for losses,
damages and expenses incurred as a result of acts or omissions related to
duties performed under the agreements and, in some instances, require both the
network management client and UP&UP to maintain liability insurance in certain
specified minimum amounts. In addition, these contracts include mutual
confidentiality undertakings.

Utilization Management

The Company's utilization management contracts typically identify (a) the
types of services to be provided, (b) a schedule for the delivery of reports,
in form and detail determined by the client, (c) detailed performance targets
and (d) the fees to be paid to UP&UP for such services. The Company's
utilization review contracts pertaining to the review of medical necessity and
appropriateness of the allocation of health care resources establish fees for
UP&UP on the basis of number of contacts, time expended or number of covered
persons. On a limited basis, the Company has contracted for its utilization
review services under terms that impose fee reduction penalties for failure to
meet negotiated savings targets and fee incentives for exceeding such targets.
Case management revenues is generally based on fee for service or hourly rates
over the term of the contractual agreements.

These contracts typically include a cross-indemnity provision for losses,
damages and expenses incurred as a result of acts or omissions related to
duties performed under the agreements. The contracts typically require both
the Payor Client and UP&UP to maintain certain liability insurance in
specified minimum amounts. In addition, these contracts also include mutual
confidentiality undertakings.

Competition

The health care industry is fragmented, competitive and evolving. The
Company potentially competes with any entity that contracts with Payor Clients
to offer them a means to contain or reduce the cost of their medical claims
expenses. Existing or potential competitors include HMOs, PPOs, physician
hospital organizations and other managed care providers.

29
<PAGE>

The health care industry is considered to be a growing industry and may
attract additional competitors of the Company. In addition, many Payor Clients
have developed or may in the future develop their own provider networks,
utilization and management services, and other services similar to those
offered by the Company. Alternatively, Payor Clients are seeking to develop or
expand managed care type insurance which eliminate or reduce the need for
access to the Company's provider network. Likewise, Contracting Providers
could elect to contract directly with Payor Clients. These actions could have
an adverse effect on the business of the Company. With respect to utilization
review and case management services, NHS competes principally with national
and regional utilization review and case management providers and with
internal departments of large payors that provide these services.

Several potential competitors are significantly larger and better
capitalized than the Company. Many competitors and potential competitors have
ongoing access to greater resources, provide a more comprehensive range of
services, and have greater experience in providing those services than the
Company. Furthermore, various competitors and potential competitors have
longer term business relationships with payors and providers than does the
Company.

Government Regulation

General. As an entity conducting business within the health care industry,
the Company's operations are potentially subject to extensive and increasing
regulation by a number of governmental entities at the federal, state and
local levels. The Company and its affiliates are also subject to laws and
regulations relating to business corporations in general. The Company believes
its operations are in material compliance with applicable laws as currently
interpreted. Nevertheless, because of the structure of the Company, certain
aspects of the Company's current or anticipated business operations could fall
within the regulatory oversight of federal or state authorities, and there can
be no assurances that a review of the Company's business by courts or
regulatory authorities will not result in a determination that could have a
material adverse effect on the Company's business, financial condition, or
results of operations. There also can be no assurances that the regulatory
environment in which the Company operates will not change significantly in the
future, which change could restrict the Company's existing operations,
expansion, financial condition or opportunities for success.

Health Care Reform. The agencies and legislative bodies of states and the
federal government recently have focused significant attention on reforming
the health care system in the United States. Within the past several years, a
broad range of health care reform measures have been introduced in Congress
and in certain state legislatures. Additional health care reform measures have
been brought before the public in state voter initiatives. These initiatives
range from those that would tend to encourage managed care, such as allowing
physician and hospital groups to accept risk, to those that would impede
managed care, such as mandating that any willing provider could participate in
any health plan. Among the proposals that have been considered are cost
controls on hospitals, insurance market reforms to increase the availability
of group health insurance to small businesses, requirements that all
businesses offer health insurance coverage to their employees and the creation
of a single government health insurance plan at the state or federal level
that would cover all citizens. Legislative interest recently has focused on
the effect of managed care reimbursement mechanisms on health care service
utilization and quality of service. It is not clear at this time what
proposals, if any, will be adopted or, if adopted, what effect, if any, such
proposals would have on the Company. Certain proposals, such as containment of
health care costs that could include a freeze on prices charged by physicians,
hospitals or other health care providers, could have a material adverse effect
on the Company's business, financial condition or results of operations. There
can be no assurances that currently proposed or future health care legislation
or policies or other changes in the administration or interpretation of
governmental health care programs, laws, regulations or policies will not have
a material adverse effect on the Company's business, financial condition or
results of operations.

State Licensure. The Company's subsidiary, NHS, maintains utilization
management certification in all states in which it is required to do so and
monitors state legislation on a regular basis to ensure ongoing compliance.

30
<PAGE>

The Company believes that its other current business activities are not
subject to state licensure, other than such general business licensure as may
be required of all domestic or foreign business corporations in a
jurisdiction. However, it is possible that regulatory authorities in some
states might conclude that some of the Company's activities subject it to
licensure as a PPO or similar entity. In some states, such licensure may be
conditioned on the licensed entity engaging in practices, such as quality
assurance or utilization review, that are beyond the scope of the Company's
current or anticipated operations. Although the Company believes that, in
general, it would be able to modify its operations to obtain any licenses that
were deemed to be required, there can be no assurances that the Company would
be able to modify its operations, or otherwise obtain or maintain any such
licenses.

ERISA Regulation. It is possible that in the usual course of its business
the Company could be deemed to provide services to employee benefit plans
regulated under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), including self-insured health benefit plans. Recently, the
United States Department of Labor ("DOL"), the federal agency that administers
ERISA, has been auditing certain insurance companies in connection with their
practices involving medical provider discounts and the transfer of those
discounts to self-insured ERISA plans. In connection with these audits, DOL
has indicated that the negotiation and administration of provider discount
arrangements by these insurance companies for the benefit of ERISA plans could
constitute the activities of an ERISA fiduciary. Although the Company believes
that its practices relating to provider discount arrangements are beyond the
scope of ERISA regulation, there can be no assurances that DOL or some other
person would not assert that the Company acts as an ERISA fiduciary with
respect to its limited activities for self-insured ERISA plans. In the event
that the Company were deemed to be an ERISA fiduciary, the Company believes
that it would be viewed as being in compliance with applicable ERISA rules.

In a recent decision interpreting a health insurance policy under ERISA, a
federal district court invalidated a PPO discount taken by an insurance
company where the applicable insurance policy did not provide for the
utilization by the insured of the PPO in question. HCA Health Services of
Georgia, Inc. v. Employers Health Insurance Company, 22 F. Supp. 2d 1390 (N.D.
Ga. 1998). The Company does not believe that this case will have any material
impact on its business operations. The Company believes that the contractual
arrangements between Payor Clients and their insureds permit the discounts
taken through the Provider Network.

Anti-Remuneration Laws. Medicare and Medicaid law provides civil and
criminal penalties for paying or receiving any remuneration to induce the
referral of Medicare or Medicaid patients, or to induce the purchase or the
arranging for, or recommending of, the purchase of items or services for which
payment may be made under Medicare, Medicaid or other federally-funded state
health care programs. None of the Company's contracts with Payor Clients
provide for access to Contracting Providers by Medicaid or Medicare
beneficiaries. Several states also have similar laws which are not limited to
services for which Medicare or Medicaid payment may be made. State laws vary
and have been infrequently interpreted by courts or regulatory agencies. It is
possible that enforcement officials could seek to review the fees paid to or
by the Company to determine whether such fees should be deemed to be unlawful
remuneration given indirectly by Contracting Providers in exchange for
arranging for the referral of patients from their Payor Clients. While there
can be no assurances that the Company's position would be upheld if
challenged, the Company believes that their fee arrangements represent
reasonable compensation for legitimate services actually provided to or by the
Company and should not be deemed to be unlawful remuneration under these anti-
remuneration laws.

Legal Proceedings

31
<PAGE>

complaint also seeks treble damages pursuant to the Lanham Act. The complaint
is based upon allegations that representatives of the Company made false and
misleading statements during contract negotiations with providers in order to
cause them to join the Provider Network. In response to written requests and
in depositions, Plaintiff has alleged that it has suffered actual damages of
approximately $41 million. The Company denies the allegations in the complaint
and believes them to be without merit. The Company has asserted a counterclaim
against the Plaintiff for violations of the Lanham Act, as well as common law
claims for unfair competition, commercial disparagement and service mark
cancellation. Fact discovery in the action is ongoing and the trial date has
not yet been set by the Court. Based upon the available information,
management believes that its potential liability, if any, arising from the
litigation will not be material to the consolidated financial statements of
the Company.

The Company is also a party to other legal actions arising in the ordinary
course of business. Management believes that damages arising from these
actions, if any, will not be material to the consolidated financial statements
of the Company. Nevertheless, there can be no assurance that any pending or
future litigation to which the Company is or becomes a party, including the
litigation involving First Health Group, will not have a material adverse
effect on the Company.

Employees

As of January 31, 1999, the Company employed 486 people on a full-time
basis. The Company believes that its relations with its employees are good.
None of the Company's employees are represented by a union.

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<PAGE>

MANAGEMENT

The following table sets forth certain information with respect to the
directors and executive officers of the Company:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Chairman of the Board and Co-Chief
Thomas L. Blair............... 54 Executive Officer(1)
Edward S. Civera.............. 48 Director, Co-Chief Executive Officer and
President(1)
S. Joseph Bruno............... 50 Vice President and Chief Financial Officer
Barbara M. Freeman............ 50 President of NHS
Spiro A. Karadimas............ 40 Vice President of Operations
Joseph M. Mott................ 45 General Counsel and Corporate Secretary
President of America's Health Card
Michael A. Smith.............. 49 Services, Inc.
Bette B. Anderson............. 70 Director
William E. Brock.............. 68 Director
David J. Drury................ 54 Director
Michael H. Gersie............. 50 Director
Frederick H. Graefe........... 54 Director
Thomas J. Graf................ 50 Director
Kenneth J. Linde.............. 52 Director
</TABLE>

(1) Effective March 1999, the Board of Directors appointed Messrs. Blair
and Civera Co-Chief Executive Officers.

Thomas L. Blair is the founder of the Company and served as its sole
director and controlling holder of its outstanding voting stock from its
formation in 1995 until its public offering in 1996. He was the founder of AHP
in 1989 and served as its President and Chief Executive Officer from 1989 to
1992. From 1992 to 1995, Mr. Blair was President of Initial Managers &
Investors, Inc. ("IM&I"), which business was contributed to UP&UP. From 1977
until 1988, Mr. Blair was a principal of Jurgovan & Blair, Inc. which
developed and managed health maintenance organizations.

Edward S. Civera joined the Company on April 1, 1997 as its President and
Chief Operating Officer and became Co-Chief Executive Officer in March 1999.
Prior to joining the Company, Mr. Civera was a partner with
PricewaterhouseCoopers LLP, then Coopers & Lybrand L.L.P., where he had been
employed for 25 years.

S. Joseph Bruno has been Vice President and Chief Financial Officer of the
Company since September 1995 and its Corporate Secretary from September 1995
to March 1997. Prior to joining the Company, Mr. Bruno was a partner with
PricewaterhouseCoopers LLP, then Coopers & Lybrand L.L.P., from 1989 to 1995.
From 1986 to 1989, Mr. Bruno was the Senior Vice President and Chief Financial
Officer of Jurgovan & Blair, Inc. From 1971 to 1986, Mr. Bruno worked at KPMG
Peat Marwick L.L.P., where he served in various capacities, including partner
in both the Washington D.C. and Rome, Italy offices.

Barbara M. Freeman M.D., joined NHS in 1993 as its Executive Vice President
and Chief Medical Officer and has been the President of NHS since April 1998.
From 1986 to 1993, Dr. Freeman was the Medical Director of the Healthcare
Review Corporation, currently a subsidiary of NHS. From 1984 to 1986, Dr.
Freeman was the Medical Director for the Kentucky Peer Review Organization
("PRO"), the federal contracted PRO for the State of Kentucky. She has been a
practicing physician specializing in family practice since 1975.

Spiro A. Karadimas joined the Company in March 1995. He has 18 years of
information systems and operations management experience in local government
and the private sector. Prior to joining the Company, Mr. Karadimas designed
and developed all in-house and client support information systems and
processes for AHP, from 1992 to 1994. From 1991 to 1992, Mr. Karadimas served
as Director of Systems Development for Columbia Services Group, an Arlington,
Virginia company.

Joseph M. Mott, Esq. joined the Company in January 1997 as the Company's
General Counsel. He was appointed the Company's Corporate Secretary in March
1997. Prior to joining the Company, Mr. Mott was a principal with the law firm
of Miles & Stockbridge, P.C. in Rockville, Maryland, which he joined in 1988.

33
<PAGE>

Michael A. Smith joined the Company in August 1995, and is currently
President of America's Health Card Services, Inc. Prior to joining the
Company, Mr. Smith was an Executive Vice President at Chevy Chase Bank, Chevy
Chase, Maryland, with responsibility for credit cards, consumer lending,
marketing, branch administration and operations. During his 13 years at Chevy
Chase Bank, Mr. Smith had responsibility for other areas from time to time,
including human resources, property management and branch acquisitions.

Bette B. Anderson has served as Vice Chairman of Kelly, Anderson & Patrick,
management consultants, since 1995. She served as its President from 1989
through 1995. Ms. Anderson has served on the Board of Directors for ITT
Corporation, ITT Educational Services, ITT Hartford Insurance and American
Banknote Corp. She is Chairman of the United States Treasury Historical
Association and the Advisory Council of the Girl Scouts of the United States
of America. Previously, Ms. Anderson served as Under Secretary of the United
States Department of the Treasury and prior to that, she was Senior Vice
President in charge of credit administration for the Citizens and Southern
National Bank of Savannah, Georgia.

William E. Brock has served as Senior Counsel and Trustee of the Center for
Strategic and International Studies in Washington, D.C. since 1994. From 1988
to 1994, Mr. Brock served as Chairman of the Brock Group, a consulting firm.
From 1988 to 1991, he served as the Chairman of the National Endowment for
Democracy. From 1985 to 1987, he served as the United States Secretary of
Labor and from 1981 to 1985, he was a United States Trade Representative. Mr.
Brock has also served for eight years as a member of the United States House
of Representatives and for six years as a member of the United States Senate.
Mr. Brock is a director of Sinclair Broadcasting Corp. and On Assignment, Inc.

David J. Drury joined an affiliate of Principal Mutual in 1966 and currently
serves as its Chairman of the Board and Chief Executive Officer. Since 1970,
Mr. Drury has served as an officer of Principal Mutual or its affiliates in
various other capacities. Mr. Drury also is a director of Coventry Health
Care, Inc.

Michael H. Gersie joined an affiliate of Principal Mutual in 1970 and has
served as Senior Vice President of Principal Mutual. Since 1996, Mr. Gersie
has served as an officer of affiliates of Principal Mutual since 1974.

Frederick H. Graefe, Esq. has been a partner with the law firm of Baker &
Hostetler in Washington, D.C. since 1988, specializing in national health care
policy with an emphasis on comprehensive health care reform. He serves as
Washington counsel to several health care trade associations and coalitions of
hospitals and physicians, manufacturers, malpractice liability insurers and
health insurance companies.

Thomas J. Graf joined an affiliate of Principal Mutual in 1972 and, since
1994, has served as Senior Vice President of Principal Mutual. Since 1976, Mr.
Graf has served as an officer of affiliates of Principal Mutual. Mr. Graf also
is a director of Coventry Health Care, Inc.

Kenneth J. Linde was the founder, President and Chief Executive Officer of
Principal Health Care, Inc., an affiliate of Principal Mutual. Mr. Linde
joined Principal Mutual in 1987. In 1998, Principal Health Care, Inc. was
merged with Coventry Health Care, Inc., a subsidiary of Coventry Corporation.
Mr. Linde presently works as an independent consultant.

Board of Directors

The Board of Directors of the Company is divided into three classes, each
containing at least two directors. The directors are elected by the
stockholders of the Company for staggered three-year terms, or until their
successors are elected and qualified.

Compensation of Directors

Directors who are not affiliated with the Company each receive a fee of
$2,500 for each Board of Directors meeting and $500 for each Committee meeting
attended, plus travel and incidental expenses incurred in attending

34
<PAGE>

meetings and carrying out their duties as directors. The directors from
Principal Mutual receive no fees and are reimbursed only for their travel and
incidental expenses.

In January 1998, each of the non-affiliated directors received a stock
option grant of 4,500 shares of common stock. One-third of these stock options
vested immediately, one-third vested in January 1999, and the other one-third
will vest in January 2000. On January 1, 1999 each non-affiliated director
received a stock option grant of 1,000 shares of common stock which vested at
the date of grant. All of these options are exercisable for a ten-year period
and permit the holder to purchase shares at the fair market value on the date
of grant. On January 1 of subsequent years the non-affiliated directors will
receive an additional 1,000 shares.

Committees of the Board of Directors

The Board of Directors of the Company has three standing committees: the
Executive Committee, the Audit Committee and the Compensation Committee.

The Executive Committee has the power to deal with important matters which
arise between meetings of the Board of Directors and upon which action must be
taken or attention given prior to the next scheduled meeting of the Board of
Directors.

The Audit Committee has general responsibility for supervision of financial
controls, as well as for accounting and audit activities of the Company. The
Audit Committee annually reviews the qualifications of the Company's
independent certified public accountants, makes recommendations to the Board
of Directors as to their selection and reviews the planning, fees and results
of their audit. The members of the Audit Committee consist solely of certain
non-employee directors, who are elected to the Committee.

The Compensation Committee has the responsibility of recommending salary and
incentive compensation for executive officers to the Board of Directors.

Possible Resignation of Directors

In connection with the proposed acquisition by the Company of the Bank and
its parent holding company, Principal Mutual is in the process of divesting
its control of the Company within the meaning of the Holding Company Act. Such
divestiture has involved Principal Mutual's sale of 4,500,000 shares of common
stock of the Company to a trust formed for that purpose and its offer for sale
of 1,250,000 shares of common stock in this offering. Also, Messrs. Drury,
Gersie, Graf and Linde, each of whom was nominated as a director by Principal
Mutual, would resign as directors of the Company prior to its acquisition of
the Bank. The Company intends that it will seek four new directors for the
Board to replace the four directors who intend to resign. See, "Principal and
Selling Stockholders--Recent Changes in Ownership By Principal Stockholders"
for information regarding arrangements to nominate for election as directors
two persons proposed by Capital Z Financial Services Fund II, L.P. ("Capital
Z").

35
<PAGE>

Executive Compensation

The following table sets forth the cash and non-cash compensations, for each
of the last three fiscal years ended December 31, 1998, awarded to or earned
by the Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company.

<TABLE>
<CAPTION>
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) SARs Payouts Compensation
------------------ ---- -------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Blair.........
Chairman of the Board 1998 $350,000 $196,000(1) -- -- -- -- $81,286(2)
and Chief Executive 1997 93,469 149,767(1) -- -- -- -- 86,790(2)
Officer 1996 115,998(1) 106,457(1) -- -- -- -- 46,546(2)
Edward S. Civera........ 1998 350,000 196,000(3) -- -- -- -- 231,180(4)
President and Chief 1997 253,294 100,000(3) -- -- 1,125,000 -- 224,930(4)
Operating Officer
S. Joseph Bruno......... 1998 280,000 49,000(5) -- -- -- -- 28,290(6)
Vice President and 1997 255,794 25,000(5) -- -- -- -- 35,610(6)
Chief Financial Officer 1996 240,000 -- -- -- -- -- 58,619(6)
Spiro A. Karadimas...... 1998 240,000 49,000(7) -- -- -- -- 28,250(8)
Vice President of 1997 210,794 25,000(7) -- -- -- -- 29,868(8)
Operations 1996 150,000 -- -- -- -- -- 45,911(8)
Barbara M. Freeman...... 1998 215,500 -- -- -- 22,500 -- 14,600(9)
President of National 1997 211,823 15,000 -- -- -- -- 5,250(9)
Health Services, Inc. 1996 51,375 -- -- -- -- -- --
</TABLE>
- --------
(1) For 1996, Mr. Blair received a total of $115,998 as compensation; $49,998
from the Company; and $66,000 from IM&I, an entity owned by Mr. Blair
which was contributed to and then merged with the Company. In addition,
the bonuses for 1996 and 1997 reflect Mr. Blair's receipt in April 1997
and March 1998, respectively, of 1% of the Company's after-tax profit for
the respective year pursuant to the terms of his employment agreement. The
bonus for 1998 reflects the amount accrued for 1998 to be paid in March
1999.
(2) For 1996, consists of payments from IM&I to Thomas L. Blair, the Chief
Executive Officer, President and sole stockholder of IM&I prior to his
contribution of IM&I to the Company, and includes premiums for life
insurance of $24,297 and automobile allowance of $22,249. For 1997,
consists of payments from the Company of premiums for life insurance of
$45,973, matching 401(k) contribution of $4,817 and automobile allowance
of $36,000. For 1998, consists of payments from the Company of premiums
for life insurance of $39,786, matching 401(k) contribution of $5,500 and
$36,000 of automobile allowance.
(3) The 1997 and 1998 respective bonuses reflect Mr. Civera's receipt in March
1998 of bonuses accrued in 1997 and expected receipt in March 1999 of the
1998 bonus accrued in 1998 under his employment agreement.
(4) Includes for 1997 and 1998, respectively, $200,000 and $200,000, net of
income tax, representing a funded retirement benefit (see "Management--
Employment Agreements"), premiums for life insurance of $1,680, and
$1,680, matching 401(k) contributions of $5,250 and $5,500 and automobile
allowance of $18,000 and $24,000.
(5) The bonus reflects Mr. Bruno's receipt in March 1998 of bonus accrued in
1997 and a bonus for 1998 to be paid in March 1999.
(6) In 1996, includes payment from the Company of premiums for life insurance
of $12,710, automobile allowance of $9,523, and $36,386 deferred
compensation from 1995. In 1997 and 1998 respectively, includes payment
from the Company of premiums for life insurance of $10,360 and $2,790
respectively, matching 401(k) contributions of $5,250 and $5,500,
respectively, and automobile allowances of $20,000 for both years.
(7) The bonus reflects Mr. Karadimas' receipt in March 1998 of bonus accrued
in 1997 and a bonus for 1998 to be paid in March 1999.
(8) For 1997 and 1998 includes payment from the Company of premiums for life
insurance of $4,618 and $2,750, respectively, matching 401(k)
contributions of $5,250 and $5,500, respectively and automobile allowances
of $20,000 and $20,000, respectively. For 1996, includes payment by the
Company of premiums for life insurance of $7,666 and automobile allowances
of $11,643 and payment by IM&I of $26,602.
(9) Consists of matching 401(k) contributions of $5,250 and $5,500 for 1997
and 1998, respectively and automobile allowance for 1998 of $9,100.

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<PAGE>

Stock Option and Stock Purchase Plans

All executive officers, with the exception of Thomas L. Blair, Chairman of
the Board and Co-Chief Executive Officer, may participate in the Company's
1996 Stock Option and 1996 Employee Stock Purchase Plans. In October 1996, the
Company adopted the United Payors & United Providers, Inc. 1996 Stock Option
Plan ("SOP"). Stock options may be granted under the SOP as either incentive
stock options or non-qualified stock options. The maximum number of shares of
the Company's common stock reserved for purchase pursuant to the exercise of
options granted under the SOP is 2,325,000 shares. All Company employees,
outside directors and consultants are eligible to receive option awards. The
Compensation Committee determines award amounts, exercise prices, terms and
vesting periods. The maximum term over which incentive stock options and non-
qualified stock options may be exercised may not exceed 10 years and 12 years,
respectively.

The following table sets forth certain information with respect to stock
options granted to named executive officers during 1998:

<TABLE>
<CAPTION>
Potential Realizable Value
Number of % of at Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to for Option Term(1)
Options Employees in Exercise Expiration --------------------------
Name Granted Fiscal Year Price Date 0% 5% 10%
- ---- ---------- ------------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Barbara M. Freeman...... 22,500 13.4% $14.67 Jan. 2003 $291,150 $371,700 $468,700
</TABLE>
- --------
(1) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the Securities and
Exchange Commission.

AGGREGATE OPTION EXERCISES DURING FISCAL 1998
AND OPTION VALUES AS OF DECEMBER 31, 1998

The following table sets forth information concerning stock option exercises
and stock option values for each of the named executive officers:

<TABLE>
<CAPTION>
Number of Value of Unexercised In-
Shares Value Number of Unexercised The-Money Options
Acquired Upon Realized Options 12/31/98 12/31/98(1)
Exercise of Upon ------------------------- -------------------------
Option Exercises Exercisable Unexercisable Exercisable Unexercisable
------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward S. Civera........ -- -- 843,750 281,250 $16,171,875 $6,890,625
Barbara M. Freeman...... -- -- -- 22,500 -- 311,175
</TABLE>
- --------
(1) In accordance with the Securities and Exchange Commission rules, values
are calculated by subtracting the exercise price from the fair market
value of the underlying common stock. For purposes of this table, fair
market value is deemed to be $28.50, the closing price of the stock
reported for the Nasdaq National Market as of December 31, 1998.

Employee Stock Purchase Plan

Effective January 1, 1998, the Company implemented the United Payors &
United Providers, Inc. Employee Stock Purchase Plan ("ESPP"). The maximum
number of shares reserved for purchase by employees under this plan is 525,000
shares. Each eligible employee may purchase, through payroll deductions,
shares having an aggregate annual market value of up to $25,000. The employee
purchase price is 85% of the market price of the Company's common stock at the
beginning or the end of the offering period, whichever is lower. The shares
may be purchased in the open market or issued from treasury shares.

Employment Agreements

The Company has entered into employment agreements with Thomas L. Blair,
Chairman of the Board and Co-Chief Executive Officer, Edward S. Civera, Co-
Chief Executive Officer and President, S. Joseph Bruno, Vice President and
Chief Financial Officer, and Spiro A. Karadimas, Vice President of Operations.
The employment agreements, for Messrs. Blair, Bruno and Karadimas are
substantially similar and provide for two-year terms

37
<PAGE>

(initially effective July, 1996, and as amended, from January, 1999),
covenants not to compete, and severance arrangements. Mr. Blair's base salary,
pursuant to his employment agreement, is $350,000 per year plus one percent of
the Company's annual after-tax profits. The base salaries currently are
$240,000 and $280,000, respectively, for Messrs. Karadimas and Bruno. Base
salary may be increased by the Company's Board of Directors, in the case of
Mr. Blair, and by the Company's President, in the case of Messrs. Karadimas
and Bruno. In addition to base salary, the employment agreements provide for,
among other things, participation by the executives in employee benefit plans,
other fringe benefits applicable to executive personnel and reimbursement of
reasonable expenses incurred in promoting the business of the Company. As of
January 1998, Mr. Bruno and Mr. Karadimas began participating in a bonus
arrangement entitling each of them to one-quarter of one percent of the
Company's net income. In addition, in 1998 the Board approved and the Company
paid an aggregate of $700,000 for variable- and fixed-rate annuity policies
for Mr. Blair. Mr. Blair has reimbursed the Company $250,000 of that amount
and currently is the owner of one-third of the policy. The remainder of the
policy vests to Mr. Blair over the next two years, subject to his
reimbursement to the Company for the remainder of the cost. Until it is
reimbursed in full, the Company has a proportionate ownership interest in the
policy.

Mr. Civera's agreement, initially effective January, 1997, and, as amended,
from January, 1999, provides for, among other things, an annual base salary of
$350,000, a bonus arrangement of one percent of the Company's after-tax
profit, options to purchase 1,125,000 shares of the Company's common stock
(750,000 shares exercisable at or above the market price at the date of grant
and 375,000 shares exercisable at $4.00 below the market price at the date of
grant) that vest over an eight-year period (with an acceleration provision
based on performance) and a net of income tax retirement benefit
(approximately $1.0 million) in the form of vested trust arrangements that is
earned over a five-year period. In December 1997, the Company accelerated the
vesting of the 750,000 stock options which had an exercise price equal to or
above the market price at the date of grant. Mr. Civera's agreement also
contains benefit provisions related to a change in control of the Company. On
February 25, 1999, Mr. Civera exercised options to purchase 375,000 shares of
common stock at a weighted average exercise price of $6.50. These shares were
sold by Mr. Civera to Capital Z. Mr. Blair agreed, in Mr. Civera's employment
contract, to vote the shares of common stock he controls for the election of
Mr. Civera to the Board of Directors.

Each of the employment agreements contains benefit provisions related to a
change in control of the Company's ownership. In the event of a change in
control, Mr. Civera will be entitled to: (i) his annual base salary and
incentive bonus for the remaining term of his employment agreement; (ii) the
remainder of his advance benefit payment; and (iii) immediately accelerate the
vesting of all of his unvested stock options. In the event of a change in
control, Messrs. Blair, Bruno and Karadimas will each receive his respective
base salary and incentive bonus payment for a period of time which is the
greater of the remaining unexpired term of his respective employment agreement
or for one year.

For purposes of each of the employment agreements, a "change in control" has
occurred if: (i) a person becomes the beneficial owner of at least 20% of the
Company's outstanding securities; (ii) in any 24 month period, a majority of
the Board is replaced, unless the election of each new director was approved
by a vote of 2/3 of the directors in office who were also directors at the
beginning of the period; or (iii) the stockholders of the Company approve a
definitive merger agreement, sale of asset agreement, or an agreement to
liquidate or dissolve the Company.

Notwithstanding the definition of "a change in control," (a) the recent
transfer of 4,500,000 shares of UP&UP common stock into the Trust by Principal
Mutual, and (b) the recent acquisition by Capital Z of 1,750,000 shares of
UP&UP common stock and the option to purchase 2,250,000 shares of UP&UP common
stock does not constitute a "change in control of the Company" for purposes of
these employment agreements since the holder of each agreement has waived his
rights to a "change in control" under those circumstances. The waiver was
accomplished through the amendment of each employment contract in January,
1999.

38
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Mr. Blair disclaims beneficial ownership of shares of UP&UP common stock
acquired by a company that he may be considered to control. Nevertheless, he
has included those shares on a Form 5 report of beneficial ownership he filed
for 1998. Mr. Blair did not timely file seven Form 4 reports of beneficial
ownership for 1998 relating to purchases of an aggregate of 16,700 shares of
common stock, (less than 1/10 of 1% of outstanding shares). Of those
16,700 shares, 11,400 shares were acquired by the company referenced above.

CERTAIN TRANSACTIONS

The following are transactions involving Thomas L. Blair, the Chairman of
the Board and Co-Chief Executive Officer of the Company and/or Principal
Mutual and the Company:

The Company utilizes, for corporate business purposes, the services of an
aircraft owned by a corporation, which is owned by Thomas L. Blair. The amount
paid by the Company to this corporation in 1998, 1997, and 1996 was
approximately $445,000, $263,000, and $153,000, respectively.

During 1996, an affiliate of Principal Mutual became a Payor Client of the
Company. Principal Mutual's affiliate has also been a payor client of AHP
since 1992. Approximately $7,376,000, $2,342,000 and $80,000 of Provider
Network revenue for 1998, 1997 and 1996, respectively, was derived from its
contract with the Principal Mutual affiliate. At December 31, 1998 and 1997,
approximately $904,000 and $341,000, respectively, was due from a Principal
Mutual affiliate and was included in accounts receivable.

During 1997, the Company purchased medical and life insurance from a
Principal Mutual affiliate. The Company did not purchase health insurance from
that Principal Mutual affiliate during 1998. A Principal Mutual affiliate has
also administered the Company's 401(k) plan since 1997. Amounts paid to
Principal Mutual affiliates in 1998 and 1997 for these insurance products and
services approximated $159,000 and $386,000, respectively.

The Company performs certain administrative services for HealthExtras, an
entity formed by Principal Mutual and Thomas L. Blair, that markets
catastrophic and supplemental health insurance. During 1998, HealthExtras
reimbursed the Company approximately $839,000 for staffing and other costs
incurred by the Company in the performance of services on behalf of
HealthExtras. The Company has also entered into a royalty agreement with
HealthExtras effective January 1, 1999. The royalty agreement provides the
Company with a per member/per month royalty fee in exchange for the Company
granting HealthExtras' members access to its Provider Network at no fee over a
four-year period. The royalty fee initially starts at $1.00 PMPM in year one
and increases to $1.50 PMPM in year four. The royalty fee is based upon the
tenure of each member participating in the HealthExtras program. It is likely
that HealthExtras' future product development will integrate the use of the
provider network. The Company has guaranteed a credit facility of HealthExtras
in the amount of $3.0 million.

In addition, see "Principal and Selling Stockholders" for a discussion of
proposed arrangements relating to the divestiture by Principal Mutual of a
controlling relationship with respect to the Company and related possible
transactions, which, among other things, could involve transactions between
the Company and Mr. Blair or Principal Mutual, including its affiliates.

39
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

Principal Stockholders

The following table sets forth as of February 28, 1999, and as adjusted to
reflect the sale of the shares in this offering by the Company and the Selling
Stockholder, certain information with respect to the beneficial ownership of
the common stock by: (i) each person known by the Company to beneficially own
more than 5% of the common stock; (ii) each current director of the Company;
(iii) each of the named executive officers; and (iv) all directors and
executive officers of the Company as a group. The Company believes that the
beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect
to such shares, except as noted below.

<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Number Beneficially Owned
Prior to Offering of After the Offering
--------------------- Shares ---------------------
Number Percent Offered Number Percent
---------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Thomas L. Blair(1)...... 7,183,150 40.9% -- 7,183,150 38.2%
Principal Mutual(2)(3).. 2,100,000 12.0 1,250,000 850,000 4.5
Independent Divestment
Trust.................. 4,500,000(4) 25.6 4,500,000 23.9
Capital Z Financial
Services Fund II.,
L.P.(5)................ 4,000,000 22.8 -- 4,000,000 21.3
Other Directors and
Named Executive
Officers
Edward S. Civera(6)..... 530,994 2.9% -- 530,994 2.7%
Spiro A. Karadimas(7)... 500,943 2.9 -- 500,943 2.7
S. Joseph Bruno(8)...... 440,339 2.5 -- 440,339 2.3
Bette B. Anderson....... 13,500 (9) -- 13,500 (9)
William E. Brock........ 14,250 (9) -- 14,250 (9)
Frederick H. Graefe..... 34,120 (9) -- 34,120 (9)
Kenneth J. Linde........ 7,550 (9) -- 7,550 (9)
All executive officers
and directors as a
group(10).............. 10,968,595 60.7 9,718,595 50.3
</TABLE>
- --------
(1) Represents 2,424,500 shares owned by Mr. Blair jointly with his wife,
200,000 shares owned solely by his wife, 58,650 shares owned by companies
Mr. Blair may be deemed to control and 4,500,000 shares that Mr. Blair
has agreed to purchase from Independent Divestment Trust. Mr. Blair has
granted an option to purchase 2,250,000 shares of common stock. See "--
Recent Changes in Ownership by Principal Stockholders."
(2) Principal Mutual's address is 711 High Street, Des Moines, Iowa 50392.
Three Directors of UP&UP are executive officers of Principal Mutual. Mr.
Drury is Chairman of the Board and Chief Executive Officer, Mr. Graf is
Senior Vice President, and Mr. Gersie is Senior Vice President of
Principal Mutual. Such persons do not individually own any shares of
Company stock but may be considered beneficial owners with respect to the
shares owned by Principal Mutual by virtue of their positions with
Principal Mutual. The respective addresses of such persons are care of
Principal Mutual at Principal Mutual's address. Also, Mr. Linde is the
former President of Principal Health Care, Inc., an affiliate of
Principal Mutual.
(3) In connection with the proposed acquisition by the Company of the Bank
and its parent holding company, Principal Mutual is divesting its control
of the Company within the meaning of Home Owners Loan Act of 1933, as
amended. Such divestiture has involved Principal Mutual's sale of
4,500,000 shares of common stock of the Company to the Trust. Also,
Principal Mutual is offering for sale 1,250,000 shares in this offering.
In addition, Messrs. Drury, Gersie, Graf and Linde intend to resign as
Directors of the Company prior to its acquisition of the Bank.
(4) The Trust is obligated to sell these shares to Mr. Blair and he is a
beneficial owner of these shares. The Trust is required to vote these
shares in the same proportion as other shareholders vote their shares,
except for a vote on specific matters to be presented at the next annual
meeting of stockholders. See "--Recent Changes in Ownership by Principal
Stockholders."
(5) Includes 2,250,000 shares which Capital Z has the right to acquire upon
the exercise of an option granted to it by Mr. Blair. Also, includes
shares beneficially owned by an affiliate of Capital Z.
(6) Includes options to purchase 515,625 shares which are presently
exercisable. Of the 530,994 shares beneficially owned by Mr. Civera,
10,000 shares are held in trust under the Uniform Gift to Minors Act for
Mr. Civera's children.
(7) Of this number, 105,000 shares are held in trust under the Uniform Gift
to Minors Act for Mr. Karadimas' children and 120,000 are in Mr.
Karadimas' wife's name.
(8) Of this number, 230,000 shares are held in trust under the Uniform Gift
to Minors Act for Mr. Bruno's children and 25,750 shares are in Mr.
Bruno's wife's name.
(9) Represents less than 1.0% of the Company's common stock.
(10) Includes shares owned by Principal Mutual; does not include shares owned
by Capital Z.

40
<PAGE>

Recent Changes in Ownership by Principal Stockholders

In February 1999, certain principal stockholders of the Company engaged in
transactions that have resulted in significant changes in their ownership of
UP&UP's common stock. As a result, Principal Mutual has reduced its beneficial
ownership of common stock from 6,600,000 shares to 2,100,000 shares (850,000
shares after giving effect to this offering). Mr. Blair has increased his
beneficial ownership from 3,383,150 shares to 7,183,150 shares and Capital Z
has purchased 1,750,000 shares of common stock from management and employees
of UP&UP and an option to purchase from Mr. Blair an additional 2,250,000
shares of common stock. These transactions are described below. Certain
ramifications of these transactions are described under "Risk Factors--
Purchasers of UP&UP's Common Stock are Subject to Significant Uncertainty
Regarding Possible Future Sales of Significant Blocks of UP&UP Common Stock
and the Effect of these Sales on the Trading Market for UP&UP Common Stock and
the Control of UP&UP" and "Shares Eligible for Future Sale."

Sale of Shares by Principal Mutual

In light of the proposed acquisition by the Company of the Bank, Principal
Mutual is divesting its control (for purposes of the Holding Company Act) of
the Company. In February 1999, Principal Mutual sold 4,500,000 shares of the
Company's common stock (the "Principal Shares"), representing 25.6% of the
then-outstanding shares of common stock and 68.2% of Principal Mutual's
holdings, to Independent Divestment Trust (the "Trust"), a Delaware business
trust formed for that purpose. Principal Mutual received from the Trust
$13,225,000 in cash and trust certificates entitling it to the additional
proceeds to be received by the Trust from the sale of the Principal Shares as
described below. In addition, Principal Mutual is offering 1,250,000 shares
for sale in this offering. If this sale is not completed, Principal Mutual
intends to sell those 1,250,000 shares to the Trust under similar arrangements
to those that pertain to the Principal Shares.

As a result of this divestiture, and assuming the sale of shares in this
offering as proposed, Principal Mutual will beneficially own 850,000 shares of
UP&UP common stock, or approximately 4.5% of the outstanding shares. In
addition, the four directors of UP&UP who were nominated as directors by
Principal Mutual would resign prior to UP&UP's acquisition of the Bank. See
"Management--Possible Resignation of Directors."

Agreement of Mr. Blair to Purchase Shares from the Trust

At the same time that Principal Mutual sold its shares to the Trust, Mr.
Blair agreed to purchase the Principal Shares from the Trust. Mr. Blair also
intends to purchase from the Trust any unsold portion of the 1,250,000 shares
offered by Principal Mutual in this offering. Mr. Blair paid the Trust
$13,225,000 towards the purchase and committed to pay the additional amount
owed on or before February 25, 2003 (the "Settlement Date"). The purchase
price per share is a maximum of $27.60 per share (less $2.94 per share
representing the allocable per share portion of the $13,225,000 already paid
by Mr. Blair), subject to possible adjustment to a minimum of $23 per share,
based upon the average closing sales prices for the common stock for the 10
trading days immediately preceding the purchase. Mr. Blair may purchase the
shares in whole or in part prior to the Settlement Date and must purchase all
of the shares by the Settlement Date. In the event of a default by Mr. Blair
on the Settlement Date with respect to the purchase of any of the Principal
Shares, the Trust is required to sell those shares.

As a result of his agreement with the Trust, Mr. Blair is considered under
the rules of the Securities and Exchange Commission to beneficially own the
Principal Shares. Such ownership, together with Mr. Blair's existing ownership
of UP&UP common stock means that Mr. Blair beneficially owns 7,183,150 shares,
or approximately 40.9% of UP&UP's outstanding shares of common stock as of
March 1, 1999 (38.2% giving effect to this offering). However, 2,250,000 of
these shares are subject to the option granted by Mr. Blair to Capital Z,
which is discussed below.

Prior to Mr. Blair's purchase of Principal Shares from the Trust, the Trust
would be the legal owner of those shares. However, the Trust is required to
vote the Principal Shares on any matter in the same proportion as the votes on
such matter by the other UP&UP stockholders; except that the Trust is required
to vote for the amendments to the Company's certificate of incorporation
discussed below.

41
<PAGE>

Capital Z's Purchase of Shares from Management

Also in February 1999, Capital Z purchased from Mr. Blair and certain other
management and employee holders of UP&UP common stock an aggregate of
1,750,000 shares of UP&UP common stock for $35 million. In this transaction,
Mr. Blair sold 700,000 of these shares. Also, Mr. Blair granted options to
Capital Z to purchase from him an additional 2,250,000 shares of common stock
for $27.60 per share, including a $6.00 per share non-refundable deposit. Mr.
Blair used most of the proceeds from this transaction, after giving effect to
his federal and state income tax obligations, to make the $13,225,000 payment
to the Trust. As a result, Capital Z owns 9.3% of the Company's common stock
outstanding. Capital Z beneficially owns 21.3% of the UP&UP common stock when
the option is considered. Mr. Blair's beneficial ownership would be reduced to
26.2% if the option is exercised. The above referenced percentages give effect
to this offering.

For the purposes of the SEC's rules (and the foregoing table), the 2,250,000
shares subject to an option from Mr. Blair to Capital Z are considered to be
beneficially owned by both of those persons.

Related Arrangements

In connection with the Capital Z transaction described above, Mr. Blair and
the Company agreed to certain related arrangements, which are described below.

Nomination of Directors. The Company has agreed to nominate to its Board of
Directors two individuals designated by Capital Z. Certain increases in the
number of directors could require an increase in the number of directors to be
designated by Capital Z. The Company intends to nominate the two initial
Capital Z designees for election at the Company's 1999 annual meeting of
stockholders; although it is possible that Capital Z designees could be added
to the Board prior to that date. Capital Z's rights to board nominees are
subject to its maintaining specified levels of UP&UP common stock ownership.

Registration Rights. In addition, the Company has granted certain
registration rights which will permit Capital Z to have the Company file
registration statements with the Securities and Exchange Commission to cover
sales of the 1,750,000 shares acquired by Capital Z and the 2,250,000 shares
which Capital Z would acquire upon exercise of the option granted to Capital Z
by Mr. Blair. These registration rights are not exercisable until at least
August of 1999. These rights are assignable by Capital Z. The Company is
entitled to buy the shares covered by these registration rights before they
are sold by Capital Z.

Amendment to Certificate of Incorporation. The Company has agreed to submit
to stockholders at its 1999 annual meeting of stockholders a proposal to amend
its certificate of incorporation to eliminate or reduce requirements imposed
by certain provisions which may be considered to have an anti-takeover effect.
Specifically, the amendments would:

. delete the prohibition on stockholder action by written consent;

. delete a "Business Combination" provision which imposes certain
restrictions on and supermajority voting requirements with respect to
transactions with certain greater than 10% stockholders, not approved by
the Board of Directors;

. delete a provision which allows the UP&UP Board of Directors to consider
non-stockholder constituencies in evaluating certain business
transactions; and

. modify the provisions regarding the removal of directors for cause,
amendment of bylaws and amendment of certain provisions of the
certificate of incorporation to require in each case a 66 2/3%
stockholder vote rather than the 80% stockholder vote presently required.

Thomas L. Blair has agreed to vote his shares in favor of these amendments,
and the Trust is directed to vote its shares in favor of these amendments.

42
<PAGE>

Other Matters. In addition, Mr. Blair granted Capital Z certain rights to
buy shares of common stock if Mr. Blair proposes to sell those shares and
certain rights to participate in a sale by Mr. Blair of shares of common
stock. The Company has also agreed not to repurchase shares of its stock to
the extent that such repurchases would subject Capital Z to a possible
presumption of control under the Home Owners Loan Act of 1933, as amended,
based on the 1,750,000 shares Capital Z currently owns and shares that it
acquires upon exercise of this option, so long as the Company is a savings and
loan holding company.

Transfer Agent and Registrar

The Transfer Agent and Registrar for the common stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

The common stock has traded on the Nasdaq National Market since the
Company's initial public offering in July 1996. Future sales of substantial
amounts of common stock in the public market after this offering, or the
perception that such sales could occur, could have a material adverse effect
on the prevailing market price of the common stock. There were approximately
17,554,000 shares of common stock outstanding as of March 1, 1999. Of such
shares, approximately 5,072,000 shares, or approximately 28.9% of the
outstanding shares, may be considered, as a practical matter, as fully
transferable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"). The remaining approximately
12,482,000 shares, or approximately 71.1% of the outstanding shares, would be
beneficially owned by persons who may be deemed to be "affiliates" of the
Company within the contemplation of the Securities Act. In general, an
affiliate of the Company may sell shares of the common stock pursuant to the
requirements of Rule 144 or a registration statement filed under the
Securities Act. Rule 144 generally would permit those affiliates to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of shares of common stock then outstanding
(which will equal approximately 175,000 shares) or (ii) the average weekly
trading volume of the common stock on the Nasdaq National Market during the
four calendar weeks preceding the filing of a notice on Form 144 with respect
to such sale with the SEC. Sales under Rule 144 are also subject to certain
other requirements regarding the manner of sale, notice and availability of
current public information about UP&UP. In addition, in connection with the
offering, UP&UP and its executive officers and directors and the selling
stockholder, who, for the most part, are the same persons who may be
considered to be affiliates of the Company, have agreed that, subject to
certain exceptions, they will not sell, offer or contract to sell any shares
of common stock without the prior written consent of Warburg Dillon Read LLC
for a period of 180 days after the date of this prospectus.

As of March 1, 1999, the Company has granted to employees options to
purchase 1,477,500 shares of its common stock at a weighted average price of
$9.24 per share. In addition, the Company has granted options and warrants as
follows: (a) 273,000 shares of its common stock from exercised warrants or
options (at $8.33 per share) pursuant to a non-compete agreement related to a
marketing commission restructuring; (b) 75,000 shares of its common stock from
exercised warrants or options (at $11.33 per share) pursuant to a contractual
arrangement with a client; and (c) 477,000 shares of its common stock (at
$10.67 per share) in the form of stock warrants pursuant to the acquisition of
NHS. These options and warrants expire from 3 to 10 years from the date of the
respective agreements. The Company has filed registration statements on Form
S-8 with the SEC that cover the offer of the 1,477,500 shares upon exercise of
options and intends to file another Form S-8 registration statement to cover
an additional 273,000 shares upon the exercise of options, as described above.

Likely Sales of a Significant Number of Shares of Common Stock During a Four
Year Period

If the 4,500,000 shares of UP&UP common stock are not purchased from the
Trust by February 25, 2003 by Mr. Blair, as is required by the purchase
agreement with the Trust, the Trust is obligated to sell those shares.
Further, Mr. Blair likely would seek to sell shares to pay the purchase price
of at least some of the shares he purchases from the Trust. Also, Capital Z
could seek to sell shares it purchased, including shares purchased from Mr.
Blair upon the exercise of the option. Capital Z has registration rights with
respect to up to 4,000,000 shares of common stock. Such registration rights
are subject to phase-in periods and other postponement rights for UP&UP. Thus,
it is likely that a significant number of shares of UP&UP common stock would
be resold during

43
<PAGE>

the four year period after the effective date of the proposed divestiture by
Principal Mutual. A public sale of those shares could have an adverse effect
on the trading market for UP&UP's common stock. A private sale of a
significant number of shares could affect a change in control of UP&UP.

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the Company and the selling stockholder have agreed to sell to
such underwriter, the number of shares of common stock set forth opposite the
name of such underwriter.

<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Warburg Dillon Read LLC...................................
BT Alex. Brown Incorporated...............................
Scott & Stringfellow, Inc.................................
---------
Total................................................. 2,500,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.

The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus
and some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may allow, a concession not in excess of $ per share on sales
to certain other dealers. After the initial offering of the shares to the
public, the public offering price and such concessions may be changed by the
representatives.

The Company has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriters' initial purchase commitment.

The Company, its officers and directors, and the selling stockholder have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Warburg Dillon Read LLC, offer,
sell, contract to sell, or otherwise dispose of, any shares of common stock of
the Company or any securities convertible into, or exercisable or exchangeable
for, common stock. Warburg Dillon Read LLC in its sole discretion may release
any of the securities subject to these lock-up agreements at any time without
notice.

The common stock is quoted on the Nasdaq National Market under the symbol
"UPUP."

The following table shows the underwriting discounts and commissions to be
paid to the underwriters by the Company and the selling stockholder in
connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of common stock.

<TABLE>
<CAPTION>
Paid by Selling
Paid by the Company Stockholder
-------------------- --------------------
Full Full
No Exercise Exercise No Exercise Exercise
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total............................ $ $ $ $
</TABLE>

44
<PAGE>

In connection with the offering, Warburg Dillon Read LLC, on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when Warburg Dillon Read LLC is covering syndicate
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member. These activities may cause the price of the
common stock to be higher than the price that otherwise would exist in the
open market in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or in the over-the-counter market, or
otherwise and, if commenced, may be discontinued at any time.

In addition, in connection with this offering, certain of the underwriters
(and selling group members) may engage in passive market making transactions
in the common stock on the Nasdaq National Market, prior to the pricing and
completion of the offering. Passive market making consists of displaying bids
on the Nasdaq National Market no higher than the bid prices of independent
market makers and making purchases at prices no higher than these independent
bids and effected in response to order flow. Net purchases by a passive market
maker on each day are limited to a specified percentage of the passive market
maker's average daily trading volume in the common stock during a specified
period and must be discontinued when such limit is reached. Passive market
making may cause the price of the common stock to be higher than the price
that otherwise would exist in the open market in the absence of such
transactions. If passive market making is commenced, it may be discontinued at
any time.

The Company has agreed to pay the expenses of the selling stockholder in
this offering. The Company estimates that the total expenses of this offering
will be $600,000.

The underwriters have performed certain investment banking and advisory
services for the Company from time to time for which they have received
customary fees and expenses. The underwriters may, from time to time, engage
in transactions with and perform services for the Company in the ordinary
course of their business.

The Company and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.

LEGAL MATTERS

Certain legal matters in connection with the common stock offered hereby are
being passed upon for the Company by Muldoon, Murphy & Faucette LLP,
Washington, D.C. Douglas P. Faucette, a Partner in such firm, is the
beneficial owner of 94,500 shares of common stock. Certain legal matters will
be passed upon for the underwriters by Dewey Ballantine LLP, New York, New
York.

45
<PAGE>

EXPERTS

The consolidated balance sheets of UP&UP as of December 31, 1998 and 1997,
and the consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998
included in this prospectus, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on its public
reference room. Our SEC filings are also available to the public from the
SEC's Website at "http://www.sec.gov."

The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring
you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:

1.Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
2.Current Report on Form 8-K filed January 4, 1999; and
3.The description of the Company's common stock contained in the Company's
registration statement on Form 8-A (File No. 0-20908), as filed on June 20,
1996.

You may request a copy of these filings, at no cost, by writing or
telephoning our transfer agent at the following address:

American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100

This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information in this prospectus or the other
information incorporated into this prospectus. If the information in this
prospectus conflicts with information we have incorporated by reference into
this prospectus, you should rely on the more recent information. We have
authorized no one to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted.
You should not assume that the information in this prospectus is accurate as
of any date other than the date on the front of the document.

46
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-1

Consolidated Balance Sheets as of December 31, 1998 and 1997.............. F-2

Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996...................................................... F-3

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996......................................... F-4

Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996...................................................... F-5

Notes to the Consolidated Financial Statements............................ F-6
</TABLE>

47
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
United Payors & United Provides, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of United
Payors & United Providers, Inc. and subsidiaries (the "Company") as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers LLP

Washington, D.C.
February 12, 1999, except for Note 12,
as to which the date is February 25, 1999

F-1
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 27,510,647 $14,456,069
Short-term investments............................ 3,855,195 8,366,547
Accounts receivable............................... 12,729,631 11,233,277
Deferred income taxes............................. 1,332,491 811,059
Other current assets.............................. 1,109,584 441,343
------------ -----------
Total current assets............................ 46,537,548 35,308,295
Fixed assets, net................................... 4,301,944 3,858,532
Advances to contracting providers, net.............. 24,414,030 17,265,730
Intangible and other assets, net.................... 40,691,477 26,082,296
------------ -----------
Total assets.................................... $115,944,999 $82,514,853
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 11,487,823 $ 5,791,505
Income and other taxes payable.................... 2,861,841 1,871,934
Notes payable and capital leases, current
portion.......................................... 5,040,951 3,131,772
------------ -----------
Total current liabilities....................... 19,390,615 10,795,211
Other accrued expenses.............................. 1,073,333 1,313,333
Notes payable and capital leases, less current
portion............................................ 17,022,738 12,109,606
------------ -----------
Total liabilities............................... 37,486,686 24,218,150
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, none issued and outstanding at
December 31, 1998 and 1997....................... -- --
Common stock, $0.01 par value, 35,000,000 shares
authorized, 17,360,454 shares issued at December
31, 1998 and 1997................................ 173,605 173,605
Additional paid-in capital........................ 37,123,886 37,123,886
Treasury stock, 273,151 and 307,725 shares at
December 31, 1998 and 1997, respectively, at
cost............................................. (2,634,490) (3,029,450)
Retained earnings................................. 44,491,012 24,911,862
Deferred compensation............................. (695,700) (883,200)
------------ -----------
Total stockholders' equity...................... 78,458,313 58,296,703
------------ -----------
Total liabilities and stockholders' equity...... $115,944,999 $82,514,853
============ ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-2
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996,

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenue
Provider network revenue............ $ 57,951,926 $ 41,195,238 $31,258,853
Utilization management services..... 20,497,393 19,832,853 4,190,476
------------ ------------ -----------
Total revenue..................... 78,449,319 61,028,091 35,449,329
------------ ------------ -----------
Operating expenses
Direct contract expenses............ 33,524,429 29,173,204 15,294,892
General and administrative.......... 8,364,594 6,221,269 2,783,212
Depreciation and amortization....... 4,028,416 1,695,142 538,593
------------ ------------ -----------
Total operating expenses.......... 45,917,439 37,089,615 18,616,697
------------ ------------ -----------
Other income
Realized gain on sale of marketable
securities......................... 419,060 355,325 149,383
Interest income, net of interest
expense............................ 155,966 1,045,350 693,003
Other income, net................... 154,244 25,553 128,781
------------ ------------ -----------
Total other income, net........... 729,270 1,426,228 971,167
------------ ------------ -----------
Income before income taxes............ 33,261,150 25,364,704 17,803,799
Income tax provision.................. (13,682,000) (10,388,000) (7,158,000)
------------ ------------ -----------
Net income............................ $ 19,579,150 $ 14,976,704 $10,645,799
============ ============ ===========
Net income per share--basic........... $ 1.15 $ 0.87 $ 0.70
============ ============ ===========
Weighted average shares outstanding--
basic................................ 17,064,954 17,239,065 15,188,938
============ ============ ===========
Net income per share--diluted......... $ 1.09 $ 0.86 $ 0.70
============ ============ ===========
Weighted average shares--diluted...... 17,981,445 17,486,467 15,192,585
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Retained
------------------- -------------------- Paid-in Treasury Earnings Deferred
Shares Amount Shares Amount Capital Stock (Deficit) Compensation Total
------- -------- ---------- -------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995........... 1 $ -- 6,600,000 $ 66,000 $ 5,941,099 $ -- $ (710,641) $ -- $ 5,296,458
Conversion of
preferred stock.... (1) -- 6,600,000 66,000 (66,000) -- -- -- --
Shares issued in
public offering.... -- -- 4,140,000 41,400 26,834,057 -- -- -- 26,875,457
Shares issued in
connection with
investment......... -- -- 20,454 205 149,795 -- -- -- 150,000
Warrants issued in
connection with
acquisition........ -- -- -- -- 1,088,000 -- -- -- 1,088,000
Stock options issued
in connection with
non-compete and
restructuring of
marketing
agreement.......... -- -- -- -- 1,150,000 -- -- -- 1,150,000
Acquisition of
treasury stock..... -- -- (33,750) -- -- (30,000) -- -- (30,000)
Net income.......... -- -- -- -- -- -- 10,645,799 -- 10,645,799
------- -------- ---------- -------- ----------- ----------- ----------- --------- -----------
Balance at December
31, 1996........... -- -- 17,326,704 173,605 35,096,951 (30,000) 9,935,158 -- 45,175,714
Acquisition of
treasury stock..... -- -- (339,375) -- -- (3,299,450) -- -- (3,299,450)
Treasury shares
reissued in
connection with
acquisition........ -- -- 37,500 300,000 -- -- 300,000
Stock options
issued............. -- -- -- -- 1,643,350 -- -- -- 1,643,350
Treasury shares
reissued........... -- -- 27,900 -- 233,585 -- -- -- 233,585
Options issued in
connection with
network management
agreement.......... -- -- -- -- 150,000 -- -- -- 150,000
Deferred
compensation, net.. -- -- -- -- -- -- -- (883,200) (883,200)
Net income.......... -- -- -- -- -- -- 14,976,704 -- 14,976,704
------- -------- ---------- -------- ----------- ----------- ----------- --------- -----------
Balance at December
31, 1997........... -- -- 17,052,729 173,605 37,123,886 (3,029,450) 24,911,862 (883,200) 58,296,703
Acquisition of
treasury stock..... -- -- (16,500) -- -- (207,574) -- -- (207,574)
Treasury shares
reissued under the
Employee Stock
Purchase Plan...... -- -- 25,574 -- -- 370,524 -- -- 370,524
Treasury shares
reissued upon
exercise of stock
options............ -- -- 24,000 -- -- 205,760 -- -- 205,760
Other treasury
shares reissued.... 1,500 26,250 26,250
Compensation
expense, net....... -- -- -- -- -- -- -- 187,500 187,500
Net income.......... -- -- -- -- -- 19,579,150 -- 19,579,150
------- -------- ---------- -------- ----------- ----------- ----------- --------- -----------
Balance at December
31, 1998........... -- $ -- 17,087,303 $173,605 $37,123,886 $(2,634,490) $44,491,012 $(695,700) $78,458,313
======= ======== ========== ======== =========== =========== =========== ========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income.......................... $ 19,579,150 $ 14,976,704 $ 10,645,799
Adjustment to reconcile net income
to net cash provided by operations
Realized gain on sale of marketable
securities........................ (419,060) (355,325) (149,383)
Depreciation and amortization...... 4,028,416 1,695,142 538,593
Loss on sale of assets............. -- 143,138 --
Amortization of deferred costs..... 384,000 384,000 --
Noncash compensation expense....... 187,500 705,435 --
Deferred income taxes.............. (521,432) (180,459) 274,700
Changes in reserves and
allowances........................ 1,287,646 148,000 115,000
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable............... (1,114,948) (6,912,399) (4,998,837)
Accounts payable and accrued
expenses......................... (759,095) 1,944,024 (1,324,495)
Current and other assets.......... (674,337) (10,622) (1,307)
Income and other taxes payable.... 520,987 787,981 730,691
------------ ------------ ------------
Net cash provided by operating
activities.......................... 22,498,827 13,325,619 5,830,761
------------ ------------ ------------
Investing activities
Purchases of fixed assets........... (1,386,465) (1,495,599) (865,827)
Purchases of marketable securities.. (5,245,401) (4,989,131) (5,958,812)
Proceeds from sale of marketable
securities......................... 5,650,291 5,307,940 6,108,195
Purchases of short-term
investments........................ (3,803,609) (8,330,031) (10,448,564)
Proceeds from sale of short-term
investments........................ 8,329,131 10,448,564 --
Advances to contracting providers... (7,564,300) (13,113,000) (4,290,730)
Payments for acquisitions, net of
cash acquired...................... (11,689,432) (13,447,439) (5,304,221)
Other, net.......................... (1,000,415) (379,392) (629,354)
------------ ------------ ------------
Net cash used in investing
activities.......................... (16,710,200) (25,998,088) (21,389,313)
------------ ------------ ------------
Financing activities
Proceeds from initial public
offering........................... -- -- 26,875,457
Proceeds from bank borrowings....... 10,000,000 15,000,000 --
Purchase of treasury stock.......... (207,574) (3,299,450) (30,000)
Reissuance of treasury stock to
employees and upon exercise of
stock options...................... 602,534 -- --
Repayment of loan from stockholder.. -- -- (3,700,000)
Repayment of notes payable.......... (3,129,009) (606,196) (253,856)
------------ ------------ ------------
Net cash provided by financing
activities.......................... 7,265,951 11,094,354 22,891,601
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... 13,054,578 (1,578,115) 7,333,049
Cash and cash equivalents
Beginning of the period............. 14,456,069 16,034,184 8,701,135
------------ ------------ ------------
End of the period................... $ 27,510,647 $ 14,456,069 $ 16,034,184
============ ============ ============
Supplemental disclosures of cash flow
information
Interest paid during the year....... $ 1,137,323 $ 194,044 $ 85,497
Taxes paid during the year.......... $ 14,315,610 $ 10,183,484 $ 6,509,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business, Organization and Basis of Presentation

United Payors & United Providers, Inc. ("UP&UP" or the "Company"), a
Delaware corporation, serves as an intermediary between health care payors
(e.g., insurance companies) and health care providers (e.g., hospitals) by
entering into contractual arrangements designed generally to produce cost
savings and other benefits for payors and increased liquidity and improved
efficiency in claims submissions for providers. UP&UP derives its revenue
primarily from a portion of the price concessions offered by the providers
under such contractual arrangements. Effective October 1, 1996, UP&UP acquired
National Health Services, Inc. ("NHS"), a national health care utilization
management services company. NHS offers medical utilization management
services to insurance underwriters, self-insured businesses, provider
organizations, and others. Such services include pre-certification of in-
patient and out-patient medical care, and case management.

Effective December 31, 1995, UP&UP entered into an agreement with America's
Health Plan, Inc., an indirect wholly-owned subsidiary of Principal Mutual
Holding Company (Principal Mutual Holding Company and its affiliated entities
collectively are referred to as "Principal Mutual"), whereby specified payor
clients of America's Health Plan, Inc. ("AHP") were transferred to UP&UP.
Principal Mutual beneficially owns approximately 38% of the Company's common
stock. Effective September 1, 1997, UP&UP acquired the remaining operations of
AHP. AHP develops and markets its proprietary health care provider network for
access by payors of health care costs such as insurers, third-party
administrators and unions. The name of America's Health Plan, Inc. was changed
to UP&UP, Inc. immediately prior to the acquisition. In connection with the
acquisition, the Company was granted the right to operate the health care
provider network under the name America's Health Plan.

Effective December 1, 1998, the Company acquired ProAmerica Managed Care,
Inc. ("ProAmerica"), a national preferred provider organization that operates
a network of health care providers.

On April 13, 1998, the Company's Board of Directors approved a three-for-two
stock split in the form of a stock dividend payable on May 4, 1998, to
stockholders of record on April 24, 1998. The stock split resulted in the
issuance of a total of 5,786,818 additional shares of common stock. The par
value of the common stock was not changed. Accordingly, the issuance of the
additional shares resulted in the transfer of $57,869 from additional paid-in
capital to common stock to reflect the aggregate par value of the shares
issued. The effect of the stock split has been retroactively reflected in the
consolidated balance sheets and the consolidated statements of stockholders'
equity for all periods prior to the date of the stock split. All references in
the financial statements to number of shares, related prices and per share
amounts have also been restated to reflect the stock split.

2. Initial Public Offering

The Company filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission which offered to the public 3,600,000 shares at $7.33
per share (4,140,000 shares, including the over-allotment) of the Company's
common stock. This registration statement was declared effective on June 28,
1996.

The closings of the sale of stock for an aggregate of 4,140,000 shares were
effected on July 8, 1996 and July 15, 1996 for which the Company received
proceeds (net of underwriters' commissions and expenses) of $23.4 million and
$3.5 million, respectively.

3. Summary of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts and operations, after intercompany eliminations, of the Company and
its subsidiaries.

F-6
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue recognition

The Company recognizes provider network revenue, under the accrual method,
based on a contracted percentage of the amount of cost savings realized by
payor clients which access the Company's contracting provider network. Revenue
is recorded in the period in which claims are repriced.

For medical utilization management services revenue is recorded based on the
contractual arrangements. Contracts may reflect a capitated rate, fee for
service or hourly rate. Pre-certification revenue is generally based on
monthly capitation calculations and is earned during the month for which the
services are provided. Case management revenue is generally based on fee for
service or hourly rates over the term of the contractual agreements.

Use of estimates

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

Fair value information

The carrying amounts of financial instruments, principally notes payable,
approximate their fair values.

Cash equivalents

The Company considers all highly liquid instruments with original maturities
of three months or less to be cash equivalents. The Company maintains its cash
and cash equivalents in bank accounts which, at times, may exceed federally
insured amounts. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash and cash
equivalents. At December 31, 1998 and 1997, the Company had approximately
$15,865,387 and $4,257,200, respectively, of cash and cash equivalents on
deposit with commercial banks in excess of insured amounts.

Short-term investments

From time to time, the Company invests in various marketable securities. The
sales of marketable securities resulted in realized gains of $808,919 and
realized losses of $389,859 in 1998, realized gains of $602,012 and realized
losses of $246,687 in 1997, and realized gains of $402,197 and realized losses
of $252,814 in 1996. Cost was determined using the specific identification
method. Short-term investments in 1998 and 1997 consist of $1,895,215 and
$5,489,368, respectively, of securities backed by the United States
Government; $1,632,849 and $997,524, respectively, of other debt securities;
and certificates of deposit of $327,131 and $1,879,655, respectively. These
investments are reflected at fair value which approximates the respective
amortized cost. There were no unrealized gains or losses on these investments
in 1998 or 1997.

Advances to contracting providers

The Company enters into contracts directly with providers of medical
services ("contracting providers"). The Company's contracts with contracting
providers prescribe specific fee concessions on medical services rendered by
the contracting providers to patients covered by medical plans of payor
clients. In partial consideration for the price concessions furnished by them,
contracting hospitals are offered the option by the Company of receiving an
advance (prepayment) of a portion of the estimated annual claims volume that
such

F-7
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

contracting hospitals have with payor clients. As of December 31, 1998 and
1997 the amount of advances (prepayments) was $25,093,030 and $17,528,730,
respectively. Upon termination of a provider contract by either party, the
amount of advances (prepayments) through the date of termination becomes fully
due and payable to the Company. The Company considers deposits with
contracting providers recoverable. Allowances of $679,000 and $263,000 have
been established for these deposits as of December 31, 1998 and 1997,
respectively.

Fixed assets

Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the various assets
which range from five to seven years. Leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful lives
of the assets or the lease term.

Intangible assets

Intangible assets represent the cost in excess of net assets of businesses
acquired (goodwill) and the value of options to purchase an aggregate of
273,000 shares of the Company's common stock issued in connection with the
Company obtaining a covenant not to compete upon the restructuring of a
marketing agreement. These intangibles are amortized on a straight-line basis
over 3 to 20 years. Accumulated amortization at December 31, 1998 and 1997
amounted to $4,359,783 and $1,278,167, respectively. Amortization expense for
the years ended December 31, 1998, 1997 and 1996 amounted to $2,702,464,
$773,726 and $120,411, respectively. The Company annually evaluates the
recoverability of intangible assets utilizing qualitative factors. At such
time as an impairment in value is identified, the impairment will be
quantitatively measured using a discounted cash flow methodology and charged
to expense.

Income taxes

Income taxes have been recorded using the liability method. The income tax
provision includes federal and state income taxes both currently payable and
changes in deferred taxes due to differences between financial reporting and
tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Net income per common share

Basic net income per share is based on the weighted average number of common
stock outstanding during the period. Diluted income per share is based on the
weighted average number of common stock and common stock equivalent shares
outstanding during the year.

Concentration of payor clients

A significant portion of the Company's revenue is derived from a small
number of payor clients. The inability to replace any such clients with
significant new payor clients would have a material adverse effect on the
Company's business. The Company's revenue was concentrated (as a percentage of
total revenue) in the following payor clients during 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Payor client A............................................ 16% 20% --
Payor client B............................................ 11% 13% --
Payor client C............................................ -- -- 22%
Payor client D............................................ -- -- 13%
Payor client E............................................ -- -- 12%
Payor client F............................................ 10% -- --
</TABLE>

F-8
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

No other payor client accounted for 10% or more of the Company's revenue.

At December 31, 1998, payor clients A, B and F represented 16%, 6% and 7%,
respectively, of the Company's accounts receivable. At December 31, 1997,
payor clients A and B represented 16% and 13%, respectively, of the Company's
accounts receivable.

Comprehensive Income

The Company had no other comprehensive income items during the years ended
December 31, 1998, 1997 and 1996.

Reclassifications

Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform to the 1998 presentation.

4. Business Combinations

Effective October 1, 1996, the Company acquired NHS for a purchase price of
approximately $11.0 million, consisting of $5.9 million in cash, warrants to
purchase an aggregate of 477,000 shares of the Company's common stock valued
at $1.1 million and the assumption of approximately $4.0 million in
liabilities. NHS is a national health care management services company. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations of NHS have been included in the accompanying consolidated
statements of operations since the effective date of the acquisition. The
acquisition resulted in goodwill of $7.2 million which is being amortized over
15 years.

Effective September 1, 1997, the Company acquired AHP for a purchase price
of approximately $19.9 million, consisting of $15.1 million in cash and the
assumption of approximately $4.8 million in liabilities. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
of AHP have been included in the accompanying consolidated statements of
operations since the effective date of the acquisition. The acquisition
resulted in goodwill of approximately $15.5 million which is being amortized
over 20 years. Under the terms of the acquisition agreement, the purchase
price of AHP was subject to adjustment through the year 2000, if AHP revenues
exceeded pre-determined targets. In August, 1998, the Company and the seller
entered into an agreement to set the purchase price of AHP and eliminate the
contingent consideration provisions in the original acquisition agreement.
Under the terms of the August 1998 agreement, the Company agreed to pay the
seller $4.0 million in twelve equal monthly installments commencing November
1, 1998. The $4.0 million has been recorded as additional goodwill and is
being amortized over the remaining amortization period of the original
goodwill. The unpaid balance of the $4.0 million at December 31, 1998 is
included in accounts payable and accrued expenses in the accompanying
consolidated balance sheet.

Effective December 1, 1998, the Company acquired ProAmerica for a purchase
price of approximately $14.3 million, consisting of $11.7 million in cash and
the assumption of approximately $2.6 million in liabilities based on a
preliminary determination of the liabilities assumed. The acquisition has been
accounted for as a purchase and accordingly, the results of operations of
ProAmerica have been included in the accompanying consolidated statements of
operations since the effective date of the acquisition. A preliminary
allocation of the purchase price resulted in goodwill of $12.6 million which
is being amortized over 15 years.

F-9
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1998 and 1997 are presented as though AHP and
ProAmerica had been acquired at the beginning of 1997, after giving effect to
purchase accounting adjustments relating to interest, the amortization of
goodwill and income taxes.

<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands,
except per share data)
<S> <C> <C>
Revenue.......................................... $ 92,054 $ 86,507
Net income....................................... $ 19,735 $ 16,643
Net income per share--basic...................... $ 1.16 $ 0.97
Weighted average shares--basic................... 17,065 17,239
Net income per share--diluted.................... $ 1.10 $ 0.95
Weighted average shares--diluted................. 17,981 17,486
</TABLE>

The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the AHP and ProAmerica acquisitions been
consummated as of January 1, 1997, nor are they necessarily indicative of
future operating results.

5. Fixed Assets

Fixed assets consist of the following:

<TABLE>
<CAPTION>
December 31,
------------------------ Depreciable
1998 1997 Lives
----------- ----------- -----------
<S> <C> <C> <C>
Computer equipment................... $ 3,062,223 $ 2,170,494 5 years
Furniture, fixtures, and office
equipment........................... 2,796,787 2,165,105 5-7 years
Leasehold improvements............... 1,113,965 912,054 5 years
Vehicles............................. 62,772 21,426 5 years
----------- -----------
Total fixed assets................. 7,035,747 5,269,079
Accumulated depreciation and
amortization........................ (2,733,803) (1,410,547)
----------- -----------
Fixed assets, net.................. $ 4,301,944 $ 3,858,532
=========== ===========
</TABLE>

Depreciation expense for the years ended December 31, 1998, 1997 and 1996
approximated $1,326,000, $915,000, and $412,000, respectively.

6. Notes Payable

In connection with the acquisition of AHP, the Company entered into a loan
agreement with a bank for an aggregate amount of $15 million. The loan balance
outstanding at December 31, 1998 and 1997 was $12 million and $15 million,
respectively. The loan bears interest at the London Interbank Offered Rate
("LIBOR") plus 1 1/8% (approximately 6.8% at December 31, 1998). The principal
amount of the loan is to be repaid in equal quarterly installments over a
period of five years, commencing March 31, 1998. Interest is payable in
arrears on the last business day of each quarter, commencing December 31,
1997.

In December 1998, the Company utilized the proceeds from a $10 million line
of credit with a bank, bearing interest at LIBOR plus 1 1/8%, as part of the
consideration paid for the acquisition of ProAmerica. In February 1999, the
Company entered into a $10 million term loan with the same bank and utilized
the proceeds to replenish the amount drawn under the line of credit. The term
loan bears interest at the rate of LIBOR plus 1 1/8% (approximately 6.8% at
December 31, 1998). The principal amount of the loan is to be repaid in equal
quarterly installments over a period of five years, commencing March 31, 1999.
Interest is payable in arrears on the last business day of each quarter,
commencing March 31, 1999.

F-10
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Both term loans contain restrictive covenants, the most restrictive of which
require the Company to maintain certain financial ratios above stated levels,
restrict the Company from incurring additional debt, other than with the bank,
in excess of $10 million and restrict the Company from paying dividends in
excess of 50% of consolidated net income, as defined in the loan agreement.

7. Income Taxes

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Current provision...................... $14,203,400 $10,568,500 $6,883,300
Deferred provision (benefit)........... (521,400) (180,500) 274,700
----------- ----------- ----------
Total provision...................... $13,682,000 $10,388,000 $7,158,000
=========== =========== ==========
</TABLE>

The provision for income taxes varies from the amount of income tax
determined by applying the applicable United States statutory tax rate to pre-
tax income as follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory United States tax rate.............................. 35% 35% 34%
State taxes, net of Federal benefit........................... 6 6 6
--- --- ---
Effective tax rate.......................................... 41% 41% 40%
=== === ===
</TABLE>

A summary of the tax effect of the significant components of deferred income
tax assets follows:

<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Deferred compensation.................................. $ 488,000 $411,000
Depreciation and amortization.......................... (426,000) 66,000
Reserves and allowances................................ 1,068,000 88,000
Accrual versus cash method of accounting............... -- 60,000
Other accrued expenses................................. 202,000 186,000
---------- --------
Net deferred tax assets.............................. $1,332,000 $811,000
========== ========
</TABLE>

8. Stockholders' Equity

Stock option and employee stock purchase plans

In October, 1996, the Company adopted the United Payors & United Providers,
Inc. Stock Option Plan ("SOP"). Stock options may be granted under the plan as
either incentive stock options or non-qualified stock options. The maximum
number of shares of the Company's common stock reserved for purchase pursuant
to the exercise of options granted under the SOP is 2,325,000 shares. All
Company employees, outside directors and consultants are eligible to receive
option awards. A Committee of the Board of Directors determines award amounts,
exercise prices, terms and vesting periods. The maximum term over which
incentive stock options and non-qualified stock options may be exercised may
not exceed 10 years and 12 years, respectively. The following table summarizes
information regarding transactions under the SOP:

F-11
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January
1,..................... 1,800,000 $ 7.90 86,250 $7.43 -- $ --
Granted................. 168,000 16.50 1,713,750 7.92 86,250 7.43
Exercised............... (24,000) (8.58) -- -- -- --
Canceled................ -- -- -- -- -- --
--------- ------ --------- ----- ------ -----
Outstanding at December
31,.................... 1,944,000 $ 8.64 1,800,000 $7.90 86,250 $7.43
========= ====== ========= ===== ====== =====
Exercisable at December
31,.................... 1,185,250 $ 9.03 1,048,125 $9.19 36,250 $7.57
========= ====== ========= ===== ====== =====
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Weighted
Weighted Average
Range of Average Remaining
Exercise Price Shares Exercise Price Contractual Life
-------------- ------- -------------- ----------------
<S> <C> <C> <C>
$ 4.00 - 7.34........................ 855,000 $ 5.88 8.8 years
7.35 - 9.34........................ 534,750 8.19 8.2 years
9.35 - 12.00....................... 401,250 11.94 9.8 years
12.01 - 21.59....................... 153,000 16.99 5.0 years
</TABLE>

Information regarding stock options exercisable at December 31, 1998 is
summarized as follows:

<TABLE>
<CAPTION>
Weighted
Range of Average
Exercise Price Shares Exercise Price
-------------- ------- --------------
<S> <C> <C>
$ 4.00 - 7.34......................................... 330,000 $ 6.39
7.35 - 9.34......................................... 437,250 8.10
9.35 - 12.00........................................ 390,000 11.95
12.01 - 21.59........................................ 28,000 14.04
</TABLE>

Effective January 1, 1998, the Company implemented the Employee Stock
Purchase Plan ("ESPP") approved by the Company's stockholders on June 3, 1997.
The maximum number of shares reserved for purchase by employees under the ESPP
is 525,000 shares. The ESPP is administered over consecutive quarterly
offering periods commencing on the first trading day of January, April, July
and October of each year. Under the ESPP eligible employees may purchase
shares of common stock through payroll deductions up to an annual amount of
shares having a market value of $25,000 at the date of grant. Shares are
purchased on the last trading day of each offering period at 85% of the market
price of the common stock at the beginning of the offering period or the end
of the offering period, whichever is lower. Shares issuable to employees may
be purchased in the open market or issued from treasury shares held by the
Company. During 1998, 25,574 shares were issued under the ESPP at an average
purchase price of $14.49 per share.

During 1995, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 123 ("FAS 123"), Accounting for Stock-Based
Compensation. This pronouncement requires that the Company calculate the fair
value of stock options and shares issued under employee stock purchase plans
at the date of grant using an option pricing model. The Company has elected
the "pro forma, disclosure only" option permitted under FAS 123, instead of
recording a charge to operations. The following table reflects pro forma net
income and net income per share had the Company elected to adopt the fair
value approach of FAS 123:

F-12
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income
As reported......................... $19,579,150 $14,976,704 $10,645,799
Pro forma........................... 18,658,341 14,466,736 10,597,438
Net income per share
As reported--basic.................. $ 1.15 $ 0.87 $ 0.70
As reported--diluted................ 1.09 0.86 0.70
Pro forma--basic.................... 1.09 0.84 0.70
Pro forma--diluted.................. 1.04 0.83 0.70
</TABLE>

The weighted-average exercise price and the weighted-average grant date fair
value of options granted whose exercise price equals, exceeds or is less than
the market price of the stock at the date of grant is as follows:

<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Exercise Fair Exercise Fair Exercise Fair
Exercise Price Price Value Price Value Price Value
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Equals............... $13.43 $5.69 $7.66 $5.60 $ -- $ --
Exceeds.............. 14.67 7.09 11.07 5.15 -- --
Less................. 19.70 8.41 4.51 6.84 7.43 2.73
</TABLE>

The estimated fair value of each option was calculated using the Black-
Scholes option-pricing model. The following table summarizes the weighted-
average of the assumptions used for stock options granted during 1998, 1997
and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................. 5.4% 6.9% 6.3%
Expected years until exercise........................... 3.2 9.5 2.0
Expected volatility..................................... 55.7% 45.0% 34.0%
Dividend yield.......................................... -- -- --
</TABLE>

The weighted average fair value per share common stock purchased under the
ESPP during 1998 was $5.70 per share. The weighted average of the assumption
used to calculate the fair value of the shares was as follows:

<TABLE>
<S> <C>
Risk-free interest rate......................................... 5.0%
Expected life................................................... 3 months
Expected volatility............................................. 55.7%
Dividend yield.................................................. --
</TABLE>

Other stock options and warrants

In connection with certain business transactions during 1996, the Company
granted options and warrants as follows: (a) 273,000 shares of its common
stock (at $8.33 per share) pursuant to a non-compete agreement related to a
marketing commission restructuring; (b) 75,000 shares of its common stock (at
$11.33 per share) pursuant to a contractual arrangement with a client; and (c)
477,000 shares of its common stock (at $10.67 per share) in the form of stock
warrants pursuant to the acquisition of NHS. These options and warrants expire
from 3 to 10 years from the date of the respective agreements. The weighted
average exercise price of the options or warrants granted during 1996 was
$9.95. At December 31, 1998, all these options and warrants were exercisable.

F-13
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The options related to the above transactions have been valued using the
modified American Black Scholes economic model. The resultant valuation is
reflected in the accompanying financial statements.

Treasury stock

On June 3, 1997, the Board of Directors authorized the Company to repurchase
such number of shares of its common stock that have an aggregate purchase
price not in excess of $5,000,000. Pursuant to this authorization, the Company
began repurchasing on the open market or in negotiated transactions at prices
deemed appropriate by the Company. Purchased shares are deposited in the
Company's treasury and are to be used principally for its employee stock
purchase and stock option plans and for general corporate purposes. As of
December 31, 1998, the Company had repurchased 389,625 shares having an
aggregate purchase price of $3,537,024 and reissued 116,474 of the shares for
an aggregate consideration of $902,534. The Company canceled the common stock
repurchase program as of February 1, 1998.

9. 401(k) Savings Plan

In October 1996, the Company authorized the establishment of an employee
401(k) Savings Plan. The 401(k) Savings Plan, which became effective in 1997,
is available to all of its employees subject to certain service requirements.
For 1998 and 1997, the Company matched the first $1,000 of the employee's
contribution and 50% thereafter. The Company's contribution vests after the
employee has participated in the 401(k) Savings Plan for five years. For 1998
and 1997, the amounts of the Company's contribution were $445,000 and
$404,000, respectively.

10. Related Party Transactions

The Company utilizes, for corporate business purposes, the services of an
aircraft owned by a corporation of Thomas L. Blair, Chairman and Chief
Executive Officer of the Company. The amount paid by the Company to this
corporation in 1998, 1997, and 1996 was approximately $445,000, $263,000, and
$153,000, respectively.

During 1996, Principal Mutual became a payor client of the Company.
Principal Mutual has also been a payor client of AHP since 1992. Approximately
$7,376,000, $2,342,000 and $80,000 of the Company's provider network revenue
for 1998, 1997 and 1996, respectively, was derived from its contract with
Principal Mutual. At December 31, 1998 and 1997, approximately, $904,000 and
$341,000, respectively, is due from Principal Mutual and is included in
accounts receivable.

During 1997, the Company purchased medical and life insurance from Principal
Mutual. The Company did not purchase health insurance from Principal Mutual
during 1998. Principal Mutual has also administered the Company's 401(k) plan
since 1997. Amounts paid to Principal Mutual in 1998 and 1997 for these
insurance products and services approximated $159,000 and $386,000,
respectively.

The Company performs certain administrative services for HealthExtras LLC
("HealthExtras"), an entity formed by Principal Mutual and Thomas L. Blair,
that markets such products as catastrophic and supplemental health benefits.
During 1998, HealthExtras reimbursed the Company approximately $839,000 for
staffing and other costs incurred by the Company, in the performance of
services, on behalf of HealthExtras. The Company has also entered into a
royalty arrangement with HealthExtras effective January 1, 1999. The royalty
arrangement provides the Company with a per member/per month ("PMPM") royalty
fee. The royalty fee initially starts at $1.00 PMPM in year one and increases
to $1.50 PMPM in year four. The royalty fee is based upon the tenure of each
member participating in the HealthExtras program. The royalty arrangement was
entered into in exchange for the Company granting HealthExtras' members access
to its national network of health care providers at no fee over a four-year
period. It is likely that HealthExtras' future product development will
integrate the use of the provider network. The Company has guaranteed a credit
facility of HealthExtras in the amount of $3.0 million.

F-14
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Lease Commitments

The Company leases office space under non-cancelable operating leases. The
agreements provide for annual escalations and for the payment by the Company
of a proportionate share of the increase in the costs of operating the
building. For financial reporting purposes, the Company recognizes rent
expense on a straight-line basis over the term of the lease. The Company has
also entered into various operating lease agreements for office equipment.
Rent expense under the Company's non-cancelable operating leases aggregated
$1,496,000, $1,137,000, and $470,000 in 1998, 1997, and 1996, respectively.

Future minimum lease payments under non-cancelable operating leases are as
follows:

<TABLE>
<CAPTION>
Operating
Leases
----------
<S> <C>
1999........................................................... $1,703,251
2000........................................................... 1,740,783
2001........................................................... 1,276,984
2002........................................................... 852,569
2003........................................................... 861,669
Thereafter..................................................... 1,414,408
----------
Total........................................................ $7,849,664
==========
</TABLE>

12. Commitments and Contingencies

Effective April 1, 1997, the Company entered into a five-year employment
agreement with its President and Chief Operating Officer. The agreement
provides for, among other things, options to purchase 1,125,000 shares of the
Company's common stock that will vest over an eight-year period (with
acceleration provision based on performance) and a retirement benefit
(approximately $1 million) in the form of vested trust arrangements that is
earned over a five-year period. A portion of the stock options have an
exercise price which is lower than the market price of the Company's common
stock at the date of grant ("in the money"). The compensation element of these
"in the money" options, net of the related tax effect, has been recorded as
deferred compensation and is being amortized as compensation expense over a
period of eight years. The unamortized portion of the deferred compensation at
December 31, 1998 and 1997 is included in stockholders' equity. In December
1997, the Company accelerated the vesting on 750,000 stock options which had
an exercise price at the date of grant equal to or above the market price.

The Company offers its contracting providers an advance (prepayment) option
based on the percentage of claims volume for the preceding year. The advance
(prepayment) option may be requested at the execution of a contract between
the Company and contracting provider, or at the anniversary date. The Company
estimates that the amount of prepayment options that may be requested in 1999
should not exceed $20 million.

During 1996, the Company restructured a 1994 marketing commission agreement
with Direct Resource Managers ("DRM"). The restructured agreement contains
provisions for: (a) payment to DRM of $50,000 per month for 26 months
commencing January, 1997 and (b) options to purchase 273,000 shares of the
Company's common stock at $8.33 per share (or alternatively receive cash
consideration in lieu of the options under certain conditions) in exchange for
consulting and marketing assistance and a covenant not to compete for three
years. Amounts paid to DRM in 1998, 1997, and 1996 by the Company approximated
$600,000, $600,000, and $1,425,000, respectively.

The Company on October 6, 1998 entered into an agreement to acquire for $2.5
million a federal savings bank (the "Bank") and its parent holding company,
having total assets of approximately $27 million, subject to

F-15
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the approval of shareholders of the holding company and federal banking
regulators. Upon acquisition of the Bank, the Company would become a savings
and loan holding company, subject to supervision and examination by the Office
of Thrift Supervision (the "OTS"). The Bank is subject to extensive
regulations, supervision and examination by the OTS and the Federal Deposit
Insurance Corporation (the "FDIC"). In connection with the Company's proposed
acquisition of the Bank and its parent holding company, Principal Mutual,
which, at December 31, 1998 owned 6,600,000 shares or approximately 38.6% of
the Company's outstanding common stock, proposes to divest control of the
Company within the meaning of the Savings and Loan Holding Company Act
("Holding Company Act"), and the four directors of the Company who may be
considered to be affiliated with or nominated by Principal Mutual, will resign
from the Board of Directors of the Company. To accomplish such divestiture of
control, on February 25, 1999, Principal Mutual, sold 4,500,000 shares (the
"Principal Shares") of common stock of the Company, or approximately 25.6% of
the outstanding shares, to a trust (the "Trust"). Principal Mutual received
from the Trust $13,225,000 in cash and trust certificates entitling it to the
proceeds from the sale of the Principal Shares. At the same time, the Trust
agreed to sell the Principal Shares to Thomas L. Blair, the Chairman and Chief
Executive Officer of the Company, on or before four years from the date of the
transfer of the Principal Shares to the Trust. UP&UP would be a unitary
savings and loan holding company, if the current control of UP&UP by Principal
Mutual is divested, as proposed. As a unitary savings and loan company, UP&UP
generally will not be restricted under existing laws as to the type of
business activities in which it may engage, provided the Bank continues to
meet the standards as a qualified thrift leader. There can be no assurance
that the Company's acquisition of the Bank will be approved by the OTS. The
Company believes such approval will be given only, among other things, if the
OTS is satisfied as to the arrangements by Principal Mutual to divest control
of the Company within the meaning of the Holding Company Act. Principal Mutual
already is a savings and loan holding company. In light of the regulatory
uncertainty regarding the proposed acquisition of the Bank, the Company is not
treating the acquisition as probable for financial reporting purposes.

On April 26, 1996, First Health Group (formerly known as HealthCARE
COMPARE), a Delaware corporation and competitor of the Company, filed a civil
complaint against the Company in the United States District Court for the
Northern District of Illinois. The complaint, in its present amended form, is
seeking permanent injunctive relief, as well as an unspecified amount of
damages, and alleges violations of the Lanham Act, 15 U.S.C. (S)(S)
1125(a)(1)(A) and (a)(1)(B), as well as common law claims of deceptive trade
practices, fraud, interference with contract, interference with prospective
economic relations and unfair competition. The complaint also seeks treble
damages pursuant to the Lanham Act. The complaint is based upon allegations
that representatives of the Company made false and misleading statements
during contract negotiations with providers in order to cause them to join the
UP&UP Network. In response to written requests and in depositions, Plaintiff
has alleged that it has suffered actual damages of approximately $41 million.
The Company denies the allegations in the Complaint and believes them to be
without merit. The Company has asserted a counterclaim against the Plaintiff
for violations of the Lanham Act, as well as common law claims for unfair
competition, commercial disparagement and service mark cancellation. Fact
discovery in the action is ongoing and the trial date has not yet been set by
the Court. Based upon the available information, management believes that it's
potential liability, if any, arising from such litigation will not be material
to the consolidated financial statements of the Company.

F-16
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. Earnings Per Share

A reconciliation of the numerators and denominators of the basic earnings
per share computations for the years ended December 31, 1998, 1997 and 1996 to
the numerators and denominators of the diluted earnings per share computations
for the respective periods follows:

<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Per Per Per
Net Income Shares Share Net Income Shares Share Net Income Shares Share
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic................... $19,579,150 17,064,954 $1.15 $14,976,704 17,239,065 $0.87 $10,645,799 15,188,398 $0.70
Effect of Dilutive
Options and Warrants... -- 916,491 (0.06) -- 247,402 (0.01) -- 4,187 --
----------- ---------- ----- ----------- ---------- ----- ----------- ---------- -----
Diluted................. $19,579,150 17,981,445 $1.09 $14,976,704 17,486,467 $0.86 $10,645,799 15,192,585 $0.70
=========== ========== ===== =========== ========== ===== =========== ========== =====
</TABLE>

Stock options to purchase 4,500 shares of common stock at an exercise price
of $21.59 per share were outstanding during 1998 but were not included in the
computation of diluted earnings per share because the exercise price of the
stock options was greater than the average market price of the common shares
and, therefore, were antidilutive. These stock options expire in April 2008.

Stock options to purchase 461,250 shares of common stock at a weighted
average exercise price of $11.85 per share and warrants to purchase 477,000
shares of common stock at $10.67 per share were outstanding during 1997 but
were not included in the computation of diluted earnings per share because the
exercise prices of the stock options and warrants were greater than the
average market price of the common shares and, therefore, were antidilutive.
These stock options and warrants have expiration dates ranging from October,
1999 to March, 2009.

14. Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1998:
Revenue................. $18,598 $19,097 $19,516 $21,238
Operating profit........ 7,558 8,168 8,954 9,044
Net income.............. 4,396 4,812 5,037 5,334
Net income per share--
basic.................. 0.26 0.28 0.29 0.31
Net income per share--
diluted................ 0.25 0.27 0.28 0.30
1997:
Revenue................. $13,598 $13,726 $15,256 $18,448
Operating profit........ 4,971 5,761 5,886 7,320
Net income.............. 3,150 3,661 3,979 4,187
Net income per share--
basic.................. 0.18 0.21 0.23 0.25
Net income per share--
diluted................ 0.18 0.21 0.23 0.24
</TABLE>

F-17
<PAGE>

UNITED PAYORS & UNITED PROVIDERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

15. Supplemental Disclosure of Non-Cash Investing and Financing Activities

1998

The Company entered into an agreement with the seller of AHP to set the
purchase price of AHP for an amount of $4.0 million, payable in twelve monthly
installments commencing November 1, 1998.

The Company assumed liabilities of approximately $2.6 million in connection
with the acquisition of ProAmerica.

1997

The Company assumed liabilities of approximately $4.8 million in connection
with the acquisition of AHP.

The Company issued 37,500 shares from treasury stock valued at $300,000 in
connection with an acquisition.

The Company issued 27,900 shares valued at approximately $200,000 from
treasury stock to its employees.

1996

In connection with the acquisition of NHS, the Company assumed liabilities
in the amount of approximately $4.0 million and issued warrants to purchase
common stock of the Company valued at approximately $1.1 million.

A capital lease obligation was incurred when the Company entered into a
lease for new equipment.

Shares of common stock were issued in connection with the investment in
EDIComm.

Options to purchase shares of common stock were issued in connection with
obtaining a covenant not to compete upon the restructuring of a marketing
agreement.

Shares of common stock were issued in connection with the conversion of
preferred stock.

F-18
<PAGE>

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

2,500,000 Shares

[UNITED PAYORS LOGO APPEARS HERE]

Common Stock

--------
PROSPECTUS
, 1999
--------

Warburg Dillon Read LLC

BT Alex. Brown

Scott & Stringfellow, Inc.

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

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion and incorporation by reference in the
registration statement of United Payors & United Providers, Inc. on Form S-3
(File No. 333- ) of our report, dated February 12, 1999, except for Note 12,
as to which the date is February 25, 1999, on our audits of the consolidated
financial statements of United Payors & United Providers, Inc. as of December
31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996,
which report is also included in the United Payors & United Providers, Inc.
Annual Report on Form 10-K. We also consent to the references to our firm under
the caption "Experts".

/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP

Washington, D.C.
March 11, 1999

<PAGE>

EXHIBIT 23.2

CONSENT

We hereby consent to the references to this firm in the Registration
Statement on Form S-3 as filed by United Payors & United Providers, Inc. and all
amendments.

/s/ Muldoon, Murphy & Faucette LLP
---------------------------------------------
MULDOON, MURPHY & FAUCETTE LLP

Dated this 15th day of
March, 1999

<PAGE>

<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Statements of Operations of United Payors &
United Providers, Inc. as of and for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 27,510,647
<SECURITIES> 3,855,195
<RECEIVABLES> 12,729,631
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,537,548
<PP&E> 7,035,747
<DEPRECIATION> (2,733,803)
<TOTAL-ASSETS> 115,944,999
<CURRENT-LIABILITIES> 19,390,615
<BONDS> 17,022,738
0
0
<COMMON> 34,663,001
<OTHER-SE> 43,795,312
<TOTAL-LIABILITY-AND-EQUITY> 115,944,999
<SALES> 0
<TOTAL-REVENUES> 78,449,319
<CGS> 0
<TOTAL-COSTS> 45,917,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,105,375
<INCOME-PRETAX> 33,261,150
<INCOME-TAX> 13,682,000
<INCOME-CONTINUING> 19,579,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,579,150
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.09

</TABLE>