<PAGE>   1
                                                                   EXHIBIT 10.12

                          RESTATED MANAGEMENT AGREEMENT


     THIS AGREEMENT is restated as of the 11th day of April, 1997, by and
between Scripps Health, a California non-profit public benefit corporation (the
"Hospital"), with an address of 9888 Genesee Avenue, Post Office Box 28, La
Jolla, California 92038, and PMR Corporation, a Delaware corporation ("PMR")duly
authorized as a foreign corporation doing business in California, with an
address of Cabrillo Plaza, 3990 Old Town Avenue, Suite 206A, San Diego,
California 92110.

                                    RECITALS

     A. The parties entered into a prior management agreement in July, 1996 and
addenda related thereto and wish to consolidate the management agreement and
addenda into one restated agreement ("Agreement") for ease of reference.

     B. Hospital is licensed as a general acute care hospital in California and
desires to establish an outpatient acute psychiatric program (the "Program").

     C. PMR is in the business of developing and administering outpatient acute
psychiatric programs.

     D. Hospital desires to avail itself of PMR's services and PMR desires to
provide such services to Hospital as set forth herein (the "Agreement").

     NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:

1.   Term and Termination.

     1.1 Term. The term of this Agreement (the "Term") shall begin October 1,
1996 and shall terminate September 30, 1999. Prior to October 1, 1996, the
parties shall continue to be bound by the terms of the previous Management
Agreement between them entered into on August 11, 1993. The prior Management
Agreement shall terminate effective September 30, 1996.

     1.2 Termination for Cause. Either party shall have the right to terminate
this Agreement prior to the end of the Term upon written notice to the other
party if such other party has defaulted in the performance of any of the terms
of this



<PAGE>   2
Agreement and such default has continued uncured for more than sixty (60) days
after written notice of such default. The process and the time period for
resolving notices issued pursuant to this clause is as set forth in Paragraph
1.5. The actual damages to be assessed to the defaulting party shall be
determined in accordance with Paragraph 1.3.

     1.3 Termination Compensation. If prior to September 30, 1998, this
Agreement is terminated without cause prior to its specified Term as set forth
in Paragraph 1.1 above, either by Hospital or PMR, the parties agree that a
determination of actual damages will be difficult, and, thus, it is agreed that
liquidated damages of Two Hundred Fifty Thousand Dollars ($250,000.00) shall be
paid by the terminating party to the other party. A voluntary termination is
defined as any termination without cause prior to the specified Term of this
Agreement EXCEPT the following terminations:

          a. A termination for cause pursuant to Paragraph 1.2;

          b. A termination pursuant to Paragraph 1.4;

          c. A termination due to the sale or closing of Hospital for any
reason;

          d. A termination due to the termination of the business of PMR for any
reason;

          e. A termination due to the lack of appropriate licenses and
certifications as a result of suspension, revocation, failure to obtain, or any
other reason; or due to the application of laws requiring termination of this
Agreement without cause or penalty; or

          f. A termination of a Program at a specific site by the mutual consent
of the parties.

     1.4 Economic Feasibility: Performance Levels; Regulatory Changes; Admission
and Service Criteria. Hospital and PMR have determined that the PMR Program is
based upon assumptions of economic viability which rely upon the achievement of
certain specific performance levels, the continuation of existing payment and
reimbursement practices of payors and third-party payors, and the patterns of
patient medical utilization pertaining to admissions and services deemed
necessary by payors, third-party payors, and medical experts. In the event that
any one of these assumptions is determined to be invalid with respect to this



                                                                               2
<PAGE>   3
Agreement, the parties shall meet in an attempt to set new thresholds of
evaluation. If the parties cannot agree within a period of sixty (60) days or
less, the Agreement shall terminate without any obligation by either party for
the liquidated damages set forth in Paragraph 1.3 or any other liability
hereunder arising specifically as a consequence of such termination. These
assumptions of economic viability are more specifically defined as follows:

          1.4.1 Anticipated Performance. Hospital and PMR, upon due analysis,
have projected that certain performance levels are essential for economic
viability. Upon due consideration, these minimum levels are established as 6,000
patient visits per year for each Program site.

          1.4.2 Payment and Reimbursement. Hospital and PMR have determined that
the existing payment criteria and reimbursement methodologies projected for this
Program for services to patients under this Program are adequate for economic
viability.

          1.4.3 Admission and Service Criteria. Hospital is recognized as one of
the outstanding and quality institutions in the community, and PMR is recognized
as a competent and quality organization for the resources provided under this
Agreement. Pursuant to these reputations, Hospital and PMR agree that the
criteria for admission and service to patients under this Agreement shall be
consistent with the medical utilization and service standards promulgated by
Medicare and other third-party payors for admission to service and for services
rendered under this Agreement and that any deviation from these standards shall
render this Program economically not viable within the meaning of this
Subparagraph. Conformity to these standards shall be monitored in accordance
with the provisions of Subparagraphs 2.1.i(d) and 3.4.5 relating to utilization
review.

     1.5 Avoidance of Termination. Within thirty (30) days of receipt of a
notice issued pursuant to Paragraph 1.2 or Section 5, Hospital and PMR shall
meet and use their best efforts to negotiate a solution to the problem with
respect to which such notice was sent. Such good faith negotiations shall
particularly be required with reference to notices given pursuant to Section 5.
In the event Hospital and PMR are unable to negotiate a solution to the problem
within a sixty (60) day period following the initial meeting for the purpose of
negotiating a solution to the problem, the Agreement may be terminated by the
party initiating notice pursuant to Paragraph 1.2, the termination to be
effective on the sixtieth day aforementioned.



                                                                               3
<PAGE>   4
     1.6 Multi-facility Operations. Hospital and PMR acknowledge that Hospital
is a system of community hospitals and health care capabilities and that the
Program envisioned and defined by this Agreement may have application at more
than one of Hospital's provider facilities. Accordingly, the parties agree that
this Agreement shall encompass any and all of the Hospital's provider facilities
in which the Program is placed and that Hospital shall have the final decision
with respect to placement of Program, after due consultation with PMR and
appropriate analyses. In and of itself, a discontinuation of the Program at a
provider facility shall not be deemed to be a termination of this Agreement as
long as the Program continues in operation hereunder in at least one provider
site.

          It is further agreed that Hospital's provider facilities at which the
Program will be placed will be identified and agreed to in writing by Hospital
and PMR and that additional placements of the Program may occur upon approval of
Hospital as also agreed to in writing by Hospital and PMR.

          It is further acknowledged by PMR that the Program when placed at
Hospital's provider facility is the responsibility of the Administrator of
subject facility and that all decisions involving the respective Program,
subject to the authority of this Agreement, shall be subject to the
Administrator's authority and responsibility.

     1.7 Joint Resources and Medical Directors. PMR and Hospital acknowledge
that the Program will be centrally administered through the Department of
Behavioral Medicine of Hospital, or as otherwise designated by Hospital, and
that Hospital will provide resources through the Department of Behavioral
Medicine in support of Program including but not limited to the following:

          1.7.1 Medical Director. Hospital, at its discretion but with
consultation from PMR, will provide a medical director (the "Hospital Medical
Director") and related medical direction to Program. The Hospital Medical
Director appointed by Hospital will coordinate medical direction with on-site
Medical Director appointed by PMR. The Hospital Medical Director shall be
responsible directly to Hospital for conduct of medical affairs and for
coordination of medical activities with PMR and with on-site Medical Directors
appointed by PMR.

          1.7.2 Administration and Management Services. Hospital, through its
Department of Behavioral Medicine, or as otherwise designated, shall provide
administrative and management



                                                                               4
<PAGE>   5
services to Program in cooperation with PMR, its staff and resources. The
provision of these administrative and management services, including the
logistical resources they constitute (space, equipment, campus overhead, etc.)
shall be supplemental and supportive to PMR, its staff and resources; and these
provisions for services shall not be construed to modify, interfere with, or
otherwise obstruct the performance of the obligations of PMR as set forth in
Section 2 of Agreement.

2.   Obligations of PMR.

     2.1 General. PMR shall cause to be furnished administrative management
services necessary to develop and operate the Program so as to provide high
quality patient care. Such services shall include the following:

          a. obtaining, with the appropriate cooperation of Hospital, all
necessary licenses and Medicare certification;

          b. planning, design and production of all community liaison and
educational literature;

          c. Program development;

          d. ongoing Program administration;

          e. ongoing community liaison support;

          f. staff development and continuing education;

          g. administration of occupational and rehabilitation therapies;

          h. quality assurance, which shall include:

               (a) determining compliance with Hospital's quality assurance
program;

               (b) providing outcome-oriented quality assurance assistance
designed to achieve improvement in over-all quality of care;

               (c) reviewing and monitoring Program staff with respect to the
quality and scope of patient services.

          i. utilization review, which shall include:

               (a) review of admitting physician's determination



                                                                               5
<PAGE>   6
of a qualified patient's need for care;

               (b) document outcome-related improvements to the patient from
Program;

               (c) ongoing review of patient records to monitor medical
necessity determination by professional staff;

               (d) establishment of a utilization review sub-unit for monitoring
utilization and admission criteria which shall include Hospital's Medical
Director, Executive Director of Department of Behavioral Medicine, and
utilization review personnel (as designated by Hospital) and which shall meet no
less often than every sixty (60) days to evaluate utilization and admissions to
Program and report findings and recommendations to the Administrator of
Hospital's provider facility in which Program is placed.

          j. coordination with community agencies that have clients in need of
the Program services;

          k. assistance in developing contracts for services with third-party
payors;

          l. assistance in insuring compliance with all licensing agencies;

          m. selection of necessary non-physician medical and non-medical
personnel; and

          n. social services, publication materials, expend-able supplies,
rental expenses, drugs, office equipment and other items necessary to administer
the Program.

     2.2 Program Development. PMR shall assist Hospital in the development,
upgrading and maintenance of the Program to meet or exceed applicable state,
federal and JCAHO standards. Such assistance shall consist of the development
and maintenance of a comprehensive set of procedures and policies for Hospital
(the "Policy Manual") covering all aspects of the Program that are not
inconsistent with Hospital's procedures and policies. The Policy Manual, and
periodic additions, deletions or amendments thereto, shall be submitted to
Hospital for its approval pursuant to Subparagraph 3.8.1.

     2.3 Program Premises. PMR shall identify suitable premises for Program
locations and, upon approval of locations and plans for design and renovation of
premises by Hospital,



                                                                               6
<PAGE>   7
shall negotiate and secure leases for the premises, design and renovate
premises, furnish and equip consistent with Program needs, and shall make
available such premises to the Program. Subject to Section 2.3.1, lease and or
rental expenses shall be an operating expenses of PMR.

               2.3.1 Premises Owned or Leased by Hospital. In the event a
Program is located on premises owned or leased by Hospital, Hospital shall pay
all costs associated with that Program's premises including rent, insurance,
utilities, maintenance, etc.

     2.4 Personnel to be Provided.

          2.4.1 Program Administrator/Medical Director. PMR shall provide for
each Program location having a design size of sixty (60) or more patients a
Program Administrator, a Medical Director, and the personnel necessary to
operate the Program except as otherwise provided herein. The Program
Administrator shall perform the functions as provided in Exhibit A hereto and
shall report to and be accountable to the Chief Executive Officer of the
Hospital or his/her designee and shall report through the Chief Executive
Officer to the governing body of the Hospital. The Medical Director shall
perform the functions as provided in Exhibit B hereto and shall maintain a
reporting relationship to the Chief Medical Officer of the Hospital.

          2.4.2 Assignment of PMR Personnel. The following PMR personnel will be
available to Hospital personnel on an as-needed basis to ensure the overall
success of Program:

               (a) the President of PMR will be available to participate in
regular administrative meetings at Hospital and to interface with the senior
personnel of Hospital on overall progress of Program.

               (b) the Chief Financial Officer of PMR will be available to
consult with financial personnel of Hospital administration on issues related to
reimbursement, billings and audits.

               (c) the Executive Vice President and Senior Vice President of PMR
will be available to participate in planning forums held at Hospital to explore
issues related to the expansion of the Program and/or development of other
adjunctive services and to assist with the solution of problems in key areas
with the Hospital administrators and to monitor ongoing progress.



                                                                               7
<PAGE>   8
               (d) the Regional Vice President who is assigned to the region in
which Hospital is located will be available to consult on administrative and
personnel matters.

               (e) the Vice President-Quality Assurance of PMR, who shall be a
board-certified psychiatrist, the Clinical Director of PMR, a licensed Social
Worker, and the Vice President of Quality Development will be available to
Hospital to consult on matters relating to the quality of the service provided
by the Program. In addition, the Vice President-Quality Assurance will be
available to consult on operating protocols and on Program operations.

          2.4.3 Selection of Assigned Personnel. PMR shall select the persons
who will serve in each of the capacities listed in Subparagraphs 2.4.1 and
2.4.2; provided, however, that, pursuant to the review of qualifications
contemplated by Paragraph 3.6, all such personnel shall be reasonably
satisfactory to Hospital.

          2.4.4 Availability of Assigned Personnel. PMR agrees that all
personnel listed in Subparagraph 2.4.2 will be available to Hospital when
required for issues related to operations and management of the Program.

     2.5 Employment Services. PMR will recruit, select, evaluate and nominate
all medical and non-medical personnel for Hospital's evaluation pursuant to
Paragraph 3.6. All non-physician personnel shall be retained and paid for by
PMR, following approval by Hospital. All physician personnel shall be nominated
by PMR subject to Hospital's approval as set forth in Section 3.7.3.

     2.6 Supervision and Control of Personnel. PMR shall be responsible for the
direction and control of all Program personnel with respect to administrative
services except to the extent Hospital may be responsible as provided in this
Agreement, and shall cause all personnel to comply to the extent applicable with
all terms and conditions of this Agreement and with the Policy Manual, as
amended and as approved by Hospital pursuant to Subparagraph 3.8.1.

     2.7 Qualification. Any personnel performing services at the Program and
selected by, employed by or having a contract with PMR pursuant to Paragraphs
2.5 or 2.6 shall be appropriately licensed and qualified to perform such
services.



                                                                               8
<PAGE>   9
     2.8 Requirement of Hospital Staff Membership. The Program Medical Director
and other PMR staff members as appropriate must qualify for and be members in
good standing at all times of the Medical Staff or Allied Medical Staff of
Hospital. If such membership in good standing of the Medical Director or
applicable PMR staff member is suspended, revoked or terminated, then the
Medical Director or such PMR staff member shall not be permitted to render
services at the Program until such good standing membership has been fully
restored and PMR shall provide the services of a comparable professional during
the interim or as permanent replacement.

     2.9 Insurance.

          2.9.1 PMR Insurance. For the Term of this Agreement, PMR shall procure
and maintain at its own cost comprehensive general and medical/professional
liability insurance with elements of self-insurance or deductibles common to the
industry covering personal injury, bodily injury, and property damage in the
following amounts:

               (a) Personal/bodily injury: $1,000,000 per claimant and
$3,000,000 annual aggregate.

               (b) Property damage: $500,000 per occurrence and $500,000 annual
aggregate.

          2.9.2 Other Policy Requirements. Hospital shall be named as an
additional insured on such insurance policy and such coverage shall be primary.
Such insurance shall be written on an occurrence basis by an insurance company
authorized to transact the insurance business in the state in which Hospital is
located; provided, however, such insurance may be written on a claims-made basis
if tail coverage is guaranteed at the time the primary insurance policy is
written and PMR purchases and maintains such tail coverage upon the termination
of Agreement for the maximum reporting period available or five (5) years,
whichever is longer.

3.   Obligations of Hospital.

     3.1 Licensing. The Program shall be operated as and considered a department
of the Hospital and shall be licensed in the name of Hospital with all
appropriate authorities. Hospital shall, at all times, be the owner and holder
of all licenses and accreditations with respect to the Program.



                                                                               9
<PAGE>   10
     3.2 Personnel and Supplies. Hospital shall provide PMR with access to
services and supplies through appropriate departments of Hospital (including,
but not limited to, food services, purchasing capabilities and contracts,
laundry arrangements and the like), which services and supplies shall be
contracted separately and paid for by PMR at Hospital's cost.

     3.3 Program Premises. Hospital shall inspect and approve premises, in
consultation with PMR, and shall specify for PMR the trade style and related
public displays that shall accompany premises for Program identification. PMR
will incur the cost, to the extent reasonable, for the trade style and public
displays in connection with lease and renovation of the premises.

     3.4 Billing and Maintenance of Statistical Information.

          3.4.1 Hospital to be Provider. Hospital shall be the contracting party
for the Program and shall be the "provider" within the meaning of all contracts
and agreements for services with all patients of the Program and all third-party
payors. Hospital has the duty to verify all third-party payor existence and
under the direction and supervision of PMR will verify Program coverage for each
patient.

          3.4.2 Billing for Program Services. Hospital or its designee shall
perform the function of billing for all services rendered at the Program, shall
collect and maintain all statistical and collection information necessary for
the management of the Program and shall pay the costs thereof.

          3.4.3 Medical Records. All patient medical records shall be the
property of Hospital and shall be integrated into the unified records system of
the Hospital.

          3.4.4 Record Request. Hospital will promptly notify PMR of any payor
request for records information from a third party or intermediary regarding a
Program patient.

     3.5 Insurance.

          3.5.1 Hospital Insurance. For the Term of this Agreement, Hospital
shall procure and maintain at its own cost comprehensive general and hospital
professional liability insurance with elements of self-insurance or deductibles
common to the industry covering personal injury, bodily injury, and property
damage in the following amounts:



                                                                              10
<PAGE>   11
               (a) Personal/bodily injury: $1,000,000 per claimant and
$3,000,000 annual aggregate.

               (b) Property damage: $500,000 per occurrence and $500,000 annual
aggregate.

          3.5.2 Other Policy Requirements. PMR shall be named as an additional
insured on such insurance policy and such coverage shall be primary. Such
insurance shall be written on an occurrence basis by an insurance company
authorized to transact insurance business in the state in which Hospital is
located; provided, however, such insurance may be written on a claims-made basis
if tail coverage is guaranteed at the time the primary insurance policy is
written and Hospital purchases and maintains such tail coverage upon the
termination of Agreement for the maximum reporting period available or five (5)
years, whichever is longer.

          3.5.3 Risk Management Program. Hospital, or its nominee, shall create
and manage, in cooperation with PMR, a risk management program designed to
monitor and minimize all insurable risks related to the Program. Risk management
techniques and discussions shall be a regular part of the procedures implemented
pursuant to Subparagraph 3.8.1.

     3.6 Employment of Personnel. PMR will timely advise Hospital of the
employment of all personnel in the Program and Hospital shall review the
qualifications of all such personnel, whether employees or independent
contractors of PMR, and shall make any objection to such employment within
ninety (90) days of the date of their employment. All such personnel shall be
deemed approved by Hospital unless PMR is otherwise notified within the ninety
(90) day period noted herein.

     3.7 Medical Supervision.

          3.7.1 Administration of Hospital. The Administrator of Hospital's
provider facility in which Program is placed shall be responsible for the
operation of the Program conducted by Hospital and the implementation of
policies with respect to Hospital. Notwithstanding the authority granted to PMR,
Hospital shall retain and at all times exercise control over the affairs of
Hospital, shall establish general operating policies, pursuant to Subparagraph
3.8.1, to be carried out by PMR pursuant to this Agreement and shall be
accountable and responsible for all duties of Hospital. Hospital is responsible
for all patient affairs and Medical Staff relationships with respect to the
Program. Hospital shall have final authority to approve the



                                                                              11
<PAGE>   12
Policy Manual and staffing plan established for it.

          3.7.2 Lines of Authority. The Medical Director of the Program shall be
responsible to the Department of Medicine of Hospital's provider facility
Medical Staff, or as otherwise designated, in which Program is placed in all
matters pertaining to the medical policies and medical operations of the
Program. The Program Director shall report to the Administrator of Hospital's
provider facility in which Program is placed.

               Additionally, Hospital shall establish lines of authority for
interface between PMR and the Medical Staff and hospital departments for each
discipline for which PMR provides related services hereunder, and Hospital shall
supervise and have responsibility for all hospital departmental activities
involving PMR services.

          3.7.3 Corporate Practice of Medicine. Each party hereto acknowledges
and agrees that neither party is authorized or licensed to practice medicine in
California and will neither have nor exercise any control or direction over the
methods by which physicians shall provide professional medical services to
patients of Hospital. Each party's sole interest and authority is to ensure that
the services and obligations performed hereunder by that party's employees or
agents (which shall not include the performance or direction of professional
medical services to patients of Hospital) are being performed in a competent and
efficient manner. Notwithstanding the foregoing, Hospital shall ensure that all
attending physicians who shall provide services to patients of the Program shall
be members of the Hospital's medical staff and that all active members of
Hospital's Medical Staff shall maintain all required licenses to practice
medicine and shall remain in compliance with all applicable hospital and Medical
Staff bylaws and regulations. Further, Hospital, through its Medical Staff and
related committees, shall maintain appropriate control over the quality of
patient services rendered at the Hospital, in accordance with all applicable
laws, rules and regulations.

          3.7.4 Medical Staff Committees. All medical staff committees at the
Hospital are responsible for all medical activities at the Program.

     3.8 Coordination. Hospital shall meet regularly with the Program
Administrator and the Medical Director of the Program to discuss the operation
of the Program.



                                                                              12
<PAGE>   13
          3.8.1 Approval of Policy Manual. Hospital shall promptly review and
evaluate all changes to the Policy Manual suggested by PMR pursuant to Paragraph
2.2. Neither the original Policy Manual nor any such changes shall be
implemented without approval by Hospital which shall bear responsibility for the
medical and operating appropriateness of the Policy Manual and any changes
thereto.

          3.8.2 Community Liaison. The Hospital shall regularly consult with the
Program Administrators and senior PMR personnel with regard to the creation and
implementation of pro-active community education and outreach activities with
respect to the Program.

4. Compensation and Expense. In consideration of all the services to be provided
by PMR, as set forth in this Agreement, it is agreed that proper, fair and
competitive compensation to PMR, as of the date of this Agreement, is as set
forth in the attached fee schedule, identified as Exhibit C. PMR represents that
the fees set forth in such Exhibit are consistent with the fair market value of
the services for which such fees are charged and are reasonable and customary
within its industry and within the local area served by Hospital. Hospital shall
provide PMR monthly, no later than the date on which fees are due and payable to
PMR, a report of patient activity/census sufficient to allow PMR to verify the
calculation of fees made by Hospital.

     4.1 Uncompensated Care; Contracted Services; Capitation Agreements. The fee
schedule as set forth in Exhibit C notwithstanding, PMR and Hospital agree that
payment due to PMR for services rendered under this Agreement as set forth in
Exhibit C shall be reduced in cases involving uncompensated care. Uncompensated
care is defined as all cases in which the actual payment to Hospital for its
services to patients is less than the payment anticipated to be received by
Hospital. The payment anticipated to be received by Hospital is in all cases the
actual retail charge EXCEPT in cases in which Hospital has agreed to accept less
than the retail charge through contracts and formal arrangements with
third-party payors. The fee payable to PMR for cases involving uncompensated
care shall be reduced to the percentage relationship the actual payment bears to
the retail charge.

     For all categories of cases in which Hospital agrees to accept less than
the retail charge through contracts and formal arrangements with third-party
payors, which are for these purposes referred to as Contracted Services, and
Capitation Arrangements, Hospital and PMR shall agree upon the methodology



                                                                              13
<PAGE>   14
for, form of, conditions for, and amount of payment (which together shall be
termed METHOD OF PAYMENT)to PMR for services rendered to patients pursuant to
this Agreement who are beneficiaries of these Contracted Services and Capitation
Arrangements.

     These agreements between PMR and Hospital for payment to PMR for services
rendered to patients covered by these Contracted Services and Capitation
Arrangements shall be formalized in writing as addenda to this Agreement on
Exhibit D from time to time as these Contracted Services and Capitation
Arrangements are consummated. Hospital and PMR agree that services to Medicare
beneficiaries are not categories of cases currently subject to the provisions of
this paragraph.

     It is acknowledged by Hospital and PMR that neither Hospital nor PMR
anticipates that the other is required under these provisions to provide
economic subsidy one to the other, but, that each anticipates to retain the
economic advantages upon which this Agreement is predicated. Therefore Hospital
and PMR agree to consult one with the other with respect to all categories of
cases in which Hospital elects to or is required to accept less than the retail
charge for payment and agree to use their best efforts to negotiate an agreement
with respect to METHOD OF PAYMENT to PMR of services to be rendered pursuant to
the third party payor arrangement. Hospital and PMR acknowledge and agree that
in the event of a lack of accord with respect to payment to PMR for services to
be rendered to beneficiaries of these third party payor Contracted Services and
Capitation Arrangements, the economic provisions of Sections 1.3 and 1.4
underlying this Agreement shall control.

     4.2 Payment of Fees. Payment to PMR for fees due PMR for services under
this Agreement shall be made by Hospital by the end of the second month
following the month in which the services are provided by PMR to Hospital,
provided however, with respect to any Program initiated after June 1, 1996,
payment shall be made by Hospital by the end of the month following the month in
which the services are provided by PMR to Hospital.

     4.3 Concurrent Review. In the event that a payor with whom Hospital is
regularly engaged denies Hospital reimbursement of fees paid to PMR with respect
to any patient of the Program as a consequence of the payor's determination that
the services rendered were inappropriate or otherwise non-chargeable to the
determining payor, PMR shall not be entitled to be paid its fees with respect to
such patient services. PMR, on Hospital's behalf, shall process and appeal the
denial of any such claims



                                                                              14
<PAGE>   15
which PMR determines should be appealed and in the event the denial is
overturned and payment for the services made by the payor to Hospital, Hospital
in turn shall promptly pay to PMR its Management Fee with respect to the
services rendered by PMR. If there are denied claims or claims in review
outstanding at the termination of this Agreement (and during the term of the
Agreement), Hospital shall not bear any financial risk for such denied claims or
appeals, (except to the extent that such claims are paid to Hospital), but
Hospital shall cooperate in the processing of appeals with respect to those
claims and Hospital shall regularly and promptly provide PMR with all
information relating to these claims including the overturning of denials from
receipt of payment and if requested by PMR, Hospital shall appoint PMR's
designee as Hospital's designee to process these claims and communicate with
intermediaries or third party payors.

     4.4 Annual Review of Fees. The parties shall meet annually to review the
fee schedule which shall be effective until replaced by adjustments agreed upon
between the parties. Any such adjustments shall be made in good faith
recognition of cost increases which have occurred in Hospital's local market
area since any prior adjustment plus other factors deemed relevant by the
parties.

5. Standards of Services. PMR and Hospital hereby agree, in connection with the
operation of Hospital and the Program, to comply with all laws, rules, and
regulations of all governmental authorities having jurisdiction over each, and
any recommendations and policies resulting from Hospital's quality assurance
program and its general policies and procedures as well as recommendations made
by PMR's Vice President-Quality Assurance which recommendations are designed to
comply with applicable laws, rules, or regulations. The parties hereto
acknowledge that a material part of the consideration for this Agreement is the
other party's compliance with the provisions of this Section 5. The parties
further acknowledge that the non-compliance by either with any of the applicable
laws, rules, and regulations applicable to such party may have a material
adverse effect on the other party. The parties therefore agree to cooperate in
good faith with each other to monitor and ensure such compliance.

     5.1 Ongoing Quality and Compliance Reviews. The performance of all services
rendered hereunder shall be reviewed as part of Hospital's ongoing quality
assurance program and by PMR's Vice President-Quality Assurance pursuant to the
provisions of Paragraph 2.4 above. In the event of non-compliance with any
standards for service set forth herein or applicable laws, rules, or regulations
by either party hereto, the other party shall give



                                                                              15

<PAGE>   16
the non-complying party notice thereof, and such party shall so comply or cause
such compliance as soon as practicable thereafter, but in any event within
thirty (30) days after such notice.

     5.2 Change in Laws or Regulations. The parties acknowledge that applicable
laws, rules, and regulations or interpretations thereof may change at any time
during the Term of this Agreement or any extensions thereof and that such change
or interpretations may require a modification of this Agreement. Notwithstanding
the provisions of Paragraph 10.6, the parties hereby agree to give each other
immediate notice of such change in applicable laws, rules, or regulations,
whereupon the parties shall meet in good faith to negotiate a modification of
this Agreement such that it complies with such changes in applicable laws,
rules, or regulations.

     5.3 Notice from Governmental/Regulatory Entities. The parties hereby agree
to give each other a copy of any notice or contact received from any
governmental or regulatory entity having jurisdiction thereof with respect to
the Program that any activity of such party is in violation of any applicable
law, rule, or regulation and to continue to promptly inform the other party of
all responses and procedures taken as a result of such notice or contact until
the alleged violation is cured, and to provide such other party with evidence of
the successful conclusion of the event.

6. Independent Contractor. No relationship of employer and employee or of joint
venture between PMR and Hospital is created by this Agreement, it being mutually
understood and acknowledged that PMR is at all times acting and performing as an
independent contractor hereunder. Hospital shall neither have nor exercise any
control or direction over the methods by which PMR or its employees perform
their administrative functions; provided, however, that any medical services
which may be rendered by PMR personnel shall be rendered under the direct
supervision and control of appropriate Hospital staff. No contracted provider or
employee of PMR shall have any claim under this Agreement or otherwise against
Hospital for salary or other compensation, vacation or sick pay, sick leave,
retirement benefits, social security, workers' compensation, disability or
unemployment insurance benefits or any other employee benefits of any kind.

7.   Non-Interference.

     7.1 Anti-Raiding. During the Term of this Agreement and thereafter for a
period of one (1) year, either party may hire an



                                                                              16
<PAGE>   17
employee or independent contractor of the other party, provided that the party
offering employment or engagement first obtains the approval of the other party.
This provision shall have no force or effect to inhibit either party from hiring
or engaging the employee or independent contractor of the other party from and
after the first anniversary date of the termination of this Agreement without
the prior consent of the other party.

     7.2 Patient Care. Notwithstanding Paragraph 7.1, neither party shall hereby
be prohibited from dealing with and providing services to any patient.

     7.3 Exclusive Dealing, Right of First Refusal. During the Term of the
Agreement, in San Diego County, California, neither party, except through or
with the other party, shall enter into any agreement with any person or other
business entity to provide for the furnishing of any service related to this
Agreement ("Services"). The term Services shall also include outpatient chemical
dependency and case management services except for those Services presently
being delivered in San Diego County by Hospital. In the event either party
wishes to provide for the furnishing of any Services in San Diego County,
California, such party must offer in writing to the other party the right to
participate in the furnishing of such Services and the offeree party shall have
thirty (30) days from receipt of the writing to accept or reject such offer. In
the event there is no response to the offer or the offer is rejected, the
offeror shall be free to provide such Services in San Diego County, California
as set forth in the written offer without the participation of the offeree.

8.   Access to Books and Records/Confidentiality.

     8.1 Record Maintenance and Access. Until the expiration of four (4) years
after the furnishing of the services called for by this Agreement, PMR shall,
upon request, make available to the Secretary, U.S. Comptroller General, and
their representatives, this Agreement and all other books, documents and records
as are necessary to certify the nature and extent of the costs incurred by
Hospital in purchasing services under this Agreement. If PMR provides such
services through a subcontract worth Ten Thousand Dollars ($10,000.00) or more
over a twelve-month period with a related organization, the subcontract shall
also contain a clause permitting access by the Secretary, Comptroller General,
and their representatives to the books and records of the related organization.



                                                                              17
<PAGE>   18
     8.2 Mutual Confidentiality. Hospital and PMR agree that some information
received by one party from the other pursuant to this Agreement shall be
confidential. Except as provided in Paragraph 8.1 or as may otherwise be
required by law or legal process, it is therefore agreed that any information
received by one party from the other, and clearly designated in writing as
"CONFIDENTIAL", or in any other matter which indicates its confidential nature
(hereinafter referred to as "Confidential Information"), shall not be disclosed
by the other party and shall not be used by the other party for purposes other
than those contemplated by this Agreement. Confidential Information includes,
without limitation, information as to any patient as well as information
relating to business practices, costs, users or purchasers of either party's
services, research or services. Confidential Information does not include:

          (a) information which has become known to third parties or has become
publicly known through no fault of the receiving party; or

          (b) information already in the receiving party's possession prior to
the disclosure of said information to the receiving party; or

          (c) information subsequently disclosed to the receiving party by a
third party who is not under any obligation or confidentiality to the disclosing
party; or

          (d) information approved for disclosure by prior written consent of
the disclosing party; or

          (e) information which the parties have agreed as necessary to
disclose.

     8.3 Proprietary Information of PMR. The partial hospitalization system
developed by PMR and provided to Hospital for use in the Program pursuant to
this Agreement, the materials encompassing the system and the improvements to
the system developed by PMR from time to time, all of which are referred to
herein as the "System," are the proprietary property and trade secrets of PMR.
The System includes, but is not limited to, methods, techniques and other
know-how and the Program materials supplied during the Term, such as the
so-called Generic Policies and Procedures manual, the Program Managers Handbook,
the admissions screening system, the core medical record system and forms, the
guidelines and forms for conducting effective treatment planning meetings, the
utilization review systems and forms, the post-discharge follow-up system and
forms, the community rela-



                                                                              18
<PAGE>   19
tions development and maintenance systems and forms, the key-monitor management
system, and the materials setting forth and explaining the principal and special
treatment modalities, including the generic focused treatment product, the
Substance Abuse/Mental Illness Dual Diagnosis Tract (also known as MICA), the
Community Transition Tract (also known as CTT), the Developmental
Disabilities/Mental Illness Tract and the Geriatric Senior/Affective Disorders
program. This Agreement is for services only. Hospital agrees that it shall not
acquire any rights to, or to use, such proprietary property, trade secrets or
the materials by virtue of the payment of fees hereunder or the provision during
the Term of such materials for use by the Hospital.

9. Service of Notices. All notices and other communications and all legal
process in regard hereto shall be validly given or served if in writing and
delivered personally or sent certified mail, postage prepaid, return receipt
requested, to the address set forth below or such address as either party may
designate to the other in writing:

     If to Hospital:

          Scripps Health
          9888 Genesee Avenue
          Post Office Box 28
          La Jolla, California 92038
          Attention:    Sister Mary Jo Anderson, Executive Vice
                        President

     If to PMR:

          PMR Corporation
          Cabrillo Plaza
          3990 Old Town Avenue, Suite 206A
          San Diego, California 92110
          Attention:  Mr. Allen Tepper, CEO

10.  Miscellaneous.

     10.1 Mutual Indemnity. Notwithstanding any other provision of this
Agreement, each party hereto shall indemnify and hold the other party harmless
from any and all claims, damages and liabilities arising out of such party's
negligence in the performance or non-performance of its duties hereunder. For
purposes of indemnity, negligence shall be determined by a trier of fact of
competent jurisdiction.



                                                                              19
<PAGE>   20
     10.2 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.

     10.3 Choice of Law. The validity, enforceability and interpretation of any
of the clauses of Agreement shall be determined and governed by the laws of the
State of California.

     10.4 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understanding, negotiations
and discussions of the parties whether written or oral.

     10.5 Written Notification. No amendment, modification or supplement of any
provision of this Agreement shall be effective unless in writing, signed by the
parties hereto; and no waiver of any party's obligations under this Agreement,
or consent to any departure therefrom, shall be effective unless in writing,
signed by the parties hereto and then only in the specific instance and for the
specific purpose given.

     10.6 Severability. If any provision of this Agreement is held to be
inoperative, unenforceable or invalid under present or future laws effective
during the Term of this Agreement, such shall be inoperative, unenforceable or
invalid without affecting the remaining provisions. This Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of this Agreement, and, to that end, the provisions
of this Agreement are declared to be severable. Notwithstanding the foregoing,
however, the parties agree to negotiate a modification of this Agreement
pursuant to the provisions of Paragraph 5.2 in the event any provision of this
Agreement is believed by a party in good faith to be invalid under applicable
laws, rules, or regulations.

     10.7 Number and Gender. Whenever the context of this Agreement requires,
the singular shall include the plural and the masculine gender shall include the
feminine.

     10.8 Joint Negotiations. This Agreement is the product of negotiations
between the parties and is not to be interpreted more strongly in favor of one
party or the other in the interpretation or enforcement thereof.

     10.9 Paragraph Headings. Paragraph headings in this Agreement are included
for convenience of reference only and are not part of this Agreement for any
other purpose.



                                                                              20
<PAGE>   21
     10.10 Counterparts. This Agreement may be executed in counterparts and
either party hereto may execute any counterpart, each of which, when executed
and delivered, will be deemed to be an original, and all of which counterparts
taken together will be deemed to be but one and the same instrument. The
execution of this Agreement by any party hereto will not become effective until
a counterpart hereof has been executed by each other party hereto.

     10.11 Assignability. Notwithstanding Paragraph 10.2, neither party shall
assign, sell or transfer this Agreement or any interest herein without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. In the event that the primary business and/or substantially all of the
assets of PMR is transferred to an affiliate of PMR, PMR shall have the right to
assign all of its rights under Agreement to any such affiliate during the Term
of Agreement, and any such assignee/affiliate shall acquire all of the rights
and assume all of the obligations of PMR under this Agreement.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

     HOSPITAL:                         SCRIPPS HEALTH, a California non-
                                       profit public benefit corporation


                                       By: Sister Mary Jo Anderson
                                          ----------------------------------

                                       Title: Sr. VP Hospital Operations
                                             -------------------------------


     PMR:                              PMR CORPORATION, a Delaware
                                       corporation


                                       By: /s/ FRED FURMAN
                                          ----------------------------------

                                       Title: President
                                             -------------------------------



                                                                              21
<PAGE>   22
                              [EXHIBITS EXCLUDED]