OXFORD HEALTH PLANS INC, 10-Q/A, 1999-08-26

OXFORD HEALTH PLANS INC
10-Q/A, 1999-08-26
HOSPITAL & MEDICAL SERVICE PLANS

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<PAGE> 1
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A NO. 2

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1999
-------------------------------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
--------------- ---------------------------------
Commission File Number: 0-19442
---------------------------------------------------------

OXFORD HEALTH PLANS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 06-1118515
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

800 Connecticut Avenue, Norwalk, Connecticut 06854
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(203) 852-1442
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. The number of shares of
common stock, par value $.01 per share, outstanding on May 4, 1999 was
81,086,308.
<PAGE> 2
OXFORD HEALTH PLANS, INC.
INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
ITEM 1 Financial Statements................................................................. 3

Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 ............................................................... 3

Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998........................................................... 4

Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 .................................................... 5

Notes to Consolidated Financial Statements ......... ............................... 6

Independent Auditor's Report ........................................................ 9

ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................................ 10

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk........................... 23

PART II - OTHER INFORMATION

ITEM 1 Legal Proceedings ................................................................... 24

ITEM 2 Changes in Securities and Use of Proceeds............................................ 33

ITEM 5 Other Information.................................................................... 33

ITEM 6 Exhibits and Reports on Form 8-K..................................................... 35

SIGNATURES
</TABLE>

-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
Mar. 31, Dec. 31,
Current assets: 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 207,801 $ 237,717
Investments - available-for-sale, at market
value 813,261 922,990
Premiums receivable, net 133,636 110,254
Other receivables 42,503 36,540
Prepaid expenses and other current assets 9,913 9,746
Deferred income taxes 40,073 43,385

- ---------------------------------------------------------------------------------------------------
Total current assets 1,247,187 1,360,632

Property and equipment, net of accumulated depreciation
and amortization of $171,725 in 1999 and $160,431 in 1998 97,154 112,941
Deferred income taxes 87,144 94,182
Restricted investments - held-to-maturity, at amortized cost 43,376 44,798
Other noncurrent assets 30,320 25,197
- ---------------------------------------------------------------------------------------------------
Total assets $ 1,505,181 $ 1,637,750
===================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 794,410 $ 850,197
Trade accounts payable and accrued
expenses 162,911 176,833
Unearned premiums 38,388 105,993
Current portion of capital lease
obligations 11,785 15,938
Deferred income taxes -- 2,228
- ---------------------------------------------------------------------------------------------------
Total current liabilities 1,007,494 1,151,189

Long-term debt 350,000 350,000
Obligations under capital leases 15,576 18,850
Redeemable preferred stock 309,898 298,816

Shareholders' equity (deficit):
Preferred stock, $.01 par value, authorized 2,000,000 shares -- --
Common stock, $.01 par value, authorized 400,000,000
shares; issued and outstanding 80,851,245 shares in 1999
and 80,515,872 shares in 1998 808 805
Additional paid-in capital 500,769 506,243
Accumulated deficit (677,995) (692,290)
Other comprehensive earnings (loss) (1,369) 4,137
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 1,505,181 $ 1,637,750
===================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

-3-
<PAGE> 4
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Revenues: 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Premiums earned $ 1,026,586 $ 1,213,085
Third-party administration, net 3,610 5,002
Investment and other income, net 30,109 11,536
- -----------------------------------------------------------------------------------
Total revenues 1,060,305 1,229,623
- -----------------------------------------------------------------------------------

Expenses:
Health care services 871,873 1,066,437
Marketing, general and administrative 149,737 201,033
Interest and other financing charges 14,050 6,849
Restructuring charges -- 25,000
- -----------------------------------------------------------------------------------
Total expenses 1,035,660 1,299,319
- -----------------------------------------------------------------------------------

Operating earnings (loss) before income taxes 24,645 (69,696)
Income tax expense (benefit) 10,350 (24,394)
- -----------------------------------------------------------------------------------
Net earnings (loss) 14,295 (45,302)
Less preferred dividends and amortization (11,082) --
- -----------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares $ 3,213 $ (45,302)
===================================================================================

Earnings (loss) per common share:
Basic $ .04 $ (.57)
Diluted $ .04 $ (.57)

Weighted-average common shares outstanding-basic 80,785 79,488
Effect of dilutive securities:
Stock options 4,117 --
Warrants 83 --
- -----------------------------------------------------------------------------------
Weighted-average common shares outstanding-diluted 84,985 79,488
===================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

-4-
<PAGE> 5
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
Cash flows from operating activities: 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $ 14,295 $ (45,302)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation and amortization 14,344 16,059
Noncash restructuring charges -- 11,200
Deferred income taxes 10,350 (24,394)
Provision for doubtful accounts -- 3,000
Realized gain on sale of investments 542 (1,372)
Other, net 791 --
Changes in assets and liabilities, net of effect of acquisitions: -- --
Premiums receivable (23,382) (16,903)
Other receivables (5,963) (8,066)
Prepaid expenses and other current assets (167) (10,752)
Medical costs payable (55,787) (23,764)
Trade accounts payable and accrued expenses (10,568) 12,910
Income taxes
payable/refundable -- 48,836
Unearned premiums (67,605) (77,706)
Other, net (4,505) 1,677
- -----------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (127,655) (114,577)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,081) (29,657)
Purchases of available-for-sale investments (259,355) (154,891)
Sales and maturities of available-for-sale investments 360,389 151,110
Other, net 393 4,597
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 100,346 (28,841)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 4,820 330
Proceeds of notes and loans payable -- 200,000
Payments under capital leases (7,427) --
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (2,607) 200,330
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (29,916) 56,912
Cash and cash equivalents at beginning of year 237,717 4,141
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 207,801 $ 61,053
=================================================================================================================

Supplemental cash flow information:
Cash payments (refunds) for income taxes, net $ (84) $ (48,016)
Cash payments for interest expense 8,795 3,881
Supplemental schedule of noncash investing and financing activities:
Unrealized appreciation (depreciation) of
short-term investments (7,734) (5,043)
Capital lease obligations incurred -- 20,309
Preferred stock dividends and amortization 11,082 --
</TABLE>

See accompanying notes to consolidated financial statements.

-5-
<PAGE> 6
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) BASIS OF PRESENTATION

The interim consolidated financial statements included herein have been
prepared by Oxford Health Plans, Inc. ("Oxford") and subsidiaries (collectively,
the "Company") without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in the financial statements prepared in
accordance with generally accepted accounting principles, have been omitted
pursuant to SEC rules and regulations; nevertheless, management of the Company
believes that the disclosures herein are adequate to make the information
presented not misleading. The financial statements include amounts that are
based on management's best estimates and judgments. The most significant
estimates relate to medical costs payable and other policy liabilities and
liabilities and asset impairments related to operational restructuring
activities. These estimates may be adjusted as more current information becomes
available, and any adjustments could be significant. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position and results of
operations of the Company with respect to the interim consolidated financial
statements have been made. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year.

The consolidated financial statements and notes should be read in
conjunction with the audited consolidated financial statements and notes thereto
as of and for each of the years in the three-year period ended December 31,
1998, included in the Company's Form 10-K/A filed with the SEC for the fiscal
year ended December 31, 1998, as amended .

(2) RESTRUCTURING CHARGES

During the first half of 1998, the Company recorded restructuring charges
and write-downs of strategic investments primarily associated with
implementation of the Company's plan ("Turnaround Plan") to restore the
Company's profitability. The table below presents the activity in the first
quarter of 1999 related to the restructuring charge reserves established in the
first and second quarters of 1998 as part of the Turnaround Plan. As of March
31, 1999, the Turnaround Plan is proceeding in all material respects as expected
and the activity during the first quarter of 1999 is consistent with the
Company's estimates prepared at December 31, 1998. The Company believes that the
reserves as of March 31, 1999 are adequate and that no revisions of estimates
are necessary at this time.

<TABLE>
<CAPTION>
(In thousands) Beginning Ending
Restructuring Cash Noncash Restructuring
Reserves Activity Activity Reserves
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provisions for loss on noncore businesses $ 13,805 $ (2,039) $ (525) $ 11,241
Severance and related costs 9,354 (1,106) - 8,248
Costs of consolidating operations 17,685 (2,956) - 14,729
==========================================================
$ 40,844 $ (6,101) $ (525) $ 34,218
==========================================================
</TABLE>

Cash expenses charged against the reserve for loss on noncore businesses
amounted to $2.0 million during the first quarter of 1999. These charges include
payments of $1.9 million related to premium deficiencies and $.1 million related
to professional fees and other incremental exit costs. Noncash charges against
the reserve of $.5 million relate to the specific write-off of assets of the HMO
and insurance businesses in the noncore markets, net of proceeds received.

-6-
<PAGE> 7
The reduction in the reserve for severance and related costs reflects
contractual payments of approximately $1.1 million to former executives of the
Company.

The reduction in the reserve for costs of consolidating operations reflects
lease payments and occupancy costs of approximately $3.0 million, net of
sublease income, related to vacated office space.

Results of operations for the three months ended March 31, 1998 included a
nonrecurring charge of $25.0 million for severance costs and other expenses
associated with the restructuring of certain of the Company's management and
administrative functions. The charge increased the Company's net loss for the
first quarter of 1998 by approximately $16.3 million, or 20 cents per share.

(3) REDEEMABLE PREFERRED STOCK

On February 13, 1999, the Company entered into a Share Exchange Agreement
(the "Exchange Agreement") with Texas Pacific Group, its affiliates and others
to make an adjustment of the dividends payable on shares of Series A Cumulative
Preferred Stock (the "Series A Preferred Stock") and Series B Cumulative
Preferred Stock (the "Series B Preferred Stock") in connection with the possible
sale of shares of Preferred Stock by the holders thereof to institutional
holders. Pursuant to the Exchange Agreement, the 245,000 shares of Series A
Preferred Stock were exchanged for 260,146.909 shares of a new Series D
Cumulative Preferred Stock (the "Series D Preferred Stock"), and the 105,000
shares of Series B Preferred Stock were exchanged for 111,820.831 shares of a
new Series E Cumulative Preferred Stock (the "Series E Preferred Stock"). In the
exchange, (1) a holder received in exchange for each share of Series A Preferred
Stock, one share of Series D Preferred Stock, plus 0.061824118367 share of
Series D Preferred Stock representing dividends on the Series A Preferred Stock
accrued and unpaid through February 13, 1999, and (2) a holder received in
exchange for each share of Series B Preferred Stock, one share of Series E
Preferred Stock, plus 0.064960295238 share of Series E Preferred Stock
representing dividends on the Series B Preferred Stock accrued and unpaid
through February 13, 1999. As a result of the exchange, the holders hold only
Series D Preferred Stock and Series E Preferred Stock. On March 9, 1999, the
Company filed Certificates of Elimination for the Series A Preferred Stock and
the Series B Preferred Stock that have the effect of eliminating from the
Certificate of Incorporation all matters set forth in the Certificates of
Designations with respect to the Series A Preferred Stock and the Series B
Preferred Stock. The terms of the shares of the Series D Preferred Stock are
identical to the terms of the Series A Preferred Stock, except that the Series D
Preferred Stock accumulates cash dividends at the rate of 5.12981% per annum,
payable quarterly, provided that prior to May 13, 2000, the Series D Preferred
Stock accumulates dividends at a rate of 5.319521% per annum, payable annually
in cash or additional shares of Series D Preferred Stock, at the option of the
Company. The terms of the shares of the Series E Preferred Stock are identical
to the terms of the shares of the Series B Preferred Stock, except that the
Series E Preferred Stock accumulates cash dividends at a rate of 14% per annum,
payable quarterly, provided that prior to May 13, 2000, the Series E Preferred
Stock accumulates dividends at a rate of 14.589214% per annum, payable annually
in cash or additional shares of Series E Preferred Stock, at the option of the
Company. In addition, prior to May 13, 2001, the holders of the Series D
Preferred Stock may not use the Series D Preferred Stock in connection with the
exercise of the Company's Series A Warrants or Series B Warrants unless they use
a percentage of the total amount of Series D Preferred Stock issued on February
13, 1999 that does not exceed the percentage of the total number of shares of
Series E Preferred Stock issued on February 13, 1999 that have been redeemed,
repurchased or retired by the Company, or used as consideration in connection
with the exercise of the Company's Series A Warrants or Series B Warrants by the
holders. With respect to dividend rights, the Series D Preferred Stock and
Series E Preferred Stock rank on a parity with each other and prior to the
Company's common stock.

-7-
<PAGE> 8
consolidated balance sheet as the issuance of additional redeemable preferred
stock effected the in-kind payment of the accrued redeemable preferred stock
dividend which had previously been credited to redeemable preferred stock. In
the Company's view, there was no difference in the aggregate fair value between
the redeemable preferred stock issued in the exchange and the redeemable
preferred stock canceled in the exchange.

(4) COMPREHENSIVE INCOME

The changes in the value of available-for-sale securities included in other
comprehensive earnings (loss) include unrealized holding losses on
available-for-sale securities of $8.3 million and $4.2 million, reduced by the
tax effects of $2.5 million and $2.1 million in the three months ended March 31,
1999 and 1998, respectively, and reclassification adjustments of $(.5) million
and $1.4 million, reduced by the tax effects of $(.2) million and $.5 million in
the three months ended March 31, 1999 and 1998, respectively.

(5) RECLASSIFICATIONS

Certain reclassifications have been made to the prior year's financial
statement amounts to conform to the 1999 presentation.

-8-
<PAGE> 9
INDEPENDENT AUDITOR'S REPORT

To Oxford Health Plans, Inc.

We have reviewed the accompanying consolidated balance sheet of Oxford
Health Plans, Inc. and subsidiaries (the "Company") as of March 31, 1999 and the
consolidated statements of operations and cash flows for the three months then
ended. These financial statements are the responsibility of the Company's
management. The consolidated balance sheet of Oxford Health Plans, Inc. and
subsidiaries as of March 31, 1998, and consolidated statements of operations and
cash flows for the three-month period then ended were reviewed by other
accountants who did not issue a report.

We conducted our review in accordance with the standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our review, we are not aware of any material modifications that
should be made to the financial statements at March 31, 1999, and for the
three-month period then ended for them to be in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Stamford, Connecticut
May 5, 1999

-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following table shows membership by product:

<TABLE>
<CAPTION>
As of March 31 Increase (Decrease)
------------------------ ----------------------
Membership: 1999 1998 Amount %
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Freedom Plan 1,286,600 1,400,200 (113,600) (8.1%)
HMO 245,700 280,900 (35,200) (12.5%)
- -----------------------------------------------------------------------------------
Total commercial membership 1,532,300 1,681,100 (148,800) (8.9%)
- -----------------------------------------------------------------------------------
Medicare 105,900 162,600 (56,700) (34.9%)
Medicaid -- 183,500 (183,500) (100.0%)
- -----------------------------------------------------------------------------------
Total government programs membership 105,900 346,100 (240,200) (69.4%)
- -----------------------------------------------------------------------------------

Total fully insured membership 1,638,200 2,027,200 (389,000) (19.2%)

Self-funded membership 52,800 68,500 (15,700) (22.9%)
- -----------------------------------------------------------------------------------
Total membership 1,691,000 2,095,700 (404,700) (19.3%)
================================================================================================
</TABLE>

The following table provides certain statement of operations data
expressed as a percentage of total revenues for the three months ended March 31,
1999 and 1998:

<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------------------
Revenues: 1999 1998
--------- ----------
<S> <C> <C>
Premiums earned 96.8% 98.7%
Third-party administration, net .3% .4%
Investment and other income, net 2.9% .9%
- ----------------------------------------------------------------------------------
Total revenues 100.0% 100.0%
- ----------------------------------------------------------------------------------

Expenses:
Health care services 82.2% 86.8%
Marketing, general and administrative 14.1% 16.3%
Interest and other financing charges 1.3% .6%
Restructuring charges -- 2.0%
- ----------------------------------------------------------------------------------
Total expenses 97.6% 105.7%
- ----------------------------------------------------------------------------------

Earnings (loss) before income taxes 2.4% (5.7%)
Income tax expense (benefit) 1.0% (2.0%)
- ----------------------------------------------------------------------------------
Net earnings (loss) 1.4% (3.7%)
Less preferred dividends and amortization (1.0%) --
- -----------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares .4% (3.7%)
===================================================================================
Medical loss ratio 84.9% 87.9%
Administrative loss ratio 14.5% 16.5%
PMPM premium revenue $ 204.77 $ 199.83
PMPM medical expense $ 173.91 $ 175.67
Fully insured member months (000) 5,013.3 6,070.6
</TABLE>

-10-
<PAGE> 11
RESULTS OF OPERATIONS

Overview

The Company's revenues consist primarily of commercial premiums derived
from its Freedom Plan and Liberty Plan, health maintenance organization ("HMO"),
preferred provider organizations ("PPOs") and reimbursements under government
contracts relating to its Medicare+Choice ("Medicare") programs (and, prior to
1999, its Medicaid programs), third-party administration fee revenue for its
self-funded plan services (which is stated net of direct expenses such as
third-party reinsurance premiums) and investment income.

Health care services expense primarily comprises payments to physicians,
hospitals and other health care providers under fully insured health care
business and includes an estimated amount for incurred but not reported or paid
claims ("IBNR"). The Company estimates IBNR expense based on a number of
factors, including prior claims experience. The actual expense for claims
attributable to any period may be more or less than the amount of IBNR reported.
See "Liquidity and Capital Resources". The Company's results for the year ended
December 31, 1998 were also adversely affected by significant restructuring
charges and write-downs of strategic investments.

Since it began operations in 1986 and through 1997, the Company experienced
substantial growth in membership and revenues. The membership and revenue growth
has been accompanied by increases in the cost of providing health care in the
Company's service areas. The Company experienced declines in membership and
revenue during 1998 and such declines are expected to continue through 1999 and
beyond. The Company does not intend to promote significant membership or revenue
growth in 1999 because the Company through strategic initiatives has redirected
its efforts to establish profitability. Since the Company provides services on a
prepaid basis, with premium levels fixed for one-year periods, unexpected cost
increases during the annual contract period cannot be passed on to employer
groups or members.

Software and hardware problems experienced in the conversion of a portion
of the Company's computer system in September 1996 resulted in significant
delays in the Company's billing of group and individual customers. The Company's
revenues were adversely affected by adjustments of approximately $218.2 million
in 1998 and $173.5 million in 1997 related to estimates for terminations of
group and individual members and for nonpaying group and individual members. In
1998, approximately $135.6 million of these adjustments related to termination
of members, approximately $65.2 million of these adjustments related to
nonpaying members, and approximately $17.4 million of these adjustments related
to other manual billing adjustments posted during the year. A similar breakout
for 1997 is not available since, prior to January 1, 1998, source documents for
the adjustments did not specify whether the adjustment related to group and
member terminations, nonpaying members or other manual billing adjustments.
Retroactive terminations occur when a group notifies Oxford that an employee is
no longer eligible for coverage and there is a lag between the effective date of
the termination and the receipt or posting of the notice of termination by
Oxford. Reserves for retroactivity in 1998 and 1997 are estimated based on
historical experience and are affected by the time it takes to process
enrollment and termination forms. Retroactivity can also arise when employer
groups terminate coverage without providing notice to Oxford. The Company has
taken steps to attempt to improve billing timeliness, reduce billing errors,
reduce lags in recording enrollment and disenrollment notifications, and improve
the Company's collection processes and is attempting to make requisite
improvements in management information systems concerning the value and aging of
outstanding accounts receivable. The Company continues to experience significant
levels of retroactive member and group terminations impacting revenue. In
addition, the Company continues to show significant aged receivable balances
from certain large group customers which remain uncollected. The Company
believes it has made adequate provision in its estimates for group and
individual member terminations and for nonpaying groups and individual members
as of March 31, 1999. Adjustments to the estimates may be necessary, however,
and any such adjustments would be included in the results of operations for the
period in which such adjustments were

-11-
<PAGE> 12
made. The Company's results of operations could also be adversely affected if
efforts to collect overdue balances result in terminations of such groups.

Restructuring Charges

During the first half of 1998, the Company recorded restructuring charges
and write-downs of strategic investments primarily associated with
implementation of the Company's plan ("Turnaround Plan") to restore the
Company's profitability. The Turnaround Plan has included: focusing on the
Company's core commercial and selected Medicare markets in the New York
tri-state area; disposing or restructuring of noncore businesses; reducing
administrative costs; reducing payments to physicians and other providers;
completing and operationalizing risk transfer agreements and other alternative
provider arrangements; reducing unnecessary utilization of hospital and other
services; strengthening commercial underwriting; increasing commercial group
premiums; and improving service levels and strengthening operations.

The table below presents the activity in the first quarter of 1999 related
to the restructuring charge reserves established in the first and second
quarters of 1998 as part of the Turnaround Plan. This activity is consistent
with the Company's estimates prepared at December 31, 1998. As of March 31,
1999, the Turnaround Plan is proceeding in all material respects as expected and
the activity during the first quarter of 1999 is consistent with the Company's
estimates prepared at December 31, 1998. The Company believes that the reserves
as of March 31, 1999 are adequate and that no revisions of estimates are
necessary at this time.

<TABLE>
<CAPTION>
(In thousands) Beginning Ending
Restructuring Cash Noncash Restructuring
Reserves Activity Activity Reserves
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provisions for loss on noncore businesses $ 13,805 $ (2,039) $ (525) $ 11,241
Severance and related costs 9,354 (1,106) -- 8,248
Costs of consolidating operations 17,685 (2,956) -- 14,729
========================================================
$ 40,844 $ (6,101) $ (525) $ 34,218
========================================================
</TABLE>

The reduction in the reserve for severance and related costs reflects
contractual payments of approximately $1.1 million to former executives of the
Company.

The reduction in the reserve for costs of consolidating operations reflects
lease payments and occupancy costs of approximately $3.0 million, net of
sublease income, related to vacated office space.

The three months ended March 31, 1999 compared with the three months ended March
31, 1998

Total revenues for the quarter ended March 31, 1999 were $1.03 billion,
down 15.4% from $1.21 billion during the same period in the prior year. Net
earnings attributable to common stock for the first quarter of 1999 totaled $3.2
million, or four cents per share, compared to a net loss of $45.3 million, or 57
cents per share, for the first quarter of 1998. Results of operations for the
first quarter of 1998 were adversely affected by significantly higher medical
costs and approximately $25.0 million ($16.3 million after tax, or 20 cents per
share) of charges for severance and other costs expected to be incurred in
connection with the restructuring of certain administrative and management
functions.

-12-
<PAGE> 13
Membership in the Company's fully insured commercial health care programs
as of March 31, 1999 decreased by approximately 149,000 members (9%) from the
level of such membership as of March 31, 1998 and by 46,500 members (3%) since
year-end 1998. The decline since year end 1998 is due to reductions in members
in noncore states and in the Company's core commercial markets. Membership in
government programs decreased by approximately 240,000 members (69%) compared
with March 31, 1998, reflecting the exit of the Company from the Medicaid market
in total and from the withdrawal or restructuring of the Medicare business in
several markets.

Total commercial premiums earned for the three months ended March 31, 1999
decreased 5% to $829.4 million compared with $872.6 million in the same period
in the prior year. This decrease is attributable to a 7.9% decrease in member
months in the Company's commercial health care programs, partially offset by a
3.2% increase in average premium yield. Average premium rates for the full year
1999 are expected to be approximately 9% higher in the Company's core commercial
business than in the full year 1998, but the increase in premium yields is
expected to be lower due to changing business mix and benefit designs and other
factors.

Premiums earned from Medicare programs decreased 28% to $187.0 million in
the first quarter of 1999 from $260.9 million in the first quarter of 1998. The
revenue decline was caused by membership declines as member months of Medicare
programs decreased 33% when compared with the prior year first quarter,
partially offset by increases in average premium yields of Medicare programs of
7.3% over the level of the prior year first quarter. This yield increase
exceeded the average rate increase granted by the Health Care Financing
Administration ("HCFA") as membership losses occurred primarily in lower
reimbursement counties. Premiums earned from Medicaid programs decreased 87% to
$10.2 million in the first quarter of 1999 compared with $79.6 million in the
first quarter on 1998, reflecting the Company's total withdrawal from the
Medicaid market during 1998 and 1999.

Investment and other income, net includes a $13.5 million gain on the sale
of the Company's New York Medicaid business in the first quarter of 1999. In
addition, net investment income for the three months ended March 31, 1999
increased 45% to $16.2 million from $11.1 million for the same period last year.
The improvement is primarily due to an increase in average invested balances in
the first quarter of 1999 compared with the first quarter of 1998 offset, in
part, by a $1.9 million decline in capital gains realized in the first quarter
of 1999 compared with the prior year quarter. The higher invested balances are
attributable to the funds received in the Company's May 1998 financing
transaction.

The Company incurred interest and other financing charges of $10.1 million
in the first three months of 1999 related to its outstanding debt and capital
lease obligations, compared with $3.6 million in the first three months of 1998.
The increase is primarily attributable to the issuance of $350 million of
long-term debt in May 1998 at which time bridge financing notes of $200 million
were redeemed. Interest expense on delayed claims totaled $3.9 million in the
first three months of 1999, compared with $3.2 million in the first three months
of 1998. Interest payments have been made in accordance with the Company's
interest payment policy and applicable law. The Company's future results will
continue to reflect interest payments by the Company on delayed claims as well
as interest expense on outstanding indebtedness and capital lease obligations.

The Company had an income tax expense of $10.3 million for the first
quarter of 1999 reflecting an effective tax rate of 42%. The Company performed
detailed analyses to assess the realizability of the Company's deferred tax
assets. These analyses included an evaluation of the results of operations for
1998 and prior periods, the progress to date in its Turnaround Plan and
projections of future results of operations, including the estimated impact of
the Turnaround Plan. Based on these analyses, the Company does not currently
believe it is more likely than not that all of its deferred tax assets will be
fully realizable, and the Company continues to carry a valuation allowance of
$282.6 million in order to reflect deferred tax assets related to net operating
loss carryforwards and other net tax deductible temporary differences at their
currently estimated realizable value. The Company will continue to evaluate the
realizablity of its net deferred tax assets in future periods and will make
adjustments to the valuation allowances when facts and circumstances indicate
that a change is necessary. The amounts of future

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taxable income necessary during the carryforward period to utilize the
unreserved net deferred tax assets is approximately $300 million.

The medical loss ratio (health care services expense stated as a percentage
of premium revenues) was 84.9% for the first quarter of 1999 compared with 87.9%
for the first quarter of 1998. The improvement in the first quarter of 1999
reflects a 2.5% increase in average overall premium yield and a 1.0% decrease in
per member per month medical costs when compared to the prior year first
quarter. The reduction in medical costs is primarily the result of a significant
change in the Company's membership composition (for example, a reduction in the
number of members in government programs) and initiatives to improve health care
utilization and costs. The Company believes it has made adequate provision for
medical costs as of March 31, 1999. There can be no assurance, however, that
additional reserve additions will not be necessary as the Company continues to
review and reconcile delayed claims and claims paid or denied in error.
Additions to reserves could also result as a consequence of regulatory
examinations, and such additions would also be included in the results of
operations for the period in which such adjustments are made.

Marketing, general and administrative expenses totaled $149.7 million in
the first quarter of 1999 compared with $201.0 million in the first quarter of
1998. The decrease when compared to the first quarter of 1998 is primarily
attributable to a $21.0 million decrease in payroll and benefits due to reduced
staffing and a $14.2 million decrease in consulting fees as the prior year
quarter reflects significant expenses related to enhancements to management
information systems. These expenses as a percent of operating revenue were 14.5%
during the first quarter of 1999 compared with 16.5% during the first quarter of
1998 and 16.7% for the full year 1998. Administrative costs in future periods
may be adversely affected by incremental costs incurred in an initiative to
improve service levels and costs associated with responding to regulatory
inquiries and investigations and defending pending litigation.

LIQUIDITY AND CAPITAL RESOURCES

Cash used by operations during the first quarter of 1999 aggregated $127.7
million, compared with $114.6 million for the first quarter of 1998. The $13.1
million decline in cash flow occurred despite a $59.6 million improvement in net
earnings, primarily because the prior year quarter was favorably affected by a
tax refund of approximately $49 million and cash flow for the first quarter of
1999 was negatively affected by the runoff of claims reserves relating to
discontinued or restructured businesses of $59 million. The Company expects cash
flow from operations will continue to be adversely affected by runoff of
reserves for restructured or discontinued business and efforts to reduce
existing claims backlogs. Cash flows from operations for the first quarters of
1999 and 1998 included only two months of Medicare premiums because the January
1999 and January 1998 premiums of $68.4 million and $85.9 million, respectively,
were each received in the preceding December.

The Company's capital expenditures for the first three months of 1999
totaled $1.1 million. Except for anticipated capital expenditures and
requirements to provide the required levels of capital to its operating
subsidiaries, including any requirement arising from nonadmissibility of
provider advances (as discussed below) or other assets or from operating losses,
the Company currently has no definitive commitments for use of material cash.

As of March 31, 1999, cash and investments aggregating $56.4 million (of
which $13 million is included in other assets) have been segregated in the
accompanying balance sheet as restricted investments to comply with federal and
state regulatory requirements. In May 1999, the Company set aside $15 million as
collateral for certain advances made by the Company's New Jersey subsidiary (see
below). The Company's subsidiaries are also subject to certain restrictions on
their abilities to make dividend payments, loans or other transfers of cash to
the parent company, which limit the ability of the Company to use cash generated
by subsidiary operations to pay the obligations of the parent, including debt
service and other financing costs.

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<PAGE> 15
In September 1998, the National Association of Insurance Commissioners
("NAIC") adopted new minimum capitalization requirements, known as risk-based
capital ("RBC") rules, for health care coverage provided by HMOs and other
risk-bearing health care entities. Depending on the nature and extent of the new
minimum capitalization requirements ultimately adopted by each state, there
could be an increase in the capital required for certain of the Company's
regulated subsidiaries. Connecticut has enacted legislation allowing the
Connecticut Department of Insurance ("CTDOI") to promulgate regulations based on
the NAIC model. The New York State Insurance Department ("NYSID") has proposed
legislation similar to the NAIC model rules. The Company expects the CTDOI and
NYSID regulations to be applicable to its 1999 annual financial statements. The
New Jersey Department of Banking and Insurance ("NJDBI") has not proposed
similar legislation. However, NJDBI has published draft solvency regulations
that it estimates will result in additional capital requirements for many New
Jersey health care plans. The Governor of New York has proposed legislation to
strengthen current solvency regulations to allow the NYSID to take over failing
health plans without a court order. The Company intends to fund any required
increase in statutory capital in regulated subsidiaries from available parent
company cash reserves; however, there can be no assurance that such cash
reserves will be sufficient to fund these minimum capitalization requirements.

As a result of delays in claims payments during the fourth quarter of 1996
and the first quarter of 1997, the Company experienced a significant increase in
medical claims payable, but such increase was mitigated, in part, by progress in
paying backlogged claims and making advance payments to providers during the
first quarter of 1997 and thereafter. Outstanding advances aggregated
approximately $130.2 million at March 31, 1999, net of a valuation reserve of
$35 million, and have been netted against medical costs payable in the Company's
consolidated balance sheet. The Company believes that it will be able to recover
net outstanding advance payments, either through repayment by the provider or
application against future claims, but any failure to recover funds advanced in
excess of the reserve would adversely affect the Company's results of
operations. There can be no assurance that insurance regulators will continue to
recognize such advances as admissible assets and the New Jersey Department of
Banking and Insurance has required the Company to provide collateral for
repayment of the advances by setting aside $15 million in trust at the parent
company. If all or a portion of the advances were deemed nonadmitted, the
capital of the Company's operating subsidiaries would be impaired and additional
capital contributions would be required for the subsidiaries to meet statutory
requirements.

The Company's medical costs payable was $924.6 million as of March 31, 1999
(including $786.5 million for IBNR and before netting advance claim payments of
$130.2 million) compared with $989.7 million as of December 31, 1998 (including
$864.5 million for IBNR and before netting advance claim payments of $139.5
million). The decrease reflects runoff of claims reserves for discontinued or
restructured business and progress in paying backlogged claims. The Company
estimates the amount of its reserves primarily using standard actuarial
methodologies based upon historical data, including the average interval between
the date services are rendered and the date claims are paid and between the date
services are rendered and the date claims are received by the Company, expected
medical cost inflation, seasonality patterns and changes in membership.

The liability for medical costs payable is also affected by shared risk
arrangements, including arrangements related to the Company's Medicare business
in certain counties and Private Practice Partnerships ("Partnerships"). In
determining the liability for medical costs payable, the Company accounts for
the financial impact of the transfer of risk for certain Medicare members and
experience of risk-sharing Partnership providers (who may be entitled to credits
from Oxford for favorable experience or subject to deductions for accrued
deficits).

In the case of the Medicare risk arrangements, the Company no longer
records a reserve for claims liability since the payment obligation has been
transferred to third parties. The Company has entered into two risk transfer
arrangements pursuant to which it has transferred a substantial portion of the
medical cost risk associated with the provision of medical services to certain
of the Company's Medicare members to a network management company in one case an
integrated health care system in the other.

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<PAGE> 16
An agreement with North Shore-Long Island Jewish Health Systems covers
approximately 31,400 members in certain New York counties as of March 31, 1999.
An agreement with Heritage New Jersey Medical Group ("Heritage") covers all of
the Company's approximately 13,500 members in New Jersey as of March 31, 1999.
Under these risk transfer agreements, the providers assume a substantial portion
of the risk of providing health care services for this membership in return for
payment by the Company of a fixed per member per month payment. In the event the
providers fail to fulfill their obligations under the risk transfer agreements,
the Company remains liable to provide contracted benefits to it members.

The NJDBI has advised the Company that the risk-sharing aspects of the
agreement with Heritage should be suspended pending NJDBI's review of the need
for additional regulation of risk-sharing arrangements. The Company intends to
work with NJDBI and Heritage to arrive at appropriate interim and long-term
arrangements, but there can be no assurance that such arrangements will be
reached or that the risk-sharing agreement will ultimately be approved. A
failure to gain approval of satisfactory arrangements would likely increase the
Company's health care costs for this business and could eventually lead to
reductions in New Jersey Medicare membership.

In the case of Partnership providers subject to deficits, the Company has
established reserves to account for delays or other impediments to recovery of
those deficits. The Company has reviewed its partnership program and has
terminated most of its partnership arrangements as a result of difficulties and
expense associated with administering the program as well as other
considerations. The Company recognized estimated costs in taking these actions
in the second quarter of 1998. The Company believes that its reserves for
medical costs payable are adequate to satisfy its ultimate claim liabilities.
However, the Company's prior rapid growth, delays in paying claims, paying or
denying claims in error and changing speed of payment may affect the Company's
ability to rely on historical information in making IBNR reserve estimates.

During the first quarter of 1999, the Company made cash contributions to
the capital of one of its HMO subsidiaries aggregating $355,000. The capital
contribution was made to ensure that the subsidiary had sufficient surplus under
applicable regulations after giving effect to operating losses and reductions to
surplus resulting from the nonadmissibility of certain assets. The Company
expects that additional capital contributions to the subsidiaries during 1999
may be required.

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<PAGE> 17
The terms of the shares of the Series E Preferred Stock are identical to the
terms of the shares of the Series B Preferred Stock, except that the Series E
Preferred Stock accumulates cash dividends at a rate of 14% per annum, payable
quarterly, provided that prior to May 13, 2000, the Series E Preferred Stock
accumulates dividends at a rate of 14.589214% per annum, payable annually in
cash or additional shares of Series E Preferred Stock, at the option of the
Company. In addition, prior to May 13, 2001, the holders of the Series D
Preferred Stock may not use the Series D Preferred Stock in connection with the
exercise of the Company's Series A Warrants or Series B Warrants unless they use
a percentage of the total amount of Series D Preferred Stock issued on February
13, 1999 that does not exceed the percentage of the total number of shares of
Series E Preferred Stock issued on February 13, 1999 that have been redeemed,
repurchased or retired by the Company, or used as consideration in connection
with the exercise of the Company's Series A Warrants or Series B Warrants by the
holders. With respect to dividend rights, the Series D Preferred Stock and
Series E Preferred Stock rank on a parity with each other and prior to the
Company's common stock.

The aggregate cost to the Company of dividends on the Series D Preferred
Stock and Series E Preferred Stock is the same as the aggregate cost to the
Company of dividends on the Series A Preferred Stock and Series B Preferred
Stock. The respective voting rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock have not changed as the result of the
exchange of such shares for shares of Series D Preferred Stock and Series E
Preferred Stock. The exchange had no effect on the consolidated balance sheet as
the issuance of additional redeemable preferred stock effected the in-kind
payment of the accrued redeemable preferred stock dividend which had previously
been credited to redeemable preferred stock. In the Company's view, there was no
difference in the aggregate fair value between the redeemable preferred stock
issued in the exchange and the redeemable preferred stock canceled in the
exchange.

MARKET RISK DISCLOSURES

The Company's consolidated balance sheet as of March 31, 1999 includes a
significant amount of assets whose fair value is subject to market risk. Since
the substantial portion of the Company's investments are in fixed income
securities, interest rate fluctuations represent the largest market risk factor
affecting the Company's consolidated financial position. Interest rates are
managed within a tight duration band, 2.25 to 2.5 years, and credit risk is
managed by investing in U.S. government obligations and in corporate debt
securities with high average quality ratings and maintaining a diversified
sector exposure within the debt securities portfolio. The Company's investment
in equity securities as of March 31, 1999 was not significant.

In order to determine the sensitivity of the Company's investment portfolio
to changes in market risk, valuation estimates were made on each security in the
portfolio using a duration model. Duration models measure the expected change in
security market prices arising from hypothetical movements in market interest
rates. Convexity further adjusts the estimated price change by mathematically
"correcting" the changes in duration as market interest rates shift. The model
used industry standard calculations of security duration and convexity as
provided by third party vendors such as Bloomberg and Yield Book. For certain
structured notes, callable corporate notes, and callable agency bonds, the
duration calculation utilized an option-adjusted approach, which helps to ensure
that hypothetical interest rate movements are applied in a consistent way to
securities that have embedded call and put features. The model assumed that
changes in interest rates were the result of parallel shifts in the yield curve.
Therefore, the same basis point change was applied to all maturities in the
portfolio. The change in valuation was tested using positive and negative
adjustments in yield of 100 and 200 basis points. A hypothetical immediate
increase of 100 basis points in market interest rates would decrease the fair
value of the Company's investments in debt securities as of March 31, 1999 by
approximately $21.3 million, while a 200 basis point increase in rates would
decrease the value of such investments by approximately $41.9 million. A
hypothetical immediate decrease of 100 basis points in market interest rates
would increase the fair value of the Company's investments in debt securities as
of March 31, 1999 by approximately $21.6 million, while a 200 basis point
decrease in rates would increase the value of such investments by approximately
$43.8 million. Because duration and convexity are estimated rather than known
quantities for certain

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<PAGE> 18
securities, there can be no assurance that the Company's portfolio would perform
in line with the estimated values.

YEAR 2000 READINESS

The Company has completed its assessment of its computer systems and
facilities that could be affected by the "Year 2000" date conversion and is
continuing to carry out the implementation plan to resolve the Year 2000 date
issue which it developed as a result of the assessment. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize the date "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations. The
Company is utilizing both internal and external resources to identify, correct
or reprogram, and test the systems for Year 2000 compliance. The Company has
divided its Year 2000 compliance program into the following phases: assessment,
planning, remediation and testing. The Company has completed the assessment,
planning and remediation of computer codes associated with its mission critical
systems and is currently conducting certification testing of those systems. As
of March 31, 1999, the Company was 90% complete with its Year 2000 compliance
program and anticipates being complete with all phases of the program by the
second quarter of 1999. The Company's Year 2000 compliance program requires
remediation of certain programs within particular time frames in order to avoid
disruption of the Company's operations. These time frames include certain dates
throughout 1999. Although the Company believes it will complete the remediation
of these programs within the applicable time frames, there can be no assurance
that such remediation will be completed or that the Company's operations will
not be disrupted to some degree.

The Company is communicating with certain material vendors to determine the
extent to which the Company may be vulnerable to such vendors' failure to
resolve their own Year 2000 issues. The Company is attempting to mitigate its
risk with respect to the failure of such vendors to be Year 2000 compliant by,
among other things, requesting project plans, status reports and Year 2000
compliance certifications or written assurances from its material vendors,
including certain software vendors, business partners, landlords and suppliers.
The effect of such vendors' noncompliance, if any, is not reasonably estimable
at this time.

The Company is required to submit periodic reports regarding Year 2000
compliance to certain of the regulatory authorities that regulate its business.
The Company is in compliance with such Year 2000 reporting requirements. Such
regulatory authorities have also asked the Company to submit to certain reviews
regarding its Year 2000 compliance.

The Company is in the process of completing the modifications of its
computer systems to accommodate the Year 2000 and will undertake testing to
ensure its systems and applications will function properly after December 31,
1999. The Company currently expects this modification and testing to be
completed in a time frame to avoid any material adverse effect on operations.
The Company has deferred certain other information technology initiatives to
concentrate on its Year 2000 compliance efforts but the Company believes that
such deferral is not reasonably likely to have a material adverse effect on the
Company's financial condition or results of operations. The Company's inability
to complete Year 2000 modifications on a timely basis or the inability of other
companies with which the Company does business to complete their Year 2000
modifications on a timely basis could adversely affect the Company's operations.

The Company has incurred associated expenses of $2.5 million in 1999 and
expects to incur approximately $2.5 million during the remainder of 1999 to
complete this effort. Through March 31, 1999, the Company had cumulatively
incurred approximately $12.3 million of expenses in connection with its Year
2000 compliance efforts. The costs of the project and the date on which the
Company plans to complete the necessary Year 2000 modifications are based on
management's best estimate, which include assumptions of future events including
the continued availability of certain resources. However,

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<PAGE> 19
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those plans.

The Company has contracted with an external consulting firm to assist in
the generation of a Year 2000 contingency plan in the event compliance is not
achieved. The Company has begun to develop detailed plans to support its
contingency strategy. The Company expects to be substantially complete with
these detailed plans by the second quarter of 1999. However, there can be no
assurance that this contingency plan will be completed on a timely basis or that
such a plan will protect the Company from experiencing a material adverse effect
on its financial condition or results of operations.

Potential consequences of the Company's failure to timely resolve its Year
2000 issues could include, among others: (i) the inability to accurately and
timely process claims, enroll and bill groups and members, pay providers, record
and disclose accurate data and perform other core functions; (ii) increased
scrutiny by regulators and breach of contractual obligations; and (iii)
litigation in connection therewith.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations", including statements
concerning future results of operations or financial position, future liquidity,
future health care and administrative costs, future premium rates and yields for
commercial and Medicare business, the employer renewal process, future growth or
reduction in membership and membership composition, future health care benefits,
future provider network, future provider utilization rates, future medical loss
ratio levels, future claims payment, service performance and other operations
matters, future administrative loss ratio levels, the Company's information
systems and readiness for Year 2000, proposed efforts to control health care and
administrative costs, future dispositions of certain businesses and assets,
future provider payment and risk-sharing agreements with health care providers,
the Turnaround Plan, future enrollment levels, future government regulation and
relations and the impact of new laws and regulations, the future of the health
care industry, and the impact on the Company of recent events, legal proceedings
and regulatory investigations and examinations, and other statements contained
herein regarding matters that are not historical facts, are forward-looking
statements (as such term is defined in the Securities Exchange Act of 1934, as
amended). Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed below.

Net losses; restructuring charges and write-downs of strategic investments

The Company incurred net losses attributable to common stock of $624
million in 1998 and $291 million in 1997. As a result of losses at certain of
its HMO and insurance subsidiaries in 1998 and 1997, the Company has had to make
capital contributions to these subsidiaries and expects that additional capital
contributions may be required to be made by the Company in 1999. The Company has
also made significant additions to its reserves for medical claims, and has
experienced significant levels of retroactive member and group terminations as
well as difficulties with collection of premium receivables.

A significant portion of the loss incurred by the Company in 1998 was
associated with restructuring charges and write-downs of strategic investments
(previously reported as unusual changes) relating to the Company's Turnaround
Plan. These restructuring charges and write-downs of strategic investments are
based on estimates of the anticipated costs to the Company of taking the actions
contemplated by the Turnaround Plan, including disposition of certain businesses
and assets. There can be no assurance that these estimates correctly reflect the
ultimate costs that the Company will incur in implementing the Turnaround Plan.

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<PAGE> 20
The Company's ability to control net losses depends, to a large extent, on
the success of its Turnaround Plan. There can be no assurance that the
Turnaround Plan will be implemented in the manner described herein, or that it
will be successful or that other efforts by the Company to control net losses
will be successful. Furthermore, despite the Company's efforts to the contrary,
implementation of the Turnaround Plan could adversely affect members and
employer groups, or physicians, hospitals and other health care providers and
ultimately sales and renewals of the Company's health plans. The Turnaround Plan
also calls for increasing commercial premiums to appropriately reflect the
Company's healthcare and administrative costs. There can be no assurance that
the Company will be successful in achieving appropriate premium increases or
that recent or future regulatory changes will not adversely affect its premium
pricing. Moreover, the Company cannot predict the impact of adverse publicity,
legal and regulatory proceedings or other future events on the Company's
membership, operations and financial results, including ongoing financial
losses. Reductions in membership associated with the above factors would
adversely affect the Company's future results.

Inability to control, and unpredictability of, health care costs

Oxford's future results of operations depend, in part, on its ability to
predict and maintain influence over health care costs (through, among other
things, appropriate benefit design, utilization review and case management
programs and risk-sharing and other payment arrangements with providers) while
providing members with coverage for the health care benefits provided under
their contracts. However, Oxford's ability to influence such costs may be
affected by various factors, including: new technologies and health care
practices, hospital costs, changes in demographics and trends, new legally
mandated benefits or practices, selection biases, increases in unit costs paid
to providers, major epidemics, catastrophes, inability to establish acceptable
compensation arrangements with providers, operational and regulatory issues
which could delay, prevent or impede those arrangements, and higher utilization
of medical services, including higher out-of-network utilization under point of
service plans. There can be no assurance that Oxford will be successful in
mitigating the effect of any or all of the above-listed or other factors.

Medical costs payable in Oxford's financial statements include reserves for
incurred but not reported or paid claims ("IBNR") which are estimated by Oxford.
Oxford estimates the amount of such reserves primarily using standard actuarial
methodologies based upon historical data including the average interval between
the date services are rendered and the date claims are paid and between the date
services are rendered and the date claims are received by the Company, expected
medical cost inflation, seasonality patterns and changes in membership. The
estimates for submitted claims and IBNR are made on an accrual basis and
adjusted in future periods as required. Oxford believes that its reserves for
IBNR are adequate in order to satisfy its ultimate claim liability. However,
Oxford's prior rapid growth, delays in paying claims, paying or denying claims
in error and changing speed of payment affect the Company's ability to rely on
historical information in making IBNR reserve estimates. There can be no
assurances as to the ultimate accuracy of such estimates. Any adjustments to
such estimates could adversely affect Oxford's results of operations in future
periods.

The effect of high administrative costs on results

The Company expects that results in 1999 may continue to be adversely
affected by high administrative costs associated with the Company's efforts to
strengthen its operations and service levels and address systems issues,
including those related to Year 2000 readiness. Although a key element of the
Company's Turnaround Plan is a reduction in administrative expenses, no
assurance can be given that the Company will not continue to experience
significant service and systems infrastructure problems in 1999 and beyond which
could have a significant impact on administrative costs. Further, the Company
has been adversely affected by high administrative costs in connection with
increased levels of employee attrition over the last several quarters, and the
Company expects to continue to experience employee attrition in the remainder of
1999.

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Changes in laws and regulations could adversely impact operations,
financial condition and prospects

The health care industry in general, and HMOs and health insurance
companies in particular, are subject to substantial federal and state government
regulation, including, but not limited to, regulation relating to cash reserves,
minimum net worth, licensing requirements, approval of policy language and
benefits, mandatory products and benefits, provider compensation arrangements,
member disclosure, premium rates and periodic examinations by state and federal
agencies. State regulations require the Company's HMO and insurance subsidiaries
to maintain restricted cash or available cash reserves and restrict their
ability to make dividend payments, loans or other transfers of cash to the
Company.

In recent years, significant federal and state legislation affecting the
Company's business was enacted. For example, New York State implemented a
requirement that health plans pay interest on delayed payment of claims at a
rate of 12% per annum, effective January 1998, and that managed care members
have a right to an external appeal of certain final adverse determinations,
effective July 1999. In addition, Connecticut and New Jersey enacted legislation
in 1999 concerning prompt payment of claims, mental health parity and other
mandated benefits and practices. State and federal government authorities are
continually considering changes to laws and regulations applicable to Oxford and
are currently considering regulations relating to mandatory benefits and
products, defining medical necessity, provider compensation, health plan
liability to members who fail to receive appropriate care, disclosure and
composition of physician networks, all of which would apply to the Company. New
York State is currently considering regulation concerning the Health Care Reform
Act, individual and small group risk pools and subsidies and managed care
mandates and practices. In addition, Congress is considering significant changes
to Medicare legislation and has in the past considered, and may in the future
consider, proposals relating to health care reform. Changes in federal and state
laws or regulations, if enacted, could increase health care costs and
administrative expenses, and reductions could be made in Medicare reimbursement
rates. Oxford is unable to predict the ultimate impact on the Company of
recently enacted and future legislation and regulations, but such legislation
and regulations, particularly in New York where much of the Company's business
is located, could have a material adverse impact on the Company's operations,
financial condition and prospects.

Premiums for Oxford's Medicare programs are determined through formulas
established by HCFA for Oxford's Medicare contracts. Federal legislation enacted
in 1997 provides for future adjustment of Medicare reimbursement by HCFA which
could reduce the reimbursement received by the Company. Premium reductions, or
premium rate increases in a particular region that are lower than the rate of
increase in health care service expenses for Oxford's Medicare members in such
region, could adversely affect Oxford's results of operations. Risk transfer
provider agreements entered into by Oxford could be adversely affected by
regulatory actions or by the failure of the providers to comply with the terms
of such agreements. Such agreements could also have an adverse effect on the
Company's membership or its relationship with its other providers. Oxford's
Medicare programs are subject to certain additional risks compared to commercial
programs, such as higher comparative medical costs and higher levels of
utilization. Oxford's Medicare programs are subject to higher marketing and
advertising costs associated with selling to individuals rather than to groups.
Further, there can be no assurance that the Company will be successful in
completing or operationalizing such risk transfer and other provider
arrangements.

Service and systems infrastructure problems

The Company experienced rapid growth in its business and in its staff in
the period from 1986, when the Company began operations, through 1997. The
Company has been affected and will continue to be affected by its ability to
manage such growth effectively, including its ability to continue to develop
processes and systems to support its operations. In September 1996, the Company
converted a significant part of its business operations to a new computer
operating system. Unanticipated software and hardware problems arising in
connection with the conversion resulted in significant delays in the Company's
claims payments and group and individual billing and adversely affected claims
payment and billing. See "Results of Operations" above. The Company does not
intend to promote significant membership or revenue growth in 1999 because the
Company's priority in 1999 will continue to be to

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attempt to strengthen its service and systems infrastructure, reduce medical and
administrative spending and increase premium rates. No assurance can be given
that, in the remainder of 1999 and beyond, the Company will not continue to
experience significant service and systems infrastructure problems, high levels
of medical and administrative spending and difficulties in obtaining premium
rate increases. In addition, the Company has experienced attrition of its
Medicare and commercial business in 1998 and 1999 and expects additional
attrition. There can be no assurance that the Company will be successful in the
future in promoting membership growth and will not continue to experience
membership attrition.

Health care provider network

The Company is subject to the risk of disruption in its health care
provider network. The network physicians, hospitals and other health care
providers could terminate their contracts with the Company, demand higher
payments or take other actions which could have a material adverse effect on the
Company's ability to market its products and service its membership.
Furthermore, the effect of mergers and consolidations of health care providers
or potential unionization of, or concerted action by, physicians in the
Company's service areas could enhance the providers' bargaining power with
respect to demands for higher reimbursement levels and changes to the Company's
utilization review and administrative procedures.

Management of information systems

There can be no assurance that the Company will be successful in mitigating
the existing system problems that have resulted in payment delays and claims
processing errors, in developing processes and systems to support its operations
and in improving its service levels. Moreover, operating and other issues can
lead to data problems that affect performance of important functions, including,
but not limited to, claims payment and group and individual billing. There can
also be no assurance that the process of improving existing systems, developing
processes and systems to support the Company's operations and improving service
levels will not be delayed or that additional systems issues will not arise in
the future. See "Other Information - Status of Information Systems".

Year 2000 readiness

The Company's failure to timely resolve its own Year 2000 issues or the
failure of the Company's external vendors to resolve their Year 2000 issues
could have a material adverse effect on the Company's results of operations,
liquidity and financial condition. Further, the Company's estimates for the
future costs and timely and successful completion of its Year 2000 program are
subject to uncertainties that could cause actual results to differ from those
currently projected by the Company. See "Year 2000 Readiness" above.

Recent events and related publicity

Certain events at the Company over the course of the last two years have
resulted in adverse publicity. Such events and related publicity may adversely
affect the Company's provider network, the employer renewal process and future
enrollment in the Company's health benefit plans.

In addition, the managed care industry, in general, receives significant
negative publicity. This publicity has led to increased legislation, regulation
and review of industry practices. These factors may adversely affect the
Company's ability to market its products and services, may require it to change
its products and services and may increase the regulatory burdens under which
the Company operates, further increasing the costs of doing business and
adversely affecting the Company's results of operations.

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Collectibility of advances

As part of its attempts to ameliorate delays in processing claims for
payment in 1997, the Company advanced approximately $276 million to providers
pending the Company's disposition of claims for payment. As of March 31, 1999,
approximately $130.2 million, net of allowances, remained outstanding. See
"Liquidity and Capital Resources" above. The NYSID is requiring the Company to
obtain written acknowledgments of such advances from the recipients of the
advances, and the New Jersey Department of Banking and Insurance has required
the Company to provide collateral for repayment of the advances by setting aside
$15 million in trust at the parent company. If the Company is unable to receive
such written acknowledgments or fails to provide such collateral there can be no
assurance that the insurance regulators will continue to recognize such advances
as admissible assets for regulatory purposes. If the insurance regulators do not
recognize such advances as admissible assets, the capital of certain of the
Company's regulated subsidiaries could be impaired. The Company may be required
to make additional capital contributions to compensate for any such impairment.
Although the Company believes that the advances will be repaid, there can be no
assurance that this will occur.

Concentration of business

The Company's commercial and Medicare business is concentrated in New York,
New Jersey and Connecticut, with more than 80% of its tri-state premium revenues
received from New York business. As a result, changes in regulatory, market or
health care provider conditions in any of these states, particularly New York,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company's revenue under
its contracts with HCFA represented 21.9% of its premiums earned during the year
1998 and 19.2% of premiums earned during the first three months of 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Market Risk Disclosures."

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

SECURITIES CLASS ACTION LITIGATION

As previously reported by the Company, following the October 27, 1997
decline in the price per share of the Company's common stock, purported
securities class action lawsuits were filed on October 28, 29, and 30, 1997
against the Company and certain of its officers in the United States District
Courts for the Eastern District of New York, the Southern District of New York
and the District of Connecticut. Since that time, plaintiffs have filed
additional securities class actions (see below) against Oxford and certain of
its directors and officers in the United States District Courts for the Southern
District of New York, the Eastern District of New York, the Eastern District of
Arkansas, and the District of Connecticut.

The complaints in these lawsuits purport to be class actions on behalf of
purchasers of Oxford's securities during varying periods beginning on February
6, 1996 through December 9, 1997. The complaints generally allege that
defendants violated Section 10(b) of the Securities Exchange Act of 1934
("Exchange Act") and Rule 10b-5 thereunder by making false and misleading
statements and by failing to disclose certain allegedly material information
regarding changes in Oxford's computer system, and the Company's membership
enrollment, revenues, medical expenses, and ability to collect on its accounts
receivable. Certain of the complaints also assert claims against the individual
defendants alleging violations of Section 20(a) of the Exchange Act and claims
against all of the defendants for negligent misrepresentation. The complaints
also allege that in violation of Section 20A of the Exchange Act certain of the
individual defendants disposed of Oxford's common stock while the price of that
stock was artificially inflated by allegedly false and misleading statements and
omissions. The complaints seek unspecified damages, attorneys' and experts' fees
and costs, and such other relief as the court deems proper.

The purported class actions commenced in the United States District Court
for the Southern District of New York are Metro Services, Inc., et al. v. Oxford
Health Plans, Inc., et al., No. 97 Civ. 08023 (filed Oct. 29, 1997); Worldco,
LLC, et al. v. Oxford Health Plans, Inc., et al., No. 97 Civ. 8494 (filed Nov.
14, 1997); Jerovsek, et al. v. Oxford Health Plans, Inc., et al., No. 97 Civ.
8882 (filed Dec. 2, 1997); North River Trading Co., LLC v. Oxford Health Plans,
Inc., et al., No. 97 Civ. 9372 (filed Dec. 22, 1997); National Industry Pension
Fund v. Oxford Health Plans, Inc., et al., No. 97 Civ. 9566 (filed Dec. 31,
1997); Scheinfeld v. Oxford Health Plans, Inc., et al., No. 98 Civ. 1399
(originally filed Dec. 31, 1997 in the United States District Court for the
District of Connecticut and transferred); Paskowitz v. Oxford Health Plans,
Inc., et al., No. 98 Civ. 1991 (filed March 19, 1998); and Sapirstein v. Oxford
Health Plans, Inc., et al., No. 98 Civ. 4137 (filed September 11, 1998).

The purported class actions commenced in the United States District Court
for the Eastern District of New York are Koenig v. Oxford Health Plans, et al.,
No. 97 Civ. 6188 (filed Oct. 29, 1997); Wolper v. Oxford Health Plans, Inc., et
al., No. 97 Civ. 6299 (filed Oct. 29, 1997); Tawil v. Oxford Health Plans, Inc.,
et al., No. 97 Civ. 7289 (filed Dec. 11, 1997); Winters, et al. v. Oxford Health
Plans, Inc., et al., No. 97 Civ. 7449 (filed Dec. 18, 1997); and Krim v. Oxford
Health Plans, Inc., et al., No. 98 Civ. 4032 (filed September 5, 1998).

The purported class actions commenced in the United States District Court
for the District of Connecticut are Heller v. Oxford Health Plans, Inc., et al.,
No. 397 CV 02295 (filed Oct. 28, 1997); Fanning v. Oxford Health Plans, Inc., et
al., No. 397 CV 02300 (filed Oct. 29, 1997); Lowrie, IRA v. Oxford Health Plans,
Inc., et al., No. 397 CV 02299 (filed Oct. 29, 1997); Barton v. Oxford Health
Plans, Inc., et al., No. 397 CV 02306 (filed Oct. 30, 1997); Sager v. Oxford
Health Plans, Inc., et al., No. 397 CV 02310 (filed Oct. 30, 1997); Cohen v.
Oxford Health Plans, Inc., et al., No. 397 CV 02316 (filed Oct. 31, 1997);
Katzman v. Oxford Health Plans, Inc., et al., No. 397 CV 02317 (filed Oct. 31,
1997); Shapiro v. Oxford Health Plans, Inc., et al., No. 397 CV 02324 (filed
Oct. 31, 1997); Willis v. Oxford Health Plans, Inc., et al.,

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<PAGE> 25
No. 397 CV 02326 (filed Oct. 31, 1997); Saura v. Oxford Health Plans, Inc., et
al., No. 397 CV 02329 (filed Nov. 3, 1997); Selig v. Oxford Health Plans, Inc.,
et al., No. 397 CV 02337 (filed Nov. 4, 1997); Brandes v. Oxford Health Plans,
Inc., et al., No. 397 CV 02343 (filed Nov. 4, 1997); Ross v. Oxford Health
Plans, Inc., et al., No. 397 CV 02344 (filed Nov. 4, 1997); Sole v. Oxford
Health Plans, Inc., et al., No. 397 CV 02345 (filed Nov. 4, 1997); Henricks v.
Wiggins, et al., No. 397 CV 02346 (filed Nov. 4 1997); Williams v. Oxford Health
Plans, Inc., et al., No. 397 CV 02348 (filed Nov. 5, 1997); Direct Marketing Day
in New York, Inc. v. Oxford Health Plans, Inc., et al., No. 397 CV 02349 (filed
Nov. 5, 1997); Howard Vogel Retirement Plans, Inc., et al. v. Oxford Health
Plans, Inc., et al., No. 397 CV 02325 (filed Oct. 31, 1997 and amended Dec. 17,
1997); Serbin v. Oxford Health Plans, Inc., et al., No. 397 CV 02426 (filed Nov.
18, 1997); Hoffman v. Oxford Health Plans, Inc., et al., No. 397 CV 02458 (filed
Nov. 24, 1997); Armstrong v. Oxford Health Plans, Inc., et al., No. 397 CV 02470
(filed Nov. 25, 1997); Roeder, et al. v. Oxford Health Plans, Inc., et al., No.
397 CV 02496 (filed Nov. 26, 1997); Braun v. Oxford Health Plans, Inc., et al.,
No. 397 CV 02510 (filed Dec. 1, 1997); Blauvelt, et al. v. Oxford Health Plans,
Inc., et al., No. 397 CV 02512 (filed Dec. 2, 1997); Hobler et al. v. Oxford
Health Plans, Inc., et al., No. 397 CV 02535 (filed Dec. 3, 1997); Bergman v.
Oxford Health Plans, Inc., et al., No. 397 CV 02564 (filed Dec. 8, 1997);
Pasternak v. Oxford Health Plans, Inc., et al., No. 397 CV 02567 (filed Dec. 8,
1997); Perkins Partners I, Ltd. v. Oxford Health Plans, Inc., et al., No. 397 CV
02573 (filed Dec. 9, 1997); N.I.D.D., Ltd. v. Oxford Health Plans, Inc., et al.,
No. 397 CV 02584 (filed Dec. 9, 1997); Burch v. Oxford Health Plans, Inc., et
al., No. 397 CV 02585 (filed Dec. 9, 1997); Mark v. Oxford Health Plans, Inc.,
et al., No. 397 CV 02594 (filed Dec. 11, 1997); Ross, et al. v. Oxford Health
Plans, Inc., et al., No. 397 CV 02613 (filed Dec. 12, 1997); Lerchbacker v.
Oxford Health Plans, Inc., et al., No. 397 CV 02670 (filed Dec. 22, 1997); State
Board of Administration of Florida v. Oxford Health Plans, Inc., et al., No. 397
CV 02709 (filed Dec. 29, 1997) (the complaint, although purportedly not brought
on behalf of a class of shareholders, invites similarly situated persons to join
as plaintiffs); and Ceisler v. Oxford Health Plans, Inc., et al., No. 397 CV
02729 (filed Dec. 31, 1997).

The purported class actions commenced in the United States District Court
for the Eastern District of Arkansas is Rudish v. Oxford Health Plans, Inc., et
al., No. LR-C-97-1053 (filed Dec. 29, 1997).

The Company anticipates that additional class action complaints containing
similar allegations may be filed in the future.

On January 6, 1998, certain plaintiffs filed an application with the
Judicial Panel on Multidistrict Litigation ("JPML") to transfer most of these
actions for consolidated or coordinated pretrial proceedings before Judge
Charles L. Brieant of the United States District Court for the Southern District
of New York. The Oxford defendants subsequently filed a similar application with
the JPML seeking the transfer of all of these actions for consolidated or
coordinated pretrial proceedings, together with the shareholder derivative
actions discussed below, before Judge Brieant. On April 28, 1998, the JPML
entered an order transferring substantially all of these actions for
consolidated or coordinated pretrial proceedings, together with the federal
shareholder derivative actions discussed below, before Judge Brieant.

On July 15, 1998, Judge Brieant appointed the Public Employees Retirement
Associates of Colorado ("ColPERA"), three individual shareholders (the "Vogel
plaintiffs") and The PBHG Funds, Inc. ("PBHG"), as co-lead plaintiffs and
ColPERA's counsel (Grant & Eisenhofer), the Vogel plaintiffs' counsel (Milberg
Weiss Hynes Lerach & Bershad), and PBHG's counsel (Chitwood & Harley), as
co-lead counsel. ColPERA appealed this decision. On October 15, 1998 the United
States Court of Appeals for the Second Circuit dismissed the appeal.

On October 2, 1998, the co-lead plaintiffs filed a consolidated amended
complaint ("Amended Complaint") in the securities class actions. The Amended
Complaint (which has since been further amended by stipulation) names as
defendants Oxford, Oxford Health Plans (NY), Inc., KPMG LLP (which was Oxford's
outside independent auditor during 1996 and 1997) and several current or former
Oxford directors and officers (Stephen F. Wiggins, William M. Sullivan, Andrew
B. Cassidy, Brendan R. Shanahan, Benjamin H. Safirstein, Robert M. Smoler,
Robert B. Milligan, David A. Finkel, Jeffery H. Boyd, and Thomas A. Travers).
The Amended Complaint purports to be brought on behalf of purchasers of

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<PAGE> 26
Oxford's common stock during the period from November 6, 1996 through December
9, 1997 ("Class Period"), purchasers of Oxford call options or sellers of Oxford
put options during the Class Period and on behalf of persons who, during the
Class Period, purchased Oxford's securities contemporaneously with sales of
Oxford's securities by one or more of the individual defendants. The Amended
Complaint alleges that defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder by making false and misleading statements and
failing to disclose certain allegedly material information regarding changes in
Oxford's computer system and the Company's membership, enrollment, revenues,
medical expenses and ability to collect on its accounts receivable. The Amended
Complaint also asserts claims against the individual defendants alleging
"controlling person" liability under Section 20(a) of the Exchange Act. The
Amended complaint also alleges violations of Section 20A of the Exchange Act by
virtue of the individual defendants' sales of shares of Oxford's common stock
while the price of that common stock was allegedly artificially inflated by
allegedly false and misleading statements and omissions. The Amended Complaint
seeks unspecified damages, attorneys' and experts' fees and costs, and such
other relief as the court deems proper.

On December 18, 1998, Oxford, the individual defendants and, separately,
KPMG LLP moved to dismiss the Amended Complaint. On May 25, 1999 and June 8,
1999, Judge Brieant issued decisions denying the motions to dismiss. On June 10,
1999, KPMG LLP moved for reconsideration of the decision denying its motion to
dismiss. On July 9, 1999, Judge Brieant granted KPMG LLP's motion for
reconsideration, and on reconsideration adhered to the prior disposition

By order dated July 9, 1999, the Court approved a Case Management Plan
submitted by counsel for both plaintiffs and defendants, which Plan provides,
inter alia, that (1) discovery and briefing of class certification issues be
completed by December 10, 1999, (2) the parties shall attempt to complete all
merits discovery in the case by September 15, 2000, and (3) summary judgment
motions shall be filed by August 17, 2001.

The State Board of Administration of Florida (the "SBAF") has stipulated,
and Judge Brieant has ordered, that in the action brought by it individually
(the "SBAF Action"), it will be bound by the dismissal of any claims it has that
are asserted in the Amended Complaint. In addition, the parties have stipulated,
and Judge Brieant has ordered, that SBAF may file an amended complaint ("Amended
SBAF Complaint") by September 23, 1999 and that Oxford has until November 25,
1999 to answer or move to dismiss the Amended SBAF Complaint. A stipulation
memorializing these agreements will be filed with the court shortly. The Amended
SBAF Complaint likely will assert claims similar to those asserted in the
Amended Complaint in the purported class actions (see above). The Amended SBAF
Complaint may also assert claims against all of the defendants alleging: (i)
violations of Section 18(a) of the Exchange Act, by virtue of alleged false and
misleading information disseminated in the 10-K report Oxford filed for the year
ended December 31, 1996; (ii) violations of the Florida Blue Sky laws; and (iii)
common law fraud and negligent misrepresentation. The Amended SBAF Complaint
likely will seek unspecified damages, attorneys' and experts' fees and costs,
and such other relief as the court deems proper. Defendants intend to move to
dismiss the SBAF Action, to the extent it includes claims not precluded by Judge
Brieant's decision on the motions to dismiss the Amended Complaint.

The outcomes of these actions cannot be predicted at this time, although
the Company believes that it and the individual defendants have substantial
defenses to the claims asserted and intends to defend the actions vigorously.

SHAREHOLDER DERIVATIVE LITIGATION

As previously reported by the Company, in the months following the October
27, 1997 decline in the price per share of the Company's common stock, ten
purported shareholder derivative actions were commenced on behalf of the Company
in Connecticut Superior Court (the "Connecticut derivative actions") and in the
United States District Courts for the Southern District of New York and the
District of Connecticut (the "federal derivative actions") against the Company's
directors and certain of its officers (and the Company itself as a nominal
defendant).

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These derivative complaints generally alleged that defendants breached
their fiduciary obligations to the Company, mismanaged the Company and wasted
its assets in planning and implementing certain changes to Oxford's computer
system, by making misrepresentations concerning the status of those changes in
Oxford's computer system, by failing to design and to implement adequate
financial controls and information systems for the Company, and by making
misrepresentations concerning Oxford's membership enrollment, revenues, profits
and medical costs in Oxford's financial statements and other public
representations. The complaints further allege that certain of the defendants
breached their fiduciary obligations to the Company by disposing of Oxford
common stock while the price of that common stock was artificially inflated by
their alleged misstatements and omissions. The complaints seek unspecified
damages, attorneys' and experts' fees and costs and such other relief as the
court deems proper. None of the plaintiffs has made a demand on the Company's
Board of Directors that Oxford pursue the causes of action alleged in the
complaint. Each complaint alleges that plaintiff's duty to make such a demand
was excused by the directors' alleged conflict of interest with respect to the
matters alleged therein.

The purported shareholder derivative actions commenced in Connecticut
Superior Court are Reich v. Wiggins, et al., No. CV 97-485145 (filed on or about
Dec. 12, 1997); Gorelkin v. Wiggins, et al., No. CV 98-0163665 S (filed on or
about Dec. 24, 1997); and Kellmer v. Wiggins, et al., No. CV 98-0163664 S HAS
(filed on or about Jan. 28, 1998).

The purported shareholder derivative actions commenced in the United States
District Court for the Southern District of New York are Roth v. Wiggins, et
al., No. 98 Civ. 0153 (filed Jan. 12, 1998); Plevy v. Wiggins, et al., No. 98
Civ. 0165 (filed Jan. 12, 1998); Mosson v. Wiggins, et al., No. 98 Civ. 0219
(filed Jan. 13, 1998); Boyd, et al. v. Wiggins, et al., No. 98 Civ. 0277 (filed
Jan. 16, 1998); and Glick v. Wiggins, et al., No. 98 Civ. 0345 (filed Jan. 21,
1998).

The purported shareholder derivative actions commenced in the United States
District Court for the District of Connecticut are Mosson v. Wiggins, et al.,
No. 397 CV 02651 (filed Dec. 22, 1997), and Fisher, et al. v. Wiggins, et al.,
No. 397 CV 02742 (filed Dec. 31, 1997).

In March 1998, Oxford and certain of the individual defendants moved to
dismiss or, alternatively, to stay the Connecticut derivative actions. Since
then, the parties to the Connecticut derivative actions have stipulated, under
certain conditions, to hold all pretrial proceedings in those actions in
abeyance during the pretrial proceedings in the federal derivative actions, and
to allow the plaintiffs in the Connecticut derivative actions to participate to
a limited extent in any discovery that is ultimately ordered in the federal
derivative actions. Stipulations memorializing this agreement have been entered
in the Connecticut derivative actions. On February 19, 1999, Judge Brieant
entered an order in the federal derivative actions permitting the plaintiffs in
the Connecticut derivative actions to participate to a limited extent in any
discovery that ultimately occurs in the federal derivative actions.

In addition, on January 27, 1998, defendants filed an application with the
JPML to transfer the federal derivative actions for consolidated or coordinated
pretrial proceedings before Judge Charles L. Brieant of the Southern District of
New York. On April 28, 1998, the JPML entered an order transferring all of these
actions for consolidated or coordinated pretrial proceedings, together with the
securities class actions discussed above, before Judge Brieant.

The parties to the federal derivative actions have agreed to suspend
discovery in those actions until the filing of a consolidated amended derivative
complaint in those actions and during the pendency of any motion to dismiss or
to stay the federal derivative actions or the securities class actions. A
stipulation memorializing this agreement, consolidating the federal derivative
actions under the caption In re Oxford Health Plans, Inc. Derivative Litigation,
MDL-1222-D, and appointing lead counsel for the federal derivative plaintiffs,
was entered and so ordered by Judge Brieant on September 26, 1998.

On October 2, 1998, the federal derivative plaintiffs filed an amended
complaint. On January 29, 1999, the plaintiffs filed a second amended derivative
complaint (the "Amended Derivative

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Complaint"). The Amended Derivative Complaint names as defendants certain of
Oxford's directors and a former director (Stephen F. Wiggins, James B. Adamson,
Robert B. Milligan, Fred F. Nazem, Marcia J. Radosevich, Benjamin H. Safirstein
and Thomas A. Scully) and the Company's former auditors KPMG LLP, together with
the Company itself as a nominal defendant. The Amended Derivative Complaint
alleges that the individual defendants breached their fiduciary obligations to
the Company, mismanaged the Company and wasted its assets in planning and
implementing certain changes to Oxford's computer system, by making
misrepresentations concerning the status of those changes to Oxford's computer
system, by failing to design and implement adequate financial controls and
information systems for the Company and by making misrepresentations concerning
Oxford's membership, enrollment, revenues, profits and medical costs in Oxford's
financial statements and other public representations. The Amended Derivative
Complaint further alleges that certain of the individual defendants breached
their fiduciary obligations to the Company by selling shares of Oxford common
stock while the price of the common stock was allegedly artificially inflated by
their alleged misstatements and omissions. The Amended Derivative Complaint
seeks declaratory relief, unspecified damages, attorneys' and experts' fees and
costs and such other relief as the court deems proper. No demand has been made
upon the Company's Board of Directors that Oxford pursue the causes of action
alleged in the Amended Derivative Complaint. The Amended Derivative Complaint
alleges that the federal derivative plaintiffs' duty to make such a demand was
excused by the individual defendants' alleged conflict of interest with respect
to the matters alleged therein.

On March 15, 1999, Oxford, the individual defendants and, separately, KPMG
LLP, moved to dismiss the Amended Derivative Complaint, and oral argument on
defendants' motion was heard on June 24, 1999. Pursuant to stipulations entered
into and filed by the parties and so ordered by Judge Brieant, proceedings in
the federal derivative actions are stayed during the pendency of the motions to
dismiss those actions, unless any of the parties provides written notice of
their desire to terminate this stay, in which case defendants will have 60 days
from such notice to move to stay the federal derivative actions pending
resolution of the securities class actions (see above), and except that the
federal derivative plaintiffs (and the Connecticut derivative plaintiffs) will
be permitted to attend depositions that occur in the consolidated securities
class action, and to review documents that are produced in that action.

Although the outcome of the federal and Connecticut derivative actions
cannot be predicted at this time, the Company believes that the defendants have
substantial defenses to the claims asserted in the complaints.

STATE INSURANCE DEPARTMENTS

On August 10, 1998, the New York State Insurance Department ("NYSID")
completed its triennial examination and market conduct examination of Oxford's
New York HMO and insurance subsidiaries. In the Reports on Examination (the
"Reports") the NYSID, based on information available through July 1998,
determined that certain assets on the December 31, 1997 balance sheets of the
Company's New York subsidiaries should not be admitted for statutory reporting
purposes and NYSID actuaries recorded additional reserves totaling approximately
$81.3 million for both subsidiaries on the balance sheet as determined by the
examiners. The Company contributed $152 million to the capital of its New York
HMO and insurance subsidiaries in satisfaction of the issues raised in the
Reports relating to the subsidiaries' financial statements, and maintaining such
subsidiaries' compliance with statutory capital requirements as of June 30,
1998. The Reports also made certain recommendations relating to financial
record-keeping, settlement of intercompany accounts and compliance with certain
NYSID regulations. The Company has agreed to address the recommendations in the
Reports. As previously reported, in December 1997, the Company made additions of
$164 million to the reserves of its New York subsidiaries at the direction of
the NYSID. The NYSID issued a Market Conduct Report identifying several alleged
violations of state law and NYSID regulations. On December 22, 1997, the NYSID
and Oxford entered into a stipulation under which Oxford promised to take
certain corrective measures and to pay restitution and a $3 million fine. The
stipulation provides that the NYSID will not impose any other fines for Oxford's
conduct up to November 1, 1997. The NYSID has directed the Company's New York
subsidiaries to obtain notes or other written evidence of agreements to repay
from each provider who has received an advance. The

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NYSID has continued to review market conduct issues, including, among others,
those relating to claims processing and continues to express concern with the
Company's claims turnaround and performance. The Company has agreed to take
certain other corrective actions with respect to certain of these market conduct
issues, but additional corrective action may be required and such actions could
adversely affect the Company's results of operations.

On January 5, 1999, March 29, 1999 and July 14, 1999, the Company agreed to
pay fines of $40,900, $51,900 and $30,200, respectively, to the NYSID in
connection with certain alleged violations of New York's prompt payment law. The
NYSID has also requested additional information concerning delayed claim
payments and has informed Oxford that it will continue to review complaints on
an ongoing basis to establish violations of the prompt pay statute, and that
such violations would result in additional fines. Fines for similar alleged
violations have also been imposed on other health plans in New York.

The NYSID has also raised certain issues relating to the Company's
methodology for determining premium rates for the Company's large group
business. On May 26, 1999, the NYSID issued rule interpretations in Circular
Letter 13, effective February 1, 2000, which requires the Company and competing
health plans to fully community-rate all HMO-based point-of-service ("POS")
products. This policy will impact the current methodology for determining
premium rates for the Company's large group business. In order to maintain a
substantially similar pricing methodology, the Company plans to offer its large
group Freedom Plan product through its health insurance subsidiary. The offering
is subject to NYSID approval of forms and rates and there can be no assurance
approval will be timely received. The approval process may also give rise to
regulatory issues, which could affect the terms of the products to be offered or
the terms of arrangements between the Company and healthcare providers.

At this time, the Company cannot predict the outcome of continuing market
conduct reviews by the NYSID, enforcement of the New York prompt payment law or
recent changes in premium pricing practices.

By letter dated June 15, 1999, the New Jersey Department of Health and
Senior Services (NJDHSS) notified Oxford that its review of complaints from
Oxford providers indicated that Oxford may be in violation of New Jersey's
Prompt Pay Statute and associated regulations, and that these alleged violations
could result in the imposition of a fine. Since that date Oxford has submitted
information to the NJDHSS regarding the alleged violations and will continue to
work with the Department to resolve these issues. At this time, Oxford cannot
predict the outcome of this matter.

The NJDBI is nearing completion of its market conduct and financial
examinations of the Company's New Jersey HMO subsidiary. The market conduct
examination relates to the subsidiary's activities in 1997 and the first half of
1998 and is expected to assert deficiencies relating to, among others, claims
processing and handling of complaints. The NJDBI is likely to seek imposition of
a fine in connection with completion of the examination. In connection with the
financial examination, the NJDBI is requiring the Company to provide certain
collateral for repayment of advances made in 1997 to providers in respect of
delayed claims by setting aside in trust at the parent company funds equal to
the admitted portions of the advances on the New Jersey subsidiary's statutory
financial statements.

An agreement with the Heritage New Jersey Medical Group ("Heritage") covers
all of the Company's approximately 13,500 Medicare members in New Jersey as of
March 31, 1999. The NJDBI has recently advised the Company that the risk-sharing
aspects of the agreement with Heritage should be suspended pending NJDBI's
review of the need for additional regulation of risk-sharing arrangements. In
view of uncertainties in the regulatory environment and other considerations,
the Company, in July 1999, decided to wind down the network management agreement
with Heritage.

The Company is also subject to ongoing examinations with respect to
financial condition and market conduct for its HMO and insurance subsidiaries in
other states where it conducts business. The outcome of these examinations
cannot be predicted at this time.

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NEW YORK STATE ATTORNEY GENERAL

As previously reported, on November 6, 1997, the New York State Attorney
General served a subpoena duces tecum on the Company requiring the production of
various documents, records and materials "in regard to matters relating to the
practices of the Company and others in the offering, issuance, sale, promotion,
negotiation, advertisement, distribution or purchase of securities in or from
the State of New York." Since then, Oxford has produced a substantial number of
documents in response to the subpoena, and expects to produce additional
documents. In addition, some of Oxford's present and former directors and
officers have provided testimony to the Attorney General's staff.

In addition, as previously reported, the Company entered into an Assurance
of Discontinuance, effective July 25, 1997, with the Attorney General under
which the Company agreed to pay interest at 9% per annum on provider clean
claims not paid by Oxford within 30 days on its New York commercial and Medicaid
lines of business until January 22, 1998. Since that time, the Company's
obligations to make prompt payments have been governed by applicable New York
law. In addition, contemporaneously, the Company agreed to pay varying interest
rates to providers in Connecticut, New Jersey, New Hampshire and Pennsylvania.

The Company has subsequently responded to a number of inquiries by the
Attorney General with respect to Oxford's compliance with the Assurance of
Discontinuance. On February 2, 1998, the Attorney General served a subpoena
duces tecum on Oxford seeking production of certain documents relating to
complaints from providers and subscribers regarding nonpayment or untimely
payment of claims, interest paid under the Assurance, accounts payable, provider
claims processing, and suspended accounts payable. Oxford has produced documents
in response to the subpoena.

On April 12, 1999, the Attorney General served a subpoena duces tecum on
Oxford seeking production of certain documents relating to Oxford's handling of
inquiries, claims and complaints regarding emergency medical services. The
subpoena was accompanied by a letter stating that, based on an examination of
materials relating to Oxford's individual New York plans, Oxford appeared to be
in violation of certain provisions of the Managed Care Reform Act of 1996 that
relate to the provision and disclosure of emergency medical services. By letter
dated April 20, 1999, Oxford submitted a response to the Attorney General's
letter outlining the steps it has taken to comply with the relevant provisions
of the Managed Care Reform Act.

The Attorney General recently served another subpoena duces tecum, dated
July 20, 1999, on Oxford. This subpoena was served on Oxford and other New York
health care plans as part of an investigation by the Attorney General. The
subpoena seeks production of certain documents relating to Oxford's utilization
review process. Utilization review is the review undertaken by a health care
plan to determine whether a requested health care service that has been, will be
or is being provided to an Oxford member is medically necessary. Oxford is in
the process of compiling its response to the subpoena.

The Attorney General's Health Care Bureau also periodically inquires of the
Company with respect to hospital and provider payment issues and member
complaints.

The Company intends to cooperate fully with the Attorney General's
inquiries, the outcome of which cannot be predicted at this time.

SECURITIES AND EXCHANGE COMMISSION

As previously reported, the Company received an informal request on
December 9, 1997 from the Securities and Exchange Commission's Northeast
Regional Office seeking production of certain documents and information
concerning a number of subjects, including disclosures made in the Company's
October 27, 1997 press release announcing a loss in the third quarter. Oxford
has produced documents and has provided information in response to this informal
request.

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The Commission has served the Company and certain of its current and former
officers and directors with several subpoenae duces tecum requesting documents
concerning a number of subjects, including, but not limited to, the Company's
public disclosure of internal and external audits, uncollectible premium
receivables, timing of and reserves with respect to payments to vendors, doctors
and hospitals, payments and advances to medical providers, adjustments related
to terminations of group and individual members and for nonpaying group and
individual members, computer system problems, agreements with the New York State
Attorney General, employment records of former employees, and the sale of Oxford
securities by officers and directors. Oxford and certain of its current and
former officers and directors have produced and are continuing to produce
documents in response to these subpoenae. Some of Oxford's present and former
directors, officers and employees have provided testimony to the Commission, and
others are expected to do so.

Oxford intends to cooperate fully with the Commission and cannot predict
the outcome of the Commission's investigation at this time.

HEALTH CARE FINANCING ADMINISTRATION

From February 9, 1998 through February 13, 1998, HCFA conducted an enhanced
site visit at Oxford to assess Oxford's compliance with federal regulatory
requirements for HMO eligibility and Oxford's compliance with its obligations
under its contract with HCFA. During the visit, HCFA monitored, among other
things, Oxford's administrative and managerial arrangements, Oxford's quality
assurance program, Oxford's health services delivery program, and all aspects of
Oxford's implementation of its Medicare programs. On May 20, 1998, the Company
received a final report from HCFA and on June 10, 1998, the Company voluntarily
suspended marketing and most enrollment of new members under its Medicare
programs in New York, New Jersey, Connecticut and Pennsylvania. This action was
taken by the Company in order to provide the Company with an opportunity to
strengthen its operations and institute certain corrective actions required by
HCFA as a result of its visit. This action, however, did not apply to potential
enrollees of the Company's Medicare group accounts. On January 6, 1999, HCFA
notified the Company that it was satisfied that the necessary corrective actions
had been taken, permitting reinstitution of marketing and enrollment of
individual enrollees into the Company's Medicare programs. HCFA will continue to
monitor the Company's operations to ensure that the Company complies with its
corrective action plans and improves its operating performance in key areas,
including claims payment. In February 1999, the Company reinstituted marketing
to and enrollment of Medicare beneficiaries. However, there can be no assurance
that administrative or systems issues or the Company's current or future
provider arrangements will not result in adverse action by HCFA.

ARBITRATION PROCEEDINGS

As previously reported by the Company, on February 3, 1998, the New York
County Medical Society ("NYCMS") initiated an arbitration proceeding before the
American Arbitration Association ("AAA") in New York against Oxford alleging
breach of the written agreements between Oxford and some NYCMS physician members
and failure to adopt standards and practices consistent with the intent of those
agreements. The notice of intention to arbitrate was subsequently amended to
join thirteen additional New York medical associations as co-claimants. NYCMS
and the other claimants seek declaratory and injunctive relief requiring various
changes to Oxford's internal practices and policies, including practices in the
processing and payment of claims submitted by physicians. Oxford petitioned the
New York State Supreme Court for a permanent stay of this proceeding; this
petition was granted on August 12, 1999.

Also, some individual physicians claiming that payments under their
contracts with Oxford were delayed have announced their intention to commence
arbitration proceedings against Oxford. Oxford has been served with notices of
intent to arbitrate on behalf of more than twenty individual physicians. More
than twenty arbitration proceedings have been filed by individual physicians,
one of which has been withdrawn. On or about September 9, 1998, the NYCMS
announced that it was breaking off settlement negotiations with Oxford, and that
individual physicians would resume active arbitration against Oxford.

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In November 1998, various individual physicians purported to amend their
demands for arbitration by adding a claim for punitive damages. These claims all
allege that Oxford's failure to develop the computer systems and personnel
necessary for the prompt and efficient processing of claims was reckless and
intentional, and that Oxford's failure to pay claims was arbitrary, capricious
and without good faith basis.

In addition, on March 30, 1998, Oxford received a demand for arbitration
from two physicians purporting to commence a class action arbitration before the
AAA in Connecticut against Oxford alleging breach of contract and violation of
the Connecticut Unfair Insurance Practices Act.

On May 14, 1999, Oxford filed a motion to dismiss the punitive damages claim
in one of the individual arbitration cases, Ritch v. Oxford, on the grounds
that, inter alia, that plaintiff had failed to allege any tort claim and that a
complaint for breach of contract will not support punitive damages. After
briefing and oral argument on this issue in the Ritch case, plaintiff was
permitted to amend his complaint on June 17, 1999 to add a cause of action for
fraud. Oxford subsequently renewed its motion to dismiss the punitive damages
claim, which motion was recently granted. The Company will seek to have the
decision with respect to the punitive damages motion followed in the other
individual arbitration cases.

The outcome and settlement prospects of the various arbitration proceedings
cannot be predicted at this time although the Company believes that it has
substantial defenses to the claims asserted and intends to defend the
arbitrations vigorously.

JEFFREY S. OPPENHEIM, M.D., ET AL. V. OXFORD HEALTH PLANS, INC., ET AL.,
INDEX NO. 97/109088

As previously reported by the Company, on May 19, 1997, Oxford was served
with a purported "Class Action Complaint" filed in the New York State Supreme
Court, New York County by two physicians and a medical association of five
physicians. Plaintiffs alleged that Oxford (i) failed to make timely payments to
plaintiffs for claims submitted for health care services and (ii) improperly
withheld from plaintiffs a portion of plaintiffs' agreed compensation.
Plaintiffs alleged causes of action for common law fraud and deceit, negligent
misrepresentation, breach of fiduciary duty, breach of implied covenants and
breach of contract. The complaint sought an award of an unspecified amount of
compensatory and exemplary damages, an accounting, and equitable relief.

On July 24, 1997, Oxford and plaintiffs reached a settlement in principle
of the class claims wherein Oxford agreed to pay, from September 1, 1997 to
January 1, 2000, interest at certain specified rates to physicians who did not
receive payments from Oxford within certain specified time periods after
submitting "clean claims" (a term that was to be applied in a manner consistent
with certain industry guidelines). Moreover, Oxford agreed to provide to
plaintiffs' counsel, on a confidential basis, certain financial information that
Oxford believed would demonstrate that Oxford acted within its contractual
rights in making decisions on payments withheld from plaintiffs and members of
the alleged class. The settlement in principle provided that, if plaintiffs'
counsel reasonably does not agree with Oxford's belief in this regard,
plaintiffs retain the right to proceed individually (but not as a class) against
Oxford by way of arbitration. Oxford has supplied financial information to
plaintiffs' counsel and has exchanged draft settlement papers with plaintiffs'
counsel.

OTHER

On May 18, 1998, a purported "Class Action Complaint" was brought against
Oxford and other un-named defendant plan administrators filed in the United
States District Court for the Eastern District of New York by four plaintiffs
who claim to be beneficiaries of defendants' health insurance plans seeking
declaratory and other relief from defendants for alleged wrongful denial of
insurance coverage for the drug Viagra. On September 8, 1998, Oxford moved to
dismiss the complaint based on plaintiffs' failure to exhaust their
administrative remedies; this motion was denied on August 23, 1999.

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On October 26, 1998, Complete Medical Care, P.C. ("CMC"), United Medical
Care, P.C. ("UMC"), Comprehensive Health Care Corp. ("CHC") and Oscar Fukilman,
M.D. commenced actions in the Supreme Court of the State of New York for New
York County against Oxford and certain of its officers. The complaints in United
Medical Care, P.C. v. Oxford Health Plans, Inc. et al., Index No. 605176/98, and
Complete Medical Care, P.C. v. Oxford Health Plans, Inc. et al., Index No.
605178/98, generally allege that Oxford and the individual defendants: (i)
breached, and have announced their intention to breach, certain agreements with
CMC and UMC for the delivery of health care services to certain of Oxford's
members; (ii) breached an implied covenant of good faith and fair dealing with
UMC and CMC; (iii) fraudulently induced CMC and UMC to enter into their
respective agreements with Oxford; (iv) tortiously interfered with CMC's and
UMC's current and prospective contractual relations with certain physicians; and
(v) defamed CMC and UMC. The complaints each seek at least $165 million in
damages, at least $500 million in punitive damages, unspecified interest, costs
and disbursements, and such other relief as the court deems proper. The
complaint in the Complete Medical Care action also alleges that Oxford has
unjustly enriched itself by withholding from CMC certain funds to which CMC
claims it is entitled, and seeks the imposition of a constructive trust with
respect to those funds. The complaint in Oscar Fukilman, M.D. et al v. Oxford
Health Plans, Inc. et al., Index No. 604177/98, alleges that Oxford and certain
officers defamed, and conspired to defame, Dr. Fukilman and CHC, and seeks at
least $25 million in damages and unspecified costs and disbursements and such
other relief as the court deems proper.

On January 8, 1999, defendants: (1) served an answer and counterclaims in
the Complete Medical Care case; (2) filed a motion to compel arbitration and
dismiss the United Medical Care complaint; and (3) moved to dismiss the Fukilman
v. Oxford complaint.

Although the outcome of these actions cannot be predicted at this time, the
Company believes that it and the individual defendants have substantial defenses
to the claims asserted and intends to defend the actions vigorously.

Oxford, like HMOs and health insurers generally, excludes certain health
care services from coverage under its POS, HMO, PPO and other plans. In the
ordinary course of business, the Company is subject to legal claims asserted by
its members for damages arising from decisions to restrict reimbursement for
certain treatments. The loss of even one such claim, if it were to result in a
significant punitive damage award, could have a material adverse effect on the
Company's financial condition or results of operations. In addition, the risk of
potential liability under punitive damages theories may significantly increase
the difficulty of obtaining reasonable settlements of coverage claims. The
financial and operational impact that such evolving theories of recovery may
have on the managed care industry generally, or Oxford in particular, is
presently unknown.

In the ordinary course of its business, the Company also is subject to
claims and legal actions by members in connection with benefit coverage
determinations and alleged acts by network providers and by health care
providers and others.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

See information contained in note 3 of "Notes to Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".

ITEM 5. OTHER INFORMATION

STATUS OF INFORMATION SYSTEMS

In September 1996, the Company converted a significant part of its business
operations to a new computer operating system developed at Oxford. From
September 1996, most business functions at the Company were operated on the new
system, with the exception of the processing of claims, which

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continued to operate on the previous system. Since the conversion, the Company
must operate both systems and reconcile the two systems on an ongoing basis by a
process known as "backbridging".

Unanticipated software and hardware problems arising in connection with the
conversion resulted in significant delays in the Company's claims payments and
group and individual billing and adversely affected claims payment and billing
accuracy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The Company implemented a number of systems and
operational improvements during 1996, 1997 and 1998 in an effort to improve
claims turnaround times and claims backlogs and claims and billing errors.
However, the backbridging process continues to create issues relating to
transfer of data, which continues to cause delays for certain claims, and there
have been delays in delivering all needed functionality under the new system.
Moreover, the Company's claims turnaround times and accuracy still need
improvement to reach acceptable levels. The Company is continuing to seek
improvements in the processes referred to above and to add needed functionality.

The Company has undertaken a review of its information systems needs and
capabilities. As a result of this review, the Company has decided to continue
operations on its current claims processing systems and continue to work on
requisite modifications and enhancements.

Although the Company made certain modifications and enhancements to attempt
to improve systems controls and processing efficiencies during 1998 and the
first quarter of 1999, the Company continues to review its long-term information
system strategy. The Company's resources are currently focused on (i) Year 2000
readiness, (ii) making requisite modifications and enhancements to the existing
information systems and (iii) establishing improved performance and management
information.

There can be no assurance that the Company will be successful in mitigating
the existing system problems that have resulted in payment delays and claims
processing errors. Moreover, operating and other issues can lead to data
problems that affect performance of important functions, including claims
payment and group and individual billing. There can also be no assurance that
the process of improving existing systems will not be delayed or that additional
systems issues will not arise in the future.

For information as to the "Year 2000" readiness, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness."

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. Description of Document

3(a) Second Amended and Restated Certificate of Incorporation,
as amended, of the Registrant

4(a) Certificate of Designations of Series D Cumulative
Preferred Stock

4(b) Certificate of Designations of Series E Cumulative
Preferred Stock

10(a) Amendment, dated April 13, 1999, to Employment Agreement
between the Registrant and Norman C. Payson, M.D.

10(b) Amendment, dated May 5, 1999, to Employment Agreement
between the Registrant and Jeffery H. Boyd

10(c) Oxford Health Plans, Inc. Special Salary Continuation
Plan

(b) Reports on Form 8-K

In a report on Form 8-K dated and filed on January 8,
1999, the Company reported, under Item 5. "Other Events,"
its press release concerning preliminary January 1999
membership results and government program developments.

In a report on Form 8-K dated and filed on January 29,
1999, the Company reported, under Item 5. "Other Events,"
the filing deadline for stockholder proposals to be
considered for inclusion in the Company's proxy statement
and form of proxy for the annual meeting of stockholders
to be held on May 13, 1999.

In a report on Form 8-K dated and filed on February 25,
1999, the Company reported, under Item 5. "Other Events,"
its fourth quarter 1998 earnings press release.

In a report on Form 8-K/A dated February 25, 1999, and
filed on March 19, 1999, the Company reported, under Item
5. "Other Events," revisions to the financial statements
previously included in its fourth quarter 1998 earnings
press release.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

OXFORD HEALTH PLANS, INC.
-------------------------
(REGISTRANT)

August 26, 1999 /s/ Kurt B. Thompson
---------------- --------------------
Date KURT B. THOMPSON
PRINCIPAL ACCOUNTING OFFICER

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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS

Exhibit
Number Description of Document
- ------ -----------------------

3(a) Second Amended and Restated Certificate of Incorporation, as
amended, of the Registrant, incorporated by reference to
Exhibit 3(a) of the Registrant's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1998 (File No. 0-19442)

4(a) Certificate of Designations of Series D Cumulative Preferred
Stock, incorporated by reference to Exhibit 3(a) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1998 (File No. 0-19442)

4(b) Certificate of Designations of Series E Cumulative Preferred
Stock, incorporated by reference to Exhibit 3(a) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1998 (File No. 0-19442)

10(a) Amendment, dated April 13, 1999, to Employee Agreement between
Registrant and Norman C. Payson, M.D., previously filed with
and incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 30, 1999, filed on
May 10, 1999 (File No. 0-19442)

10(b) Amendment, dated May 5, 1999, to Employee Agreement between
Registrant and Jeffery H. Boyd., previously filed with and
incorporated by reference to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 30, 1999, filed on May
10, 1999 (File No. 0-19442)

10(c) Oxford Health Plans, Inc. Special Salary Continuation Plan,
previously filed with and incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1999, filed on May 10, 1999 (File No.
0-19442)

10(d) Share Exchange Agreement, dated as of February 13, 1999 by and
among TPG Partners II, L.P., TPG Investors II, L.P., TPG
Parallel II, L.P., Chase Equity Associates, L.P., Oxford
Acquisition Corp. and the DLJ Entities listed therein,
incorporated by reference to Exhibit 10(rr) of the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1998 (File No. 0-19442)

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