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                                                                   EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT


         This Employment Agreement (the "Agreement") is made and entered into
as of the 28th day of May, 1997, by and between HEALTHCARE RECOVERIES, INC., a
Delaware corporation (the "Company"), and PATRICK B. MCGINNIS (the "Employee").


                      STATEMENT OF BACKGROUND INFORMATION


         The Company provides subrogation and related recovery services for
healthcare payors (the "Business"), including health maintenance organizations,
indemnity insurers, Blue Cross and Blue Shield organizations, third-party
administrators, self-funded employee health welfare benefit plans, and provider
hospital organizations. The Company's services consist of assisting healthcare
payors to recover the cost or reasonable value of healthcare benefits provided
to insureds who are injured under circumstances where a third party, typically
a property or casualty insurer of an individual, is ultimately responsible for
such healthcare benefits.

         The Board of Directors (the "Board") has determined that it would be
in the best interest of the Company and its stockholders if Employee were
employed by the Company for a term of three years.

         Employee acknowledges the Company's ownership of its goodwill, and the
necessity of the restrictive covenants contained in this Agreement to protect
the Company's interest in such material asset.


                             STATEMENT OF AGREEMENT

         In consideration of the mutual covenants, promises and conditions set
forth in this Agreement, the parties agree as follows:

         1. Employment. The Company employs Employee and Employee accepts such
employment upon the terms and conditions set forth in this Agreement. For
purposes of Sections 6, 7 and 8 of this Agreement, "employment" shall mean any
period of time during which the Company is paying the Employee salary under
Section 5(a) of this Agreement, whether or not the Employee is currently
performing services for the Company at the time of such payment. For all other
purposes under this Agreement, "employment" shall have its customary meaning.

         2. Duties of Employee. Employee agrees to perform and discharge the
usual duties of a Chairman of the Board of Directors and Chief Executive
Officer of a similarly sized




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organization, including, without limitation, those presently set forth in the
Bylaws of the Company, and such other duties as may be reasonably assigned by
the Board, and to comply with all of the Company's policies, standards and
regulations. Employee's title shall be Chairman of the Board of Directors and
Chief Executive Officer, and Employee shall report to the Board. All of
Employee's time, attention and energies which are devoted to business endeavors
will be devoted to the Business, and Employee will not, during the term of this
Agreement, be engaged (whether or not during normal business hours) in any
other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage, without the prior
written consent of the Board, which consent will not be unreasonably withheld.
This Section will not be construed to prevent Employee from: (a) investing
personal assets in businesses which do not compete with the Company in such
form or manner that will not require any services on the part of Employee in
the operation or the affairs of the companies in which such investments are
made and in which Employee's participation is solely that of an investor; (b)
purchasing securities in any corporation whose securities are listed on a
national securities exchange or regularly traded in the over-the-counter
market, provided that Employee at no time owns, directly or indirectly, in
excess of one percent of the outstanding stock of any class of any such
corporation engaged in a business competitive with that of the Company; or (c)
participating in conferences, preparing and publishing papers or books or
teaching, participating on the board of directors of other companies ("Other
Boards") or providing limited advisory services, so long as these activities
are not contrary to the Company's interests, and, with regard to participation
on Other Boards or the provision of limited advisory services, so long as the
Board approves Employee's participation on any such Other Boards or approves
the provision of such limited advisory services, which approval will not be
unreasonably withheld.

         3.       Term. The term of this Agreement will be for a period of
three years commencing on the closing of sale of the Company by Medaphis
Corporation ("Medaphis"), the Company's sole stockholder, through public or
private sale, with automatic two year renewals, unless a notice of termination
is given by either party within not less than sixty days prior to the end of a
term or a renewal term, subject to earlier termination as provided for in
Section 4. In the event that Medaphis does not consummate a public or private
sale within six months of the date hereof, this Agreement shall be terminated.

         4.       Termination and Suspension.

         (a)      By the Company. Notwithstanding anything contained in 
Section 3 to the contrary, the Company has the right to terminate this 
Agreement and all of its obligations under this Agreement immediately if the 
Board takes action to terminate after any of the following events occurs:

                  (i)      Employee materially breaches any of the terms or
                  conditions set forth in this Agreement and fails to cure such
                  breach within ten days after Employee's receipt from the
                  Company of written notice of such breach, which notice
                  describes in reasonable detail the Company's belief that
                  Employee is in breach

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                  (notwithstanding the foregoing, no cure period shall be
                  applicable to breaches by Employee of Sections 6, 7 or 8 of
                  this Agreement);

                  (ii)     Employee commits any act in bad faith materially
                  detrimental to the business or reputation of the Company;

                  (iii)    Employee engages in illegal activities or is
                  convicted of any crime involving fraud, deceit or moral
                  turpitude; or

                  (iv)     Employee dies or becomes mentally or physically
                  incapacitated or disabled so as to be materially unable to
                  perform Employee's duties under this Agreement. Without
                  limiting the generality of the foregoing, Employee's
                  inability to adequately perform services under this Agreement
                  for a period of ninety consecutive days will be conclusive
                  evidence of such mental or physical incapacity or disability,
                  unless such inability to adequately perform services under
                  this Agreement is pursuant to a mental or physical incapacity
                  or disability covered by the Family Medical Leave Act, in
                  which case such ninety-day period shall be extended to a one
                  hundred fifty-day period.

         (b)      By Employee or by the Company other than for Cause. If
Employee terminates this Agreement pursuant to any of clauses (i) - (v) below
or if the Company terminates this Agreement other than pursuant to Section
4(a), the Company obligations under this Agreement to pay Employee the annual
salary under Section 5(a), to provide for the continued vesting of stock option
awards under Section 5(b) and to provide for health insurance benefits to
Employee under Section 5(c) shall continue in accordance with the terms of this
Agreement for the greater of (i) the remainder of the term or the renewal term,
or (ii) two years.

                  (i)      the Company materially breaches any of the terms or
                  conditions set forth in this Agreement and fails to cure its
                  breach within ten days after its receipt from Employee of
                  written notice of such breach, which notice describes in
                  reasonable detail Employee's belief that the Company is in
                  breach;

                  (ii)     without Employee's express written consent, the
                  Company assigns to Employee duties, or significantly reduces
                  Employee's assigned duties, in a manner inconsistent with
                  Employee's position with the Company;

                  (iii)    without Employee's express written consent, the
                  Company requires Employee's relocation outside of the
                  metropolitan Louisville, Kentucky area;

                  (iv)     the Company fails to obtain the assumption of this
                  Agreement by any successors to the Company; or

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                  (v)      a Change in Control Event (as defined herein)
                  occurs, and Employee's employment is terminated by Employee,
                  within one hundred twenty days thereafter. Upon a Change in
                  Control Event, the applicable provisions of Section 4(e)
                  shall apply. For purposes of this Agreement a "Change in
                  Control Event" shall mean the occurrence of any of the
                  following:

                           (1)      the adoption of a plan of merger or
                           consolidation of the Company with any other
                           corporation as a result of which the holders of the
                           outstanding voting stock of the Company as a group
                           would receive less than 50% of the voting stock of
                           the surviving or resulting corporation;

                           (2)      the adoption of a plan of liquidation or
                           the approval of the dissolution of the Company;

                           (3)      the sale or transfer of substantially all
                           of the assets of the Company;

                           (4)      the following individuals cease for any
                           reason to constitute a majority of the number of
                           directors then serving: individuals who, on the date
                           of this Agreement, constitute the Board and any new
                           director (other than a director whose initial
                           assumption of office is in connection with an actual
                           or threatened election contest, including but not
                           limited to a consent solicitation, relating to the
                           election of directors of the Company) whose
                           appointment or election by the Board or nomination
                           for election by the Company's stockholders was
                           approved or recommended by a vote of at least
                           two-thirds of the directors then still in office who
                           either were directors on the date of this Agreement
                           or whose appointment, election or nomination for
                           election was previously so approved or recommended;
                           or

                           (5)      any individual, entity, group (within the
                           meaning of Section 13(d)(3) of the Securities
                           Exchange Act of 1934, as amended, and the rules
                           promulgated under such act), or other person
                           acquires in a single transaction or a series of
                           transactions more than 30% of the outstanding shares
                           of the Company's common stock.

         (c)      Suspension By the Company. If Employee is indicted for any
felony, the Company may immediately suspend Employee without compensation. If
the indictment is dropped, or if Employee is acquitted (the dropping of an
indictment and an acquittal each referred to as an "Acquittal Event"), the
Company shall, within ten days after it receives written notice of any
Acquittal Event, remit to Employee all amounts otherwise payable pursuant to
this Agreement but withheld during the suspension period, together with
interest from each due date paid at the then-current prime rate plus two
percentage points, as reported in The Wall Street Journal. Upon any such
Acquittal Event, the Company's payment obligations to Employee under

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this Agreement shall resume and shall continue throughout the remainder of the
term of this Agreement, subject to the terms and conditions of this Agreement,
but the Company shall have the option whether to ask Employee actually to
return to work and to publicly associate with the Company. At the Company's
request in this circumstance, Employee will refrain from working at or for the
Company (notwithstanding his continuing compensation under this Agreement) and
will refrain from representing to any person or entity that he is associated
with the Company.

         (d)      No Duty to Mitigate. If Employee terminates his employment
under and in accordance with this Agreement or if the Company terminates
Employee's employment under this Agreement for any reason other than those
specified in Section 4(a), Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement (whether seeking new
employment or in any other manner), and the Company's obligations under Section
4(b) shall not be reduced because of any employment of Employee after
termination of employment under this Agreement.

         (e)      Gross-Up. Upon a Change in Control Event and a termination of
this Agreement by Employee pursuant to Section 4(b)(v), the Company will pay to
Employee (in lieu of an obligation to make further payments to Employee under
or on account of Section 5(a) and to provide benefits to Employee under or on
account of Section 5(c)) the salary that would have been payable to Employee
under this Agreement from the date of termination for the greater of the
remainder of (i) the term or the renewal term, or (ii) two years. The amounts
payable to Employee under the previous sentence of this Section 4(e) shall be
paid by the Company in periodic payments or in a lump sum, at the option of
Employee. If any payment or other benefit (a "Termination Payment") received or
to be received by Employee in connection with a Change in Control Event
(whether or not this Agreement is terminated) or Employee's termination of
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, with any person whose actions result
in a Change in Control Event or with any person affiliated with the Company or
such person) is or will be subject to the tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company shall pay to Employee, a Gross-Up Payment (as defined) to the extent
provided by the second paragraph of this Section 4(e).

         A Gross-Up Payment (as defined) shall be payable pursuant to this
Section 4(e) on and subject to the following terms and conditions:

                  (1)      At the time the applicable Termination Payment is
made, an additional amount (the "Gross-Up Payment") shall be paid by the
Company such that the net amount retained by Employee, after deduction of any
Excise Tax on such Termination Payment and any federal, state and local income
tax, employment tax and Excise Tax on the Gross-Up Payment, shall be equal to
the amount or value of such Termination Payment. For purposes of determining
whether any such Termination Payment will be subject to the Excise Tax, all
Termination Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the

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Code shall be treated as being subject to the Excise Tax, unless in the opinion
of tax counsel reasonably acceptable to Employee and selected by the accounting
firm which, immediately prior to the Change in Control Event, was the Company's
independent auditors, such payments (in whole or in part) do not constitute
"parachute payments" within the meaning of Section 280G of the Code or
represent reasonable compensation for services actually rendered in excess of
the "base amount" allocable to such reasonable compensation. The full amount of
the Gross-Up Payment shall be treated as being subject to the Excise Tax. The
value of any non-cash benefits or any deferred payment or benefit shall be
determined in accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.

                 
                  (2)      For purposes of determining the amount of any
Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in which
the applicable Termination Payment or Gross-Up Payment is made, and shall be
deemed to pay state and local income taxes at the highest marginal rates of
taxation in the state and locality of his residence on the date the applicable
Termination Payment or Gross-Up Payment is made, net of the maximum reduction
in federal income taxes that could be obtained from deduction of such state and
local taxes.

                  (3)      If the Excise Tax or income tax payable with respect
to a Gross-Up Payment as finally determined exceeds the amount taken into
account or paid to Employee at the time the applicable Termination Payment or
Gross-Up Payment is made (including by reason of any payment the existence or
amount of which cannot be determined at the time of the applicable Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest payable by Employee with respect to such excess)
at the time that the amount of such excess is finally determined.

         5.       Compensation and Benefits.

         (a)      Annual Salary. For all services rendered by Employee under
this Agreement, the Company will pay Employee a base salary of a minimum of Two
Hundred Thousand Dollars per annum in equal bi-weekly installments. Such annual
salary may be increased by the Board.

         (b)      Incentive Compensation. During the term of the Agreement,
Employee shall be entitled to incentive compensation payments in accordance
with the Management Group Incentive Compensation Plan of Healthcare Recoveries,
Inc.

         (c)      Stock Option Awards. In the event and only in the event
Medaphis closes the sale of the Company pursuant to a registered public
offering, Employee shall be entitled to receive under the Healthcare
Recoveries, Inc. Non-Qualified Stock Option Plan options to purchase 40% of the
shares of the Company's common stock reserved under such Plan at such closing
for an exercise price equal to the initial public offering price of the
Company's Common Stock, which options shall have an effective grant date of the
day such shares first begin trading on the Nasdaq National Market and shall
vest over three years as follows: one-third on each of the first three

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anniversaries of the effective grant date. In the event of such public
offering, and prior to the closing of such offering, the Company shall reserve
for issuance under the Healthcare Recoveries, Inc. Non-Qualified Stock Option
Plan that number of shares equal to 5% of the Common Stock to be sold by
Medaphis in such offering (but excluding Common Stock sold by the Company
pursuant to an over-allotment option). All stock options contemplated by this
Section 5(b) shall vest upon a Change in Control Event. In addition to any
other rights provided Employee under the Healthcare Recoveries, Inc.
Non-Qualified Stock Option Plan or in the stock options agreement evidencing
the awards contemplated by this Section 5, if an Employee Event (as defined)
shall occur, then the option so awarded, to the extent vested, shall not expire
or terminate prior to the later of the ninetieth day following said Employee
Event and the expiration date otherwise applicable under the Healthcare
Recoveries, Inc. Non-Qualified Stock Option Plan. For purposes of this Section
5(b), an "Employee Event" shall be deemed to occur upon: (i) Employee's
termination of this Agreement pursuant to the provisions of Section 4(b); or
(ii) involuntary termination of Employee by the Company for any reason other
than set forth in Section 4(a).

         (d)      Other Benefits. Employee will be entitled to such fringe
benefits as may be provided from time to time by the Company to its executive
employees, including, but not limited to, group health insurance, life and
disability insurance and any other fringe benefits now or hereafter provided by
the Company to its executive employees, if and when Employee meets the
eligibility requirements for any such benefit. The Company reserves the right
to change or discontinue any employee benefit plans or programs now being
offered to its employees; provided, however, that all benefits provided for
executive employees will be provided to Employee on an equal basis.

         (e)      Business Expenses. Employee will be reimbursed for all
reasonable expenses incurred in the discharge of Employee's duties under this
Agreement pursuant to the Company's standard reimbursement policies.

         (f)      Withholding. The Company will deduct and withhold from the
payments made to Employee under this Agreement, state and federal income taxes,
FICA and other amounts normally withheld from compensation due employees.

         6.       Non-Disclosure of Confidential Information. Employee
recognizes and acknowledges that the trade secrets and confidential information
of the Company and its affiliates (the "Proprietary Information"), as they may
exist from time-to-time, are valuable, special and unique assets of the
Company's and its affiliates' businesses. Employee further acknowledges that
access to such Proprietary Information is essential to the performance of
Employee's duties under this Agreement. Therefore, in order to obtain access to
such Proprietary Information, Employee agrees that Employee will not, in whole
or in part, disclose such Proprietary Information to any person, firm,
corporation, association or any other entity for any reason or purpose
whatsoever, nor will Employee make use of any such information for Employee's
own purposes or for the benefit of any person, firm, corporation, association
or other

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entity (except the Company or its affiliates) under any circumstances. For
purposes of this Agreement, the term "trade secrets" means the whole or any
portion of any scientific or technical or non-technical information, design,
process, procedure, formula, computer software product, documentation or
improvement relating to the Company's or its affiliates businesses which: (1)
derives economic value, actual or potential, from not being generally known to
other persons who can obtain economic value from its disclosure or use; and (2)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy or confidentiality. The term "confidential information"
means any and all data and information relating to the Company's or its
affiliates' businesses: (1) which has value to the Company or its affiliates;
(2) is not generally known by its competitors or the public; and (3) is treated
as confidential by the Company or its affiliates. The provisions of this
Section 6 will apply during Employee's employment by the Company and for a
three-year period thereafter (without regard to the basis or reason for the
termination of employment) with respect to confidential information, and during
Employee's employment by the Company and at any and all times thereafter with
respect to trade secrets. For purposes of this Agreement, "Proprietary
Information" will not include information which is: (1) disclosed by the
Company to others on an unrestricted basis; (2) is or becomes general public
knowledge through no fault of Employee; or (3) is or becomes available to
Employee from any source not known to Employee to have a duty of nondisclosure
to the Company. This Section 6, together with Sections 7, 8, 9, 10, 11 and 12,
and the applicable provisions of Sections 4 and 5, of this Agreement, shall
survive termination of this Agreement.

         7.A      Non-Competition Covenant. During Employee's employment by the
Company and for a period of one year following any termination of Employee's
employment for whatever reason, Employee will not, directly or indirectly, on
Employee's own behalf or in the service of or on behalf of any other individual
or entity, compete with the Company within the Geographical Area (as defined in
this Agreement). The term "compete" means to engage, directly or indirectly, on
Employee's own behalf or in the service of or on behalf of any other individual
or entity, either as a proprietor, employee, agent, independent contractor,
consultant, director, officer, partner or stockholder (other than a stockholder
of a corporation listed on a national securities exchange or whose stock is
regularly traded in a nationally-recognized stock exchange, provided that
Employee at no time owns, directly or indirectly, in excess of one percent of
the outstanding stock of any class of any such corporation) in providing
Business products or services. For purposes of this Agreement, the term
"Geographical Area" means the entire United States, and all foreign countries
in which Employee or any member of his staff is or has engaged in providing or
marketing Business products or services while employed by the Company.

         B.       Non-Interference. During Employee's employment by the Company
and for a period of two years following the termination of Employee's
employment for whatever reason, Employee will not, directly or indirectly, on
Employee's own behalf or in the service of or on behalf of any other individual
or entity, interfere with, disrupt, or attempt to disrupt the past, present or
prospective relationships, contractual or otherwise, between the Company and
any supplier, consultant, or client of the Company with whom Employee had
material contact during Employee's employment by the Company. The term
"prospective relationship" is defined as any

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relationship where the Company has actively sought an individual or entity as a
prospective supplier, consultant, or client.

         C.       Non-Solicitation of Clients Covenant. Employee agrees that
during Employee's employment by the Company and for a period of two years
following the termination of Employee's employment for whatever reason,
Employee will not, directly or indirectly, on Employee's own behalf or in the
service of or on behalf of any other individual or entity, divert, solicit or
attempt to solicit any individual or entity (i) who is a client of the Company
at any time during the six-month period prior to Employee's termination with
the Company ("Client"), or was actively sought by the Company as a prospective
client during such period, and (ii) with whom Employee had material contact
while employed by the Company, to provide Business services to such Clients or
prospects.

         D.       Construction. The parties agree that any judicial authority
construing all or any portion of this Section 7 or Section 8 will be empowered
to sever any portion of the Geographical Area, client base, prospective
relationship or prospect list or any prohibited business activity from the
coverage of such Section and to apply the provisions of such Section to the
remaining portion of the Geographical Area, the client base or the prospective
relationship or prospect list, or the remaining business activities not so
severed by such judicial authority. In addition, it is the intent of the
parties that the judicial authority replace each such severed provision with a
provision as similar in terms to such severed provision as may be possible and
be legal, valid and enforceable. It is the intent of the parties that Sections
7 and 8 be enforced to the maximum extent permitted by law. For purposes of the
covenant set forth in Section 7.C, Employee at his own suggestion and not at
the request or direction of the Company, asserts that he has constructive
material contact with each and every Client, and further asserts that such
covenant would be unfair to the Company without application of such
constructive material contact. If any provision of either such Section is
determined not to be specifically enforceable, the Company shall nevertheless
be entitled to bring an action to seek to recover monetary damages as a result
of the breach of such provision by Employee.

         8.       Non-Solicitation of Employees Covenant. Employee further
agrees and represents that during Employee's employment by the Company and for
a period of two years following any termination of Employee's employment for
whatever reason, Employee will not, directly or indirectly, on Employee's own
behalf or in the service of, or on behalf of any other individual or entity,
divert, solicit or hire away, or attempt to divert, solicit or hire away, to or
for any individual or entity which is engaged in providing Business services,
any person employed by the Company, whether or not such employee is a full-time
employee or temporary employee of the Company, whether or not such employee is
employed pursuant to written agreement and whether or not such employee is
employed for a determined period or at-will.

         9.       Existing Restrictive Covenants. Employee represents and
warrants that Employee's employment with the Company does not and will not
breach any agreement which Employee has with any former employer to keep in
confidence confidential information, not to

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solicit clients or employees, or not to compete with any such former employer.
Employee will not disclose to the Company or use on its behalf any confidential
information of any other party required to be kept confidential by Employee.

         10.      Return of Proprietary Information. Employee acknowledges that
as a result of Employee's employment with the Company, Employee may come into
the possession and control of Proprietary Information, such as proprietary
documents, drawings, specifications, manuals, notes, computer programs,
customer lists, customer contracts or other proprietary material. Employee
acknowledges, warrants and agrees that Employee will return to the Company all
such items and any copies or excerpts thereof, and any other properties, files
or documents obtained as a result of Employee's employment with the Company,
immediately upon the termination of Employee's employment with the Company.

         11.      Proprietary Rights. During the course of Employee's
employment with the Company, Employee may make, develop or conceive of useful
processes, machines, compositions of matter, computer software, algorithms,
works of authorship expressing such algorithm, or any other discovery, idea,
concept, document or improvement which relates to or is useful to the Company's
Business (the "Inventions"), whether or not subject to copyright or patent
protection, and which may or may not be considered Proprietary Information.
Employee acknowledges that all such Inventions will be "works made for hire"
under United States copyright law and will remain the sole and exclusive
property of the Company. Employee assigns and agrees to assign to the Company,
in perpetuity, all right, title and interest Employee may have in and to such
Inventions, including without limitation, all copyrights, and the right to
apply for any form of patent, utility model, industrial design or similar
proprietary right recognized by any state, country or jurisdiction. Employee
further agrees, at the Company's request and expense, to do all things and sign
all documents or instruments necessary, in the opinion of the Company, to
eliminate any ambiguity as to the ownership of, and rights of the Company to,
such Inventions, including filing copyright and patent registrations and
defending and enforcing in litigation or otherwise all such rights.

         Employee will not be obliged to assign to the Company any Invention
made by Employee while in the Company's employ which does not relate to any
business or activity in which the Company is or may become engaged, except that
Employee is so obligated if the same relates to or is based on Proprietary
Information to which Employee will have had access during and by virtue of
Employee's employment or which arises out of work assigned to Employee by the
Company. Employee will not be obligated to assign any Invention which may be
wholly conceived by Employee after Employee leaves the employ of the Company,
except that Employee is so obligated if such Invention involves the utilization
of Proprietary Information obtained while in the employ of the Company.
Employee is not obligated to assign any Invention which relates to or would be
useful in any business or activities in which the Company is engaged if such
Invention was conceived and reduced to practice by Employee prior to Employee's
employment with the Company, provided that all such Inventions are listed at
the time of employment on the attached Exhibit A.

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         12.      Remedies. Employee agrees and acknowledges that the violation
of any of the covenants or agreements contained in Sections 6, 7, 8, 9, 10 and
11 of this Agreement would cause irreparable injury to the Company, that the
remedy at law for any such violation or threatened violation would be
inadequate, and that the Company will be entitled, in addition to any other
remedy, to temporary and permanent injunctive or other equitable relief without
the necessity of proving actual damages.

         13.      Insurance. The Company covenants and agrees that, for so long
as Employee shall continue to serve as an officer or director of the Company,
it shall use its reasonable efforts to maintain in full force and effect
directors' and officers' insurance in reasonable amounts from established and
reputable insurers, to cover claims asserted against Employee or liabilities
incurred by Employee for actions taken or omitted in the scope of his capacity
as a director or officer of the Company, and if necessary to purchase
applicable "tail coverage" if it can be obtained for a reasonable price as
determined in good faith by the disinterested members of the Board.

         14.      Indemnification. The Company agrees to indemnify Employee and
hold Employee harmless to the fullest extent permitted by the Delaware General
Corporation Law as it presently exists or to such greater extent as such law
may hereafter be amended for indemnification of corporate officers and
directors by a Delaware corporation. However, the Company shall be required to
so indemnify Employee in connection with a proceeding initiated by Employee
only if the proceeding was authorized by the Board. Without limitation of the
foregoing, the Company agrees to advance, within ten business days of
Employee's request and upon receipt of an undertaking to repay such advances if
repayment is required by the Delaware General Corporation Law, all reasonable
expenses, including, without limitation, attorneys' fees and expenses and court
costs, incurred by Employee in defending any threatened or actual claim, action
or proceeding to which he is entitled to indemnity hereunder, including, but
not limited to, the investigation, defense, settlement or appeal of any such
claim or action, to which the Employee is a party or threatened to be made a
party by reason of the fact that the Employee is or was an officer or director
of the Company. The indemnification and undertaking to advance expenses of the
Company under this Agreement shall be in addition to and shall not be deemed to
limit any other rights to which Employee may be entitled to indemnification or
advancement of expenses under any bylaw, agreement, articles of incorporation,
vote of stockholders or disinterested directors, at law, or otherwise.

         15.      Attorneys' Fees. Employee shall be reimbursed promptly upon
request for all fees and costs incurred in disputing any breach or default
hereunder or any issue hereunder relating to the termination of Employee's
employment, in seeking to obtain or enforce any benefit or right provided by
this Agreement, or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided under this Agreement or any other plan or agreement referred
to in Section 4(e)(1), including, without limitation, attorneys' fees and
expenses and court costs. Employee will also be

                                     - 11 -


<PAGE>   12



reimbursed for all reasonable fees and costs incurred in connection with the
review of Employee's employment arrangements.

         16.      Notices. Any notice or communication under this Agreement
will be in writing and sent by registered or certified mail addressed to the
respective parties as follows:

         If to the Company:                         If to Employee:
         ------------------                         ---------------

         1400 Watterson Tower                       3906 Eagle Way
         Louisville, Kentucky 40218                 Prospect, Kentucky 40059
         Attn:  General Counsel                     Attn: Patrick B. McGinnis

         17.      Severability. Subject to the application of Section 7(D) to
the interpretation of Sections 7 and 8, if one or more of the provisions
contained in this Agreement is for any reason held to be invalid, illegal or
unenforceable in any respect, the same will not affect any other provision in
this Agreement, and this Agreement will be construed as if such invalid or
illegal or unenforceable provision had never been contained in this Agreement.
It is the intent of the parties that this Agreement be enforced to the maximum
extent permitted by law.

         18.      Entire Agreement. This Agreement, the stock option agreements
that evidence the options provided for in Section 5, and the option and other
benefit plans applicable to Employee in accordance with the terms of this
Agreement, constitute the entire agreement of the parties relating to the
subject matter of this Agreement and supersede all other prior agreements,
discussions and negotiations, oral or written, regarding the subject matter of
this Agreement. No amendment or modification of this Agreement will be valid or
binding upon the parties unless made in writing and signed by the parties.

         19.      Binding Effect. This Agreement will be binding upon the
parties and their respective heirs, representatives, successors, transferees
and permitted assigns. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall be bound by, and shall assume, the obligations under this Agreement in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For purposes of this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection or which becomes bound by the terms of this
Agreement by operation of law.

         20.      Assignment. This Agreement is one for personal services and
will not be assigned by Employee. The Company may assign this Agreement only
upon the prior written consent of Employee.

                                     - 12 -


<PAGE>   13



         21.      Governing Law. This Agreement is entered into and will be
interpreted and enforced pursuant to the laws of the Commonwealth of Kentucky.
The parties agree that the appropriate forum and venue for any disputes between
any of the parties arising out of this Agreement shall be any federal court in
the Commonwealth of Kentucky and each of the parties submits to the personal
jurisdiction of any such court. The foregoing shall not limit the rights of any
party to obtain execution of a judgment in any other jurisdiction. The parties
further agree, to the extent permitted by law, that a final and unappealable
judgment against either of them in any action or proceeding contemplated above
shall be conclusive and may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified exemplified copy
of which shall be conclusive evidence of the fact and amount of such judgment.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

HEALTHCARE RECOVERIES, INC.:                  EMPLOYEE:

/s/ David E. McDowell                         /s/ Patrick B. McGinnis
------------------------------------          -------------------------------
DAVID E. McDOWELL                             PATRICK B. MCGINNIS
Chairman and Chief Executive Officer
Medaphis Corporation

                                     - 13 -


<PAGE>   14


                                   EXHIBIT A

                                   INVENTIONS

Employee represents that there are no Inventions.






                                                                   PBM
                                                            -------------------
                                                              Employee Initials




<PAGE>   15


                        AMENDMENT TO EMPLOYMENT AGREEMENT

         This AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") by and between
the undersigned employee and HEALTHCARE RECOVERIES, INC., a Delaware
corporation, is entered into effective as of May 28, 1997 and amends the
Employment Agreement between the parties dated May 28, 1997 (the "Employment
Agreement").

         The parties agree as follows:

         1.       Section 4(a)(ii) of the Employment Agreement is deleted in its
                  entirety and the following is substituted:

                  "Employee commits any other act in bad faith materially
                  detrimental to the business or reputation of the Company."

         2.       The first two sentences of Section 5(c) of the Employment
                  Agreement are deleted in their entirety, and the following is
                  substituted:

                  "The Company shall issue to Employee under the Healthcare
                  Recoveries, Inc. Non-Qualified Stock Option Plan for Eligible
                  Employees options to purchase that number of shares of the
                  Company's common stock (at an exercise price equal to the
                  initial offering price) listed next to Employee's name as
                  follows:

                  Patrick B. McGinnis        200,000
                  Dennis K. Burge            78,750
                  Douglas R. Sharps          78,750
                  Bobby T. Tokuuke           65,000
                  Debra M. Murphy            65,000

                  These options shall have an effective grant date on the day
                  the Company's common stock first begins trading on the Nasdaq
                  National Market and shall vest over three years as follows:
                  one-third on each of the first three anniversaries of the
                  effective grant date."

         3.       Section 5(a) of the Employment Agreement is hereby amended by
                  adding the following immediately after the first sentence of
                  Section 5(a):

                  "Such annual salary will be subject to annual percentage
                  increases for inflation equivalent to those increases given in
                  the normal course of business to employees of the Company,
                  pursuant to the Company's present policy or, as the case may
                  be, a future policy approved by the Board to apply
                  substantially on a Company-wide basis."

         4.       Section 5(b) of the Employment Agreement is deleted in its
                  entirety and the following is substituted:
<PAGE>   16
                  "Incentive Compensation. During the term of the Agreement,
                  Employee shall be entitled to incentive compensation payments
                  in accordance with the Management Group Incentive Compensation
                  Plan of Healthcare Recoveries, Inc. If Employee is terminated
                  by the Company without Cause, Employee shall be entitled to a
                  pro rata share of incentive compensation payments. A 'pro
                  rata' share of incentive compensation payments shall mean that
                  portion of the incentive compensation payments that would have
                  been paid to Employee had Employee not been terminated without
                  Cause, assuming Employee worked for the balance of the term
                  and performed consistently with Employee's past performance."

         IN WITNESS WHEREOF, each party has executed this Amendment individually
or by its duly authorized representative.

HEALTHCARE RECOVERIES, INC.



By:/s/ Douglas R. Sharps
   ------------------------------------------
      Douglas R. Sharps
      Executive Vice President - Finance and
      Administration, Chief Financial Officer and
      Secretary


EMPLOYEE



/s/ Patrick B. McGinnis
---------------------------------------------
      Patrick B. McGinnis
      Chairman and Chief Executive Officer