MANAGED CARE SERVICE AGREEMENT

         This  Agreement is made and entered into as of the 29th day of October,
1996,  by and between  HEALTH RISK  MANAGEMENT,  INC.,  a Minnesota  corporation
having  offices  at  8000  West  78th  Street,   Minneapolis,   Minnesota  55439
(hereinafter  "HRM"),  and KEYSTONE  MERCY HEALTH  PLAN,  having  offices at 200
Stevens Drive, Philadelphia, Pennsylvania 19113 (hereinafter "KMHP").

         WHEREAS,  KMHP  desires to utilize  certain HRM  systems,  software and
resource  management  and to engage HRM to provide  certain  related health care
cost management  services to KMHP with respect to KMHP participating  members to
whom managed  health care services are delivered  under KMHP programs  (each,  a
"Program");

         WHEREAS,  KMHP desires to utilize HRM staff to perform  certain  health
care cost management services for an indefinite period of time;

         WHEREAS,  this  Agreement is being entered into in an effort to enhance
KMHP's  utilization  management  staff skills and provide them with the tools to
provide better services to KMHP members; and

         WHEREAS,  HRM is willing to accept such  engagement in accordance  with
the terms and conditions set forth below

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
covenants  and  promises  set  forth  below,  and for  other  good and  valuable
consideration the receipt and sufficiency of which is hereby  acknowledged.  the
parties agree as follows:

1.        Definitions

          a.  "Covered  Member" shall mean  individuals  residing in the Service
Area enrolled for medical  benefits under a Program and determined in accordance
with KMHP's policies and procedures to be covered by this  Agreement,  from time
to time.

          b. "DPW" shall mean the  Pennsylvania  Department of Public Welfare or
its successor agency.

          c. "DPW  Contract"  shall mean the  contract(s)  with DPW  pursuant to
which KMHP  operates  its  Pennsylvania  managed care  plan(s),  either as prime
contractor or as a subcontractor to the prime contractor with DPW.

          d. "Effective Date" shall mean November 9th, 1996.

          e. "KMHP" shall mean  Keystone  Mercy  Health Plan and its  designated
affiliates.

          f. "License Agreement" shall mean that certain QualityFIRST(R) License
Agreement  dated as of July 11, 1996 between KMHP and Institute  for  Healthcare
Quality, Inc. ("IHQ").

          g.  "Service   Area"  shall  mean  the   following   area  within  the
Commonwealth  of  Pennsylvania:  Philadelphia  County;  Bucks  County;  Delaware
County;   Montgomery  County;  Chester  County;  Lehigh  County;  Berks  County;
Lancaster County and any other areas designated by KMHP.

2.        General Agreement - Provision of Services

          a. KMHP hereby  authorizes HRM, and HRM hereby agrees,  to provide the
managed care services  listed on the attached  Schedule 2, as modified from time
to time, and otherwise specified in this Agreement.  In furtherance thereof, HRM
will advise and assist KMHP in the development,  implementation and operation of
utilization and medical cost management  programs  including those using the HRM
systems,  guidelines  and criteria.  In accordance  with policies and procedures
developed by KMHP in  consultation  with HRM, HRM will review cases  referred by
KMHP and make  recommendations  as to medical necessity and  appropriateness  of
treatment plans, utilization and alternative treatment modalities,  and HRM will
further assist in the training of KMHP staff in the  implementation  and uses of
the QualityFIRST(R) guidelines and other related HRM systems


<PAGE>

         b. To the  extent  that this  Agreement  contains  provisions  or terms
inconsistent  with any portion of the Schedules,  the provisions or terms of the
applicable schedule shall control.

         c. Except as otherwise provided herein,  KMHP agrees to pay HRM for the
managed  care  services  described  above in  accordance  with Section 4 of this
Agreement.

3.       Further Agreements

         a. HRM will develop and make  available  to KMHP and its  participating
providers a summary of the QualityFIRST(R) medical management guidelines that is
suitable for clinicians and reasonably  adequately  describes the guidelines and
criteria used therein.  In the event DPW or other applicable  regulatory  agency
requires distribution to providers of more detailed or different descriptions of
utilization   management  guidelines  or  criteria,   HRM  will  assist  in  the
preparation of such a description that will comply with any such requirements.

         b. HRM will review cases and make its findings  within time frames that
shall be mutually agreed upon by the parties. The parties shall further mutually
agree upon and comply with  standards for  information  regarding each case that
will be  collected  and  maintained,  procedures  and media for the  storage and
transmittal of such information  between the parties,  and the contents and time
frames for reports thereon.

         c. KMHP is responsible for determining Covered Member eligibility.  HRM
may rely on information  supplied by KMHP concerning Covered Member eligibility,
and KMHP will hold HRM harmless  from any  liability  arising as a result of any
inaccuracies in the eligibility information supplied by KMHP. Further, KMHP will
transfer daily to HRM  electronic  eligibility  information  in a  configuration
mutually agreed upon by the parties hereto.

         d. KMHP shall  establish  from time to time and  maintain  policies and
procedures by which its providers may seek and obtain prompt review by KMHP of a
recommendation or determination  concerning  Covered Members whose proposed plan
of treatment or referral has been determined not to be medically necessary. KMHP
may reverse a finding made by HRM whether or not the provider has appealed.

         e. HRM will not be liable to KMHP with respect to health care  services
sought or obtained by any Covered Member that are subsequently  determined to be
ineligible  for the coverage or benefits of a Program.  HRM shall be entitled to
rely on any  determination  by KMHP that any person or any health care  services
are ineligible for the coverage or benefits of a Program.

         f. KMHP and HRM will keep  confidential  and not  disclose to any third
parties the terms,  conditions,  content and substance of this Agreement  unless
required to disclose the same to or by regulatory authorities or by operation of
law and except to the extent disclosure is necessary for such party to carry out
its duties under this  Agreement.  The parties hereby consent to KMHP furnishing
this Agreement to DPW.

          g. HRM will  operationalize the Mercy Health Plan Missions and Values,
as defined on Schedule 4, into the KMHP program.

          h.  KMHP's  Chief  Medical  Officer,  and his staff at KMHP shall have
responsibility  for oversight of the quality of health care  delivered to KMHP's
members. From a quality point of view, KMHP shall review over/under  utilization
of  services,  and KMHP  and HRM  shall  implement  corrective  action  plans in
response to those reviews.


<PAGE>

          i. All  utilization  criteria,  guidelines and procedures  used in the
course of this  Agreement  will be  established  by or otherwise  subject to the
prior approval of, and  continuing  review and revision by, KMHP and will comply
with the requirements of the DPW and other regulatory requirements.

         j.  The  KMHP  utilization  management  employees  transferred  to  and
employed by HRM to perform  services  under this Agreement will receive from HRM
their present  levels of  compensation  and will be employed and utilized by HRM
solely  to  perform  services  for  KMHP.  Initially,  HRM will  make  offers of
employment to at least 33 individuals for employment in the Philadelphia office.
Thereafter, HRM will employ at least the minimum staffing otherwise specified in
this Agreement.  All HRM staff located in  Philadelphia  will be located at KMHP
offices,  and KMHP will provide adequate space,  office equipment,  supplies and
furniture at no additional cost to HRM, (the cost of such facilities having been
incorporated into the compensation  arrangements  hereunder).  HRM and KMHP will
use their  best  efforts to  maintain  continuity  of staff at the  Philadelphia
location.

         k. KMHP and HRM  anticipate a termination  of the managed care services
rendered by HRM, with a continuation of the relationship between the parties for
the  QualityFIRST(R)  guidelines,  AutoPILOT(SM) system and resource  management
components. In the event of such a transition, the following terms shall apply:

               i. KMHP shall  give HRM at least one  hundred  eighty  (180) days
advance  written  notice of its intent to  transition  the managed care services
function on a date to be specified in such written notice ("Transition Date").

               ii. In  consideration  of such  transition  of the  managed  care
services,  KMHP  shall pay to HRM a sum(s)  sufficient  to cover the cost of the
following items:

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

                    (2) Usage fees  calculated  at $0.11 per Covered  Member per
month (based on the number of Covered  Members as of the Transition  Date),  and
shall be  payable  monthly  to HRM for the six (6) month  period  following  the
Transition Date.

              iii.  Transition  of   the managed care services  function of this
Agreement pursuant  to this  Section (1) shall  terminate  as of the  Transition
Date the utilization  management  fee and (2) shall  not  terminate  the License
Agreement,  the  AutoPILOT(SM)  and   computer  usage  fees,  and  the  resource
management fees between the parties hereto, and such fees shall remain in effect
until December 31,  2001, and shall  continue  under the  terms  and  conditions
set forth in Schedule 1 and the License Agreement.

          Notwithstanding any other provision of this Agreement to the contrary,
KMHP may give the notice  described  in clause (i) of this  subsection  (k) of a
termination  of managed care services at any time during the term hereof and the
parties  recognize  that,  accordingly  the Transition  Date may be earlier than
January 1. 1999.

          l. KMHP shall rehire,  at the Transition  Date or upon  termination of
this Agreement as provided in Section 11 (h) hereof, HRM's Philadelphia staff at
their then  current  salaries,  and HRM agrees that prior  thereto they will not
reassign the Philadelphia staff to provide services other than to KMHP.

          m. HRM will take steps to ensure that it is knowledgeable of the needs
and concerns of KMHP  providers  and members.  KMHP will develop  mechanisms  to
review with HRM  complaints  from its members and  providers,  and HRM will,  in
conjunction  with KMHP,  develop  strategies to address  problems and complaints
from the community.


<PAGE>

          n. HRM shall at all times during the term of this Agreement  maintain,
at its expense,  insurance coverages of the following types and minimum amounts:
comprehensive  general  liability for $2,000,000;  professional and managed care
liability for $10,000,000;  and Workers'  Compensation in amounts as required by
applicable laws. HRM shall name KMHP as an additional  insured on such coverages
and  furnish to KMHP  evidence  of such  coverages  prior to  implementation  of
services hereunder and otherwise upon request of KMHP.

          o. All business and medical records relating to the operations of KMHP
shall be and remain the sole property of KMHP.

          p. HRM will allow KMHP,  and KMHP will allow HRM, or their  respective
appointed  representatives  access to books and records  during normal  business
hours for the purpose of auditing the services  provided  under this  Agreement,
upon  reasonable  prior  notice  from KMHP or HRM.  HRM or KMHP will  allow such
access to, and furnish such  information as may be requested by  representatives
of appropriate governmental agencies.

          q. The parties shall at all times  operate in accordance  with the DPW
Contract and NCQA and URAC requirements and shall cooperate in and abide by such
oversight programs and procedures as KMHP shall adopt pursuant to NCQA, URAC, or
DPW or other regulatory requirements.

          r.   Nothing  in  this   Agreement   shall  be   construed  to  impose
responsibilities  on HRM or KMHP to provide  any  services  in  connection  with
family  planning  services or services  having the purpose of the  prevention or
termination of pregnancy including without limitation  abortion,  tubal ligation
or vasectomy.

          s.  Whenever  practicable,  HRM will use its best  efforts  to utilize
KMHP's staff physicians for physician review services performed pursuant to this
Agreement;  provided, however, that each KMHP staff physician who HRM determines
is qualified as a physician  reviewer under HRM's usual standards and processes,
will perform such  physician  review  services in  accordance  with the standard
policies and procedures  established  hereunder.  HRM will reimburse KMHP at the
rate of one  hundred  dollars  ($100.00)  per  hour for  each  hour of  services
rendered for such  physician  review  services.  KMHP and HRM agree to establish
mutually  acceptable   procedures  for  using  KMHP's  physicians  as  physician
reviewers.

          t. HRM agrees to establish a process for informing and consulting with
KMHP's Director of Human Resources  concerning any disciplinary actions proposed
to be taken by HRM with respect to HRM's  Philadelphia staff which process shall
include the prior consent by such an employee to disclosures by HRM to KMHP. HRM
will use its best efforts to keep KMHP's Director of Human Resources informed of
such actions,  but reserves the right to make the ultimate  decision  concerning
the status of employment for all of HRM's Philadelphia staff.

          u.  For a  period  of one  (1)  year  commencing  on the  date of this
Agreement and ending on its first anniversary, HRM shall not contract to perform
or deliver services similar to those performed by HRM hereunder for or on behalf
of  a  health   maintenance   organization,   health  insurer  or  managed  care
organization  providing  health  coverage  or benefits  with  respect to Medical
Assistance  recipients residing in the initial Service Area; provided,  however,
that if the number of Covered  Members  falls  below  150,000 at any time during
said  one  year  period,  HRM may,  by  written  notice  to KMHP  terminate  the
prohibition under this Section 3.u. on such contracts.


<PAGE>

          v. KMHP shall,  and HRM shall and shall cause IHQ to,  comply with and
fulfill its  obligations and duties under the License  Agreement.  The breach of
such obligation  under the License  Agreement shall  constitute a breach of this
Agreement.  The parties  understand  that upon the termination of this Agreement
either  party may at its option  terminate  the License  Agreement  upon written
notice to the other  party.  The  exercise  of such  option by a party shall not
constitute a waiver of any rights or remedies of such party under this Agreement
or the License Agreement.

4.        Service Fees

          a. In  consideration of the provision of services by HRM to KMHP, KMHP
shall pay to HRM the fee  amounts and  expense  reimbursements  set forth in the
attached Fee Schedule attached hereto as Schedule 1.

          b. The fees set  forth in  Schedule  1 will  remain  in  effect  until
December 31, 2001. For each twelve (12) month term beginning  after December 31,
2001, HRM may raise its fees,  effective as of the beginning of a calendar year,
upon one hundred  eighty (180) days  written  notice to KMHP prior to the end of
the current  calendar  year.  Any price  increase  will not be effective if such
notice is received later than one hundred eighty (180) days prior to that date.

          c. All fees are subject to year-end  audit and  reconciliation  by the
parties.  Any rights or obligations to review,  audit,  adjust or reconcile fees
will survive this Agreement for a period of twelve (12) months.

          d. Fees will be invoiced on an estimated basis in advance on or before
the tenth day of each month for the following  service month and will be due and
payable on the first day of each service  month.  HRM will  reconcile  estimated
fees  to  actual  fees on the  basis  described  in  Schedule  1 as  eligibility
information is available. Such reconciliations will normally be completed within
thirty (30) to forty-five (45) days of the end of each service month. If service
fees are not paid within  fourteen  (14) days of the due date,  such  nonpayment
shall  constitute  a  material  breach of this  Agreement  entitling  HRM to the
remedies set forth in Section 11 of this Agreement.

          e. For fee calculation  purposes,  the number of Covered Members shall
be  calculated  in  accordance  with KMHP's  records and will be reconciled on a
monthly  basis.  The  deletion  or addition  of a Covered  Member  shall only be
effective in the month in which HRM receives notice from KMHP of the termination
or addition of that Covered Member's  eligibility under the Plan. HRM shall then
adjust its service fees for the actual month in which such notice of termination
of eligibility is received from KMHP and  prospectively for the months following
thereafter.

5.        Relationship of the Parties

          HRM and KMHP  agree  that  HRM is an  independent  contractor  and its
employees will at all times be under its sole direction and control.

6.        Representations. Warranties and Covenants

          Both HRM and KMHP hereby  represent,  warrant and covenant to and with
one another as follows:

          a. HRM and KMHP are fully  authorized  to  execute  and  deliver  this
Agreement and to bind  themselves to perform fully their  respective  duties and
obligations under this Agreement.

          b. HRM and KMHP and their designated  agents will use any confidential
Covered Member  information solely to perform their respective duties hereunder,
develop  statistical  information and resolve  administrative  issues concerning
medical benefits.


<PAGE>

          c. KMHP will  comply  with  applicable  state  and  federal  statutes,
regulations,  rulings  and  judicial  and  administrative  orders  and HRM  will
likewise  comply with  respect to  provision  of the  services  pursuant to this
Agreement.  In furtherance  thereof, HRM shall obtain and maintain any licenses,
registration,  qualification,  or other authorization required by law or the DPW
Contract to perform its obligations hereunder.

7.        Non-Interference with the Physician-Patient Relationship

          Nothing  contained  herein shall be  construed  to interfere  with the
physician-patient relationship. All parties agree that HRM has not been retained
to  diagnose  or  treat  individual  Covered  Members.  The  determinations  and
recommendations  made by HRM are not  controlling  or binding  upon KMHP in KMHP
reaching  decisions  concerning  the  existence  or extent of  benefit  coverage
available to the Covered Member.  The decision to provide treatment or to make a
specialist  referral that has not been  determined to be medically  necessary or
appropriate or has not been recommended remains with the attending physician and
the  Covered  Member,  and  the  decision  to pay  for  such  treatment  remains
ultimately  with KMHP. In the event that HRM has determined that a proposed plan
of  treatment  or  referral  is not  medically  necessary  or  appropriate,  the
attending  physician  and/or the Covered  Member  shall have the right to seek a
prompt review by KMHP of HRM's  determination or recommendation  pursuant to the
policies and procedures to be  established  and maintained by KMHP in accordance
with  Section 3.b. of this  Agreement.  Further,  Covered  Members will have the
right to file a grievance in  accordance  with the DPW  Contract and  regulatory
requirements.

8.        Confidentiality

          a. Covered Member Information

               i.  HRM  agrees  to keep  confidential  any  information  that it
receives  in the course of  performing  services  under this  Agreement,  to the
extent such  information  identifies  a  particular  Covered  Member;  provided,
however,  that HRM may retain and use for its database and statistical  purposes
any information that HRM obtains concerning the costs charged,  procedures used,
or  treatments  employed in treating any Covered  Member so long as the retained
information does not disclose the identity of that Covered Member.

               ii. HRM agrees that it will not transfer any of such KMHP data to
any third parties.

               iii.  KMHP  agrees to  provide  reasonable  assistance  to HRM in
obtaining  authorizations  or  releases  from  Covered  Members  and  contracted
providers as necessary to permit HRM to perform its obligations  hereunder.  HRM
shall have no  obligation  to provide  services  hereunder  with  respect to any
Covered Member to the extent such  authorizations  or releases are necessary and
are not obtained from such Covered Member.

               iv. HRM agrees,  subject to any limitations imposed by applicable
statutes, regulations or judicial decisions, to release to KMHP written provider
medical records that HRM receives in the course of providing services hereunder;
statements of the outcome of HRM's  medical  review  activities  and the reasons
therefore,  in the case of any  determinations by HRM that proposed medical care
is partially or entirely  inappropriate  or  unnecessary;  and written  provider
medical records  submitted in appealing any decision made by HRM,  together with
any alteration in such decision by HRM.


<PAGE>

          b. HRM Proprietary Information

          KMHP recognizes that HRM is able to meet its obligations  only because
it  has  developed  and  maintained  (i)  a  unique  pool  of  information  (the
"Databases")  concerning  prospective  and  retrospective  pricing  for  various
medical services and (ii) unique methods (the "Service Methods") for processing,
utilizing and delivering such information and performing its services hereunder.
KMHP further  recognizes  that the sources and contents of the Databases and the
nature and  constituents  of the Service  Methods are  essential  to HRM and its
business. In recognition of the foregoing, KMHP for itself, its affiliates,  its
officers, employees and agents, hereby agrees to retain in strictest confidence,
and refrain from unauthorized use of, all proprietary information concerning the
Databases and Service Methods provided to it or obtained by it after the date of
this Agreement,  except as required by applicable laws or the DPW Contract.  HRM
may, prior to disclosing any  information  deemed  confidential by HRM, and as a
condition  to such  disclosure,  require  the  recipient  to  execute  a written
agreement  to  retain  in the  strictest  confidence  and to  refrain  from  any
unauthorized use of any confidential or proprietary  information  concerning HRM
that he or she may obtain,  directly or  indirectly,  from HRM or its  officers,
employees and agents.

          In addition to the foregoing,  each party agrees to preserve and cause
its affiliates to preserve the  confidentiality of all Confidential  Information
(as hereinafter defined) of the other party and its affiliates which is obtained
in connection with this Agreement, and shall not, and shall cause its affiliates
not to, without the prior written  consent of the other party,  disclose or make
available to any person,  or use for its own benefit other than as  contemplated
by  this  Agreement,  or as  required  by law  or the  DPW  Contract,  any  such
Confidential  Information of the other party or its affiliates.  For purposes of
this section,  "Confidential  Information" shall mean information  pertaining to
the business of either  party,  or their  respective  affiliates,  which is: (i)
actually confidential; and (ii) disclosed at the request of, or with the consent
of, the receiving party; provided,  however, that all financial records, medical
utilization  and expense data,  provider  information  and rates,  marketing and
other business  methods and systems,  and member records of each party and their
respective affiliates,  shall be deemed Confidential Information;  and, provided
further,  that Confidential  Information shall not include any information which
is or becomes  publicly  available or was known to the receiving  party prior to
its disclosure hereunder.


9.        Communications with Covered Members and KMHP Providers

          KMHP shall review and approve  before use any and all forms of written
communication by HRM to Covered Members or to KMHP participating  providers.  To
the extent that KMHP undertakes general  descriptions of utilization  management
policy or otherwise  engages in  communications  with respect to HRM services to
Covered  Members  or KMHP  participating  providers,  KMHP  will  provide  HRM a
reasonable  period of time in which to review such  communications in advance of
their  distribution.  HRM will not be bound by misstatements  about its services
that result from the failure of KMHP to comply with such review  requirement  or
with  respect  to  which  HRM  has  furnished  timely  notice  to  KMHP  of  its
disagreement.  KMHP intends to  continually  inform  members and  providers,  as
appropriate,  of  changes  in its  utilization  management  program  in a timely
manner.

10.       Term

          The initial term of this  Agreement  shall  commence on the  Effective
Date and continue through December 31, 2001. Thereafter,  this Agreement will be
automatically  renewed for successive twelve (12) month terms, unless terminated
as provided below.


<PAGE>

11.       Termination

          a.  Termination  at End of  Term.  Either  party  may  terminate  this
Agreement at the end of the initial term (December 31, 2001) or any renewal term
hereof by giving  written  notice of intent to  terminate  to the other party at
least one  hundred  twenty  (120)  days  prior to the end of the  initial or any
renewal term.

          b. Termination for Breach of Non-Payment Obligations. Either party may
give  notice  of  intent  to  terminate  this  Agreement  at any  time  upon the
occurrence  of a  material  breach by the other  party of any  material  term or
obligation  of this  Agreement,  other than a payment  obligation  specified  in
Section 11.c.  below,  by providing  written  notice of the claimed  breach with
sufficient  factual  detail to permit the other  party to clearly  identify  and
investigate  the claimed  breach.  If the recipient of the notice of breach does
not respond within fifteen (15) days of the date of notice of such breach with a
written  explanation of cure or a written  rebuttal of the claimed breach,  this
Agreement will terminate upon thirty (30) days written notice of termination. If
such a written  explanation of cure or written rebuttal has been provided within
the specified period,  but such breach has not been cured within sixty (60) days
of the  original  notice of breach,  or, if the  breaching  party  shall fail to
diligently  proceed  to cure  such  breach  within a  reasonable  period of such
notice,  the  non-breaching  party  may,  at its  sole  option,  terminate  this
Agreement upon ninety (90) days written notice to the breaching  party.  Failure
of either  party to  exercise  such right to  terminate  shall not  operate as a
waiver thereof or preclude any other or further exercise of such right.

          If the  breaching  party  defaults  in  the  performance  of the  same
obligation with respect to which a notice of claimed breach and cure thereof had
previously  occurred,  and written notice of such subsequent  claimed breach was
given by the  non-breaching  party  within six (6)  months of the next  previous
notice of claimed breach,  then the non-breaching party shall have the option to
terminate this Agreement upon thirty (30) days written notice without  affording
an additional opportunity to the breaching party to cure such claimed breach.

         c. Termination for Breach of Payment Obligations. Either party may give
notice of intent to terminate  this Agreement at any time upon the occurrence of
a material breach by the other party of any material,  payment  obligation under
Section 4 or Schedule 1 of this  Agreement  by providing  written  notice of the
claimed  breach  with  sufficient  factual  detail to permit the other  party to
clearly  identify and investigate  the claimed  breach.  If the recipient of the
notice of breach does not respond within fifteen (15) days of the date of notice
of said breach with a written  explanation of cure or a written  rebuttal of the
claimed  breach,  this  Agreement  will  terminate upon thirty (30) days written
notice of termination. If a written explanation of cure or a written rebuttal of
the  claimed  breach has been  provided  within the  specified  period,  but the
material  breach of a financial  obligation has not been cured within sixty (60)
days of the original  notice of the material  breach,  or if the breaching party
shall  fail to  diligently  proceed  to  cure  such  material  breach  within  a
reasonable  period following such notice of material breach,  the  non-breaching
party may, at its sole option, immediately terminate this Agreement upon written
notice to the breaching  party.  Failure of either party to exercise such rights
to  terminate  shall not operate as a waiver  thereof or  preclude  any other or
further exercise of such rights.


<PAGE>

         d.  In the  event  the  DPW or any  other  governmental  agency  having
jurisdiction  should require alteration or modification of any term or condition
of this  Agreement,  or in the  performance  of this  Agreement by either of the
parties  hereto,  or  should  there be a change in law,  regulation,  or the DPW
Contract  affecting  the conduct of either party  hereunder,  and in the further
event that such  alteration,  modification  or change  would  have a  materially
adverse effect on the interests of a party hereto directly or as a result of the
impact of such  alteration,  modification  or change on the  performance of this
Agreement, or the operations,  financial condition or business prospects of such
party,  the party hereto so affected may give written  notice to the other party
hereto  setting  forth its  objection to such  alteration  or  modification,  or
advising it of the change of law, and may request mutual  consultation  with the
other  party  hereto  relative  to the same.  Not later than ten (10) days after
dispatch by a party of such notice,  the parties shall discuss in good faith the
possibilities  of a mutually  satisfactory  resolution of this issue;  provided,
however,  that in the event the parties fail to reach written  agreement  upon a
mutually  satisfactory  resolution within forty-five (45) days after the date of
dispatch  of the notice,  the party  which has given such notice  shall have the
right to terminate  this  Agreement  upon sixty (60) days written  notice to the
other party.

         e. If any of the  following  events occur:  (i) Net Inpatient  Days Per
Thousand  exceeds  the Net  Inpatient  Days Goal (as each  such term is  defined
below) in 1997 or in 1998;  (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:

               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,  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 purposes of this  subsection,  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.

          For the purposes of this  subsection,  "Net Inpatient Days" shall mean
the gross  inpatient days for Covered Members minus inpatient days subject to or
not reimbursed due to coordination of benefits, medical denials,  administrative
denials,  and  reinsurance.  There shall be excluded from inpatient days for the
purposes  of this  definition  behavioral  health  inpatient  stays and stays of
newborns  except  detained  baby  days  and  there  shall be  included  stays in
hospital, rehabilitation, SNF, subacute and other inpatient facilities.

          "Net  Inpatient  Days Per Thousand"  with respect to any calendar year
shall  equal the total Net  Inpatient  Days for such year  divided  by an amount
equal to (i) the total  Covered  Member months for such calendar year divided by
twelve (12), divided by (ii) 1.000.


<PAGE>

          "Net Inpatient Days Goal" shall mean (i) with respect to calendar year
1997,  503 Net Inpatient  Days Per Thousand,  and (ii) with respect to 1998, 440
Net Inpatient Days Per Thousand.

          f. After December 31, 1997, if KMHP desires to cancel all  obligations
remaining  with HRM through the  expiration  of the Agreement for any reason not
otherwise  specified in this Section 11, KMHP may, with ninety (90) days written
notice to HRM,  cancel all obligations to HRM with a lump sum payment by KMHP of
the following:

               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 Transition Date

               iii.  An early  termination  fee of the  lesser  of a.) 24 months
multiplied  by the minimum  Covered  Members  (125,000)  multiplied by $1.25 per
Covered  Member  per  month;  or b.) the  number  of months  remaining  from the
termination date to December 31, 2001, multiplied by the minimum Covered Members
(125,000) multiplied by $1.25 per Covered Member per month.

          g.  Either  party may at its  option  terminate  this  Agreement  upon
written notice to the other party in the event of the termination of the License
Agreement.  The  exercise of such option  shall not  constitute  a waiver of any
party's other rights or remedies under this Agreement or the License Agreement.

          h. Upon the termination of this Agreement,  KMHP shall rehire,  at the
termination  date,  HRM's  Philadelphia  staff,  if any,  at their  then-current
salaries.

12.       Indemnification

          a. Each party agrees to  indemnify  and defend the other party and its
affiliates and their officers,  directors and employees,  and hold them harmless
from any and all losses,  costs,  claims,  demands,  damages and attorneys' fees
incurred  by the  party  to be  indemnified,  arising  out of or  caused  by any
negligent  act or omission,  fraud,  wrongful  conduct or any other  intentional
misconduct committed by the indemnifying party, its directors, officers, agents,
contractors, or employees.

          b. In the  event a claim is made or a  lawsuit  is filed  against  any
party  entitled  to  indemnification  under  this  paragraph,  that  party  (the
"Indemnified Party") will give the other party (the "Indemnitor") written notice
of the  lawsuit  within  five  (5) days  after  the  claim is first  made or the
complaint  is served.  Within  seven (7) days after  receipt of such notice (the
"Notice  Period"),  the Indemnitor will notify the Indemnified Party (i) whether
or not it disputes the  liability of the  Indemnitor  to the  Indemnified  Party
hereunder  with  respect  to such claim or  demand,  and (ii)  whether or to the
extent to which the Indemnitor will defend the claim or suit, and retain counsel
reasonably  acceptable to the  Indemnified  Party.  In the event the  Indemnitor
elects  not to defend  the  Indemnified  Party  against  such  claim or fails to
provide the notice  required  above within the Notice  Period,  the  Indemnified
Party may, at its option,  retain  counsel and  undertake its own defense of the
lawsuit;  provided,  however,  that the entire  matter,  including  the costs of
defending the claim or action,  shall be preserved for submission to arbitration
pursuant  to  Section  14 of  this  Agreement  by  either  party  following  the
conclusion and disposition of the claim or lawsuit.
<PAGE>

          c. In the event that the  Indemnitor  notifies the  Indemnified  Party
within the Notice Period that it desires to defend the Indemnified Party against
such claim or demand then, except as hereinafter provided,  the Indemnitor shall
have the  right to  defend  against  such  claim or  demand  by all  appropriate
proceedings,  which  proceedings  shall be promptly settled or prosecuted by the
Indemnitor;  provided,  however,  the  Indemnitor  shall not,  without the prior
written consent of the Indemnified  Party,  consent to the entry of any judgment
against the Indemnified  Party or enter into any settlement or compromise  which
does not include,  as an unconditional term thereof,  the giving by the claimant
or  plaintiff  to the  Indemnified  Party of a  release,  in form and  substance
satisfactory  to the  Indemnified  Party,  from all liability in respect of such
claim or litigation. If the Indemnified Party desires to participate in, but not
control,  any such  defense  or  settlement,  it may do so at its sole  cost and
expense;  provided,   however,  that  if  in  the  reasonable  judgment  of  the
Indemnified Party there may be a conflict of interest between the Indemnitor and
the Indemnified Party in the conduct of the defense of such action, the fees and
expenses  of counsel to the  Indemnified  Party  shall be at the  expense of the
Indemnifying  Party.  If requested by the  Indemnifying  Party,  the Indemnified
Party  agrees  to  cooperate  with the  Indemnifying  Party and its  counsel  in
contesting any claim or demand which the  Indemnifying  Party elects to contest,
or,  if  appropriate  and  related  to the  claim in  question,  in  making  any
counterclaim  including a  counterclaim  against the person  asserting the third
party cross complaint against any person.


<PAGE>
          Any  party  entitled  to  indemnification   will  cooperate  with  the
Indemnitor in providing  evidence and expert witnesses  reasonably  required for
defending  lawsuits subject to indemnification  under this paragraph,  provided,
however,  that the  reasonable  costs of such  cooperation  will be borne by the
indemnitor.

          d.  The  provisions  of  this  section  remain   effective   following
termination  of this  Agreement  for the  period of any  applicable  statute  of
limitations  for any cause of action or claim subject to  indemnification  under
this paragraph.

13.       Force Majeure

          HRM shall not be liable in damages to KMHP or its Covered Members as a
result of any interruptions in or cessation of services by HRM due to the damage
or  destruction  of  its  equipment,   software  or  data,  or  interruption  of
communication  or computer  service as a result of causes  beyond the control of
HRM, strikes or work stoppages by personnel of HRM and other events beyond HRM's
control.  Upon the occurrence of any such event,  HRM shall notify KMHP promptly
and KMHP shall  promptly  take all actions  reasonably  necessary  to notify its
Covered  Members or KMHP  physicians of the  interruption in HRM services and to
ensure  that no  delays  in  Covered  Members'  medical  care  result  from such
interruption. If HRM is unable to restore its services within seven (7) business
days of the  commencement  of the  interruption,  KMHP may consider this to be a
material breach pursuant to Section 11.b.

14.       Arbitration

          Any  controversy,  claim,  dispute or  disagreement  arising out of or
relating to this Agreement,  or the breach thereof,  shall be settled by binding
arbitration in Philadelphia, Pennsylvania in accordance with the National Health
Lawyers  Association  Alternative  Dispute Resolution Service Rules of Procedure
for  Arbitration.  The judgment upon the award  rendered by the  arbitrators  or
arbitrator may be entered in any court having  jurisdiction  thereof.  Except as
otherwise  provided in Section 12 hereof,  the expenses of  arbitration  will be
borne equally by the parties, provided that each party will bear the cost of its
own experts, evidence and attorney's fees, except that, in the discretion of the
arbitrators,  any award may include attorney's fees if the arbitrator  expressly
determines  that the party  against whom such an award is entered has caused the
dispute to be submitted to  arbitration in bad faith or as dilatory  tactic.  No
arbitration  will be  commenced  after  the date  when  institution  of legal or
equitable  proceedings based upon the same subject matter would be barred by the
applicable statute of limitations.

15.       Protection of Employment Relations

          Each of the parties hereby agrees,  covenants and warrants with and to
the other party that it will not, without the advance written permission of such
other party, directly or indirectly,  solicit, make offers to, or hire or retain
any  person in any  capacity  who is, or was at any time  during  the  preceding
twelve (12) months,  an employee,  consultant  or contractor of or for the other
party.  This provision shall not apply to KMHP hiring HRM Philadelphia  staff at
the termination of this Agreement or the transition to KMHP from HRM pursuant to
this Agreement.  HRM shall not unreasonably withhold permission for KMHP to hire
at any time individuals who were employees or consultants of or for KMHP.


<PAGE>

16.       Notices

          Any notice or other  communication  required  or  permitted  hereunder
shall be in writing and shall be deemed to have been given,  when  received,  if
delivered  by  hand or  telegram,  and  within  three  (3)  working  days  after
deposited, if placed in the mails for delivery by certified mail, return receipt
requested,  postage  pre-paid  and  addressed  to the  appropriate  Party at the
following addresses:

If notice to KMHP:
         Keystone Mercy Health Plan
         200 Stevens Drive
         Philadelphia, PA 19113
         ATTN:  President

If notice to HRM:

         Health Risk Management, Inc.
         8000 West 78th Street
         Minneapolis, MN 55439
         ATTN:  Chief Financial Officer

Addresses  may be changed by written  notice  given  pursuant  to this  Section;
however,  any such notice  shall not be  effective,  if mailed,  until three (3)
working days after depositing in the mails or when actually received,  whichever
occurs first.

17.       Subcontractors

          HRM  shall  not  delegate  or  subcontract  any  of its  functions  or
responsibilities  covered by this  Agreement  to any other person or third party
without the prior written consent of KMHP.

18.       Regulatory Provisions

          HRM will comply with the following provisions:

          a.  HRM  shall  adhere  to  the  applicable  requirements  of  42  CFR
Subsection  434.6,  including but not limited to those regarding  maintaining an
appropriate  record  system for services  provided  hereunder  and  safeguarding
information  concerning  Covered Members in accordance  with applicable  federal
statutes and regulations governing Medical Assistance programs;

          b. DPW, the Commonwealth of Pennsylvania  Department of Health and the
United  States  Department  of Health  and Human  Services  (collectively,  "the
Departments"),  may evaluate,  through  inspection or other means,  the quality,
appropriateness and timeliness of services performed hereunder;

          c.  Upon  termination  of this  Agreement,  HRM shall be  required  to
promptly supply to KMHP all information  necessary for the  reimbursement of any
outstanding claims;

          d. HRM shall be required to comply with all policies and procedures as
developed and amended from time to time by KMHP and/or the Departments,  for the
detection and prevention of fraud and abuse  committed by providers,  employees,
or Covered  Members.  Such  compliance  may include,  but not be limited to, the
submission  of  statistical  and  narrative  reports  regarding  fraud and abuse
detection activities, referral or information of suspected or confirmed fraud or
abuse to KMHP, and KMHP will immediately notify the Departments, as appropriate,
regarding such suspected or confirmed fraud or abuse;


<PAGE>

          e. In the event that any  dispute  arises  between  HRM and KMHP,  HRM
hereby agrees to indemnify and hold harmless the Departments and Covered Members
from any legal or financial  liability  arising out of or in connection with any
such dispute;

          f. HRM shall not  discriminate  in the hiring of its  employees on the
basis of sex, marital status, age,  disability,  race, color,  religion,  or any
other  basis  prohibited  by law.  Furthermore,  HRM shall not  discriminate  or
differentiate  in the  provision  of  services  hereunder  on the  basis of sex.
marital status, age, disability,  race, color, religion, sexual orientation,  or
any other basis prohibited by law;

          g. Pursuant to federal  regulation  promulgated under the authority of
the Americans With Disabilities Act, as amended, HRM understands and agrees that
no  individual  with a  disability  shall,  on the basis of the  disability,  be
excluded from  participation  in this Agreement or from activities  provided for
under this  Agreement.  HRM shall be responsible for and agrees to indemnify and
hold  harmless  the  Departments  and  the  Commonwealth  of  Pennsylvania  (the
"Commonwealth") from all losses, damages,  expenses, claims, demands, suits, and
actions  brought by any party against the  Departments or the  Commonwealth as a
result of HRM's failure to comply with this provision;

          h. HRM agrees to hold  harmless  the  Commonwealth,  all  Commonwealth
officers and employees,  and all KMHP Covered Members in the event of nonpayment
by KMHP to HRM. HRM shall further  indemnify and hold harmless the  Commonwealth
and its agents,  officers and  employees  against all injuries,  death,  losses,
damages, claims, suits, liabilities,  judgments, costs and expenses which may in
any manner  accrue  against  the  Commonwealth  or their  agents,  officers,  or
employees,  through the  intentional  conduct or negligent  acts or omissions of
HRM, its agents, officers, employees or KMHP;

          i. HRM shall  retain the source  records  for its data  reports  for a
minimum of seven (7) years and shall develop and maintain  written  policies and
procedures for the storing of these records;

          j. HRM  shall  deliver  all  information  submitted  pursuant  to this
Agreement  in a format  which will allow KMHP to transmit  required  data to the
Department  electronically,  in a format  identical  to or  consistent  with the
format used or otherwise required by the Department.

          It is the intent of the parties  hereto that the provisions of Section
18 of this  Agreement be  interpreted  in a manner that is  consistent  with the
interpretation  and  intent  of the other  sections  of this  Agreement.  To the
extent,  however,  that this Section 18 contains  provisions  or terms which are
inconsistent  with any other portion of this Agreement and cannot be interpreted
consistently with such other provisions, the provisions or terms of this Section
18 shall control.

          The parties hereto recognize that the  effectiveness of this Agreement
may be subject to applicable  regulatory approval and that if such approvals are
not obtained the parties will comply with and abide by the  directives of DPW or
other applicable regulatory agency regarding the effectiveness of this Agreement
including  without  limitation  the  delay,  suspension  or  termination  of the
effectiveness  hereof, and will negotiate in good faith any modifications hereto
which may be required by such regulatory agency.


<PAGE>

19.       Binding Effect

          This Agreement will be binding upon and inure to the benefit of and be
enforceable  against  the parties  hereto and their  respective  successors  and
assigns; provided,  however, that no party may assign its obligations under this
Agreement without the prior written consent of the other. To the extent required
by the DPW Contract,  no assignment of this Agreement shall be effective without
notice to DPW.

20.       Entire Agreement

          This  Agreement,  together  with any or all  schedules,  amendments or
attachments  hereto,  sets forth the entire  Agreement  between  the parties and
supersedes all prior agreements of the parties on the subject matter hereof.  No
change in,  addition to, or waiver of any of the  provisions  of this  Agreement
will be binding  upon any party  unless  presented  in writing  and signed by an
authorized  representative  of each  party to this  Agreement.  No waiver by any
party of any  breach by the other  party is to be  construed  as a waiver of any
subsequent  breach,  whether  of the  same  or a  different  provision  of  this
Agreement.


         IN WITNESS  WHEREOF,  the parties  hereto have executed this  Agreement
effective as of the date and year set forth below.

HEALTH RISK MANAGEMENT, INC.

By:      /s/ GARY McILORY
Name:    Gary McIlroy
Title:   Chairman/Chief Executive Officer


KEYSTONE MERCY HEALTH PLAN

By:      /s/ DANIEL J. HILFERTY
Name:    Daniel J. Hilferty
Title:   President and Chief Executive Officer