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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended              DECEMBER 31, 1997
                                  ---------------------------------------------

[ ]      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                  02-26762
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                          PEDIATRIX MEDICAL GROUP, INC.
            (Exchange name of registrant as specified in its charter)

                      FLORIDA                                    65-0271219
                      -------                                    ----------
           (State or other jurisdiction)                      (I.R.S. Employer
         of incorporation or organization)                   Identification No.)

         1455 NORTH PARK DRIVE, FT. LAUDERDALE, FLORIDA            33326
           (Address of principal executive offices)              (Zip Code)

       (Registrant's telephone number, including area code) (954) 384-0175

           Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each
          Title of each class                 exchange on which registered
          -------------------                 ----------------------------
             COMMON STOCK                       NEW YORK STOCK EXCHANGE
      $.01 PAR VALUE PER SHARE

        Securities registered pursuant to Section 12(g) of the Act: NONE

         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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

         The aggregate market value of shares of Common Stock held by
non-affiliates of the registrant as of March 17, 1998, was approximately
$373,624,525 based on a $41.38 closing sales price for the Common Stock on the
New York Stock Exchange on such date. For purposes of this computation, all
executive officers, directors and 5% beneficial owners of the common stock of
the registrant have been deemed to be affiliates. Such determination should not
be deemed to be an admission that such directors, officers or 5% beneficial
owners are, in fact, affiliates of the registrant.

         The number of shares of Common Stock, $.01 par value, of the registrant
outstanding as of March 17, 1998 were 15,175,087.

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Portions of the following documents have been incorporated by reference
into the parts indicated: The registrant's definitive Proxy Statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year covered by this report - Part III.

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                                 INDEX TO ITEMS


                                                                                                           
PART I............................................................................................................3
         Item 1.     Business.....................................................................................3
         Item 2.     Properties..................................................................................15
         Item 3.     Legal Proceedings...........................................................................15
         Item 4.     Submission of Matters to a Vote of Security Holders.........................................15

PART II..........................................................................................................15
         Item 5.     Market for the Registrant's Common Equity and Related Stockholder Matters...................15
         Item 6.     Selected Financial Data.....................................................................17
         Item 7.     Management's Discussion and Analysis of Financial Condition and Results of
                     Operations..................................................................................18
         Item 8.     Financial Statements and Supplementary Data.................................................23
         Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial
                     Disclosure..................................................................................43

PART III.........................................................................................................43
         Item 10.    Directors and Executive Officers of the Registrant..........................................43
         Item 11.    Executive Compensation......................................................................43
         Item 12.    Security Ownership of Certain Beneficial Owners and Management..............................43
         Item 13.    Certain Relationships and Related Transactions..............................................43

PART IV..........................................................................................................44
         Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................44

Schedules........................................................................................................45

Exhibits ........................................................................................................46

Signatures.......................................................................................................49








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                                     PART I

ITEM 1.  BUSINESS

         Pediatrix Medical Group, Inc. ("PMG") includes its subsidiaries and the
professional associations and partnerships (the "PA Contractors") which are
separate legal entities that contract with PMG to provide physician services in
certain states and Puerto Rico. PMG, its subsidiaries and the PA Contractors are
collectively referred to herein as the "Company" or "Pediatrix."

GENERAL

         Pediatrix is the nation's leading provider of physician management
services to hospital-based neonatal intensive care units ("NICUs"). NICUs
provide medical care to newborn infants with low birth weight and other medical
complications, and are staffed with specialized pediatric physicians, known as
neonatologists. The Company also provides physician management services to (i)
hospital-based pediatric intensive care units ("PICUs"), units which provide
medical care to critically ill children and are staffed with specially-trained
pediatricians, and (ii) pediatrics departments in hospitals. In addition to the
above hospital based services, the Company began providing inpatient and
outpatient perinatal services during 1997. Perinatology is a subspecialty of
obstetrical medicine that focuses on the diagnostics, management and care of
high-risk and/or complicated pregnancies. As of December 31, 1997, the Company
provided services to over 100 hospital based units and one perinatology practice
in 20 states and Puerto Rico and employed or contracted with approximately 260
physicians.

         The Company staffs and manages NICUs and PICUs in hospitals, providing
the physicians, professional management and administrative support, including
physician billing and reimbursement expertise and services. The Company's policy
is to provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.

         Pediatrix established its leading position in physician management
services to NICUs by developing a comprehensive care model and management and
systems infrastructure that address the needs of patients, hospitals, payor
groups and physicians. Pediatrix addresses the needs of (i) patients by
providing continuous, comprehensive, professional quality care, (ii) hospitals
by recruiting, credentialing, and retaining neonatologists and hiring related
staff to operate NICUs in a cost-effective manner thereby relieving hospitals of
the financial and administrative burdens of operating the NICUs, (iii) payor
groups by providing cost-effective care to patients and (iv) physicians by
providing administrative support, including physician billing and reimbursement
expertise and services, to enable them to focus on providing care to patients,
and by offering an opportunity for career advancement within Pediatrix.

RECENT DEVELOPMENTS

         During 1997, the Company completed ten acquisitions, which added 28
NICUs. Additionally, three NICUs were added through the Company's internal
marketing activities. The Company has developed regional networks in Denver,
Phoenix, Southern California and Texas and intends to develop additional
regional and state-wide networks. The Company believes these networks, augmented
by ongoing marketing and acquisition efforts, will strengthen its position with
managed care organizations and other third party payors.

         During the period of January 1 through March 25, 1998, the Company
completed the acquisition of five neonatal and three perinatal practices. In
addition, one NICU was added through internal marketing efforts.

INDUSTRY OVERVIEW

         The evolving managed care environment has created substantial cost
containment pressures for all constituents of the healthcare industry. The
increasing use of fixed-payment systems that shift financial risk from payors to
providers has forced hospitals, in particular, to be more cost-effective in all
aspects of their operations. A


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trend among hospitals is to utilize third party contract management companies to
manage specialized functions in an effort to contain costs, improve utilization
management, and reduce administrative burdens. Physician management
organizations provide hospitals with professional management of staff, including
recruiting, staffing and scheduling of physicians.

         Physicians are responding to cost containment pressures by joining
group practices through which they have greater leverage to negotiate and
contract with hospitals and managed care payors. Physician management
organizations provide a physician group practice an alternative to self
management that enables physicians to maintain their clinical autonomy while
creating greater negotiating power with payors and hospitals, and providing
administrative support to deal with the increasing complexity of billing and
reimbursement. Physician group practices are becoming larger and more prevalent.
The Company believes that as cost pressures continue to influence the medical
industry, the trend of physicians joining group practices will continue.
Although the Company continues to market its services to hospitals to obtain new
contracts, the Company has shifted its strategy to growth through acquisitions
as physicians become more receptive to being acquired.

         The Company believes that hospitals will continue to outsource certain
units, such as NICUs, on a contract management basis. NICUs present significant
operational challenges for hospitals, including complex billing procedures,
highly variable admissions rates, and difficulties in recruiting and retaining
qualified physicians. These operational challenges generally make it difficult
for hospitals to operate these units profitably. Traditionally, hospitals have
staffed their NICUs internally, through affiliations with small, local physician
groups or with independent practitioners. These small practices typically lack
the necessary expertise and support services in billing and reimbursement,
recruiting and effective medical management to operate NICUs on a cost-effective
basis. Hospitals are increasingly seeking to contract with physician management
services organizations that have the capital resources, information and
reimbursement systems and practice management expertise that NICUs require to
accept and manage risk in the evolving managed care environment.

         Of the approximately four million babies born in the United States
annually, approximately 10% to 15% require neonatal treatment. Demand for
neonatal services is primarily due to premature births, and to infants having
difficulty making the transition to extrauterine life. A majority of high-risk
mothers whose births require neonatal treatment are not identified until the
time of delivery, thus heightening the need for continuous coverage by
neonatologists. Across the United States, NICUs are concentrated primarily among
hospitals located in metropolitan areas with a higher volume of births. NICUs
are important to hospitals since obstetrics generates one of the highest volumes
of admissions and obstetricians generally prefer to perform deliveries at
hospitals with NICUs. Hospitals must maintain cost-effective care and service in
these units to enhance the hospital's desirability to the community, physicians
and managed care payors.

STRATEGY

         The Company's objective is to enhance its position as the nation's
leading provider of physician management services to NICUs by adding new units
and increasing same unit growth. The key elements of the Company's strategy are
as follows:

              FOCUS ON NEONATOLOGY, PERINATOLOGY AND PEDIATRICS. Since its
     founding in 1979, the Company has focused primarily on neonatology and
     pediatrics. As a result of this focus, the Company believes it has (i)
     developed significant expertise in the complexities of billing and
     reimbursement for neonatology physician services and (ii) a competitive
     advantage in recruiting and retaining neonatologists seeking to join a
     group practice. The Company believes its continued focus will allow it to
     enhance its position as the nation's leading provider of physician
     management services to NICUs. In 1997, the Company began providing
     perinatal services in cooperation with one of its hospital customers. The
     Company is continuing to pursue the integration of perinatology and, in the
     future, will investigate obstetrics and other areas of pediatrics beyond
     neonatology.

              ACQUIRE NEONATAL AND PERINATAL PHYSICIAN GROUP PRACTICES. The
     Company intends to further increase the number of locations at which it
     provides physician management services by acquiring well-established
     neonatal and perinatal physician group practices. The Company believes that
     it will continue to benefit from


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     physicians joining larger practice groups in an effort to increase
     negotiating power with managed care organizations and eliminate
     administrative burdens, while maintaining clinical autonomy. The Company
     completed its first acquisition of a neonatology physician group practice
     in California in July 1995 and since has completed acquisitions of an
     additional 28 physician group practices. The Company is actively pursuing
     acquisitions of other neonatal and perinatal physician group practices. No
     assurance can be given that future acquisition candidates will be
     identified or that any future acquisitions will be consummated. See "Recent
     Developments" and "Factors to be Considered - Risks Relating to Acquisition
     Strategy."

              DEVELOP REGIONAL NETWORKS. The Company intends to develop regional
     and state-wide networks of NICUs in geographic areas with high
     concentrations of births. The Company operates regional networks in
     Colorado, Arizona, Southern California and Texas. The Company believes that
     the development of regional and state-wide networks will strengthen its
     position with third party payors, such as Medicaid and managed care
     organizations, since such networks will offer more choice to the patients
     of third party payors.

              INCREASE SAME UNIT GROWTH. The Company seeks to provide its
     services to hospitals where the Company can benefit from increased
     admissions and intends to increase revenues at existing units by providing
     support to areas of the hospital outside the NICU, particularly in the
     obstetrics, nursery and pediatrics departments, where immediate
     accessibility to specialized care is critical. These services generate
     incremental revenue to the Company, contribute to the Company's overall
     profitability, enhance the hospital's profitability, strengthen the
     Company's relationship with the hospital, and assist the hospital in
     attracting more admissions by enhancing the hospital's reputation in the
     community as a full-service critical care provider.

              ASSIST HOSPITALS TO CONTROL COSTS. The Company intends to continue
     assisting hospitals to control costs. The Company's comprehensive care
     model, which promotes early intervention by neonatologists in emergency
     situations, as well as the retention of qualified neonatologists, improves
     the overall cost effectiveness of care. The Company believes that its
     ability to assist hospitals to control costs will allow it to continue to
     be successful in adding new units at which the Company provides physician
     management services.

              ADDRESS CHALLENGES OF MANAGED CARE ENVIRONMENT. The Company
     intends to continue to develop new methods of doing business with managed
     care and third party payors, which will allow it to develop relationships
     among payors, hospitals and the Company. The Company is also prepared to
     enter into flexible arrangements with third party payors, including
     capitation arrangements. As the nation's leading provider of physician
     management services to NICUs, the Company believes that it is
     well-positioned to address the needs of managed care organizations and
     other third party payors which seek to contract with cost-effective,
     quality providers of medical services.

PHYSICIAN MANAGEMENT SERVICES

         The Company provides physician management services to NICUs, providing
(i) a medical director to manage the unit, (ii) recruiting, staffing and
scheduling of physicians and certain other medical staff, (iii) neonatology and
pediatric support to other hospital departments, (iv) pediatric subspecialty
services and (v) billing and reimbursement expertise and services. These
physician management services include:

             UNIT MANAGEMENT. The Company staffs each unit it manages with a
     medical director who reports to a Regional Medical Officer ("RMO") of the
     Company. The RMOs and all medical directors at these units are board
     certified or board eligible in neonatology, pediatrics, pediatric critical
     care or pediatric cardiology. In addition to providing medical care and
     physician management in the unit, the medical director is responsible for
     (i) the overall management of the unit, including quality of care,
     professional discipline, utilization review, physician recruitment,
     staffing and scheduling, (ii) serving as a liaison to the hospital
     administration, (iii) maintaining professional and public relations in the
     hospital and the community and (iv) monitoring the Company's financial
     performance within the unit.

             RECRUITING, STAFFING AND SCHEDULING. The Company is responsible for
     recruiting, staffing and scheduling the neonatologists, pediatricians and
     advanced registered nurse practitioners ("ARNPs") within the NICU. The
     Company's recruiting department maintains an extensive database of
     neonatologists and


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     pediatricians nationwide from which to draw for recruiting purposes. All
     candidates are pre-screened and their credentials, licensure and references
     are checked and verified by the Company. The RMOs and the medical directors
     play a key role in the recruiting and interviewing process before
     candidates are introduced to hospital administrators. The units managed by
     the Company are staffed with at least one neonatologist or pediatrician on
     site or available on call. All of these physicians are board certified or
     board eligible in neonatology, pediatrics, pediatric critical care or
     pediatric cardiology. The Company also employs or contracts with ARNPs, who
     assist medical directors and other physicians in operating the units. All
     ARNPs have either a certificate as a neonatal nurse practitioner or
     pediatric nurse practitioner or a masters degree in nursing, and have
     previous neonatal or pediatric experience. With respect to the physicians
     that are employed by or under contract with the Company, the Company
     assumes responsibility for salaries, benefits, bonuses, group health
     insurance and physician malpractice insurance. See "Business -- Contractual
     Relationships."

             SUPPORT TO OTHER HOSPITAL DEPARTMENTS. As part of the Company's
     comprehensive care model, physicians provide pediatric support services to
     other areas of hospitals, particularly in the obstetrics, nursery and
     pediatrics departments, where immediate accessibility to specialized care
     is critical. The Company believes this support (i) improves its relations
     with hospital staff and referring physicians, (ii) enhances the hospital's
     reputation in the community as a full-service critical care provider, (iii)
     increases admissions from referring obstetricians and pediatricians, (iv)
     integrates the physicians into a hospital's medical community, (v)
     generates incremental revenue which contributes to the Company's overall
     profitability and (vi) increases the likelihood of renewing and adding new
     hospital contracts.

             PEDIATRIC SUBSPECIALTIES. The Company has developed a pediatric
     cardiology program consisting of several pediatric cardiologists to
     complement and enhance its comprehensive care model. These physicians
     provide out-patient services in offices outside contracting hospitals and
     assist attending physicians at certain hospitals. The Company is exploring
     the possibility of expanding the existing program in pediatric cardiology
     in line with the Company's other strategic objectives in neonatology and
     pediatric intensive care. Expansion of the program will depend in part on
     the demand for such critical care services at hospitals and by payor
     groups.

             PERINATOLOGY. The Company has developed, in conjunction with a
     hospital customer, a perinatal practice to manage the care of high-risk
     and/or complicated pregnancies. The services provided include highly
     technical invasive and non-invasive diagnostic procedures, sophisticated
     medical consultations and hands-on patient management or co-management,
     including deliveries. Since a significant portion of the pregnancies
     managed by perinatologists result in admissions in the NICU, it is expected
     that the addition of these services will result in better patient care. The
     Company is continuing to pursue the development of perinatal programs in
     other locations where it currently provides services to NICUs. See
     "Business - Recent Developments."

             BILLING AND REIMBURSEMENT. The Company assumes responsibility for
     all aspects of the billing, reimbursement and collection process relating
     to physician services. Patients and/or third party payors receive a bill
     from the Company for physician services, and the hospital bills and
     collects separately for all other services. To address the increasingly
     complex and time-consuming processing for obtaining reimbursement for
     medical services, the Company has invested in both the technical and human
     resources necessary to create an efficient billing and reimbursement
     process, including specific claim forms and software systems. The Company
     begins this process by providing training to physicians that emphasizes a
     detailed review of and proper coding protocol for all procedures performed
     and services provided to achieve appropriate collection of revenues for
     physician services. The Company's billing and collection operations are
     conducted from its corporate headquarters in Ft. Lauderdale, Florida, as
     well as regional business offices in Orange, California and Dallas, Texas.

MARKETING

         Historically, most of the Company's growth was generated internally
through marketing efforts and referrals. Beginning in the latter part of 1995,
the Company significantly increased its acquisition activities to capitalize on
the opportunities created by the trend toward consolidation in the healthcare
industry. The Company's marketing program to physician groups consists of (i)
market research to identify established physician groups, (ii) telemarketing to
identify and contact acquisition candidates, as well as hospitals with high
demand for NICU


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services, and (iii) other sales and business development personnel that conduct
on-site visits along with senior management. The Company also advertises its
services in hospital and healthcare trade journals, participates at hospital and
physician trade conferences, and markets its services directly to hospital
administrators and medical staff. In addition, the Company intends to focus on
developing additional regional networks and state-wide networks to strengthen
its position with managed care organizations and other third party payors.

MANAGEMENT INFORMATION SYSTEMS

         The Company maintains several systems to support day-to-day operations,
business development and ongoing clinical and business analysis, including (i) a
Company-wide electronic mail system to assist intracompany communications and
conferencing, (ii) an intranet site to facilitate clinical research and
interaction among physicians regarding clinical matters on a real-time basis,
(iii) electronic interchange with payors utilizing electronic benefits
verification and claims submission, (iv) a database used by the business
development and marketing departments in recruiting individual physicians and
identifying potential neonatal and perinatal physician group acquisition
candidates, which is updated through telemarketing activities, personal
contacts, professional journals and mail solicitation, (v) electronic imaging to
streamline accessibility to operational documents, and (vi) a clinical tracking
system used by the physicians to assist in the creation of their respective
paperwork and establish the basis for the consolidated clinical information
database used to support the Company's education, research and quality assurance
programs. Ongoing development will provide even greater streamlining of
information from the clinical systems through the reimbursement process,
allowing the overall process to be expedited further.

         The Company's management information system is an integral component of
the billing and reimbursement process. The Company's system enables it to track
numerous and diverse third party payor relationships and payment methods and
provides for electronic interchange in support of insurance benefits
verification and claims processing to payors accepting electronic submission.
The Company's system was designed to meet its requirements by providing maximum
flexibility as payor groups upgrade their payment and reimbursement systems.

CONTRACTUAL RELATIONSHIPS

         HOSPITAL RELATIONSHIPS. Many of the Company's contracts with hospitals
grant the Company the exclusive right and responsibility to manage the provision
of physician management services to the NICUs. The contracts typically have
terms of three to five years and renew automatically for additional terms of one
to five years unless otherwise terminated by either party. The contracts
typically provide that either party may terminate the agreement prior to the
expiration of the initial term in the event of material breach by the other
party and failure to cure after the notice and cure period has expired.

         The Company bills for the physicians' services on a fee-for-service
basis separately from other charges billed by the hospital. Certain contracting
hospitals that do not generate sufficient patient volume agree to pay the
Company administrative fees to assure a minimum revenue level. Administrative
fees include guaranteed payments to the Company, as well as fees paid to the
Company by certain hospitals for administrative services performed by the
Company's medical directors at such hospitals. Administrative fees accounted for
12%, 8% and 5% of the Company's net patient service revenue during 1995, 1996
and 1997, respectively. The hospital contracts typically require that the
Company and the physicians performing services maintain minimum levels of
professional and general liability insurance. The Company contracts for and pays
the premiums for such insurance on behalf of the physicians. See "Business --
Professional Liability and Insurance."

         PAYOR RELATIONSHIPS. While virtually all of the Company's contracts
with third party payors are discounted fee-for-service contracts, as of December
31, 1997, the Company had eight contracts that provide for capitated payments,
with payors located in California, Arizona, Texas and Florida. The Company is
prepared to enter into capitation arrangements with other third party payors. In
the event the Company enters into relationships with third party payors with
respect to regional and state-wide networks, such relationships may be on a
capitated basis. See "Factors to be Considered - Impact of Payor Discounts and
Capitation Arrangements."


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         PA CONTRACTOR RELATIONSHIPS. PMG has entered into management agreements
("PA Management Agreements") with PA Contractors in all states in which it
operates, other than Florida. There is at least one PA Contractor in each state
in which the Company operates. Each PA Contractor is owned by a physician
licensed in the jurisdiction in which the PA Contractor operates, who is also an
officer of the PA Contractor. Under the PA Management Agreements, the PA
Contractors delegate to PMG the administrative, management and support functions
(but not any functions constituting the practice of medicine) that the PA
Contractors have agreed to provide to the hospital. In consideration of such
services, each PA Contractor pays PMG a percentage of the PA Contractor's gross
revenue (but in no event greater than the net profits of such PA Contractor), or
a flat fee. PMG has the discretion to determine whether the fee shall be paid on
a monthly, quarterly or annual basis. The management fee may be adjusted from
time to time to reflect industry standards and the range of services provided by
the PA Contractor. The agreements provide that the term of the arrangements are
permanent, subject only to termination by PMG, and that the PA Contractor shall
not terminate the agreement without PMG's prior written consent. Also, the
agreements provide that PMG or its assigns has the right, but not the
obligation, to purchase the stock of the PA Contractor. See Note 2 to the
Consolidated Financial Statements and "Factors to be Considered - State Laws
Regarding Prohibition of Corporate Practice of Medicine."

         PHYSICIAN RELATIONSHIPS. The Company contracts with the PA Contractors
to provide the medical services required to fulfill its obligations to
hospitals. The physician employment agreements typically have terms of three to
five years and can be terminated by either party at any time upon 90 days prior
written notice. The physicians generally receive a base salary plus a
productivity bonus. The physician is required to hold a valid license to
practice medicine in the appropriate jurisdiction in which the physician
practices and to become a member of the medical staff, with appropriate
privileges at the hospital. The Company is responsible for billing patients and
third party payors for services rendered by the physician, and the Company has
the exclusive right to establish the schedule of fees to be charged for such
services. Substantially all of the physicians employed by PMG or the PA
Contractors have agreed not to compete with PMG or the PA Contractor within a
specified radius of any hospital for which the physician is rendering medical
services for a period of one to two years after termination of employment. The
Company contracts for and pays the premiums for professional liability insurance
on behalf of the physicians. See "Business -- Professional Liability and
Insurance."

         ACQUISITIONS. The Company structures acquisitions of physician practice
groups as asset purchases, stock purchases and stock mergers. Generally, these
structures provide for: (i) the assignment to the Company of the contracts
between the physician practice group and the hospital at which the physician
practice group provides medical services; (ii) physician "tail insurance"
coverage under which the Company is an insured party to cover malpractice
liabilities that may arise after the date of the acquisition which relate to
events prior to the acquisition; and (iii) indemnification to the Company by the
previous owners of the acquired entity. Generally, in acquisitions structured as
asset purchases, the Company does not acquire the physician practice group's
receivables or liabilities, including professional liability claims, arising
from the physician practice group's activities prior to the date of the
acquisition. Generally, in acquisitions structured as stock purchases or stock
mergers, the physician practice group's receivables (net of any liabilities
accruing prior to the acquisition and permitted indemnification claims) are
assigned to the former owners of the physician practice group.

GOVERNMENT REGULATION

         The Company's operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business. The Company is also subject to laws and regulations which relate to
business corporations in general. The Company believes that it exercises care in
an effort to structure its practices and arrangements with hospitals and
physicians to comply with relevant federal and state law and believes that such
arrangements and practices comply in all material respects with all applicable
statutes and regulations.

         Approximately 23% and 22% of the Company's net patient service revenue
in 1996 and 1997, respectively, was derived from payments made by
government-sponsored healthcare programs (principally Medicaid). These programs
are subject to substantial regulation by the federal and state governments. Any
change in reimbursement regulations, policies, practices, interpretations or
statutes that places material limitations on reimbursement amounts or practices
could adversely affect the operations of the Company. Medicaid and other
government reimbursement programs are increasingly shifting to managed care,
which could result in reduced


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payments to the Company for Medicaid patients. In addition, funds received under
these programs are subject to audit with respect to the proper billing for
physician services and, accordingly, retroactive adjustments of revenue from
these programs may occur. See "Factors to be Considered -- Reliance upon
Government Programs; Possible Reduction in Reimbursement."

         The Company is also subject to (i) certain provisions of the Social
Security Act, commonly referred to as the "Anti-kickback Statute," which
prohibits entities, such as the Company, from offering, paying, soliciting, or
receiving any form of remuneration in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease, or order of items or services
that are covered by Medicare or state health programs, (ii) prohibitions against
physician referrals, commonly known as "Stark II," which prohibit, subject to
certain exemptions, a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" (which include inpatient and outpatient hospital services) in
which the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement including the physician's
own group practice, (iii) state and federal civil and criminal statutes imposing
substantial penalties, including civil and criminal fines and imprisonment, on
healthcare providers which fraudulently or wrongfully bill governmental or other
third party payors for healthcare services and (iv) state laws similar to the
Anti-Kickback statute and Stark II which, in many cases, apply to privately paid
or insured services as well as services covered under governmentally sponsored
health care programs. Although the Company believes that it is not in violation
of these provisions, there can be no assurance that the Company's current or
future practices will not be found to be in violation of these provisions, and
any such finding could have a material adverse effect on the Company. See
"Factors to be Considered -- Risk of Applicability of Anti-Kickback and
Self-Referral Laws."

         In addition, business corporations such as PMG are generally not
permitted under state law to practice medicine, exercise control over the
medical judgments or decisions of physicians, or engage in certain practices
such as fee-splitting with physicians. In states where PMG is not permitted to
practice medicine, the Company performs only nonmedical administrative services,
does not represent to the public or its clients that it offers medical services
and does not exercise influence or control over the practice of medicine by the
PA Contractors or the physicians employed by the PA Contractors. Accordingly,
the Company believes it is not in violation of applicable state laws relating to
the practice of medicine. In most states, PMG contracts with the PA Contractors
(which are owned by a licensed physician employed by the respective PA
Contractor), which in turn employ or contract with physicians to provide
necessary physician services. There can be no assurance that regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee-splitting or the corporate practice of
medicine. If such a claim were successfully asserted in any jurisdiction, PMG
could be subject to civil and criminal penalties under such jurisdiction's laws
and could be required to restructure its contractual arrangements, which could
have a material adverse effect on the Company's financial condition and results
of operations. See "Factors to be Considered -- State Laws Regarding Prohibition
of Corporate Practice of Medicine."

         In addition to current regulation, the public and state and federal
governments have recently focused significant attention on reforming the
healthcare system in the United States. Although the Company cannot predict
whether these or other reductions in the Medicare or Medicaid programs will be
adopted, the adoption of such proposals could have a material adverse effect on
the Company's business. Concern about such proposals has been reflected in
volatility of the stock prices of companies in healthcare and related
industries. See "Factors to be Considered -- Healthcare Regulatory Environment
Could Increase Restrictions on the Company."

PROFESSIONAL LIABILITY AND INSURANCE

         The Company's business entails an inherent risk of claims of physician
professional liability. The Company maintains professional liability insurance
and general liability insurance on a claims-made basis in accordance with
standard industry practice. The Company believes that its coverage is
appropriate based upon claims experience and the nature and risks of its
business. There can be no assurance that a pending or future claim or claims
will not be successful or if successful will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. See "Factors to be Considered --
Professional Liability and Insurance" and "Legal Proceedings."

                                       9



   10

         The physicians that are employed by or under contract with the Company
are required to obtain professional liability insurance coverage, and the
Company contracts for and pays the premiums with respect to such insurance for
the physicians. The current professional liability insurance policy expires May
1, 1998 and the Company expects to be able to renew such policy upon expiration.

COMPETITION

         The healthcare industry is highly competitive and has been subject to
continual changes in the method in which healthcare services are provided and
the manner in which healthcare providers are selected and compensated. The
Company believes that private and public reforms in the healthcare industry
emphasizing cost containment and accountability will result in an increasing
shift of NICU and related pediatric care from highly fragmented, individual or
small practice neonatology providers to physician management companies.
Companies in other healthcare industry segments, such as managers of other
hospital-based specialties or large physician group practices, some of which
have financial and other resources greater than those of the Company, may become
competitors in providing management of neonatal and pediatric services to
hospitals. See "Factors to be Considered -- Competition."

SERVICE MARKS

         The Company has registered the service mark "Pediatrix Medical Group"
and its design with the United States Patent and Trademark Office, and has
applied for registration of a baby design logo. The United States Patent and
Trademark Office has issued a Notice of Allowance and registration should follow
in due course.

EMPLOYEES AND PROFESSIONALS UNDER CONTRACT

         In addition to the approximately 260 physicians employed or under
contract with the Company as of December 31, 1997, Pediatrix employed or
contracted with approximately 60 other clinical professionals and 310 other
full-time and part-time employees. The Company's employees are not subject to
any collective bargaining agreements.

FACTORS TO BE CONSIDERED

         The parts of this Annual Report on Form 10-K titled "Item 1. Business,"
"Item 3. Legal Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements which involve risks and uncertainties. In addition, officers of the
Company may from time to time make certain forward-looking statements which also
involve risks and uncertainties. Set forth below is a discussion of certain
factors that could cause the Company's actual results to differ materially from
the results projected in such forward-looking statements. In addition, to the
other information contained in this Annual Report on Form 10-K or incorporated
by reference herein, such factors should be considered when evaluating the
Company and its business.

         HEALTHCARE REGULATORY ENVIRONMENT COULD INCREASE RESTRICTIONS ON THE
COMPANY. The healthcare industry and physicians' medical practices are highly
regulated. Neonatal and other healthcare services that the Company offers and
proposes to offer are subject to extensive federal and state laws and
regulations governing state matters such as licensure and certification of
facilities and personnel, conduct of operations, audit and retroactive
reimbursement policies, adjustment of prior government billings and prohibitions
on payments for the referral of business and self referrals. Failure to comply
with these laws, or a determination that in the past the Company has failed to
comply with these laws, could have a material adverse effect on the Company's
financial condition and results of operations. There can be no assurance that
the healthcare regulatory environment will not change so as to restrict the
Company's existing operations or limit the expansion of its business. Changes in
government regulation could also impose new requirements, involving compliance
costs which cannot be recovered through price increases. Finally, under the
Health Insurance Portability and Accountability Act of 1996, Congress expanded
the powers of and increased funding to the Office of Inspector General of the
Department of Health and Human Services to investigate violations of healthcare
laws. See "Business -- Government Regulations."

                                       10


   11

         RELIANCE UPON GOVERNMENT PROGRAMS; POSSIBLE REDUCTION IN REIMBURSEMENT.
A significant portion of the Company's net patient service revenue is derived
from payments made by government-sponsored healthcare programs (principally
Medicaid). Increasing budgetary pressures may lead to reimbursement reductions
or limits, reductions in these programs or elimination of coverage for certain
individuals or treatments under these programs. Federal legislation could result
in a reduction of Medicaid funding or an increase in state discretionary funding
through block grants, or a combination thereof. State Medicaid waiver requests
if granted by the federal government could increase discretion, or reduce
coverage of or funding for certain individuals or treatments under the Medicaid
program, in the absence of new federal legislation. Increased state discretion
in Medicaid, coupled with the fact that Medicaid expenditures compromised a
substantial and growing share of state budgets, could lead to significant
reductions in reimbursement. In addition, these programs generally reimburse on
a fee schedule basis, rather than a charge-related basis. Therefore, the Company
generally cannot increase its revenues by increasing the amount it charges for
services provided. To the extent the Company's costs increase, the Company may
not be able to recover such cost increases from government reimbursement
programs. In various states, Medicaid managed care is encouraged and may become
mandated. In such systems, health maintenance organizations ("HMO's") bargain
for reimbursement with competing providers and contract with the state to
provide benefits to Medicaid enrollees. Such systems are intended and expected
to reduce Medicaid reimbursement of providers. Legislation enacted in states
could result in reduced payments to the Company for Medicaid patients.
Additionally, Proposition 187, which was adopted by referendum in California,
but has been enjoined by a California court, may limit the access by illegal
aliens to Medicaid funds in California. In the event similar legislation is
passed in other states with large illegal alien populations, such as Arizona and
Florida, the Company's ability to collect for medical services rendered to such
patients could be adversely affected. Changes in government-sponsored healthcare
programs which result in the Company being unable to recover cost increases
through price increases or otherwise could have a material adverse effect on the
Company's financial condition and results of operations. Because of cost
containment measures and market changes in non-governmental insurance plans, the
Company may not be able to shift cost increases to, or recover them from,
non-governmental payors. Also, state and federal statutes impose substantial
penalties, including civil and criminal fines and imprisonment, on healthcare
providers that fraudulently or wrongfully bill governmental or other third party
payors for healthcare services. The federal law prohibiting false billings
allows a private person to bring a civil action in the name of the United States
government for violations of its provisions. The Company believes it is in
material compliance with such laws, but there can be no assurances that the
Company's activities will not be challenged or scrutinized by governmental
authorities. Noncompliance with such regulations may adversely affect the
operations of the Company and subject it to penalties and additional costs. In
addition, funds received under government programs are subject to audit with
respect to the proper billing for physician services and, accordingly,
retroactive adjustments of revenue from these programs may occur. See
"Business--Government Regulation."

         STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE.
Business corporations, such as PMG, are generally not permitted under state law
to practice medicine, exercise control over the medical judgments or decisions
of physicians or engage in certain practices, such as fee-splitting with
physicians. In the states in which the Company operates, other than Florida,
there exist potential judicial or governmental interpretations which may extend
the scope of the corporate practice of medicine and/or medical practices acts
principles. For such reasons, or for business reasons, PMG contracts with the PA
Contractors (which are owned by a licensed physician in the state) in such
states, which in turn employ or contract with physicians to provide necessary
physician management services. There can be no assurance that the regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee-splitting or the corporate practice of
medicine. For example, an order by the Florida Board of Medicine, which has been
stayed pending its appeal to the Florida courts, concludes that percentage-based
management arrangements violate applicable fee-splitting statutes. If such order
was upheld and adopted in other jurisdictions, or similar claim was successfully
asserted in any jurisdiction, PMG could be subject to civil and criminal
penalties under such jurisdiction's laws and could be required to restructure
its contractual arrangements. Such results or the inability to successfully
restructure contractual arrangements could have a material adverse effect on the
Company's financial condition and results of operations. In states where PMG is
not permitted to practice medicine, PMG performs only non-medical administrative
services, does not represent to the public or its clients that it offers medical
services and does not exercise influence or control over the practice of
medicine by the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws in relation to
the corporate practice of medicine. See "Business-Contractual Relationships."


                                       11

   12
         RISK OF APPLICABILITY OF ANTI-KICKBACK AND SELF-REFERRAL LAWS. Federal
anti-kickback laws and regulations prohibit any knowing and willful offer,
payment, solicitation, or receipt of any form of remuneration, either directly
or indirectly, in return for, or to induce (i) referral of an individual for a
service for which payment may be made by Medicaid or another
government-sponsored healthcare program or (ii) purchasing, leasing, ordering or
arranging for, or recommending the purchase, lease or order of, any service or
item for which payment may be made by a government sponsored healthcare program.
Violations of anti-kickback rules are punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare and Medicaid
programs. Effective January 1, 1995, federal physician self-referral laws became
applicable to inpatient and outpatient hospital services. Subject to certain
exceptions, these laws, such as "Stark I" and "Stark II," prohibit Medicare or
Medicaid payments for services furnished by a physician who has a financial
relationship with the entity through ownership, investment, or compensation
agreement. Possible sanctions for violation of these laws include civil monetary
penalties, exclusion from Medicare and Medicaid programs and forfeiture of
amounts collected in violation of such prohibitions. Certain states in which the
Company does business have similar anti-kickback, anti-fee-splitting and
self-referral laws, imposing substantial penalties for violations. In many
cases, such state laws apply to privately insured or paid services as well as
services covered under governmentally sponsored plans. The Company's
relationships, including fee payments, among PA Contractors, hospital clients
and physicians have not been examined by federal or state authorities under
these laws and regulations. Although the Company believes it is in compliance
with these laws and regulations, there can be no assurance that federal or state
regulatory authorities will not challenge the Company's current or future
activities under these laws. See "Business-Strategy" and "Business-Government
Regulation."

         RISKS RELATING TO ACQUISITION STRATEGY. The Company has expanded and
intends to continue to expand its geographic and market penetration primarily
through acquisitions of physician group practices. In implementing this
acquisition strategy, the Company will compete with other potential acquirers,
some of which may have greater financial or operational resources than the
Company. Competition for acquisitions may intensify due to the ongoing
consolidation in the healthcare industry, which may increase the costs of
capitalizing on such opportunities. While the Company has recently completed
several acquisitions, there can be no assurance that future acquisition
candidates will be identified or that any future acquisition will be consummated
or, if consummated, that any acquisition, including the recent acquisitions,
will be integrated successfully into the Company's operations or that the
Company will be successful in achieving its objectives. The recent acquisitions
also involve numerous short and long term risks, including diversion of
management's attention, failure to retain key personnel and amortization of
acquired intangible assets. The Company may also incur one-time acquisition
expenses in connection with acquisitions. Consummation of acquisitions could
result in the incurrence or assumption by the Company of additional indebtedness
and the issuance of additional equity. The issuance of shares of common stock
for an acquisition may result in dilution to shareholders. Also, as the Company
enters into new geographic markets, the Company will be required to comply with
laws and regulations of states that differ from those in which the Company's
operations are currently conducted. There can be no assurance that the Company
will be able to effectively establish a presence in these new markets. While
many of the expenses arising from the Company's efforts in these areas may have
a negative effect on operating results until such time, if at all, as these
expenses are offset by increased revenues, there can be no assurance that the
Company will be able to implement its acquisition strategy, or that this
strategy will be successful. See "Business-Strategy," "Business-Marketing" and
"Business-Government Regulation."

         GROWTH STRATEGY; RAPID GROWTH. Since the Initial Public Offering
("IPO") the Company has experienced rapid growth in its business and number of
employees. Continued rapid growth may impair the Company's ability to
efficiently provide its physician management services and to adequately manage
its employees. While the Company is taking steps to manage rapid growth, future
results of operations could be materially adversely affected if it is unable to
do so effectively.

         QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; POTENTIAL VOLATILITY. The
Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and associated net income
due to unit specific volume and cost fluctuations. The Company has a high level
of fixed operating costs, including physician costs, and, as a result, is highly
dependent on the volume of births and capacity utilization of NICUs and PICUs to
sustain profitability. Results of operations for any quarter are not necessarily

                                       12

   13

indicative of results of operations for any future period or full year. As a
result, there can be no assurance that the results of operations will not
fluctuate significantly from period to period. There has been significant
volatility in the market price of securities of healthcare companies that often
has been unrelated to the operating performance of such companies. The Company
believes that certain factors, such as legislative and regulatory developments,
quarterly fluctuations in the actual or anticipated results of operations of the
Company, lower revenues or earnings in the financial results of the Company than
those anticipated by securities analysts, the overall economy and the financial
markets, could cause the price of Common Stock to fluctuate substantially.

         IMPACT OF PAYOR DISCOUNTS AND CAPITATION ARRANGEMENTS. The evolving
managed care environment has created substantial cost containment pressures for
the healthcare industry. The Company's business could be adversely affected by
reductions in reimbursement amounts or rates, changes in services covered and
similar measures which may be implemented by government sponsored healthcare
programs or by other third party payors. The Company contracts with payors and
managed care organizations traditionally have been fee-for-service arrangements.
At December 31, 1997, the Company had eight shared-risk capitated arrangements
with payors in California, Arizona, Texas and Florida. These arrangements and
many future arrangements may adversely affect the Company's financial condition
and results of operations if the Company is unable to limit the risks associated
with such arrangements. See "Business-Contractual Relationships,"
"Business-Government Regulation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

         PROFESSIONAL LIABILITY AND INSURANCE. The Company's business entails an
inherent risk of claims of physician professional liability. The Company
periodically becomes involved as a defendant in medical malpractice lawsuits,
some of which are currently ongoing, and is subject to the attendant risk of
substantial damage awards. See "Legal Proceedings." The Company's contracts with
hospitals generally require the Company to indemnify certain parties for losses
resulting from the negligence of physicians who are managed by or affiliated
with the Company. While the Company believes it has adequate professional
liability insurance coverage, there can be no assurance that a pending or future
claim or claims will not be successful or if successful, will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available at acceptable costs and on favorable terms. See "Business-Professional
Liability and Insurance."

         COLLECTION AND REIMBURSEMENT RISK. The Company assumes the financial
risk related to collection, including the potential uncollectibility of accounts
and delays attendant to reimbursement by third party payors, such as government
programs, private insurance plans and managed care plans. Failure to manage
adequately the collection risks and working capital demands could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business-Contractual Relationships" and "Business-Government
Regulation."

         CANCELLATION OR NON-RENEWAL OF CONTRACTS. The Company's net patient
service revenue is derived primarily from fee-for-service billings for patient
care provided by its physicians and from administrative fees. Certain
contracting hospitals that do not generate sufficient patient volume pay the
Company administrative fees to assure the Company a minimum revenue level. If,
at the time of renewal of the contracts with the hospitals currently paying
administrative fees to the Company, such hospitals continue to generate
insufficient patient volume but elect not to pay administrative fees to assure
the Company a minimum revenue level, then the Company could either choose not to
renew the contract or renew the contract with lower gross profit margins at such
hospitals. The Company's contracts provide for terms of three to five years and
are generally terminable by the hospital upon 90 days written notice. While the
Company has in most cases been able to negotiate renewal of its contracts in the
past, no assurance can be given that the Company's contracts with hospitals will
not be canceled or will be renewed in the future or that the administrative fees
will be continued. To the extent that the Company's contracts with hospitals are
canceled or are not renewed or replaced with other contracts with at least as
favorable terms, the Company's financial position and results of operations
could be adversely affected. See "Business-Contractual Relationships."

         COMPETITION. The healthcare industry is highly competitive and subject
to continual changes in the method in which services are provided and the manner
in which healthcare providers are selected and compensated. The Company believes
that private and public reforms in the healthcare industry emphasizing cost
containment and accountability will result in an increasing shift of NICU and
related pediatric care from highly fragmented,


                                       13




   14

individual or small practice neonatology providers to physician practice
management companies. Companies in other healthcare industry segments, such as
managers of other hospital-based specialties or currently expanding large
physician group practices, some of which have financial and other resources
greater than those of the Company, may become competitors in providing
management of neonatal and pediatric services to hospitals. Increased
competition could have a material adverse effect on the Company's financial
condition and results of operations. See "Business-Competition."

         DEPENDENCE ON QUALIFIED NEONATALOGISTS. The Company's business strategy
is dependent upon its ability to recruit and retain qualified neonatologists.
The Company has been able to compete with many types of healthcare providers, as
well as teaching, research, and government institutions, for the services of
such physicians. No assurance can be given that the Company will be able to
continue to recruit and retain a sufficient number of qualified neonatologists
who provide services in markets served by the Company on terms similar to its
current arrangements. The inability to successfully recruit and retain
physicians could adversely affect the Company's ability to service existing or
new units at hospitals, or expand its business.

         DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent on the continued contributions of its key management,
business development, sales and marketing personnel, including one of the
Company's principal shareholders, President, Chief Executive Officer and
co-founder, Dr. Roger Medel, for management of the Company and successful
implementation of its growth strategy. The loss of Dr. Medel or other key
personnel could have a material adverse effect on the Company's financial
condition, results of operations and plans for future development.

         DEPENDENCE ON PA CONTRACTORS. The Company has a management agreement
with a PA Contractor in each state in which it operates except Florida. The
agreements provide that the terms of the arrangements are permanent, subject
only to termination by PMG and that the PA Contractor shall not terminate the
agreement without PMG's prior written consent. Any disruption of the Company's
or the PA Contractors' relationships with contracting hospitals (including the
determination that the PA Contractors arrangements with PMG constitute the
corporate practice of medicine) or any other event adverse to the PA Contractors
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business-Government Regulation" and
"Business-Contractual Relationships."

         ANTI-TAKEOVER PROVISIONS; ISSUANCE OF PREFERRED STOCK. The Company's
Articles of Incorporation and Bylaws contain provisions that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of, the Company.
These provisions establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings and provide that only the Board of
Directors may call special meetings of the shareholders. In addition, the
Company's Articles of Incorporation authorize the Board of Directors to issue
preferred stock ("Preferred Stock") without shareholder approval and upon such
terms as the Board of Directors may determine. While no shares of Preferred
Stock are outstanding and the Company has no present plans to issue any shares
of Preferred Stock, the rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of any holders of Preferred
Stock that may be issued in the future.
         
         YEAR 2000. The Company has conducted a comprehensive review of its
computer systems to identify the systems that could be affected by the
transition to the year 2000 and has developed an implementation plan to resolve
any related issues. 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 a
date using "00" as the year 1900 rather than the year 2000. This could result
in a major system failure or miscalculations. The Company presently believes
that, by modifying and upgrading its existing software the transition to the
year 2000 will not pose significant operational problems. The Company has not
had any discussion with its payors to determine the status of their systems.
However, if the Company or its vendors or payors do not make the modifications
and conversions required on a timely basis it could have a material adverse
effect on the Company's financial condition and results of operations.


                                       14



   15
ITEM 2.           PROPERTIES

         The Company owns its executive offices located in Ft. Lauderdale,
Florida (approximately 30,000 square feet) including a new building that was
completed in the third quarter of 1996. The Company also leases space in other
facilities in various states for its business offices, pediatric cardiology
offices, storage space, and temporary housing of medical staff, with aggregate
annual rents of approximately $395,000. To facilitate its acquisition and
business integration programs, in September 1996, the Company entered into a
contract to lease an aircraft. See Note 10 to the Consolidated Financial
Statements.

ITEM 3.           LEGAL PROCEEDINGS

         During the ordinary course of business, the Company has become a party
to pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. The
Company believes, based upon the investigations conducted by the Company to
date, that the outcome of such legal actions and proceedings, individually or in
the aggregate, will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity, notwithstanding any
possible insurance recovery. If liability results from the medical malpractice
claims, there can be no assurance that the Company's medical malpractice
insurance coverage will be adequate to cover liabilities arising out of such
proceedings. See "Factors to be Considered--Professional Liability and
Insurance."

         The Company is currently under examination by the Internal Revenue
Service (the "IRS") for the tax years ended December 31, 1992, 1993, and 1994.
The IRS has challenged certain deductions that, if ultimately disallowed, would
result in additional taxes of approximately $4.5 million, plus interest. The
Company and its tax advisors believe that the ultimate resolution of the
examination will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.

         In 1997, the Company was notified by a hospital customer of a dispute
regarding the interpretation of the customer's contract with the Company. In
December 1997, this dispute was resolved amicably and the Company continues to
provide services to this hospital customer.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matter was submitted to a vote of security holders during the
fiscal quarter ended December 31, 1997.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

         The Company's Common Stock commenced trading on the NASDAQ National
Market (the "NASDAQ") under the symbol "PEDX" on September 20, 1995. The
Company's stock began trading on the New York Stock Exchange (the "NYSE") under
the symbol "PDX" on September 11, 1996 and ceased trading on the NASDAQ on
September 10, 1996. The following table sets forth, for the periods indicated,
the high and low sales prices for the Common Stock as reported on the NASDAQ and
the NYSE.

                                      HIGH                  LOW
                                      ----                  ---

         1996
         ----
         First Quarter                40 3/4                22 1/2
         Second Quarter               64 3/4                35 1/4
         Third Quarter                53                    31 1/4
         Fourth Quarter               50 3/8                32

         1997
         ----
         First Quarter                44 1/2                30 1/2
         Second Quarter               46                    28 5/8
         Third Quarter                50 7/16               39 7/8
         Fourth Quarter               46 15/16              38 5/8

         As of March 17, 1998 there were approximately 112 holders of record of
the 15,175,087 outstanding shares of Common Stock. The closing sales price for
the Common Stock on March 17, 1998 was $41.38.

         The Company did not declare or pay in 1995, 1996 or 1997, nor does it
currently intend to declare or pay in the future, any dividends on its Common
Stock, but intends to retain all earnings for the operation and expansion


                                       15


   16

of its business. The payment of any future dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, future
earnings, results of operations, capital requirements, the general financial
condition of the Company, general business conditions and contractual
restrictions on payment of dividends, if any, as well as such other factors as
the Board of Directors may deem relevant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."


























                                       16
   17


ITEM 6.  SELECTED FINANCIAL DATA (in thousands, except per share and other
         operating data)

         The selected consolidated financial data set forth as of and for each
of the five years in the period ended December 31, 1997, have been derived from
the Consolidated Financial Statements, which statements have been audited by
Coopers & Lybrand L.L.P., independent accountants. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and the notes thereto included elsewhere herein.



                                            ------------------------------------------------------------
                                                                YEARS ENDED DECEMBER 31,
                                            ------------------------------------------------------------
                                               1993       1994          1995         1996         1997
                                            --------    ---------    ---------    ---------    ---------
                                                                                
CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue                $  23,570    $  32,779    $  43,860    $  80,833    $ 128,850
Operating expenses:
   Salaries and benefits                      14,852       20,723       29,545       52,732       81,486
   Supplies and other operating expenses       2,230        2,774        3,451        6,262        9,765
   Depreciation and amortization                  95          244          363        1,770        4,522
                                           ---------    ---------    ---------    ---------    ---------
     Total operating expenses                 17,177       23,741       33,359       60,764       95,773
                                           ---------    ---------    ---------    ---------    ---------
Income from operations                         6,393        9,038       10,501       20,069       33,077
Investment income                                 45          208          804        2,096        2,102
Interest expense                                (105)         (90)        (117)        (192)        (324)
Other expense, net                               (17)          --           --           --           --
                                           ---------    ---------    ---------    ---------    ---------
Income  before income taxes                    6,316        9,156       11,188       21,973       34,855
Income tax provision                           2,166        3,749        4,475        8,853       13,942
                                           ---------    ---------    ---------    ---------    ---------
Net income (1)                             $   4,150    $   5,407    $   6,713    $  13,120    $  20,913
                                           =========    =========    =========    =========    =========

PER  SHARE DATA:
Net income per common share
   Basic                                                $    0.66    $    0.70    $    0.95    $    1.39
                                                        =========    =========    =========    =========
   Diluted                                              $    0.49    $    0.57    $    0.90    $    1.33
                                                        =========    =========    =========    =========
Weighted average shares outstanding
   Basic                                                    6,272        8,092       13,806       15,021
                                                        =========    =========    =========    =========
   Diluted                                                 10,945       11,855       14,535       15,743
                                                        =========    =========    =========    =========

OTHER OPERATING DATA:
Number of physicians at end of period             52           75          114          195          260
Number of births                              32,532       39,541       59,186      132,796      200,616
NICU admissions                                4,777        5,823        7,611       14,250       21,203
NICU patient days                             59,024       64,615       87,672      185,702      325,199

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                  $   2,469    $   7,384    $  18,499    $  18,435    $  18,562
Working capital                                8,052       13,772       53,448       81,187       53,908
Total assets                                  14,239       20,295       69,881      159,026      196,812
Total liabilities                              3,762        4,203        7,071       22,705       33,103
Long-term debt, including
    current maturities                           965          879          815        2,950        2,750
Convertible preferred stock(2)                14,401       15,697           --           --           --
Stockholders' equity (deficit)                (3,924)         395       62,810      136,321      163,709


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

(1)  The net income amounts do not include accrued and unpaid dividends with
     respect to the Convertible Preferred Stock. See footnote 2 below.

(2)  Immediately prior to the consummation of the Company's IPO in September
     1995, the Convertible Preferred Stock was converted into 4,571,063 shares
     of Common Stock and unpaid dividends of approximately $3.7 million were
     forgiven pursuant to the terms of the Series A Preferred Stock Purchase
     Agreement, dated as of October 26, 1992. Upon conversion, such amounts were
     credited to the common stock and additional paid-in capital accounts.


                                       17


   18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

         Pediatrix is the nation's leading provider of physician management
services to hospital-based NICUs. The Company also provides physician management
services to hospital-based PICUs and pediatric departments in hospitals.
Pediatrix was founded in 1979 by Drs. Roger Medel and Gregory Melnick. Since
obtaining its first hospital contract in 1980, the Company has grown by
increasing revenues at existing units ("same unit growth") and by adding new
units.

         In July 1995, the Company completed its first acquisition of a neonatal
physician group practice. Since its initial public offering in September 1995,
the Company has enhanced its management infrastructure, thereby strengthening
its ability to identify acquisition candidates, consummate transactions and
integrate acquired physician group practices into the Company's operations.
During 1997, the Company completed ten acquisitions, which added 28 NICUs.
Additionally, three NICUs were added through the Company's internal marketing
activities. The Company has developed networks in Colorado, Arizona, Southern
California and Texas and intends to develop additional regional and state-wide
networks. The Company believes these networks, augmented by ongoing marketing
and acquisition efforts, will strengthen its position with third party payors,
such as Medicaid and managed care organizations.

         The Company bills payors for services provided by physicians based upon
rates for the specific services provided. The rates are substantially the same
for all patients in a particular geographic area regardless of the party
responsible for paying the bill. The Company determines its net patient service
revenue based upon the difference between the gross fees for services and the
ultimate collections from payors which differ from the gross fees due to (i)
Medicaid reimbursements at government-established rates, (ii) managed care
payments at contracted rates, (iii) various reimbursement plans and negotiated
reimbursements from other third parties and (iv) discounted and uncollectible
accounts of private pay patients.

         The Company seeks to increase revenue at existing units in hospitals by
providing support to areas of the hospital outside the NICU and PICU,
particularly in the obstetrics, nursery and pediatric departments, where
immediate accessibility to specialized care is critical. The following table
indicates the point at which services originate, expressed as a percentage of
net patient service revenue, exclusive of administrative fees, for the periods
indicated.

                                           YEARS ENDED DECEMBER 31,
                                   --------------------------------------
                                      1995          1996         1997
                                   -----------  -----------   -----------
  NICU                                 74.7%        81.4%        85.4%
  PICU and PEDS                         6.0          3.4          2.2
  Other(1)                             19.3         15.2         12.4
                                   ---------    ---------     --------
                                      100.0%       100.0%       100.0%
                                   =========    =========     ========
- -----------------

(1)      Represents principally the percentage of net patient service revenue
         generated by physicians providing support to areas of hospitals outside
         the NICU and PICU.

PAYOR MIX

         The Company's payor mix is comprised of government (principally
Medicaid), managed care, other third parties and private pay patients. The
Company benefits when more patients are covered by Medicaid, despite Medicaid's
lower reimbursement rates as compared with other payors, because typically these
patients would not otherwise be able to pay for services due to lack of
insurance coverage. In addition, the Company benefits from the fact that most of
the medical services provided at the NICU or PICU are classified as emergency
services, a category typically classified as a covered service by managed care
payors. A significant increase in the managed

                                       18






   19

care or capitated components of the Company's payor mix, however, could result
in reduced reimbursement rates and, in the absence of increased patient volume,
could have a material adverse effect on the Company's financial condition and
results of operations. The following is a summary of the Company's payor mix,
expressed as a percentage of net patient service revenue, exclusive of
administrative fees, for the periods indicated (the amounts reported for 1995
and 1996 have been restated to reflect revised classifications in certain payor
relationships).

                                             YEARS ENDED DECEMBER 31,
                                ----------------------------------------------
                                      1995           1996           1997
                                -----------------  ------------   ------------
   Government                             24%            23%           22%
   Managed Care                           24             34            31
   Other third parties                    50             42            44
   Private pay                             2              1             3
                                  -----------      ---------      --------
                                         100%           100%          100%
                                  ===========      =========      ========

         The payor mix shown above is not necessarily representative of the
amount of services provided to patients covered under these plans. For example,
services provided to patients covered under government programs represented
approximately 44% of the Company's total gross patient service revenue during
1997.

RESULTS OF OPERATIONS

         The following discussion provides an analysis of the Company's results
of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Annual Report.
The operating results for the periods presented were not significantly affected
by inflation.

         The following table sets forth, for the periods indicated, certain
information related to the Company's operations expressed as a percentage of the
Company's net patient service revenue (patient billings net of contractual
adjustments and uncollectibles, and including administrative fees):





                                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------------------------------------
                                                             1995                1996               1997
                                                      -----------------  -----------------   -----------------
                                                                                           
  Net patient service revenue                                100.0%              100.0%             100.0%
  Operating expenses:
    Salaries and benefits                                     67.4                65.2               63.2
    Supplies and other operating expenses                      7.9                 7.8                7.6
    Depreciation and amortization                               .8                 2.2                3.5
                                                        -----------          ----------         ----------
       Total operating expenses                               76.1                75.2               74.3
                                                        -----------          ----------         ----------
    Income from operations                                    23.9                24.8               25.7
  Other income, net                                            1.6                 2.4                1.3
                                                        -----------          ----------         ----------
    Income before income taxes                                25.5                27.2               27.0
  Income tax provision                                        10.2                11.0               10.8
                                                        -----------          ----------         ----------
    Net income                                                15.3%               16.2%              16.2%
                                                        ===========          ==========         ==========


YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996

         The Company reported net patient service revenue of $128.9 million for
the year ended December 31, 1997, as compared with $80.8 million in 1996, a
growth rate of 59.4%. Of this $48.1 million increase, approximately $47.5
million, or 98.8%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue increased approximately $603,000, or 1.2%, for the year ended December
31, 1997, compared to the year ended December 31, 1996. Same units are those
units at which the Company provided services for the entire period for which the
percentage is calculated and the entire prior comparable period. The same unit
growth resulted primarily from volume increases.

                                       19



   20

         Salaries and benefits increased $28.8 million, or 54.5%, to $81.5
million for the year ended December 31, 1997, as compared with $52.7 million for
the same period in 1996. Of this increase, $21.4 million, or 74.3%, was
attributable to hiring new physicians, primarily to support new unit growth, and
the remaining $7.4 million was primarily attributable to increased support staff
and resources added in the areas of nursing, management and billing and
reimbursement. Supplies and other operating expenses increased $3.5 million, or
55.9%, to $9.8 million for the year ended December 31, 1997, as compared with
$6.3 million for the year ended December 31, 1996, primarily as a result of new
units. Depreciation and amortization expense increased by $2.7 million, or
155.5%, to $4.5 million for the year ended December 31, 1997, as compared with
$1.8 million for the year ended December 31, 1996, primarily as a result of
amortization of goodwill in connection with acquisitions.

         Income from operations increased $13.0 million, or 64.8%, to $33.1
million for the year ended December 31, 1997, as compared with $20.1 million for
the year ended December 31, 1996, representing an increase in the operating
margin from 24.8% to 25.7%. The increase in operating margin was primarily due
to increased volume, principally from acquisitions, without comparable increases
in corporate overhead.

         The Company earned net interest income of approximately $1.8 million
for the year ended December 31, 1997, as compared with $1.9 million for the year
ended December 31, 1996.

         The effective income tax rate was approximately 40.0% for the year
ended December 31, 1997 as compared with 40.3% for the year ended December 31,
1996.

         Net income increased 59.4% to $20.9 million for the year ended December
31, 1997, as compared with $13.1 million for the year ended December 31, 1996.
Net income as a percentage of net patient service revenue remained consistent at
16.2% for the years ended December 31, 1996 and 1997.

YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995

         The Company reported net patient service revenue of $80.8 million for
the year ended December 31, 1996, as compared with $43.9 million in 1995, a
growth rate of 84.3%. Of this $36.9 million increase, $34.7 million, or 94.0%,
was attributable to new units, including units at which the Company provides
services as a result of acquisitions. Same unit patient service revenue
increased $2.2 million, or 6.2%, for the year ended December 31, 1996, compared
to the year ended December 31, 1995. The same unit growth resulted from volume
increases as there were no general price increases during the periods.

         Salaries and benefits increased $23.2 million, or 78.5%, to $52.7
million for the year ended December 31, 1996, as compared with $29.5 million for
the same period in 1995. Of this $23.2 million increase, $18.0 million, or
77.6%, was attributable to hiring new physicians, primarily to support new unit
growth, and the remaining $5.2 million was primarily attributable to increased
support staff and resources added in the areas of nursing, management and
billing and reimbursement. Supplies and other operating expenses increased $2.8
million, or 81.5%, to $6.3 million for the year ended December 31, 1996, as
compared with $3.5 million for the year ended December 31, 1995, primarily as a
result of new units. Depreciation and amortization expense increased by $1.4
million, or 387.6%, to $1.8 million for the year ended December 31, 1996, as
compared with $363,000 for the year ended December 31, 1995, primarily as a
result of amortization of goodwill in connection with acquisitions.

         Income from operations increased approximately $9.6 million, or 91.1%,
to $20.1 million for the year ended December 31, 1996, as compared with $10.5
million for the year ended December 31, 1995, representing an increase in the
operating margin from 23.9% to 24.8%. The increase in operating margin was
primarily due to increased volume, principally from acquisitions, without
comparable increases in corporate overhead.

         The Company earned net interest income of approximately $1.9 million
for the year ended December 31, 1996, as compared with $687,000 for the year
ended December 31, 1995. The increase in net interest income resulted primarily
from additional funds available for investment due to proceeds from the initial
and secondary public stock offerings, as well as cash flow from operations.

                                       20


   21

         The effective income tax rate was approximately 40.3% for the year
ended December 31, 1996 compared with 40.0% for the year ended December 31,
1995.

         Net income increased 95.4% to $13.1 million for the year ended December
31, 1996, as compared with $6.7 million for the year ended December 31, 1995.
Net income as a percentage of net patient service revenue increased to 16.2% for
the year ended December 31, 1996, compared to 15.3% for the year ended December
31, 1995.

QUARTERLY RESULTS

         The following table presents certain unaudited quarterly financial data
for each of the quarters in the years ended December 31, 1996 and 1997. This
information has been prepared on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Annual Report and include, in the opinion
of the Company, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and the notes thereto.
The Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and net income. As a
result, the operating results for any quarter are not necessarily indicative of
results for any future period or for the full year.




                                        1996 CALENDAR QUARTERS                       1997 CALENDAR QUARTERS
                              -------------------------------------------  -------------------------------------------
                                FIRST      SECOND     THIRD      FOURTH     FIRST      SECOND      THIRD      FOURTH
                              ----------  ---------  ---------  ---------  ---------  ---------- ----------  ---------
                                                       (In thousands, except for per share data)
                                                                                      
Net patient service revenue     $16,127    $17,808    $22,404    $24,494    $27,013     $30,599    $34,444    $36,794
Operating expenses:
   Salaries and benefits         10,796     11,541     14,526     15,869     17,609      19,774     21,874     22,229
   Supplies and other
     operating expenses           1,213      1,269      1,740      2,040      2,102       2,358      2,467      2,838
   Depreciation and
     amortization                   233        335        543        659        783       1,008      1,278      1,453
                              ---------   --------   --------   --------   --------   ---------  ---------   --------
     Total operating expenses    12,242     13,145     16,809     18,568     20,494      23,140     25,619     26,520
                              ---------   --------   --------   --------   --------   ---------  ---------   --------
Income from operations            3,885      4,663      5,595      5,926      6,519       7,459      8,825     10,274
Other income, net                   464        396        455        589        661         488        346        283
                              ---------   --------   --------   --------   --------   ---------  ---------   --------
Income before income taxes        4,349      5,059      6,050      6,515      7,180       7,947      9,171     10,557
Income tax provision              1,737      2,024      2,485      2,607      2,872       3,179      3,668      4,223
                              ---------   --------   --------   --------   --------   ---------  ---------   --------
Net income                       $2,612     $3,035     $3,565     $3,908     $4,308      $4,768     $5,503     $6,334
                              =========   ========   ========   ========   ========   =========  =========   ========
Per share data:
   Net income per common and
     common equivalent share:
     Basic                         $.20       $.23       $.25       $.26       $.29        $.32       $.37       $.42
                              =========   ========   ========   ========   ========   =========  =========   ======== 
     Diluted                       $.19       $.22       $.24       $.25       $.28        $.30       $.35       $.40
                              =========   ========   ========   ========   ========   =========  =========   ======== 



LIQUIDITY AND CAPITAL RESOURCES

         During 1997, the Company completed the acquisition of ten physician
group practices, utilizing approximately $59.0 million in cash. These
acquisitions were funded principally by the net proceeds from the Company's
initial public stock offering in September 1995, and a secondary public stock
offering in August 1996. As of December 31, 1997, the Company had approximately
$45.7 million of cash, cash equivalents and marketable securities on hand.

         As of December 31, 1997, the Company had working capital of
approximately $53.9 million, a decrease of $27.3 million from the working
capital of $81.2 million available at December 31, 1996. The net decrease is
principally the result of expenditures related to the acquisition of physician
group practices and additions to property and equipment offset by funds
generated from operations.

         On June 27, 1996, the Company entered into an unsecured revolving
credit facility (the "Credit Facility") with BankBoston and SunTrust Bank.
During 1997, the Company increased the amount available under the Credit
Facility to $75.0 million, which includes a $2.0 million amount reserved to
cover deductibles under the Company's professional liability insurance policies.
The Company intends to use the amount available under the Credit Facility
primarily for acquisitions. The Credit Facility matures on September 30, 2000.
At the Company's option, the


                                       21
   22


Credit Facility bears interest at either LIBOR plus .875%, or the prime rate
announced by BankBoston. There is no balance currently outstanding under the
Credit Facility.

         The Company's annual capital expenditures have typically been for
computer hardware and software and for furniture, equipment and improvements at
the corporate headquarters. During the year ended December 31, 1997, capital
expenditures amounted to approximately $2.2 million.

         The Company anticipates that funds generated from operations, together
with cash and marketable securities on hand, and funds available under the
Credit Facility will be sufficient to meet its working capital requirements and
finance required capital expenditures and acquisitions for at least the next
twelve months.

STATUS OF YEAR 2000 COMPLIANCE

         The Company has completed a review of its computer systems to identify
any software that could  be affected by the transition to the year 2000.
Currently, all the Company's systems are year 2000 compliant or are upgradeable
to commercially available versions that are compliant. In addition, all of the
vendors that the Company uses for the transmission of electronic claims
information are expected to complete the transition to year 2000 compliant
systems by the end of September 1998. The Company has not had any discussions
with its payors to determine the status of their systems. However, if a
substantial number of payors do not make the modifications and conversions
required on a timely basis it could have a material adverse effect on the
Company's financial condition and results of operations.

CHANGE IN ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which must be implemented by the Company in 1998. This statement
establishes standards for the reporting and display of comprehensive income and
its components. The Company expects that the implementation of SFAS No. 130 will
not have a material impact on its consolidated financial statements.


























                                       22
   23


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The following Consolidated Financial Statements of the Company are
included in this Annual Report on Form 10-K on the pages set forth below:




                                                                                                              PAGE
                                                                                                              ----
                                                                                                           
         Report of Independent Accountants.....................................................................24

         Consolidated Balance Sheets as of December 31, 1996 and 1997..........................................25

         Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997................26

         Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995,
                  1996 and 1997................................................................................27

         Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996
                  and 1997.....................................................................................28

         Notes to Consolidated Financial Statements............................................................29





























                                       23


   24




REPORT OF INDEPENDENT ACCOUNTANTS



Board of Directors of
Pediatrix Medical Group, Inc.
Ft. Lauderdale, Florida



We have audited the consolidated financial statements and the financial
statement schedule of Pediatrix Medical Group, Inc. listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pediatrix Medical
Group, Inc. as of December 31, 1996 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included herein.


COOPERS & LYBRAND L.L.P.


Ft. Lauderdale, Florida
January 26, 1998, except
as to information presented
in Note 14, for which the
date is March 23, 1998











                                       24
   25




PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)




                                                                           DECEMBER 31,
                                                          -----------------------------------------------
                       ASSETS                                     1996                      1997
                                                          ---------------------     ---------------------
                                                                                           
Current assets:
   Cash and cash equivalents                                           $18,435                   $18,562
   Investments in marketable securities                                 57,218                    27,132
   Accounts receivable, net                                             23,396                    34,866
   Prepaid expenses                                                      1,283                       873
   Other assets                                                            375                       586
   Income taxes receivable                                                 202                        --
                                                          ---------------------     ---------------------

     Total current assets                                              100,909                    82,019

Property and equipment, net                                              8,676                     9,898
Other assets, net                                                       49,441                   104,895
                                                          ---------------------     ---------------------

     Total assets                                                     $159,026                  $196,812
                                                          =====================     =====================

         LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses                               $13,423                   $16,170
   Income taxes payable                                                     --                     1,348
   Current portion of note payable                                         200                       200
   Deferred income taxes                                                 6,099                    10,393
                                                          ---------------------     ---------------------

     Total current liabilities                                          19,722                    28,111

Note payable                                                             2,750                     2,550
Deferred income taxes                                                      233                     2,442
                                                          ---------------------     ---------------------

     Total liabilities                                                  22,705                    33,103
                                                          ---------------------     ---------------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock; $.01 par value, 1,000,000
     shares authorized, none issued and
     outstanding at December 31, 1996 and 1997                              --                        --
   Common stock; $.01 par value, 50,000,000
     shares authorized at December 31, 1996
     and 1997, 14,864,694 and 15,141,418
     shares issued and outstanding at
     December 31, 1996 and 1997, respectively                              149                       151
   Additional paid-in capital                                          116,037                   122,391
   Retained earnings                                                    20,165                    41,078
   Unrealized gain (loss) on investments                                  (30)                        89
                                                          ---------------------     ---------------------

     Total stockholders' equity                                        136,321                   163,709
                                                          ---------------------     ---------------------

     Total liabilities and stockholders' equity                       $159,026                  $196,812
                                                          =====================     =====================


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




                                       25
   26

PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)




                                                                 YEARS ENDED DECEMBER 31,
                                                       ----------------------------------------------
                                                          1995             1996             1997
                                                       ------------     ------------     ------------
                                                                                
Net patient service revenue                                $43,860          $80,833         $128,850
                                                       ------------     ------------     ------------
Operating expenses:
   Salaries and benefits                                    29,545           52,732           81,486
   Supplies and other operating expenses                     3,451            6,262            9,765
   Depreciation and amortization                               363            1,770            4,522
                                                       ------------     ------------     ------------

     Total operating expenses                               33,359           60,764           95,773
                                                       ------------     ------------     ------------

     Income from operations                                 10,501           20,069           33,077

Investment income                                              804            2,096            2,102
Interest expense                                              (117)           (192)             (324)
                                                       ------------     ------------     ------------

     Income before income taxes                             11,188           21,973           34,855

Income tax provision                                         4,475            8,853           13,942
                                                       ------------     ------------     ------------

     Net income                                             $6,713          $13,120          $20,913
                                                       ============     ============     ============

Per share data:
   Net income per common and
     common equivalent share:
     Basic                                                    $.70             $.95            $1.39
                                                       ============     ============     ============
     Diluted                                                  $.57             $.90            $1.33
                                                       ============     ============     ============

Weighted average shares used
     in computing net income per common
     and common equivalent share:
     Basic                                                   8,092           13,806           15,021
                                                       ============     ============     ============
     Diluted                                                11,855           14,535           15,743
                                                       ============     ============     ============


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.









                                       26

   27

PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)




                                        COMMON STOCK
                                 ----------------------- ADDITIONAL
                                    NUMBER OF              PAID-IN      RETAINED
                                     SHARES     AMOUNT     CAPITAL      EARNINGS
                                 ------------ ----------  ---------   -------------
                                                           
Balance at December 31, 1994         6,266    $      63   $      --    $     332

Net income                              --           --          --        6,713
Accrued and unpaid preferred
      stock dividends through
      conversion date,
      September 25, 1995                --           --      (1,040)          --
Conversion of preferred stock        4,571           46      16,691           --
Common stock issued                  2,240           22      39,848           --
Common stock retired                   (26)          --        (131)          --
Tax benefit related to
      employee stock options            --           --         252           --
                                 ---------    ---------   ---------    ---------

Balance at December 31, 1995        13,051          131      55,620        7,045

Net income                              --           --          --       13,120
Common stock issued                  1,815           18      59,757           --
Common stock retired                    (1)          --         (45)          --
Tax benefit related to
      employee stock options            --           --         705           --
                                 ---------    ---------   ---------    ---------

Balance at December 31, 1996        14,865          149     116,037       20,165

Net income                              --           --          --       20,913
Common stock issued                    276            2       3,480           --
Tax benefit related to
      employee stock options
      and stock purchase plans          --           --       2,874           --
                                 ---------    ---------   ---------    ---------

Balance at December 31, 1997        15,141    $     151   $ 122,391    $  41,078
                                 =========    =========   =========    =========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




                                       27


   28

PEDIATRIX MEDICAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)





                                                           YEARS ENDED DECEMBER 31,
                                                     -----------------------------------
                                                         1995        1996        1997
                                                     -----------  ----------  ----------
                                                                      
Cash flows from operating activities:
   Net income                                          $  6,713    $ 13,120    $ 20,913
   Adjustments to reconcile net income to net
      cash provided from operating activities:
     Depreciation and amortization                          363       1,770       4,522
     Deferred income taxes                                1,456       4,423       6,503
     Other                                                   (2)         --          --
     Changes in assets and liabilities:
       Accounts receivable                               (3,131)    (11,300)    (11,470)
       Prepaid expenses and other assets                   (493)       (533)        199
       Income taxes receivable/payable                      101         833       4,424
       Other assets                                          62           7        (232)
       Accounts payable and accrued expenses                871       6,470       4,140
                                                       --------    --------    --------

         Net cash provided from operating activities      5,940      14,790      28,999
                                                       --------    --------    --------

Cash flows used in investing activities:
   Physician group acquisition payments                  (4,938)    (42,487)    (60,158)
   Purchase of investments                              (34,382)    (57,394)    (14,003)
   Proceeds from sale of investments                      6,681      27,850      44,207
   Purchase of property and equipment                    (1,861)     (4,688)     (2,200)
                                                       --------    --------    --------

         Net cash used in investing activities          (34,500)    (76,719)    (32,154)
                                                       --------    --------    --------

Cash flows from financing activities:
   Borrowings on notes payable                               --       3,000          --
   Payments on notes payable                                (64)       (865)       (200)
   Proceeds from issuance of common stock                39,870      59,775       3,482
   Payments made to retire common stock                    (131)        (45)         --
                                                       --------    --------    --------

         Net cash provided from financing activities     39,675      61,865       3,282
                                                       --------    --------    --------

Net increase (decrease) in cash and cash
    equivalents                                          11,115         (64)        127
Cash and cash equivalents at beginning of year            7,384      18,499      18,435
                                                       --------    --------    --------

Cash and cash equivalents at end of year               $ 18,499    $ 18,435    $ 18,562
                                                       ========    ========    ========

Supplemental disclosure of cash flow information:
     Cash paid for:
       Interest                                        $    117    $    164    $    310
       Income taxes                                    $  2,943    $  2,950    $  2,651
     Non-cash investing and financing activities:
       Accrued and unpaid preferred stock
         dividends                                     $  1,040         $--         $--


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.






                                       28
   29



PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       GENERAL:

         The principal business activity of Pediatrix Medical Group, Inc.
         ("Pediatrix" or the "Company") is to provide physician management
         services to hospital-based neonatal units in 20 states and Puerto Rico.
         Contractual arrangements with hospitals include a) fee-for-service
         contracts whereby hospitals agree, in exchange for the Company's
         services, to authorize the Company and its healthcare professionals to
         bill and collect the professional component of the charges for medical
         services rendered by the Company's healthcare professionals; and b)
         administrative fees whereby the Company is assured a minimum revenue
         level.

         In September 1995, the Company completed its initial public offering
         whereby it issued 2,200,000 shares of common stock, resulting in net
         cash proceeds to the Company of approximately $39.7 million. In
         addition, in connection with the initial public offering, the Company
         authorized 50,000,000 shares of common stock and 1,000,000 shares of
         preferred stock.

         In August 1996, the Company completed a secondary public offering
         whereby it issued 1,755,000 shares of common stock, resulting in net
         cash proceeds to the Company of approximately $59.1 million.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         PRINCIPLES OF PRESENTATION

         The financial statements (the "consolidated financial statements")
         include all the accounts of Pediatrix and its wholly owned subsidiaries
         combined with the accounts of the professional associations (the "PA
         Contractors") with which the Company currently has specific management
         billing arrangements. All significant intercompany and interaffiliate
         accounts and transactions have been eliminated. The financial
         statements of the PA Contractors are consolidated with Pediatrix
         because Pediatrix, as opposed to affiliates of Pediatrix, has
         unilateral control over the assets and operations of the PA
         Contractors. Notwithstanding the lack of technical majority ownership,
         consolidation of the PA Contractors is necessary to present fairly the
         financial position and results of operations of Pediatrix because of
         the existence of a parent-subsidiary relationship by means other than
         record ownership of the PA Contractors' voting common stock. Control of
         the assets and operations of the PA Contractors by Pediatrix is
         permanent and other than temporary because the PA Contractor's
         agreements with Pediatrix provide that the term of the arrangements are
         permanent, subject only to termination by Pediatrix and that the PA
         Contractors shall not terminate the agreements without the prior
         written consent of Pediatrix. Also, the agreements provide that
         Pediatrix or its assigns has the right, but not the obligation, to
         purchase the stock of the PA Contractors.

         In November 1997, the Emerging Issues Task Force of the FASB (the
         "EITF") reached a consensus relating to the conditions under which a
         physician practice management company would consolidate the accounts of
         an affiliated physician practice. The Company believes that its
         accounting policies conform to the EITF consensus.




                                       29
   30


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         ACCOUNTING ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the financial
         statements and the reported amounts of revenues and expenses during the
         reporting periods. Actual results could differ from those estimates.

         ACCOUNTS RECEIVABLE AND REVENUES

         Accounts receivable are primarily amounts due under fee-for-service
         contracts from third party payors, such as insurance companies,
         self-insured employers and patients and government-sponsored healthcare
         programs geographically dispersed throughout the United States and its
         territories. These receivables are presented net of an estimated
         allowance for contractual adjustments and uncollectibles which is
         charged to operations based on the Company's evaluation of expected
         collections resulting from an analysis of current and past due
         accounts, past collection experience in relation to amounts billed and
         other relevant information. Contractual adjustments result from the
         difference between the physician rates for services performed and
         reimbursements by government-sponsored healthcare programs and
         insurance companies for such services. Bad debts are included in
         contractual allowances and uncollectibles because they are not
         considered material.

         Concentration of credit risk relating to accounts receivable is limited
         by number, diversity and geographic dispersion of the neonatology units
         managed by the Company, as well as by the large number of patients and
         payors, including the various governmental agencies in the states in
         which the Company provides services. Receivables from government
         agencies made up approximately 41% and 37% of accounts receivable at
         December 31, 1996 and 1997, respectively.

         CASH EQUIVALENTS

         Cash equivalents are defined as all highly liquid financial instruments
         with maturities of 90 days or less from the date of purchase. The
         Company maintains its cash and cash equivalents which consist
         principally of demand deposits, short-term government securities and
         amounts on deposit in money market accounts with principally three
         financial institutions.

         INVESTMENTS

         The Company determines the appropriate classification of its
         investments in debt securities at the time of purchase and re-evaluates
         such determination at each balance sheet date. Investments are
         classified as available for sale and are carried at fair value, with
         unrealized gains and losses, net of tax, reported as a separate
         component of stockholders' equity. Fair value is determined by the most
         recently traded price of the security at the balance sheet date.




                                       30
   31


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         INVESTMENTS, CONTINUED

         The cost of debt securities is adjusted for amortization of premiums
         and accretion of discounts to maturity. Such amortization and interest
         income and declines in value judged to be other than temporary are
         included in investment income. Realized gains and losses are included
         in earnings using the specific identification method for determining
         the cost of securities sold.

         Investments are stated at fair market value which approximates
         amortized cost and consist principally of tax exempt municipal
         obligations (fair value of $48.6 million and $26.6 million at December
         31, 1996 and 1997, respectively), U.S. government and government agency
         securities (fair value of $6.8 million and $511,000 at December 31,
         1996 and 1997, respectively) and commercial paper (fair value of $1.5
         million at December 31, 1996). The Company's investments in marketable
         securities represent amounts available for current operations and are
         accordingly classified as current assets.

         PROPERTY AND EQUIPMENT

         Property and equipment is recorded at cost. Depreciation of property
         and equipment is computed on the straight-line method over the
         estimated useful lives which range from five to forty years. Upon sale
         or retirement of property and equipment, the cost and related
         accumulated depreciation are eliminated from the respective accounts
         and the resulting gain or loss is included in earnings.

         OTHER ASSETS

         Other assets consists principally of the excess of cost over the fair
         value of net assets acquired which is being amortized on a
         straight-line basis over twenty-five years.

         In 1996, the Company adopted Statement of Financial Accounting
         Standards ("SFAS") No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
         statement requires companies to review certain assets for impairment
         whenever events or changes in circumstances indicate that the carrying
         value of these assets may not be recoverable, in which case the asset
         generally would be written down to fair value. The adoption of SFAS No.
         121 did not affect the Company's financial position, results of
         operations or liquidity.

         At each balance sheet date following the acquisition of a business, the
         Company reviews the carrying value of the goodwill to determine if
         facts and circumstances suggest that it may be impaired or that the
         amortization period may need to be changed. The Company considers
         external factors relating to each acquired business, including hospital
         and physician contract changes, local market developments, changes in
         third party payments, national healthcare trends, and other publicly
         available information. If these external factors indicate the goodwill
         will not be recoverable, as determined based upon undiscounted cash
         flows before interest charges of the business acquired over the
         remaining amortization period, the carrying value of the goodwill will
         be reduced. The Company does not believe there currently are any
         indicators that would require an adjustment to the carrying value of
         the goodwill or its estimated periods of recovery at December 31, 1997.



                                       31

   32


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         PROFESSIONAL LIABILITY COVERAGE

         The Company maintains professional liability coverage which indemnifies
         the Company and its healthcare professionals on a claims made basis
         with a portion of self insurance retention. The Company records an
         estimate of its liabilities for claims incurred but not reported based
         on an actuarial valuation. Such liabilities are not discounted.

         INCOME TAXES

         The Company utilizes the liability method of accounting for deferred
         income taxes. Under this method, deferred tax assets and liabilities
         are determined based on the difference between the financial statement
         and tax bases of assets and liabilities using enacted tax rates in
         effect for the year in which the differences are expected to reverse.

         STOCK OPTIONS

         SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
         but does not require, companies to recognize compensation expense for
         grants of stock, stock options and other equity instruments to
         employees based on new fair value accounting rules. The Company has
         chosen the SFAS No. 123 alternative to disclose pro forma net income
         and earnings per share under the new method but not to apply the fair
         value accounting rules in the statements of income. No charge has been
         reflected in the consolidated statements of income as a result of the
         grant of stock options, as the market value of the Company's stock
         equals the exercise price on the date the options are granted. To the
         extent that the Company realizes an income tax benefit from the
         exercise or early disposition of certain stock options, this benefit
         results in a decrease in current income taxes payable and an increase
         in additional paid-in capital.

         NET INCOME PER SHARE

         During 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
         which requires the presentation of both basic and diluted earnings per
         share. Net income per share information for all periods has been
         restated to conform with the requirements of the standard.

         Basic net income per share is calculated by dividing net income by the
         weighted average number of common shares outstanding during the period.
         Diluted net income per share is calculated by dividing net income by
         the weighted average number of common and potential common shares
         outstanding during the period. Potential common shares consist of the
         dilutive effect of outstanding options calculated using the treasury
         stock method.







                                       32
   33

PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of cash and cash equivalents, accounts receivable,
         investments in marketable securities, and accounts payable and accrued
         expenses approximate fair value due to the short maturities of these
         items.

         The carrying amount of the note payable approximates fair value because
         the interest rates on this instrument change with market interest
         rates.

         CHANGE IN ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
         130, "Reporting Comprehensive Income," which must be implemented by the
         Company in 1998. This statement establishes standards for the reporting
         and display of comprehensive income and its components. The Company
         expects that the implementation of SFAS No. 130 will not have a
         material impact on its consolidated financial statements.

3.       ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE

         Accounts receivable consists of the following:





                                                                             DECEMBER 31,
                                                                ---------------------------------------
                                                                      1996                  1997
                                                                -----------------     -----------------
                                                                            (IN THOUSANDS)
                                                                                         
           Gross accounts receivable                                     $53,991               $80,237
           Less allowance for contractual adjustments
                and uncollectibles                                       (30,595)              (45,371)
                                                                -----------------     -----------------

                                                                         $23,396               $34,866
                                                                =================     =================



         Net patient service revenue consists of the following:





                                                                YEARS ENDED DECEMBER 31,
                                                   ----------------------------------------------------
                                                       1995               1996               1997
                                                   --------------     --------------     --------------
                                                                     (IN THOUSANDS)
                                                                                     
           Gross patient service revenue                 $79,360           $156,594           $260,112
           Less contractual adjustments
             and uncollectibles                          (40,843)           (82,759)          (137,385)
           Hospital contract administrative
             fees                                          5,343              6,998              6,123
                                                   --------------     --------------     --------------
                                                         $43,860            $80,833           $128,850
                                                   ==============     ==============     ==============




                                       33
   34

PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.       PROPERTY AND EQUIPMENT:

         Property and equipment consists of the following:





                                                                            DECEMBER 31,
                                                                -------------------------------------
                                                                    1996                    1997
                                                                -------------           -------------
                                                                           (IN THOUSANDS)
                                                                                        
           Land and land improvements                                 $1,374                  $1,493
           Building                                                    4,000                   4,290
           Equipment and furniture                                     4,312                   6,351
                                                                -------------           -------------

                                                                       9,686                  12,134
           Less accumulated depreciation                              (1,275)                 (2,236)
           Construction in progress                                      265                      --
                                                                -------------           -------------
                                                                      $8,676                  $9,898
                                                                =============           =============


5.       OTHER ASSETS:

         Other assets consists of the following:



                                                                            DECEMBER 31,
                                                                -------------------------------------
                                                                    1996                    1997
                                                                -------------           -------------
                                                                           (IN THOUSANDS)
                                                                                      
           Excess of cost over net assets
             acquired                                                $48,963                $107,972
           Physician agreements                                        1,692                   1,692
           Other                                                         572                   1,023
                                                                -------------           -------------

                                                                      51,227                 110,687
           Less accumulated amortization                              (1,786)                 (5,792)
                                                                -------------           -------------
                                                                     $49,441                $104,895
                                                                =============           =============


         During 1996, the Company completed the acquisition of ten physician
         group practices. Total consideration and related costs for these
         acquisitions approximated $43.7 million. In connection with these
         transactions, the Company recorded assets totaling $43.7 million,
         including $43.0 million of goodwill, and liabilities of $3.4 million.
         In 1997, the Company paid an aggregate of $1.3 million to the prior
         shareholders of two physician group practices acquired in 1996. The
         payments were earned based upon the achievement of certain targets as
         outlined in the acquisition agreements.

         During 1997, the Company completed the acquisition of ten physician
         group practices. Total consideration and related costs for these
         acquisitions approximated $59.0 million. In connection with these
         transactions, the Company recorded assets totaling approximately $59.0
         million, principally goodwill, and liabilities of $1.9 million.




                                       34


   35

PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.       OTHER ASSETS, CONTINUED:

         The Company has accounted for the transactions using the purchase
         method of accounting and the excess of cost over fair value of net
         assets acquired is being amortized on a straight-line basis over 25
         years. The results of operations of the acquired companies have been
         included in the consolidated financial statements from the dates of
         acquisition.

         The following unaudited pro forma information combines the consolidated
         results of operations of the Company and the companies acquired during
         1996 and 1997 as if the acquisitions had occurred on January 1, 1996:



                                                         YEARS ENDED DECEMBER 31,
                                                    ------------------------------------
                                                       1996                    1997
                                                    ------------           --------------
                                                          (IN THOUSANDS, EXCEPT
                                                             PER SHARE DATA)
                                                                          
           Net patient service revenue                 $113,303                 $136,519
           Net income                                    14,603                   21,143
           Net income per share:
             Basic                                        $1.06                    $1.41
             Diluted                                      $1.00                    $1.34


         The pro forma results do not necessarily represent results which would
         have occurred if the acquisition had taken place at the beginning of
         the period, nor are they indicative of the results of future combined
         operations.

6.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

         Accounts payable and accrued expenses consists of the following:



                                                                            DECEMBER 31,
                                                                -------------------------------------
                                                                    1996                      1997
                                                                -------------           --------------
                                                                           (IN THOUSANDS)
                                                                                         
           Accounts payable                                           $2,489                   $2,988
           Accrued salaries and bonuses                                3,508                    5,340
           Accrued payroll taxes and benefits                          2,009                    3,013
           Accrued professional liability
             coverage                                                  2,413                    3,747
           Other accrued expenses                                      3,004                    1,082
                                                                -------------           --------------
                                                                     $13,423                  $16,170
                                                                =============           ==============










                                       35
   36


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.       NOTE PAYABLE:

         Note payable consists of the following:



                                                                            DECEMBER 31,
                                                                -------------------------------------
                                                                    1996                    1997
                                                                -------------           --------------
                                                                           (IN THOUSANDS)
                                                                                         
           Mortgage payable to bank                                   $2,950                   $2,750

             Less current portion                                       (200)                    (200)
                                                                -------------           --------------
                                                                      $2,750                   $2,550
                                                                =============           ==============


         During 1996, the Company negotiated a new mortgage loan agreement,
         increasing the principal balance to $3.0 million and adjusting the
         terms of the original mortgage. The new loan agreement requires
         quarterly payments totaling $200,400 per year plus interest through the
         maturity date of the loan, June 30, 2003, at which time the unpaid
         principal balance of $1,647,300 is due, bears interest at prime (8.5%
         at December 31, 1997), and is collateralized by the Company's two
         buildings.

         In June 1996, the Company entered into an unsecured revolving credit
         facility. During 1997, the amounts available under the credit facility
         were increased to $75 million, which includes a $2 million amount
         reserved to cover deductibles under the Company's professional
         liability insurance policies. The credit facility matures on September
         30, 2000. At the Company's option, the credit facility bears interest
         at either LIBOR plus .875% or prime. The Company had no outstanding
         balance at December 31, 1996 or 1997.

         The Company is required to maintain certain financial covenants
         including a requirement that the Company maintain a minimum level of
         net worth, as defined under the terms of the mortgage and credit
         facility agreement.

8.       PREFERRED STOCK:

         In October 1992, the Company issued 4,571,063 shares of 9% voting,
         redeemable, cumulative convertible Preferred Stock for $13,000,103. In
         connection with the Company's initial public offering, the Preferred
         Stock was converted into common stock of the Company and the unpaid
         dividends of $3,736,589 were forgiven. As a result, the redemption
         value of the Preferred Stock was credited to common stock and
         additional paid-in capital accounts.











                                       36
   37



PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.       INCOME TAXES:

         The components of the income tax provision are as follows:



                                                                       DECEMBER 31,
                                              ---------------------------------------------------------------
                                                  1995                     1996                    1997
                                              --------------           -------------           -------------
                                                                      (IN THOUSANDS)
                                                                                            
           Federal:
             Current                                 $2,573                  $3,072                  $6,004
             Deferred                                 1,184                   3,667                   5,913
                                              --------------           -------------           -------------
                                                      3,757                   6,739                  11,917
                                              --------------           -------------           -------------

           State:
             Current                                    454                   1,358                   1,054
             Deferred                                   264                     756                     971
                                              --------------           -------------           -------------
                                                        718                   2,114                   2,025
                                              --------------           -------------           -------------

                Total                                $4,475                  $8,853                 $13,942
                                              ==============           =============           =============


         The Company files its tax return on a consolidated basis with its
         subsidiaries. The PA Contractors file tax returns on an individual
         basis.

         The effective tax rate on income was 40% for the years ended December
         31, 1995, 1996 and 1997. The differences between the effective rate and
         the U.S. federal income tax statutory rate are as follows:



                                                                       DECEMBER 31,
                                              ---------------------------------------------------------------
                                                  1995                     1996                    1997
                                              --------------           -------------           -------------
                                                                      (IN THOUSANDS)
                                                                                           
           Tax at statutory rate                     $3,804                  $7,472                 $12,199
           State income tax, net
              of federal benefit                        451                   1,374                   1,316
           Permanent differences                         16                    (391)                     43
           Other, net                                   204                     398                     384
                                              --------------           -------------           -------------

           Income tax provision                      $4,475                  $8,853                 $13,942
                                              ==============           =============           =============











                                       37
   38


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

9.       INCOME TAXES, CONTINUED:

         The significant components of deferred income tax assets and
         liabilities are as follows:



                                              DECEMBER 31, 1996                    DECEMBER 31, 1997
                                      ---------------------------------   ----------------------------------
                                                                 NON                                  NON
                                         TOTAL      CURRENT     CURRENT      TOTAL       CURRENT     CURRENT
                                      ---------   ---------   ---------   ---------   ----------  ----------
                                                                  (IN THOUSANDS)
                                                                                  
          Allowance for uncollectible
             accounts                   $    150    $    150    $     --    $    766    $    766    $     --
          Net operating loss               
            carryforward                   1,112       1,112          --         398         398          -- 
          Other                               --          --          --         304         304          --
                                        --------    --------    --------    --------    --------    --------

               Total deferred 
                 tax assets                1,262       1,262          --       1,468       1,468          --
                                        --------    --------    --------    --------    --------    --------

          Accrual to cash adjustment      (7,416)     (7,355)        (61)     (8,878)     (8,878)         --
          Property and equipment              --          --          --      (1,251)         --      (1,251)
          Receivable discounts                --          --          --      (2,966)     (2,966)         --
          Other                             (178)         (6)       (172)     (1,208)        (17)     (1,191)
                                        --------    --------    --------    --------    --------    --------
               Total deferred tax
                 liabilities              (7,594)     (7,361)       (233)    (14,303)    (11,861)     (2,442)
                                        --------    --------    --------    --------    --------    --------

               Net deferred tax
                 liability              $ (6,332)   $ (6,099)   $   (233)   $(12,835)   $(10,393)   $ (2,442)
                                        ========    ========    ========    ========    ========    ========


         The income tax benefit related to the exercise of stock options and the
         purchase of shares under the Company's non-qualified employee stock
         purchase plan, reduces taxes currently payable and is credited to
         additional paid-in capital. Such amounts totaled $252,180, $704,630 and
         $2,873,649 for the years ended December 31, 1995, 1996 and 1997,
         respectively.

         The Company's PA Contractors have net operating loss carryforwards for
         federal and state tax purposes of approximately $1,377,000, $2,762,000
         and $978,000 at December 31, 1995, 1996 and 1997, respectively,
         expiring at various times commencing in 1999.

         The Company is currently under examination by the Internal Revenue
         Service for the tax years ended December 31, 1992, 1993 and 1994. The
         IRS has challenged certain deductions that, if ultimately disallowed,
         would result in additional taxes of approximately $4.5 million, plus
         interest. The Company and its tax advisors believe that the ultimate
         resolution of the examination will not have a material effect on the
         Company's consolidated financial position or results of operations and
         cash flows.

10.      COMMITMENTS AND CONTINGENCIES:

         During the ordinary course of business, the Company has become a party
         to pending and threatened legal actions and proceedings, most of which
         involve claims of medical malpractice and are generally covered by
         insurance. These lawsuits are not expected to result in judgments which
         would exceed professional liability insurance coverage, and therefore,
         will not have a material impact on the Company's consolidated results
         of operations, financial position or liquidity, notwithstanding any
         possible insurance recovery.





                                       38

   39

PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.      COMMITMENTS AND CONTINGENCIES, CONTINUED:

         Rent expense for the years ended December 31, 1995, 1996 and 1997 was
         $189,408, $1,118,594 and $1,721,964, respectively. At December 31,
         1997, the future minimum lease payments are as follows:



                                                                      (IN THOUSANDS)
                                                                      --------------
                                                                     
           1998                                                            $1,565
           1999                                                             1,472
           2000                                                             1,367
           2001                                                             1,315
           2002                                                             1,177
           Thereafter                                                       5,495
                                                                       -----------
                                                                          $12,391
                                                                       ===========


11.      RETIREMENT PLAN:

         The Company has a qualified contributory savings plan (the "Plan") as
         allowed under Section 401(k) of the Internal Revenue Code. The Plan
         permits participant contributions and allows elective Company
         contributions based on each participant's contribution. Participants
         may defer up to 15% of their annual compensation by contributing
         amounts to the Plan. The Company approved contributions of $559,125,
         $1,107,092 and $1,731,829 to the Plan during the years ended December
         31, 1995, 1996 and 1997, respectively.





















                                       39

   40



PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.      NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:

         The calculation of basic and diluted net income per share for the years
         ended December 31, 1995, 1996 and 1997 are as follows:



                                                     YEARS ENDED DECEMBER 31,
                                            -----------------------------------------
                                                   1995        1996       1997
                                            --------------  ----------  -------------
                                            (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
                                                               
Basic net income per share:

    Net income                                   $  6,713    $ 13,120   $ 20,913

    Preferred stock dividends                      (1,040)         --         --
                                                 --------    --------   --------

    Income applicable to common shareholders     $  5,673    $ 13,120   $ 20,913
                                                 ========    ========   ========

    Weighted average common shares outstanding      8,092      13,806     15,021
                                                 ========    ========   ========

    Basic net income per share                   $   0.70    $   0.95   $   1.39
                                                 ========    ========   ========

Diluted net income per share:

    Weighted average common shares outstanding      8,092      13,806     15,021

    Preferred stock                                 3,354          --         --

    Stock options                                     409         729        722
                                                 --------    --------   --------

    Weighted average common and potential
         common shares outstanding                 11,855      14,535     15,743
                                                 ========    ========   ========

    Net income                                   $  6,713    $ 13,120   $ 20,913
                                                 ========    ========   ========

    Diluted net income per share                 $   0.57    $   0.90   $   1.33
                                                 ========    ========   ========



13.      STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS:

         In 1993, the Company's Board of Directors authorized a stock option
         plan. Under the plan, options to purchase shares of common stock may be
         granted to certain employees at a price not less than the fair market
         value of the shares on the date of grant. The options must be exercised
         within ten years from the date of grant. The stock options become
         exercisable on a pro rata basis over a three year period from the date
         of grant. In 1997, the Company's shareholders approved an amendment to
         increase the number of shares authorized to be issued under the plan
         from 2,500,000 to 3,250,000. At December 31, 1997, 220,164 shares were
         available for future grants.

                                       40


   41


PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

13.      STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS, CONTINUED:

         Pertinent information covering the stock option plan is as follows:



                                                                               WEIGHTED
                                                                                AVERAGE
                                               NUMBER OF     OPTION PRICE      EXERCISE       EXPIRATION
                                                SHARES        PER SHARE          PRICE           DATE
                                             -------------- ---------------  --------------  --------------

                                                                                   
          Outstanding at December 31, 1994       1,231,700    $2.84-$10.00           $5.82     2003-2004
             Granted                               841,500   $10.00-$21.50          $17.95
             Canceled                             (324,583)   $3.12-$12.50           $5.33
             Exercised                             (39,709)   $3.12-$10.00           $3.46
                                             -------------- -------------------------------

          Outstanding at December 31, 1995       1,708,908    $2.84-$21.50          $12.03     2003-2005
             Granted                               600,400   $12.50-$36.75          $35.27
             Canceled                              (34,660)   $3.12-$36.00          $16.46
             Exercised                             (47,187)   $5.00-$20.50           $5.64
                                             -------------- ---------------  --------------

          Outstanding at December 31, 1996       2,227,461    $2.84-$36.75          $18.27     2003-2006
             Granted                               783,500   $29.00-$41.38          $33.38
             Canceled                              (68,021)   $5.00-$36.00          $21.55
             Exercised                            (229,710)   $5.00-$36.00           $9.69
                                             -------------- ---------------  --------------

          Outstanding at December 31, 1997       2,713,230    $2.84-$41.38          $23.28     2003-2007
                                             ============== ===============  ==============

          Exercisable at:

             December 31, 1995                     306,872    $2.84-$10.00           $6.15
             December 31, 1996                     828,631    $2.84-$21.50          $10.20
             December 31, 1997                   1,315,850    $2.84-$36.75          $14.74


         Significant option groups outstanding at December 31, 1997 and related
         price and life information follows:



                                              OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                                  --------------------------------------------  ---------------------------
                                                                  WEIGHTED
                                                    WEIGHTED       AVERAGE                      WEIGHTED
                                                     AVERAGE      REMAINING                      AVERAGE
                 RANGE OF                           EXERCISE     CONTRACTUAL                    EXERCISE
             EXERCISE PRICES        OUTSTANDING       PRICE          LIFE       EXERCISABLE       PRICE
          -----------------------  --------------  ------------  -------------  -------------  ------------
                                                                                  
                           $2.84          50,000         $2.84            5.5         50,000         $2.84
                           $5.00         278,770         $5.00            6.1        278,770         $5.00
                           $7.50         200,000         $7.50            6.8        200,000         $7.50
                   $10.00-$12.50         266,667        $10.80            7.0        226,249        $10.60
                   $19.25-$21.50         567,243        $19.59            7.2        369,074        $19.59
                   $24.00-$32.88         644,000        $29.71            9.2         51,788        $31.71
                   $36.00-$41.38         706,550        $38.22            8.7        139,969        $36.36
                                   --------------  ------------  -------------  -------------  ------------

                                       2,713,230        $23.28            7.9      1,315,850        $14.74
                                   ==============  ============  =============  =============  ============


         Under the Company's stock purchase plans, employees may purchase the
         Company's common stock at 85% of the average high and low sales price
         of the stock as reported as of commencement of the purchase period or
         as of the purchase date, whichever is lower. Under these plans, 12,786
         and 47,302 shares were issued during 1996 and 1997, respectively. At
         December 31, 1997, the Company has an additional 939,912 shares
         reserved under the stock purchase plans.







                                       41
   42


PEDIATRIX MEDICAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

13.      STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLANS, CONTINUED:

         The Company has adopted the disclosure-only provisions of SFAS No. 123.
         Accordingly, no compensation expense has been recognized for stock
         options granted under the stock option plan or stock issued under the
         employee stock purchase plans. Had compensation expense been determined
         based on the fair value consistent with the provisions of SFAS No. 123,
         the Company's net income and net income per share would have been
         reduced to the pro forma amounts below:



                                                                YEARS ENDED DECEMBER 31,
                                              -------------------------------------------------------------
                                                    1995                  1996                  1997
                                              -----------------     -----------------     -----------------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                                          
           Net income                                   $6,381               $11,002               $16,272
           Net income per share:
             Basic                                        $.66                $  .80                 $1.08
             Diluted                                      $.55                $  .77                 $1.05


         The fair value of each option or share to be issued is estimated on the
         date of grant using the Black-Scholes option-pricing model with the
         following weighted average assumptions used for grants in 1995, 1996
         and 1997, respectively: dividend yield of 0% for all years; expected
         volatility of 42%, 42% and 41%; and risk-free interest rates of 6.1%,
         6.3% and 6.6% for options with expected lives of five years (certain
         management and physicians of the Company) and 6.1%, 6.1% and 6.6% for
         options with expected lives of three years (all other employees of the
         Company).

         The pro forma effect on net income is not representative of the pro
         forma effect on net income in future periods because it does not take
         into consideration pro forma compensation expense related to grants
         made in prior periods.

14.      SUBSEQUENT EVENTS:

         Subsequent to December 31, 1997, the Company completed the acquisitions
         of eight physician group practices. Total consideration for these
         acquisitions approximated $48.6 million in cash and 2,951,327 shares of
         stock in a subsidiary of the Company. The acquisitions will be
         accounted for using the purchase method of accounting.




                                       42
   43



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         The Company has had no changes in or disagreements with its independent
certified public accountants on accounting and financial disclosure.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information with respect to directors and executive officers of
the Company is incorporated by reference to the registrant's Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report.

ITEM 11.  EXECUTIVE COMPENSATION

          The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.





















                                       43
   44


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

          (A)     DOCUMENTS FILED AS PART OF THIS REPORT:

                  (1)      FINANCIAL STATEMENTS.

                           An index to financial statements included in this
                           annual report on Form 10-K appears on page 23.

                  (2)      FINANCIAL STATEMENT SCHEDULES.

The following financial statement schedules for the years ended December 31,
1995, 1996 and 1997 are included in this Annual Report on Form 10-K on the pages
set forth below.

ITEM                                                                   PAGE

Financial Statement Schedules

          Report of Independent Accountants............................. 24

          Schedule II:  Valuation and Qualifying Accounts............... 45

Any required information not included in the above described schedules is
included in the consolidated financial statements and notes thereto incorporated
herein by reference.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.























                                       44
   45


PEDIATRIX MEDICAL GROUP, INC.
SCHEDULE II:  VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997



                                                       1995                  1996                  1997
                                                 -----------------     -----------------     ------------------
                                                                                          
Allowance for contractual
  adjustments and uncollectibles:
Balance at beginning of year                          $13,246,580           $13,087,899            $30,594,906
     Portion charged against
       operating revenue                               40,843,431            82,759,087            137,385,310
     Accounts receivable written-
       off (net of recoveries)                        (41,002,112)          (65,252,080)          (122,608,986)
                                                 ----------------      ----------------      ----------------- 

Balance at end of year                                $13,087,899           $30,594,906            $45,371,230
                                                 ================      ================      ================= 































                                       45


   46





                  (3)      EXHIBITS
           
    3.1       Pediatrix's Amended and Restated Articles of Incorporation (3.1)(1)
    3.2       Pediatrix's Amended and Restated Bylaws (3.2)(12)
    4.1       Registration Rights Agreement,  dated as of September 13, 1995 between Pediatrix and certain
              shareholders (4.1)(1)
   10.1       Pediatrix's Amended and Restated Stock Option Plan (10.1)(10)
   10.2       Form of Indemnification Agreement between Pediatrix and each of its directors and certain
              executive officers (10.2)(1)
   10.3       Employment Agreement, dated as of January 1, 1995, as amended, between Pediatrix and Roger
              J. Medel, M.D. (10.3)(1)
   10.4       Employment Agreement, dated as of February 1, 1995, as amended, between Pediatrix and
              Richard J. Stull, II (10.4)(1)
   10.5       Employment Agreement, dated as of May 1, 1995, as amended, between Pediatrix and Larry M.
              Mullen (10.5)(1)
   10.6       Employment Agreement, dated as of February 1, 1995, as amended, between Pediatrix and Brian
              D. Udell, M.D., as amended (10.7)(1)
   10.7       Employment Agreement, dated  November 6, 1995, between Kristen Bratberg and Pediatrix
              (10.9)(4)
   10.8       Employment Agreement, dated June 1, 1996, between Pediatrix and M. Douglas Cunningham, M.D.
              (10.21)(3)
   10.9       Mortgage, Security Agreement and Assignment of Leases and Rents,
              dated as of September 30, 1993, made by Pediatrix in favor of The
              First National Bank of Boston (10.22)(1)
   10.10      The Company's Profit Sharing Plan (10.23)(1)
   10.11      Form of Non-competition and Nondisclosure Agreement (10.24)(1)
   10.12      Form of Exclusive Management and Administrative Services Agreement between Pediatrix and
              each of the PA Contractors (10.25)(1)
   10.13      Agreement for Purchase and Sale of Stock, dated July 27, 1995, between Pediatrix Medical
              Group of California and Neonatal and Pediatric Intensive Care Medical Group, Inc. and the
              individual physicians set forth in Exhibit A therein (10.26)(1)
   10.14      Stock Purchase Agreement, effective January 16, 1996, between Jack C. Christensen, M.D.,
              Cristina Carballo-Perelman, M.D., Michael C. McQueen, M.D., Neonatal Specialists, Ltd. and
              Brian Udell, M.D. (2.1)(4)
   10.15      Asset Purchase Agreement, effective January 16, 1996, between Med-Support, L.P. and
              Neonatal Specialists, Ltd.(2.2)(4)
   10.16      Asset Purchase  Agreement, effective January 16, 1996, between CMJ Leasing, L.P. and
              Neonatal Specialists, Ltd. (2.3)(4)
   10.17      Asset Purchase Agreement, dated January 29, 1996, among Pediatrix
              Medical Group of Colorado, P.C., Pediatrix and Newborn
              Consultants, P.C., and the shareholders of PNC (2.1)(5)
   10.18      Agreement and Plan of Merger, dated January 29, 1996, among Pediatrix Medical Group of
              Colorado, P.C., Colorado Neonatal Associates, P.C. and the shareholders of CNA (2.1)(5)
   10.19      Amendment  No. 4 to Credit Agreement dated as of December 30, 1995, between Pediatrix,
              certain PA Contractors and The First National Bank of Boston (10.24)(2)
   10.20      1996 Qualified Employee Stock Purchase Plan (10.25)(2)
   10.21      1996 Non-Qualified Employee Stock Purchase Plan (10.26)(2)
   10.22      Agreement and Plan of Merger, dated May 1, 1996, among Pediatrix Acquisition Corp., Rocky
              Mountain Neonatology, P.C. and the shareholders of RMN (2.1)(7)





                                       46

   47




           
   10.23      Asset Purchase Agreement, dated as of May 30, 1996, by and among
              Pediatrix Medical Group of Texas, P.A., West Texas Neonatal
              Associates and the individual physicians set forth in Exhibit A
              therein (2.1)(8)
   10.24      Agreement for Purchase and Sale of Assets, dated as of June 5, 1996, by and among Pediatrix
              Medical Group of California, P.C., Infant Care  Specialists Medical Group, Inc. and the
              individual physicians set forth in Exhibit A therein (2.1)(9)
   10.25      Airplane Purchase Agreement, dated March 22, 1996, between Pediatrix and Learjet Inc.
              (10.22)(3)
   10.26      First Amended and Restated Credit Agreement, dated as of June 27, 1996, between Pediatrix,
              certain PA Contractors, The First National Bank of Boston and Sun Trust Bank (10.25)(3)
   10.27      Modification of Mortgage, dated as of June 27, 1996, between PMG and The First National
              Bank of Boston (10.26)(3)
   10.28      Amendment No. 2 to the employment agreement between Pediatrix and Roger J. Medel, M.D.
              (10.34)(10)
   10.29      Amendment  No. 1 to the employment agreement between Pediatrix and Kristen Bratberg
              (10.35)(10)
   10.30      Amendment No. 2 to First Amended and Restated Credit Agreement, dated October 21, 1997,
              between Pediatrix, certain PA Contractors, BankBoston and SunTrust Bank (10.36)(11)
   10.31      Regional Vice President of Medical Operations appointment, dated as of June 1, 1997,
              between Pediatrix and M. Douglas Cunningham, M.D. (12)
   10.32      Employment Agreement, dated as of April 7, 1997, between Pediatrix and Bruce A. Jordan (12)
   21.1       Subsidiaries of Pediatrix (12)
   23.1       Consent of Coopers & Lybrand L.L.P. (12)
   27.1       Financial Data Schedule for current period and restated Financial Data Schedules for other 
              periods. (12)


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

   (1)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form S-1 (File No. 33-95086).

   (2)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 10-Q for the quarterly period ended
              March 31, 1996.

   (3)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form S-1 (File No. 333-07125).

   (4)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 8-K, dated January 31, 1996.

   (5)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 8-K, dated February 8, 1996.

   (6)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Annual Report on Form 10-K for the year
              ended December 31, 1995.

   (7)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 8-K, dated May 9, 1996.

   (8)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 8-K, dated May 30, 1996.

   (9)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 8-K, dated June 5, 1996.

  (10)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 10-Q for the quarterly period ended
              June 30, 1997.

  (11)        Incorporated by reference to the exhibit shown in parentheses and
              filed with the Pediatrix Form 10-Q for the quarterly period ended
              September 30, 1997.

  (12)        Filed herewith.





                                       47

   48
  (B)         REPORTS ON FORM 8-K
             
              No reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this Report.

  (C)         EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K

              The index to exhibits that are listed in Item 14(a)(3) of this
report and not incorporated by reference follows the "Signatures" section hereof
and is incorporated herein by reference.

  (D)         FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X

              The financial statement schedules required by Regulation S-X which
are excluded from the Registrant's Annual Report to Shareholders for the Year
ended December 31, 1997, by Rule 14a-3(b)(1) are included above. See Item
14(a)(2) for index.











                                       48
   49


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

                                     PEDIATRIX MEDICAL GROUP, INC.

Date:  March 30, 1998                By: /s/ Roger J. Medel, M.D., M.B.A.
                                         ---------------------------------------
                                         ROGER J. MEDEL, M.D., M.B.A., President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.



                   SIGNATURE                                      TITLE                       DATE
                   ---------                                      -----                       ----
                                                                                    
                                                       President, Chief Executive
/s/ ROGER J. MEDEL, M.D., M.B.A.                     Officer and Director (principal      March 30, 1998
- ------------------------------------------------           executive officer)
         Roger J. Medel, M.D., M.B.A.

                                                   Vice President and Chief Financial
/s/ LAWRENCE M. MULLEN                            Officer (principal financial officer    March 30, 1998
- ------------------------------------------------    and principal accounting officer)
              Lawrence M. Mullen

/s/ E. ROE STAMPS, IV                                           Director                  March 30, 1998
- ------------------------------------------------
               E. Roe Stamps, IV

/s/ BRUCE R. EVANS                                              Director                  March 30, 1998
- ------------------------------------------------
                Bruce R. Evans

/s/ M. DOUGLAS CUNNINGHAM, M.D.                                 Director                  March 30, 1998
- ------------------------------------------------
          M. Douglas Cunningham, M.D.

/s/ MICHAEL FERNANDEZ                                           Director                  March 30, 1998
- ------------------------------------------------
               Michael Fernandez

/s/ ALBERT H. NAHMAD                                            Director                  March 30, 1998
- ------------------------------------------------
               Albert H. Nahmad

/S/ CESAR L. ALVAREZ                                            Director                  March 30, 1998
- ------------------------------------------------
               CESAR L. ALVAREZ










                                       49