AMENDMENT NO. 1
                                     to the
                         MANAGED CARE SERVICE AGREEMENT
                                     between
                          HEALTH RISK MANAGEMENT, INC.
                         and KEYSTONE MERCY HEALTH PLAN

     THIS  AMENDMENT NO. 1 is made and entered into  effective as of the 1st day
of October,  1997,  ("Effective  Date"),  by and between HEALTH RISK MANAGEMENT,
INC.,  having offices at 8000 West 78th Street,  Minneapolis,  Minnesota ("HRM")
and  KEYSTONE   MERCY  HEALTH  PLAN,   having  offices  at  200  Stevens  Drive,
Philadelphia, Pennsylvania ("KMHP").

                                    RECITALS:

     WHEREAS,  HRM and KMHP are parties to that  certain  Managed  Care  Service
Agreement  dated October 29, 1996,  whereby KMHP  utilizes  certain HRM systems,
software and resource  management  services,  and HRM provides  certain  related
health  care  cost   management   services  to  KMHP  with   respect  to  KMHP's
participating  members to whom managed health care services are delivered  under
KMHP programs (the "Agreement"); and

     WHEREAS,  by executing  this  Amendment No. 1, HRM and KMHP desire to amend
certain  provisions  of the  Agreement  to address and clarify  issues that have
arisen during the course of performance under the Agreement;

     NOW,  THEREFORE,  in consideration of the foregoing and in consideration of
the mutual  promises of the parties hereto and the mutual  benefits to be gained
by the performance hereof, the parties hereto agree as follows:

1.   Section 3.k.,  including  subsections 3.k.i, ii and iii thereof, is deleted
     in its entirety and is not to be replaced or restated.

2.   Section 11.e. is hereby deleted in its entirety and the following is hereby
     inserted in its place.

          "e. If any of the following  events occur:  (i) the actual Per Covered
     Member Per Month ("PMPM")  calculation for Inpatient (LOB 100), pursuant to
     Section 6 of the Amended Schedule 1 - Fee Schedule, "Performance Bonus," is
     greater than  ninety-two  percent  (92%) of the 1996 Baseline PMPM used for
     the Target PMPM for  calendar  year 1998.  (The Target PMPM is  eighty-five
     percent  (85%) of the 1996  Baseline  PMPM.);  (ii) KMHP  ceases to operate
     under a DPW Contract or otherwise  terminates doing business in the Service
     Area; (iii) a sale of HRM or of all or  substantially  all of HRM's assets;
     (iv) a merger or  consolidation  of HRM or a change  of direct or  indirect
     control of HRM or a change of HRM's executive management; or (v) HRM, or an
     affiliate  of HRM or an entity  in which  HRM holds an equity or  ownership
     interest, is a competitor of KMHP, then KMHP may terminate the Managed Care
     Service  Agreement  with at least  sixty (60) days  written  notice to HRM;
     provided, however, except for a termination under clause (iii), (iv) or (v)
     above, KMHP shall pay the cost of termination,  with no further  obligation
     of any kind to HRM, as follows:
<PAGE>

          i. Two (2) months of gross salary of HRM's dedicated Minneapolis staff
     (i.e., full-time equivalents ["FTE's"] then working on KMHP services).

          ii. Usage fees  calculated at $0.11 per Covered Member per month for a
     six (6) month period after the termination date.

          For  the  purposes  of this  subsection  11.e.,  an  entity  shall  be
     considered a competitor of KMHP if such entity is engaged in, has agreed to
     engage in, or has submitted a proposal or filing to a  governmental  agency
     or other  party to engage in the  provision  of managed  care  services  to
     Medical Assistance recipients in the Service Area.

          For the purposes of this subsection 11.e., the term "affiliate" of any
     entity  shall  mean a  party  that  directly  or  indirectly  controls,  is
     controlled by, or under common control with such entity."

3.   Section 11.f.,  including subsections 11.f.i, ii and iii thereof, is hereby
     amended and restated in its entirety to read as follows:

          "f. Ninety (90) days prior to October 1, 1999, KMHP shall give written
     notice to HRM of its intent to exercise its option to terminate  any or all
     of the Utilization  Management  services  referred to in Section 3.b.(i) of
     Amended  Schedule 1 Fee  Schedule  to the  Agreement,  the  QualityFIRST(R)
     Guidelines,   HRM's  AutoPILOT  services,  and  HRM's  Resource  Management
     services,  together with the respective fees for said services, at any time
     on or after  September  30,  1999,  with no  payment  to be due HRM for the
     terminated service(s) in connection therewith,  except for those transition
     costs specified in Section 3.a.v.  of Amended  Schedule 1 - Fee Schedule to
     the  Agreement.  If KMHP chooses to continue any or all of the  Utilization
     Management  services  referred to in Section 3.b.(i) of Amended Schedule 1,
     the QualityFIRST  Guidelines,  HRM's AutoPILOT services, and HRM's Resource
     Management  services,  KMHP shall specify in its advance  written notice to
     HRM, as specified above, the service(s) it intends to continue and the date
     upon which such  service(s)  is to  terminate,  if sooner than December 31,
     2001. In the event the service(s) is to continue beyond September 30, 1999,
     all fees except for  Utilization  Management  will  continue  as  specified
     herein and, with respect to Utilization  Management fees, KMHP and HRM will
     mutually agree on the fees for Utilization  Management  within a reasonable
     time following HRM's receipt of KMHP's written notice."

4.   Section 21, entitled,  "Changes Effective October 1, 1997," is hereby added
     to the Agreement and shall read as follows:

     "21.  Changes Effective October 1, 1997

     a.   The parties will  mutually  develop and agree upon two (2)  transition
          plans  which  will be added to the  Agreement  in an  amendment  to be
          executed at such time.
<PAGE>

          Transition  Plan 1 will involve the plan to transition to KMHP certain
          services which have been the subject of dispute. The reimbursement for
          such  services  will be as agreed to in the  Amended  Schedule 1 - Fee
          Schedule.  Once the transition plan is agreed to, the fee schedule and
          timings for these services will be adjusted to reflect those change in
          services.  The  transition  plan  members for such  services  are (see
          attachment). The transition team will finalize this transition plan to
          be completed no later than  November 15, 1997.  This  transition  plan
          will  then be  presented  to the  joint  senior  management  committee
          consisting of (see  attachment).  Final  approval will be by the joint
          senior management decision committee.

          Transition  Plan 2 will involve a transition  team  consisting of (see
          attachment)  will  deliver  to the  senior  management  team  of  (see
          attachment) a transition plan for  transitioning the capitated managed
          care  services to KMHP at any time after October 1, 1998. On or before
          December 23, 1997, the parties shall agree on the specific terms to be
          included in a written Transition Plan to be appended to the Agreement.
          The  intent is to be able to have  transitioned  all of the  capitated
          services to KMHP no later than October 1, 1999.  KMHP shall,  at their
          discretion, continue to have HRM perform the services beyond September
          30, 1999, if they so choose.  The transition plan will anticipate that
          as any portion of the capitated  services is transferred to KMHP prior
          to September 30, 1999, there will be an adjustment to the fees payable
          to HRM,  but that HRM will be entitled  to its full  profit  structure
          that was anticipated for that service through September 30, 1999.

     b.   Claim  Performance  Standards.  In the performance of the managed care
          services under the Agreement,  HRM and KMHP will perform such services
          in a manner that will satisfy such  performance  standards as shall be
          defined in a performance  standards  plan. The  performance  standards
          plan will be developed by a team consisting of (see attachment).   The
          team will deliver the  performance  standards plan to the joint senior
          management  committee  (consisting of (see attachment))   on or before
          November 15, 1997. The performance standards plan shall include, among
          others to be developed and agreed upon, the following standards:

          i)   Ninety-five  percent (95%) of all authorizations will load to the
               KMHP healthcare  information  system without critical errors on a
               daily basis

          ii)  Ninety-eight percent (98%) accuracy rate on all authorizations

          iii)Case Exception Report - 100% resolved within two (2) business days

          iv)  Certification  Extract  Report  - 100%  resolved  within  two (2)
               business days

          v)   Authorization issues communicated from KMHP's Claims Department -
               100% resolved within two (2) business days
<PAGE>

          vi)  Audit and  measurement  standards  and  remedies  for  corrective
               action  in the  event  the  performance  standards  are not being
               achieved,  which remedies would not be KMHP's exclusive  remedies
               and would not preclude the exercise of other rights.

          With respect to the performance  standards iii., iv., and v. set forth
          above,  HRM  agrees  to  meet,  commencing  on the date  hereof,  such
          performance  standards when the ability to "resolve" such  performance
          standards is within HRM's control.

     c.   On or before  November 1, 1997, the parties will mutually  develop and
          agree upon a written joint  management  process which will be added to
          the  Agreement  in an  amendment  to be  executed  at such time.  This
          written joint management process shall address the following:

          i)   The management  structure of how both parties will relate to each
               other.

          ii)  A defined  set of  procedures  to control the  interface  process
               between  all  KMHP  and  all  HRM  affected   operations.   These
               procedures  will address,  but not be limited to, HRM  interfaces
               with   the    following    KMHP    departments:    IS,    Claims,
               Telecommunications,  Regulatory  Affairs,  Member  Services,  and
               Medical Affairs.

          iii)Define  the  control  of  the  HRM/Philadelphia   staff  and  its'
               relationship to the KMHP staff.

          iv)  Develop performance measures for:

               (1)  claims interface and claims turnaround  between HRM/UM group
                    and the KMHP claims group.

               (2)  delineate   the   reporting   processes   and  data   fields
                    communication  processes for the reporting of all activities
                    between HRM and KMHP.

               (3)  delineate  the  management  issues and  staffing of the HRM/
                    Philadelphia staff.

               (4)  delineate  desirable and required  features and  performance
                    capabilities of AutoPILOT.

          v)   Provide  KMHP  with a  diskette  containing  detailed  line  item
               records  used by HRM to  create  summaries  for  month-end  close
               information on inpatient cases.
<PAGE>

     d.   On or before  November 1, 1997, the parties will mutually  develop and
          agree  upon  more  precise   descriptions  of  each  of  the  services
          contemplated under the Agreement,  the responsibilities of the parties
          with respect  thereto and  performance  standards  thereof,  including
          those listed in Section  21.c.(iv) above.  For each service  provided,
          the detail to be agreed  upon may  include,  without  limitation,  the
          telecommunications  interfaces,  HRM case manager processes,  the data
          fields to be filled out in AutoPILOT or the Mercy  Healthcare  System,
          and the data  fields to be  transmitted  on each case to KMHP  claims.
          These details, once agreed upon, will be added to this Agreement in an
          amendment  to  be  executed  at  such  time  and,  thereafter,   these
          descriptions  will  constitute  the extent of the service  provided by
          HRM.  Any  modifications  desired or requested by KMHP or HRM for that
          service will go through the change order process described below.

     e.   On or before  November 1, 1997, the parties will agree on the use of a
          change order  process to be added to the  Agreement by amendment to be
          executed  at  such  time  and by  which  the  parties  will  abide  in
          addressing changes to the services and responsibilities from and after
          the adoption of said amendment.

     f.   HRM and all those who may claim  under,  by or  through  HRM,  and all
          affiliates of HRM,  hereby release and forever  discharge KMHP and its
          successors, agents, owners, partners, affiliates, employees, officers,
          directors  and  assigns  of and from  any and all  claims,  causes  of
          action,  suits and demands  whatsoever  (except  those with respect to
          third party claims subject to indemnification  under Section 12 of the
          Agreement),  which HRM now has or ever had against KMHP in  connection
          with or related to (i) the  subject  matters of a request  for dispute
          resolver list for arbitration  filed by HRM with the NHLA  Alternative
          Dispute  Resolution  Service;  (ii) payment by KMHP for, in connection
          with,  related to, or resulting from, the provision of services by HRM
          except as expressly  set forth in this  Amendment No. 1; and (iii) any
          alleged  breaches of the  Agreement by KMHP related to clauses (i) and
          (ii)  of this  paragraph  which  occurred  prior  to the  date of this
          Amendment No. 1.

          KMHP and all those who may claim under,  by or through  KMHP,  and all
          affiliates of KMHP,  hereby release and forever  discharge HRM and its
          successors, agents, owners, partners, affiliates, employees, officers,
          directors  and  assigns  of and from  any and all  claims,  causes  of
          action,  suits and demands  whatsoever  (except  those with respect to
          third party claims subject to indemnification  under Section 12 of the
          Agreement),  which KMHP now has or ever had against HRM in  connection
          with or related to (i) the  subject  matter of KMHP's  alleged  claims
          against HRM as referenced in the letter of Robert H. Gilman of KMHP to
          Gary T. McIlroy, M.D. of HRM, dated September 5, 1997; (ii) payment by
          HRM for,  in  connection  with,  related  to,  or  resulting  from the
          rendering  of services or the  alleged  failure to render  appropriate
          services,  by HRM, except as expressly set forth in this Amendment No.
          1; and (iii) any alleged  breaches of the  Agreement by HRM related to
          clauses (i) and (ii) of this  paragraph  which  occurred  prior to the
          date of this Amendment No. 1.
<PAGE>

          The parties further acknowledge and agree that the services, functions
          and responsibilities  performed by HRM through this date in connection
          with the  operations  of KMHP and its  affiliates  are,  among others,
          included in the  obligations,  services  and  responsibilities  of HRM
          under the  Agreement,  as amended,  and that HRM does not and will not
          have  any  right  to  compensation  for any  services,  functions  and
          responsibilities  currently  performed by HRM,  except as set forth in
          the Agreement, as amended and will not have any right to terminate any
          such services,  functions and responsibilities  currently performed by
          HRM, except as set forth in the Agreement, as amended.

     g.   Upon  execution of this  Amendment  No. 1 to the  Agreement,  HRM will
          withdraw,  without  prejudice,  its request for arbitration filed with
          the National Health Lawyers Association Alternative Dispute Resolution
          Service on October 3, 1997.

     h.   On or before  November 1, 1997,  the parties will mutually  agree upon
          further amendments to the Agreement which are intended to:

          i)   replace  ambiguous  responsibilities  to specific  processes  and
               procedures;

          ii)  eliminate ambiguity in many of the breach of contract provisions;
               and

          iii)insert a mediation process prior to any arbitration process."

5.   Schedule 1 - Fee Schedule to the  Agreement is hereby  amended and restated
     as follows: (see attachment)

6.   Reaffirmation of Agreement - Any and all provisions of the Agreement, other
     than those modified and amended as set forth in this Amendment No. 1, shall
     hereby  remain in full  force and  effect.  Any  further  amendment  to the
     Agreement  shall be subject and pursuant to a definitive  written  document
     executed by the parties hereto.

7.   Counterparts.  This  Amendment  No.  1 may  be  executed  in  one  or  more
     counterparts,  and  each  such  counterpart  shall  be  deemed  part of the
     original  document.  This Amendment No. 1 shall be binding upon the parties
     hereto  as of the  Effective  Date set  forth  above  at such  time as both
     parties have executed a counterpart of this Amendment No. 1.
<PAGE>

8.   Facsimile  Signatures.  Original signatures of the parties hereto on copies
     of this Amendment No. 1 transmitted by facsimile shall be deemed  originals
     for all purposes hereunder, and such copies shall be binding on the parties
     hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment No. 1
to the Managed Care Service Agreement on the dates shown below.

HRM:                               KMHP:


HEALTH RISK MANAGEMENT, INC.       KEYSTONE MERCY HEALTH PLAN


By    /s/  GARY McILROY            By    /S/  DANIEL J. HILFERTY
Its   Chief Executive Officer      Its   President and Chief Executive Officer
Dated 10/9/97                      Dated 10/09/97